UNITED STATES 						SECURITIES AND EXCHANGE COMMISSION 							 Washington, D.C. 20549 									 FORM 10-Q Quarterly Report Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended March 31, 1996 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) 437-3953 	Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 						 YES ( x ) NO ( ) 	Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date: Common Stock, $.10 Par Value - 3,534,200 shares as of March 31, 1996. This document contains ten (10) pages. PART I. - FINANCIAL INFORMATION MICROWAVE FILTER COMPANY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 1996 AND 1995 (Unaudited) (Amounts in thousands, except per share data) Three months ended Six months ended March 31 March 31 1996 1995 1996 1995 [S] [C] [C] [C] [C] Net sales $1,861 $2,028 $3,952 $3,992 Cost of goods sold 1,167 1,417 2,420 2,710 ------- ------- ------- ------- Gross profit 694 611 1,532 1,282 Selling, general and administrative expenses 625 736 1,271 1,387 ------- ------- ------- ------- Income (loss) from operations 69 (125) 261 (105) Other income (expense) 3 1 4 (3) ------- ------- ------- ------- Income (loss) before income taxes 72 (124) 265 (108) Provision (benefit) for income taxes 25 (43) 91 (37) ------- ------- ------- ------- NET INCOME (LOSS) $47 ($81) $174 ($71) ======= ======= ======= ======= Earnings (loss) per share $0.01 ($0.02) $0.05 ($0.02) ======= ======= ======= ======= [FN] See Accompanying Notes to Consolidated Financial Statements MICROWAVE FILTER COMPANY, INC. CONSOLIDATED BALANCE SHEETS (Amounts in thousands) MARCH 31, 1996 SEPTEMBER 30, 1995 (Unaudited) [S] [C] [C] Assets Current Assets: Cash and cash equivalents $ 1,015 $ 521 Accounts receivable-trade,net 705 879 Inventories 1,545 1,969 Prepaid expenses and other current assets 272 215 -------- -------- Total current assets 3,537 3,584 Property,plant and equipment,net 1,520 1,625 Other assets 60 65 -------- -------- Total assets $ 5,117 $ 5,274 ======== ======== Liabilities And Stockholders' Equity Current liabilities: Current portion of long term debt $ 149 $ 147 Accounts payable 221 362 Customer deposits 190 282 Accrued federal and state income taxes 124 43 Accrued payroll and related expenses 93 91 Accrued compensated absences 213 183 Other current liabilities 71 83 -------- -------- Total current liabilities 1,061 1,191 -------- -------- Long term debt, less current portion 365 440 Deferred compensation and other liabilities 57 59 -------- -------- Total liabilities 1,483 1,690 -------- -------- Stockholders' Equity: Common stock,$.10 par value 425 400 Additional paid-in capital 3,180 2,881 Retained earnings 667 940 -------- -------- 4,272 4,221 Common stock in treasury, at cost (638) (637) -------- -------- Total stockholders' equity 3,634 3,584 -------- -------- Total liabilities and stockholders' equity $ 5,117 $ 5,274 ======== ======== [FN] See Accompanying Notes to Consolidated Financial Statements MICROWAVE FILTER COMPANY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 1996 AND 1995 (Unaudited) (Amounts in thousands) Three months ended Six months ended March 31 March 31 1996 1995 1996 1995 [S] [C] [C] [C] [C] Cash flows from operating activities: Net income $ 47 $ (82) $ 174 $ (71) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 82 100 166 198 Change in assets and liabilities: (Increase) decrease in: Accounts receivable 65 109 174 30 Inventories 295 136 423 (146) Prepaid expenses & other assets (58) (26) (61) (46) Increase (decrease) in: Accounts payable & accrued expenses (183) (83) (133) 16 Deferred compensation & other liabilities (1) (1) (2) (2) ------- ------- -------- ------- Net cash provided by operating activities 247 153 741 (21) ------- ------- ------- ------- Cash flows from investing activities: Capital expenditures (31) (65) (52) (88) Cash flows from financing activities: Principal payments on long-term debt (37) (36) (72) (69) Proceeds from sale of common stock 42 34 46 37 Purchase of treasury stock (1) (1) (1) (97) Dividend paid (168) (168) ------- ------- ------- ------- Net cash used in financing activities (163) (3) (195) (129) Increase (decrease) in cash and cash equivalents 53 85 494 (238) Cash and cash equivalents at beginning of period 962 334 521 657 ------- ------- ------- ------- Cash and cash equivalents at end of period $1,015 $ 419 $1,015 $ 419 ======= ======= ======= ======= [FN] See Accompanying Notes to Consolidated Financial Statements MICROWAVE FILTER COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 Note 1. Summary of Significant Accounting Policies The accompanying financial statements, which should be read in conjunction with the financial statements of Microwave Filter Company, Inc. ("the Company") included in the 1995 Annual Report filed on Form 10-K, are unaudited but have been prepared in the ordinary course of business for the purpose of providing information with respect to the interim period. The Company believes that all adjustments (none of which were other than normal recurring accruals) necessary for a fair presentation for such periods have been included. Note 2. Earnings (loss) per share Earnings (loss) per common share are calculated based upon the weighted average number of shares of common stock outstanding during the periods including, when significant, any common stock equivalents and after restatement of any stock dividends. The weighted average number of shares of common stock outstanding used for the computations were 3,512,398 for the six months and 3,532,489 for the three months ending March 31, 1996 and 3,472,426 for the six months and 3,477,236 for the three months ending March 31, 1995. Note 3. Inventories Inventories are stated at the lower of cost determined on the first-in, first-out method or market. Inventories consisted of the following: March 31, September 30, 1996 1995 Raw materials and stock parts $ 865 $ 1,107 Work-in-process 309 394 Finished goods 371 468 ------- ------- $ 1,545 $ 1,969 ======= ======= MICROWAVE FILTER COMPANY, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MARCH 31, 1996 Net income increased $128,879 to $47,306 during the three months ended March 31, 1996 when compared to a net loss of $81,573 during the same period last year. Net income increased $244,493 to $173,559 during the six months ended March 31, 1996 when compared to a net loss of $70,934 during the same period last year. The increase in net income can primarily be attributed to the improvements in gross profit and reductions in selling, general and administrative expenses. As a percentage of sales, gross profit increased to 37.3% during the three months ended March 31, 1996 when compared to 30.1% during the same period last year. Gross profit increased to 38.8% of sales during the six months ended March 31, 1996 when compared to 32.1% of sales during the same period last year. Selling, general and administrative (SG&A) expenses decreased $110,666 or 15% to $625,455 during the three months ended March 31, 1996 when compared to $736,121 during the same period last year. As a percentage of sales, SG&A expenses decreased to 33.6% during the three months ended March 31, 1996 when compared to 36.3% during the same period last year. For the six months ended March 31, 1996, SG&A expenses decreased to 32.2% of sales when compared to 34.8% during the same period last year. Net sales decreased $166,522 or 8.2% to $1,861,488 during the three months ended March 31, 1996 when compared to net sales of $2,028,010 during the same period last year. For the six months ended March 31, 1996, net sales are essentially identical (down $39,224 or 1% to $3,952,503) when compared to net sales of $3,991,727 during the same period last year. Cash and cash equivalents increased $494,505 to $1,015,181 at March 31, 1996 when compared to $520,676 at September 30, 1995. The increase is a result of $741,836 in net cash provided by operating activities, $51,984 in net cash used for capital expenditures and $195,347 in net cash used in financing activities. At March 31, 1996, the Company had available aggregate lines of credit totaling $600,000. In addition, the Company has a Letter of Credit facility available, for up to $500,000, which will be secured by specified inventory being purchased. Management believes that its working capital requirements for the forseeable future will be met by its existing cash balances, future cash flows and its current credit arrangements. PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is unaware of any material threatened or pending litigation against the Company. Item 2. Changes in Securities None during this reporting period. Item 3. Defaults Upon Senior Securities The Company has no senior securities. Item 4. Submission of Matters to a Vote of Security Holders a. The Annual meeting of the Shareholders was held on April 4, 1996 at the Holiday Inn, Carrier Circle, East Syracuse, New York 13057 at 10:00 A.M. pursuant to notice to the shareholders. The following