SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C 20549
FORM 10-KSB
(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, 1996_____________________________
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 at the close of business on November 29, 1996 was $3,766,220.
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 29, 1996: 3,544,678
Documents incorporated by reference: None.
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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)
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
over 5,000 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.
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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 products with a need to
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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. The nature of cable television service is destined to
change dramatically in 1997 and in future years ahead. Spurred by the passage
of the Telecommunications Act of 1996, cable and other broadcast providers
will have the opportunity to enter each other's markets and compete for
customers. This means that telephone companies previously barred from offering
video services now have the green light to venture into this market or into
other services.
Over the last few years, cable systems have been preparing for the advent of
increased competition and market opportunities by upgrading their
infrastructure. Major cable systems have been laying miles of fiber optic
cable which allows signals to travel greater distance without the need for
amplification. In 1997, the main focus of the cable systems will be to foray
into two-way communications by offering access to the Internet. The cable
market is already referring to itself as cable communications instead of cable
television.
Those additional market opportunities for cable will translate into equal
benefits for the vendors who provide products to this market because the number
of customers is expanding.
Competition for multichannel television service will increase from other
sources as well. This decade will continue to see the growth of other options
such as Wireless Cable, Direct Broadcast Satellite and TVRO. These changes
also represent opportunities for Microwave Filter for new filter applications
engendered by an atmosphere of healthy competition.
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Broadcast - There are several areas of broadcast served by MFC. Wireless
Cable represents the largest growth area.
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.
Wireless cable is also expected to have an upbeat year in 1997 despite some
minor setbacks in 1996. This market and cable television are endeavoring to
continue moving towards the implementation of digital technology. Wireless
cable, like cable television, is expected to offer services other than video
programming. In fact, several systems expect to begin rolling out digital
service early in 1997. Implementation of digital technology this year was
forestalled due to technical problems. Several systems held back subscriber
growth and waited patiently for the bugs to work themselves out. Pushing the
growth of analog systems would only mean more subscribers that would later have
to be converted to a digital system.
Another twist that slowed market growth in Wireless Cable in '96 was
financing. Several phone companies became interested in forming partnerships
with wireless systems yet many of these alliances never took hold. The phone
companies presumably became impatient with the technical problems arising with
digital broadcast and proceeded down other avenues that would provide them
with the ability to deliver video and other interactive services.
Despite the roll-out of digital technology and the availability of 140
channels becoming available to wireless subscribers early in '97, strong
growth of analog wireless systems is expected worldwide this year. Much of
that growth is expected in the Pacific Rim and other Asian countries such as
China and the Phillipines. Strong growth is also predicted in such countries
as Brazil, Canada, Africa and the Middle East.
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.
Cellular Television - A new wireless service. Most people are familiar with
cellular phones but here's a new twist - cellular television or (LMDS). This
system operates like cellular phone in theory. An omni-directional transmitter
at the center of a six mile cell sends out a video signal carrying 49 channels
of programming. Subscribers at locations throughout that cell can receive the
signal with small, square, flat antennas. One system, Cellular Vision USA
already exists in New York City. Now the FCC is preparing to auction off
additional frequencies (between 29 and 31 GHz) for similar services to
establish themselves. However, the FCC has stalled the auctions because
eligibility requirements for applicants is being challenged. Several groups
favor a ban on telephone and cable television companies to bid on frequencies
within their territories of operation.
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 that will deliver channels of programming to areas
where off air signals cannot be received. The only difference between both
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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. 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. LPTV is a small market and has always faced many
regulatory and economical challenges. The market's current congressional
battle is to retain areas of its spectrum that potentially can be reallocated
to other markets.
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.
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. 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
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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. "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. The Cellular market is beginning to level off and now Personal
Communications Services (PCS) is an area of mobile radio on the rise. 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 is expected 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. Many of the
technological developments in our other markets such as cable television will
also provide business opportunities for our Microwave & RF market. New
communications means the manufacture of new equipment that require filters.
This situation presents new potential for MFC to serve the original equipment
manufacturers (OEM) with the development of new products for inherent
interference problems.
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
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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. 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.
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.
