UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 OR 15(d) of the Securities Exchange
Act of 1934.
For the quarterly period ended June 30, 1998
Commission file number 0-10976
MICROWAVE FILTER COMPANY, INC.
(Exact name of registrant as specified in its charter.)
New York 16-0928443
(State of Incorporation) (I.R.S. Employer Identification Number)
6743 Kinne Street, East Syracuse, N.Y. 13057
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (315) 438-4700
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES ( x ) NO ( )
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date:
Common Stock, $.10 Par Value - 3,549,565 shares as of June
30, 1998.
<PAGE>
PART I. - FINANCIAL INFORMATION
MICROWAVE FILTER COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands)
JUNE 30, 1998 SEPTEMBER 30, 1997
[S] [C] [C]
Assets
Current Assets:
Cash and cash equivalents $ 1,206 $ 1,434
Accounts receivable-trade,net 552 545
Inventories 1,459 1,262
Deferred tax asset - current 259 259
Prepaid expenses and other
current assets 103 104
-------- --------
Total current assets 3,579 3,604
Property,plant and equipment,net 1,508 1,561
Deferred tax asset - noncurrent 0 8
-------- --------
Total assets $ 5,087 $ 5,173
======== ========
Liabilities And Stockholders' Equity
Current liabilities:
Current portion of long term
debt $ 59 $ 56
Accounts payable 334 320
Customer deposits 87 50
Accrued federal and state
income taxes 14 30
Accrued payroll and related
expenses 92 103
Accrued compensated absences 267 222
Other current liabilities 67 78
-------- --------
Total current liabilities 920 859
Long term debt, less current
portion 0 46
Deferred compensation and
other liabilities 60 18
-------- --------
Total liabilities 980 923
-------- --------
Stockholders' Equity:
Common stock,$.10 par value 428 428
Additional paid-in capital 3,210 3,206
Retained earnings 1,107 1,255
-------- --------
4,745 4,889
Common stock in treasury,
at cost (638) (638)
-------- --------
Total stockholders' equity 4,107 4,251
-------- --------
Total liabilities and
stockholders' equity $ 5,087 $ 5,173
======== ========
[FN]
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
MICROWAVE FILTER COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS
ENDED JUNE 30, 1998 AND 1997
(Unaudited)
(Amounts in thousands, except per share data)
Three months ended Nine months ended
June 30 June 30
1998 1997 1998 1997
[S] [C] [C] [C] [C]
Net sales $1,640 $1,669 $5,215 $4,598
Cost of goods sold 1,025 911 3,244 2,736
------- ------- ------- -------
Gross profit 615 758 1,971 1,862
Selling, general and
administrative expenses 708 669 1,966 1,810
------- ------- ------- -------
Income (loss) from
operations (93) 89 5 52
Other income (expense) 11 24 41 66
------- ------- ------- -------
Income (loss) before
income taxes (82) 113 46 119
Provision (benefit)
for income taxes (28) 39 16 41
------- ------- ------- -------
NET INCOME (LOSS) $(54) $74 $30 $78
======= ======= ======= =======
Earnings (loss) per share $(0.01) $0.02 $0.01 $0.02
======= ======= ======= =======
[FN]
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
MICROWAVE FILTER COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS AND NINE MONTHS ENDED
JUNE 30, 1998 AND 1997
(Unaudited)
(Amounts in thousands)
Three months ended Nine months ended
June 30 June 30
1998 1997 1998 1997
[S] [C] [C] [C] [C]
Cash flows from operating
activities:
Net income $ (54) $ 74 $ 30 $ 78
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and amortization 81 79 238 235
Stock Compensation 0 0 4 15
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable 169 (124) (7) 182
Inventories (51) 52 (198) 210
Prepaid expenses & other
assets 34 51 9 (22)
Increase (decrease) in:
Accounts payable & accrued
expenses 25 (63) 57 (559)
Deferred compensation &
other liabilities 45 (1) 42 (4)
------- ------- -------- -------
Net cash provided by
operating activities 249 68 175 135
------- ------- -------- -------
Cash flows from investing activities:
Capital expenditures (24) (29) (184) (217)
Cash flows from financing activities:
Principal payments on
long-term debt (14) (14) (42) (40)
Cash dividend paid 0 0 (177) (178)
------- ------- ------- -------
Net cash used in
financing activities (14) (14) (219) (218)
Increase (decrease) in cash
and cash equivalents 211 25 (228) (300)
Cash and cash equivalents
at beginning of period 995 956 1,434 1,281
------- ------- ------- -------
Cash and cash equivalents
at end of period $1,206 $ 981 $1,206 $ 981
======= ======= ======= =======
[FN]
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
MICROWAVE FILTER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
Note 1. Summary of Significant Accounting Policies
The accompanying financial statements, which should be read in conjunction
with the financial statements of Microwave Filter Company, Inc. ("the
Company") included in the 1997 Annual Report filed on Form 10-K, are
unaudited but have been prepared in the ordinary course of business for
the purpose of providing information with respect to the interim period.
