SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C 20549
FORM 10-K
(Mark one)
_X_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended________September 30, 2003_____________________________
OR
__TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from____________to____________________________________
Commission file number__________________0-10976_________________________________
______________________Microwave Filter Company, Inc_____________________________
(Exact name of registrant as specified in its charter)
__________New York__________________________16-0928443__________________________
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
_____6743 Kinne Street, East Syracuse, NY________13057_________________________
(Address of principal executive offices) (Zip code)
Registrant's telephone number including area code____(315) 438-4700_____________
Securities registered pursuant to Section 12(b) of the Act:_____None____________
Securities registered pursuant to Section 12(g) of the Act:
_________________________Common stock, par value $.10 per share_________________
Title of class
Indicate by check mark whether the 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 such 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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. __
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES ____ NO__X__
1
The aggregate market value of the voting stock held by non-affiliates of the
registrant at the close of business on December 1, 2003 was $2,819,883.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares of common stock outstanding at December 1, 2003: 2,904,781
Documents incorporated by reference: None.
PART I
ITEM 1. BUSINESS.
GENERAL DEVELOPMENT OF BUSINESS
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Microwave Filter Company, Inc. (hereinafter referred to as MFC) was
incorporated in New York State on September 26, 1967. MFC is the successor of
Microwave Filter Company which was founded in April of 1967.
On July 1, 1990, MFC acquired Niagara Scientific, Inc. (hereinafter referred
to as NSI.)
MFC and its subsidiaries are sometimes referred to collectively as the
"Company."
NARRATIVE DESCRIPTION OF BUSINESS
- ----------------------------------
Microwave Filter Company, Inc. (MFC)
Established in 1967 in East Syracuse, New York, MFC occupies a modern 40,000
square foot facility with an impressive complement of analytical and design
software, test instrumentation, prototype and manufacturing equipment to create
passive filters, components and sub systems in the frequency range of 10 MHz to
50 GHz.
MFC manufactures filters for eliminating interference and signal processing
for such markets as Cable Television, Broadcast, Mobile Communications,
Avionics, Radar, Navigation and Defense Electronics. The Company designs
waveguide, stripline/ microstrip, transmission line, miniature/subminiature
and lumped constant filters in such filter styles as: bandpass, highpass,
lowpass, bandstop, multiplexers, tunable notch, tunable bandpass, high power
filters, filter networks, amplitude equalized and delay equalized. The Company
actively produces over 1,700 standard products and has designed more than 5,000
custom products for specialized applications.
A quality plan is developed for each incoming order. Working as a team,
engineers, designers, fabricators and technicians identify any potential design
or manufacturing challenges before the project begins. With a quality plan,
design to shipping time is reduced due to careful resource planning.
The manufacturing facility includes a state-of-the-art CAD-CAM system, a test
department with automated network analyzers to 50 GHz, a high capacity conveyor
soldering oven, a fully compliant finishing operation and a TQM/ISO9000 based
quality assurance program to insure the intrinsic quality of the products
produced.
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Efficient simulation, design and analysis software enhanced by proprietary
MFC developed software, allow rapid and accurate filter development at
reasonable cost. Automated network analyzers provide rigorous product testing
and performance data storage on a serial number basis.
A network based CAD-CAM system allows the transfer of data and programs to
the CNC turning and milling centers for fabrication of machined parts.
Prototype PC boards are similarly produced by computer controlled PC board
mills.
A Grieve high capacity conveyor soldering oven is used for production of
large quantity assemblies while smaller production quantities are assembled at
hand soldering or brazing stations.
ISO-9000 contract and design review procedures coupled with a QA department
that is compliant with MIL-I-45208 inspection systems and MIL-STD-45622
calibration system standards assures process and product integrity. A
certified staff instructor regularly trains associates to MIL-STD-2000A (now
superceded by J-STD-001.)
Other in-house testing facilities include three environmental chambers
capable of testing products for temperatures of -0 to 200 degrees Celsius and
humidity up to 100 percent. Several high power amplifiers are available for
power tests up to 2500 watts at 220 MHz and 100 watts at 1,000 MHz. An
automated in-house anechoic chamber provides antenna pattern measurement
capability in the 2 to 8 GHz frequency range. Facilities are also available
for salt spray, sand and dust, shock and vibration, RFI leakage and altitude
testing.
Niagara Scientific, Inc. (NSI)
- ------------------------------
NSI manufactures material handling equipment for suppliers of consumer goods.
Such suppliers would include food processors or any other manufacturer of
packaged consumer products that need to be moved into shipping cartons at a
certain rate of speed.
The Schroeder Machines Division (SMD), in existence for over 50 years, is a
division of Niagara Scientific. SMD manufactures a number of case packing
solutions but is most noted for its Quadnumatic. The Quadnumatic is an
automatic case packing machine that performs all the functions of collating,
case forming, loading and sealing products into their shipping cartons at
packing speeds ranging from 12 to 30 cases per minute.
Other products offered by Schroeder include a servo pick-and-place machine
for top loading packaging applications and a case erector/bottom taping
machine for customers who still hand pack or need to add a case former to an
existing case packing machine.
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MARKETS
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Microwave Filter Company, Inc. (MFC)
- ------------------------------------
Cable Television (CATV) - MFC serves this market principally with three
product groups. One popular area includes standard and custom filters used at
the headend to process signals and remove interference. A very popular
application involves removing or re-routing channels to organize programming
line-ups.
A family of trap filters, "Fastrap," is used by cable operators to restrict
or permit the viewing of pay per view or other premium programming. The traps
can be ordered in small and large quantities, are 100% inspected and delivered
overnight.
Since all operators initially receive programming via satellite, products
from our satellite market cross over into cable television. C-band satellite
receive systems are prone to various types of terrestrial interference which
are curable in many cases by applying filters.
Broadcast - Several areas of broadcast are served by Microwave Filter
Company with the most active being Wireless Cable.
Wireless Cable is a video delivery service that has attempted to compete
with cable television with limited success. This service delivers programming
over-the-air using microwave frequencies. Television programming is received
via a small rooftop antenna. The signals are then down converted for reception
by the television set. At the home, the equipment looks the same as that
supplied by a cable television company with the exception of the rooftop
antenna.
The most significant product sold to this market is our channel combiner used
at the broadcast site to reduce tower costs. By combining channels at the
transmitter, additional expensive coaxial or waveguide runs up the tower
become unnecessary.
MFC offers the widest selection of channel combiners to meet a variety of
system specifications. Combiners in different configurations and constructed
of different materials offer the operator better or best options depending on
budget or other system requirements.
4
LPTV - Low Power Television or LPTV is an option in the U.S. as a
multichannel subscription television service. A system similar to Wireless
Cable can be configured to deliver channels of programming to areas
where off air signals cannot be received. The only difference between both
services is broadcast frequency and the type of antenna located at the
subscriber's home. An LPTV receive antenna would look like any other off air
broadcast antenna in contrast to the microwave antenna used for Wireless
Cable. LPTV frequencies are easier to obtain and there are more LPTV than
Wireless channels available. In fact, due to the limited number of Wireless
Cable frequencies, Wireless Cable operators are using a combination of Wireless
and LPTV frequencies to increase the number of channels offered to their
subscribers. As a broadcaster, LPTV differs from traditional television only
in broadcast power. With lower broadcast power, the service has a smaller
reception area than high power broadcast stations.
Microwave Filter Company provides channel combiners and interference filters
for this industry. The channel combiners are used to group channels and
eliminate additional coaxial runs to the broadcast tower. Filters are also
used in broadcast equipment to eliminate interference.
Radio and Television Broadcast - MFC primarily serves these broadcast areas
with interference filters to reduce equipment harmonics. Other broadcast areas
served also include AML, telemetry and STL/ENG relays.
Similar to cable television, the broadcast industry is also moving towards
the digital delivery of both audio and video broadcast.
