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, 1997_____________________________
OR
__TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from____________to____________________________________
Commission file number__________________0-10976_________________________________
_______________________________Microwave Filter Company, Inc____________________
(Exact name of registrant as specified in its charter)
__________New York__________________________16-0928443__________________________
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
_____6743 Kinne Street, East Syracuse, NY________13057_________________________
(Address of principal executive offices) (Zip code)
Registrant's telephone number including area code____(315) 438-4700_____________
Securities registered pursuant to Section 12(b) of the Act:_____None____________
Securities registered pursuant to Section 12(g) of the Act:
_________________________Common stock, par value $.10 per share_________________
Title of class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports, and (2) has been subject to such
filing requirements for the past 90 days.
YES __X__ NO____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.__
The aggregate market value of the voting stock held by non-affiliates of the
registrant at the close of business on November 25, 1997 was $2,523,581.
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 25, 1997: 3,545,057
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
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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.
Niagara Scientific, Inc. (NSI)
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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
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
pick and place packing machine.
Schroeder Machines has become a systems integrator for Adept Technology,
Inc., San Jose, CA., a manufacturer of a variety of robotic systems for the
material handling industry. In this new capacity, Schroeder personnel will
implement robot technology into case packing equipment. They will also work
with companies who want to add robotics to existing material handling
equipment. This robotic technology is used in high speed, high accuracy pick
and place operations and has been popular in automotive and pharmaceutical
industries.
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MARKETS
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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 will become Cable Communications in the years ahead. No
longer will it just be a one-way provider of video programming. Cable companies
are in the process of reconfiguring their plants to offer two-way services such
as telephony and data in addition to cable television. Certain existing cable
plants have discovered with a modest expenditure in additional equipment, they
can successfully offer clear telephone and fast internet service over
combination coaxial and fiber optic cables already in place.
With signals traveling in two different directions now, cable operators must
deal with signal processing and interference issues that affect the return
path. As in the past, Microwave Filter Company will be available to offer
custom solutions to any problems that arise.
Over the last few years, direct broadcast satellite (DBS) has taken business
away from cable television. DBS offers more channels and higher quality digital
reception. Nevertheless, DBS cannot offer local stations and is strictly a
one-way service so cable television is expected to regain lost ground in the
years ahead particularly if it can offer high speed internet access. Wireless
Cable and telephone companies also expect to enter into the arena and offer
two-way services to compete with cable television.
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Broadcast - Several areas of broadcast are served by Microwave Filter
Company with the most active being Wireless Cable.
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 was a market challenged in 1997 and its future will depend
upon its ability to mirror some of the new two-way services which cable
television plans to implement. This market continues to be bogged down by
limited financing which has continued to stall its development domestically,
though business continues in foreign markets. The industry continues to remain
optimistic about its future.
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. Last year Microwave Filter Company developed a notch and
bandpass filter series to remove interference at the transmitter for this new
market.
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LPTV - Low Power Television or LPTV is an option in the U.S. as a
multichannel subscription television service. A system similar to Wireless
Cable can be configured to deliver channels of programming to areas
where off air signals cannot be received. The only difference between both
services is broadcast frequency and the type of antenna located at the
subscriber's home. An LPTV receive antenna would look like any other off air
broadcast antenna in contrast to the microwave antenna used for Wireless
Cable. LPTV frequencies are easier to obtain and there are more LPTV than
Wireless channels available. In fact, due to the limited number of Wireless
Cable frequencies, Wireless Cable operators are using a combination of Wireless
and LPTV frequencies to increase the number of channels offered to their
subscribers. As a broadcaster, LPTV differs from traditional television only
in broadcast power. With lower broadcast power, the service has a smaller
reception area than high power broadcast stations.
Microwave Filter Company provides channel combiners and interference filters
for this industry. The channel combiners are used to group channels and
eliminate additional coaxial runs to the broadcast tower. Filters are also
used in broadcast equipment to eliminate interference.
Radio and Television Broadcast - MFC primarily serves these broadcast areas
with interference filters to reduce equipment harmonics. 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
satellite dish than C-band TVRO. Both satellite dealers and cable television
systems market the service to offer consumers television options.
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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)
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NSI - Like MFC, NSI and its divisions seek niche markets arising from
certain demographic changes in the industrial work force which promotes
acceptance of automation in both large and small factories. NSI's typical
product is customized to the purchaser's operation and is the result of system
engineering. The product makes tactical use of precision mechanical movements
or sensors of physical characteristics under microprocessor control. These
smart machines reduce labor costs through faster operation and increased
quality.
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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
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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
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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
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The Company has no patents, trademarks, copyrights, licenses or franchises of
material importance.
SEASONAL FLUCTUATIONS
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There are no significant seasonal fluctuations in the Company's business.
GOVERNMENT CONTRACTS
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The Company is not dependent in any material respect on government contracts.
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BACKLOG
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At September 30, 1997, the Company's total backlog of orders was $1,190,048
compared to $1,262,124 at September 30, 1996. At September 30, 1997, MFC's
backlog of orders was $1,190,048 compared to $921,598 at September 30, 1996.
At September 30, 1997, NSI's backlog of orders was $0 compared to
$340,526 at September 30, 1996. Approximately 75% of the Company's backlog at
September 30, 1997 is scheduled to ship during fiscal 1998.
EMPLOYEES
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At September 30, 1997, the Company employed 67 full-time permanent
employees, 5 part-time permanent employees, and 12 full-time temporary
employees.
RESEARCH AND DEVELOPMENT
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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 $337,250, $359,934 and $408,425 for the fiscal years 1997,
1996 and 1995, respectively. Research and development costs are charged to
operations as incurred.
MANUFACTURING
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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
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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.
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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
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 1997 High Low
Oct. 1, 1996 to Dec. 31, 1996 $ 1.38 $ 1.00
Jan. 1, 1997 to Mar. 31, 1997 1.50 1.06
Apr. 1, 1997 to June 30, 1997 1.75 .94
July 1, 1997 to Sept. 30, 1997 1.38 1.00
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
Adjusted for all stock dividends.
The approximate number of stockholders on September 30, 1997 was 1,900.
On January 15, 1997, the Board of Directors declared a five cents per share
cash dividend to shareholders of record on February 3, 1997, to be distributed
on February 18, 1997.
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.
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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
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net Sales $ 6,175,425 $ 7,532,710 $ 7,655,198 $ 8,616,861 $ 6,814,329
Net Income (loss)(1)(3) $ 434,772 $ 504,295 $ 19,164 $ 117,529 $ (118,330)
Earnings (loss) Per Share $ .12 $ .14 $ .01 $ .03 $ (.03)
Weighted Average Number of
Common Shares Outstanding*(2) 3,548,240 3,525,362 3,478,451 3,508,923 3,573,067
Stock (%) Dividends 5% 5% 5% 5%
Cash ($) Dividends Declared $ .05 $ .05
Total Assets(2) $ 5,173,481 $ 5,410,266 $ 5,273,931 $ 5,597,991 $ 4,761,044
Long Term Debt $ 46,065 $ 102,774 $ 439,545 $ 583,354 $ 251,298
*Adjusted for all stock dividends.
Net income (loss) as a percentage of: 1997 1996 1995 1994 1993
Sales............................. 7.0 6.7 0.3 1.4 (1.7)
Assets............................ 8.4 9.3 0.4 2.1 (2.5)
Equity............................ 10.2 12.7 0.5 3.3 (3.4)
</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.
(3) In the fourth quarter of 1997, the Company received life insurance death
benefits of $350,000 as a result of the death of a former officer.
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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 major product
groups for each of the fiscal years in the three year period ended September
30, 1997.
Product group (in thousands) Fiscal 1997 Fiscal 1996 Fiscal 1995
Niagara Scientific $ 588 $ 609 $ 826
Microwave Filter:
Cable TV 3,592 3,951 3,223
Broadcast TV 1,095 1,788 2,277
RF/Microwave 740 1,074 1,226
Satellite Communications 160 111 103
Total $6,175 $7,533 $7,655
Sales backlog at 9/30 $1,190 $1,262 $1,694
Fiscal 1997 compared to Fiscal 1996
Consolidated net sales for the fiscal year ended September 30, 1997 equalled
$6,175,425, a decrease of $1,357,285 or 18% when compared to consolidated net
sales of $7,532,710 during the fiscal year ended September 30, 1996.
Microwave Filter Company, Inc. (MFC) sales decreased $1,335,644 or 19.3% to
$5,587,862 during the fiscal year ended September 30, 1997 when compared to
sales of $6,923,506 during the fiscal year ended September 30, 1996.
MFC's Cable TV product sales decreased $359,164 or 9.1% to $3,592,190 during
the fiscal year ended September 30, 1997 when compared to sales of $3,951,534
during the fiscal year ended September 30, 1996. The decrease in sales can
primarily be attributed to market conditions. Competition in the form of Direct
Broadcast Satellite (DBS) has enjoyed rapid growth at the expense of the Cable
TV industry and this has impacted our sales. DBS offers more channels and high
quality digital reception. However, DBS cannot offer local stations and is
strictly a one-way service. In the next few years, Cable TV operators will
begin to offer additional two-way services such as telephony and high speed
internet access which will be beyond the technical capabilities of DBS, so
Cable TV will regain some lost market share. Standards and technology are
being developed by Cable TV operators for the implementation of these new
services and once decisions are complete, additional investment in equipment
to build up physical plant will be made and should again positively impact our
sales to this market. MFC has also experienced stiffer competition from other
suppliers. Management has been working diligently to recapture any lost
business and to increase market share through more competitive pricing and an
increased marketing effort.
