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, 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 - 2,904,781 shares as of December
31, 2001.
PART I. - FINANCIAL INFORMATION
MICROWAVE FILTER COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
December 31, 2001 SEPTEMBER 30, 2001
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 1,441 $ 373
Investments 390 900
Accounts receivable-trade, net 926 600
Inventories 1,054 884
Deferred tax asset - current 165 165
Prepaid expenses and other
current assets 122 87
-------- --------
Total current assets 4,098 3,009
Property, plant and equipment, net 1,224 1,261
-------- --------
Total assets $ 5,322 $ 4,270
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 359 $ 192
Customer deposits 231 23
Accrued federal and state
income taxes 256 61
Accrued payroll and related
expenses 159 109
Accrued compensated absences 285 265
Other current liabilities 107 71
-------- --------
Total current liabilities 1,397 721
Deferred tax liability -
noncurrent 19 19
-------- --------
Total liabilities 1,416 740
-------- --------
Stockholders' Equity:
Common stock,$.10 par value 432 432
Additional paid-in capital 3,240 3,240
Retained earnings 1,740 1,364
-------- --------
5,412 5,036
Common stock in treasury,
at cost (1,506) (1,506)
-------- --------
Total stockholders' equity 3,906 3,530
-------- --------
Total liabilities and
stockholders' equity $ 5,322 $ 4,270
======== ========
<FN>
See Accompanying Notes to Condensed Consolidated Financial Statements
MICROWAVE FILTER COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
DECEMBER 31, 2001 AND 2000
(Unaudited)
(Amounts in thousands, except per share data)
Three months ended
December 31
2001 2000
Net sales $2,390 $1,929
Cost of goods sold 1,220 1,251
------- -------
Gross profit 1,170 678
Selling, general and
administrative expenses 610 583
------- -------
Income from operations 560 95
Other income (net),
principally interest 13 25
------- -------
Income before income taxes 573 120
Provision for income taxes 198 41
------- -------
NET INCOME $375 $79
======= =======
Basic earnings per share $0.13 $0.03
======= =======
Weighted average number of
common shares outstanding 2,905 3,064
======= =======
<FN>
See Accompanying Notes to Condensed Consolidated Financial Statements
MICROWAVE FILTER COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
DECEMBER 31, 2001 AND 2000
(Unaudited)
(Amounts in thousands)
Three months ended
December 31
2001 2000
Cash flows from operating
activities:
Net income $ 375 $ 79
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and amortization 65 71
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable (326) 129
Inventories (170) (3)
Prepaid expenses & other
assets (35) (53)
Increase (decrease) in:
Accounts payable & accrued
expenses 677 (85)
------- -------
Net cash provided by
operating activities 586 138
------- -------
Cash flows from investing activities:
Investments 510 (18)
Capital expenditures (28) (93)
------- -------
Net cash provided by
investing activities 482 (111)
Cash flows from financing activities:
Purchase of treasury stock 0 (327)
------- -------
Net cash (used in)
financing activities 0 (327)
Increase (decrease) in cash
and cash equivalents 1,068 (300)
Cash and cash equivalents
at beginning of period 373 625
------- -------
Cash and cash equivalents
at end of period $1,441 $ 325
======= =======
<FN>
See Accompanying Notes to Condensed Consolidated Financial Statements
MICROWAVE FILTER COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
Note 1. Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated 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. The Operating results for the three
month period ended December 31, 2001 are not necessarily indicative of the
results that may be expected for the year ended September 30, 2002. 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, 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
(thousands of dollars) December 31,
2001 2000
Net Sales (Unaffiliated):
MFC $2,369 $1,653
NSI 21 276
------ ------
Total $2,390 $1,929
====== ======
Operating profit (loss): (a)
MFC $614 $147
NSI (54) (52)
------ ------
Total $560 $95
====== ======
Identifiable assets: (b)
MFC $3,944 $4,096
NSI 436 389
------ ------
Subtotal 4,380 4,485
Corporate Assets - Cash
And Cash Equivalents 942 325
------ ------
Total $5,322 $4,810
====== ======
(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:
(thousands of dollars) December 31, 2001 September 30, 2001
Raw materials and stock parts $659 $702
Work-in-process 324 106
Finished goods 71 76
------ ----
$1,054 $884
====== ====
The Company's provision for obsolescence equaled $297,634 at December 31,
2001 and September 30, 2001.
Note 4. Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") approved
Statements of Financial Accounting Standards No. 141 "Business Combinations"
("SFAS 141") and No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142")
which are effective July 1, 2001 and October 1, 2002, respectively, for the
Corporation. SFAS 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001. This has no
material impact on the financial statements of the Company. Under SFAS 142,
amortization of goodwill, including goodwill recorded in past business
combinations, will discontinue upon adoption of this standard. All goodwill
and intangible assets will be tested for impairment in accordance with the
provisions of the Statement. The Company believes SFAS 142 will not have a
material impact on its financial statements.
In October 2001, FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS 144 provides guidance on the accounting
for long-lived assets to be held and used and for assets to be disposed of
through sale or other means. SFAS 144 is effective for fiscal years beginning
after December 15, 2001. The Company does not expect the adoption of SFAS 144
to have a material impact 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 DECEMBER 31, 2001 vs. THREE MONTHS ENDED DECEMBER 31, 2000.
Net sales for the three months ended December 31, 2001 equaled $2,390,460,
an increase of $460,842 or 23.9% when compared to net sales of $1,929,618 for
the three months ended December 31, 2000.
