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, 2006
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 a large accelerated
filer, an accelerated filer or a non-accelerated filer (as defined in Rule
12b-2 of the Exchange Act). (Check one):
Large Accelerated Filer ( ) Accelerated Filer ( ) Non-Accelerated Filer ( X )
Indicate by check mark whether the registrant is a shell company (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 - 2,902,352 shares as of June 30, 2006.
PART I. - FINANCIAL INFORMATION
MICROWAVE FILTER COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
June 30, 2006 September 30, 2005
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 776 $ 1,252
Investments 804 823
Accounts receivable-trade, net 330 495
Federal and state income tax
recoverable 50 0
Inventories 519 556
Prepaid expenses and other
current assets 90 150
------- -------
Total current assets 2,569 3,276
Property, plant and equipment, net 581 659
Deferred tax asset - noncurrent 49 49
------- -------
Total assets $ 3,199 $ 3,984
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 131 $ 190
Customer deposits 37 10
Accrued federal and state
income taxes 0 23
Accrued payroll and related
expenses 62 60
Accrued compensated absences 230 228
Other current liabilities 53 142
------- -------
Total current liabilities 513 653
------- -------
Total liabilities 513 653
------- -------
Stockholders' Equity:
Common stock,$.10 par value 432 432
Additional paid-in capital 3,249 3,249
Retained earnings 525 1,159
------- -------
4,206 4,840
Common stock in treasury,
at cost (1,520) (1,509)
------- -------
Total stockholders' equity 2,686 3,331
------- -------
Total liabilities and
stockholders' equity $ 3,199 $ 3,984
======= =======
<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, 2006 AND 2005
(Unaudited)
(Amounts in thousands, except per share data)
Three months ended Nine months ended
June 30 June 30
2006 2005 2006 2005
Net sales $1,098 $1,547 $3,472 $4,140
Cost of goods sold 785 903 2,317 2,508
------ ------ ------ ------
Gross profit 313 644 1,155 1,632
Selling, general and
administrative expenses 513 505 1,557 1,416
------ ------ ------ ------
(Loss) income from
operations (200) 139 (402) 216
Other income (net),
principally interest 22 12 60 30
------ ------ ------ ------
(Loss) income before
income taxes (178) 151 (342) 246
Provision for income
taxes 0 30 0 38
------ ------ ------ ------
NET (LOSS) INCOME ($178) $121 ($342) $208
====== ====== ====== ======
Per share data:
Basic (loss) earnings
per share ($0.06) $0.04 ($0.12) $0.07
====== ====== ====== ======
Diluted (loss) earnings
per share ($0.06) $0.04 ($0.11) $0.07
====== ====== ====== ======
Shares used in computing
net (loss) earnings per share:
Basic 2,902 2,910 2,906 2,908
Diluted 3,041 3,048 3,045 3,050
<FN>
See Accompanying Notes to Consolidated Financial Statements
MICROWAVE FILTER COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 2006 AND 2005
(Unaudited)
(Amounts in thousands)
Nine months ended
June 30
2006 2005
Cash flows from operating
activities:
Net (loss) income ($ 342) $ 208
Adjustments to reconcile
net (loss) income to net
cash (used in) provided by
operating activities:
Depreciation and amortization 122 148
Change in assets and liabilities:
Accounts receivable 165 2
Federal and state income
tax recoverable (50) 0
Inventories 37 29
Prepaid expenses & other
assets 60 3
Accounts payable & accrued
expenses (168) (6)
Customer deposits 27 (44)
Federal and state income tax
taxes payable (0) 38
----- -----
Net cash (used in) provided
by operating activities (149) 378
----- -----
Cash flows from investing
activities:
Investments 19 19
Capital expenditures (44) (52)
----- -----
Net cash used in
investing activities (25) (33)
----- -----
Cash flows from financing
activities:
Stock options exercised 0 9
Purchase of treasury stock (11) (2)
Cash dividend paid (291) 0
----- -----
Net cash (used in) provided
by financing activities (302) 7
----- -----
(Decrease) increase in cash
and cash equivalents (476) 352
Cash and cash equivalents
at beginning of period 1,252 818
----- -----
Cash and cash equivalents
at end of period $ 776 $1,170
===== ======
<FN>
See Accompanying Notes to Consolidated Financial Statements
MICROWAVE FILTER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006
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, 2006 are not necessarily indicative of the results
that may be expected for the year ended September 30, 2006. 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, 2005.
