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 June 30, 2005
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 by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
YES ( ) NO ( x )
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 - 2,909,463 shares as of June
30, 2005.
PART I. - FINANCIAL INFORMATION
MICROWAVE FILTER COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
JUNE 30, 2005 SEPTEMBER 30, 2004
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 1,170 $ 817
Investments 832 851
Accounts receivable-trade, net of
allowance for doubtful accounts of
$16 and $25 452 454
Inventories 610 638
Prepaid expenses and other
current assets 64 68
------- -------
Total current assets 3,128 2,828
Property, plant and equipment, net
of accumulated depreciation of
$5,944 and $5,796 703 799
------- -------
Total assets $ 3,831 $ 3,627
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 139 $ 180
Customer deposits 23 67
Accrued federal and state
incomes taxes 38 0
Accrued payroll and related
expenses 61 82
Accrued compensated absences 262 253
Accrued profit sharing 47 2
Other current liabilities 34 31
------- -------
Total current liabilities 604 615
------- -------
Total liabilities 604 615
------- -------
Stockholders' Equity:
Common stock,$.10 par value 432 432
Additional paid-in capital 3,249 3,240
Retained earnings 1,054 846
------- -------
4,735 4,518
Common stock in treasury,
at cost (1,508) (1,506)
------- -------
Total stockholders' equity 3,227 3,012
------- -------
Total liabilities and
stockholders' equity $ 3,831 $ 3,627
======= =======
<FN>
See Accompanying Notes to Consolidated Financial Statements
MICROWAVE FILTER COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS
ENDED JUNE 30, 2005 AND 2004
(Unaudited)
(Amounts in thousands, except per share data)
Three months ended Nine months ended
June 30 June 30
2005 2004 2005 2004
Net sales $1,547 $1,374 $4,140 $3,630
Cost of goods sold 903 875 2,508 2,485
------ ------ ------ ------
Gross profit 644 499 1,632 1,145
Selling, general and
administrative expenses 505 426 1,416 1,290
------ ------ ------ ------
Income (loss) from
operations 139 73 216 (145)
Other income (net),
principally interest 12 4 30 12
------ ------ ------ ------
Income (loss) before
income taxes 151 77 246 (133)
Provision for income
taxes 30 27 38 109
------ ------ ------ ------
NET INCOME (LOSS) $121 $50 $208 ($242)
====== ====== ====== ======
Per share data:
Basic earnings (loss)
per share $0.04 $0.02 $0.07 ($0.08)
====== ====== ====== ======
Diluted earnings (loss)
per share $0.04 $0.02 $0.07 ($0.08)
====== ====== ====== ======
Shares used in computing
net earnings (loss) per share:
Basic 2,910 2,905 2,908 2,905
Diluted 3,048 2,905 3,050 2,916
<FN>
See Accompanying Notes to Consolidated Financial Statements
MICROWAVE FILTER COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS AND NINE MONTHS ENDED
JUNE 30, 2005 AND 2004
(Unaudited)
(Amounts in thousands)
Three months ended Nine months ended
June 30 June 30
2005 2004 2005 2004
Cash flows from operating
activities:
Net income (loss) $ 121 $ 50 $ 208 ($ 242)
Adjustments to reconcile
net income (loss) to net
cash used in operating
activities:
Depreciation and amortization 50 55 148 166
Deferred tax assets 0 0 0 246
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable 18 (101) 2 (128)
Federal and state income
tax recoverable 0 141 0 3
Inventories 41 45 29 140
Prepaid expenses & other
assets 15 28 3 23
Increase (decrease) in:
Accounts payable & accrued
expenses (65) (21) (6) 15
Customer deposits 2 49 (44) (93)
Federal and state income tax
taxes payable 31 0 38 0
----- ----- ----- -----
Net cash provided by
operating activities 213 246 378 130
----- ----- ----- -----
Cash flows from investing
activities:
Investments 4 5 19 20
Capital expenditures (26) (9) (52) (38)
----- ----- ----- -----
Net cash used in
investing activities (22) (4) (33) (18)
----- ----- ----- -----
Cash flows from financing
activities:
Stock options exercised 0 0 9 0
Purchase of treasury stock (1) 0 (2) 0
----- ----- ----- -----
Net cash (used in) provided
by financing activities (1) 0 7 0
----- ----- ----- -----
Increase in cash and
cash equivalents 190 242 352 112
Cash and cash equivalents
at beginning of period 980 517 818 647
----- ----- ----- -----
Cash and cash equivalents
at end of period $1,170 $ 759 $1,170 $ 759
===== ===== ===== =====
<FN>
See Accompanying Notes to Consolidated Financial Statements
MICROWAVE FILTER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
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 nine
month period ended June 30, 2005 are not necessarily indicative of the results
that may be expected for the year ended September 30, 2005. 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, 2004.
