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, 1995_____________________________
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) 437-3953_____________
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.__
The aggregate market value of the voting stock held by non-affiliates of the
registrant based upon the average bid and asked prices of such stock at the
close of business on November 30, 1995 was $2,851,183.
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 November 30, 1995: 3,323,482
Documents incorporated by reference: None.
Total number of pages included in Form 10-K are: 41
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL DEVELOPMENT OF BUSINESS
- -------------------------------
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)
MFC designs, develops, manufactures and sells passive 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.
The company actively produces over 1,700 standard products and has designed
an additional 4,500 custom products for specialized applications.
Four basic filter types comprise the building blocks for interference
filters.
Low Pass Filters - Low pass filters have a designed "cutoff" frequency: all
lower frequencies pass through the filter undiminished while higher
frequencies are blocked. These filters may be used to protect a receiver from
a wide range of higher, interfering frequencies. They may be used to block
out higher order harmonics or simply preselect a band of desired frequencies.
High Pass Filters - High pass filters also have a designed "cutoff"
frequency, but their pass and block functions are reversed; all lower
frequencies are blocked while all higher frequencies pass through the filter
undiminished. These filters are often used to protect a receiver from a wide
range of lower, interfering frequencies.
Bandpass Filters - Bandpass filters pass a "window" of frequencies - a
continuous segment of the radio frequency spectrum. They reject all
frequencies outside this window.
Band Rejection Filters - Band rejection filters have the reverse function of
a bandpass filter; they reject all frequencies in a continuous "window" of the
radio frequency spectrum and pass all higher and lower frequencies. They may
be used to remove several interfering frequencies when these are grouped in a
limited portion of the radio frequency spectrum. A band reject filter also
removes a band of frequencies for the reinsertion of new programming on the
same band of frequencies.
2
<PAGE>
Filter Networks - The company is often called upon to design filter networks
to meet complex interference problems. Each filter network utilizes the basic
filters described in the preceding paragraphs, connected according to certain
mathematical equations, to solve complex interference problems.
MFC's reputation for product service and quality has encouraged customers to
engage us for their custom filters and program requirements. Utilizing a well
equipped design test facility within a 40,000 square foot physical plant, MFC
offers a full range of production capability for large and small orders. We
also provide military specifications and quality assurance programs.
MFC formed the Comband Division in January 1993 after it purchased the CT-
1000 addressable converter product line from Comband Technologies, Inc.,
Chesapeake, Va. to expand business in one of its growing markets, Wireless
Cable. The CT-1000 system encrypts and authorizes programming and pay-per-
view events to subscribers. The product line is the culmination of many years
of design initiated by General Electric, Portsmouth, Va. It consists of four
parts:
1. A Management Computer System (MCS) packages combinations of channels and
provides management report functions.
2. A PC based system controller, installed at the transmission site, accepts
information downloaded from the MCS and drives one or more encoder/modulators.
3. The encoder/modulators scramble the programming for broadcast using
combinations of six randomly selected modes.
4. An addressable converter box in the subscriber's home, decodes the signal
using the patented digital data, transmission standard and insures that the
right programming is received.
Introduction of the CT-1000 is a departure from MFC's traditional style of
manufacturing passive products, which require no electricity for operation, to
active circuitry systems, which require power. The purchase of the CT-1000
product line was a natural move for MFC, which has developed products for the
Wireless Cable industry since the mid 70's.
New products were added to the Comband product line in 1995. The CT-1100
Super Cypher Multi-tier Broadband System was developed as a low cost
descrambling alternative to the CT-1000 Addressable Converter for receiving
Wireless Cable programming. Customers are afforded a system which descrambles
programming for all televisions within a household. The system is addressable
but does not offer the pay-per-view feature of the CT-1000.
Niagara Scientific, Inc. (NSI)
- ------------------------------
NSI also includes niche markets in its customer base: industrial customers
not addressed by larger competitors and larger customers having special needs.
Schroeder Machine Division (SMD) - A leading activity is custom designing
case packing machines to automatically pack products into shipping cases.
Customers are processors of food and other commodity
3
<PAGE>
products with a need to reduce labor cost with modest investment and quick
payback. Operations are also characterized by repeat orders as customer
production expands. "Smart" machines range from video inspection machines to
the Model 8000 automatic flexible bag packing machine.
MARKETS
- -------
Microwave Filter Company, Inc. (MFC)
- ------------------------------------
Cable Television (CATV) - MFC serves this industry largely 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.
Cable television is a dynamic industry which has more than doubled in size
over the last 10 years. In 1982 there were 4,825 operating systems serving 21
million subscribers. In 1995, there were 11,351 operating systems serving
56.5 million subscribers.
Many challenges will face the cable industry in the next decade and several
new directions have been forged. Many multiple system operators have replaced
coaxial cable with fiber optics in anticipation of delivering 500 channels of
programming. A race has started among manufacturers to make equipment
available that will deliver television in digital rather than analog format.
These technological changes will turn television into an interactive tool from
a passive entertainment vehicle. Cable television will deliver more than just
programming for leisurely viewing in the future. Along with telephone
companies and other competitors, it is destined to provide two-way interactive
services that consumers will strongly depend upon for everyday needs.
Cable television was reregulated in 1992 to encourage competition from other
service providers and to keep cable rates at reasonable price levels. In
response, cable companies have consolidated operations to trim back costs so
they can implement new technology in their systems and still remain fiscally
strong while competing against other television service providers. Digital
technology is the wave of the future. Nearly every subscription television
service will implement this technology which will offer an extremely large
number of channels for a variety of applications.
Competition for multichannel television service will increase from other
sources. This decade will continue to see the growth of other options such as
Wireless Cable, Direct Broadcast Satellite and TVRO. These changes represent
opportunities for Microwave Filter for new filter applications engendered by
an atmosphere of healthy competition.
4
<PAGE>
Broadcast - There are several areas of broadcast served by MFC. Wireless
Cable represents the largest growth area. There are currently 190 operating
Wireless Cable systems in the U.S. serving 750,000 subscribers. In 1994,
there were 165 systems serving 600,000 subscribers. There are 4 million
Wireless Cable subscribers worldwide.
Wireless Cable is a multichannel subscription television service that is a
competitor to cable television. This service delivers programming over-the-
air using microwave frequencies. Television programming is received at
customer sites via a small rooftop antenna. The signals are then
downconverted for reception at the viewers' television sets. There is no
discernible difference between cable and wireless with respect to equipment
installed in subscribers' homes. This service differs from cable television
by its delivery method and that it offers fewer channels. Currently, over 33
channels can be delivered by Wireless Cable. Digital compression techniques
can increase these channels eight fold.
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.
New in 1995 is the Model 13000 Micro "Q" Series the "Notebook," a low power
semi-adjacent channel combiner that is low cost, compact, lightweight,
stackable and easy to install. A rack mount version of this product is also
available.
The Comband CT-1000 Addressable Converter System is an analog scrambling
system designed for wireless TV. In 1994, an order, in excess of $1 million,
to be shipped over a five year period, was received from Northwest Cable
Network in Yakima, WA. The CT-1000 has the capability to scramble a total of
62 MMDS and UHF low power television channels. This year expanded sales
efforts into Canada were made due to this new capability.
