ITEM
1. FINANCIAL STATEMENTS
Microwave
Filter Company and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
|
|
June
30, 2016
|
|
|
September
30, 2015
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents
|
|
$
|
928,536
|
|
|
$
|
896,667
|
|
Accounts receivable-trade,
net of allowance for doubtful accounts of $4,000 and $4,000
|
|
|
470,738
|
|
|
|
392,888
|
|
Inventories, net
|
|
|
425,167
|
|
|
|
447,507
|
|
Prepaid
expenses and other current assets
|
|
|
48,364
|
|
|
|
44,099
|
|
Total current assets
|
|
|
1,872,805
|
|
|
|
1,781,161
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
375,861
|
|
|
|
435,075
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
2,248,666
|
|
|
$
|
2,216,236
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders'
Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
96,801
|
|
|
$
|
74,610
|
|
Customer deposits
|
|
|
17,745
|
|
|
|
7,391
|
|
Accrued payroll and
related expenses
|
|
|
49,937
|
|
|
|
56,371
|
|
Accrued compensated
absences
|
|
|
163,083
|
|
|
|
139,315
|
|
Notes payable - short
term
|
|
|
46,120
|
|
|
|
44,528
|
|
Other
current liabilities
|
|
|
21,734
|
|
|
|
24,541
|
|
Total current liabilities
|
|
|
395,420
|
|
|
|
346,756
|
|
|
|
|
|
|
|
|
|
|
Notes
payable - long term
|
|
|
330,830
|
|
|
|
365,650
|
|
Total other
liabilities
|
|
|
330,830
|
|
|
|
365,650
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
726,250
|
|
|
|
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
|
|
Retained deficit
|
|
|
(464,754
|
)
|
|
|
(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
|
|
|
1,522,416
|
|
|
|
1,503,830
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
2,248,666
|
|
|
$
|
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
|
|
|
Nine
months ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
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2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
928,636
|
|
|
$
|
863,372
|
|
|
$
|
2,802,036
|
|
|
$
|
2,552,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
586,255
|
|
|
|
570,913
|
|
|
|
1,748,648
|
|
|
|
1,639,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
342,381
|
|
|
|
292,459
|
|
|
|
1,053,388
|
|
|
|
913,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
317,817
|
|
|
|
352,923
|
|
|
|
1,029,338
|
|
|
|
1,143,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
24,564
|
|
|
|
(60,464
|
)
|
|
|
24,050
|
|
|
|
(230,204
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense), net
|
|
|
(2,145
|
)
|
|
|
(2,959
|
)
|
|
|
(8,229
|
)
|
|
|
(8,229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
before income taxes
|
|
|
22,419
|
|
|
|
(63,423
|
)
|
|
|
15,821
|
|
|
|
(238,433
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit)
for income taxes
|
|
|
0
|
|
|
|
(0
|
)
|
|
|
(3,000
|
)
|
|
|
(2,068
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
22,419
|
|
|
$
|
(63,423
|
)
|
|
$
|
18,821
|
|
|
$
|
(236,365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
share data: Basic and diluted earnings (loss) per common share
|
|
$
|
0.01
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used in computing net earnings (loss) per common share: Basic and diluted
|
|
|
2,581,007
|
|
|
|
2,581,466
|
|
|
|
2,581,223
|
|
|
|
2,581,998
|
|
See
Accompanying Notes to Condensed Consolidated Financial Statements
Microwave
Filter Company and Subsidiaries
Condensed Consolidated Statements
of Cash Flows
(Unaudited)
|
|
Nine
months ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
18,821
|
|
|
$
|
(236,365
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
70,918
|
|
|
|
81,313
|
|
Change
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable-trade
|
|
|
(77,850
|
)
|
|
|
(65,911
|
)
|
Inventories
|
|
|
22,340
|
|
|
|
(37,319
|
)
|
Prepaid
expenses and other assets
|
|
|
(4,265
|
)
|
|
|
33,625
|
|
Accounts
payable and customer deposits
|
|
|
32,545
|
|
|
|
71,076
|
|
Accrued
payroll and related expenses and compensated absences
|
|
|
17,334
|
|
|
|
14,260
|
|
Other
current liabilities
|
|
|
(2,807
|
)
|
|
|
(11,454
|
)
|
Net
cash provided by (used in) operating activities
|
|
|
77,036
|
|
|
|
(150,775
