UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended December 31, 1999 Commission file number 0-10976 MICROWAVE FILTER COMPANY, INC. (Exact name of registrant as specified in its charter.) New York 16-0928443 (State of Incorporation) (I.R.S. Employer Identification Number) 6743 Kinne Street, East Syracuse, N.Y. 13057 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (315) 438-4700 Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ( x ) NO ( ) Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date: Common Stock, $.10 Par Value - 3,164,186 shares as of December 31, 1999. PART I. - FINANCIAL INFORMATION MICROWAVE FILTER COMPANY, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (Amounts in thousands) DECEMBER 31, 1999 SEPTEMBER 30, 1999 [S] [C] [C] Assets Current Assets: Cash and cash equivalents $ 365 $ 264 Investments 775 775 Accounts receivable-trade,net 753 696 Inventories 1,336 1,192 Deferred tax asset - current 163 163 Prepaid expenses and other current assets 125 66 -------- -------- Total current assets 3,517 3,156 Property,plant and equipment,net 1,490 1,547 -------- -------- Total assets $ 5,007 $ 4,703 ======== ======== Liabilities And Stockholders' Equity Current liabilities: Accounts payable $ 269 $ 215 Customer deposits 465 271 Accrued federal and state income taxes 110 76 Accrued payroll and related expenses 99 70 Accrued compensated absences 247 240 Other current liabilities 54 71 -------- -------- Total current liabilities 1,244 943 Deferred tax liability - noncurrent 6 6 Deferred compensation and other liabilities 3 5 -------- -------- Total liabilities 1,253 954 -------- -------- Stockholders' Equity: Common stock,$.10 par value 431 431 Additional paid-in capital 3,240 3,240 Retained earnings 1,207 1,142 -------- -------- 4,878 4,813 Common stock in treasury, at cost (1,124) (1,064) -------- -------- Total stockholders' equity 3,754 3,749 -------- -------- Total liabilities and stockholders' equity $ 5,007 $ 4,703 ======== ======== [FN] See Accompanying Notes to Consolidated Financial Statements MICROWAVE FILTER COMPANY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998 (Unaudited) (Amounts in thousands, except per share data) Three months ended Dec. 31 1999 1998 [S] [C] [C] Net sales $1,570 $1,633 Cost of goods sold 934 988 ------- ------- Gross profit 636 645 Selling, general and administrative expenses 552 641 ------- ------- Income from operations 84 4 Other income (expense) 15 17 ------- ------- Income before income taxes 99 21 Provision for income taxes 34 7 ------- ------- NET INCOME $65 $14 ======= ======= Earnings per share $0.02 $0.00 ======= ======= [FN] See Accompanying Notes to Consolidated Financial Statements MICROWAVE FILTER COMPANY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998 (Unaudited) (Amounts in thousands) Three months ended December 31 1999 1998 [S] [C] [C] Cash flows from operating activities: Net income $ 65 $ 14 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 76 73 Change in assets and liabilities: (Increase) decrease in: Accounts receivable (57) 117 Inventories (144) (8) Prepaid expenses & other assets (59) (53) Increase (decrease) in: Accounts payable & accrued expenses 301 (204) Deferred compensation & other liabilities (2) (1) ------- ------- Net cash provided by (used in) operating activities 180 (62) Cash flows from investing activities: Capital expenditures (19) (42) ------- ------- Net cash used in investing activities (19) (42) Cash flows from financing activities: Principal payments on long-term debt 0 (15) Purchase of treasury stock (60) (234) ------- ------- Net cash used in investing activities (60) (249) Increase (decrease) in cash and cash equivalents 101 (353) Cash and cash equivalents at beginning of period 264 1,221 ------- ------- Cash and cash equivalents at end of period $ 365 $ 868 ======= ======= [FN] See Accompanying Notes to Consolidated Financial Statements MICROWAVE FILTER COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 Note 1. Summary of Significant Accounting Policies The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended December 31, 1999 are not necessarily indicative of the results that may be expected for the year ended September 30, 2000. Note 2. Industry Segment Data The Company's primary business segments involve (1) operations of Microwave Filter Company, Inc. (MFC) which manufactures electronic filters used for preventing interference or signal processing in cable television, satellite, broadcast, aerospace and government markets; and (2) operations of Niagara Scientific, Inc. (NSI) which manufactures industrial automation equipment. Information by segment is as follows: (thousands of dollars) 2000 1999 Net Sales (Unaffiliated): MFC $1,504 $1,525 NSI 66 108 ------- ------- $1,570 $1,633 ======= ======= Operating profit (loss): (a) MFC $95 $111 NSI (11) (107) ------- ------- 84 4 ======= ======= Identifiable assets: (b) MFC 4,004 3,445 NSI 638 305 ------- ------- Subtotal 4,642 3,750 Corporate Assets - Cash and Cash Equivalents 365 868 ------- ------- Total $5,007 $4,618 ======= ======= (a) Operating profit (loss) is total revenue less operating expenses. In computing operating profit, none of the following items have been added or deducted: interest expense, income taxes and miscellaneous income. Expenses incurred on behalf of both Companies are allocated based upon estimates of their relationship to each entity. (b) Identifiable assets by industry are those assets that are used in the Company's operations in each industry. MICROWAVE FILTER COMPANY, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DECEMBER 31, 1999 Net sales