MFC's Broadcast TV product sales, which includes wireless cable products,
decreased $692,019 or 38.7% to $1,095,620 during the fiscal year ended
September 30, 1997 when compared to sales of $1,787,639 during the fiscal year
ended September 30, 1996. The decrease in sales can also be attributed
primarily to market conditions. Demand in the Multichannel Multipoint
Distribution Service (MMDS) has been low. Wireless cable system operators
continue to wait for the successful testing and installation of digital
compression technology. Digital compression technology will provide wireless
cable with the ability to offer more channels. Wireless Cable is also a
technology that shows promise in offering two-way data services such as
internet access. The industry continues to remain optimistic about its future.
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MFC's RF/Microwave product sales decreased $332,989 or 31% to $740,662 during
the fiscal year ended September 30, 1997 when compared to sales of $1,073,651
during the fiscal year ended September 30, 1996. The decrease in sales can
primarily be attributed to the completion of a large order during the fiscal
year ended September 30, 1996.
Niagara Scientific, Inc. (NSI), a wholly owned subsidiary, sales for the
fiscal year ended September 30, 1997 were essentially identical to the same
period last year. Net sales were $587,563 for the twelve months ended September
30, 1997, a decrease of $21,641 or 3.6%, when compared to net sales of $609,204
during the twelve months ended September 30, 1996.
Gross profit decreased $728,672 or 22.7% to $2,482,947 during the fiscal year
ended September 30, 1997 when compared to gross profit of $3,211,619 during the
fiscal year ended September 30, 1996. The decrease in gross profit during
fiscal 1997 when compared to fiscal 1996 can primarily be attributed to the
decrease in sales. As a percentage of sales, gross profit decreased to 40.2%
during the fiscal year ended September 30, 1997 when compared to 42.6% during
the fiscal year ended September 30, 1996. The decrease in gross profit as a
percentage of sales during fiscal 1997 when compared to fiscal 1996 can
primarily be attributed to higher manufacturing overhead costs per sales
dollar due to the significant decline in sales during fiscal 1997 when
compared to fiscal 1996.
Selling, general and administrative (SG&A) expenses decreased $87,927 or 3.4%
to $2,472,765 during the fiscal year ended September 30, 1997 when compared to
SG&A expenses of $2,560,692 during the fiscal year ended September 30, 1996.
As a percentage of sales, SG&A expenses increased to 40% during the fiscal year
ended September 30, 1997 when compared to 34% during the fiscal year ended
September 30, 1996, primarily due to the decrease in sales during fiscal 1997.
Decreases were realized in salary and salary related expenses, amortization
expense, bad debt expense, sales commissions and legal costs while increased
costs were experienced in promotional and advertising expenses.
Income from operations decreased $640,745 to $10,182 during the fiscal year
ended September 30, 1997 when compared to income from operations of $650,927
during the fiscal year ended September 30, 1996 primarily due to the decrease
in sales.
Other income increased $414,029 during the fiscal year ended September 30,
1997 when compared to the fiscal year ended September 30, 1996 primarily due to
the receipt of life insurance death benefits of $350,000 as a result of the
death of a former officer.
The Company's effective income tax rate decreased to 4.1% during fiscal 1997
primarily due to the lower levels of pre-tax income, the tax-free receipt of
life insurance death benefits and a research and experimentation tax credit.
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.
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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 $489,157 or 21.5% to $1,787,639 during fiscal 1996 when compared to
sales of $2,276,796 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.
15
<PAGE>
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.
16
<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
1997 1996 1995
Cash & cash equivalents $1,434,473 $1,280,999 $520,676
Working capital $2,745,211 $2,579,910 $2,392,325
Current ratio 4.20 to 1 3.07 to 1 3.01 to 1
Long-term debt $46,065 $102,774 $439,545
Cash and cash equivalents increased $153,474 to $1,434,473 at September 30,
1997 when compared to $1,280,999 at September 30, 1996. The increase was a
result of $665,591, which includes $350,000 in life insurance death benefits
received as a result of the death of a former officer, in net cash provided by
operating activities, $280,717 in net cash used for capital expenditures and
$231,400 in net cash used in financing activities.
At September 30, 1997, 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.
ACCOUNTING STANDARDS NOT YET ADOPTED BY THE COMPANY
- ---------------------------------------------------
The Financial Accounting Standards Board ("FASB") has issued several new
pronouncements that are not yet adopted by the Company.
In February 1997, the FASB issued SFAS No. 128. "Earnings Per Share." SFAS
128 introduces the concept of basic earnings per share, which represents net
income divided by the weighted average common shares outstanding without the
dilutive effects of common stock equivalents. Diluted earnings per share,
giving effect for common stock equivalents, will be reported when SFAS 128 is
adopted for the first quarter of fiscal year ending September 30, 1998. The
impact of adopting SFAS 128 is anticipated to be immaterial.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure," to consolidate existing disclosure requirements. This
new standard contains no change in disclosure requirements for the Company. It
will be effective for the first quarter of fiscal year ending September 30,
1998.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and display of comprehensive income
and its components. The components of comprehensive income refer to revenues,
expenses, gains and losses that are excluded from net income under current
accounting standards. SFAS 130 requires that all items that are recognized
under accounting standards as components of comprehensive income be reported
in a financial statement displayed in equal prominence with other financial
statements; the total of other comprehensive income for a period is required
to be transferred to a component of equity that is separately displayed in a
statement of financial position at the end of an accounting period. It will be
effective for the Company for the first quarter of fiscal year ending
September 30, 1998. SFAS 130 is not currently anticipated to have a
significant impact on the Company's consolidated financial statements based on
the current financial structure and operations of the Company.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS 131 establishes standards for the way
public enterprises are to report information about segments in annual financial
statements and requires the reporting of selected information about operating
segments in interim financial reports issued to shareholders. SFAS 131 also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS 131 is effective for the Company for
the first quarter of fiscal year ending September 30, 1999. The Company does
not expect SFAS 131 to have a material effect on its reported results.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
- --------------------------------------------------------------------------------
Any statements contained in this report which are not historical facts are
forward looking statements; and, many important factors could cause actual
results to differ materially from those in the forward looking statements. Such
factors include, but are not limited to, changes (legislative, regulatory and
otherwise) in the MMDS, LPTV or Cable industry, demand for the Company's
products (both domestically and internationally), the development of
competitive products, competitive pricing, market acceptance of new product
introductions, technological changes, general economic conditions, litigation
and other factors, risks and uncertainties which may be identified in the
Company's Securities and Exchange Commission filings.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Financial Statements and Financial Statement Schedules called for by this
item are submitted as a separate section of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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 11/25/97 Class
TRUDI B. ARTINI Mrs. Artini is an independent 108,815 3.1%
(a)(b)(d) investor in MFC and various other
Age 75 business enterprises in Syracuse,
Director since 1974 New York.
DAVID B. ROBINSON MD Dr. Robinson is Emeritus Professor 116,332 3.3%
(a)(b)(d) of Psychiatry at the Health Science
Age 73 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 354,849 10.0%
Age 70 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 377,066 10.6%
(a)(d) President and Chief Executive
Age 55 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 11/25/97 Class
MILO PETERSON Mr. Peterson has served as 168,570 4.8%
(a)(d) Executive Vice President and
Age 57 Corporate Secretary of NSI since
Director since 1990 January 1, 1992. Mr. Peterson
graduated from programs at Yale
University and Syracuse
University. He served as Vice
President of Manufacturing of
Microwave Systems, Inc.,
Syracuse, N.Y. from 1970-1976.
He was elected Corporate
Secretary of MFC on March 27,
1993.
FRANK S. MARKOVICH Mr. Markovich is a consultant in 4,508 *
(c)(d) the manufacturing operations
Age 52 and training field. Prior to that
Director since 1992 he was the Director of the
Manufacturing Extension
Partnership at UNIPEG Binghamton.
He held various high level
positions in operations, quality
and product management in a 20
year career with BF Goodrich
Aerospace, Simmonds Precision
Engine Systems of Norwich, New
York. He completed US Navy
Electronics and Communications
Schools and received an MBA from
Syracuse University.
ROBERT R. ANDREWS Mr. Andrews is the President and 1,214 *
(a)(c) Principal shareholder of Morse
Age 56 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 Corporate 6,171 *
(a)(b)(c) Accounting for Carrols Corp. in
Age 56 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 11/25/97 Class
Daniel Galbally Mr. Galbally is controller of 1,489 *
(b)(c) Diamond Card Exchange, Inc. in
Age 50 Syracuse, New York. He was the
Director since 1995 controller of Evaporated Metal
Films (EMF) in Ithaca, N.Y. Before
joining EMF, he worked as controller
and acting vice president of finance
at Philips Display Components Co.
He has a bachelor's degree in
accounting and an MBA from
Syracuse University.
(a)Member of Executive Committee
(b)Member of Compensation Committee
(c)Member of Finance and Audit Committee
(d)Member of Nominating Committee
* Denotes less than one percent of class.
The Directors listed above and executive officers as a group own 1,169,922
shares or approximately 33% of the outstanding common shares of the Company.
IDENTIFICATION OF EXECUTIVE OFFICERS
Name Age Position
Carl F. Fahrenkrug 55 President and Chief Executive Officer
Richard L. Jones 49 Vice President and Chief Financial
Officer
Milo J. Peterson 57 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 controller. In February 1985, he
was appointed Vice President and Treasurer of MFC. On October 7, 1992, he was
appointed Vice President and Chief Financial Officer.
Milo J. Peterson was elected 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, 1997,
1996 and 1995, 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 1997 117,882 -
President and CEO 1996 104,229 10,000
1995 91,775 -
PROFIT SHARING
- --------------
MFC has a profit sharing plan for all employees over the age of 21 with one
year of service. Annual contributions are determined by the Board of
Directors and are made from current or accumulated net income. Allocation of
contributions to plan participants are based upon annual compensation.