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Property,
plant and equipment purchased
|
|
|
(11,704
|
)
|
|
|
(46,775
|
)
|
Net
cash used in investing activities
|
|
|
(11,704
|
)
|
|
|
(46,775
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Repayment
of note payable
|
|
|
(33,228
|
)
|
|
|
(31,801
|
)
|
Purchase
of treasury stock
|
|
|
(235
|
)
|
|
|
(1,196
|
)
|
Net
cash used in financing activities
|
|
|
(33,463
|
)
|
|
|
(32,997
|
)
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
31,869
|
|
|
|
(230,547
|
)
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
896,667
|
|
|
|
1,081,567
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
928,536
|
|
|
$
|
851,020
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Schedule of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
13,545
|
|
|
$
|
14,972
|
|
See
Accompanying Notes to Condensed Consolidated Financial Statements
MICROWAVE
FILTER COMPANY, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE
30, 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 nine month period ended June 30, 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:
|
|
June
30, 2016
|
|
|
September
30, 2015
|
|
|
|
|
|
|
|
|
Raw
materials and stock parts
|
|
$
|
366,126
|
|
|
$
|
367,344
|
|
Work-in-process
|
|
|
19,452
|
|
|
|
19,884
|
|
Finished
goods
|
|
|
39,589
|
|
|
|
60,279
|
|
|
|
$
|
425,167
|
|
|
$
|
447,507
|
|
The
Company’s reserve for obsolescence equaled $429,255 at June 30, 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.
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 carrying value of the Company’s note payable approximates its fair value.
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 nine months ended June 30, 2016 compared to approximately
34% of total sales for the nine months ended June 30, 2015. 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 June 30, 2016 and September 30, 2015 was
$376,950 and $410,178, respectively. Interest accrued as of June 30, 2016 and September 30, 2015 was $1,320 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 be given 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 June 30, 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 ended June 30, 2016 and 2015.
Note
10. Recent Accounting Pronouncements
None
applicable.
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,
warranty reserves 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 JUNE 30, 2016 vs. THREE MONTHS ENDED JUNE 30, 2015
The
following table sets forth the Company’s net sales by major product group for the three months ended June 30, 2016 and 2015.
Product
group
|
|
Fiscal
2016
|
|
|
Fiscal
2015
|
|
Microwave
Filter (MFC):
|
|
|
|
|
|
|
|
|
RF/Microwave
|
|
$
|
445,105
|
|
|
$
|
471,762
|
|
Satellite
|
|
|
310,059
|
|
|
|
222,527
|
|
Cable
TV
|
|
|
100,663
|
|
|
|
134,933
|
|
Broadcast
TV
|
|
|
71,837
|
|
|
|
32,173
|
|
Niagara
Scientific (NSI):
|
|
|
972
|
|
|
|
1,977
|
|
Total
|
|
$
|
928,636
|
|
|
$
|
863,372
|
|
|
|
|
|
|
|
|
|
|
Sales
backlog at June 30
|
|
$
|
521,254
|
|
|
$
|
742,052
|
|
Net
sales for the three months ended June 30, 2016 equaled $928,636, an increase of $65,264 or 7.6%, when compared to net sales of
$863,372 for the three months ended June 30, 2015. The increase can be attributed to increases in sales of the Company’s
Satellite and Broadcast TV products with a number of these products sold internationally. International sales equaled $264,720
during the three months ended June 30, 2016 compared to $88,704 during the same period last year.
MFC’s
Satellite product sales increased $87,532 or 39.3% to $310,059 for the three months ended June 30, 2016 when compared to Satellite
product sales of $222,527 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 worldwide
and increased sources of interference.
MFC’s
Broadcast TV/Wireless Cable product sales increased $39,664 to $71,837 for the three months ended June 30, 2016 when compared
to sales of $32,173 during the same period last year. The increase can primarily be attributed to the sales of recently developed
wireless diplexers whose primary function is to isolate the transmit and receive frequencies that share a common antenna.
