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 March 31, 2001
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 - 2,904,786 shares as of March 31, 2001.
PART I. - FINANCIAL INFORMATION
MICROWAVE FILTER COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
MARCH 31, 2001 SEPTEMBER 30, 2000
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 885 $ 625
Investments 0 925
Accounts receivable-trade, net 728 897
Inventories 1,416 1,104
Deferred tax asset - current 178 178
Prepaid expenses and other
current assets 138 78
-------- --------
Total current assets 3,345 3,807
Property, plant and equipment, net 1,382 1,336
-------- --------
Total assets $ 4,727 $ 5,143
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 379 $ 392
Customer deposits 189 155
Accrued federal and state
income taxes 106 189
Accrued payroll and related
expenses 105 100
Accrued compensated absences 264 267
Other current liabilities 61 121
-------- --------
Total current liabilities 1,104 1,224
Deferred tax liability -
noncurrent 48 48
-------- --------
Total liabilities 1,152 1,272
-------- --------
Stockholders' Equity:
Common stock,$.10 par value 432 432
Additional paid-in capital 3,240 3,240
Retained earnings 1,409 1,323
-------- --------
5,081 4,995
Common stock in treasury,
at cost (1,506) (1,124)
-------- --------
Total stockholders' equity 3,575 3,871
-------- --------
Total liabilities and
stockholders' equity $ 4,727 $ 5,143
======== ========
[FN]
See Accompanying Notes to Consolidated Financial Statements
MICROWAVE FILTER COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS
ENDED MARCH 31, 2001 AND 2000
(Unaudited)
(Amounts in thousands, except per share data)
Three months ended Six months ended
March 31 March 31
2001 2000 2001 2000
Net sales $1,679 $1,899 $3,609 $3,468
Cost of goods sold 1,116 1,274 2,367 2,208
------- ------- ------- -------
Gross profit 563 625 1,242 1,260
Selling, general and
administrative expenses 573 553 1,156 1,105
------- ------- ------- -------
(Loss) income from
operations (10) 72 86 155
Other income (net),
principally interest 22 26 46 41
------- ------- ------- -------
Income before income
taxes 12 98 132 196
Provision for income
taxes 4 34 46 68
------- ------- ------- -------
NET INCOME $8 $64 $86 $128
======= ======= ======= =======
Basic earnings per
share $0.00 $0.02 $0.03 $0.04
======= ======= ======= =======
[FN]
See Accompanying Notes to Consolidated Financial Statements
MICROWAVE FILTER COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS AND SIX MONTHS ENDED
MARCH 31, 2001 AND 2000
(Unaudited)
(Amounts in thousands)
Three months ended Six months ended
March 31 March 31
2001 2000 2001 2000
Cash flows from operating
activities:
Net income $ 8 $ 64 $ 86 $ 128
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and amortization 76 77 147 153
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable 40 47 169 (8)
Inventories (309) 72 (312) (72)
Prepaid expenses & other
assets (8) 1 (60) (58)
Increase (decrease) in:
Accounts payable & accrued
expenses (37) 95 (120) 395
Deferred compensation &
other liabilities 0 (1) 0 (3)
------- ------- -------- -------
Net cash provided by (used
in) operating activities (230) 355 (90) 535
------- ------- -------- -------
Cash flows from investing activities:
Investments 943 775 925 775
Capital expenditures (99) (24) (193) (43)
------- ------- -------- -------
Net cash provided by
investing activities 844 751 732 732
Cash flows from financing activities:
Principal payments on
long-term debt 0 0 0 0
Purchase of treasury stock (54) 0 (382) (61)
Cash dividend paid 0 (158) 0 (158)
------- ------- ------- -------
Net cash (used in)
financing activities (54) (158) (382) (219)
Increase in cash and
cash equivalents 560 947 260 1,048
Cash and cash equivalents
at beginning of period 325 365 625 264
------- ------- ------- -------
Cash and cash equivalents
at end of period $ 885 $1,312 $ 885 $1,312
======= ======= ======= =======
[FN]
See Accompanying Notes to Consolidated Financial Statements
MICROWAVE FILTER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
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 six-month period
ended March 31, 2001 are not necessarily indicative of the results that may be
expected for the year ended September 30, 2001.
Note 2. Industry Segment Data
The Company's primary business segments involve (1) operations of Microwave
Filter Company, Inc. (MFC) which manufactures 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:
Three months ended Six months ended
(thousands of dollars) March 31 March 31,
2001 2000 2001 2000
Net Sales (Unaffiliated):
MFC $1,546 $1,481 $3,200 $2,984
NSI 133 418 409 484
------ ------ ------ ------
Total $1,679 $1,899 $3,609 $3,468
====== ====== ====== ======
Operating profit (loss): (a)
MFC $27 $89 $175 $184
NSI (37) (17) (89) (29)
------ ------ ------ ------
Total ($10) $72 $86 $155
====== ====== ======= =======
Identifiable assets: (b)
MFC $3,231 $2,990 $3,231 $2,990
NSI 611 704 611 704
------ ------ ------ ------
Subtotal 3,842 3,694 3,842 3,694
Corporate Assets - Cash
And Cash Equivalents 885 1,312 885 1,312
------ ------ ------ ------
Total $4,727 $5,006 $4,727 $5,006
====== ====== ====== ======
(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
Companies operations in each industry.