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BACKLOG
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At September 30, 1996, the Company's total backlog of orders was $1,262,124
compared to $1,693,786 at September 30, 1995. At September 30, 1996, MFC's
backlog of orders was $921,598 compared to $1,275,285 at September 30, 1995.
At September 30, 1996, NSI's backlog of orders was $340,526 compared to
$418,501 at September 30, 1995. Approximately 80% of the Company's backlog at
September 30, 1996 is scheduled to ship during fiscal 1997.
EMPLOYEES
- ---------
At September 30, 1996, the Company employed 72 full-time permanent
employees, 2 part-time permanent employees, and 9 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 $359,934, $408,425 and $442,228 for the fiscal years 1996,
1995 and 1994, 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.
COMPETITION
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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 beneficially owned by MFC,
consists of 40,000 square feet of office and manufacturing space located on
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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.
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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 1996 High Low
Oct. 1, 1995 to Dec. 31, 1995 $ 1.61 $ 1.08
Jan. 1, 1996 to Mar. 31, 1996 1.50 1.13
Apr. 1, 1996 to June 30, 1996 2.25 1.25
July 1, 1996 to Sept. 30, 1996 2.00 1.13
Fiscal 1995 High Low
Oct. 1, 1994 to Dec. 31, 1994 $ 1.25 $ .80
Jan. 1, 1995 to Mar. 31, 1995 1.31 .95
Apr. 1, 1995 to June 30, 1995 1.55 1.08
July 1, 1995 to Sept. 30, 1995 1.90 1.19
Adjusted for all stock dividends.
The approximate number of stockholders on September 30, 1996 was 1,700.
On January 18,1996, the Board of Directors declared a five cents per share
cash dividend and a 5% per share stock dividend to shareholders of record on
February 1, 1996, to be distributed on February 15, 1996. Fractional shares
were paid in cash.
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.
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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
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net Sales $ 7,532,710 $ 7,655,198 $ 8,616,861 $ 6,814,329 $ 7,254,364
Net Income (loss)(1) $ 504,295 $ 19,164 $ 117,529 $ (118,330) $ 107,881
Earnings (loss) Per Share $ .14 $ .01 $ .03 $ (.03) .03
Weighted Average Number of
Common Shares Outstanding*(2) 3,525,362 3,478,451 3,508,923 3,573,067 3,948,885
Stock (%) Dividends 5% 5% 5% 5%
Cash ($) Dividends Declared $ .05 $ .04
Total Assets(2) $ 5,410,266 $ 5,273,931 $ 5,597,991 $ 4,761,044 $ 5,250,619
Long Term Debt $ 102,774 $ 439,545 $ 583,354 $ 251,298 $ 316,032
*Adjusted for all stock dividends.
Net income (loss) as a percentage of: 1996 1995 1994 1993 1992
Sales............................. 6.7 0.3 1.4 (1.7) 1.5
Assets............................ 9.3 0.4 2.1 (2.5) 2.1
Equity............................ 12.7 0.5 3.3 (3.4) 2.7
</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.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
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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, 1996.
Product group (in thousands) Fiscal 1996 Fiscal 1995 Fiscal 1994
Niagara Scientific $ 609 $ 826 $1,120
Microwave Filter:
Cable TV 3,951 3,223 3,672
Broadcast TV 1,707 1,959 2,087
RF/Microwave 1,074 1,226 1,336
Satellite Communications 111 103 137
Comband 81 318 265
Total $7,533 $7,655 $8,617
Sales backlog at 9/30 $1,262 $1,694 $1,823
Fiscal 1996 compared to Fiscal 1995
Fiscal 1996 was a very profitable year for Microwave Filter Company, Inc.,
the second highest in Company history. Net income increased $485,131 to
$504,295 or $.14 per share during the fiscal year ended September 30, 1996
when compared to net income of $19,164 or $.01 per share during the same
period last year. The increase in earnings can primarily be attributed to the
improvement in gross profit and the reduction in selling, general and
administrative expenses during fiscal 1996 when compared to last year.
Consolidated net sales for the fiscal year ended September 30, 1996 totaled
$7,532,710, a decrease of $122,488 or 1.6%, when compared to sales of
$7,655,198 during the fiscal year ended September 30, 1995.