In 1994 MFC and Zenith Electronics Corp. were among five manufacturers
selected by the largest wireless cable television company in the U.S.,
American Telecasting, Inc., (ATI) of Colorado Springs, CO, to form an alliance
to develop digital technology for delivering video programming. Several field
tests were completed successfully in 1995 indicating that this new technology
will be implemented sometime in 1996 among ATI systems. The plan is to enable
customers to receive over-the-air delivery of 150 to 300 channels including
near video-on-demand pay-per-view movie offerings. Efforts will also be
directed toward wireless telephone service and interactive-based services.
MFC combiners will be used exclusively in this project.
LPTV - Low Power Television or LPTV is becoming popular in the US as a
multichannel subscription television service. A system similar to Wireless
Cable can be configured that will deliver channels of programming to areas
where off air signals cannot be received. The only difference between both
services
5
<PAGE>
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. Channels of programming can be scrambled using the CT-
1000 addressable converter in the same manner as for Wireless Cable. 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. The industry has grown significantly since 1990 when
there were only 807 stations in service. There are currently 1,782 low power
television systems in the U.S., representing a 120% increase since 1990. UHF
LPTV service is growing in popularity as an over-the-air multichannel
television service because channel licenses are more available than channels
in other bands.
Microwave Filter 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. As mentioned earlier, the CT-
1000 addressable converter system can now be used to organize subscription
television services among LPTV or hybrid LPTV/MMDS television systems.
MFC was privileged to provide channel combiners to one of the largest UHF
television systems in the U.S. in 1995. Two LPTV systems, Alaskan Choice
Television, were built in Fairbanks and Anchorage. The Fairbanks system,
reputed to be the largest in the country and perhaps even the world, will have
25 channels while Anchorage will have 16. MFC was selected as a vendor for
the project because of its reputation for quick delivery. The product MFC is
providing is the channel combiner.
Radio and Television Broadcast - MFC primarily serves these broadcast areas
with interference filters to reduce equipment harmonics. An example is high
power high Q cavity filters developed for interference applications. There
was relatively small growth in the radio sector in 1995. Currently there are
12,012 radio stations versus 11,739 in 1994. Television stations experienced
an even smaller growth. There are 1,532 stations in operation. Last year
there were 1,512 stations in operation. 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. There are now over 3.8 million C-band
satellite dishes installed at businesses and private homes. A variety of
filters are also available for satellite services utilizing higher frequency
bands such as 12, 13 and 18 GHz. Use of satellite services has become more
prevalent for transmitting business data.
Direct Broadcast Satellite or DBS has become a competitor to cable
television. 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
6
<PAGE>
TVRO. Many satellite dealers have become involved in marketing DBS services
because consumer trends indicate that providing a variety of television
service options are important to business survival.
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. "High Q" filters have become widely
accepted by the market. With the number of services increasing and our air
waves becoming more congested, filters increasingly are important to many
transmit operations. Cellular telephone has been the largest mobile radio
growth market. In 1985, there were 65 operating systems and currently there
are 1,581. The Cellular market is beginning to level off and now Personal
Communications Services (PCS) is an area of mobile radio on the rise. In 1996
MFC plans to design and to reintroduce a full line of products for PCS and
other mobile radio services that will be used for transmit and receive
operations.
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. MFC also
has a line of couplers. 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.
Although defense spending will continue to decline over the next several
years, there appears to be a shifting from military into commercial markets
which shows great promise for expansion in the years ahead.
In 1995 MFC successfully increased activities to acquire additional original
equipment manufacturer (OEM) accounts. Several existing accounts with
communications equipment manufacturers were also bolstered due to the efforts
of a new full time sales manager with an engineering background hired early in
1995.
In April, the Government and Space Technology Group (GSTG) of Motorola
presented MFC with its Outstanding Supplier Award. The award was in
recognition of MFC's commitment to quality, on-time delivery and total
customer satisfaction.
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
7
<PAGE>
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. Recent customers for typical machines include
DuPont, Knorr and Planters-Lifesavers.
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.
WORLD TRADE
- -----------
Management believes that world marketing is a route to substantial expansion
of sales for MFC/NSI. Preliminary results of a pilot program indicate that
export opportunities for MFC's communication related products are many -
especially in developing countries and Europe, where the general government
monopoly of all broadcasting is yielding to private ownership. While some new
products would facilitate entry to certain markets, there are a large number
of areas where the company's existing products are in demand such as in the
Pacific Rim and South America. Besides wider sales, the project has discovered
many other trade opportunities, such as joint ventures which have the
possibility of expanding domestic sales with modest capital investment.
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 purchases its raw materials and components from a variety of
vendors. Generally, there are multiple sources for such raw materials and
components.
PATENTS AND LICENSES
- --------------------
In connection with its purchase of the Comband CT-1000 product line, MFC
acquired, either exclusively or jointly with another party, five patents. The
patents relate to various segments of the CT-1000 system. The issue dates of
such patents range from 1985 to 1992. The Company has no other patents,
trademarks, copyrights, licenses or franchises of material importance.
SEASONAL FLUCTUATIONS
- ---------------------
There are no significant seasonal fluctuations in the Company's business.
GOVERNMENT CONTRACTS
- --------------------
The Company is not dependent in any material respect on government
contracts.
8
<PAGE>
BACKLOG
- -------
At September 30, 1995, the Company's total backlog of orders was $1,693,786
compared to $1,822,611 at September 30, 1994 At September 30, 1995, MFC's
backlog of orders was $1,275,285 compared to $1,635,646 at September 30,
1994. At September 30, 1995, NSI's backlog of orders was $418,501 compared to
$186,965 at September 30, 1994. Approximately 85% of the Company's backlog at
September 30, 1995 is scheduled to ship during fiscal 1996.
EMPLOYEES
- ---------
At September 30, 1995, the Company employed 79 full-time permanent
employees, 5 part-time permanent employees, and 5 full-time temporary
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 $408,425 $442,228 and $454,700 for the fiscal years 1995,
1994 and 1993, respectively. Research and development costs are charged to
operations as incurred.
MANUFACTURING
- -------------
Products are produced by small teams specializing in product or customer
type. A full range of internal core facilities support the work of these
teams to minimize dependence on outside facilities and to minimize customer
order delivery time. These consist of machine, metal forming and brazing
shops, engraving and label making, electrical test and mechanical inspection
facilities, product finishing and packing and a documentation center for
export shipping.
ENGINEERING
- -----------
Combined MFC/NSI engineering facilities require few outside services which
minimizes new product development cycles. Facilities include computer-aided
circuit design capable of product performance simulation. It is used for both
physical product development and for customer quotation preparation.
Engineering work stations and AutoCad drafting terminals are linked by a
plant-wide Local Area Network. Extensive electrical test equipment includes
modern recording network analyzers with provisions for microprocessor control
to collect extensive test data automatically, when desired. A specially
staffed computer programming center provides systems of programs for various
business and technical functions. A high power Radio Frequency test lab and
environmental test chamber permit product testing under realistic conditions.
Equipment for mechanical stress testing is also included. An anechoic test
chamber facilitates antenna measurement tests on relay antennas developed for
the Wireless Cable market. Additionally, extensive nearby university and
industrial facilities provide service for a spectrum of additional types of
testing.
ITEM 2. PROPERTIES.