The Company believes that all adjustments (none of which were other than
normal recurring accruals) necessary for a fair presentation for such
periods have been included.
Note 2. Earnings (loss) per share
Earnings (loss) 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. The weighted average number of shares
of common stock outstanding used for the computations were 3,548,063 for
the nine months and 3,549,565 for the three months ending June 30, 1998
and 3,549,301 for the nine months and 3,545,115 for the three months ending
June 30, 1997.
Note 3. Inventories
Inventories are stated at the lower of cost determined on the first-in,
first-out method or market.
Inventories consisted of the following:
June 30, September 30,
1998 1997
Raw materials and stock parts $ 963 $ 832
Work-in-process 219 185
Finished goods 277 245
------- -------
$ 1,459 $ 1,262
======= =======
Note 4. Stock Options
On April 9, 1998, the Board of Directors and Shareholders of Microwave
Filter Company, Inc. approved the 1998 Microwave Filter Company, Inc.
Incentive Stock Plan (the "1998 Plan"). Under the 1998 Plan, The Company
may grant incentive stock options ("ISOs"), non-qualified stock options
("NQSOs") and stock appreciation rights. The 1998 Plan reserves 150,000
shares for issuance. Participation in the 1998 Plan is limited to directors,
officers and employees of the Company and its affiliates. The exercise price
of the ISOs and NQSOs granted under the 1998 Plan will be 100% of the fair
market value of the Common Stock on the date of grant of such ISOs and
NQSOs. The 1998 Plan will terminate on April 10, 2008. There were no stock
options outstanding at June 30, 1998.
<PAGE>
MICROWAVE FILTER COMPANY, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
JUNE 30, 1998
Net sales for the nine months ended June 30, 1998 equaled $5,214,698, an
increase of $616,251 or 13.4% when compared to net sales of $4,598,447 for
the nine months ended June 30, 1997. The increase in sales can primarily be
attributed to an increase in the sales of the Company's RF/Microwave products
to OEMs (Original Equipment Manufacturers). Part of the Company's long term
growth strategy is to invest in product and infrastructure development to
exploit new markets such as LMDS (Cellular TV), PCS and PCN; and, continue
to develop OEM relationships.
Microwave Filter Company's (MFC) RF/Microwave product sales increased
$1,204,490 or 277% to $1,639,377 for the nine months ended June 30, 1998
when compared to sales of $434,887 for the same period last year. MFC's
Cable TV product sales increased $158,351 or 7.3% to $2,313,211 for the nine
months ended June 30, 1998 when compared to sales of $2,154,860 for the same
period last year. MFC's Broadcast TV product sales, which include wireless
cable products, decreased $79,496 or 9.9% to $722,575 for the nine months
ended June 30, 1998 when compared to sales of $802,071 for the same period
last year continuing the downward trend in the industry that began in 1996.
MFC's Satellite TV product sales decreased $179,152 or 28% to $460,607 for
the nine months ended June 30, 1998 when compared to sales of $639,759
for the same period last year.
Niagara Scientific, Inc. (NSI), a wholly owned subsidiary, sales decreased
$487,942 or 86% to $78,928 for the nine months ended June 30, 1998 when
compared to $566,870 for the same period last year. During the last nine
months, NSI has expanded its effort to develop new products and has increased
its advertising and promotion in an effort to increase sales.
Net sales for the three months ended June 30, 1998 equaled $1,639,399,
a decrease of $29,595 or 1.8% when compared to net sales of $1,668,994 for
the three months ended June 30, 1997. An increase in MFC's RF/Microwave
product sales were offset by sales decreases in other product groups during
the quarter. MFC's RF/Microwave product sales were up $298,337. MFC's Cable
TV product sales were down $58,815, MFC's Broadcast TV product sales were
down $29,596, MFC's Satellite TV product sales were down $90,760 and NSI's
sales were down $148,761 when compared to the same quarter last year.