Microwave Filter Company (MFC) sales increased $94,557 to $6,923,506 during
fiscal 1996 when compared to sales of $6,828,949 during fiscal 1995. The
increase in MFC's sales can primarily be attributed to the increase in MFC's
Cable TV product sales.
MFC's Cable TV product sales increased $727,933 or 22.6% to $3,951,354
during the fiscal year ended September 30, 1996 when compared to sales of
$3,223,421 during fiscal 1995. Management believes the increase is primarily
due to Cable Systems upgrading their equipment and services in order to better
compete against both Direct Broadcast Satellite (DBS) and Multichannel
Multipoint Distribution Service (MMDS), commonly called wireless cable.
MFC's Broadcast TV product sales, which includes wireless cable products,
decreased $251,753 or 12.9% to $1,707,018 during fiscal 1996 when compared to
sales of $1,958,771 during fiscal 1995. The decrease in sales can primarily be
attributed to market conditions and competition. As the Company experienced in
fiscal 1995, many wireless cable system operators have restricted expansion
and delayed purchasing in anticipation of digital compression becoming
available for the wireless cable industry. Digital compression will provide
wireless cable with the ability to offer as many channels as conventional
cable at reduced or at least competitive prices. The Company is also
experiencing increased competition in this product area; however, management
believes its emphasis on technical superiority and customer service will keep
it competitive.
MFC's RF/Microwave product sales decreased $181,799 or 14.5% to $1,073,651
during fiscal 1996 when compared to sales of $1,255,450 during fiscal 1995.
The decrease can primarily be attributed to the completion of a large order in
February 1996, for which twelve months of shipments were recorded in fiscal
1995.
Niagara Scientific Inc. (NSI), a wholly owned subsidiary, sales decreased
$217,045 to $609,204 during fiscal 1996 when compared to sales of $826,249
during fiscal 1995. The decrease in sales can primarily be attributed to
competition.
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As a percentage of sales, gross profit increased to 42.6% during fiscal 1996
when compared to 35.5% during fiscal 1995. This substantial improvement can
primarily be attributed to product sales mix and the reduction in the
manufacturing costs which were associated with new product development in
fiscal 1995.
Selling, general and administrative (SG&A) expenses decreased $126,568 or
4.7% to $2,560,692 during fiscal 1996 when compared to $2,687,260 during
fiscal 1995. The decrease can primarily be attributed to the decrease in legal
costs during fiscal 1996 when compared to fiscal 1995. As a percentage of
sales, SG&A expenses decreased to 34.0% of sales when compared to 35.1% of
sales during fiscal 1995.
Interest income increased $26,730 to $44,292 during fiscal 1996 when
compared to $17,562 during fiscal 1995. The increase is primarily due to
higher average invested cash balances during fiscal 1996 when compared to
fiscal 1995. Interest expense decreased $13,202 to $29,143 during fiscal 1996
when compared to $42,345 during fiscal 1995. The decrease is primarily due to
lower borrowing levels during fiscal 1996 when compared to fiscal 1995.
The Company's effective income tax rate decreased to 25.9% during fiscal
1996 primarily as a result of the utilization of a research and
experimentation tax credit carry forward. In 1996, no valuation allowance was
recognized since sufficient taxable income is available in prior carryback
years to realize a future tax benefit for deductible temporary differences. In
1995, a valuation allowance had been recognized to offset the deferred tax
asset related to the research and experimentation tax credit.
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
14
<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.
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
1996 1995 1994
Cash & cash equivalents $1,280,999 $520,676 $656,561
Working capital $2,579,910 $2,392,325 $2,295,468
Current ratio 3.07 to 1 3.01 to 1 2.75 to 1
Long-term debt $102,774 $439,545 $583,354
Cash and cash equivalents increased $760,323 to $1,280,999 at September 30,
1996 when compared to $520,676 at September 30, 1995. The increase was a
result of $1,651,430 in net cash provided by operating activities, $291,633 in
net cash used for capital expenditures and $599,474 in net cash used in
financing activities.
At September 30, 1996, 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.