MFC's office and manufacturing facility is located at 6743 Kinne Street, East
Syracuse, New York. This facility, which is beneficially owned by MFC,
consists of 40,000 square feet of office and
9
<PAGE>
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.
MFC's purchase of the facility was financed through the issuance of Onondaga
County Industrial Revenue Bonds. Because of the manner in which the
transaction was structured and in order to afford MFC certain sales and real
property tax abatements, record title to the facility is held by the Onondaga
County Industrial Development Agency (OCIDA). MFC leases the facility from
OCIDA for nominal rent and, upon repayment of the bonds, is required to
purchase the facility from OCIDA for $1.00.
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.
10
<PAGE>
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 bids 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-up, mark-down or commission
and do not necessarily represent actual transactions.
Bid
Fiscal 1995 High Low
Oct. 1, 1994 to Dec. 31, 1994 $ 1.19 $ .84
Jan. 1, 1995 to Mar. 31, 1995 1.19 .95
Apr. 1, 1995 to June 30, 1995 1.50 1.13
July 1, 1995 to Sept. 30, 1995 1.81 1.19
Fiscal 1994 High Low
Oct. 1, 1993 to Dec. 31, 1993 $ .90 $ .57
Jan. 1, 1994 to Mar. 31, 1994 1.31 .71
Apr. 1, 1994 to June 30, 1994 1.43 1.01
July 1, 1994 to Sept. 30, 1994 1.31 .95
Adjusted for all stock dividends.
The approximate number of stockholders on September 30, 1995 was 1,700.
On January 11, 1995, the Board of Directors declared a 5% per share stock
dividend to shareholders of record on February 1, 1995, to be distributed on
February 14, 1995. Fractional shares were paid in cash.
On December 1, 1993, the Board of Directors declared a 5% per share stock
dividend to shareholders of record on December 29, 1993, to be distributed on
January 28, 1994. Fractional shares were paid in cash.
11
<PAGE>
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
<TABLE>
<CAPTION>
September 30
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net Sales $ 7,655,198 $ 8,616,861 $ 6,814,329 $ 7,254,364 $ 6,286,542
Net Income (loss)(1) $ 19,164 $ 117,529 $ (118,330) $ 107,881 $ 145,050
Earnings (loss) Per Share $ .01 $ .04 $ (.03) $ .03 .04
Weighted Average Number of
Common Shares Outstanding*(2) 3,312,810 3,341,831 3,402,921 3,760,843 3,675,561
Cash ($) or Stock (%) Dividends* 5% 5% 5% $ .04 10%
Total Assets(2) $ 5,273,931 $ 5,597,991 $ 4,761,044 $ 5,250,619 $ 5,358,381
Long Term Debt $ 439,545 $ 583,354 $ 251,298 $ 316,032 $ 350,537
*Adjusted for all stock dividends.
Net income (loss) as a percentage of: 1995 1994 1993 1992 1991
Sales............................. 0.3 1.4 (1.7) 1.5 2.3
Assets............................ 0.4 2.1 (2.5) 2.1 2.7
Equity............................ 0.5 3.3 (3.4) 2.7 3.7
</TABLE>
(1) In the fourth quarter of 1993, the Company recorded an expense of
approximately $336,000 consisting principally of the writedown of certain
inventory items and a receivable.
(2) On February 26, 1993 the Company purchased 505,598 shares of stock at $1.055
per share in settlement of a $72,000 note receivable and paying cash in the
amount of $461,409.
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
The following table sets forth the Company's net sales by product group for
each of the fiscal years in the three year period ended September 30, 1995.
Product group (in thousands) Fiscal 1995 Fiscal 1994 Fiscal 1993
Niagara Scientific $826 $1,120 $686
Microwave Filter:
Cable TV 3,223 3,672 3,731
Broadcast TV 1,959 2,087 1,283
RF/Microwave 1,226 1,336 892
Comband (1) 318 265 71
Satellite Communications 103 137 151
Total $7,655 $8,617 $6,814
Sales backlog at 9/30 $1,694 $1,823 $655
(1) in January of 1993, Microwave Filter Company acquired the CT-1000
wireless cable product line from Comband Technologies, Inc. of Chesapeake,
Virginia.
Fiscal 1995 compared to Fiscal 1994
The company's net sales decreased $961,663 or 11.2% to $7,655,198 during
fiscal 1995 when compared to fiscal 1994.
The company's net income decreased $98,365 or 83.7% to $19,164 during fiscal
1995 when compared to fiscal 1994. The decrease in net income can primarily be
attributed to the decrease in sales.
Microwave Filter Company (MFC) sales decreased $667,679 or 8.9% to $6,828,949
during fiscal 1995 when compared to sales of $7,496,628 during fiscal 1994.
The decrease in sales can primarily be attributed to the downturn in both the
cable TV market and the wireless cable TV market during 1995 and to (a lesser
extent) competition.
MFC's Cable TV product sales decreased $448,681 or 12.2% to $3,223,421 during
fiscal 1995 when compared to sales of $3,672,102 during fiscal 1994. The
decrease in sales can be attributed to market conditions and competition. A
dip in sales rather than projected growth greeted equipment manufacturers and
suppliers to the Cable Television Industry in 1995. Plans in the Telephone
industry to install broadband networks for future delivery of video were
stalled. Cable systems went through a period of reorganization. Many mid
sized cable systems were sold to large operators who consolidated staffs.
Large operators were also busy this year streamlining their organizations to
increase the bottom line. The trend towards digital delivery of television
also caused many cable systems to wait and see what new equipment will enter
the market instead of investing in equipment that may soon be obsolete.
MFC's Broadcast TV product sales decreased $128,089 or 6.1% to $1,958,771
during fiscal 1995 when compared to sales of $2,086,860 during fiscal 1994.
The decrease in sales can be attributed to market conditions and competition.
Consolidation was also a trend in the Wireless Cable industry during 1995.
Many systems were bought and sold stalling the purchase of new equipment.
Industry experts expect that the situation is short term and that operators
will move forward in building their systems once the acquisitions are complete.
In general the Wireless Cable industry is robust because financing has
13
<PAGE>
become available and Baby Bells have been investing in systems. The new year
is expected to be a healthy one for the industry.
MFC's RF/Microwave product sales decreased $80,433 or 6% to $1,255,450 during
fiscal 1995 when compared to sales of $1,335,883 during fiscal 1994. The
decrease in sales can primarily be attributed to competition.
MFC's Comband product sales increased $52,713 or 19.9% to $318,025 during
fiscal 1995 when compared to sales of $265,312 during fiscal 1994. The
increase in sales can be attributed to a new installation during fiscal 1995.
Niagara Scientific Inc. (NSI), a wholly owned subsidiary, sales decreased
$293,984 or 26.2% to $826,249 during fiscal 1995 when compared to sales of
$1,120,233 during fiscal 1994. The decrease in sales can primarily be
attributed to competition.
As a percentage of sales, the Company's cost of goods sold was 64.5% in
fiscal 1995 compared to 63.2% in fiscal 1994. Cost of goods sold decreased
$508,904 or 9.3% to $4,936,219 during fiscal 1995 when compared to fiscal 1994.
The increase in cost of goods sold as a percentage of sales can primarily be
attributed to lower average selling prices due primarily to competition and an
increase in the manufacturing costs associated with new product development
during fiscal 1995. The dollar decrease in cost of goods can primarily be
attributed to the decrease in sales.