Satellite - Filters and traps for removing interference are provided to both
commercial and home C-band TVRO antennas. A variety of products are available
that offer protection and or solutions to interference that affects the
feedhorn, downconverter, and receiver. A variety of filters are also available
for satellite services utilizing higher frequency bands such as 12, 13 and 18
GHz.
Direct Broadcast Satellite or DBS is a version of home satellite programming
delivered direct to the home. It differs from C-band TVRO by the size of the
receive antenna. DBS broadcasts at a higher frequency requiring a smaller
satellite dish than C-band TVRO. Both satellite dealers and cable television
systems market the service to offer consumers television options.
Mobile Radio - MFC provides filters to a variety of mobile radio services
such as cellular telephone, two way radio and paging to eliminate interference
in transmit or receive equipment. With the number of services increasing and
our air waves becoming more congested, filters are increasingly important to
many transmit operations. Cellular telephone has been the largest mobile
radio growth market. The Cellular market is beginning to level off and now
Personal Communications Services (PCS) is an area of mobile radio on the rise.
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Microwave and RF - This market encompasses both commercial and military
applications. Filters in defense applications are used for such purposes as
air to ground communications, radar and land communications. In commercial
areas, filters are used to protect such equipment as receivers, transmitters,
transceivers and any other electronics used for signal processing. In addition
to filters, this market is also served with MFC's Ferrosorb product line.
Ferrosorb is a microwave absorbing material available in sheets, loads and a
variety of other shapes. The product is used to offer protection by shielding
signals or absorbing selective bands.
In 1992, MFC's acquisition of certain assets of Chesterfield Products added
an expanded line of products to enhance the RF filter line. Many of MFC's
traditional filters are components added onto a system. Chesterfield provided
MFC with the capability to manufacture miniature and subminiature filters
which are components built into electronic systems. Another Chesterfield
capability has provided us with the resources to expand our filter design
range down to 5 KHz.
There has been an increased demand for filters in the OEM (Original Equipment
Manufacturer) market. In response to this demand, MFC has purchased new design,
fabrication and test equipment to design filters up to 50 GHz. OEM orders are
larger than those received for other markets and facilities such as a soldering
oven have been added in the manufacturing area for large volume production.
Niagara Scientific, Inc. (NSI)
- ------------------------------
NSI - Like MFC, NSI and its divisions seek niche markets arising from
certain demographic changes in the industrial work force which promotes
acceptance of automation in both large and small factories. NSI's typical
product is customized to the purchaser's operation and is the result of system
engineering. The product makes tactical use of precision mechanical movements
or sensors of physical characteristics under microprocessor control. These
smart machines reduce labor costs through faster operation and increased
quality.
Typical customers for case packing machines are food processors or makers of
cosmetics, pharmaceuticals, candies or hardware whose product must be cased
for shipping and storage.
Other custom equipment is designed for inspection-rejection, counting,
analyzing or otherwise monitoring, reporting or controlling a continuous
manufacturing or industrial process.
Typical customers are commodity mass producers in the food, drug and paint
industries.
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WORLD TRADE
- -----------
Management believes that world marketing is a route to substantial expansion
of sales for MFC/NSI. Export opportunities for MFC's communication related
products are many - especially in areas of the world such as China, the
Pacific Rim and South America. Marketing research reveals that the Company's
products are in high demand in these areas of the world. Significant efforts
have been made over the last year to identify key international markets and to
establish distributors with appropriate technical backgrounds to represent our
interests in those regions.
NSI products are less suitable for export for a number of reasons, including
their large size and complexity, less demand in underdeveloped areas for
automation and significant local competition. However, NSI is well qualified
to produce and or distribute complementary products under license.
SUPPLIERS
- ---------
The Company depends on outside suppliers for raw materials, components and
parts, and services. Although items are generally available from a number of
suppliers, the Company purchases certain raw materials and components from a
single supplier. If such a supplier should cease to supply an item, the
Company believes that new sources could be found to provide the raw materials
and components. However, manufacturing delays and added costs could result.
The Company has not experienced significant delays of this nature in the past,
but there can be no assurance that delays in delivery due to supply shortages
will not occur in the future. Substantial periods of lead time for delivery of
certain materials are sometimes experienced by the Company, making it
necessary to inventory varied quantities of materials.
PATENTS AND LICENSES
- --------------------
The Company has no patents, trademarks, copyrights, licenses or franchises of
material importance.
SEASONAL FLUCTUATIONS
- ---------------------
There are no significant seasonal fluctuations in the Company's business.
GOVERNMENT CONTRACTS
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The Company is not dependent in any material respect on government contracts.
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BACKLOG
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At September 30, 2003, the Company's total backlog of orders was $452,789
compared to $705,578 at September 30, 2002. At September 30, 2003, MFC's
backlog of orders was $328,809 compared to $399,640 at September 30, 2002. At
September 30, 2003, NSI's backlog of orders was $123,980 compared to $305,938
at September 30, 2002. The total Company backlog at September 30, 2003 is
scheduled to ship during fiscal 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.
EMPLOYEES
- ---------
At September 30, 2003, the Company employed 59 full-time permanent
employees.
RESEARCH AND DEVELOPMENT
- ------------------------
The Company maintains and expects to continue to maintain an active research
and development program. The Company believes that such a program is needed
to maintain its competitive position in existing markets and to provide
products for emerging markets. Costs in connection with research and
development were $349,203, $376,857 and $362,518 for the fiscal years 2003,
2002 and 2001, respectively. Research and development costs are charged to
operations as incurred.
COMPETITION
- -----------
The principal competitive factors facing both MFC and NSI are price,
technical performance, service and the ability to produce in quantity to
specific delivery schedules. Based on these factors, the Company believes it
competes favorably in its markets.
ITEM 2. PROPERTIES.
MFC's office and manufacturing facility is located at 6743 Kinne Street,
East Syracuse, New York. This facility, which is owned by MFC, consists of
40,000 square feet of office and manufacturing space located on 3.7 acres.
MFC presently occupies approximately 35,000 square feet with the balance
(approximately 5,000 square feet) occupied by NSI.
ITEM 3. LEGAL PROCEEDINGS.
There are currently no material pending legal proceedings against the Company
or its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of the fiscal year covered by this Form 10-K, there
were no matters submitted to a vote of security holders.
8
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
MFC's common stock is traded on the NASDAQ over-the-counter market under the
symbol MFCO. The information set forth was obtained from statements provided
by the NASD. The following table shows the high and low sales prices for MFC's
common stock for each full quarterly period within the two most recent fiscal
years. The quotations represent prices in the over-the-counter market between
dealers in securities. They do not include retail mark-ups, mark-downs or
commissions.
Fiscal 2003 High Low
Oct. 1, 2002 to Dec. 31, 2002 $ 1.53 $ .90
Jan. 1, 2003 to Mar. 31, 2003 1.95 .97
Apr. 1, 2003 to June 30, 2003 1.24 .92
July 1, 2003 to Sept. 30, 2003 1.51 1.04
Fiscal 2002 High Low
Oct. 1, 2001 to Dec. 31, 2001 $ 1.45 $ 1.00
Jan. 1, 2002 to Mar. 31, 2002 2.98 1.13
Apr. 1, 2002 to June 30, 2002 2.55 1.50
July 1, 2002 to Sept. 30, 2002 1.81 .94
The approximate number of stockholders on September 30, 2003 was 2,800.
On December 18, 2002, the Board of Directors declared a ten cents per share
cash dividend to shareholders of record on January 17, 2003 to be distributed
on January 31, 2003.
On February 13, 2002, the Board of Directors declared a seven cents per
share cash dividend to shareholders of record on February 27, 2002 to be
distributed on March 13, 2002.
9
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial information is derived from and should be
read in conjunction with the financial statements, including the notes
thereto, appearing in Item 8. - "Financial Statements and Supplemental Data."
