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, 2002
Commission file number 0-10976
MICROWAVE FILTER COMPANY, INC.
(Exact name of registrant as specified in its charter.)
New York 16-0928443
(State of Incorporation) (I.R.S. Employer Identification Number)
6743 Kinne Street, East Syracuse, N.Y. 13057
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (315) 438-4700
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES ( x ) NO ( )
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date:
Common Stock, $.10 Par Value - 2,904,781 shares as of June 30, 2002.
PART I. - FINANCIAL INFORMATION
MICROWAVE FILTER COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
JUNE 30, 2002 SEPTEMBER 30, 2001
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 608 $ 373
Investments 1,383 900
Accounts receivable-trade, net 517 600
Inventories 887 884
Deferred tax asset - current 165 165
Prepaid expenses and other
current assets 124 87
-------- --------
Total current assets 3,684 3,009
Property, plant and equipment, net 1,269 1,261
-------- --------
Total assets $ 4,953 $ 4,270
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 162 $ 192
Customer deposits 145 23
Accrued federal and state
income taxes 298 61
Accrued payroll and related
expenses 140 109
Accrued compensated absences 303 265
Other current liabilities 105 71
-------- --------
Total current liabilities 1,153 721
Deferred tax liability -
noncurrent 19 19
-------- --------
Total liabilities 1,172 740
-------- --------
Stockholders' Equity:
Common stock,$.10 par value 432 432
Additional paid-in capital 3,240 3,240
Retained earnings 1,615 1,364
-------- --------
5,287 5,036
Common stock in treasury,
at cost (1,506) (1,506)
-------- --------
Total stockholders' equity 3,781 3,530
-------- --------
Total liabilities and
stockholders' equity $ 4,953 $ 4,270
======== ========
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, 2002 AND 2001
(Unaudited)
(Amounts in thousands, except per share data)
Three months ended Nine months ended
June 30 June 30
2002 2001 2002 2001
Net sales $1,517 $1,782 $6,019 $5,391
Cost of goods sold 1,104 1,286 3,642 3,654
------- ------- ------- -------
Gross profit 413 496 2,377 1,737
Selling, general and
administrative expenses 544 553 1,716 1,708
------- ------- ------- -------
(Loss) income from
operations (131) (57) 661 29
Other income (net),
principally interest 9 19 32 66
------- ------- ------- -------
(Loss) income before
income taxes (122) (38) 693 95
(Benefit) provision for
income taxes (42) (13) 239 33
------- ------- ------- -------
NET (LOSS) INCOME ($80) ($25) $454 $62
======= ======= ======= =======
Basic (loss) earnings
per share ($0.03) ($0.01) $0.16 $0.02
======= ======= ======= =======
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, 2002 AND 2001
(Unaudited)
(Amounts in thousands)
Three months ended Nine months ended
June 30 June 30
2002 2001 2002 2001
Cash flows from operating
activities:
Net (loss) income $ (80) $ (25) $ 454 $ 62
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and amortization 74 77 205 224
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable 285 181 83 350
Inventories 122 430 (3) 118
Prepaid expenses & other
assets 19 22 (37) (39)
Increase (decrease) in:
Accounts payable & accrued
expenses (263) (410) 432 (531)
------- ------- -------- -------
Net cash provided by
operating activities 157 275 1,134 184
------- ------- -------- -------
Cash flows from investing
activities:
Investments 47 0 (483) 925
Capital expenditures (177) (20) (213) (213)
------- ------- -------- -------
Net cash (used in) provided
by investing activities (130) (20) (696) 712
Cash flows from financing
activities:
Purchase of treasury stock 0 0 0 (382)
Cash dividend paid 0 0 (203) 0
------- ------- ------- -------
Net cash (used in)
financing activities 0 0 (203) (382)
Increase in cash and
cash equivalents 27 255 235 514
Cash and cash equivalents
at beginning of period 581 884 373 625
------- ------- ------- -------
Cash and cash equivalents
at end of period $ 608 $1,139 $ 608 $1,139
===== ====== ====== =======
See Accompanying Notes to Consolidated Financial Statements
MICROWAVE FILTER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
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, 2002 are not necessarily indicative of the
results that may be expected for the year ended September 30, 2002. For
further information, refer to the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10K for the year ended
September 30, 2001.