Participants vest on the basis of 20% after 3 years of service, 40% at 4
years, 60% at 5 years, 80% at 6 years and 100% at 7 years.
MFC also has a voluntary 401-K plan. Eligibility is the same as the Profit
Sharing Plan. Contributions to the 401-K plan are currently matched at a rate
of 50% of employee contributions limited to 3.0% of compensation.
MFC's contributions to the plans for the years ended September 30, 1997, 1996
and 1995 amounted to $68,139, $81,470 and $28,167, respectively.
STOCK OPTIONS
- -------------
There were no stock options outstanding at September 30, 1997.
21
<PAGE>
COMPENSATION OF DIRECTORS
- -------------------------
Non-officer directors received fees of $300.00 per board meeting and $200.00
per committee meeting, with the exception of the executive committee which
received $300.00 per committee meeting, during fiscal 1997. MFC also reimburses
directors for reasonable expenses incurred in attending meetings. Officer
members receive no compensation for their attendance at meetings. During fiscal
1997 the Company paid Louis S. Misenti $15,150 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 25, 1997.
% of
Outstanding
Number of Shares
Common
Name of Beneficial Owner Address Beneficially Owned _____Stock_____
Frederick A. Dix & 209 Watson Rd. 244,007 6.9%
Marjorie Dix N. Syracuse, NY 13212
Carl F. Fahrenkrug & Indian Hill Rd. 377,066 10.6%
Rita Fahrenkrug Manlius, NY 13104
Louis S. Misenti 140 Clearview Rd. 354,849 10.0%
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, 1997.
(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: December 22, 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| Robert R. Andrews
- ------------------------ -----------------------
Milo J. Peterson Robert R. Andrews
(Director) (Director)
|S| Sidney Chong
- --------------------
Sidney Chong
(Director)
Dated: December 22, 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, 1997 and 1996....27
Consolidated Statements of Operations for the Years
Ended September 30, 1997, 1996 and 1995 .......................28
Consolidated Statements of Stockholders' Equity for the Years
Ended September 30, 1997, 1996 and 1995 .......................29
Consolidated Statements of Cash Flows for the Years
Ended September 30, 1997, 1996 and 1995 .......................30
Notes to Consolidated Financial Statements.......................31-37
SCHEDULE FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995:
Independent Auditors' Report on Schedules........................39
II-Valuation and Qualifying Accounts.............................40
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, 1997 and 1996, and
the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended September 30, 1997.
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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1997 in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Syracuse, New York
November 21, 1997
26
<PAGE>
Microwave Filter Company and Subsidiaries
Consolidated Balance Sheets
September 30
Assets 1997 1996
- ------ ---- ----
Current assets:
Cash and cash equivalents $1,434,473 $1,280,999
Accounts receivable-trade, net of allowance for
doubtful accounts of $57,905 and $75,000 544,590 723,855
Inventories 1,261,942 1,498,978
Deferred tax asset - current 258,647 257,191
Prepaid expenses and other current assets 104,280 65,953
--------- ---------
Total current assets 3,603,932 3,826,976
Property, plant and equipment, net 1,561,920 1,583,290
Deferred tax asset - noncurrent 7,629 0
--------- ---------
Total Assets $5,173,481 $5,410,266
========== ==========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Current portion of long term debt $55,620 $52,670
Accounts payable 320,166 299,859
Customer deposits 50,036 174,158
Accrued federal and state income taxes 30,108 289,616
Accrued payroll and related expenses 102,591 127,692
Accrued compensated absences 222,492 197,835
Other current liabilities 77,708 105,236
--------- ---------
Total current liabilities 858,721 1,247,066
Long term debt, less current portion 46,065 102,774
Deferred tax liability - noncurrent 0 58,756
Deferred compensation and other liabilities 17,966 23,372
--------- ---------
Total liabilities 922,752 1,431,968
--------- ---------
Commitments
Stockholders' equity:
Common stock, $.10 par value. Authorized 5,000,000 shares
Issued 4,275,259 in 1997 and 4,259,446 in 1996 427,526 425,945
Additional paid-in capital 3,206,360 3,192,641
Retained earnings 1,254,570 997,439
Common stock in treasury, at cost,
730,202 shares in 1997 and 714,768 shares in 1996 (637,727) (637,727)
--------- ---------
Total stockholders' equity 4,250,729 3,978,298
--------- ---------
Total Liabilities and Stockholders' Equity $5,173,481 $5,410,266
========== ==========
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
1997 1996 1995
---- ---- ----
Net sales $6,175,425 $7,532,710 $7,655,198
Cost of goods sold 3,692,478 4,321,091 4,936,219
--------- --------- ---------
Gross profit 2,482,947 3,211,619 2,718,979
Selling, general
and administrative expenses 2,472,765 2,560,692 2,687,260
--------- --------- ---------
Income from operations 10,182 650,927 31,719
Non-operating Income (Expense)
Interest income 49,954 44,292 17,562
Interest expense (9,529) (29,143) (42,345)
Miscellaneous 52,924 14,171 20,454
Life insurance death
benefits 350,000 0 0
--------- --------- ---------
Income before income taxes 453,531 680,247 27,390
Provision for income taxes 18,759 175,952 8,226
--------- --------- ---------
NET INCOME $434,772 $504,295 $19,164
--------- --------- ---------
Earnings Per Share $0.12 $0.14 $0.01
--------- --------- ---------
Weighted average number of shares
and common stock equivalents 3,548,240 3,525,362 3,478,451
========= ========= =========
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, 1997, 1996 and 1995
-----------------------------------------------------
<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, 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
Net income 434,772 434,772
Stock issued to directors 15,813 1,581 13,719 15,300
Donated capital 15,434
Cash dividend paid
($.05 per share) (177,641) (177,641)
--------- -------- ---------- -------- ------- ---------- ----------
Balance,
September 30, 1997 4,275,259 $427,526 $3,206,360 $1,254,570 730,202 ($637,727) $4,250,729
========= ======== ========== ========= ======= ========== ==========
</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
--------------------------------
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Net income $434,772 $504,295 $19,164
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 302,087 333,105 360,124
Amortization of intangible assets 0 63,772 39,006
Inventory obsolescence provision 19,763 48,744 103,643
Bad debt provision 2,775 53,011 18,025
Stock compensation 15,300 59,183 48,008
Deferred income taxes (67,841) (95,748) (51,921)
Changes in assets and liabilities:
Accounts receivable-trade, net 176,490 102,294 180,266
Accrued federal and state income taxes (259,508) 246,808 37,831
Inventories 217,273 420,788 (442,460)
Other assets (38,327) 17,249 17,328
Accounts payable and customer deposits (103,815) (121,265) 60,790
Accrued payroll, compensated absences and
related expenses (444) 51,068 (28,159)
Other current liabilities (27,528) (26,980) (122,725)
Deferred compensation (5,406) (4,894) (4,010)
--------- -------- --------
Net cash provided by operating activities 665,591 1,651,430 234,910
--------- --------- --------
Cash flows from investing activities:
Capital expenditures (280,717) (291,633) (134,456)
-------- -------- -------
Net cash used in investing activities (280,717) (291,633) (134,456)
-------- -------- --------
Cash flows from financing activities:
Principal payments on long-term debt (53,759) (430,657) (139,054)
Purchase of treasury stock 0 (622) (97,285)
Cash dividend paid (177,641) (168,195) 0
-------- -------- --------
Net cash used in financing activities (231,400) (599,474) (236,339)
-------- -------- --------
Net increase (decrease)
in cash and cash equivalents 153,474 760,323 (135,885)
Cash and cash equivalents at beginning of year 1,280,999 520,676 656,561
--------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $1,434,473 $1,280,999 $520,676
========== ========= ========
Supplemental disclosures of cash flows:
Cash paid during the year for (approximately):
Interest $10,000 $29,000 $39,000
Income taxes $346,000 $32,000 $22,000
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. 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, 1997 and September 30, 1996 approximates fair value. Substantially
all cash balances were invested at one financial institution at September 30,
1997 and 1996.
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 $337,250,
$359,934 and $408,425 for the fiscal years 1997, 1996 and 1995, 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.
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<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
1997 1996
---- ----
Raw materials and stock parts $832,125 $958,040
Work-in-process 185,291 299,131
Finished goods 244,526 241,807
-------- ---------
$1,261,942 $1,498,978
========== ==========
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
September 30
1997 1996
---- ----
Land $143,000 $143,000
Building and improvements 1,740,124 1,734,814
Machinery and equipment 2,243,956 2,065,615
Office equipment and fixtures 1,226,026 1,128,960
Other 93,507 93,507
--------- ---------
5,446,613 5,165,896
Less: Accumulated depreciation 3,884,693 3,582,606
--------- ---------
$1,561,920 $1,583,290
========== ==========
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<PAGE>
4. LONG-TERM DEBT
Long-term debt consisted of the following: September 30
1997 1996
Capitalized lease obligation (a) $101,685 $155,444
Less: current portion 55,620 52,670
------- -------
$ 46,065 $102,774
======= =======
(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, 1997 and 1996, respectively).
The following is a schedule of annual principal requirements on long-term
debt:
Year Ended Principal
September 30 Payments
------------ ---------
1998 $ 55,620
1999 46,065
-------
$101,685
========
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 bank's base rate plus one half percent (1/2%). The
working capital line of credit provides for interest at the bank's base rate
plus one quarter percent (1/4%). 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,
1997.
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 currently matched at a rate
of 50% of employee contributions limited to 3.0% of compensation.
The Company's matching contributions to the 401-K plan for the years ended
September 30, 1997, 1996 and 1995 were $48,139, $31,470 and $28,167 ,
respectively. Additionally, the Company may make discretionary contributions
to the non-contributory profit sharing plan. These contributions were $20,000
and $50,000 in 1997 and 1996, respectively. No discretionary contribution was
made in 1995.