Five Year Summary of Financial Data
September 30
2003 2002 2001 2000 1999
Net Sales $ 5,059,520 $ 7,251,732 $ 6,848,191 $ 7,491,853 $ 6,572,949
Net (Loss) Income $ (282,400) $ 434,287 $ 128,752 $ 338,736 $ 160,471
Total Assets $ 3,901,545 $ 4,865,885 $ 4,270,151 $ 5,142,708 $ 4,704,630
Long Term Debt $ 0 $ 0 $ 0 $ 0 $ 0
(Loss) Earnings Per Share $ (.10) $ .15 $ .04 $ .11 $ .05
Weighted Average Number of
Common Shares Outstanding 2,904,781 2,904,781 2,946,284 3,169,061 3,283,098
Cash ($) Dividends Paid Per
Share $ .10 $ .07 $ .03 $ .05 $ .05
Net (loss) income as a percentage of: 2003 2002 2001 2000 1999
Sales............................. (5.6) 6.0 1.9 4.5 2.4
Assets .................... (7.2) 8.9 3.0 6.6 3.4
Equity............................ (8.9) 11.5 3.6 8.8 4.3
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ITEM 7. 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, including original equipment manufacturers (OEMs), distributors and
other end users, based upon ongoing credit evaluations. Microwave Filter
Company, Inc. 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., a wholly owned subsidiary, custom
designs case packing machines to automatically pack products into shipping
cases. Customers are processors of food and other commodity products with a
need to reduce labor cost with a modest investment and quick payback.
RESULTS OF OPERATIONS
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The following table sets forth the Company's net sales by major product
groups for each of the fiscal years in the three year period ended September
30, 2003.
Product group (in thousands) Fiscal 2003 Fiscal 2002 Fiscal 2001
Niagara Scientific $ 704 $ 552 $ 981
Microwave Filter:
Cable/Satellite TV 3,138 5,326 4,022
RF/Microwave 1,015 980 1,184
Broadcast TV 202 394 661
Total $5,059 $7,252 $6,848
Sales backlog at 9/30 $ 453 $ 706 $ 466
Fiscal 2003 compared to fiscal 2002
Consolidated net sales for the fiscal year ended September 30, 2003 equaled
$5,059,520, a decrease of $2,192,212 or 30.2% when compared to consolidated net
sales of $7,251,732 during the fiscal year ended September 30, 2002.
Microwave Filter Company, Inc. (MFC) sales decreased $2,344,203 or 35% to
$4,355,223 during the fiscal year ended September 30, 2003 when compared to
sales of $6,699,426 during the fiscal year ended September 30, 2002.
11
The decrease in MFC sales can primarily be attributed to the decrease in the
sales of the Company's standard Cable/Satellite TV product sales, which
management attributes to the decrease in demand for the Company's standard
filters which suppress strong out-of-band interference caused by military and
civilian radar systems. Last year, the Company saw an increase in demand for
the Company's filters which suppress strong out-of-band interference caused by
military and civilian radar systems, primarily due to the increased security
measures that were taken as a result of the September 11th terrorist attacks.
That demand decreased during fiscal 2003 resulting in the lower sales and due
to the current economic climate, MFC has not seen an increase in sales in
other product areas. MFC's Cable/Satellite TV product sales decreased
$2,188,365 or 41.1% to $3,137,757 during fiscal 2003 when compared to sales of
$5,326,122 for the fiscal year ended September 30, 2002.
MFC's RF/Microwave product sales increased $35,415 or 3.6% to $1,015,233
during the fiscal year ended September 30, 2003 when compared to sales of
$979,818 during the fiscal year ended 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.
MFC's BTV/Wireless cable sales decreased $191,253 or 48.6% to $202,233 for
the fiscal year ended September 30,2003 when compared to sales of $393,486 for
the fiscal year ended September 30, 2002, primarily due to the downturn in the
telecommunications marketplace.
Niagara Scientific, Inc. (NSI) sales increased $151,991 or 27.5% to $704,297
for the fiscal year ended September 30, 2003 when compared to sales of
$552,306 for the fiscal year ended September 30, 2002. Sales of NSI related
equipment can be impacted by the timing of the shipment of the custom designed
equipment and the customer's scheduled delivery dates. Despite the increase in
sales, NSI's sales order levels have been negatively impacted by the sluggish
economy and reduced capital spending.
At September 30, 2003, the Company's total backlog of orders equaled
$452,789 compared to $705,578 at September 30, 2002. At September 30, 2003,
MFC's backlog of orders equaled $328,809 compared to $399,640 at September 30,
2002. At September 30, 2003, NSI's backlog of orders equaled $123,980 compared
to $305,938 at September 30, 2002. The total Company backlog at September 30,
2003 is scheduled to ship during fiscal 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.
Gross profit decreased $1,339,186 or 47.3% to $1,490,166 during the fiscal
year ended September 30, 2003 when compared to gross profit of $2,829,352
during the fiscal year ended September 30, 2002. The dollar decrease in gross
profit during fiscal 2003, when compared to fiscal 2002, can primarily be
attributed to the decrease in sales. As a percentage of sales, gross profit
equaled 29.5% during the fiscal year ended September 30, 2003 compared to
39.0% during the fiscal year ended September 30, 2002. The decrease in gross
profit as a percentage of sales, when compared to the same period last year,
can primarily be attributed to the lower sales volume.
12
Selling, general and administrative (SG&A) expenses decreased $309,832 or
13.6% to $1,962,530 during the fiscal year ended September 30, 2003 when
compared to SG&A expenses of $2,272,362 during the fiscal year ended September
30, 2002. The reductions were primarily related to decreases in payroll and
payroll related expenses and planned reductions in media advertising costs. As
a percentage of sales, SG&A expenses increased to 38.8% during the fiscal year
ended September 30, 2003 when compared to 31.3% during the fiscal year ended
September 30, 2002, primarily due to the decrease in sales during fiscal 2003
when compared to fiscal 2002. Due to the uncertain economic climate, the
Company has been emphasizing cost controls and cost cutting measures to
minimize operating expenses.
Income from operations decreased $1,029,354 to a loss from operations of
$472,364 during the fiscal year ended September 30, 2003 when compared to
income from operations of $556,990 during the fiscal year ended September 30,
2002 primarily due to the decrease in sales. On an industry segment basis,
MFC's income from operations decreased $1,055,779 to a loss from operations of
$194,582 for the fiscal year ended September 30, 2003 when compared to income
from operations of $861,197 for the fiscal year ended September 30, 2002, due
primarily to the lower sales volume. NSI recorded a loss from operations of
$204,478 for the fiscal year ended September 30, 2003 compared to a loss from
operations of $229,893 for the fiscal year ended September 30, 2002. NSI's
loss from operations can partly be attributed to the absorption of fixed
overhead expenses. Corporate expenses decreased $1,010 to $73,304 for the
fiscal year ended September 30, 2003 when compared to corporate expenses of
$74,314 for the fiscal year ended September 30, 2002.
The Company recognized an income tax benefit of $163,928, or an effective
tax rate of (36.7%), for the fiscal year ended September 30, 2003 compared to
income tax expense of $167,080, or an effective tax rate of 27.8%, for the
fiscal year ended September 30, 2002, primarily due to the pre-tax loss for
the fiscal year ended September 30, 2003. In 2002, the effective tax rate
differed from the statutory tax rate primarily due to research and
experimentation tax credits recognized.
Fiscal 2002 compared to fiscal 2001
Consolidated net sales for the fiscal year ended September 30, 2002 equaled
$7,251,732, an increase of $403,541 or 5.9% when compared to consolidated net
sales of $6,848,191 during the fiscal year ended September 30, 2001.
Microwave Filter Company, Inc. (MFC) sales increased $832,797 or 14.2% to
$6,699,426 during the fiscal year ended September 30, 2002 when compared to
sales of $5,866,629 during the fiscal year ended September 30, 2001.