Selling, general and administrative expenses decreased $302,350 or 10.1% To
$2,687,260 during fiscal 1995 when compared to fiscal 1994. The decrease in
S,G & A expenses during fiscal 1995 can be attributed to planned expense
reductions. As a percentage of sales, selling, general and administrative
expenses increased to 35.1% in fiscal 1995 when compared to 34.7% in fiscal
1994 due primarily to the decrease in sales.
Fiscal 1994 Compared To Fiscal 1993
- -----------------------------------
Both sales and earnings increased during fiscal 1994 when compared to fiscal
1993.
The Company's net sales increased $1,802,532 or 26.5% to a record $8,616,861
during fiscal 1994 when compared to fiscal 1993. The Company's net income
increased $235,859 or 199% to a net income of $117,529 during fiscal 1994 when
compared to a net loss of $118,330 during fiscal 1993. The increase in net
income can primarily be attributed to the increase in sales.
Microwave Filter Company (MFC) sales increased $1,367,914 or 22.3% to
$7,496,628 during fiscal 1994 when compared to sales of $6,128,714 during
fiscal 1993.
MFC's Broadcast TV product sales increased $804,013 or 62.6% to $2,086,860
during fiscal 1994 when compared to sales of $1,282,847 during fiscal 1993. The
increase in sales can be attributed to the growth of the Wireless Cable TV
market.
MFC's Cable TV product sales decreased $58,944 or 1.6% to $3,672,102 during
fiscal 1994 when compared to sales of $3,731,046 during fiscal 1993. The
decrease in sales can primarily be attributed to a decrease in the sales of pay
TV security traps to overseas customers. MFC's international sales decreased
14
<PAGE>
$100,881 to $517,191 during fiscal 1994 when compared to international sales of
$618,072 during fiscal 1993.
MFC's RF/Microwave product sales increased $443,014 or 49.6% to $1,335,883
during fiscal 1994 when compared to sales of $892,869 during fiscal 1993. The
increase in sales can be attributed to an increase in sales to the US
government.
COMBAND product sales increased $194,106 to $265,312 during fiscal 1994 when
compared to fiscal 1993. The increase can be attributed to an agreement with
Northwest Cable Network to purchase the CT-1000 addressable converter system
for its Wireless Cable service in Yakima, Washington. Installation began in
March of 1994 and the agreement will be completed over a five year period.
Niagara Scientific Inc. (NSI), a wholly owned subsidiary, sales increased
$434,618 or 63.4% to $1,120,233 during fiscal 1994 when compared to sales of
$685,615 during fiscal 1993. The increase in sales can primarily be attributed
to the improvement in the economy.
As a percentage of sales, the Company's cost of goods sold was 63.2% in
fiscal 1994 compared to 60.6% in fiscal 1993. Cost of goods sold increased
$1,318,669 to $5,445,123 during fiscal 1994 when compared to fiscal 1993. The
increase in cost of goods sold as a percentage of sales can primarily be
attributed to competition and product sales mix. The dollar increase in cost of
goods sold can primarily be attributed to the increase in sales.
Selling, general and administrative expenses increased $124,421 or 4.3% to
$2,989,610 during fiscal 1994 when compared to fiscal 1993. The increase can be
attributed to an increase in legal costs during fiscal 1994. As a percentage of
sales, selling, general and administrative expenses decreased to 34.7% in
fiscal 1994 compared to 42.0% in fiscal 1993 primarily as a result of the
increase in sales during fiscal 1994.
On an industry segment basis, MFC's operating profit increased $9,449 to
$426,375 during fiscal 1994 when compared to an operating profit of $416,926
during fiscal 1993. The increase can be attributed to the increase in sales.
NSI's operating loss decreased $411,756 to $83,415 during fiscal 1994 when
compared to an operating loss of $495,171 during fiscal 1993. NSI's improvement
can be attributed to the increase in sales during fiscal 1994 when compared to
fiscal 1993 and an inventory writedown taken in fiscal 1993. NSI's operating
loss during fiscal 1994 can primarily be attributed to cost overruns due to
technical problems associated with one order shipped during fiscal 1994.
Corporate expenses increased $61,763 to $160,832 during fiscal 1994 when
compared to $99,069 during fiscal 1993. The increase in Corporate expenses can
be attributed to an increase in legal costs during fiscal 1994.
15
<PAGE>
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
1995 1994 1993
Cash & cash equivalents $520,676 $656,561 $89,690
Working capital $2,392,325 $2,295,468 $1,617,436
Current ratio 3.01 to 1 2.75 to 1 2.59 to 1
Long-term debt $439,545 $583,354 $251,298
Cash and cash equivalents decreased $135,885 to $520,676 at September 30,
1995 when compared to September 30, 1994. The decrease was a result of $234,910
in net cash provided by operating activities, $134,456 in net cash used for
capital expenditures and $236,339 in net cash used for financing activities.
At September 30, 1995, the company had 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. In addition,
the company has a letter of credit facility, for up to $500,000, which is
collateralized by specified inventory to be purchased. At September 30, 1995,
the Company had $60,319 in letters of credit outstanding.
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.
OTHER
- -----
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 107, "Disclosures About Fair Value of Financial
Instruments". The Standards require the Company to provide in fiscal 1996
certain disclosures regarding the fair value of financial instruments in its
financial statements.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". This
statement requires the recognition of both economic and permanent impairment
losses on long-lived assets. The Company is required to adopt this statement
in fiscal 1996. The adoption of this statement is not expected to have a
material adverse affect on the Company's financial position or results of
operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". This statement establishes financial accounting and reporting
for stock-based compensation plans. The Company is required to adopt this
statement for transactions entered into after September 30, 1996. The
adoption of this statement is not expected to have a material adverse effect
on the Company's financial position or results of operation.
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.
16
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
17
<PAGE>
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 11/30/95 Class
TRUDI B. ARTINI Mrs. Artini is an independent 100,985 3.0%
(a)(b)(e) investor in MFC and various other
Age 73 business enterprises in Syracuse,
Director since 1974 New York.
DAVID B. ROBINSON MD Dr. Robinson was a Professor of 110,173 3.3.%
(a)(b)(e) Psychiatry and Director of the
Age 71 Adult Psychiatric In-Patient Unit
Director since 1977 of the Upstate Medical Center of
the State University of New York
since July of 1958, until his
retirement in 1985. He continues
as a Consulting Psychiatrist at
Upstate Medical Center, Syracuse,
New York. He has served as a
Skaneateles Town Councilman since
1989 and has been a Board member
of the Skaneateles Festival of
Chamber Music since 1980.
LOUIS MISENTI President and Principal 315,671 9.5%
Age 68 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 partner in
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.
CARL F. FAHRENKRUG PE Mr. Fahrenkrug was appointed 333,470 10.0%
(a)(d)(e) President and Chief Executive
Age 53 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.
18
<PAGE>
Common Shares
Actually or Percent
Beneficially of
Director Principal occupation Owned 11/30/95 Class
MILO PETERSON Mr. Peterson has served as 150,602 4.5%
(a)(d)(e) Executive Vice President,
Age 55 Corporate Secretary and Chief
Director since 1990 Operating Officer of NSI since
January 1, 1992. Since January
1, 1992, he has also served as
Vice President of MFC and
Production Consultant to the
President. Prior to January 1,
1992, he served as Executive Vice
President of NSI. 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 Corporate
Secretary of MFC on March 27,
1993.