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
- -----
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 adopting this statement in the
first quarter of fiscal 1997. The adoption of this statement is not expected
to have a material adverse affect on the Company's financial position or
results of operations.
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 11/29/96 Class
TRUDI B. ARTINI Mrs. Artini is an independent 107,885 3.0%
(a)(b)(e) investor in MFC and various other
Age 74 business enterprises in Syracuse,
Director since 1974 New York.
DAVID B. ROBINSON MD Dr. Robinson is Emeritus Professor 116,332 3.3%
(a)(b)(e) of Psychiatry at the Health Science
Age 72 Center, State University of New York
Director since 1977 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. Since 1989, he has
served as a Skaneateles Town
Councilman and in 1980 was a
founding Board Member of the
Skaneateles Festival of Chamber
Music.
LOUIS MISENTI President and Principal 358,655 10.1%
Age 69 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.
CARL F. FAHRENKRUG PE Mr. Fahrenkrug was appointed 368,004 10.4%
(a)(d)(e) President and Chief Executive
Age 54 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 11/29/96 Class
MILO PETERSON Mr. Peterson has served as 168,570 4.8%
(a)(d)(e) Executive Vice President and
Age 56 Corporate Secretary of NSI since
Director since 1990 January 1, 1992. Since January
1, 1992, he has also served as
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 3,475 *
(b)(c)(e) consultant in the manufacturing
Age 51 operations and training field.
Director since 1992 Prior to 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 1,214 *
(b)(c)(d) Principal shareholder of Morse
Age 55 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 4,518 *
(a)(c)(d) Reports for Carrols Corp. in
Age 55 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.
19
<PAGE>
Common Shares
Actually or Percent
Beneficially of
Director Principal occupation Owned 11/29/96 Class
Daniel Galbally Mr. Galbally is a self-employed 1,489 *
(b)(c)(d) financial consultant. He was the
Age 49 controller of Evaporated Metal
Director since 1995 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 Operations Committee
(e)Member of Nominating Committee
* Denotes less than one percent of class.
The Directors listed above and executive officers as a group own 1,161,050
shares or approximately 33% of the outstanding common shares of the Company.
IDENTIFICATION OF EXECUTIVE OFFICERS
Name Age Position
Carl F. Fahrenkrug 54 President and Chief Executive Officer
Richard L. Jones 48 Vice President and Chief Financial
Officer
Milo J. Peterson 56 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 and Corporate Secretary of
NSI. Since January 1, 1992, he has also served as 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, 1996,
1995 and 1994, 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 1996 104,229 10,000
President and CEO (1) 1995 91,775 -
1994 95,522 -
(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 also has a voluntary 401-K plan. Eligibility is the same as the Profit
Sharing Plan. Contributions to the 401-K plan are matched at a rate of 40%
of employee contributions limited to 2.0% of compensation.
MFC's contributions to the plans for the years ended September 30, 1996, 1995
and 1994 amounted to $81,470, $28,167 and $27,935, respectively.
STOCK OPTIONS
- -------------
The Company had two (2) stock option plans which were administered by the
Board of Directors on advice from the Compensation Committee. Both plans have
expired. 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 were granted at fair market
value and had to 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 were granted for
a period of one year. The E.S.P. Plan utilized 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 were 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, 1996.
21
<PAGE>
COMPENSATION OF DIRECTORS
- -------------------------
Non-officer directors receive fees of $300.00 per board meeting and $200.00
per committee meeting, with the exception of the executive committee which
receives $300.00 per committee meeting. MFC also reimburses directors for
reasonable expenses incurred in attending meetings. Officer members receive
no compensation for their attendance at meetings. The Company also pays Louis
S. Misenti $20,000 per year for his services as Chairman of the Board of
Directors. In addition, the Company paid Louis S. Misenti $3,333 during fiscal
1996 for consulting services. 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, 1996.
% of
Outstanding
Number of Shares
Common
Name of Beneficial Owner Address Beneficially Owned _____Stock_____
Frederick A. Dix & 209 Watson Rd. 243,798 6.9%
Marjorie Dix N. Syracuse, NY 13212
Carl F. Fahrenkrug & Indian Hill Rd. 368,004 10.4%
Rita Fahrenkrug Manlius, NY 13104
Louis S. Misenti 140 Clearview Rd. 358,655 10.1%
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
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, 1996.