Note 2. Industry Segment Data
The Company's primary business segments involve (1) 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; and (2) Niagara Scientific, Inc. (NSI), a wholly
owned subsidiary, which 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.
Information by segment is as follows:
Three months ended Nine months ended
(thousands of dollars) June 30, June 30,
2005 2004 2005 2004
Net Sales (Unaffiliated):
MFC $1,542 $1,349 $3,957 $3,405
NSI 5 25 183 225
------ ------ ------ ------
Total $1,547 $1,374 $4,140 $3,630
====== ====== ====== ======
Operating profit (loss): (a)
MFC $152 $88 $212 ($79)
NSI (13) (15) 4 (66)
---- ---- ---- ----
Total $139 $73 $216 ($145)
==== ==== ==== ====
Identifiable assets: (b)
MFC $2,589 $2,713 $2,589 $2,713
NSI 72 109 72 109
------ ------ ------ ------
Subtotal 2,661 2,822 2,661 2,822
Corporate Assets - Cash
And Cash Equivalents 1,170 759 1,170 759
------ ------ ------ ------
Total $3,831 $3,581 $3,831 $3,581
====== ====== ====== ======
(a) Operating profit (loss) is total revenue less cost of goods sold and
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. Investments
Investments generally consist of commercial paper, government backed
obligations and other guaranteed commercial debt that have an original
maturity of more than three months and a remaining maturity of less than one
year. Investments are carried at cost which approximates market. The Company's
policy is to hold investments until maturity. The Company's practice is to
invest cash with financial institutions that have acceptable credit ratings.
Note 4. 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:
(thousands of dollars) June 30, 2005 September 30, 2004
Raw materials and stock parts $475 $428
Work-in-process 54 126
Finished goods 81 84
------ ----
$610 $638
====== ====
The Company's reserve for obsolescence equaled $386,749 at June 30,
2005 and September 30, 2004.
Note 5. Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards (SFAS) No. 109. 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. As a result of
the Company's losses, the Company recorded a non-cash charge to establish a
valuation allowance of $288,293 against net deferred tax assets during the
fiscal year ended September 30, 2004. The charge was calculated in accordance
with the provisions of Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (SFAS 109), which requires an assessment of both
positive and negative evidence when measuring the need for a valuation
allowance. Evidence, such as operating results during the most recent three-
year period, is given more weight when due to our current lack of visibility,
there is a greater degree of uncertainty that the level of future
profitability needed to record the deferred tax assets will be achieved. The
Company's losses in the most recent three-year period represented sufficient
negative evidence to require a valuation allowance under the provisions of
SFAS 109. The Company will maintain a valuation allowance until sufficient
positive evidence exists to support its reduction or reversal.
Note 6. Stock Options
On April 9, 1998, the Board of Directors and Shareholders of Microwave
Filter Company, Inc. approved the 1998 Microwave Filter Company, Inc.
Incentive Stock Plan (the "1998 Plan"). Under the 1998 Plan, the Company may
grant incentive stock options ("ISOs"), non-qualified stock options ("NQSOs")
and stock appreciation rights to directors, officers and employees of the
Company and its affiliates. The 1998 Plan reserves 150,000 shares for
issuance. The exercise price of the ISOs and NQSOs will be 100% of the fair
market value of the Common Stock on the date the ISOs and NQSOs are granted.