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,
2006 2005 2006 2005
Net Sales (Unaffiliated):
MFC $1,091 $1,542 $3,453 $3,957
NSI 7 5 19 183
------ ------ ------ ------
Total $1,098 $1,547 $3,472 $4,140
====== ====== ====== ======
Operating (loss) profit: (a)
MFC ($192) $152 ($367) $212
NSI (8) (13) (35) 4
----- ----- ----- -----
Total ($200) $139 ($402) $216
===== ===== ===== =====
Identifiable assets: (b)
MFC $2,375 $2,589 $2,375 $2,589
NSI 48 72 48 72
------ ------ ------ ------
Subtotal 2,423 2,661 2,423 2,661
Corporate Assets - Cash
And Cash Equivalents 776 1,170 776 1,170
------ ------ ------ ------
Total $3,199 $3,831 $3,199 $3,831
====== ====== ====== ======
(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. Cash Dividend
On November 9, 2005, the Board of Directors of Microwave Filter Company,
Inc. declared a ten cents per share cash dividend to shareholders of record on
December 9, 2005 to be distributed on January 9, 2006. The cash dividend
totaled $290,914.
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, 2006 September 30, 2005
Raw materials and stock parts $428 $448
Work-in-process 41 42
Finished goods 50 66
---- ----
$519 $556
==== ====
The Company's reserve for obsolescence equaled $362,139 at June 30, 2006 and
September 30, 2005.
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 for that 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, 2006
-----------------
ISOs NQSOs
-------- --------
Exercise Shares Exercise Shares
Price Price
-------- -------- -------- --------
Outstanding at
beginning of period $1.47 108,548 $1.47 30,000
Granted - 0 - 0
Exercised - 0 - 0
Cancelled - 0 - 0
------ -------- ------ --------
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, 2005 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 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 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 for 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 for that 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, 2006 vs. THREE MONTHS ENDED JUNE 30, 2005
The following table sets forth the Company's net sales by major product
group for the three months ended June 30, 2006 and 2005.
Product group (in thousands) Fiscal 2006 Fiscal 2005
Niagara Scientific $ 7 $ 5
Microwave Filter:
Cable TV 503 808
Satellite 222 281
RF/Microwave 353 423
Broadcast TV 13 30
------ ------
Total $1,098 $1,547
====== ======
Sales backlog at 6/30 $ 418 $ 455
====== ======
Net sales for the three months ended June 30, 2006 equaled $1,098,396, a
decrease of $448,762 or 29%, when compared to net sales of $1,547,158 for the
three months ended June 30, 2005.
MFC sales for the three months ended June 30, 2006 equaled $1,091,350, a
decrease of $450,763 or 29.2%, when compared to sales of $1,542,113 for the
three months ended June 30, 2005. The decrease in MFC sales can primarily be
attributed to a decrease in the sales of the Company's standard Cable TV
products. MFC's Cable TV product sales decreased $304,388 or 37.7% to $503,352
during the three months ended June 30, 2006 when compared to Cable TV product
sales of $807,740 during the same period last year. Management attributes the
decrease in Cable TV product sales to the transition from analog to digital
television and the shipment of one order totaling approximately $200,000
during the quarter ended June 30, 2005.
MFC's RF/Microwave product sales decreased $70,783 or 16.7% to $352,652 for
the three months ended June 30, 2006 when compared to RF/Microwave product
sales of $423,435 during the same period last year. MFC'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.
MFC's Satellite product sales, which consist primarily of TVRO Interference
Filters which suppress strong out-of-band interference caused by military and
civilian radar systems, decreased $59,007 or 21% to $222,105 during the three
months ended June 30, 2006 when compared to sales of $281,112 during the three
months ended June 30, 2005. With the proliferation of earth stations world
wide and increased sources of interference, management expects demand for
these types of filters to continue.
MFC's Broadcast TV/Wireless cable product sales decreased $16,585 or 55.6%
to $13,241 during the three months ended June 30, 2006 when compared to sales
of $29,826 during the three months ended June 30, 2005 due to a decrease in
demand for UHF Broadcast products.
MFC's sales order backlog equaled $418,430 at June 30, 2006 compared to
sales order backlog of $692,595 at September 30, 2005 and $455,142 at June 30,
2005. 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 80% of the sales order backlog at June 30, 2006 is scheduled to
ship by September 30, 2006.
NSI sales for the three months ended June 30, 2006 equaled $7,046 compared
to sales of $5,045 for the three months ended June 30, 2005. For the last six
quarters NSI's sales have consisted primarily of spare part orders and
management expects this trend to continue.