Note 3. Inventories
Inventories net of provision for obsolescence consisted of the following:
March 31, 2001 September 30, 2000
Raw materials and stock parts $797,025 $675,120
Work-in-process 514,639 325,270
Finished goods 104,050 103,440
---------- ----------
$1,415,714 $1,103,830
========== ==========
The Company's provision for obsolescence equaled $323,101 at March 31, 2001
and September 30, 2000.
Note 4. Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff
Bulletin No. 101 ("SAB 101"), which provides guidance in applying generally
accepted accounting principles to revenue recognition in financial statements.
SAB 101, as amended, will require implementation by the Company in the fourth
quarter of fiscal 2001. The Company is in the process of reviewing SAB 101 and
believes the Bulletin will not have a significant effect on its financial
statements.
MICROWAVE FILTER COMPANY, INC.
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 two industries. 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 and defense electronics. Niagara
Scientific, Inc. (NSI), a wholly owned subsidiary, custom designs case packing
machines to automatically pack products into shipping cases. Customers are
typically processors of food and other commodity products with a need to
reduce labor cost with a modest investment and quick payback.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 vs. THREE MONTHS ENDED MARCH 31, 2000.
Net sales for the three months ended March 31, 2001 equaled $1,679,454, a
decrease of $219,674 or 11.6% when compared to net sales of $1,899,128 for the
three months ended March 31, 2000. The decrease in sales for the quarter ended
March 31, 2001, when compared to the same period last year, can primarily be
attributed to the decrease in sales of NSI.
NSI sales for the three months ended March 31, 2001 equaled $132,834, a
decrease of $284,637 or 68.1% when compared to sales of $417,471 for the three
months ended March 31, 2000. Sales of NSI related equipment, on a quarter to
quarter basis, can be impacted by the timing of the shipment of the custom
designed equipment and the customer's scheduled delivery dates.
MFC sales for the three months ended March 31, 2001 equaled $1,546,620, an
increase of $64,963 or 4.4% when compared to sales of $1,481,657 for the three
months ended March 31, 2000. The increase in MFC sales can primarily be
attributed to the increase in the sales of MFC's RF/Microwave products to
original equipment manufacturers (OEMs). MFC continues to invest in production
engineering and infrastructure development to penetrate OEM market segments as
they become popular. This is part of a concerted effort to provide substantial
growth.
The Company's sales order backlog equaled $923,514 at March 31, 2001
compared to $831,388 at September 30, 2000. MFC's sales order backlog equaled
$454,334 at March 31, 2001, a decrease of $176,100 when compared to sales
order backlog of $630,434 at September 30, 2000. MFC has experienced a
reduction in sales orders during the quarter ended March 31, 2001, when
compared to both the same period last year and the quarter ended December 31,
2000, primarily due to market conditions. Eighty-five percent (85%) of MFC's
sales order backlog is scheduled to ship during the fiscal year ended
September 30, 2001. NSI's sales order backlog equaled $469,180 at March 31,
2001, an increase of $268,226 when compared to sales order backlog of $200,954
at September 30, 2000. One hundred percent (100%) of NSI's sales order backlog
is scheduled to ship during the quarter ended June 30, 2001. If market
conditions or demand does not improve, there can be no assurance that the
Company's sales levels or growth will remain at, reach or exceed historical
levels in any future period. Based on the reduction in sales orders, the
Company was forced to layoff employees in an effort to reduce operating costs.
Net income for the three months ended March 31, 2001 equaled $8,091, a
decrease of $55,931 or 87.4% when compared to net income of $64,022 for the
three months ended March 31, 2000. The decrease in net income can primarily be
attributed to the decrease in sales.
Gross profit for the three months ended March 31, 2001 equaled $563,248, a
decrease of $61,839 or 9.9% when compared to gross profit of $625,087 for the
three months ended March 31, 2000. As a percentage of sales, gross profit
equaled 33.5% for the three months ended March 31, 2001 compared to 32.9% for
the three months ended March 31, 2000. The dollar decrease can primarily be
attributed to the decrease in sales. The improvement in gross profit as a
percentage of sales can primarily be attributed to product sales mix.
Selling, general and administrative (SGA) expenses for the three months
ended March 31, 2001 equaled $572,675, an increase of $19,492 or 3.5% when
compared to SG&A expenses of $553,183 for the three months ended March 31,
2000. As a percentage of sales, SGA expenses increased to 34.1% for the three
months ended March 31, 2001 when compared to 29.1% for the three months ended
March 31, 2000, primarily due to the decrease in sales this year when compared
to the same period last year.