The 1998 Plan will terminate on April 10, 2008. On June 21, 2004, the Board of
Directors granted ISOs totaling 115,000 shares and NQSOs totaling 35,000
shares at an exercise price of $1.47. All options were 100% vested.
We account for our incentive stock plan under the recognition and
measurement principles of Accounting Principles Board Opinion No. 25,
Accounting for stock issued to employees. No compensation expense has been
recognized in the accompanying financial statements relative to our stock
option plan.
A summary of all stock option activity and information related to all options
outstanding follows:
Nine months ended
June 30, 2005
----------------
ISOs NQSOs
-------- --------
Exercise Shares Exercise Shares
Price Price
-------- -------- -------- --------
Outstanding at
beginning of period $1.47 115,000 $1.47 35,000
Granted - 0 - 0
Exercised $1.47 6,452 - 0
Cancelled - 0 $1.47 5,000
------ -------- ------ --------
Outstanding at
end of period $1.47 108,548 $1.47 30,000
------ -------- ------ --------
Exercisable at
end of period $1.47 108,548 $1.47 30,000
------ -------- ------- --------
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 communications 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.
Critical Accounting Policies
The Company's consolidated financial statements are based on the application
of 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, 2004 describes the
significant accounting policies used in preparation of the 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 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 valued 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 has 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 Statement of Financial
Accounting Standards (SFAS) No. 109. 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. As a result of
the Company's losses, the Company recorded a non-cash charge to establish a
valuation allowance of $288,293 against net deferred tax assets during the
fiscal year ended September 30, 2004. The charge was calculated in accordance
with the provisions of Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (SFAS 109), which requires an assessment of both
positive and negative evidence when measuring the need for a valuation
allowance. Evidence, such as operating results during the most recent three-
year period, is given more weight when due to our current lack of visibility,
there is a greater degree of uncertainty that the level of future
profitability needed to record the deferred tax assets will be achieved. The
Company's losses in the most recent three-year period represented sufficient
negative evidence to require a valuation allowance under the provisions of
SFAS 109. The Company will maintain a valuation allowance until sufficient
positive evidence exists to support its reduction or reversal.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2005 vs. THREE MONTHS ENDED JUNE 30, 2004
Net sales for the three months ended June 30, 2005 equaled $1,547,158, an
increase of $173,184 or 12.6% when compared to net sales of $1,373,974 for the
three months ended June 30, 2004.
MFC sales for the three months ended June 30, 2005 equaled $1,542,113, an
increase of $193,153 or 14.3% when compared to sales of $1,348,960 for the
three months ended June 30, 2004. The increase in MFC sales can primarily be
attributed to an increase in the sales of the company's Cable TV products.
Cable TV product sales for the three months ended June 30, 2005 equaled
$807,740, an increase of $249,095 or 44.4%, when compared to Cable TV product
sales of $558,645 for the three months ended June 30, 2004. The increase can
be attributed to increased demand and the shipment of one order totaling
approximately $200,000 during the quarter ended June 30, 2005.
MFC's RF/Microwave product sales for the three months ended June 30, 2005
equaled $423,435, an increase of $58,528 or 16%, when compared to RF/Microwave
product sales of $364,907 for the three months ended June 30, 2004. The
company's RF/Microwave products are sold primarily to original equipment
manufacturers (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 (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.
Both MFC's Satellite product sales and Broadcast TV product sales decreased
during the three months ended June 30, 2005 when compared to the same period
last year. Satellite product sales were down $81,085 and Broadcast TV product
sales were down $33,385 due primarily to a decrease in demand when compared to
the same period last year.
MFC's sales order backlog equaled $455,142 at June 30, 2005 compared to
sales order backlog of $756,310 at March 31, 2005, $472,331 at December 31,
2004 and $661,109 at September 30, 2004. 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 88% of MFC's sales order backlog at June 30,
2005 is scheduled to ship by September 30, 2005.