MFC’s
RF/Microwave product sales decreased $26,657 or 5.7% to $445,105 for the three months ended June 30, 2016 when compared to RF/Microwave
product sales of $471,762 during the same period last year. The Company’s RF/Microwave products are sold primarily to the
U.S. Government and Original Equipment Manufacturers (OEM) that serve the mobile radio, commercial communications and defense
electronics markets. The Company continues to invest in production engineering and infrastructure development to penetrate OEM
market segments as they become popular. MFC is concentrating its technical resources and product development efforts toward potential
high volume customers as part of a concentrated effort to provide substantial long-term growth. Sales to one OEM customer equaled
$208,690 or approximately 22% of total sales for the three months ended June 30, 2016 compared to $330,815 or approximately 38%
of total sales for the three months ended June 30, 2015.
MFC’s
Cable TV product sales decreased $34,270 or 25.4% to $100,663 for the three months ended June 30, 2016 when compared to Cable
TV product sales of $134,933 during the same period last year. Management continues to project flat or 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
sales order backlog equaled $521,254 at June 30, 2016 compared to sales order backlog of $742,052 at June 30, 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 63% of the total sales order backlog at June 30,
2016 is scheduled to ship by September 30, 2016.
Gross
profit for the three months ended June 30, 2016 equaled $342,381, an increase of $49,922 or 17.1%, when compared to gross profit
of $292,459 for the three months ended June 30, 2015. The increase in gross profit can primarily be attributed to the higher sales
volume this year providing a higher base to absorb overhead expenses and lower direct material costs as a percentage of sales
primarily due to product sales mix. As a percentage of sales, gross profit equaled 36.9% for the three months ended June 30, 2016
compared to 33.9% for the three months ended June 30, 2015.
Selling,
general and administrative (SGA) expenses for the three months ended June 30, 2016 equaled $317,817, a decrease of $35,106 or
9.9%, when compared to SGA expenses of $352,923 for the three months ended June 30, 2015. The decrease can primarily be attributed
to lower payroll and payroll related expenses this year when compared to the same period last year. The decrease can partially
be attributed to the retirement of the Company’s CEO in January 2016. The Company also participates 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 34.2% for the three months ended June 30, 2016 when compared to 40.9% for the three months ended June
30, 2015 due to both the higher sales volume this year and the lower SGA expenses.
The
Company recorded income from operations of $24,564 for the three months ended June 30, 2016 compared to a loss from operations
of $60,464 for the three months ended June 30, 2015. The improvement can be attributed to the higher sales volume, higher gross
profit as a percentage of sales and the lower SGA expenses this year when compared to the same period last year.
Other
income (expense) was an expense of $2,145 for the three months ended June 30, 2016 compared to an expense of $2,959 for the three
months ended June 30, 2015 primarily due to interest expense of $4,333 and $4,832 for the three months ended June 30, 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 $0 for the three months ended June 30, 2016 and June 30, 2015. 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.
NINE
MONTHS ENDED JUNE 30, 2016 vs. NINE MONTHS ENDED JUNE 30, 2015
The
following table sets forth the Company’s net sales by major product group for the nine months ended June 30, 2016 and 2015.
Product
group
|
|
Fiscal
2016
|
|
|
Fiscal
2015
|
|
Microwave
Filter (MFC):
|
|
|
|
|
|
|
|
|
RF/Microwave
|
|
$
|
1,245,162
|
|
|
$
|
1,339,009
|
|
Satellite
|
|
|
883,521
|
|
|
|
732,949
|
|
Cable
TV
|
|
|
417,140
|
|
|
|
362,067
|
|
Broadcast
TV
|
|
|
248,354
|
|
|
|
111,705
|
|
Niagara
Scientific (NSI):
|
|
|
7,859
|
|
|
|
7,002
|
|
Total
|
|
$
|
2,802,036
|
|
|
$
|
2,552,732
|
|
|
|
|
|
|
|
|
|
|
Sales
backlog at June 30
|
|
$
|
521,254
|
|
|
$
|
742,052
|
|
Net
sales for the nine months ended June 30, 2016 equaled $2,802,036, an increase of $249,304 or 9.8%, when compared to net sales
of $2,552,732 for the nine months ended June 30, 2015. The increase in sales can primarily be attributed to increases in sales
of the Company’s Satellite and Broadcast TV products with a number of these products sold internationally. International
sales equaled $634,232 during the nine months ended June 30, 2016 compared to $275,306 during the same period last year.