(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 9, 1997
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 9, 1997
24
<PAGE>
ANNUAL REPORT ON FORM 10-KSB
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, 1996 and 1995....27
Consolidated Statements of Operations for the Years
Ended September 30, 1996, 1995 and 1994 .......................28
Consolidated Statements of Stockholders' Equity for the Years
Ended September 30, 1996, 1995 and 1994 .......................29
Consolidated Statements of Cash Flows for the Years
Ended September 30, 1996, 1995 and 1994 .......................30
Notes to Consolidated Financial Statements.......................31-38
SCHEDULE FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994:
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, 1996 and 1995, and
the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended September 30, 1996.
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, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1996 in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Syracuse, New York
November 27, 1996
26
<PAGE>
Microwave Filter Company and Subsidiaries
Consolidated Balance Sheets
September 30
Assets 1996 1995
- ------ ---- ----
Current assets:
Cash and cash equivalents $1,280,999 $520,676
Accounts receivable-trade, net of allowance for
doubtful accounts of $75,000 and $50,000 723,855 879,160
Inventories 1,498,978 1,968,510
Prepaid expenses and other current assets 323,144 215,300
--------- ---------
Total current assets 3,826,976 3,583,646
Property, plant and equipment, net 1,583,290 1,624,762
Other assets 0 65,523
--------- ---------
Total Assets $5,410,266 $5,273,931
========== ==========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Current portion of long term debt $52,670 $146,556
Accounts payable 299,859 362,436
Customer deposits 198,694 281,918
Accrued federal and state income taxes 289,616 42,808
Accrued payroll and related expenses 127,692 90,915
Accrued compensated absences 197,835 183,544
Other current liabilities 80,700 83,144
--------- ---------
Total current liabilities 1,247,066 1,191,321
Long term debt, less current portion 102,774 439,545
Deferred compensation and other liabilities 82,128 59,428
--------- ---------
Total liabilities 1,431,968 1,690,294
--------- ---------
Commitments
Stockholders' equity:
Common stock, $.10 par value. Authorized 5,000,000 shares
Issued 4,259,446 in 1996 and 4,003,733 in 1995 425,945 400,373
Additional paid-in capital 3,192,641 2,880,992
Retained earnings 997,439 939,377
Common stock in treasury, at cost,
714,768 shares in 1996 and 680,301 shares in 1995 (637,727) (637,105)
--------- ---------
Total stockholders' equity 3,978,298 3,583,637
--------- ---------
Total Liabilities and Stockholders' Equity $5,410,266 $5,273,931
========== ==========
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
1996 1995 1994
---- ---- ----
Net sales $7,532,710 $7,655,198 $8,616,861
Cost of goods sold 4,321,091 4,936,219 5,445,123
--------- --------- ---------
Gross profit 3,211,619 2,718,979 3,171,738
Selling, general
and administrative expenses 2,560,692 2,687,260 2,989,610
--------- --------- ---------
Income from operations 650,927 31,719 182,128
Other Income (Expense)
Interest income 44,292 17,562 8,203
Interest expense (29,143) (42,345) (29,494)
Miscellaneous 14,171 20,454 15,245
--------- --------- ---------
Income before income taxes 680,247 27,390 176,082
Provision for income taxes 175,952 8,226 58,553
--------- --------- ---------
NET INCOME $504,295 $19,164 $117,529
--------- --------- ---------
Earnings Per Share $0.14 $0.01 $0.03
--------- --------- ---------
Weighted average number of shares
and common stock equivalents 3,525,362 3,478,451 3,508,923
========= ========= =========
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, 1996, 1995 and 1994
-----------------------------------------------------
<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, 1993 3,701,165 $370,117 $2,597,577 $1,023,322 560,987 ($539,397) $3,451,619
Net income 117,529 117,529
Stock issued to employees
and officers 48,106 4,811 26,415 31,226
Stock issued to directors 13,704 1,370 12,429 13,799
Purchase of treasury stock 483 (423) (423)
Other 207 20 161 (181)
--------- -------- ---------- -------- ------- ---------- ----------