Note 2. Industry Segment Data
The Company's primary business segments involve (1) operations of Microwave
Filter Company, Inc. (MFC) which manufactures filters used for preventing
interference or signal processing in cable television, satellite, broadcast,
aerospace and government markets; and (2) operations of Niagara Scientific,
Inc. (NSI) which manufactures industrial automation equipment.
Information by segment is as follows:
Three months ended Nine months ended
(thousands of dollars) June 30 June 30,
2002 2001 2002 2001
Net Sales (Unaffiliated):
MFC $1,389 $1,245 $5,480 $4,445
NSI 128 537 539 946
------ ------ ------ ------
Total $1,517 $1,782 $6,019 $5,391
====== ====== ====== ======
Operating (loss) profit : (a)
MFC ($32) ($42) $811 $133
NSI (99) (15) (150) (104)
------ ------ ------ ------
Total ($131) ($57) $661 $29
====== ====== ======= =======
Identifiable assets: (b)
MFC $4,023 $2,867 $4,023 $2,867
NSI 322 286 322 286
------ ------ ------ ------
Subtotal 4,345 3,153 4,345 3,153
Corporate Assets - Cash
And Cash Equivalents 608 1,139 608 1,139
------ ------ ------ ------
Total $4,953 $4,292 $4,953 $4,292
====== ====== ====== ======
(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. Inventories
Inventories net of provision for obsolescence consisted of the following:
(thousands of dollars) June 30, 2002 September 30, 2001
Raw materials and stock parts $630 $702
Work-in-process 188 106
Finished goods 69 76
---- ----
$887 $884
==== ====
The Company's provision for obsolescence equaled $297,634 at June 30,
2002 and September 30, 2001.
Note 4. Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") approved
Statements of Financial Accounting Standards No. 141 "Business Combinations"
("SFAS 141") and No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142")
which are effective July 1, 2001 and October 1, 2002, respectively, for the
Corporation. SFAS 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001. This has no
material impact on the financial statements of the Company. Under SFAS 142,
amortization of goodwill, including goodwill recorded in past business
combinations, will discontinue upon adoption of this standard. The Company has
no goodwill or other intangibles as of June 30, 2002 or September 30, 2001.
In October 2001, FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS 144 provides guidance on the accounting
for long-lived assets to be held and used and for assets to be disposed of
through sale or other means. SFAS 144 is effective for fiscal years beginning
after December 15, 2001. The Company does not expect the adoption of SFAS 144
to have a material impact on its financial statements.
MICROWAVE FILTER COMPANY, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Microwave Filter Company, Inc. operates primarily in the United States and
principally in two industries. The Company extends credit to business
customers based upon ongoing credit evaluations. Microwave Filter Company,
Inc. (MFC) designs, develops, manufactures and sells electronic filters, both
for radio and microwave frequencies, to help process signal distribution and
to prevent unwanted signals from disrupting transmit or receive operations.
Markets served include cable television, television and radio broadcast,
satellite broadcast, mobile radio, commercial and defense electronics. Niagara
Scientific, Inc. (NSI), a wholly owned subsidiary, custom designs case packing
machines to automatically pack products into shipping cases. Customers are
typically processors of food and other commodity products with a need to
reduce labor cost with a modest investment and quick payback.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2002 vs. THREE MONTHS ENDED JUNE 30, 2001.
Net sales for the three months ended June 30, 2002 equaled $1,517,312, a
decrease of $264,720 or 14.9% when compared to net sales of $1,782,032 for the
three months ended June 30, 2001.
MFC sales for the three months ended June 30, 2002 equaled $1,389,010, an
increase of $143,815 or 11.5% when compared to sales of $1,245,195 for the
three months ended June 31, 2001. The increase in MFC sales can primarily be
attributed to an increase in the sales of the company's standard
cable/satellite TV products, which management attributes to the increase in
demand for the company's filters which suppress strong out-of-band
interference caused by military and civilian radar systems. This increase in
demand can primarily be attributed to the increased security measures being
taken as a result of the September 11th terrorist attacks. The Company is
uncertain how long this demand will continue and what levels it will reach.
There can be no assurance that the Company's sales levels or growth will
remain at, reach or exceed historical levels in any future period. MFC
continues to experience a decrease in demand in other product areas primarily
due to the economy.