for the three months ended December 31, 1999 equalled $1,569,449, a decrease of $63,607 or 3.9% when compared to net sales of $1,633,056 for the three months ended December 31, 1998. Microwave Filter Company, Inc. (MFC) net sales for the three months ended December 31, 1999 equalled $1,503,078, a decrease of $22,157 or 1.5% when compared to net sales of $1,525,235 for the three months ended December 31, 1998. Niagara Scientific, Inc. (NSI), a wholly owned subsidiary, net sales for the three months ended December 31, 1999 equalled $66,371, a decrease of $41,450 or 38.4% when compared to net sales of $107,821 for the three months ended December 31, 1998. Net income for the three months ended December 31, 1999 equalled $64,509, an increase of $50,784 or 370% when compared to net income of $13,725 for the three months ended December 31, 1998. The increase in net income can primarily be attributed to planned reductions in advertising and promotional expenses. Gross profit decreased $9,624 or 1.5% to $635,342 during the three months ended December 31, 1999 when compared to gross profit of $644,966 during the three months ended December 31, 1998. The decrease in gross profit during the three months ended December 31, 1999 can primarily be attributed to the decrease in sales. As a percentage of sales, gross profit equalled 40.5% for the three months ended December 31, 1999 compared to 39.5% for the three months ended December 31, 1998. The improvement in gross profit as a percentage of sales for the three months ended December 31, 1999 when compared to the same period last year can primarily be attributed to gains in productivity. Selling, general and administrative (SG&A) expenses decreased $88,543 to $552,035 during the three months ended December 31, 1999 when compared to SG&A expenses of $640,578 during the three months ended December 31, 1998. The decrease is primarily due to planned reductions in advertising and promotional expenses. The Company's total backlog of orders increased $453,063 to $1,570,919 at December 31, 1999 when compared to $1,117,856 at September 30, 1999. MFC's backlog of orders increased $3,961 to $524,537 at December 31, 1999 when compared to $520,576 at September 30, 1999. NSI's backlog of orders increased $449,102 to $1,046,382 at December 31, 1999 when compared to $597,280 at September 30, 1999. The total Company backlog of orders at December 31, 1999 is scheduled to ship during fiscal 2000. Cash and cash equivalents increased $101,137 to $365,284 at December 31, 1999 when compared to cash and cash equivalents of $264,147 at September 30, 1999. The increase was a result of $180,177 in net cash provided by operating activities, $18,599 in net cash used for capital expenditures and $60,441 in net cash used in financing activities. Cash used in financing activities during the three months ended December 31, 1999 consisted of funds used to repurchase common stock of the Company. The Company's Board of Directors had authorized the repurchase of up to 500,000 shares of the Company's outstanding stock. On January 26, 2000, the Company's Board of Directors authorized the repurchase of an additional 500,000 shares of the Company's outstanding common stock. The repurchases will be made from time to time on the open market at prevailing market prices or in negotiated transactions off the market. Since July 1998, 423,246 shares of the Company's common stock have been repurchased. Management believes the common stock repurchase program, given the Company's present cash position, reflects its belief in the fundamental strength of the business and also reflects its commitment to enhancing shareholder value. At December 31, 1999, the Company had available aggregate lines of credit totaling $600,000. Of these lines, $100,000 is for the purchase of equipment and is collateralized by equipment and $500,000 is for working capital and is collateralized by accounts receivable, inventories and equipment. Management believes that its working capital requirements for the forseeable future will be met by its existing cash balances, future cash flows and its current credit arrangements. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Any statements contained in this report which are not historical facts are forward looking statements; and, many important factors could cause actual results to differ materially from those in the forward looking statements. Such factors include, but are not limited to, changes (legislative, regulatory and otherwise) in the MMDS, LPTV or Cable industry, demand for the Company's products (both domestically and internationally), the development of competitive products, competitive pricing, market acceptance of new product introductions, technological changes, general economic conditions, litigation and other factors, risks and uncertainties which may be identified in the Company's Securities and Exchange Commission filings. PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is unaware of any material threatened or pending litigation against the company. Item 2. Changes in Securities None during this reporting period. Item 3. Defaults Upon Senior Securities The Company has no senior securities. Item 4. Submission of Matters to a Vote of Security Holders None during this reporting period. Item 6. Exhibits and Reports on Form 8-K None. Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MICROWAVE FILTER COMPANY, INC. February 14, 2000 Carl F. Fahrenkrug (Date) -------------------------- Carl F. Fahrenkrug Chief Executive Officer February 14, 2000 Richard L. Jones (Date) -------------------------- Richard L. Jones Chief Financial Officer