Balance,
September 30, 1994 3,763,182 376,318 2,636,582 1,140,670 561,470 (539,820) 3,613,750
Net income 19,164 19,164
Stock issued to employees
and officers 35,866 3,586 28,821 32,407
Stock issued to directors 14,636 1,464 14,137 15,601
Purchase of treasury stock 86,461 (97,285) (97,285)
5% stock dividend 190,049 19,005 201,452 (220,457) 32,370
--------- -------- ---------- -------- ------- ---------- ----------
Balance,
September 30, 1995 4,003,733 400,373 2,880,992 939,377 680,301 (637,105) 3,583,637
Net income 504,295 504,295
Stock issued to employees
and officers 37,161 3,716 35,700 39,416
Stock issued to directors 16,342 1,635 18,132 19,767
Purchase of treasury stock 452 (622) (622)
Cash dividend paid
($.05 per share) (168,195) (168,195)
5% stock dividend 202,210 20,221 257,817 (278,038) 34,015
--------- -------- ---------- -------- ------- ---------- ----------
Balance,
September 30, 1996 4,259,446 $425,945 $3,192,641 $997,439 714,768 ($637,727) $3,978,298
========= ======== ========== ======== ======= ========== ==========
</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
--------------------------------
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net income $504,295 $19,164 $117,529
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 333,105 360,124 380,849
Amortization of intangible assets 63,772 39,006 44,686
Inventory obsolescence provision 48,744 103,643 207,291
Bad debt provision 53,011 18,025 45,829
Stock compensation 59,183 48,008 45,025
Deferred income taxes (95,748) (51,921) 11,567
Changes in assets and liabilities:
Accounts receivable-trade, net 102,294 180,266 (362,894)
Accrued federal and state income taxes 246,808 37,831 (26,975)
Inventories 420,788 (442,460) (323,747)
Other assets 17,249 17,328 31,122
Accounts payable and customer deposits (145,801) 60,790 106,343
Accrued payroll, compensated absences and
related expenses 51,068 (28,159) 25,945
Other current liabilities (2,444) (122,725) 98,065
Deferred compensation (4,894) (4,010) (7,860)
--------- -------- -------
Net cash provided by operating activities 1,651,430 234,910 392,775
--------- -------- -------
Cash flows from investing activities:
Capital expenditures (291,633) (134,456) (249,997)
-------- -------- -------
Net cash used in investing activities (291,633) (134,456) (249,997)
-------- -------- -------
Cash flows from financing activities:
Principal payments on long-term debt (430,657) (139,054) ( 75,484)
Proceeds from term loan 500,000
Purchase of treasury stock (622) (97,285) (423)
Cash dividend paid (168,195)
-------- -------- -------
Net cash provided by (used in)
financing activities (599,474) (236,339) 424,093
-------- -------- -------
Net increase (decrease)
in cash and cash equivalents 760,323 (135,885) 566,871
Cash and cash equivalents at beginning of year 520,676 656,561 89,690
-------- -------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $1,280,999 $520,676 $656,561
========== ======== ========
Supplemental disclosures of cash flows:
Cash paid during the year for (approximately):
Interest $29,000 $39,000 $28,000
Income taxes $32,000 $22,000 $73,000
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.
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. 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 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. 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, 1996 and September 30, 1995 approximates fair value. Substantially
all cash balances were on deposit at one financial institution at September 30,
1996 and 1995.
d. Inventories
Inventories are stated at the lower of cost determined on the first-in, first-
out method or market.
e. Research and Development
Costs in connection with research and development, which amount to $359,934,
$408,425 and $442,228 for the fiscal years 1996, 1995 and 1994, respectively,
are charged to operations as incurred.
f. 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.
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.
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. 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.
j. Reclassifications
Certain reclassifications have been made to conform prior year financial
statements with the current year presentations.