NSI sales for the three months ended June 30, 2005 equaled $5,045, a
decrease of $19,969 when compared to sales of $25,014 for the three months
ended June 30, 2004. 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. NSI's sales order
levels have been impacted negatively by the sluggish economy and reduced
capital spending. NSI has also been concentrating on quoting low risk jobs in
an effort to maintain targeted profit margins. Although this may impact sales
levels, it should improve profit margins and also allow engineering resources
to focus on higher priorities. At June 30, 2005, NSI's backlog of orders
equaled $0.
Gross profit for the three months ended June 30, 2005 equaled $644,498, an
increase of $145,029 or 29%, when compared to gross profit of $499,469 for the
three months ended June 30, 2004. As a percentage of sales, gross profit
increased to 41.7% for the three months ended June 30, 2005 compared to 36.4%
for the three months ended June 30, 2004. The increases in gross profit can
primarily be attributed to the increased sales volume and a favorable product
sales mix this year when compared to the same period last year.
Selling, general and administrative (SGA) expenses for the three months
ended June 30, 2005 equaled $505,156, an increase of $78,509 or 18.4%, when
compared to SG&A expenses of $426,647 for the three months ended June 30,
2004. The increase can primarily be attributed to an increase in payroll and
payroll related expenses. As a percentage of sales, SG&A expenses equaled
32.7% for the three months ended June 30, 2005 compared to 31.1% of sales for
the three months ended June 30, 2004.
The Company recorded income from operations of $139,342 for the third
quarter ended June 30, 2005 compared to income from operations of $72,822 for
the three months ended June 30, 2004. The improvement can primarily be
attributed to the higher sales volume and improved gross margins this year
when compared to the same period last year.
On an industry segment basis, MFC recorded income from operations of
$152,522 for the three months ended June 30, 2005 compared to income from
operations of $87,640 for the three months ended June 30, 2004. MFC's
improvement can primarily be attributed to the higher sales volume and
improved gross margins this year when compared to the same period last year.
NSI recorded a loss from operations of $13,180 for the three months ended June
30, 2005 compared to a loss from operations of $14,818 for the three months
ended June 30, 2004.
The Company recorded a provision for income taxes of $30,273, an effective
rate of 20%, for the three months ended June 30, 2005 compared to a provision
for income taxes of $26,537, an effective rate of 34.5%, for the three months
ended June 30, 2004.
NINE MONTHS ENDED JUNE 30, 2005 vs. NINE MONTHS ENDED JUNE 30, 2004
Net sales for the nine months ended June 30, 2005 equaled $4,139,632, an
increase of $509,882, or 14% when compared to net sales of $3,629,750 for
the nine months ended June 30, 2004.
MFC sales for the nine months ended June 30, 2005 equaled $3,956,968, an
increase of $552,192, or 16.2% when compared to sales of $3,404,776 for the
nine months ended June 30, 2004. The increase in MFC sales can primarily be
attributed to an increase in the sales of the company's Cable TV and
RF/Microwave product sales when compared to last year.
For the nine months ended June 30, 2005, MFC's Cable TV product sales
equaled $1,894,255, an increase of $328,600 or 20.9%, when compared to Cable
TV product sales of $1,565,655 for the nine months ended June 30, 2004. For
the nine months ended June 30, 2005, MFC's RF/Microwave product sales equaled
$1,197,319, an increase of $294,813 or 32.6%, when compared to RF/Microwave
product sales of $902,505 ffor the none months ended June 30, 2004.
NSI sales for the nine months ended June 30, 2005 equaled $182,664, a
decrease of $42,310 or 18.8% when compared to sales of $224,974 for the nine
months ended June 30, 2004.