Gross profit for the nine months ended June 30, 1998 equaled $1,970,577,
an increase of $108,519 or 5.8% when compared to gross profit of $1,862,058
for the nine months ended June 30, 1997. The dollar increase in gross profit
can primarily be attributed to the increase in sales. As a percentage of
sales, gross profit equaled 37.8% for the nine months ended June 30, 1998
when compared to 40.5% for the nine months ended June 30, 1997. Gross profit
for the three months ended June 30, 1998 equaled $614,795, a decrease of
$143,426 or 18.9% when compared to gross profit of $758,221 for the three
months ended June 30, 1997. As a percentage of sales, gross profit equaled
37.5% for the three months ended June 30, 1998 compared to 45.4% for the three
months ended June 30, 1997. The decreases in gross profit as a percentage of
sales when compared to the same periods last year can primarily be attributed
to product sales mix (higher RF/Microwave product sales as a percentage of
total sales) and higher manufacturing (excess scrap and rework) costs
associated with new product development.
<PAGE>
Selling, general and administrative (SG&A) expenses for the nine months
ended June 30, 1998 equaled $1,965,536, an increase of $155,618 or 8.6%
when compared to SG&A expenses of $1,809,918 for the nine months ended
June 30, 1997. SG&A expenses for the three months ended June 30, 1998
equaled $708,318, an increase of $39,034 or 5.8% when compared to SG&A
expenses of $669,284 for the three months ended June 30, 1997. The increases
can primarily be attributed to increases in research and development costs,
advertising expense, sales commissions, and salary and salary related
expenses when compared to the same periods last year.
Income from operations for the nine months ended June 30, 1998 equaled
$5,041, a decrease of $47,099 or 90.3% when compared to income from
operations of $52,140 for the nine months ended June 30, 1997. On an industry
segment basis, MFC reported income from operations of $330,901 and NSI
reported an operating loss of $325,860 for the nine months ended June 30,
1998. NSI's operating loss can primarily be attributed to low sales volume,
the investments in new product development and advertising and promotion and
the absorption of fixed overhead expenses. For the three months ended June
30, 1998, the Company reported a loss from operations of $93,523 compared to
income from operations of $88,937 for the three months ended June 30, 1997.
The decreases can primarily be attributed to the higher cost of goods sold as
a percentage of sales and higher SG&A expenses this year when compared to the
same periods last year.
Cash and cash equivalents decreased $228,761 to $1,205,712 at June 30,
1998 when compared to $1,434,473 at September 30, 1997. The decrease was
a result of $175,193 in net cash provided by operating activities, $184,155
in net cash used for capital expenditures and $219,799 in net cash used in
financing activities ($42,321 used for principal payments on long-term debt
and $177,478 used for a cash dividend paid).
At June 30, 1998, 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. 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%).
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.
<PAGE>
IMPACT OF YEAR 2000
The Company is working to resolve the potential impact of the year 2000
on the ability of the Company's computerized information systems to accurately
process information that may be date-sensitive. Any of the Company's programs
that recognize a date using "00" as the year 1900 rather than the year 2000
could result in errors or system failures. The Company utilizes a number of
computer programs across its entire operation. The Company has not completed
its assessment, but currently believes that costs of addressing this issue
will not have a material adverse impact on the Company's financial position.
However, if the Company and third parties upon which it relies are unable to
address this issue in a timely manner, it could result in a material financial
risk to the Company. In order to assure that this does not occur, the Company
plans to devote all resources required to resolve any significant year 2000
issues in a timely manner.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995
Any statements contained in this report which are not historical facts are
forward looking statements; and, therefore, many important factors could
cause actual results to differ materially from those in the forward looking
statements. Such factors include, but are not limited to, changes
(legislative, regulatory and otherwise) in the MMDS, LPTV or Cable industry,
demand for the Company's products (both domestically and internationally),
the development of competitive products, competitive pricing, market
acceptance of new product introductions, technological changes, general
economic conditions, litigation and other factors, risks and uncertainties
which may be identified in the Company's Securities and Exchange Commission
filings.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is unaware of any material threatened or pending
litigation against the Company.
Item 2. Changes in Securities
None during this reporting period.
Item 3. Defaults Upon Senior Securities
The Company has no senior securities.
Item 4. Submission of Matters to a Vote of Security Holders
None during this reporting period.
Item 6. Exhibits and Reports on Form 8-K
None.
<PAGE>
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
MICROWAVE FILTER COMPANY, INC.
August 13, 1998 Carl F. Fahrenkrug
(Date) --------------------------
Carl F. Fahrenkrug
Chief Executive Officer
August 13, 1998 Richard L. Jones
(Date) --------------------------
Richard L. Jones
Chief Financial Officer
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