2. INVENTORIES
Inventories net of provision for obsolescence
consisted of the following: September 30
1996 1995
---- ----
Raw materials and stock parts $958,040 $1,106,636
Work-in-process 299,131 393,972
Finished goods 241,807 467,902
-------- ---------
$1,498,978 $1,968,510
========== ==========
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
September 30
1996 1995
---- ----
Land $143,000 $143,000
Building and improvements 1,734,814 1,642,103
Machinery and equipment 2,065,615 1,973,227
Office equipment and fixtures 1,128,960 1,022,426
Other 93,507 93,507
--------- ---------
5,165,896 4,874,263
Less: Accumulated depreciation 3,582,606 3,249,501
--------- ---------
$1,583,290 $1,624,762
========== ==========
32
<PAGE>
4. LONG-TERM DEBT
Long-term debt consisted of the following: September 30
1996 1995
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. Paid
in full in fiscal 1996. $0 $379,795
Capitalized lease obligation (a) 155,444 206,306
------- -------
155,444 586,101
Less: current portion 52,670 146,556
------- -------
$102,774 $439,545
======= =======
(a) 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
5.60% at September 30, 1996 and 1995, respectively).
The following is a schedule of annual principal requirements on long-term
debt:
Year Ended Principal
September 30 Payments
------------ ---------
1997 $ 52,670
1998 57,025
1999 45,749
-------
$155,444
=======
The terms of the agreement contains 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 agreement.
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. The equipment line of credit
provides for interest at the prime rate plus one percent (1%). The working
capital line of credit provides for interest at the prime rate plus three
quarters percent (3/4%). In addition, the Company has a Letter of Credit
Facility, for up to $500,000, which is collateralized by specified inventory
to be purchased. There were no amounts outstanding at September 30, 1996.
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 40% of
employee contributions limited to 2.0% of compensation.
The Company's matching contributions to the 401-K plan for the years ended
September 30, 1996, 1995 and 1994 were $31,470, $28,167 and $27,935 ,
respectively. Additionally, the Company may make discretionary contributions
to the non-contributory profit sharing plan. These contributions were $50,000
in 1996. No discretionary contributions were made in 1995 or 1994.
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, 1996, 1995 and
1994 amounted to $97,739, $94,686 and $67,975, respectively.
Minimum rental commitments at September 30, 1996 for these leases are:
Year Ended Principal
September 30 Payments
------------ --------
1997 $97,680
1998 90,738
1999 52,611
2000 51,914
2001 95,335
------
$388,278
=======
8. INCOME TAXES
The provision for income taxes consisted of the following:
Year Ended September 30
1996 1995 1993
Currently payable:
Federal $250,700 $50,147 $38,586
State 21,000 10,000 8,400
Deferred (credit) (95,748) (51,921) 11,567
------- ------- -------
$175,952 $8,226 $58,553
======== ======= =======
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
______1996______ ______1995______ ______1994______
Amount % Amount % Amount %
Statutory tax rate $231,284 34.0% $9,312 34.0% $59,868 34.0%
Surtax exemption 0 0 (5,204) (19.0%) (7,958) (4.5%)
State income tax net of:
Federal benefit 13,860 2.0% 6,600 24.1% 5,544 3.1%
Foreign sales corp benefit(6,854) (1.0%) (4,579) (16.7%) (4,756) (2.7%)
Research and experimentation
tax credits (54,344) (8.0%) 0 0 0 0
Other (7,994) (1.1%) 2,097 7.6% 5,855 3.3%
------ ------ ------- ------ --------- -----
$175,952 25.9% $8,226 30.0% $58,553 33.2%
======== ====== ======= ===== ========= ======
The temporary differences which give rise to deferred tax assets and
liabilities at September 30 are as follows:
1996 1995
---- ----
Inventory $182,716 $126,305
Accrued vacation 52,350 7,544
Other 22,125 0
Research and experimentation
tax credits 0 58,700
------- --------
257,191 192,549
Valuation allowance ( 0) (58,700)
------- -------
Net deferred tax assets - current $257,191 $133,849
======= =======
Accelerated depreciation (71,971) (40,807)
Other 13,215 9,645
-------- --------
Net deferred tax liabilities -
noncurrent $58,756 $31,162
======= =======
In 1996, no valuation allowance was recognized since sufficient taxable
income is available in prior carryback years to realize a future tax benefit
for deductible temporary differences. In 1995, a valuation allowance has been
recognized to offset the deferred tax asset related to the research and
experimentation tax credit.