The increase in MFC sales can primarily be attributed to the increase in the
sales of the Company's standard Cable/Satellite TV product sales, which
management attributes to the increase in demand for the Company's standard
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 that were taken as a result of the September
11th terrorist attacks. MFC's Cable/Satellite TV product sales increased
$1,304,173 or 32.4% to $5,326,122 during fiscal 2002 when compared to sales of
$4,021,949 for the fiscal year ended September 30, 2001. Substantially all of
this increase was realized during the first six months of the fiscal year.
13
Due to economic conditions, the Company experienced declines in sales in
other product areas. MFC's RF/Microwave product sales decreased $204,261 or
17.3% to $979,818 during the fiscal year ended September 30, 2002 when
compared to sales of $1,184,079 during the fiscal year ended September 30,
2001. 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 BTV/Wireless cable sales decreased $267,115 or 40.4% to $393,486
for the fiscal year ended September 30, 2002 when compared to sales of
$660,601 for the fiscal year ended September 30, 2001, primarily due to the
downturn in the telecommunications marketplace.
Niagara Scientific, Inc. (NSI) sales decreased $429,256 or 43.7% to $552,306
for the fiscal year ended September 30, 2002 when compared to sales of
$981,562 for the fiscal year ended September 30, 2001. Sales of NSI related
equipment can be impacted by the timing of the shipment of the custom designed
equipment and the customer's scheduled delivery dates. Management attributes
the decrease in NSI sales to the downturn in the economy and reduced capital
spending.
At September 30, 2002, the Company's total backlog of orders equaled
$705,578 compared to $466,384 at September 30, 2001. At September 30, 2002,
MFC's backlog of orders equaled $399,640 compared to $465,881 at September 30,
2001. At September 30, 2002, NSI's backlog of orders equaled $305,938 compared
to $503 at September 30, 2001. Approximately 80% of the total Company backlog
at September 30, 2002 is scheduled to ship during fiscal 2003. 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.
Gross profit increased $538,454 or 23.5% to $2,829,352 during the fiscal
year ended September 30, 2002 when compared to gross profit of $2,290,898
during the fiscal year ended September 30, 2001. The dollar increase in gross
profit during fiscal 2002, when compared to fiscal 2001, can be attributed to
both the improvement in gross profit as a percentage of sales and the increase
in sales volume. As a percentage of sales, gross profit equaled 39.0% during
the fiscal year ended September 30, 2002 compared to 33.5% during the fiscal
year ended September 30, 2001. The improvement in gross profit as a percentage
of sales, when compared to the same period last year, can primarily be
attributed to a favorable product sales mix experienced in the first six
months of the fiscal year and the operational efficiencies and economies of
scale gained due to the higher production volume.
14
Selling, general and administrative (SG&A) expenses increased $11,741 or
0.5% to $2,272,362 during the fiscal year ended September 30, 2002 when
compared to SG&A expenses of $2,260,621 during the fiscal year ended September
30, 2001. As a percentage of sales, SG&A expenses decreased to 31.3% during
the fiscal year ended September 30, 2002 when compared to 33.0% during the
fiscal year ended September 30, 2001, primarily due to the increase in sales
during fiscal 2002 when compared to fiscal 2001. Due to the uncertain economic
climate, the Company has been emphasizing cost controls and cost cutting
measures to minimize operating expenses.
Income from operations increased $526,713 to $556,990 during the fiscal year
ended September 30, 2002 when compared to income from operations of $30,277
during the fiscal year ended September 30, 2001. On an industry segment basis,
MFC's income from operations increased $575,283 to $861,197 for the fiscal
year ended September 30, 2002 when compared to income from operations of
$285,914 for the fiscal year ended September 30, 2001, due primarily to the
improved profit margins and higher sales volume. NSI recorded a loss from
operations of $229,893 for the fiscal year ended September 30, 2002 compared
to a loss from operations of $180,020 for the fiscal year ended September 30,
2001. NSI's loss from operations can be attributed to the lower sales volume
and the absorption of fixed overhead expenses. Corporate expenses decreased
$1,303 to $74,314 for the fiscal year ended September 30, 2002 when compared
to corporate expenses of $75,617 for the fiscal year ended September 30, 2001.
The Company's income tax expense equaled $167,080, an effective income tax
rate of 27.8%, for the fiscal year ended September 30, 2002 compared to an
income tax benefit of $10,436 for the fiscal year ended September 30, 2001,
primarily due to the higher levels of pre-tax income for the fiscal year ended
September 30, 2002.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
MFC defines liquidity as the ability to generate adequate funds to meet its
operating and capital needs. The Company's primary source of liquidity has
been funds provided by operations.
September 30
2003 2002 2001
Cash & cash equivalents $646,886 $649,196 $373,142
Investments $875,671 $1,377,765 $900,359
Working capital $2,203,072 $2,594,590 $2,288,932
Current ratio 4.09 to 1 3.41 to 1 4.18 to 1
Long-term debt $ 0 $ 0 $ 0
15
Cash and cash equivalents decreased $2,310 to $646,886 at September 30, 2003
when compared to $649,196 at September 30, 2002. The decrease was a result of
$167,015 in net cash used in operating activities, $455,183 in net cash
provided by investing activities and $290,478 in net cash used in financing
activities.
The net decrease of $60,285 in accounts receivable at September 30, 2003,
when compared to September 30, 2002, can primarily be attributed to the
decrease in shipments during the month ended September 30, 2003 when compared
to the same period last year.
The net decrease of $255,577 in inventories at September 30, 2003, when
compared to September 30, 2002, can primarily be attributed to the decrease in
the sales order backlog at September 30, 2003, when compared to the last year,
and an increase in the inventory valuation reserves. The Company provides for
a valuation reserve for certain inventory that is deemed to be obsolete, of
excess quantity or otherwise impaired. The Company's inventory valuation
reserves equaled $401,974 at September 30, 2003 compared to $345,161 at
September 30, 2002. The increase of $56,813 in inventory reserves at September
30, 2003, when compared to the same period last year, can primarily be
attributed to the obsolescence of specific inventory items due to product
enhancements or the slow movement of certain inventory items due to a decrease
in demand. Based on current and expected inventory levels, management believes
any change to the inventory valuation reserves will not have a material impact
on future results of operations, capital resources or liquidity. All such
inventory items are written down to their estimated net realizable value.
The decrease of $100,843 in other current liabilities at September 30, 2003,
when compared to September 30, 2002, can be attributed to the payment of the
Company's discretionary profit sharing contribution for fiscal 2002 during
fiscal 2003.
Cash used in investing activities during fiscal 2003 consisted of funds
provided by the sale of investments of $502,094 and funds used for capital
expenditures of $46,911.
Cash used in financing activities consisted of funds used to pay a cash
dividend of $290,478.
At September 30, 2003, 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
foreseeable future will be met by its existing cash balances, future cash
flows from operations and its current credit arrangements.
16
Off-Balance Sheet Arrangements
At September 30, 2003 and 2002, 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.
Critical Accounting Policies
The Company's consolidated financial statements are based on the application
of accounting principles generally accepted in the United States of America
(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.
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 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 has deferred tax assets that are reviewed for recoverability and
valued accordingly. These assets are evaluated by using estimates of future
taxable income streams and the impact of tax planning strategies. Valuations
related to tax accruals and assets can be impacted by changes to tax codes,
changes in statutory tax rates and the Company's future taxable income levels.
17
NEW PRONOUNCEMENTS
- ------------------
SFAS No. 147, "Acquisitions of Certain Financial Institutions", SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure - an
amendment of FAS 123", SFAS No. 149 " Amendment of Statement 133 on Derivative
Instruments and Hedging Activities", SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity",
and FIN 46, "Consolidation of Variable Interest Entities - an interpretation
of ARB No. 51" have been issued. The adoption of these statements has no
impact on the financial statements of the Company.
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, 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company has limited exposure to market risk as the Company has no long
term debt as of September 30, 2003. The Company's available line of credit is
based on a factor of the prime rate; however, there are no outstanding
borrowings under the line of credit. The Company does not trade in derivative
financial instruments. 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.