matters were submitted to the vote of shareholders: Proposal 1. The election of nine directors to hold office until the Annual Meeting of the Shareholders at which their term expires or until their successors have been duly elected. Proposal 2. To consider and act upon a proposed Amendment to the Bylaws to provide for the classification of the Board of Directors into three classes. Proposal 3. To consider and act upon a proposed Amendment to the Bylaws to provide that the size of the Board of Directors shall be nine or less. Proposal 4. To consider and act upon a proposed Amendment to the Bylaws that Directors may be removed only for cause by a majority vote of the Board then in office or by a two thirds (2/3) vote of the shareholders. Proposal 5. To consider and act upon a proposed Amendment to the Bylaws that any vacancy on the Board shall be filled by the remaining Directors then in office, whether or not there is a quorum, only until the next annual meeting and thereafter until a successor shall be elected and shall qualify. Proposal 6. To consider and act upon a proposed Amendment to the Bylaws to provide that a special meeting of the shareholders may be called by the Chairman of the Board or the President, and shall be called by the Chairman of the Board or the Corporate Secretary upon written request from a majority of the Board of Directors or two thirds (2/3) of the outstanding shares entitled to vote in the election of Directors. Proposal 7. To consider and act upon a proposed Amendment to the Certificate of Incorporation to provide that advance notice of shareholder nominations for the election of Directors and of shareholder proposals for action at annual and special shareholder meetings shall be given and certain information shall be provided with respect to shareholder nominees and shareholder proposals. This proposed Amendment to the Certificate of Incorporation currently exists as Article III "Notice of Shareholder Business and Nominations" of the Bylaws. Proposal 8. To consider and act upon a proposed Amendment to the Certificate of Incorporation to adopt Article XII - "Indemnification and Insurance" of the Company Bylaws as an Amendment to the Certificate of Incorporation. Proposal 9. To consider and act upon a proposed Amendment to the Certificate of Incorporation to provide that Directors' liability to the Company or its shareholders shall be limited to the fullest extent permitted by New York law. Proposal 10. To consider and act upon a proposed Amendment to the Certificate of Incorporation to provide that the shareholder vote required to alter, amend or repeal the foregoing Amendments is increased from a majority vote of the shareholders to two thirds (2/3) of the outstanding shares entitled to vote in the election of Directors. Proposal 11. The ratification of Coopers & Lybrand L.L.P. as the Company's independent auditors for the fiscal year ending September 30, 1996. Proposal 12. To consider and act upon a proposed shareholder resolution by Mr. David Silver, with regard to the rescindment and replacement of Bylaw Article XII "Indemnification and Insurance". b. The following named persons received the number of votes set opposite their respective names for election to the Board of Directors: DIRECTORS VOTES FOR VOTES AGAINST ABTENTIONS Trudi Artini 3,014,676 149,972 0 Milo Peterson 3,019,579 145,069 0 David Robinson 3,007,452 157,196 0 Robert Andrews 3,091,193 73,455 0 Sidney Chong 3,016,219 148,429 0 Louis Misenti 3,016,585 148,063 0 Carl Fahrenkrug 3,017,954 146,694 0 Daniel Galbally 3,013,526 151,122 0 Frank Markovich 3,090,205 74,443 0 c. The following propositions received the number of votes set opposite their respective number: VOTES FOR VOTES AGAINST ABSTENTIONS Proposal 2 2,194,344 307,787 15,695 Proposal 3 2,931,133 199,659 9,736 Proposal 4 2,130,595 331,566 23,788 Proposal 5 2,857,348 233,496 18,118 Proposal 6 2,130,643 328,853 26,453 Proposal 7 2,712,541 286,390 23,183 Proposal 8 2,785,112 336,543 19,184 Proposal 9 2,881,702 236,380 14,169 Proposal 10 2,167,131 354,760 19,224 Proposal 11 3,004,663 147,719 11,746 Proposal 12 439,086 2,000,532 78,208 Item 6. Exhibits and Reports on Form 8-K None. Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MICROWAVE FILTER COMPANY, INC. May 14, 1996 Carl F. Fahrenkrug (Date) -------------------------- Carl F. Fahrenkrug Chief Executive Officer May 14, 1996 Richard L. Jones (Date) -------------------------- Richard L. Jones Chief Financial Officer