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, 1997, 1996 and
1995 amounted to $97,948, $97,739 and $94,686, respectively.
Minimum rental commitments at September 30, 1997 for these leases are:
Year Ended Principal
September 30 Payments
------------ --------
1998 $93,948
1999 55,823
2000 54,857
2001 95,335
--------
$299,963
========
8. INCOME TAXES
The provision for income taxes consisted of the following:
Year Ended September 30
1997 1996 1995
Currently payable:
Federal $78,600 $250,700 $50,147
State 8,000 21,000 10,000
Deferred (credit) (67,841) (95,748) (51,921)
------- ------- -------
$18,759 $175,952 $8,226
======== ======== =======
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
______1997______ ______1996______ ______1995______
Amount % Amount % Amount %
Statutory tax rate $154,201 34.0% $231,284 34.0% $9,312 34.0%
Surtax exemption 0 0 0 0 (5,204) (19.0%)
State income tax net of:
Federal benefit 5,280 1.2% 13,860 2.0% 6,600 24.1%
Foreign sales corp
benefit (6,841) (1.5%) (6,854) (1.0%) (4,579) (16.7%)
Research and experimentation
tax credits (14,014) (3.1%) (54,344) (8.0%) 0 0
Life insurance death
benefits (119,000) (26.2%) 0 0 0 0
Other (867) (0.3%) (7,994) (1.1%) 2,097 7.6%
-------- ------ ------- ------ -------- -----
$18,759 4.1% $175,952 25.9% $8,226 30.0%
======== ====== ======== ====== ======== ======
The temporary differences which give rise to deferred tax assets and
liabilities at September 30 are as follows:
1997 1996
---- ----
Inventory $189,201 $182,716
Accrued vacation 56,954 52,350
Other (1,522) 22,125
Research and experimentation
tax credit carry forward 14,014 0
-------- --------
Net deferred tax assets - current $258,647 $257,191
======== ========
Accelerated depreciation (47,104) (71,971)
AMT credit carry forward 49,433
Other 5,300 13,215
-------- --------
Net deferred tax assets (liabilities)
- noncurrent $7,629 ($58,756)
======= =======
Based on the Company's history of taxable earnings and its expectations for
the future, management has determined that operating income will more likely
than not be sufficient to recognize its deferred tax assets. At September 30,
1997, the Company's federal AMT credit can be carried forward indefinitely.
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)
1997 1996 1995
Net Sales (Unaffiliated):
MFC $5,588 $6,924 $6,829
NSI 587 609 826
Total $6,175 $7,533 $7,655
Operating Profit (Loss): (a)
MFC $300 $987 $200
NSI (184) (222) (70)
Corporate (106) (114) (98)
Total $10 $651 $32
Identifiable Assets: (b)
MFC $3,618 $3,812 $4,189
NSI 121 317 564
Subtotal 3,739 4,129 4,753
Corporate Assets-Cash and
Cash Equivalents 1,434 1,281 521
Total $5,173 $5,410 $5,274
Depreciation & Amortization Expense:
MFC $281 $275 $324
NSI 21 122 75
Total $302 $397 $399
Capital Expenditures:
MFC $280 $291 $129
NSI 1 1 5
$281 $292 $134
Significant Export Sales:
MFC $602 $558 $508
Sales to Significant Customers:
MFC:
Communication Microwave Corp. - - $1,103
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. LEGAL MATTERS
There are currently no material pending legal proceedings against the
Company or its subsidiaries.
11. FOURTH QUARTER ADJUSTMENTS
In the fourth quarter of fiscal 1997, the Company received life insurance
death benefits of $350,000 as a result of the death of a former officer.
In the fourth quarter of fiscal 1996, management revised certain inventory
reserve estimates which resulted in approximately $150,000 of pre-tax income.
37
<PAGE>
EXHIBIT INDEX
Page
Exhibit No. Description Number
3.1 MFC Certificate of Corporation, as amended. 41
3.2 MFC Amended and Restated Bylaws. 54
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
38
<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,
presents fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
Syracuse, New York
November 21, 1997
39
<PAGE>
Microwave Filter Company and Subsidiaries
Schedule II - VALUATION AND QUALIFYING ACCOUNTS
SEPTEMBER 30, 1997, 1996 and 1995
<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, 1997
Allowance for doubtful accounts $75,000 $ 2,775 $19,870 $57,905
Inventory valuation reserves 594,050 19,763 0 613,813
-------- -------- ------- ------- --------
$669,050 $ 22,538 $0 $19,870 $671,718
======== ======== ======= ======= ========
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
======== ======== ======= ======= ========
</TABLE>
40
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
MICROWAVE FILTER COMPANY, INC.
Under Section 805 of the Business Corporation Law.
- ------------------------------------------------------------------------------
- ----
We, the undersigned, the President of Microwave Filter Company, Inc.,
and Secretary, respectively, hereby certify:
1. The name of the Corporation is MICROWAVE FILTER COMPANY,
INC.
2. The Certificate of Incorporation was filed with the
Department of State on the 26th day of September, 1967 under the name,
MICROWAVE FILTER COMPANY, INC.
3. The following is adopted as a new Section 6 of the
Certificate of Incorporation: .
41
<PAGE>
6. NOTICE OF SHAREHOLDER BUSINESS AND NOMINATIONS
A. Nominations of persons for election to the Board of
Directors of the Corporation and the proposal of business to be considered by
the shareholders may be made at an annual meeting of the shareholders (i)
pursuant to the Corporation's notice of meeting, (ii) by or at the direction
of the Board of Directors or (iii) by any shareholder of the Corporation who
was a shareholder of record at the time of giving of notice provided for in
this section of the Certificate of Incorporation, who is entitled to vote at
the meeting and who complies with the notice procedures set forth in the
Certificate of Incorporation.
B. For nominations or other business to be properly brought
before an annual meeting by a shareholder pursuant to clause (iii) of
paragraph A of this section, the shareholder must have given timely notice
thereof in writing to the Secretary of the Corporation and such other business
must otherwise be a proper matter for shareholder action. To be timely, a
shareholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on
the 60th day nor earlier than the close of business on the 90th day prior to
the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is more than 30
days before or more than 60 days after such anniversary date, notice by the
shareholder to be timely must be delivered not earlier than the close of
business on the 90th day prior to such annual meeting and not later than the
close of business on the later of (i) the 60th day prior to such annual
meeting or (ii) the
42
<PAGE>
10th day following the day on which public announcement of the date of such
meeting is first made by the Corporation. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time period
for giving of a shareholder's notice as described above. Such shareholder's
notice shall set forth (x) as to each person whom the shareholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and Rule 14a-11 thereunder (including
such person's written consent to being named in the proxy statement as a
nominee and to serving as a director if elected); (y) as to any other business
that the shareholder proposes to bring before the meeting, a brief description
of the business desired to be brought before the meeting, the reasons for
conducting such business at the meeting and any material interest in such
business of such shareholder and the beneficial owner, if any, on whose behalf
the proposal is made; and (z) as to the shareholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made
(A) the name and address of such shareholder, as they appear on the
Corporation's books, and of such beneficial owner, and (B) the class and
number of shares of the Corporation which are owned beneficially and of record
by such shareholder and such beneficial owner.
C. Notwithstanding anything in the second sentence of paragraph B of
this section to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Corporation is increased and there is
no public announcement of the
43
<PAGE>
Corporation naming all of the nominees for Director or specifying the size of
the increased Board of Directors at least 70 days prior to the first
anniversary of the preceding year's annual meeting, a shareholder's notice
required by this section of the Certificate of Incorporation shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive office of the Corporation not later than the close of
business on the 10th day following the day on which such public announcement
is first made by the Corporation.
D. Only such business shall be conducted at a special meeting of
shareholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meetings. Nominations of persons for election to the
Board of Directors may be made at a special meeting of shareholders at which
directors are to be elected pursuant to the Corporation's notice of meeting
(a) by or at the direction of the Board of Directors or (b) provided that the
Board of Directors has determined that directors shall be elected at such
meeting, by any shareholder of the Corporation who is a shareholder of record
at the time of giving of notice provided for in this Bylaw, who shall be
entitled to vote at the meeting and who complies with the notice procedures
set forth in the Bylaw. In the event the Corporation calls a special meeting
of shareholders for the purpose of electing one or more directors to the Board
of Directors, any such shareholder may nominate a person or persons (as the
case may be), for the election to such positions(s) as specified in the
Corporation's notice of meetings, if the shareholder's notice required by
paragraph B of this section shall be delivered to the Secretary at the
principal executive office of the
44
<PAGE>
Corporation not earlier than the close of business on the 90th day prior to
such special meeting and not later than the close of business on the later of
(i) the 60th day prior to such special meeting or (ii) the 10th day following
the day on which public announcement is first made of the date of the special
meeting and of the nominees proposed by the Board of Directors to be elected
at such meeting. In no event, shall the public announcement of an adjournment
of a special meeting commence a new time period for the giving of shareholders
notice.
E. Only such persons who are nominated in accordance with procedures
set forth in this section shall be eligible to serve as directors and only
such business shall be conducted at a meeting of shareholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this section. Except as otherwise provided by law, the Chairman of the meeting
shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made or proposed, as
the case may be, in accordance with the procedures set forth in the
Certificate of Incorporation and, if any proposed nomination or business is
not in compliance with this section to declare that such defective proposal or
nomination shall be disregarded.
F. For purposes of the Certificate of Incorporation "public
announcement" shall mean disclosure in a press release reported by the Dow
Jones News Service, Associated Press or comparable national news service or in
a document publicly filed by
45
<PAGE>
the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 15 or 15(d) of the Exchange Act.