SIX MONTHS ENDED MARCH 31, 2001 vs. SIX MONTHS ENDED MARCH 31, 2000.
Net sales for the six months ended March 31, 2001 equaled $3,609,072, an
increase of $140,495 or 4.1% when compared to net sales of $3,468,577 for
the six months ended March 31, 2000.
NSI sales for the six months ended March 31, 2001 equaled $408,969, a
decrease of $74,873 or 15.5% when compared to sales of $483,842 for the six
months ended March 31, 2000.
MFC sales for the six months ended March 31, 2001 equaled $3,200,103, an
increase of $215,368 or 7.2% when compared to sales of $2,984,735 for the six
months ended March 31, 2000. The increase in MFC sales can be attributed to
the increase in the sales of MFC's RF/Microwave products to OEMs.
Net income for the six months ended March 31, 2001 equaled $86,666, a
decrease of $41,865 or 32.6% when compared to net income of $128,531 for the
six months ended March 31, 2000.
Gross profit for the six months ended March 31, 2001 equaled $1,241,666, a
decrease of $18,763 or 1.5% when compared to gross profit of $1,260,429 for
the six months ended March 31, 2000. As a percentage of sales, gross profit
equaled 34.4% for the six months ended March 31, 2001 compared to 36.3% for
the six months ended March 31, 2000.
SG&A expenses for the six months ended March 31, 2001 equaled $1,155,926, an
increase of $50,708 or 4.6% when compared to SG&A expenses of $1,105,218 for
the six months ended March 31, 2000. The increases can primarily be attributed
to planned increases in advertising and promotional expenses when compared to
the same periods last year.
On an industry segment basis, MFC's income from operations for the six
months ended March 31, 2001 equaled $174,752, a decrease of $9,366 or 5.1%
when compared to income from operations of $184,118 for the six months ended
March 31, 2000. The decrease in MFC's income from operations can primarily be
attributed to lower profit margins primarily due to product sales mix. NSI
recorded a loss from operations of $89,012 for the six months ended March 31,
2001 compared to a loss from operations of $28,907 for the six months ended
March 31, 2000 primarily due to planned increases in advertising and
promotional expenses.
LIQUIDITY and CAPITAL RESOURCES
Cash and cash equivalents increased $259,193 to $884,670 at March 31, 2001
when compared to $625,477 at September 30, 2000. The increase was a result of
$91,897 in net cash used in operating activities, $732,624 in net cash
provided by investing activities and $381,534 in net cash used in financing
activities.
The decrease of $168,768 in accounts receivable at March 31, 2001 when
compared to September 30, 2000 is attributable to decreased shipments during
the month of March 2001 when compared to September 2000.
The increase of $311,884 in inventories and work in process at March 31,
2001 when compared to September 30, 2000 is attributable to the scheduled ship
dates of NSI's sales order backlog and the purchase by MFC of a critical raw
material where a minimum purchase amount was required.
Cash provided by investing activities during the six months ended March 31,
2001 consisted of funds provided by the sale of investments ($925,067) and
funds used for capital expenditures ($192,443).
Cash used in financing activities during the six months ended March 31, 2001
consisted of funds used to repurchase common stock of the Company ($381,534).
At March 31, 2001, the Company had unused 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 from
operations and its current credit arrangements.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999,the Securities and Exchange Commission issued Staff
Bulletin No. 101 ("SAB 101"), which provides guidance in applying generally
accepted accounting principles to revenue recognition in financial statements.
SAB 101, as amended, will require implementation by the Company in the fourth
quarter of fiscal 2001. The Company is in the process of reviewing SAB 101 and
believes the Bulletin will not have a significant effect on its financial
statements.
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, therefore, 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
a. The Annual meeting of the Shareholders was held on April 19,
2001 at the Holiday Inn, Carrier Circle, East Syracuse, New York
13057 at 10:00 A.M. pursuant to notice to the shareholders.
The following matters were submitted to the vote of shareholders:
Proposal 1. The election of three directors to hold office until
the Annual Meeting of the Shareholders at which their term expires
or until their successors have been duly elected.
Proposal 2. The ratification of PricewaterhouseCoopers LLP as the
Company's independent auditors for the fiscal year ending
September 30, 2001.
b. The following named persons received the number of votes set opposite
their respective names for election to the Board of Directors:
DIRECTORS VOTES FOR AUTHORITY
WITHHELD
Robert R. Andrews 2,586,009 16,882
Sidney K. Chong 2,585,445 17,446
Louis S. Misenti 2,585,428 17,463
c. The following proposition received the number of votes set opposite
its respective number:
VOTES FOR VOTES AGAINST ABSTENTIONS
Proposal 2 2,575,808 7,717 4,457
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.
May 14, 2001 Carl F. Fahrenkrug
(Date) --------------------------
Carl F. Fahrenkrug
Chief Executive Officer
May 14, 2001 Richard L. Jones
(Date) --------------------------
Richard L. Jones
Chief Financial Officer