FRANK S. MARKOVICH Mr. Markovich is a self-employed 1,941 0.1%
(b)(c)(e) consultant in the manufacturing
Age 51 and operations field. Prior to
Director since 1992 that 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.
ROBERT R. ANDREWS Mr. Andrews is the President and 1,157 0.0%
(b)(c)(d) Principal shareholder of Morse
Age 54 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 manager of financial 2,200 0.1%
(a)(c)(d) reports and corporate accounting
Age 54 for the Carrols Corp. in
Director since 1995 Syracuse. Prior to joining
Carrols Corp, he was a senior
accountant with Price Waterhouse
and Co. in New York City. Mr.
Chong has a bachelor of science
degree from California State
University.
19
<PAGE>
Common Shares
Actually or Percent
Beneficially of
Director Principal occupation Owned 11/30/95 Class
Daniel Galbally Mr. Galbally is controller of 555 0.0%
(b)(c)(d) Evaporated Metal Films (EMF) in
Age 48 Ithaca, NY. Before joining EMF,
Director since 1995 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 Operations Committee
(e)Member of Nominating Committee
The Directors listed above and executive officers as a group own 1,042,536
shares or approximately 31% of the outstanding common shares of the Company.
IDENTIFICATION OF EXECUTIVE OFFICERS
Name Age Position
Carl F. Fahrenkrug 53 President and Chief Executive Officer
Richard L. Jones 47 Vice President and Chief Financial
Officer
Milo J. Peterson 55 Vice President and Corporate Secretary
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 comptroller. 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 Corporate Secretary of MFC on March 27, 1993. Mr.
Peterson has served as Executive Vice President, Corporate Secretary and Chief
Operating Officer of NSI. Since January 1, 1992, he has also served as Vice
President of MFC and Production Consultant to the President. Prior to January
1, 1992, he served as Executive Vice President of NSI.
20
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth for the fiscal years ended September 30, 1995,
1994 and 1993, compensation paid by MFC to the named executive officers in all
capacities in which they served.
SUMMARY COMPENSATION TABLE
Annual Compensation
Salary
Name and principal position Year __$__
Carl F. Fahrenkrug 1995 91,775
President and CEO (1) 1994 95,522
1993 93,802
(1) Mr. Fahrenkrug was elected President and CEO on October 7, 1992.
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 has a voluntary 401-K plan. Eligibility is the same as the Profit
Sharing Plan. Prior to April 1, 1994, MFC matched the employee contributions
at a rate of 50% and MFC's contribution was limited to a maximum of 1% of the
employee's income. Effective April 1, 1994, MFC matches the employee's
contribution at a rate of 33 1/3% and MFC's contributions are limited to a
maximum of 1 1/3% of the employee's income.
MFC's contributions to the plans for the years ended September 30, 1995, 1994
and 1993 amounted to $28,167, $27,935 and $27,310, respectively.
STOCK OPTIONS
- -------------
The Company has two (2) stock option plans which are administered by the
Board of Directors on advice from the Compensation Committee. The Employee
Incentive Stock Option (E.I.S.O.) Plan was adopted in February, 1983. Under
this E.I.S.O. Plan, 50,000 authorized but unissued shares were set aside for
key employees. Options are granted at fair market value and must be exercised
within ten (10) years of the date of the grant. Shares issued may be
repurchased by the Company if an employee leaves the Company within 2 years
from the date of the grant. On February 15, 1986, the Board of Directors
approved a revised Employee Stock Purchase (E.S.P.) Plan to replace the former
stock purchase plan. Under the E.S.P. Plan, employees purchase shares
according to a formula which provides for an option of twenty (20) shares for
each $1,000 of annual compensation. Options can be granted for a period of one
year. The E.S.P. Plan utilizes the IRS code provision authorizing corporations
to sell shares of their stock to employees at a discount up to 15% of fair
market value without immediate income tax consequences to the employee.
Officers of the Company are not eligible to participate in the E.S.P. Plan.
There were no E.I.S.O. Plan options or E.S.P. Plan options outstanding at
September 30, 1995.
21
<PAGE>
COMPENSATION OF DIRECTORS
- -------------------------
Non-officer directors receive fees of $200.00 per board meeting and $100.00
per committee meeting, with the exception of the executive committee which
receives $200.00 per committee meeting. MFC also reimburses directors for
reasonable expenses incurred in attending meetings. Officer members receive no
compensation for their attendance at meetings. Non-officer directors have the
option of receiving their compensation for meetings in the form of investment
letter stock. The number of shares received will be based upon a value of 85%
of the mean value between the bid and ask price of the stock at the beginning
of each quarter.
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 November 30, 1995.
% of
Outstanding
Number of Shares
Common
Name of Beneficial Owner Address Beneficially Owned _____Stock_____
Frederick A. Dix & 209 Watson Rd. 231,838 7.0%
Marjorie Dix N. Syracuse, NY 13212
Carl F. Fahrenkrug & Indian Hill Rd. 333,470 10.0%
Rita Fahrenkrug Manlius, NY 13104
Louis S. Misenti 140 Clearview Rd. 315,671 9.5%
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
22
<PAGE>
PART IV
ITEM 14. 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
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, 1995.
(C) Exhibits:
Reference is made to the List of Exhibits submitted as a separate
section of this report.
23
<PAGE>
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: January 10, 1996
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 | Trudi B. Artini
- ------------------------ -----------------------
Milo J. Peterson Trudi B. Artini
(Director) (Director)
| S | Sidney Chong
- --------------------
Sidney Chong
(Director)
Dated: January 10, 1996
24
<PAGE>
ANNUAL REPORT ON FORM 10-K
MICROWAVE FILTER COMPANY, INC.
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
ITEM 8, ITEM 14(a)(1) and 2
CONSOLIDATED FINANCIAL STATEMENTS: Page
Independent Auditors' Report.....................................26
Consolidated Balance Sheets as of September 30, 1995 and 1994....27
Consolidated Statements of Operations for the Years
Ended September 30, 1995, 1994 and 1993 .......................28
Consolidated Statements of Stockholders' Equity for the Years
Ended September 30, 1995, 1994 and 1993 .......................29
Consolidated Statements of Cash Flows for the Years
Ended September 30, 1995, 1994 and 1993 .......................30
Notes to Consolidated Financial Statements.......................31-38
SCHEDULE FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993:
Independent Auditors' Report on Schedules........................40
II-Valuation and Qualifying Accounts.............................41
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.
25
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Microwave Filter Company, Inc.
East Syracuse, New York
We have audited the accompanying consolidated balance sheets of MICROWAVE
FILTER COMPANY, INC., AND SUBSIDIARIES as of September 30, 1995 and 1994, and
the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended September 30, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Microwave Filter
Company, Inc., and subsidiaries as of September 30, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1995 in conformity with generally
accepted accounting principles.
As discussed in Note 8 to the financial statements, the Company changed its
method of accounting for income taxes in fiscal 1994 by adopting Statement of
Financial Accounting Standard No. 109, "Accounting for Income Taxes".
Coopers & Lybrand L.L.P.