G. Notwithstanding the foregoing provisions of this section a
shareholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this section. Nothing in this section shall be deemed to affect any
rights (a) of shareholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to the Rule 14a-8 under the Exchange
Act or (b) of the holders of any series of Preferred Stock to elect directors
under specified circumstances.
4. The following is adopted as a new Section 7 of the Certificate of
Incorporation:
7. INDEMNIFICATION AND INSURANCE
A. The Corporation shall indemnify to the fullest extent now
or hereafter provided for or permitted by law each person involved in, or made
or threatened to be made a party to, any action, suit, claim or proceeding,
arbitration, alternative dispute resolution mechanism, investigation,
administrative or legislative hearing or any other actual, threatened, pending
or completed proceeding, whether civil or criminal, or whether formal or
informal, and including an action by or in the right of the corporation or any
other corporation, or any partnership, joint venture, trust, employee benefit
plan or other enterprise, whether profit or nonprofit (any such entity, other
than the corporation, being
46
<PAGE>
hereinafter referred to as an "Enterprise"), and including appeals therein
(any such process being hereinafter referred to as a "Proceeding"), by reason
of the fact that such person, such person's testator or intestate (i) is or
was a Director or Officer of the corporation, or (ii) while serving as a
Director or Officer of the corporation, is or was serving, at the request of
the corporation, as a Director, Officer, or in any other capacity , in any
other Enterprise, against any and all judgments, fines, penalties, amounts
paid in settlement, and expenses, including attorneys' fees, actually and
reasonably incurred as a result of or in connection with any Proceeding, or
any appeal therein, except as provided in paragraph B below.
B. No indemnification shall be made to or on behalf of any
such person if a judgment or other final adjudication adverse to such person
establishes that such person's acts were committed in bad faith or were the
result of active and deliberate dishonesty and were material to cause of
action so adjudicated, or that such person personally gained in fact a
financial profit or other advantage to which such person was not legally
entitled. In addition, no indemnification shall be made with respect to any
Proceeding initiated by any such person against the corporation, or a Director
or Officer of the corporation, other than to enforce the terms of this
section, unless such Proceeding was authorized by the Board of Directors.
Further, no indemnification shall be made with respect to any settlement or
compromise of any Proceeding unless and until the corporation has consented to
such settlement or compromise.
47
<PAGE>
C. Written notice of any Proceeding for which indemnification
may be sought by any person shall be given to the corporation as soon as
practical. The corporation shall then be permitted to participate in the
defense of any such Proceeding or, unless conflicts of interest or position
exist between such person and the corporation in the conduct of such defense,
to assume such defense. In the event that the corporation assumes the
defense of any such proceeding, legal counsel selected by the corporation
shall be acceptable to such person. After such an assumption, the corporation
shall not be liable to such person for any legal or other expenses
subsequently incurred unless such expenses have been expressly authorized by
the corporation. In the event that the corporation participates in the
defense of any such Proceeding, such person may select counsel to represent
such person in regard to such a Proceeding; however, such person shall
cooperate in good faith with any request that common counsel be utilized by
the parties to any Proceeding who are similarly situated, unless to do so
would be inappropriate due to actual or potential differing interests between
or among such parties.
D. In making any determination regarding any person's
entitlement to indemnification hereunder, it shall be presumed that such
person is entitled to indemnification, and the corporation shall have the
burden of proving the contrary.
E. The corporation shall indemnify any employee and agent to
the extent such person shall be entitled to indemnification by law by reason
of being successful on the merits or otherwise in defense of any action to
which such person is named a party by reason of being an employee or other
agent of the corporation, and the corporation may
48
<PAGE>
further indemnify any such person if it is determined on a case by case basis
by the Board of Directors that indemnification is proper in the specific case.
F. Notwithstanding anything to the contrary in this
Certificate of Incorporation, no person shall be indemnified to the extent, if
any, it is determined by the Board of Directors or by written opinion of legal
counsel designated by the Board of Directors for such purpose that
indemnification is contrary to applicable law.
G. The corporation may, as the Board of Directors may direct,
purchase and maintain such insurance on behalf of any person who is or at
anytime has been a Director, Officer, employee or other agent of in a similar
capacity with the corporation, or who is or at any time has been, at the
direction or request of the corporation, a Director, Trustee, Officer,
President, Manager, Advisor, or other agent of Enterprise against any
liability asserted against and incurred by such person.
H. Except in the case of a Proceeding against a Director or
Officer specifically approved by the Board of Directors, the corporation
shall, subject to Paragraphs A through G above, pay all expenses incurred by
or on behalf of a Director or Officer in defending any Proceeding in advance
of the final disposition of such Proceeding. Such payments shall be made
promptly upon receipt by the corporation, from time to time of a written
demand of such person for such advancement, together with an undertaking by or
on behalf of such person to repay any expenses so advanced to the extent that
the
49
<PAGE>
person receiving the advancement is ultimately found not to be entitled to
indemnification for part of all of such expenses.
I. The rights to indemnification and advancement of expenses
granted by or pursuant to this section 7 of the Certificate of Incorporation:
(a) shall not limit or exclude, but shall be in addition to, any other rights
which may be granted by or pursuant to any statute, corporate charter, bylaw,
resolution of shareholders or directors or agreement; (b) shall be deemed to
constitute contractual obligations of the corporation only to any Director or
Officer who is serving in a capacity referred to in Paragraph A at any time
after the Effective Date of this Section 7 of the Certificate of Incorporation
which shall be April 4, 1996 and upon compliance with Section 725 of the NY
Business Corporation Law; (c) shall continue to exist after the repeal or
modification of Article XII of the Bylaws or this section 7 of the Certificate
of Incorporation with respect to events occurring after the Effective Date;
and (d) shall continue as to a person who has ceased to be a Director or
Officer after the Effective Date and shall inure to the benefit of the estate,
spouse, heirs, executors, administrators or assigns of such person. It is the
intent of this section 7 of the Certificate of Incorporation to require the
corporation to indemnify the persons referred to herein for aforementioned
judgments, fines, penalties, amounts paid in settlement, and expenses,
including attorneys' fees, in each and every circumstance in which such
indemnification could lawfully be permitted by express provision of bylaws,
and the indemnification required by this section shall not be limited by the
absence of any express recital of such circumstance.
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5. The following is adopted as a new Section 8 of the Certificate of
Incorporation:
8. DIRECTORS' LIABILITY
To the fullest extent permitted by the New York Business
Corporation Law as presently in effect or hereafter amended, a director of the
Corporation shall not be personally liable to the Corporation or its
shareholders for damages for any breach of duty as a director. Any repeal or
modification of this Article by the shareholders of the Corporation shall not
adversely affect any right or protection of a director of the Corporation
existing hereunder with respect to any act or omission occurring prior to such
repeal or modification.
6. The following is adopted as a new Section 9 of the Certificate of
Incorporation:
9. SHAREHOLDER VOTE REQUIRED TO ALTER, AMEND OR REPEAL
Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
two thirds (2/3) of the outstanding shares entitled to vote in the election of
Directors shall be required to alter, amend or repeal this Certificate of
Incorporation or Section 3 of Article II, and Sections 2, 3, 4 and 5 of
Article IV of the Bylaws.
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7. The above amendments to the Certificate of Incorporation were authorized
by the Board of Directors followed by a vote of the holders of a majority of
all outstanding shares entitled to vote thereon at a meeting of the
shareholders.
IN WITNESS WHEREOF, this certificate has been subscribed this _____
day of June, 1997, by the undersigned who affirms that the
statements made herein are true under penalties of perjury.
_______________________________
CARL FAHRENKRUG, PRESIDENT
_______________________________
MILO PETERSON, SECRETARY
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STATE OF NEW YORK )
COUNTY OF ONONDAGA) SS:
CITY OF SYRACUSE )
I, CARL FAHRENKRUG, being duly sworn, depose and state that I am the
President of Microwave Filter Company, Inc., the corporation named in and
described in the foregoing certificate and that I have read the foregoing
certificate and know the contents thereof to be true, except as to matters
therein stated to be alleged upon information and belief, and as to those
matters, I believe them to be true.
________________________
CARL FAHRENKRUG
Sworn to before me this
______ day of June, 1997.
_____________________
NOTARY PUBLIC
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AMENDED AND RESTATED BYLAWS
of
MICROWAVE FILTER COMPANY, INC.
Date of Adoption: May 23, 1996
ARTICLE I
Offices
The principal office of the Corporation shall be in the Village of
East Syracuse, County of Onondaga, State of New York. The Corporation may
also have offices at such other places within or without the State of New York
as the Board may from time to time determine or the business of the
Corporation may require
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ARTICLE II
Shareholders
1. PLACE OF MEETINGS
Meetings of the Shareholders shall be held at the principal
office of the Corporation or at such place within or without the State of New
York as the Board shall authorize.
2. ANNUAL MEETING.
The annual meeting of the Shareholders shall be held on such date
and at such time as shall be designated by the Board of Directors and stated
in the notice of such meeting, when the Shareholders shall elect a Board and
transact such other business as may properly come before the meeting.
3. SPECIAL MEETINGS
. Special meetings of the shareholders may be called by the
Chairman of the Board of Directors or by the President, and shall be called by
the Chairman of the Board or by the Secretary at the request in writing of a
majority of the Board of Directors or two
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thirds (2/3) of the holders of the outstanding shares entitled to vote in the
election of Directors. Such meetings shall be held at such time as may be
fixed in the call and stated in the notice of meetings. Any such written
request shall state the purpose or purposes of the proposed meeting. Business
transacted at a special meeting shall be confined to the purposes stated in
the notice.