Gross profit for the three months ended June 30, 2006 equaled $312,785, a
decrease of $331,713 or 51.5%, when compared to gross profit of $644,498 for
the three months ended June 30, 2005. As a percentage of sales, gross profit
equaled 28.5% for the three months ended June 30, 2006 compared to 41.7% for
the three months ended June 30, 2005. The decreases in gross profit can
primarily be attributed to the decrease in sales volume this year when
compared to the same period last year, resulting in a lower base to absorb
fixed expenses.
Selling, general and administrative (SGA) expenses for the three months
ended June 30, 2006 equaled $512,912, an increase of $7,756 or 1.5%, when
compared to SG&A expenses of $505,156 for the three months ended June 30,
2005. As a percentage of sales, SGA expenses increased to 46.7% for the three
months ended June 30, 2006 compared to 32.7% for the three months ended June
30, 2005 primarily due to the lower sales volume this year compared to the
same period last year.
The Company recorded a loss from operations of $200,127 for the third
quarter ended June 30, 2006 compared to income from operations of $139,342 for
the three months ended June 30, 2005. The decrease can primarily be attributed
to the lower sales volume this year when compared to the same period last
year.
Other income for the three months ended June 30, 2006 equaled $21,612, an
increase of $9,592 when compared to other income of $12,020 for the three
months ended June 30, 2005. Other income is primarily interest income earned
on invested cash balances. The increase in other income can primarily be
attributed to the rise in market interest rates when compared to the same
period last year. Other income may fluctuate based on market interest rates
and levels of invested cash balances.
The provision (benefit) for income taxes equaled $0 for the three months
ended June 30, 2006. The benefit for the current year loss has been subject to
a valuation allowance since the realization of the deferred tax benefit is not
considered more likely than not.
NINE MONTHS ENDED JUNE 30, 2006 vs. NINE MONTHS ENDED JUNE 30, 2005
The following table sets forth the Company's net sales by major product
group for the nine months ended June 30, 2006 and 2005.
Product group (in thousands) Fiscal 2006 Fiscal 2005
Niagara Scientific $ 19 $ 183
Microwave Filter:
Cable TV 1,275 1,894
Satellite 726 727
RF/Microwave 1,375 1,197
Broadcast TV 77 139
------ ------
Total $3,472 $4,140
====== ======
Net sales for the nine months ended June 30, 2006 equaled $3,471,660, a
decrease of $667,972 or 16.1%, when compared to net sales of $4,139,632 for
the nine months ended June 30, 2005.
MFC sales for the nine months ended June 30, 2006 equaled $3,452,737, a
decrease of $504,231 or 12.7%, when compared to sales of $3,956,968 for the
nine months ended June 30, 2005. The decrease in MFC sales can primarily be
attributed to a decrease in the sales of the company's Cable TV products.
MFC's Cable TV product sales decreased $618,911 or 32.7% to $1,275,344 during
the nine months ended June 30, 2006 when compared to Cable TV product sales of
$1,894,255 during the nine months ended June 30, 2005. The decrease can
primarily be attributed to the transition from analog to digital television.
MFC's RF/Microwave product sales increased $177,448 or 14.8% to $1,374,767
for the nine months ended June 30, 2006 when compared to RF/Microwave product
sales of $1,197,319 during the same period last year. 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.
MFC's Broadcast TV/Wireless cable product sales decreased $62,198 or 44.7%
to $76,837 during the nine months ended June 30, 2006 when compared to sales
of $139,035 during the nine months ended June 30, 2005 due primarily to a
decrease in demand for UHF Broadcast products.
NSI sales for the nine months ended June 30, 2006 equaled $18,923, a
decrease of $163,741, when compared to sales of $182,664 for the nine months
ended June 30, 2005. NSI sales for fiscal 2006 consist primarily of spare part
orders.
Gross profit for the nine months ended June 30, 2006 equaled $1,154,609 a
decrease of $476,977, or 29.2%, when compared to gross profit of $1,631,586
for the nine months ended June 30, 2005. As a percentage of sales, gross
profit equaled 33.3% for the nine months ended June 30, 2006 compared to 39.4%
for the nine months ended June 30, 2005. The decreases in gross profit can be
attributed to the lower sales volume this year when compared to last year
resulting in a lower base to absorb fixed expenses.