Syracuse, New York
December 6, 1995
26
<PAGE>
Microwave Filter Company and Subsidiaries
Consolidated Balance Sheets
September 30
Assets 1995 1994
- ------ ---- ----
Current assets:
Cash and cash equivalents $520,676 $656,561
Accounts receivable-trade, net of allowance for doubtful
accounts of $50,000 in 1995 and $75,000 in 1994 879,160 1,152,451
Inventories 1,968,510 1,629,693
Prepaid expenses and other current assets 215,300 170,172
------- ---------
Total current assets 3,583,646 3,608,877
--------- ---------
Property, plant and equipment, net 1,624,762 1,850,430
Other assets 65,523 138,684
--------- ---------
Total assets $5,273,931 $5,597,991
========== ==========
Liabilities And Stockholders' Equity
Current liabilities:
Current portion of long term debt $146,556 $141,801
Accounts payable 362,436 455,418
Customer deposits 281,918 203,146
Accrued federal and state income taxes 42,808 4,977
Accrued payroll and related expenses 90,915 109,636
Accrued compensated absences 183,544 192,274
Other current liabilities 83,144 206,157
--------- ---------
Total current liabilities 1,191,321 1,313,409
--------- ---------
Long term debt, less current portion 439,545 583,354
Deferred compensation and other liabilities 59,428 87,478
--------- ---------
Total liabilities 1,690,294 1,984,241
--------- ---------
Stockholders' equity:
Common stock, $.10 par value. Authorized 5,000,000 shares.
Issued 4,003,733 in 1995 and 3,763,182 in 1994.. 400,373 376,318
Additional paid-in-capital 2,880,992 2,636,582
Retained earnings 939,377 1,140,670
--------- ---------
Common stock in treasury, at cost,
680,301 shares in 1995 and 561,470 shares in 1994 (637,105) (539,820)
--------- ---------
Commitments
Total stockholders' equity 3,583,637 3,613,750
--------- ---------
Total Liabilities and Stockholders' Equity $5,273,931 $5,597,991
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
27
<PAGE>
Microwave Filter Company and Subsidiaries
Consolidated Statements of Operations
For the Years Ended September 30
1995 1994 1993
---- ---- ----
Net sales $7,655,198 $8,616,861 $6,814,329
Cost of goods sold 4,936,219 5,445,123 4,126,454
--------- --------- ---------
Gross profit 2,718,979 3,171,738 2,687,875
Selling, general
and administrative expenses 2,687,260 2,989,610 2,865,189
--------- --------- ---------
Income (loss) from operations 31,719 182,128 (177,314)
Other Income (Expense)
Interest income 17,562 8,203 7,919
Interest expense (42,345) (29,494) (19,455)
Miscellaneous 20,454 15,245 16,220
--------- --------- ---------
Income (loss) before income taxes 27,390 176,082 (172,630)
Provision (benefit) for income taxes 8,226 58,553 (54,300)
--------- --------- ---------
NET INCOME (LOSS) $19,164 $117,529 ($118,330)
--------- --------- ---------
Earnings (loss) Per Share $0.01 $0.04 ($0.03)
--------- --------- ---------
Weighted average number of shares
and common stock equivalents 3,312,810 3,341,831 3,402,921
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
28
<PAGE>
Microwave Filter Company and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the Years Ended September 30, 1995, 1994 and 1993
-----------------------------------------------------
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-in Retained Treasury Stock Stockholders'
Shares Amt Capital Earnings Shares Amt Equity
------ --- ------- -------- ------ --- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
September 30, 1992 3,274,807 $327,481 $2,088,277 $1,590,145 2,707 ($5,220) $4,000,683
Net loss (118,330) (118,330)
Stock issued to employees
and officers 81,953 8,195 95,248 103,443
Purchase of treasury stock 506,037 (534,177) (534,177)
5% stock dividend 344,405 34,441 414,052 (448,493) 52,243
--------- -------- ---------- -------- ------- ---------- ----------
Balance,
September 30, 1993 3,701,165 $370,117 $2,597,577 $1,023,322 560,987 ($539,397) $3,451,619
Net Income 117,529 117,529
Stock issued to employees
and officers 48,106 4,811 26,415 31,226
Stock issued to directors 13,704 1,370 12,429 13,799
Purchase of treasury stock 483 (423) (423)
Other 207 20 161 (181)
--------- -------- ---------- -------- ------- ---------- ----------
Balance,
September 30, 1994 3,763,182 $376,318 $2,636,582 $1,140,670 561,470 ($539,820) $3,613,750
Net Income 19,164 19,164
Stock issued to employees
and officers 35,866 3,586 28,821 32,407
Stock issued to directors 14,636 1,464 14,137 15,601
Purchase of treasury stock 86,461 (97,285) (97,285)
5% stock dividend 190,049 19,005 201,452 (220,457) 32,370
--------- -------- ---------- -------- ------- ---------- ----------
Balance,
September 30, 1995 4,003,733 $400,373 $2,880,992 $939,377 680,301 ($637,105) $3,583,637
========= ======== ========== ======== ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
29
<PAGE>
Microwave Filter Company and Subsidiaries
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
------------------------------------------------
For the Years Ended September 30
--------------------------------
1995 1994 1993
---- ---- ----
Cash flows from operating activities:
Net income (loss) $19,164 $117,529 ($118,330)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 360,124 380,849 359,537
Amortization of intangible assets 39,006 44,686 27,854
Stock compensation 48,008 45,025 79,962
Deferred income taxes (51,921) 11,567 (168,000)
Changes in assets and liabilities:
Accounts receivable-trade, net 198,291 (317,065) (998)
Federal and state income taxes 37,831 (26,975) 42,569
Inventories (338,817) (116,456) (16,337)
Other Assets 17,328 31,122 (50,233)
Accounts payable and customer deposits 60,790 106,343 223,255
Accrued payroll, compensated absences and
related expenses (28,159) 25,945 (33,215)
Other current liabilities (122,725) 98,065 (9,145)
Deferred compensation (4,010) (7,860) (3,044)
-------- -------- -------
Net cash provided by operating activities 234,910 392,775 333,875
-------- -------- -------
Cash flows from investing activities:
Capital expenditures (134,456) (249,997) (380,033)
-------- -------- -------
Net cash used in investing activities (134,456) (249,997) (380,033)
-------- -------- -------
Cash flows from financing activities:
Principal payments on long-term debt (139,054) (75,484) (44,647)
Proceeds from term loan 500,000
Purchase of treasury stock (97,285) (423) (462,177)
-------- -------- -------
Net cash provided (used)
by financing activities (236,339) 424,093 (506,824)
-------- -------- -------
Net increase (decrease)
in cash and cash equivalents (135,885) 566,871 (552,982)
Cash and cash equivalents at beginning of year 656,561 89,690 642,672
-------- -------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $520,676 $656,561 $89,690
======== ======== =======
Supplemental disclosures of cash flows:
Cash paid during the year for (approximately):
Interest $39,000 $28,000 $20,000
Income taxes $22,000 $73,000 $71,000
The accompanying notes are an integral part of the consolidated financial
statements.