18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Financial Statements and Financial Statement Schedules called for by this
item are submitted as a separate section of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES
The Company maintains controls and procedures designed to ensure that
information required to be disclosed in the reports that the Company files or
submits under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time period specified in the
rules and forms of the Securities and Exchange Commission. Based upon their
evaluation of those controls and procedures performed within 90 days of the
filing date of this report, the Chief Executive and Chief Financial Officers
of the Company concluded that the Company's disclosure controls and procedures
were adequate.
The Company made no significant changes in its internal controls or in other
factors that could significantly affect internal controls subsequent to the
date of the evaluation of those controls by the Chief Executive and Chief
Financial Officers. There were no significant deficiencies or material
weaknesses identified in the evaluation and, therefore, no corrective actions
were taken. While the Chief Executive and Chief Financial Officers of the
Company believe that the Company's existing disclosure controls and procedures
have been effective to accomplish its objectives, the Chief Executive and
Chief Financial Officers of the Company intend to examine, refine and
formalize our disclosure controls and procedures and monitor ongoing
developments.
Notwithstanding the foregoing, there can be no assurance that the Company's
disclosure controls and procedures will detect or uncover all failures of
persons within the Company and its consolidated subsidiaries to disclose
material information otherwise required to be set forth in the Company's
periodic reports.
19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The names of, and certain information with respect to, the directors of MFC
is set forth below:
Common Shares
Actually or Percent
Beneficially of
Director Principal occupation Owned 12/1/03 Class
TRUDI B. ARTINI Mrs. Artini is an independent 82,435 2.8%
(a)(b)(d) investor in MFC and various other
Age 81 business enterprises in Syracuse,
Director since 1974 New York.
DAVID B. ROBINSON MD Dr. Robinson is Emeritus Professor 58,571 2.0%
(a)(b)(d) of Psychiatry at Upstate Medical
Age 79 University, State University of New
Director since 1977 York at Syracuse. He was a faculty
member from 1958 until his retirement
in 1985 and served as Acting Chairman
of the Dept. of Psychiatry for six
of those years. He was elected to
serve as a Skaneateles Town Councilman
from 1990 to 1998. In 1980, he was a
founding member of the Skaneateles
Festival of Chamber Music.
LOUIS MISENTI President and Principal 264,814 9.1%
Age 76 shareholder of SCI Corp.,
Director since 1976 Syracuse, New York since 1984.
SCI manufactures polishing
compounds for the automobile and
silverware industries. Mr.
Misenti is also the managing
partner of Northern Pines Golf
Course, Cicero, New York which was
founded in 1970. He was elected
Chairman of the Board of
Directors of MFC on March 27,
1993.
20
Common Shares
Actually or Percent
Beneficially of
Director Principal occupation Owned 12/1/03 Class
CARL F. FAHRENKRUG PE Mr. Fahrenkrug was appointed 132,598 4.6%
(a)(d) President and Chief Executive
Age 61 Officer of MFC on October 7,
Director since 1984 1992. He has also served as
President and Chief Executive
Officer of NSI since prior to
1986. He served as Vice
President of Engineering at
Microwave Systems, Inc.,
Syracuse, N.Y. from 1972-1976.
Mr. Fahrenkrug has a B.S. and
M.S. in Engineering and an MBA
from Syracuse University.
MILO PETERSON Mr. Peterson has served as 80,000 2.8%
(a)(d) Executive Vice President and
Age 63 Corporate Secretary of NSI since
Director since 1990 January 1, 1992. Mr. Peterson
graduated from programs at Yale
University and Syracuse
University. He served as Vice
President of Manufacturing of
Microwave Systems, Inc.,
Syracuse, N.Y. from 1970-1976.
He was elected Vice President
And Corporate Secretary of MFC
On March 27, 1993.
FRANK S. MARKOVICH Mr. Markovich is a consultant in 4,340 *
(c)(d) the manufacturing operations
Age 58 and training field. Prior to that
Director since 1992 he was the Director of the
Manufacturing Extension
Partnership at UNIPEG Binghamton.
He held various high level
positions in operations, quality
and product management in a 20
year career with BF Goodrich
Aerospace, Simmonds Precision
Engine Systems of Norwich, New
York. He completed US Navy
Electronics and Communications
Schools and received an MBA from
Syracuse University.
21
Common Shares
Actually or Percent
Beneficially of
Director Principal occupation Owned 12/1/03 Class
ROBERT R. ANDREWS Mr. Andrews is the President and 1,214 *
(a)(c) Principal shareholder of Morse
Age 62 Manufacturing Co., Inc., East
Director since 1992 Syracuse, N.Y. which produces
specialized material handling
equipment and has served in that
capacity since prior to 1985. He
received a B.A degree from
Arkansas University and has
served as Vice President and a
director of the Manufacturers'
Association of Central New York,
President of the Citizens
Foundation, a Trustee of Dewitt
Community Church, director of the
Salvation Army and Chairman of
the Business and Industry
Council of Onondaga Community
College.
SIDNEY CHONG Mr. Chong is a corporate 3,335 *
(a)(b)(c) accountant for Carrols Corp. in
Age 62 Syracuse. Prior to joining Carrols
Director since 1995 Corp., he was a Senior Accountant
with Price Waterhouse and Co. in
New York City. Mr. Chong has a
Bachelor of Science degree in
accounting from California State
University.
Daniel Galbally Mr. Galbally is an accountant 1,489 *
(b)(c) for Nucor Steel Auburn, Inc.
Age 56 in Auburn, New York. Prior to
Director since 1995 joining Nucor Steel Auburn, he
was the controller of Diamond Card
Exchange, Inc. in Syracuse, New
York. He was the controller of
Evaporated Metal Films (EMF) in
Ithaca, N.Y. Before joining EMF,
he worked as controller and acting
vice president of finance at
Philips Display Components Co.
He has a bachelor's degree in
accounting and an MBA from
Syracuse University.
(a)Member of Executive Committee
(b)Member of Compensation Committee
(c)Member of Finance and Audit Committee
(d)Member of Nominating Committee
* Denotes less than one percent of class.
22
The Directors listed above and executive officers as a group own 630,682
shares or approximately 22% of the outstanding common shares of the Company.
The Board of Directors of Microwave Filter Company, Inc. has determined that
Mr. Chong and Mr. Galbally, both members of the Audit Committee, are "audit
committee financial experts" as defined by the SEC's regulations.
IDENTIFICATION OF EXECUTIVE OFFICERS
Name Age Position
Carl F. Fahrenkrug 61 President and Chief Executive Officer
Richard L. Jones 55 Vice President and Chief Financial
Officer
Milo J. Peterson 63 Vice President and Corporate Secretary
Paul W. Mears 44 Vice President of Engineering
All of the officers serve at the pleasure of the Board of Directors.
Carl F. Fahrenkrug was elected President and Chief Executive Officer of MFC on
October 7, 1992. Prior to that date, he had been Executive Vice President and
Chief Operating Officer of MFC. Prior to January 1, 1992, he was President and
CEO of NSI and Vice President of Corporate Development for MFC.
Richard L. Jones joined MFC in August 1983 as controller. In February 1985, he
was appointed Vice President and Treasurer of MFC. On October 7, 1992, he was
appointed Vice President and Chief Financial Officer.
Milo J. Peterson was elected Vice President and Corporate Secretary of MFC on
March 27, 1993. Mr. Peterson has served as Executive Vice President and
Corporate Secretary of NSI. He served as Vice President of Manufacturing of
Microwave Systems, Inc., Syracuse, NY, from 1970 - 1976.
Paul W. Mears began his association with MFC as a Co-op while attending RIT in
1981. He became a full time employee in 1984 when he began his duties as an
Electrical Engineer in Research and Development. In 1988 he became a Senior
Design and Quotation Engineer and in 1989, he was promoted to Assistant Chief
Engineer, Manager of Engineering of the Filter Division and in April of 1998,
Was appointed Vice President of Engineering.