MFC’s
Satellite product sales increased $150,572 or 20.5% to $883,521 for the nine months ended June 30, 2016 when compared to satellite
product sales of $732,949 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 worldwide and increased sources of interference.
MFC’s
Broadcast TV/Wireless Cable product sales increased $136,649 or 122.3% to $248,354 for the nine months ended June 30, 2016 when
compared to sales of $111,705 during the same period last year. The increase can primarily be attributed to the sales of recently
developed wireless diplexers whose primary function is to isolate the transmit and receive frequencies that share a common antenna.
MFC’s
RF/Microwave product sales decreased $93,847 or 7.0% to $1,245,162 for the nine months ended June 30, 2016 when compared to RF/Microwave
product sales of $1,339,009 during the same period last year. MFC’s RF/Microwave products are sold primarily to the U.S.
Government and 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 equaled $785,240 or approximately 28% of total sales
for the nine months ended June 30, 2016 compared to $858,752 or approximately 34% of total sales for the nine months ended June
30, 2015.
MFC’s
Cable TV product sales increased $55,073 or 15.2% to $417,140 for the nine months ended June 30, 2016 when compared to Cable TV
product sales of $362,067 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 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
sales order backlog equaled $521,254 at June 30, 2016 compared to sales order backlog of $742,052 at June 30, 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 63% of the total sales order backlog at June 30,
2016 is scheduled to ship by September 30, 2016.
Gross
profit for the nine months ended June 30, 2016 equaled $1,053,388, an increase of $140,328 or 15.4%, when compared to gross profit
of $913,060 for the nine months ended June 30, 2015. As a percentage of sales, gross profit equaled 37.6% for the nine months
ended June 30, 2016 compared to 35.8% for the nine months ended June 30, 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 nine months ended June 30, 2016 equaled $1,029,338, a decrease of $113,926 or
10.0%, when compared to SG&A expenses of $1,143,264 for the nine months ended June 30, 2015. The decrease can primarily be
attributed to lower payroll and payroll related expenses when compared to the same period last year. The decrease can partially
be attributed to the retirement of the Company’s CEO in January 2016. The Company also participates 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 36.7% for the nine months ended June 30, 2016 compared to 44.8% for the nine months ended June 30, 2015
due to both the lower SGA expenses and the higher sales volume this year when compared to the same period last year.
The
Company recorded income from operations of $24,050 for the nine months ended June 30, 2016 compared to a loss from operations
of $230,204 for the nine months ended June 30, 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.
The
(benefit) provision for income taxes equaled a benefit of $3,000 for the nine months ended June 30, 2016 and a benefit of $2,068
for the nine months ended June 30, 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
June 30, 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.
|
|
June
30, 2015
|
|
|
September
30, 2015
|
|
|
|
|
|
|
|
|
|
|
Cash
& cash equivalents
|
|
$
|
928,536
|
|
|
$
|
896,667
|
|
Working
capital
|
|
$
|
1,477,385
|
|
|
$
|
1,434,405
|
|
Current
ratio
|
|
|
4.74
to 1
|
|
|
|
5.14
to 1
|
|
Long-term
debt
|
|
$
|
330,830
|
|
|
$
|
365,650
|
|
Cash
and cash equivalents increased $31,869 to $928,536 at June 30, 2016 when compared to cash and cash equivalents of $896,667 at
September 30, 2015. The increase was a result of $77,036 in net cash provided by operating activities, $11,704 in net cash used
for capital expenditures, $33,228 in net cash used for repayment of a note payable and $235 in net cash used to purchase treasury
stock.
The
$77,036 in net cash provided by operating activities can primarily be attributed to net income of $18,821 and depreciation expense
of $70,918.
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, future cash
flows from operations and its current credit arrangements.
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.