35
<PAGE>
9. 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)
1996 1995 1994
Net Sales (Unaffiliated):
MFC $6,924 $6,829 $7,497
NSI 609 826 1,120
Total $7,533 $7,655 $8,617
Operating Profit (Loss): (a)
MFC $987 $200 $426
NSI (222) (70) (83)
Corporate (114) (98) (161)
Total $651 $32 $182
Identifiable Assets: (b)
MFC $3,812 $4,189 $4,334
NSI 317 564 532
Subtotal 4,129 4,753 4,866
Corporate Assets-Cash and
Cash Equivalents 1,281 521 657
Total $5,410 $5,274 $5,523
Depreciation & Amortization Expense:
MFC $275 $324 $349
NSI 122 75 76
Total $397 $399 $425
Capital Expenditures:
MFC $291 $129 $244
NSI 1 5 6
$292 $134 $250
Significant Export Sales:
MFC $558 $508 $517
Sales to Significant Customers:
MFC:
Communication Microwave Corp. - $1,103 $1,118
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
Both the Company's stock option plan and stock purchase plan, which were
administered by the Compensation Committee, expired in February of 1996.
The Employee Incentive Stock Option Plan (E.I.S.O. Plan) provided for the
issuance of options to key employees at fair market value which had to 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. This plan had no activity since September 30, 1993.
The Employee Stock Purchase Plan (E.S.P. Plan) granted all employees options
to purchase 20 shares for each $1,000 of the employee's annual compensation.
The E.S.P. Plan utilized 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 were not
eligible to participate in the E.S.P. Plan. A summary of the E.S.P. Plan's
activities through September 30, 1996 is as follows:
EMPLOYEE
STOCK PURCHASE
PLAN
----
Shares Avg. price
------ ----------
Outstanding, September 30, 1993 0
Granted 47,040
Exercised (2,106) $.99
Forfeited (44,934)
Outstanding, September 30, 1994 0
Granted 46,534
Exercised (1,407) $.99
Forfeited (44,934)
Outstanding, September 30, 1995 0
Granted 44,146
Exercised (839) $1.09
Forfeited 43,307
Outstanding, September 30, 1996 0
37
<PAGE>
11. LEGAL MATTERS
There are currently no material pending legal proceedings against the
Company or its subsidiaries.
12. FOURTH QUARTER ADJUSTMENTS
In the fourth quarter of fiscal 1996, management revised certain inventory
reserve estimates which resulted in approximately $150,000 of pre-tax income.
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
November 27, 1996
40
<PAGE>
Microwave Filter Company and Subsidiaries
Schedule II - VALUATION AND QUALIFYING ACCOUNTS
SEPTEMBER 30, 1996, 1995 and 1994
<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, 1996
Allowance for doubtful accounts $50,000 $53,011 $28,011 $75,000
Inventory valuation reserves 545,306 48,744 0 594,050
-------- -------- ------- ------- --------
$595,306 $101,755 $0 $28,011 $669,050
======== ======== ======= ======= ========
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
======== ======== ======= ======= ========
</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 10-K for the twelve months ended September 30, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> $1,280,999
<SECURITIES> 0
<RECEIVABLES> 723,855
<ALLOWANCES> 75,000
<INVENTORY> 1,498,978
<CURRENT-ASSETS> 3,826,976
<PP&E> 5,165,896
<DEPRECIATION> 3,582,606
<TOTAL-ASSETS> 5,410,266
<CURRENT-LIABILITIES> 1,247,066
<BONDS> 102,774
<COMMON> 425,945
0
0
<OTHER-SE> 3,552,353
<TOTAL-LIABILITY-AND-EQUITY> 5,410,266
<SALES> 7,532,710
<TOTAL-REVENUES> 7,532,710
<CGS> 4,321,091
<TOTAL-COSTS> 6,881,783
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,143
<INCOME-PRETAX> 680,247
<INCOME-TAX> 175,952
<INCOME-CONTINUING> 504,295
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 504,295
<EPS-PRIMARY> $0.14
<EPS-DILUTED> $0.14
</TABLE>