The Company has adopted a Code of Ethics and Business Conduct for all of our
employees and directors, including our Chief Executive Officer and Chief
Financial Officer. A copy of our Code of Ethics and Business Conduct is
available free of charge on our Company web site at www.microwavefilter.com.
23
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth for the fiscal years ended September 30, 2003,
2002 and 2001, compensation paid by MFC to the named executive officers in all
capacities in which they served.
SUMMARY COMPENSATION TABLE
Annual Compensation
Salary Bonus
Name and principal position Year ___$___ ___$___
Carl F. Fahrenkrug 2003 119,019 -
President and CEO 2002 127,274 -
2001 126,832 -
PROFIT SHARING
- --------------
MFC has a profit sharing plan for all employees over the age of 21 with one
year of service. Annual contributions are determined by the Board of Directors
and are made from current or accumulated net income. Allocation of
contributions to plan participants are based upon annual compensation.
Participants vest on the basis of 20% after 3 years of service, 40% at 4
years, 60% at 5 years, 80% at 6 years and 100% at 7 years.
MFC also has a voluntary 401-K plan. Eligibility is the same as the Profit
Sharing Plan. Contributions to the 401-K plan are currently matched at a rate
of 100% of an employee's first 3% of contributions and 50% of an employee's
next 2% of contributions. The maximum corporate match is 4% of an employee's
compensation.
MFC's contributions to the plans for the years ended September 30, 2003,
2002 and 2001 amounted to $80,017, $187,488 and $112,461, respectively.
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. There were no stock options or
stock appreciation rights granted or outstanding at September 30, 2003 or
2002.
24
COMPENSATION OF DIRECTORS
- -------------------------
Non-officer directors receive fees of $400.00 per board and committee
meetings. MFC also reimburses directors for reasonable expenses incurred in
attending meetings. The Chairman of the Board and Officer members receive no
compensation for their attendance at meetings. During fiscal 2003, the Company
paid Louis S. Misenti $23,542 in compensation for his services as Chairman of
the Board of Directors of Microwave Filter Company, Inc.
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
The following table sets forth information as to the only persons known by
the Company to own beneficially more than 5% of the Common Stock of the Company
on December 1, 2003.
% of
Outstanding
Number of shares
Common
Name of Beneficial Owner Address Beneficially Owned ____Stock____
Frederick A. Dix & 209 Watson Rd. 244,007 8.4%
Marjorie Dix N. Syracuse, NY 13212
Louis S. Misenti 140 Clearview Rd. 264,814 9.1%
Dewitt, NY 13214
The information relating to the ownership of common stock held by the
directors and executive officers of the corporation is set forth in item 10 of
this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None
25
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. and 2. Financial Statements and Schedules:
Reference is made to the list of Financial Statements and
the Financial Statement Schedule submitted as a separate
section of this report.
(b) Reports On Form 8-K:
There are no reports on Form 8-K for the three months ended
September 30, 2003.
(C) Exhibits:
Reference is made to the List of Exhibits submitted as a separate
section of this report.
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Microwave Filter Company, Inc. has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MICROWAVE FILTER COMPANY, INC.
|S| Carl F. Fahrenkrug
- --------------------------
By: Carl F. Fahrenkrug
(President and Chief Executive Officer)
|S| Richard Jones
- ---------------------
By: Richard Jones
(Vice President and Chief Financial Officer)
Dated: December 19, 2003
Pursuant to the requirements Of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated:
|S| Louis S. Misenti |S| Carl F. Fahrenkrug
- ------------------------ --------------------------
Louis S. Misenti Carl F. Fahrenkrug
(Director) (Director)
|S| Milo J. Peterson |S| Robert R. Andrews
- ------------------------ -----------------------
Milo J. Peterson Robert R. Andrews
(Director) (Director)
|S| Sidney Chong
- --------------------
Sidney Chong
(Director)
Dated: December 19, 2003
27
ANNUAL REPORT ON FORM 10-K
MICROWAVE FILTER COMPANY, INC.
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
ITEM 8, ITEM 15(a)(1) and (2)
CONSOLIDATED FINANCIAL STATEMENTS: Page
Independent Auditors' Report.....................................29
Consolidated Balance Sheets as of September 30, 2003 and 2002....30
Consolidated Statements of Operations for the Years
Ended September 30, 2003, 2002 and 2001 .......................31
Consolidated Statements of Stockholders' Equity for the Years
Ended September 30, 2003, 2002 and 2001 .......................32
Consolidated Statements of Cash Flows for the Years
Ended September 30, 2003, 2002 and 2001 .......................33
Notes to Consolidated Financial Statements.......................34-40
SCHEDULE FOR THE YEARS ENDED SEPTEMBER 30, 2003, 2002 AND 2001:
II-Valuation and Qualifying Accounts.............................42
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
28
Report of Independent Auditors
To the Board of Directors and Shareholders of
Microwave Filter Company, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 15(a) (1) present fairly, in all material respects, the
financial position of Microwave Filter Company, Inc. and Subsidiaries at
September 30, 2003 and 2002, and the results of their operations and their
cash flows for each of the three years in the period ended September 30, 2003,
in conformity with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial statement
schedules listed in the index appearing under Item 15(a) (2) present fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These
financial statements and financial statement schedules are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements and financial statement schedules based on our
audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Syracuse, New York
December 11, 2003
29
Microwave Filter Company and Subsidiaries
Consolidated Balance Sheets
September 30
Assets 2003 2002
- ------ ---- ----
Current assets:
Cash and cash equivalents $ 646,886 $ 649,196
Investments 875,671 1,377,765
Accounts receivable-trade, net of allowance for
doubtful accounts of $65,000 and $49,000 318,351 378,636
Federal and state income tax recoverable 39,485 0
Inventories 707,590 963,167
Deferred tax asset - current 235,492 179,779
Prepaid expenses and other current assets 92,666 120,579
--------- ---------
Total current assets 2,916,141 3,669,122
Property, plant and equipment, net 974,519 1,196,763
Deferred tax asset - noncurrent 10,885 0
---------- ----------
Total Assets $3,901,545 $4,865,885
========== ==========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable $ 171,837 $ 179,686
Customer deposits 144,390 139,466
Accrued federal and state income taxes 0 233,846
Accrued payroll and related expenses 96,069 126,352
Accrued compensated absences 255,301 248,867
Other current liabilities 45,472 146,315
--------- ---------
Total current liabilities 713,069 1,074,532
Deferred tax liability - noncurrent 0 29,999
--------- ---------
Total liabilities 713,069 1,104,531
--------- ---------
Commitments (Note 6)
Stockholders' equity:
Common stock, $.10 par value. Authorized 5,000,000 shares
Issued 4,317,688 in 2003 and 2002 431,769 431,769
Additional paid-in capital 3,239,867 3,239,867
Retained earnings 1,022,554 1,595,432
Common stock in treasury, at cost,
1,412,907 shares in 2003 and 2002 (1,505,714) (1,505,714)
--------- ---------
Total stockholders' equity 3,188,476 3,761,354
--------- ---------
Total Liabilities and Stockholders' Equity $3,901,545 $4,865,885
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
30
Microwave Filter Company and Subsidiaries
Consolidated Statements of Operations
For the Years Ended September 30
2003 2002 2001
---- ---- ----
Net sales $5,059,520 $7,251,732 $6,848,191
Cost of goods sold 3,569,354 4,422,380 4,557,293
--------- --------- ---------
Gross profit 1,490,166 2,829,352 2,290,898
Selling, general
and administrative expenses 1,962,530 2,272,362 2,260,621
--------- --------- ---------
(Loss) income from operations (472,364) 556,990 30,277
Non-operating Income (Expense)
Interest income 24,634 37,513 56,519
Interest expense 0 0 (229)
Miscellaneous 1,402 6,864 31,749
--------- --------- ---------
(Loss) income before
income taxes (446,328) 601,367 118,316
(Benefit) provision for
income taxes (163,928) 167,080 (10,436)
--------- --------- ---------
NET (LOSS) INCOME ($282,400) $434,287 $128,752