Gross profit for the nine months ended June 30, 2005 equaled $1,631,586 an
increase of $486,584, or 42.5%, when compared to gross profit of $1,145,002
for the nine months ended June 30, 2004. As a percentage of sales, gross
profit increased to 39.4% for the nine months ended June 30, 2005 compared to
31.5% for the nine months ended June 30, 2004. The increases in gross profit
can primarily be attributed to the higher sales volume and a favorable product
sales mix.
SG&A expenses for the nine months ended June 30, 2005 equaled $1,415,574 an
increase of $125,371 or 9.7%, when compared to SG&A expenses of $1,290,203 for
the nine months ended June 30, 2004. The increase can primarily be attributed
to increases in payroll and payroll related expenses. As a percentage of
sales, SGA expenses equaled 34.2% for the nine months ended June 30, 2005
compared to 35.5% of sales for the nine months ended June 30, 2004.
The Company recorded income from operations of $216,012 for the nine months
ended June 30, 2005 compared to a loss from operations of $145,201 for the
nine months ended June 30, 2004. The improvement can primarily be attributed
to the higher sales volume and improved gross margins this year when compared
to the same period last year.
The Company recorded a provision for income taxes of $37,537, an effective
rate of 15.3% attributable to being subject to Federal alternative minimum
tax, for the nine months ended June 30, 2005 compared to a provision for
income taxes of $108,677 for the nine months ended June 30, 2004. Last year,
the Company recorded a non-cash charge to establish a valuation allowance of
$246,000 against net deferred tax assets during the quarter ended March 31,
2004. The charge was calculated in accordance with the provisions of Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS
109), which requires an assessment of both positive and negative evidence when
measuring the need for a valuation allowance. Evidence, such as operating
results during the most recent three-year period, is given more weight when
due to our current lack of visibility, there is a greater degree of
uncertainty that the level of future profitability needed to record the
deferred tax assets will be achieved. The Company will maintain a valuation
allowance until sufficient positive evidence exists to support its reduction
or reversal.
LIQUIDITY and CAPITAL RESOURCES
Cash and cash equivalents increased $352,290 to $1,169,628 at June 30, 2005
when compared to $817,338 at September 30, 2004. The increase was a result of
$378,133 in net cash provided by operating activities, $33,182 in net cash
used in investing activities and $7,339 in net cash provided by financing
activities.
The positive cash flow from operations was due primarily to income before
depreciation and amortization.
The decrease in accounts payable of $41,654 at June 30, 2005, when compared
to September 30, 2004, can be attributed to a decrease in purchases during the
month ended June 30, 2005 when compared to the month ended September 30, 2004.
The decrease in purchases can be attributed to both the lower sales order
backlog at June 30, 2005, when compared to September 30, 2004, and customer
scheduled delivery dates.
The decrease of $43,530 in customer deposits at June 30, 2005, when compared
to September 30, 2004, can primarily be attributed to the shipment of NSI's
sales order backlog of September 30, 2004 during the nine months ended June
30, 2005.
Cash used in investing activities during the nine months ended June 30, 2005
consisted of funds provided by the sale of investments of $18,975 and funds
used for capital expenditures of $52,157.
Cash provided by financing activities during the nine months ended June 30,
2005 consisted of funds provided by stock options exercised of $9,484 and
funds used for the purchase of treasury stock of $2,145.
At June 30, 2005, the Company had unused aggregate lines of credit totaling
$750,000 collateralized by all inventory, equipment and accounts receivable.
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.
Off-Balance Sheet Arrangements
At June 30, 2005 and 2004, 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.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS, FINANCIAL CONDITON
OR BUSINESS
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An investment in our common stock involves a high degree of risk. The risks
and uncertainties described below are not the only ones we face. Additional
risks and uncertainties that we are unaware of, or that we may currently deem
immaterial, may become important factors that harm our business, financial
condition or results of operations. If any of the following risks actually
occurs, our business, financial condition or results of operations could
suffer. In that case, the trading price of our common stock could decline, and
you may lose all or part of your investment.
Demand for existing products may decline.
Our inability to introduce new and enhanced products on a timely basis.