30
<PAGE>
Microwave Filter Company and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. 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). All significant
intercompany balances and transactions have been eliminated in consolidation.
b. Cash Equivalents
The Company considers all highly liquid investments purchased with an original
maturity of 90 days or less to be cash equivalents.
c. Inventories
Inventories are stated at the lower of cost determined on the first-in, first-
out method or market.
d. 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. 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.
e. Intangible Assets
Included in other assets at September 30, 1995 and 1994 is $3,908 and $30,311
representing a trade name and a covenant-not-to-compete and $59,864 and $72,467
representing the excess of cost over net assets acquired from the purchase of
Niagara Scientific at September 30, 1995 and 1994, respectively. These
intangible assets are being amortized on a straight-line basis over 3 and 10
years, respectively. Total accumulated amortization at September 30, 1995 and
1994 is $132,085 and $93,079, respectively.
f. Research and Development
Costs in connection with research and development, which amount to $408,425,
$442,228 and $454,700 for the fiscal years 1995, 1994 and 1993, respectively,
are charged to operations as incurred.
g. 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. Prior to fiscal 1994, income taxes were
recorded under the method specified by APB11.
31
<PAGE>
h. Earnings Per Share
Earnings per common share are calculated based upon the weighted average
number of shares of common stock outstanding during the periods including, when
significant, any common stock equivalents and after restatement of any stock
dividends.
i. Accounts Receivable-trade
Accounts receivable-trade, are stated net of allowance for doubtful accounts.
The provision for doubtful accounts amounted to $18,969, $45,829 and $76,674
for the years ended 1995, 1994 and 1993, respectively.
j. Reclassifications
Certain reclassifications have been made to conform prior year financial
statements with the current year presentations.
2. INVENTORIES
Inventories consisted of the following: September 30
1995 1994
---- ----
Raw materials and stock parts $1,106,636 $915,815
Work-in-process 393,972 335,174
Finished goods 467,902 378,704
-------- ---------
$1,968,510 $1,629,693
========== ==========
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
September 30
1995 1994
---- ----
Land $143,000 $143,000
Building and improvements 1,642,103 1,625,189
Machinery and equipment 1,973,227 1,908,513
Office equipment and fixtures 1,022,426 969,598
Other 93,507 93,507
--------- ---------
4,874,263 4,739,807
Less: Accumulated depreciation 3,249,501 2,889,377
--------- ---------
$1,624,762 $1,850,430
========== ==========
32
<PAGE>
4. LONG-TERM DEBT
Long-term debt consisted of the following: September 30
1995 1994
Term loan, payable to a bank over 60 months through
fiscal 1999, with interest at 6.0% for the first
two years and 8.0% for the final three years (a) $379,795 $469,873
Capitalized lease obligation (b) 206,306 255,282
------- -------
586,101 725,155
Less: current portion 146,556 141,801
------- -------
$439,545 $583,354
======= =======
(a) Collateralized by principally all assets.
(b) The capitalized lease obligation is comprised of the Company's obligation
to the Onondaga County Industrial Agency (OCIDA) which the Company used to
finance the purchase of its primary manufacturing facility, which serves as
collateral for the debt. The Company financed its purchase of the facilities
through an Industrial Development Revenue Bond issued by OCIDA and purchased by
a bank. The Company has guaranteed the payment on the bonds to the bank on
behalf of OCIDA. Payments are scheduled to be made quarterly, through April
1999, in an amount which would fully amortize the unpaid principal of the
bonds. The interest rate is adjusted quarterly and is equal to 2.5% plus 65%
of the thirteen week average rate of interest for Treasury Bills (5.60% and
4.8075% at September 30, 1995 and 1994, respectively).
The following is a schedule of annual principal requirements
on long-term debt:
Year Ended Principal
September 30 Payments
------------ ---------
1996 $146,556
1997 152,830
1998 164,123
1999 112,592
-------
$586,101
=======
The terms of both agreements contain certain covenants which limit both
capital expenditures and the ability to obtain additional bank debt. In
addition, the maintenance of certain financial ratios including current ratio
and debt to net worth, as defined, are also required by the agreements.
5. CREDIT FACILITIES
The Company has 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. In addition, the Company has a Letter
of Credit Facility, for up to $500,000, which is collateralized by specified
inventory to be purchased. At September 30, 1995, the Company had $60,319 in
letters of credit outstanding.
6. 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
33
<PAGE>
determined by the Board of Directors and are made from current or accumulated
earnings, while contributions to the 401-K plan are matched at a rate of 33% of
employee contributions limited to 1.33% of compensation.
The Company's contributions to the plans for the years ended September 30,
1995, 1994 and 1993 were $28,167, $27,935 and $27,310 , respectively.
7. OBLIGATIONS UNDER OPERATING LEASES
The Company leases a motor vehicle and equipment under operating lease
agreements expiring at various dates through September 30, 2001. Rental
expenses under these leases for the years ended September 30, 1995, 1994 and
1993 amounted to $94,686, $67,975 and $38,089, respectively.
Minimum rental commitments at September 30, 1995 for these
leases are:
Year Ended Principal
September 30 Payments
------------ --------
1996 $93,495
1997 93,495
1998 86,553
1999 51,914
2000 51,914
Thereafter 95,335
------
$472,706
=======
8. INCOME TAXES
The Company adopted SFAS No. 109 as of October 1, 1993. The cumulative effect
of this change was not significant.
The provision for income taxes consisted of the following:
Year Ended September 30
1995 1994 1993
Currently payable:
Federal $50,147 $38,586 $99,700
State 10,000 8,400 14,000
Deferred (credit) (51,921) 11,567 (168,000)
------ ------- -------
$8,226 $58,553 ($54,300)
====== ======= =======
34
<PAGE>
A reconciliation of the statutory federal income tax rate and the Company's
effective income tax rate is as follows:
Year ended September 30
______1995______ ______1994______ ______1993______
Amount % Amount % Amount %
Statutory tax rate $9,312 34.0% $59,868 34.0% ($58,694) (34.0)%
Surtax exemption (5,204) (19.0%) (7,958) (4.5)% 8,118 4.7%
State income tax net of:
Federal benefit 6,600 24.1% 5,544 3.1% (5,610) (3.2)%
Foreign sales corp benefit (4,579) (16.7%) (4,756) (2.7)% (8,099) (4.7)%
Other 2,097 7.6% 5,855 3.3% 9,985 5.7%
------ ------ ------- ------ --------- -----
$8,226 30.0% $58,553 33.2% ($54,300) (31.5)%
====== ====== ======= ====== ========= =====
At September 30, 1995, the Company has unused research and experimentation tax
credits of approximately $58,700 to offset future federal taxes through 2010.
For financial reporting purposes, a valuation allowance has been recognized to
offset the deferred tax asset related to the tax credit in 1995 and 1994.
The temporary differences which give rise to deferred tax assets and
liabilities at September 30, 1995 and 1994 are as follows:
1995 1994
---- ----
Deferred tax assets:
Accounts receivable $ 0 $ 3,684
Inventory 126,305 94,277
Accrued vacation 7,544 10,062
Research and experimentation
tax credits 58,700 46,200
Deferred compensation 9,645 10,828
-------- --------
Gross deferred tax assets 202,194 165,051
Valuation allowance (58,700) (46,200)
-------- --------
Total net deferred tax assets 143,494 118,851
------- -------
Deferred tax liabilities:
Accelerated depreciation 40,807 65,610
Other 0 2,475
-------- --------
Total deferred tax liabilities 40,807 68,085
-------- --------
Net deferred tax assets $102,687 $50,766
======== ========
Classification of net deferred tax assets:
Current assets $133,849 $105,548
Non-current liabilities (31,162) (54,782)
-------- --------
Net deferred tax assets $102,687 $ 50,766
======== ========
35
<PAGE>
9. INDUSTRY SEGMENT DATA
The Company 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) manufactures
electronic filters used for preventing interference or signal processing in
cable television, satellite, broadcast, aerospace and government markets,
while Niagara Scientific, Inc. (NSI) manufactures industrial automation
equipment.