========= ========= =========
(Loss) Earnings Per Common Share ($.10) $0.15 $0.04
========= ========= =========
Weighted average number of common
shares outstanding 2,904,781 2,904,781 2,946,284
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
31
Microwave Filter Company and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the Years Ended September 30, 2003, 2002 and 2001
-----------------------------------------------------
Additional Total
Common Stock Paid-in Retained Treasury Stock Stockholders'
Shares Amt Capital Earnings Shares Amt Equity
------ --- ------- -------- ------ --- ------
Balance,
September 30, 2000 4,317,688 $431,769 $3,239,867 $1,322,871 1,153,502 ($1,124,180) $3,870,327
Net income 128,752 128,752
Purchase of treasury stock 259,400 (381,534) (381,534)
Donated capital 5
Cash dividend paid
($.03 per share) (87,144) (87,144)
--------- -------- ---------- -------- ------- ---------- ----------
Balance,
September 30, 2001 4,317,688 431,769 3,239,867 1,364,479 1,412,907 (1,505,714) 3,530,401
Net income 434,287 434,287
Cash dividend paid
($.07 per share) (203,334) (203,334)
---------- --------- ---------- ---------- ------- ---------- ----------
Balance
September 30, 2002 4,317,688 431,769 3,239,867 1,595,432 1,412,907 (1,505,714) 3,761,354
Net (loss) (282,400) (282,400)
Cash dividend paid
($.10 per share) (290,478) (290,478)
---------- --------- ---------- ---------- ------- ---------- ----------
Balance
September 30, 2003 4,317,688 $431,769 $3,239,867 $1,022,554 1,412,907 ($1,505,714) $3,188,476
========== ======== ========== ========== ========= =========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
32
Microwave Filter Company and Subsidiaries
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
------------------------------------------------
For the Years Ended September 30
--------------------------------
2003 2002 2001
---- ---- ----
Cash flows from operating activities:
Net (loss) income ($282,400) $434,287 $128,752
Adjustments to reconcile net (loss) income to
net cash (used in) provided by operating
activities:
Depreciation 269,155 280,072 300,950
Provision for doubtful accounts 15,675 18,469 0
Inventory obsolescence provision 56,813 50,000 0
Deferred income taxes (96,597) (4,090) (16,065)
Changes in assets and liabilities:
Accounts receivable-trade, net 44,610 202,982 296,734
Federal and state income taxes (273,331) 173,224 (128,147)
Inventories 198,764 (129,188) 219,851
Other assets 27,913 (33,630) (9,494)
Accounts payable and customer deposits (2,925) 104,167 (332,505)
Accrued payroll, compensated absences and
related expenses (23,849) 1,011 6,824
Other current liabilities (100,843) 75,618 (49,765)
--------- -------- -------
Net cash (used in) provided by
operating activities (167,015) 1,172,922 417,135
--------- -------- -------
Cash flows from investing activities:
Investments 502,094 (477,406) 24,708
Capital expenditures (46,911) (216,128) (225,500)
-------- -------- --------
Net cash provided by (used in)
investing activities 455,183 (693,534) (200,792)
-------- -------- ----------
Cash flows from financing activities:
Purchase of treasury stock 0 0 (381,534)
Cash dividend paid (290,478) (203,334) (87,144)
-------- -------- --------
Net cash used in financing activities (290,478) (203,334) (468,678)
-------- -------- --------
Net (decrease) increase
in cash and cash equivalents (2,310) 276,054 (252,335)
Cash and cash equivalents at beginning of year 649,196 373,142 625,477
-------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $646,886 $649,196 $373,142
======== ======== ==========
Supplemental disclosures of cash flows:
Cash paid during the year for (approximately):
Interest $0 $0 $200
Income taxes $206,000 $0 $128,800
The accompanying notes are an integral part of the consolidated financial
statements.
33
Microwave Filter Company and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Nature of Business
Microwave Filter Company, Inc. operates primarily in the United States and
principally in two industries. The Company extends credit to business
customers, including original equipment manufacturers (OEMs), distributors
and other end users, based upon ongoing credit evaluations. Microwave Filter
Company, Inc. 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. custom designs case packing machines to automatically pack
products into shipping cases. Customers are processors of food and other
commodity products with a need to reduce labor cost with a modest investment
and quick payback.
b. Basis of Consolidation
The consolidated financial statements include the accounts of Microwave
Filter Company, Inc. (MFC) and its wholly-owned subsidiaries, Niagara
Scientific, Inc. (NSI) and Microwave Filter International, LTD. (MFI); located
in Syracuse, New York. All significant intercompany balances and transactions
have been eliminated in consolidation.
c. Revenue Recognition
The Company recognizes revenue at the time products are shipped to customers
and title and risk of loss have passed to the customer. The Company is not
required to install any of its products. Payments received from customers in
advance of products shipped are recorded as customer advance payments until
earned.
d. Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of 90 days or less to be cash equivalents. The carrying
value at September 30, 2003 and September 30, 2002 approximates fair value.
Substantially all cash balances were invested at one financial institution at
September 30, 2003 and 2002.
e. 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.
34
f. Inventories
Inventories are stated at the lower of cost determined on the first-in, first-
out method or market.
g. Research and Development
Costs in connection with research and development, which amount to $349,203,
$376,857 and $362,518 for the fiscal years 2003, 2002 and 2001, respectively,
are charged to operations as incurred.
h. Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is provided
using the straight-line method over the estimated useful lives of the
respective assets. Buildings and building improvements are depreciated over an
estimated service life of 20 to 30 years. Machinery and equipment are
depreciated over an estimated useful life of 3 to 10 years. Office equipment
and fixtures are depreciated over an estimated useful life of 3 to 10 years.
At the time of sale or retirement, the cost and accumulated depreciation are
removed from the respective accounts and the resulting gain or loss is
recognized in income.
i. 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.
j. Earnings Per Share
The Company presents basic earnings per share ("EPS"), computed based on the
weighted average number of common shares outstanding for the period, and when
applicable diluted EPS, which gives the effect to all dilutive potential
shares outstanding (i.e. options) during the period after restatement for any
stock dividends. The Company had no dilutive potential common shares
outstanding for the years ended September 30, 2003, 2002 or 2001. Income used
in the EPS calculation is net income for each year.
k. Fair Value of Financial Instruments
The carrying values of the Company cash and cash equivalents, accounts
receivable and accounts payable approximate fair value because of the short
maturity of those instruments.
The Company currently does not trade in or utilize derivative financial
instruments.
35
l. Miscellaneous Non-operating Income
Miscellaneous non-operating income generally consists of sales of scrap
material, stock transfer fees, the forfeiture of non-refundable deposits and
other incidental items.
m. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Estimates also affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
n. Warranty Costs
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.
2. INVENTORIES
Inventories net of provision for obsolescence
consisted of the following: September 30
2003 2002
---- ----
Raw materials and stock parts $426,698 $635,930
Work-in-process 201,807 256,970
Finished goods 79,085 70,267
-------- ---------
$707,590 $963,167
======== ==========
The Company's reserve for obsolescence equaled $401,974 at September 30,
2003 and $345,161 at September 30, 2002.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
September 30
2003 2002
---- ----
Land $143,000 $143,000
Building and improvements 1,818,633 1,818,633
Machinery and equipment 3,068,256 3,042,103
Office equipment and fixtures 1,534,024 1,513,266
--------- ---------
6,563,913 6,517,002
Less: Accumulated depreciation 5,589,394 5,320,239
--------- ---------
$974,519 $1,196,763
========== ==========
36
4. CREDIT FACILITIES
The Company has unused aggregate lines of credit totaling $750,000
collateralized by inventory, equipment and accounts receivable.