MFC's sales order backlog equaled $317,382 at June 30, 2002, a decrease of
$82,386 when compared to sales order backlog of $399,768 at March 31, 2002.
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 85% of
MFC's sales order backlog at June 30, 2002 is scheduled to ship by September
30, 2002.
The Company continues to invest in production engineering and infrastructure
development to penetrate OEM (Original Equipment Manufacturer) market segments
as they become popular. MFC is concentrating its technical resources and
product development efforts toward potential high volume customers as part of
a concentrated effort to provide substantial long-term growth.
NSI sales for the three months ended June 30, 2002 equaled $128,302, a
decrease of $408,535 or 76% when compared to sales of $536,837 for the three
months ended June 30, 2001. NSI's sales order levels have been impacted
negatively by the sluggish economy and reduced capital spending. Sales of NSI
related equipment, on a quarter to quarter basis, can also be impacted by the
timing of the shipment of the custom designed equipment and the customer's
scheduled delivery dates. At June 30, 2002, NSI's sales order backlog equaled
$138,600 compared to $245,600 at March 31, 2002. NSI's total backlog of orders
is scheduled to ship during fiscal 2003.
The Company recorded a net loss of $80,194, or a loss of $.03 per share, for
the three months ended June 30, 2002 compared to a net loss of $24,696, or a
loss of $.01 per share, for the three months ended June 30, 2001. The decrease
in net income can primarily be attributed to the decrease in sales.
Gross profit for the three months ended June 30, 2002 equaled $413,019, a
decrease of $82,814 or 16.7%, when compared to gross profit of $495,833 for
the three months ended June 30, 2001. As a percentage of sales, gross profit
equaled 27.2% for the three months ended June 30, 2002 compared to 27.8% for
the three months ended June 30, 2001. The dollar decrease in gross profit can
primarily be attributed to decrease in sales.
Selling, general and administrative (SGA) expenses for the three months
ended June 30, 2002 equaled $544,440, a decrease of $7,956 or 1.4%, when
compared to SG&A expenses of $552,396 for the three months ended June 30,
2001. SGA expenses increased to 35.9% of sales for the three months ended June
30, 2002 when compared to 31.0% of sales for the three months ended June 30,
2001, primarily due to the decrease in sales this year when compared to the
same period last year. Due to the uncertain economic climate, the Company is
emphasizing cost controls and cost cutting measures to minimize operating
expenses.
On an industry segment basis, MFC recorded a loss from operations of $32,397
for the three months ended June 30, 2002 compared to a loss from operations of
$41,668 for the three months ended June 30, 2001. The improvement can
primarily be attributed to the increase in MFC's sales. NSI recorded a loss
from operations of $99,024 for the three months ended June 30, 2002 compared
to a loss from operations of $14,895 for the three months ended June 30, 2001.
The increase in NSI's operating loss can primarily be attributed to the
decrease in NSI sales this year when compared to the same period last year.
NINE MONTHS ENDED JUNE 30, 2002 vs. NINE MONTHS ENDED JUNE 30, 2001.
Net sales for the nine months ended June 30, 2002 equaled $6,018,723, an
increase of $627,619 or 11.6% when compared to net sales of $5,391,104 for
the nine months ended June 30, 2001.
MFC sales for the nine months ended June 30, 2002 equaled $5,480,330, an
increase of $1,035,032 or 23.3% when compared to sales of $4,445,298 for the
nine months ended June 30, 2001. The increase in MFC sales is primarily due to
the increase in the sales of the company's standard cable/satellite TV
products, which management attributes to the increase in demand for the
company's filters which suppress strong out-of-band interference caused by
military and civilian radar systems.
NSI sales for the nine months ended June 30, 2002 equaled $538,393, a
decrease of $407,413 when compared to sales of $945,806 for the nine months
ended June 30, 2001. 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 sales have also
been impacted by the unfavorable economic climate and reduced capital
spending.
Net income for the nine months ended June 30, 2002 equaled $454,078, or $.16
per share, an increase of $392,108 or 633% when compared to net income of
$61,970, or $.02 per share, for the nine months ended June 30, 2001. The
increase in net income is primarily due to the higher sales volume and
improved profit margins when compared to the same period last year.