4. FIXING RECORD DATE.
For the purpose of determining the Shareholders entitled to
notice of or vote at any meeting of Shareholders or any adjournment thereof,
or to express consent to or dissent from any proposal without a meeting, or
for the purpose of determining shareholders entitled to receive payment of any
dividend or the allotment of any rights, or for the purpose of any other
action, the Board shall fix, in advance, a date at the record date for any
such determination of Shareholders. Such date shall not be more than fifty
nor less than 10 days from the date of such meeting, nor more than fifty days
prior to any other action. If no record date is fixed it shall be determined
in accordance with the provision of law.
5. NOTICE OF MEETINGS OF SHAREHOLDERS
Written notice of each meeting of Shareholders shall state the
purpose or purposes for which the meeting is called, the place, date and hour
of the meeting and unless it is the annual meeting, shall indicate that it is
being issued or at the direction of the
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person or persons calling the meeting. Notice shall be given either
personally or by mail to each Shareholder entitled to vote at such meeting,
not less than ten nor more than fifty days before the date of the meeting. If
action is proposed to be taken that might entitle Shareholders to payment for
their shares, the notice shall include a statement of that purpose and to that
effect. If mailed, the notice is given when deposited in the United States
mail, with postage thereon prepaid, directed to the Shareholder at his address
as it appears on the record of Shareholders, or if he shall have filed with
the Secretary a written request that notices to him be mailed to some other
address, then directed to him at such other address.
6. WAIVERS
Notice of meeting need not be given to any Shareholder who signs
a waiver of notice, in person or by proxy, whether before or after the
meeting. The attendance of any Shareholder at a meeting, in person or by
proxy, without protesting prior to the conclusion of the meeting the lack of
notice of such meeting, shall constitute a waiver of notice by him.
7. QUORUM OF SHAREHOLDERS
Unless the Certificate of Incorporation provides otherwise, the
holders of one-third of the shares entitled to vote thereat shall constitute a
quorum at a meeting of Shareholders for the transaction of any business,
provided that when a specified item of
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business is required to be voted on by a class or classes, the holders of a
majority of the shares of such class or classes shall constitute a quorum for
the transaction of such specified item of business.
When a quorum is once present to organize a meeting, it is not
broken by the subsequent withdrawal of any Shareholders.
The Shareholders present may adjourn the meeting despite the
absence of a quorum.
8. PROXIES
Every Shareholder entitled to vote at a meeting of Shareholders
or to express consent or dissent without a meeting may authorize another
person or persons to act for him by proxy.
Every proxy must be signed by the Shareholder or his attorney-in-
fact. No proxy shall be valid after expiration of eleven months from the date
thereof unless otherwise provided in the proxy. Every proxy shall be
revocable at the pleasure of the Shareholder executing it, except as otherwise
provided by law.
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9. QUALIFICATION OF VOTERS
Every Shareholder of record shall be entitled at every meeting of
Shareholders to one vote for every share standing in his name on the record of
Shareholders, unless otherwise provided in the Certificate of Incorporation.
10. VOTE OF SHAREHOLDERS.
Except as otherwise required by statute or by the Certificate of
Incorporation:
(a) Directors shall be elected by a plurality of the votes cast
at a meeting of Shareholders by the holders of shares entitled to vote in the
election;
(b) All other corporate action shall be authorized by a
majority of the votes cast.
11. WRITTEN CONSENT OF SHAREHOLDERS
Any action that may be taken by vote may be taken without a
meeting on written consent, setting forth the action so taken, signed by the
holders of all the
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outstanding shares entitled to vote thereon or signed by such lesser number of
holders as may be provided for in the Certificate of Incorporation.
ARTICLE III
NOTICE OF SHAREHOLDERS BUSINESS AND NOMINATIONS
1. ANNUAL MEETINGS OF SHAREHOLDERS.
(a) Nominations of persons for election to the Board of
Directors of the Corporation and the proposal of business to be considered by
the shareholders may be made at an annual meeting of the shareholders (i)
pursuant to the Corporation
notice of meeting, (ii) by or at the direction of the Board of Directors or
(iii) by an shareholder of the Corporation who was a shareholder of record at
the time of giving of notice provided for in this Bylaw, who is entitled to
vote at the meeting and who complies with the notice procedures set forth in
this Bylaw.
(b) For nominations or other business to be properly brought
before an annual meeting by a shareholder pursuant to clause (iii) of
paragraph (1)(a) of this Bylaw, the shareholder must have given timely notice
thereof in writing to the Secretary of the Corporation and such other business
must otherwise be a proper matter for shareholder action. To be timely a
shareholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on
the
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60h day nor earlier than the close of business on the 90th day prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is more than 30 days
before or more than 60 days after such anniversary date, notice by the
shareholder to be timely must be delivered not earlier than the close of
business on the 90th day prior to such annual meeting and not later than the
close of business on the later of (i) the 60th day prior to such annual
meeting or (ii) the 10th day following the day on which public announcement of
the date of such meeting is first made by the Corporation. In no event shall
the public announcement of an adjournment of an annual meeting commence a new
time period for the giving of a shareholder's notice as described above. Such
shareholder's notice shall set forth (x) as to each person whom the
shareholder proposes to nominate for election or reelection as a Director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors in an election contest, or
is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule
14a-11 thereunder (including such person's written consent to being named in
the proxy statement as a nominee and to serving as a Director if elected); (y)
as to any other business that the shareholder proposes to bring before the
meeting, a brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such shareholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (z) as to the
shareholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (a) the name and address of such
shareholder, as they appear on the corporation's books, and of such
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beneficial owner and (b) the class and number of shares of the Corporation
which are owned beneficially and of record by such shareholder and such
beneficial owner.
(c) Notwithstanding anything in the second sentence of paragraph
(1)(b) of this Bylaw to the contrary, in the event that the number of
Directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement of the Corporation naming all of
the nominees for Director or specifying the size of the increased Board of
Directors at least 70 days prior to the first anniversary of the preceding
year's annual meeting, a shareholder's notice required by this Bylaw shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary
at the principal executive offices of the Corporation not later than the close
of business on the 10th day following the day on which such public
announcement is first made by the Corporation.
2. SPECIAL MEETINGS OF SHAREHOLDERS.
Only such business shall be conducted at a special meeting of
shareholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting. Nomination of persons for election to the
Board of Directors may be made at a special meeting of shareholders at which
Directors are to be elected pursuant to the Corporation's notice of meeting
(a) by or at the direction of the Board of Directors or (b) provided that the
Board of Directors has determined that Directors shall be elected at such
meeting, by any shareholder of the Corporation who is a shareholder of record
at the time of giving of notice provided for in this Bylaw, who shall be
entitled to vote at the meeting
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and who complies with the notice procedures set forth in this Bylaw. In the
event the Corporation calls a special meeting of shareholders for the purpose
of electing one or more Directors, any such shareholder may nominate a person
or persons (as the case may be), for election to such positions as specified
in the Corporation's notice of meeting, if the shareholder's notice required
by paragraph (1)(b) of this Bylaw shall be delivered to the Secretary at the
principal executive office of the Corporation not earlier than the close of
business on the 90th day prior to such special meeting and not later than the
close of business on the later of (i) the 60th day prior to such special
meeting or (ii) the 10th day following the day on which public announcement is
first made of the date of the special meeting and or the nominees proposed by
the Board of Directors to be elected at such meeting. In no event shall the
public announcement of an adjournment of a special meeting commence a new time
period for the giving of a shareholder's notice as described above.
3. GENERAL.
(a) Only such persons who are nominated in accordance with the
procedures set forth in this Bylaw shall be eligible to serve as Directors and
only such business shall be conducted at a meeting of shareholders as shall
have been brought before the meeting in accordance with he procedures set
forth in this Bylaw. Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, the Chairman of the meeting shall have the
power and duty to determine whether a nomination or any business proposed to
be brought before the meeting was made or proposed, as the case may be, in
accordance
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with the procedures set forth in this Bylaw and, if any proposed nomination or
business is not in compliance with this Bylaw, to declare that such defective
proposal or nomination shall be disregarded.
(b) For purposes of this Bylaw, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant
to Section 13, 15 or 15(d) of the Exchange Act.
(c) Notwithstanding the foregoing provisions of this Bylaw, a
shareholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth this Bylaw. Nothing in this bylaw shall be deemed to affect any rights
(a) of shareholders to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act or (b) of the
holders of any series of Preferred Stock to elect Directors under specified
circumstances.
ARTICLE IV
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DIRECTORS
1. BOARD OF DIRECTORS.
Subject to any provision in the Certificate of Incorporation the
business of the Corporation shall be managed by its Board of Directors, each
of whom shall be at least 18 years of age.
2. NUMBER OF DIRECTORS.
The number of Directors shall be fixed at nine or less.
3. ELECTION AND TERM OF DIRECTORS.
Directors shall be elected at each annual meeting of the
shareholders, or, if no such election shall be held, at a meeting called and
held in accordance with the statutes of the State of New York. Each Director
shall be elected to hold office until the expiration of the term for which he
is elected, and thereafter until a successor shall be elected and shall
qualify. The directors shall be divided, with respect to the terms for which
they severally hold office, into three classes, hereby designated as Class I,
Class II and Class III. Each class shall have three directors and the three
classes shall be as nearly equal in
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number as possible. The initial terms of office of the Class I, Class II and
Class III directors, elected at the 1996 annual meeting of shareholders, shall
expire at the next succeeding annual meeting of shareholders, the second
succeeding annual meeting of shareholders and the third succeeding annual
meeting of shareholders, respectively. At each annual meeting of shareholders
after 1996 the successors of the class of directors whose term expires at that
meeting shall be elected to hold office for a term expiring at the annual
meeting of shareholders to be held in the third year following the year of
their election.
