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, 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 - 3,538,958 shares as of June 30, 1996. PART I. - FINANCIAL INFORMATION MICROWAVE FILTER COMPANY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 1996 AND 1995 (Unaudited) (Amounts in thousands, except per share data) Three months ended Nine months ended June 30 June 30 1996 1995 1996 1995 [S] [C] [C] [C] [C] Net sales $1,877 $1,860 $5,829 $5,852 Cost of goods sold 1,171 1,215 3,591 3,925 ------- ------- ------- ------- Gross profit 706 645 2,238 1,927 Selling, general and administrative expenses 613 673 1,884 2,060 ------- ------- ------- ------- Income (loss) from operations 93 (28) 354 (133) Other income (expense) 9 (3) 13 (6) ------- ------- ------- ------- Income (loss) before income taxes 102 (31) 367 (139) Provision (benefit) for income taxes 35 (11) 127 (48) ------- ------- ------- ------- NET INCOME (LOSS) $67 ($20) $240 ($91) ======= ======= ======= ======= Earnings (loss) per share $0.02 ($0.01) $0.07 ($0.03) ======= ======= ======= ======= [FN] See Accompanying Notes to Consolidated Financial Statements MICROWAVE FILTER COMPANY, INC. CONSOLIDATED BALANCE SHEETS (Amounts in thousands) JUNE 30, 1996 SEPTEMBER 30, 1995 (Unaudited) [S] [C] [C] Assets Current Assets: Cash and cash equivalents $ 1,208 $ 521 Accounts receivable-trade,net 647 879 Inventories 1,319 1,969 Prepaid expenses and other current assets 211 215 -------- -------- Total current assets 3,385 3,584 Property,plant and equipment,net 1,525 1,625 Other assets 55 65 -------- -------- Total assets $ 4,965 $ 5,274 ======== ======== Liabilities And Stockholders' Equity Current liabilities: Current portion of long term debt $ 52 $ 147 Accounts payable 299 362 Customer deposits 170 282 Accrued federal and state income taxes 151 43 Accrued payroll and related expenses 85 91 Accrued compensated absences 231 183 Other current liabilities 98 83 -------- -------- Total current liabilities 1,086 1,191 -------- -------- Long term debt, less current portion 117 440 Deferred compensation and other liabilities 56 59 -------- -------- Total liabilities 1,259 1,690 -------- -------- Stockholders' Equity: Common stock,$.10 par value 425 400 Additional paid-in capital 3,185 2,881 Retained earnings 734 940 -------- -------- 4,344 4,221 Common stock in treasury, at cost (638) (637) -------- -------- Total stockholders' equity 3,706 3,584 -------- -------- Total liabilities and stockholders' equity $ 4,965 $ 5,274 ======== ======== [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, 1996 AND 1995 (Unaudited) (Amounts in thousands) Three months ended Nine months ended June 30 June 30 1996 1995 1996 1995 [S] [C] [C] [C] [C] Cash flows from operating activities: Net income $ 67 $ (20) $ 240 $ (91) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 84 100 251 299 Change in assets and liabilities: (Increase) decrease in: Accounts receivable 59 315 233 346 Inventories 225 (206) 649 (352) Prepaid expenses & other assets 62 17 1 (29) Increase (decrease) in: Accounts payable & accrued expenses 25 (102) (107) (86) Deferred compensation & other liabilities (1) (1) (4) (3) ------- ------- ------- ------- Net cash provided by operating activities 521 103 1,263 84 ------- ------- ------- ------- Cash flows from investing activities: Capital expenditures (86) (19) (138) (107) Cash flows from financing activities: Principal payments on long-term debt (248) (38) (320) (107) Proceeds from sale of common stock 6 7 51 43 Purchase of treasury stock (1) (97) Dividend paid (168) ------- ------- ------- ------- Net cash used in financing activities (242) (31) (438) (161) Increase (decrease) in cash and cash equivalents 193 53 687 (184) Cash and cash equivalents at beginning of period 1,015 419 521 656 ------- ------- ------- ------- Cash and cash equivalents at end of period $1,208 $ 472 $1,208 $ 472 ======= ======= ======= ======= [FN] See Accompanying Notes to Consolidated Financial Statements MICROWAVE FILTER COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 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 3,520,194 for the nine months and 3,535,786 for the three months ending June 30, 1996 and 3,475,280 for the nine months and 3,515,320 for the three months ending June 30, 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: June 30, September 30, 1996 1995 Raw materials and stock parts $ 711 $ 1,107 Work-in-process 220 394 Finished goods 388 468 ------- ------- $ 1,319 $ 1,969 ======= ======= MICROWAVE FILTER COMPANY, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS JUNE 30, 1996 Net income increased $86,864 to $66,802 during the three months ended June 30, 1996 when compared to a net loss of $20,062 during the same period last year. Net income increased $331,357 to $240,361 during the nine months ended June 30, 1996 when compared to a net loss of $90,996 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 37.6% during the three months ended June 30, 1996 when compared to 34.7% during the same period last year. Gross profit increased to 38.4% of sales during the nine months ended June 30, 1996 when compared to 32.9% of sales during the same period last year. These improvements can primarily be attributed to product sales mix and the reduction in the manufacturing costs which were associated with new product development in fiscal 1995. Selling, general and administrative (SG&A) expenses decreased $59,873 or 8.9% to $612,814 during the three months ended June 30, 1996 when compared to $672,687 during the same period last year. As a percentage of sales, SG&A expenses decreased to 32.7% during the three months ended June 30, 1996 when compared to 36.2% during the same period last year. For the nine months ended June 30, 1996, SG&A expenses decreased to 32.3% of sales when compared to 35.2% during the same period last year. For the three months and nine months ended June 30, 1996, net sales are essentially identical when compared to the same periods last year. Net sales increased $16,397 to $1,876,806 during the three months ended June 30, 1996 when compared to net sales of $1,860,409 during the same period last year. For the nine months ended June 30, 1996, net sales are down $22,827 to $5,829,309 when compared to net sales of $5,852,136 during the same period last year. Cash and cash equivalents increased $687,366 to $1,208,042 at June 30, 1996 when compared to $520,676 at September 30, 1995. The increase is a result of $1,262,975 in net cash provided by operating activities, $137,571 in net cash used for capital expenditures and $438,038 in net cash used in financing activities. At June 30, 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 None during this reporting period. Item 6. Exhibits and Reports on Form 8-K None during this reporting period. 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 14, 1996 Carl F. Fahrenkrug (Date) -------------------------- Carl F. Fahrenkrug Chief Executive Officer August 14, 1996 Richard L. Jones (Date) -------------------------- Richard L. Jones Chief Financial Officer