Gross profit for the nine months ended June 30, 2002 equaled $2,376,716 or
39.5% of sales, an increase of $639,217 or 36.8%, when compared to gross
profit of $1,737,499 or 32.2% of sales for the nine months ended June 30,
2001. The improvements can primarily be attributed to the increase in sales,
product sales mix, operational efficiencies and economies of scale due to the
higher sales volume.
SG&A expenses for the nine months ended June 30, 2002 equaled $1,716,102, an
increase of $7,780 or 0.5% when compared to SG&A expenses of $1,708,322 for
the nine months ended June 30, 2001. Due to the uncertain economic climate,
the Company is emphasizing cost controls and cost cutting measures to minimize
operating expenses.
LIQUIDITY and CAPITAL RESOURCES
Cash and cash equivalents increased $234,400 to $607,542 at June 30,
2002 when compared to $373,142 at September 30, 2001. The increase was a
result of $1,133,811 in net cash provided by operating activities, $696,077
in net cash used in investing activities and $203,334 in net cash used in
financing activities.
The decrease of $82,781 in accounts receivable at June 30, 2002, when
compared to September 30, 2001, is attributable to the decrease in shipments
during the month ended June 30, 2002 when compared to the month ended
September 30, 2001.
The increase of $122,366 in customer deposits at June 30, 2002, when
compared to September 30, 2001, can primarily be attributable to the increase
in NSI's sales order backlog at June 30, 2002 when compared to September 30,
2001.
The increase in accrued federal and state income taxes payable of $236,791
at June 30, 2002, when compared to September 30, 2001, can primarily be
attributed to the increase in pre-tax income.
Cash used in investing activities during the nine months ended June 30, 2002
consisted of funds used to purchase investments ($482,769) and funds used for
capital expenditures ($213,308). Capital expenditures consisted primarily of
test equipment and engineering design software.
Cash used in financing activities during the nine months ended June 30, 2002
consisted of funds used to pay a cash dividend ($203,334) on March 13, 2002.
At June 30, 2002, the Company had unused aggregate lines of credit totaling
$600,000. Of these lines, $100,000 is for the purchase of equipment and is
collateralized by equipment and $500,000 is for working capital and is
collateralized by accounts receivable, inventories and equipment.
Management believes that its working capital requirements for the forseeable
future will be met by its existing cash balances, future cash flows from
operations and its current credit arrangements.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") approved
Statements of Financial Accounting Standards No. 141 "Business Combinations"
("SFAS 141") and No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142")
which are effective July 1, 2001 and October 1, 2002, respectively, for the
Corporation. SFAS 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001. This has no
material impact on the financial statements of the Company. Under SFAS 142,
amortization of goodwill, including goodwill recorded in past business
combinations, will discontinue upon adoption of this standard. The Company has
no goodwill or other intangibles as of June 30, 2002 or September 30, 2001.
In October 2001, FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS 144 provides guidance on the accounting
for long-lived assets to be held and used and for assets to be disposed of
through sale or other means. SFAS 144 is effective for fiscal years beginning
after December 15, 2001. The Company does not expect the adoption of SFAS 144
to have a material impact on its financial statements.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995
Any statements contained in this report which are not historical facts are
forward looking statements; and, therefore, many important factors could cause
actual results to differ materially from those in the forward looking
statements. Such factors include, but are not limited to, changes
(legislative, regulatory and otherwise) in the MMDS, LPTV or Cable industry,
demand for the Company's products (both domestically and internationally), the
development of competitive products, competitive pricing, market acceptance of
new product introductions, technological changes, general economic conditions,
litigation and other factors, risks and uncertainties which may be identified
in the Company's Securities and Exchange Commission filings.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is unaware of any material threatened or pending
litigation against the Company.
Item 2. Changes in Securities
None during this reporting period.
Item 3. Defaults Upon Senior Securities
The Company has no senior securities.
Item 4. Submission of Matters to a Vote of Security Holders
None during this reporting period.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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 14, 2002 Carl F. Fahrenkrug
(Date) --------------------------
Carl F. Fahrenkrug
Chief Executive Officer
August 14, 2002 Richard L. Jones
(Date) --------------------------
Richard L. Jones
Chief Financial Officer