4. VACANCIES
Vacancies occurring in the Board of Directors for any reason may
be filled by vote of a majority of the directors then in office, although less
than a quorum exists or a vote of the holders of two-thirds (2/3) of the
outstanding shares entitled to vote in the election of Directors. A Director
elected to fill a vacancy shall be elected to hold office until the next
annual meeting of the shareholders and thereafter until a successor shall be
elected and shall qualify.
5. REMOVAL OF DIRECTORS.
Any of the directors may be removed from office, for cause only,
by action of the Board of Directors or by vote of the shareholders holding
two-thirds (2/3) of the outstanding shares entitled to vote in the election of
Directors.
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6. RESIGNATION.
A Director may resign at any time by giving written notice to the
Board, the President or the Secretary of the Corporation. Unless otherwise
specified in the notice, the resignation shall take effect upon receipt
thereof by the Board or such officer, and the acceptance of the resignation
shall not been necessary to make it effective.
7. QUORUM OF DIRECTORS.
Unless otherwise provided in the Certificate of Incorporation, a
majority of the entire Board shall constitute a quorum for the transaction of
business or any specified item of business.
8. ACTION OF THE BOARD.
Unless otherwise required by law, the vote of a majority of the
Directors present at the time of the vote, if a quorum is present at such
time, shall be the act of the Board.
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9. PLACE AND TIME OF BOARD MEETINGS.
The Board may hold its meeting at the office of the Corporation
or at such other places, either within or without the State of New York, as it
may from time to time determine.
10. REGULAR ANNUAL MEETING.
A regular annual meeting of the Board shall be held immediately
following the annual meeting of Shareholders at the place of such annual
meeting of Shareholders.
11. NOTICE OF MEETINGS OF THE BOARD, ADJOURNMENT.
(a) Regular meetings of the Board may be held without notice at
such time and place as it shall from time to time determine. Special meetings
of the Board shall be held upon notice to the Directors and may be called by
the President upon three days notice to each Director either personally or by
mail or by wire; special meetings shall be called by the President or by the
Secretary in a like manner on written request of two Directors. Notice of a
meeting need not be given to any Director who submits a waiver of
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notice whether before or after the meeting or who attends the meeting without
protesting prior thereof or at its commencement, the lack of notice to him.
(b) A majority of the Directors present, whether or not a
quorum is present, may adjourn any meeting to another time and place. Notice
of the adjournment shall be given all Directors who were absent at the time of
the adjournment and, unless such time and place are announced at the meeting,
to the other Directors.
12. CHAIRMAN.
At all meetings of the Board the President, or in his absence,
the Chairman chosen by the Board shall preside.
13. EXECUTIVE AND OTHER COMMITTEES.
The Board, by resolution adopted by a majority of the entire
Board, may designate from among its members an Executive Committee and other
committees, each consisting of three or more Directors. The Executive
Committee may have all the authority of the Board except such specifically
excluded in BCL 712 and shall have such powers as the Board may determine.
Each such committee shall serve at the pleasure of the Board and shall have
such powers as the Board may from time to time determine.
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14. COMPENSATION.
Reasonable compensation may be paid to directors for their services as
a director, including additional reimbursement for expenses, either as a fixed
sum for attendance at meetings or, in the case of the Chairman of the Board,
as an annual sum covering all the duties undertaken by the Chairman. Nothing
herein contained shall be construed to preclude a director from serving the
Corporation in any other capacity and receiving compensation therefore.
15. ADVISORY BOARD.
The Board hereby establishes an Advisory Board, which shall be
comprised of persons who are not officers or Directors of the Corporation, to
render advice and counsel to the Board and its Committees. Members of the
Advisory Board shall serve at the pleasure of the Board and may receive such
compensation or remuneration as from time to time determined by the Board.
Members of the Advisory Board shall be nominated by the Chairman and confirmed
by the Board. Attendance at Board or Committee meetings by Advisory Committee
members shall be by invitation of the Chairman or the Committee Chair, as
appropriate.
16. TELEPHONIC MEETING.
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Any one or more members of the Board of Directors or any
committee thereof may participate in a meeting of the Board of Directors or
such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
such other. Participation by such means shall constitute presence in person
at a meeting.
ARTICLE V
OFFICERS
1. OFFICES, ELECTION, TERM.
(a) Unless otherwise provided for in the Certificate of
Incorporation, the Board may elect or appoint a President, one or more Vice
Presidents, a Secretary and a Treasurer, and such other Officers as it may
determine, who shall have such duties, powers and functions as hereinafter
provide.
2. REMOVAL, RESIGNATION, SALARY, ET CETERA.
(a) Any officer elected or appointed by the Board may be
removed by the Board with or without cause.
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(b) In the event of the death, resignation or removal of an
officer, the Board, in its discretion, may elect or appoint a successor to
fill the unexpired term.
(c) Any two or more offices may be held by the same person,
except the offices of President and Secretary.
(d) The salaries of all officers shall be fixed by the Board.
(e) The Directors may require any officer to give security for
the faithful performance of his duties.
3. PRESIDENT.
The President shall be the Chief Executive Officer of the
Corporation; he shall preside at all meetings of the Shareholders and of the
Board; he shall have the management of the business of the Corporation and see
that all orders and resolutions of the Board are carried into effect.
4. VICE PRESIDENTS.
During the absence or disability of the President, the Vice
President, or if there are more than one, the Executive Vice President, shall
have all the powers and functions
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of the President. Each Vice President shall perform such other duties as the
Board shall prescribe.
5. SECRETARY.
The Secretary shall:
(a) attend all meetings of the Board and of the Shareholders;
(b) record all votes and minutes of any proceedings in a book to
be kept for that purpose.
(c) give or cause to be given notice of all meetings of
Shareholders and of special meetings of the Board;
(d) keep in safe custody the seal of the Corporation and affix
it to any instrument when authorized by the Board;
(e) when required, prepare or cause to be prepared and available
at each meeting of Shareholders a certified list in alphabetical order of the
names of Shareholders entitled to vote thereat, indicating the number of
shares of each respective class held by each;
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(f) keep all the documents and records of the Corporation as
required by law or otherwise in a proper and safe manner; and
(g) perform such other duties as may be prescribed by the Board.
6. ASSISTANT SECRETARIES.
During the absence or disability of the Secretary, the Assistant
Secretary, or if there are more than one, the one so designated by the
Secretary or by the Board, shall have all the powers and functions of the
Secretary.
7. TREASURER.
The Treasurer shall:
(a) have the custody of the corporate funds and securities;
(b) keep full and accurate accounts or receipts and
disbursements in the corporate books;
(c) deposit all money and other valuables in the name and to the
credit of the Corporation in such depositories as may be designated by the
Board;
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(d) disburse the funds of the Corporation as may be ordered or
authorized by the Board and preserve proper vouchers for such disbursements;
(e) render to the President and the Board at the regular
meetings of the Board, or whenever they require it, an account of all his
transactions as Treasurer and of the financial condition of the Corporation;
(f) render a full financial report at the annual meeting of the
Shareholders if so requested;
(g) be furnished by all corporate officers and agents at his
request, with such reports and statements as he may require as to all
financial transactions of the corporation; and
(h) perform such other duties as are given to him by these
Bylaws or as from time to time are assigned to him by the Board or the
President.
8. ASSISTANT TREASURER.
During the absence or disability of the Treasurer, the Assistant
Treasurer, or if there are more than one, the one so designated by the
Secretary or by the Board, shall have all the powers and functions of the
Treasurer.
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9. SURETIES AND BONDS.
In case the Board shall so require, any officer or agent of the
Corporation shall execute to the Corporation a bond in such sum and with such
surety or sureties as the Board may direct, conditioned upon the faithful
performance of his duties to the Corporation and including responsibility for
the negligence and for the accounting for all property, funds or securities of
the Corporation which may come into his hands.
ARTICLE VI
CERTIFICATE FOR SHARES
1. CERTIFICATES.
The shares of the Corporation shall be represented by
certificates. They shall be numbered and entered into the books of the
Corporation as they are issued. They shall
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exhibit the holder's name and the number of shares and shall be signed by the
President or Vice President and the Treasurer or the Secretary and shall bear
the Corporate seal.
2. LOST OR DESTROYED CERTIFICATES.
The Board may direct a new certificate or certificates to be
issued in place of any certificate or certificates theretofore issued by the
Corporation, alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate to be lost or
destroyed. When authorizing such issue of a new certificate or certificates,
the Board may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost or destroyed certificate or
certificates or his legal representative, to advertise the same in such manner
as it shall require and/or give the corporation a bond in such sum and with
such surety or sureties as it may direct as indemnity against any claim that
may be made against the Corporation with respect to the certificate alleged to
have been lost or destroyed.
3. TRANSFER OF SHARES.
(a) Upon surrender to the Corporation or the transfer agent of
the Corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall
be the duty of the Corporation to issue a new
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certificate to the person entitled thereto, and cancel the old certificate;
every such transfer shall be entered on the transfer book of the Corporation
which shall be kept at its principal office. No transfer shall be made within
ten days next preceding the annual meeting of Shareholders.
(b) The Corporation shall be entitled to treat the holder of
record of any share as the holder in fact thereof and, accordingly, shall not
be bound to recognize any equitable or other claim to or interest in such
share on the part of any other person whether or not it shall have express or
other notice thereof, except as expressly provided by the laws of New York.
4. CLOSING TRANSFER BOOKS.
The Board shall have the power to close the share transfer books
of the Corporation for a period of not more than ten days during the thirty
day period immediately preceding (1) any Shareholders' meeting or (2) any date
upon which Shareholders shall be called upon to or have a right to take action
without a meeting, or (3) any date fixed for the payment of a dividend or any
other form of distribution, and only those Shareholders of record at the time
the transfer books are closed, shall be recognized as such for the purpose of
(1) receiving notice of or voting at such meeting, or (2) allowing them to
take appropriate action, or (3) entitling them to receive any dividend or
other form of distribution.