Information by industry segment is as follows: (thousands of dollars)
1995 1994 1993
Net Sales (Unaffiliated):
MFC $6,829 $7,497 $6,128
NSI 826 1,120 686
Total $7,655 $8,617 $6,814
Operating Profit (Loss): (a)
MFC $200 $426 $417
NSI (70) (83) (495)
Corporate (98) (161) (99)
Total $32 $182 ($177)
Identifiable Assets: (b)
MFC $4,189 $4,334 $3,775
NSI 564 532 897
Subtotal 4,753 4,866 4,672
Corporate Assets-Cash &
Cash Equivalents 521 657 89
Total $5,274 $5,523 $4,761
Depreciation & Amortization Expense:
MFC $324 $349 $304
NSI 75 76 83
Total $399 $425 $387
Capital Expenditures:
MFC $129 $244 $303
NSI 5 6 77
Total $134 $250 $380
Significant Export Sales:
MFC $508 $517 $618
Sales to Significant Customers:
MFC:
Communication Microwave Corp $1,103 $1,118
NSI:
Planters/Lifesavers $185 $172
Macklanburg $132
IBMX $116
U S Mills $104
Borden $86
Knorr $270 $108
EI DuPont $187
Warner Lambert $165
Bristol $84
36
<PAGE>
(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.
10. STOCK OPTIONS
The Company has a stock option and stock purchase plan which are administered
by the Compensation Committee.
The Employee Incentive Stock Option Plan (E.I.S.O. Plan) provides for the
issuance of options to key employees at fair market value which must be
exercised within ten years from the date of the grant. Shares issued may be
repurchased by the Company if an employee leaves the Company within two years
from the date of grant.
The Employee Stock Purchase Plan (E.S.P. Plan) grants all employees options
to purchase 20 shares for each $1,000 of the employee's annual compensation.
The E.S.P. Plan utilizes the IRS code provision authorizing corporations to
sell shares of their stock to employees at 85% of the fair market value on the
date the right to purchase is granted. Officers of the Company are not
eligible to participate in the E.S.P. Plan.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". This statement establishes financial accounting and reporting
for stock-based compensation plans. The Company is required to adopt this
statement for transactions entered into after September 30, 1996. The
adoption of this statement is not expected to have a material adverse effect
on the Company's financial position or results of operation.
A summary of both plans' activities through September 30,
1995 is as follows:
EMPLOYEE
INCENTIVE STOCK STOCK PURCHASE
OPTION PLAN PLAN
----------- ----
Shares Avg. price Shares Avg. price
------ ---------- ------ ----------
Outstanding, September 30, 1992 12,000 $1.25
Granted 42,028
Exercised (8,000) $1.25 (6,171) $1.22
Forfeited (4,000) $1.25 (35,857)
Outstanding, September 30, 1993 0 0
Granted 47,040
Exercised (2,106) $ .99
Forfeited (44,934)
Outstanding, September 30, 1994 0 0
Granted 46,534
Exercised (1,407) $ .99
Forfeited (45,127)
Outstanding, September 30, 1995 0 0
Shares Currently Available 0 0
Shares Currently Exercisable 0 0
37
<PAGE>
11. SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Supplemental disclosure of non-cash investing and financing activities:
Year Ended September 30, 1994
- -----------------------------
During the first quarter of fiscal 1994, the company transferred $93,507 of
items previously held in inventory to rental equipment.
Year Ended September 30, 1993
- -----------------------------
On February 26, 1993 the Company purchased 505,598 shares of stock at $1.055
per share in settlement of a $72,000 note receivable and paying cash in the
amount of $461,409.
12. FOURTH QUARTER ADJUSTMENTS
In the fourth quarter of 1993, the Company recorded an expense of
approximately $336,000 consisting principally of the writedown of certain
inventory items and a receivable.
13. LEGAL MATTERS
There are currently no material pending legal proceedings against the company
or its subsidiaries.
38
<PAGE>
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.
10.5 Application by Debtor in Possession for Authority to Sell General *
Intangible Assets and Order (MFC's acquisition of CT-1000 System).
10.6 Stock Purchase Agreement dated February 8, 1993 between Glyn and *
Emily Bostick and MFC.
* Previously filed
39
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
Board of Directors and Stockholders
Microwave Filter Company, Inc.
East Syracuse, New York
Our report on the consolidated financial statements of MICROWAVE FILTER
COMPANY, INC., AND SUBSIDIARIES is on page 26 of this Form 10-K. In connection
with our audits of such financial statements, we have also audited the related
financial statement schedule listed in the index on page 25 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
Syracuse, New York
December 6, 1995
40
<PAGE>
Microwave Filter Company and Subsidiaries
Schedule II - VALUATION AND QUALIFYING ACCOUNTS
SEPTEMBER 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
Additions
Balance at Charged to Charged to
Beginning Costs and Other Balance at
Description of Period Expenses Accounts Deductions End of Period
- ----------- --------- ----------------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1995
Allowance for doubtful accounts $75,000 $18,025 $43,025 $50,000
Inventory valuation reserves 441,663 103,643 0 545,306
-------- -------- ------- ------- --------
$516,663 $121,668 $0 $43,025 $595,306
======== ======== ======= ======= ========
Year ended September 30, 1994
Allowance for doubtful accounts $100,000 $45,829 $70,829 $ 75,000
Inventory valuation reserves 449,973 207,291 215,601 441,663
-------- -------- ------- ------- --------
$549,973 $253,120 $0 $286,430 $516,663
======== ======== ======= ======= ========
Year ended September 30, 1993
Allowance for doubtful accounts $50,000 $76,674 $26,674 $100,000
Inventory valuation reserves 165,583 306,162 21,772 449,973
-------- -------- ------- ------- --------
$215,583 $382,836 $0 $48,446 $549,973
======== ======== ======= ======= ========
</TABLE>
41
<PAGE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for Microwave Filter Company, Inc. filed with Form
10k for the twelve months ended September 30, 1995 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> $ 520,676
<SECURITIES> 0
<RECEIVABLES> 879,160
<ALLOWANCES> 50,000
<INVENTORY> 1,968,510
<CURRENT-ASSETS> 3,583,646
<PP&E> 4,874,263
<DEPRECIATION> (3,249,501)
<TOTAL-ASSETS> 5,273,931
<CURRENT-LIABILITIES> 1,191,321
<BONDS> 439,545
<COMMON> 400,373
0
0
<OTHER-SE> 3,183,264
<TOTAL-LIABILITY-AND-EQUITY> 5,273,931
<SALES> 7,655,198
<TOTAL-REVENUES> 7,655,198
<CGS> 4,936,219
<TOTAL-COSTS> 7,623,479
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,345
<INCOME-PRETAX> 27,390
<INCOME-TAX> 8,226
<INCOME-CONTINUING> 19,164
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,164
<EPS-PRIMARY> $0.01
<EPS-DILUTED> $0.01
</TABLE>