MFC sales for the three months ended December 31, 2001 equaled $2,369,728,
an increase of $716,245 or 43.3% when compared to sales of $1,653,483 for the
three months ended December 31, 2000. The increase in MFC sales can primarily
be attributed to an increase in the sales of the company's standard
cable/satellite TV products, which management attributes to an increase in
demand for the company's filters which suppress strong out-of-band
interference caused by military and civilian radar systems. This increase in
demand can primarily be attributed to the increased security measures being
taken as a result of the September 11th terrorist attacks. The Company is
uncertain how long this demand will continue and what levels it will reach.
Investment has been made to increase manufacturing capacity in these product
areas. 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.
Due to current economic conditions, MFC has experienced declines in sales in
some product markets. MFC's RF/Microwave product sales were down $54,369 or
19.9% to $218,927 when compared to sales of $273,296 for the three months
ended December 31, 2000. MFC's Broadcast TV/Wireless product sales were down
$100,640 or 40% to $151,049 when compared to $251,689 for the three months
ended December 31, 2000. MFC's sales order backlog was also down at December
31, 2001 when compared to September 30, 2001. 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. MFC's sales order backlog equaled $294,080 at
December 31, 2001 compared to $465,881 at September 30, 2001. Approximately
85% of MFC's sales order backlog at December 31, 2001 is scheduled to ship by
September 30, 2002. The Company continues to invest in production engineering
and infrastructure development to penetrate OEM (Original Equipment
Manufacturer) 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.
NSI sales for the three months ended December 31, 2001 equaled $20,732, a
decrease of $255,403 or 92.5% when compared to sales of $276,135 for the three
months ended December 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. At December
31, 2001, NSI's backlog increased $589,049 to $589,552 when compared to $503
at September 30, 2001. NSI's total backlog is scheduled to ship by September
30, 2002.
Net income for the three months ended December 31, 2001 equaled $375,492, an
increase of $296,917 or 378% when compared to net income of $78,575 for the
three months ended December 31, 2000. The increase in net income can primarily
be attributed to the increase in sales.
Gross profit for the three months ended December 31, 2001 equaled
$1,170,091, an increase of $491,673 or 72.5% when compared to gross profit of
$678,418 for the three months ended December 31, 2000. As a percentage of
sales, gross profit equaled 48.9% for the three months ended December 31, 2001
compared to 35.2% for the three months ended December 31, 2000. The dollar
increase in gross profit can be attributed to both the improvement in gross
profit as a percentage of sales and the increased sales volume. The
improvement in gross profit as a percentage of sales, when compared to the
same period last year, can primarily be attributed to product sales mix,
operational efficiencies and significant economies of scale due to the higher
production volume.
Selling, general and administrative (SGA) expenses for the three months
ended December 31, 2001 equaled $609,673, an increase of $26,422 or 4.5% when
compared to SG&A expenses of $583,251 for the three months ended December 31,
2000. SGA expenses decreased to 25.5% of sales for the three months ended
December 31, 2001 when compared to 30.2% of sales for the three months ended
December 31, 2000, primarily due to the increase in sales this year when
compared to the same period last year.
LIQUIDITY and CAPITAL RESOURCES
Cash and cash equivalents increased $1,067,638 to $1,440,780 at December 31,
2001 when compared to $373,142 at September 30, 2001. The increase was a
result of $585,565 in net cash provided by operating activities and $482,073
in net cash provided by investing activities.
The increase of $325,852 in accounts receivable at December 31, 2001 when
compared to September 30, 2001 is attributable to increased shipments during
the quarter ended December 31, 2001 when compared to the quarter ended
September 30, 2001.
The increase of $169,849 in inventories at December 31, 2001 when compared
to September 30, 2001 can primarily be attributable to the increase in the
sales order backlog at December 31, 2001.
The increase in accounts payable of $166,545 at December 31, 2001 when
compared to September 30, 2001 can primarily be attributed to the increase in
purchases as a result of the increase in the sales order backlog.
The increase of $207,913 in customer deposits at December 31, 2001 when
compared to September 30, 2001 can primarily be attributable to the increase
in the sales order backlog.
The increase in accrued federal and state income taxes payable of $195,399
at December 31, 2001 when compared to September 30, 2001 can primarily be
attributed to the increase in income.
Cash provided by investing activities during the three months ended December
31, 2001 consisted of funds provided by the sale of investments ($510,008) and
funds used for capital expenditures ($27,935).
At December 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 June 2001, the Financial Accounting Standards Board ("FASB") approved
Statements of Financial Accounting Standards No. 141 "Business Combinations"
("SFAS 141") and No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142")
which are effective July 1, 2001 and October 1, 2002, respectively, for the
Corporation. SFAS 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001. This has no
material impact on the financial statements of the Company. Under SFAS 142,
amortization of goodwill, including goodwill recorded in past business
combinations, will discontinue upon adoption of this standard. All goodwill
and intangible assets will be tested for impairment in accordance with the
provisions of the Statement. The Company believes SFAS 142 will not have a
material impact on its financial statements.
In October 2001, FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS 144 provides guidance on the accounting
for long-lived assets to be held and used and for assets to be disposed of
through sale or other means. SFAS 144 is effective for fiscal years beginning
after December 15, 2001. The Company does not expect the adoption of SFAS 144
to have a material impact 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
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 13, 2002 Carl F. Fahrenkrug
(Date) --------------------------
Carl F. Fahrenkrug
Chief Executive Officer
February 13, 2002 Richard L. Jones
(Date) --------------------------
Richard L. Jones
Chief Financial Officer