SG&A expenses for the nine months ended June 30, 2006 equaled $1,556,369, an
increase of $140,795 or 9.9%, when compared to SG&A expenses of $1,415,574 for
the nine months ended June 30, 2005. The increase can primarily be attributed
to increases in payroll and payroll related expenses, marketing expenses and
sales commissions during the nine months ended June 30, 2006 when compared to
the same period last year. SGA expenses equaled 44.8% of sales for the nine
months ended June 30, 2006 compared to 34.2% of sales for the nine months
ended June 30, 2005 due to both the lower sales volume and higher SGA expenses
this year when compared to the same period last year.
The Company recorded a loss from operations of $401,760 for the nine months
ended June 30, 2006 compared to income from operations of $216,012 for the
nine months ended June 30, 2005. The decrease can primarily be attributed to
the lower sales volume and higher SGA expenses this year when compared to the
same period last year.
Other income for the nine months ended June 30, 2006 equaled $59,549, an
increase of $30,003, when compared to other income of $29,546 for the nine
months ended June 30, 2005. Other income is primarily interest income earned
on invested cash balances. The increase in other income can primarily be
attributed to the rise in market interest rates when compared to the same
period last year. Other income may fluctuate based on market interest rates
and levels of invested cash balances.
The provision (benefit) for income taxes equaled $0 for the nine months
ended June 30, 2006. The benefit for the current year loss has been subject to
a valuation allowance since the realization of the deferred tax benefit is not
considered more likely than not.
Off-Balance Sheet Arrangements
At June 30, 2006 and 2005, 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
June 30, 2006 Sep. 30, 2005
Cash & cash equivalents $776,394 $1,251,594
Investments $803,600 $822,651
Working capital $2,056,302 $2,622,768
Current ratio 5.00 to 1 5.02 to 1
Long-term debt $ 0 $ 0
Cash and cash equivalents decreased $475,200 to $776,394, at June 30,2006
when compared to cash and cash equivalents of $1,251,594 at September 30,
2005. The decrease was a result of $148,438 in net cash used in operating
activities, $24,569 in net cash used in investing activities and $302,193 in
net cash used in financing activities.
Cash used in operating activities can primarily be attributed to the net
loss before depreciation and amortization.
The net decrease of $165,226 in accounts receivable at June 30, 2006, when
compared to September 30, 2005, can primarily be attributed to the decrease in
sales during the quarter ended June 30, 2006 when compared to the quarter
ended September 30, 2005.
The decrease in accounts payable of $59,458 at June 30, 2006, when compared
to September 30, 2005, can be attributed to a decrease in purchases during the
quarter ended June 30, 2006 when compared to the quarter ended September 30,
2005 primarily due to the lower sales volume.
Cash used in investing activities during the nine months ended June 30, 2006
consisted of funds provided by the sale of investments of $19,051 and funds
used for capital expenditures of $43,620.
Cash used in financing activities during the nine months ended June 30, 2006
consisted of funds used to pay a cash dividend of $290,914 and funds used to
purchase treasury stock of $11,279.
At June 30, 2006, 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.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS,
FINANCIAL CONDITON OR BUSINESS
- -----------------------------------------------------
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
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In May 2005, the FASB published Statement of Financial Accounting Standards
No. 154, Accounting Changes and Error Corrections. Statement 154 replaces APB
No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Changes in
Interim Financial Statements. The Statement changes the accounting for, and
reporting of, a change in accounting principle. Statement 154 requires
retrospective application to prior periods' financial statements of voluntary
changes in accounting principle and changes required by new accounting
standards when the standard does not include specific transition provisions,
unless it is impracticable to do so. Statement 154 is effective for accounting
changes and corrections of errors in fiscal years beginning after December 15,
2005 (the Company's fiscal 2007). Early application is permitted for
accounting changes and corrections of errors during fiscal years beginning
after June 1, 2005 (the Company's fiscal 2006).
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
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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 2005 Annual Report and Form 10-K for the fiscal
year ended September 30, 2005 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 nine months ended June 30, 2006. For a detailed discussion of market risk,
see our Annual Report on Form 10-K for the fiscal year ended September 30,
2005, 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 1A. The Company is exposed to certain risk factors that may effect
operations and/or financial results. The significant factors
known to the Company are described in the Company's most recently
filed annual report on Form 10-K and above. There have been no
material changes from the risk factors as previously disclosed
in the Company's annual report on Form 10-K.
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.
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 10, 2006 Carl F. Fahrenkrug
(Date) --------------------------
Carl F. Fahrenkrug
Chief Executive Officer
August 10, 2006 Richard L. Jones
(Date) --------------------------
Richard L. Jones
Chief Financial Officer