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ARTICLE VII
DIVIDENDS
Subject to the provisions of the Certificate of Incorporation and to
applicable law, dividends on the outstanding shares of the Corporation may be
declared in such amounts and at such time or times as the Board may determine.
Before payment of any dividend, there may be set aside out of the net profits
of the Corporation available for dividends such sum or sums as the Board from
time to time in its absolute discretion deems proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for repairing or maintaining
property of the Corporation or for such other purpose as the Board shall think
conducive to the interest of the Corporation, and the Board may modify or
abolish any such reserve.
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ARTICLE VIII
CORPORATE SEAL
The seal of the Corporation shall be circular in form and bear the
name of the Corporation, the year of its organization and the words "Corporate
Seal, New York". The seal may be used by causing it to be impressed directly
on the instrument or writing to be sealed, or upon adhesive substance affixed
thereto. The seal of the certificates for shares or on any corporate
obligation for the payment of money may be a facsimile, engaged or printed.
ARTICLE IX
EXECUTION OF INSTRUMENTS
All corporate instruments and documents shall be signed or
countersigned, executed, verified or acknowledged by such officer or officers
or other person or persons as the Board may from time to time designate.
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ARTICLE X
FISCAL YEAR
The fiscal year shall begin the first day of October in each year.
ARTICLE XI
REFERENCES TO CERTIFICATE OF INCORPORATION
Reference to certificate of incorporation in these Bylaws shall
include all amendments thereto or changes thereof unless specifically
excepted.
ARTICLE XII
INDEMNIFICATION AND INSURANCE
1. INDEMNIFICATION
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(a) The Corporation shall indemnify to the fullest extent now or
hereafter provided for or permitted by law each person involved in, or made or
threatened to be made a party to, any action, suit, claim or proceeding,
arbitration, alternative dispute resolution mechanism, investigation,
administrative or legislative hearing or any other actual, threatened, pending
or completed proceeding, whether civil or criminal, or whether formal or
informal, and including an action by or in the right of the Corporation or any
other Corporation or any partnership, joint venture, trust, employee benefit
plan or other enterprise, whether profit or non-profit (any such entity, other
than the Corporation, being hereinafter referred to as an "Enterprise"), and
including appeals therein (any such process being hereinafter referred to as a
"Proceeding"), by reason of the fact that such person, such person's testator
or intestate (a) is or was a Director or Officer of the Corporation, or (b)
while serving as a Director or Officer of the Corporation, is or was serving,
at the request of the Corporation, as a Director, Officer, or in any other
capacity, any other Enterprise, against any and all judgments, fines,
penalties, amounts paid in settlement, and expense, including attorneys' fees,
actually and reasonably incurred as a result of or in connection with any
Proceeding, or any appeal therein, except as provided in subsection (b) below.
(b) No indemnification shall be made to or on behalf of any such
person if a judgment or other final adjudication adverse to such person
establishes that such person's acts were committed in bad faith or were the
result of active and deliberate dishonesty and were material to the cause of
action so adjudicated, or that such person personally gained
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in fact a financial profit or other advantage to which such person was not
legally entitled. In addition, no indemnification shall be made with respect
to any Proceeding initiated by any such person against the Corporation, or a
Director or Officer of the Corporation, other than to enforce the terms of
this Article XI, unless such Proceeding was authorized by the Board of
Directors. Further, no indemnification shall be made with respect to any
settlement or compromise of any Proceeding unless and until the Corporation
has consented to such settlement or compromise.
(c) Written notice of any Proceeding of which indemnification
may be sought by any person shall be given to the Corporation as soon as
practicable. The Corporation shall then be permitted to participate in the
defense of any such Proceeding or, unless conflicts of interest or position
exist between such person and the Corporation in the conduct of such defense,
to assume such defense. In the event that the Corporation assumes the defense
of any such proceeding, legal counsel selected by the Corporation shall be
acceptable to such person. After such an assumption, the Corporation shall
not be liable to such person for any legal or other expenses subsequently
incurred unless such expenses have been expressly authorized by the
Corporation. In the event that the Corporation participates in the defense of
any such Proceeding, such person may select counsel to represent such person
in regard to such a Proceeding; however, such person shall cooperate in good
faith with any request that common counsel be utilized by parities to any
Proceeding who are similarly situated, unless to do so would be inappropriate
due to actual or potential differing interests between or among such parties.
83
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(d). In making any determination regarding any person's
entitlement to indemnification thereunder, it shall be presumed that such
person is entitled to indemnification, and the Corporation shall have the
burden of proving the contrary.
(e) The Corporation shall indemnify any employee and agent to
the extent such person shall be entitled to indemnification by law by reason
of being successful on the merits or otherwise in defense of any action to
which such person is named a party by reason of being an employee or other
agent of the Corporation, the Corporation may further indemnify any such
person if it is determined on a case by case basis by the Board of Directors
that indemnification is proper in the specific case.
(f) Notwithstanding anything to the contrary in these Bylaws, no
person shall be indemnified to the extent, if any, it is determined by the
Board of Directors or by written opinion of legal counsel designated by the
Board of Directors for such purpose that indemnification is contrary to
applicable law.
2. INSURANCE.
The Corporation may, as the Board of Directors may direct,
purchase and maintain such insurance on behalf of any person who is or at any
time has been a Director, Officer, employee or other agent of or in a similar
capacity with the Corporation, or who is or at any time has been, at the
direction or request of the Corporation, a Director,
84
<PAGE>
trustee, Officer, President, manager, advisor, or other agent of any
Enterprise against any liability asserted against and incurred by such person.
3. ADVANCEMENT OF EXPENSES.
Except in the case of a proceeding against a Director of Officer
specifically approved by the Board of Directors, the Corporation shall,
subject to section 1 above, pay all expenses incurred by or on behalf of a
Director or Officer in defending any Proceeding in advance of the final
disposition of such Proceeding. Such payments shall be made promptly upon
receipt by the Corporation, from time to time, of a written demand of such
person for such advancement, together with an undertaking by or on behalf of
such person to repay any expenses so advanced to the extent that the person
receiving the advancement is ultimately found not to be entitled to
indemnification for part or all of such expenses.
4. RIGHTS NOT EXCLUSIVE.
The rights to indemnification and advancement of expenses granted
by or pursuant to the Article XI: (1) shall not limit or exclude, but shall
be in addition to, any other rights which may be granted by or pursuant to any
statute, corporate charter, bylaw, resolution of shareholders or directors or
agreement; (2) shall be deemed to constitute contractual obligation of the
Corporation to any Director or Officer who serves in a capacity referred to in
section 1 at any time while this Article XI is in effect; (3) shall
85
<PAGE>
continue to exist after the repeal or modification of this Article XI with
respect to events occurring prior thereto; and (4) shall continue as to a
person who has ceased to be a Director or Officer and shall inure to the
benefit of the estate, spouse, heirs, executors, administrators or assigns of
such person. It is the intent of this Article XI to require the Corporation
to indemnify the persons referred to herein for the aforementioned judgments,
fines, penalties, amounts paid ins settlement, and expenses, including
attorneys' fees, in each and every circumstance in which such indemnification
could lawfully be permitted by express provisions of bylaws, and the
indemnification required by this Article XI shall not be limited by the
absence of any express recital of such circumstances.
ARTICLE XIII
BYLAW CHANGES
AMENDMENT, REPEAL, ADOPTION, ELECTION OF DIRECTORS
CONFORMING AMENDMENT
(a) Except as otherwise provided by these Bylaws or the Certificate of
Incorporation, the Bylaws of the Corporation may be amended, repealed or
adopted by vote of the holders of record of the shares at the time entitled to
vote in the election of any Directors; provided that Section 3 of Article III,
Sections 2, 3, 4, and 5 of Article IV and
86
<PAGE>
Section (a) of Article XIII of the Bylaws shall not be altered, amended or
repealed and no provision inconsistent therewith shall be adopted without the
affirmative vote of the holders of a t least two-thirds (2/3) of the
outstanding shares entitled to vote in the election of Directors. Except as
otherwise provided above, Bylaws may also be amended, repealed, or adopted by
the Board of Directors, but any Bylaw adopted by the Board may be amended or
repealed by the shareholders entitled to vote thereon as herein above
provided.
(b) If any Bylaw regulating an impending election of Directors is
adopted, amended or repealed by the Board of Directors, there shall be set
forth in the notice of the next meeting of shareholders for the election of
Directors the Bylaws so adopted, amended or repealed, together with a concise
statement of the changes made.
87
<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, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> $1,434,473
<SECURITIES> 0
<RECEIVABLES> 544,590
<ALLOWANCES> 57,905
<INVENTORY> 1,261,942
<CURRENT-ASSETS> 3,603,932
<PP&E> 5,446,613
<DEPRECIATION> 3,884,693
<TOTAL-ASSETS> 5,173,481
<CURRENT-LIABILITIES> 858,721
<BONDS> 46,065
<COMMON> 427,526
0
0
<OTHER-SE> 3,823,203
<TOTAL-LIABILITY-AND-EQUITY> 5,173,481
<SALES> 6,175,425
<TOTAL-REVENUES> 6,175,425
<CGS> 3,692,478
<TOTAL-COSTS> 6,165,243
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,529
<INCOME-PRETAX> 453,531
<INCOME-TAX> 18,759
<INCOME-CONTINUING> 434,772
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 434,772
<EPS-PRIMARY> $0.12
<EPS-DILUTED> $0.12
</TABLE>