5. PROFIT SHARING AND 401-K PLANS
The Company maintains both a non-contributory profit sharing plan and a
contributory 401-K plan for all employees over the age of 21 with one year of
service. Annual contributions to the profit sharing plan are determined by
the Board of Directors and are made from current or accumulated earnings,
while contributions to the 401-K plan are currently matched at a rate of 100%
of an employee's first 3% of contributions and 50% of an employee's next 2% of
contributions. The maximum corporate match is 4% of an employee's
compensation.
The Company's matching contributions to the 401-K plan for the years ended
September 30, 2003, 2002 and 2001 were $80,017, $87,488 and $92,461,
respectively. Additionally, the Company may make discretionary contributions
to the non-contributory profit sharing plan. These contributions were $0,
$100,000 and $20,000 in 2003, 2002 and 2001, respectively.
6. OBLIGATIONS UNDER OPERATING LEASES
The Company leases equipment under operating lease agreements expiring at
various dates through September 30, . Rental expense under these leases
for the years ended September 30, 2003, 2002 and 2001 amounted to $13,711,
$14,888 and $14,410, respectively.
Minimum rental commitments at September 30, 2003 for these leases are:
Year Ended Lease
September 30 Payments
------------ --------
2004 $11,219
2005 7,486
2006 6,242
2007 6,242
2008 4,682
-------
$35,871
=======
37
7. INCOME TAXES
The provision for income taxes consisted of the following:
Year Ended September 30
2003 2002 2001
Currently payable:
Federal ($70,831) $162,170 $4,629
State 3,500 9,000 1,000
Deferred (credit) (96,597) (4,090) (16,065)
------- ------- -------
($163,928) $167,080 ($10,436)
======== ======== =======
A reconciliation of the statutory federal income tax rate and the Company's
effective income tax rate is as follows:
Year ended September 30
______2003______ ______2002______ ______2001______
Amount % Amount % Amount %
Statutory tax rate ($151,752) (34.0)% $204,465 34.0% $40,227 34.0%
Surtax exemption (7,995) (6.8%)
State income tax net of:
Federal benefit 2,310 0.5% 5,940 1.0% 660 0.6%
Foreign sales benefit 0 .0% (3,973) (0.7%) (7,912) (6.7%)
Research and experimentation
tax credits 0 .0% (31,158) (5.2%) (31,860) (26.9%)
Other (14,486) (3.2%) (8,194) (1.3%) (3,556) (3.0%)
-------- ------ ------- ------ ------- ------
($163,928) (36.7%) $167,080 27.8% ($10,436) (8.8%)
======== ===== ======== ===== ======= ====
The temporary differences which give rise to deferred tax assets and
liabilities at September 30 are as follows:
2003 2002
---- ----
Inventory $142,912 $106,444
Accrued vacation 70,480 59,031
Accounts receivable 22,100 14,304
------- -------
Net deferred tax assets - current $235,492 $179,779
======== ========
Accelerated depreciation ($88,871) ($94,523)
Research and experimentation
tax credit carry forward 60,357 25,125
AMT credit carry forward 39,399 39,399
------ --------
Net deferred tax assets
(liabilities) - noncurrent $10,885 ($29,999)
======= =======
Based on the Company's history of taxable earnings and its expectations for
the future, management has determined that operating income will more likely
than not be sufficient to recognize its deferred tax assets. Research and
experimentation tax credit carry forwards expire in 2022. At September 30, 2003,
the Company's federal AMT credit can be carried forward indefinitely.
38
8. INDUSTRY SEGMENT DATA
The Company's primary business segments involve (1) operations of Microwave
Filter Company, Inc. (MFC) which manufactures electronic 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 industry segment is as follows: (thousands of dollars)
2003 2002 2001
Net Sales (Unaffiliated):
MFC $4,356 $6,700 $5,867
NSI 704 552 981
Total $5,060 $7,252 $6,848
Operating Profit (Loss): (a)
MFC ($195) $861 $286
NSI (204) (230) (180)
Corporate (73) (74) (76)
Total ($472) $557 $30
Identifiable Assets: (b)
MFC $3,033 $3,907 $3,696
NSI 222 310 201
Subtotal 3,255 4,217 3,897
Corporate Assets-Cash and
Cash Equivalents 647 649 373
Total $3,902 $4,866 $4,270
Depreciation Expense:
MFC $264 $275 $296
NSI 5 5 5
Total $269 $280 $301
Capital Expenditures:
MFC $ 47 $216 $226
NSI 0 0 0
Total $ 47 $216 $226
Significant Export Sales:
MFC $366 $339 $554
(a) Operating profit (loss) is total revenue less operating expenses. In
computing operating profit, none of the following items have been added or
deducted: general corporate expenses, 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
Company's operations in each industry.
39
9. 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. There were no stock options or stock appreciation rights
granted or outstanding at September 30, 2003, 2002 or 2001.
10. LEGAL MATTERS
There are currently no material pending legal proceedings against the
Company or its subsidiaries.
11. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
The following table sets forth certain unaudited quarterly financial
information For the years ended September 30, 2003 and 2002:
2003 Quarter Ended
-----------------------------------------------------
Dec. 31 March 31 June 30 Sept. 30
------------ ------------ ------------ -----------
Net sales $1,489,157 $1,013,892 $1,322,546 $1,233,925
Cost of sales $1,039,471 $ 762,205 $1,011,981 $ 755,697
Net (loss) income $ (86,168) $ (179,076) $ (76,552) $ 59,396
(Loss) earnings
per common share: $ (.03) $ (.06) $ (.03) $ .02
2002 Quarter Ended
-----------------------------------------------------
Dec. 31 March 31 June 30 Sept. 30
------------ ------------ ------------ -----------
Net sales $2,390,460 $2,110,951 $1,517,312 $1,233,009
Cost of sales $1,220,369 $1,317,345 $1,104,293 $ 780,373
Net income (loss) $ 375,492 $ 158,781 $ (80,194) $ (19,792)
Earnings (loss)
per common share: $ .13 $ .05 $ (.03) $ .00
40
EXHIBIT INDEX
Page
Exhibit No. Description Number
3.1 MFC Certificate of Corporation, as amended. *
3.2 MFC Amended and Restated Bylaws. *
10.1 Bond Purchase Agreement dated as of February 22,1984 *
among MFC, Onondaga County Industrial Development Agency
("OCIDA") and Key Bank of Central New York ("Bondholder").
10.2 Lease Agreement dated as of February 22, 1984 between MFC and OCIDA. *
10.3 Mortgage and Security Agreement dated as of February 22, 1984 from *
MFC and OCIDA to the Bondholder.
10.4 Guaranty Agreement dated as of February 22, 1984 from MFC to OCIDA *
and the Bondholder.
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
* Previously filed
41
Microwave Filter Company and Subsidiaries
Schedule II - VALUATION AND QUALIFYING ACCOUNTS
SEPTEMBER 30, 2003, 2002 and 2001
Col. A Col. B Col. C Col. D Col. E
Additions
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
Description of Period Expenses Accounts Deductions of Period
- ----------- --------- ----------------------- ---------- ----------
Year ended September 30, 2003
Allowance for doubtful accounts $49,325 $15,675 $65,000
Inventory valuation reserves 345,161 56,813 401,974
-------- -------- ------- ------- --------
$394,486 $72,488 $0 $0 $466,974
======== ======== ======= ======== ========
Year ended September 30, 2002
Allowance for doubtful accounts $41,155 $18,469 $10,299 $49,325
Inventory valuation reserves 297,634 50,000 2,473 345,161
-------- -------- ------- ------- --------
$338,789 $68,469 $0 $12,772 $394,486
======== ======== ======= ======== ========
Year ended September 30, 2001
Allowance for doubtful accounts $44,023 $2,868 $41,155
Inventory valuation reserves 323,101 25,467 297,634
-------- -------- ------- ------- --------
$367,124 $0 $0 $28,335 $338,789
======== ======== ======= ======== ========
42