Market acceptance of newly developed products may be slower than
anticipated.
Pricing pressures from our customers and/or market pressure from competitors
may reduce selling prices.
Difficulty in obtaining an adequate supply of raw materials or components at
reasonable prices.
Loss of key personnel or the inability to attract new employees.
Governmental regulatory actions could adversely affect our business.
RECENT PRONOUNCEMENTS
- ----------------------
In November 2004, the Financial Accounting Standards Board (FASB) published
Statement of Financial Accounting Standards No. 151, Inventory Costs, an
amendment of ARB No. 43, Chapter 4. Statement 151 amends the guidance in
Chapter 4, "Inventory Pricing" of ARB No. 43 and clarifies the accounting for
abnormal amounts of idle facility expense, freight, handling costs, and wasted
material (spoilage). Statement 151 requires that those items be recognized as
current-period charges. Statement 151 also requires that allocation of fixed
production overheads to the costs of conversion be based on the normal
capacity of the production facilities. Statement 151 is effective for
inventory costs incurred during fiscal years beginning after June 15, 2005.
Statement 151 is effective for the Company's 2006 fiscal year and is not
expected to have a material impact on the Company's financial statements.
In December 2004, the Financial Accounting Standards Board (FASB) issued
FASB Statement No. 123R, "Share-Based Payment" (FAS 123R), a revision of FASB
Statement No. 123, "Accounting for Stock-Based Compensation", which addresses
financial accounting and reporting for costs associated with stock-based
compensation. FAS 123R addresses all forms of share-based payment ("SBP")
awards, including shares issued under employee stock purchase plans, stock
options, restricted stock and stock appreciation rights. FAS 123R requires
Microwave Filter Company, Inc. to adopt the new accounting provisions
beginning in our fourth quarter of 2005. Under the Modified Prospective
Method, we do not anticipate recording any compensation expense at time of
adoption since all options granted were fully vested.
The American Jobs Creation Act of 2004, signed into law in October 2004,
provides for a variety of changes in the tax law including incentives to
repatriate undistributed earnings of foreign subsidiaries, phased elimination
of the Foreign Sales Corporation/Extraterritorial Income benefit and a
domestic manufacturing benefit. We are currently evaluating the potential
impact of this legislation and assessing the domestic manufacturing benefit.
We do not believe this Act will have a significant impact on the Company's
financial position or results of operations in the future.
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 2004 Annual Report and Form 10-K for the fiscal
year ended September 30, 2004 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no significant change in our exposures to market risk during
the three and nine months ended June 30, 2005. For a detailed discussion of
market risk, see our Annual Report on Form 10-K for the fiscal year ended
September 30, 2004, Part II, Item 7A, Quantitative and Qualitative Disclosures
About Market Risk.
ITEM 4. CONTROLS AND PROCEDURES
1. Evaluation of disclosure controls and procedures. Based on their
evaluation of the Company's disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) as of the end of the period covered by this
Quarterly Report on Form 10-Q, the Company's chief executive officer
and chief financial officer have concluded that the Company's
disclosure controls and procedures are effective.
2. Changes in internal control over financial reporting. During the period
covered by this Quarterly Report on Form 10-Q, there were no changes in
the Company's internal control over financial reporting (as defined in
Rule 13a-15(f)) that have materially affected, or are reasonably
likely to materially affect, the Company's internal control over
financial reporting.
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
a. Exhibits
31.1 Section 13a-14(a)/15d-14(a) Certification of Carl F. Fahrenkrug
31.2 Section 13a-14(a)/15d-14(a) Certification of Richard L. Jones
32.1 Section 1350 Certification of Carl F. Fahrenkrug
32.2 Section 1350 Certification of Richard L. Jones
b. 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.
August 12, 2005 Carl F. Fahrenkrug
(Date) --------------------------
Carl F. Fahrenkrug
Chief Executive Officer
August 12, 2005 Richard L. Jones
(Date) --------------------------
Richard L. Jones
Chief Financial Officer