UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 OR 15(d) of the Securities Exchange
Act of 1934.
For the quarterly period ended December 31, 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 - 3,284,390 shares as of December
31, 1998.
<PAGE>
PART I. - FINANCIAL INFORMATION
MICROWAVE FILTER COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS
ENDED DECEMBER 31, 1998 AND 1997
(Unaudited)
(Amounts in thousands, except per share data)
Three months ended
Dec. 31
1998 1997
[S] [C] [C]
Net sales $1,633 $1,840
Cost of goods sold 988 1,126
------- -------
Gross profit 645 714
Selling, general and
administrative expenses 641 659
------- -------
Income from operations 4 55
Other income (expense) 17 16
------- -------
Income before income
taxes 21 71
Provision for income
taxes 7 24
------- -------
NET INCOME $14 $47
======= =======
Earnings per share $0.00 $0.01
======= =======
[FN]
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
MICROWAVE FILTER COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 SEPTEMBER 30, 1998
(Unaudited)
[S] [C] [C]
Assets
Current Assets:
Cash and cash equivalents $ 868 $ 1,221
Accounts receivable-trade,net 535 652
Federal and state income tax
recoverable 56 56
Inventories 1,336 1,328
Deferred tax asset - current 175 175
Prepaid expenses and other
current assets 106 53
-------- --------
Total current assets 3,076 3,485
Property,plant and equipment,net 1,542 1,574
-------- --------
Total assets $ 4,618 $ 5,059
======== ========
Liabilities And Stockholders' Equity
Current liabilities:
Current portion of long term
debt $ 30 $ 45
Accounts payable 197 356
Customer deposits 101 111
Accrued federal and state
income taxes 7 0
Accrued payroll and related
expenses 83 101
Accrued compensated absences 226 225
Dividends payable 164 0
Other current liabilities 56 81
-------- --------
Total current liabilities 864 919
Deferred tax liability -
noncurrent 51 51
Deferred compensation and
other liabilities 11 12
-------- --------
Total liabilities 926 982
-------- --------
Stockholders' Equity:
Common stock,$.10 par value 429 429
Additional paid-in capital 3,223 3,223
Retained earnings 996 1,147
-------- --------
4,648 4,799
Common stock in treasury,
at cost (956) (722)
-------- --------
Total stockholders' equity 3,692 4,077
-------- --------
Total liabilities and
stockholders' equity $ 4,618 $ 5,059
======== ========
[FN]
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
MICROWAVE FILTER COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
DECEMBER 31, 1998 AND 1997
(Unaudited)
Three months ended
December 31
1998 1997
[S] [C] [C]
Cash flows from operating
activities:
Net income $ 14 $ 47
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and amortization 73 77
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable 117 (216)
Inventories (8) (59)
Prepaid expenses & other
assets (53) 4
Increase (decrease) in:
Accounts payable & accrued
expenses (204) 13
Deferred compensation &
other liabilities (1) (1)
------- -------
Net cash provided by (used in)
operating activities (62) (135)
Cash flows from investing activities:
Capital expenditures (42) (127)
Cash flows from financing activities:
Principal payments on
long-term debt (15) (14)
Purchase of treasury stock (234)
------- -------
Net cash provided by (used)
in financing activities (249) (14)
Increase (decrease) in cash
and cash equivalents (353) (276)
Cash and cash equivalents
at beginning of period 1,221 1,434
------- -------
Cash and cash equivalents
at end of period $ 868 $1,158
======= =======
[FN]
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
MICROWAVE FILTER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
Note 1. Summary of Significant Accounting Policies
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three-month period
ended December 31, 1998 are not necessarily indicative of the results that may
be expected for the year ended September 30, 1999.
<PAGE>
MICROWAVE FILTER COMPANY, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
DECEMBER 31, 1998
Net sales for the three months ended December 31, 1998 equalled $1,633,056,
a decrease of $206,887 or 11.2% when compared to net sales of $1,839,943 for
the three months ended December 31, 1997.
Microwave Filter Company, Inc. (MFC) sales for the three months ended
December 31, 1998 equalled $1,525,235, a decrease of $302,655 or 16.6% when
compared to sales of $1,827,890 for the three months ended December 31, 1997.
The decrease in MFC sales can primarily be attributed to a decrease in the
sales of MFC's BTV product sales, which includes wireless cable products,
primarily due to market conditions, and a decrease in the sales of MFC's
RF/Microwave product sales. MFC's RF/Microwave product sales were down
primarily due to the completion of OEM contracts during fiscal 1998.
Niagara Scientific, Inc. (NSI), a wholly owned subsidiary, sales for the
three months ended December 31, 1998 equalled $107,821, an increase of $95,768
when compared to sales of $12,053 for the three months ended December 31,
1997.
Net income for the three months ended December 31, 1998 equalled $13,725,
a decrease of $32,999 when compared to net income of $46,724 for the three
months ended December 31, 1997. The decrease in net income can primarily be
attributed to the decrease in sales.
Gross profit decreased $68,992 or 9.7% to $644,966 during the three
months ended December 31, 1998 when compared to gross profit of $713,958
during the three months ended December 31, 1997. The decrease in gross
profit during the three months ended December 31, 1998 can primarily be
attributed to the decrease in sales when compared to the same period last
year.
Selling, general and administrative (SG&A) expenses decreased $18,625 or 2.8%
to $640,578 during the three months ended December 31, 1998 when compared
to SG&A expenses of $659,203 during the three months ended December 31,
1997. As a percentage of sales, SG&A expenses increased to 39.2% for the three
months ended December 31, 1998 when compared to 35.8% for the three months
ended December 31, 1997, primarily due to the decrease in sales this year when
compared to last year.
Cash and cash equivalents decreased $352,973 to $868,135 at December 31,
1998 when compared to $1,221,108 at September 30, 1998. The decrease was a
result of $61,902 in net cash used in operating activities, $42,208 in net
cash used for capital expenditures and $248,863 in net cash used in financing
activities.
The Company's Board of Directors has authorized the repurchase of up to
500,000 shares of the Company's outstanding common stock. The repurchases will
be made from time to time on the open market at prevailing market prices or in
negotiated transactions off the market. During the quarter ended December 31,
1998, 200,140 shares were repurchased using existing cash balances. Management
believes the common stock repurchase program, given the Company's present cash
position as well as the current market price of the stock, reflects its belief
in the fundamental strength of the business and also reflects its commitment
to enhancing shareholder value.
At December 31, 1998, the Company had 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%).
Management believes that its working capital requirements for the forseeable
future will be met by its existing cash balances, future cash flows and its
current credit arrangements.
YEAR 2000 READINESS DISCLOSURE
- ------------------------------
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs or hardware that have date-sensitive software or
embedded computer chips may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations which could disrupt the Company's normal business activities.
The Company has conducted a full inventory of its computer systems to
identify the programs and systems that could be affected by the year 2000
problem. The Company is in the process of evaluating and testing those
programs and systems. Although no assurance can be given, the Company
believes all critical software utilized by the Company is presently year 2000
compliant. The total cost to the Company of its own Year 2000 assessment,
compliance and verification activities has not been and, based on its
evaluation to date, is not anticipated to be material to the Company's
financial position or results of operations in any given year.
The company is presently surveying all major vendors and large customers to
assess their state of readiness in addressing the year 2000 problem. The
company depends on outside suppliers for raw materials, components and parts,
and services. Although items are generally available from a number of
suppliers, the Company purchases certain raw materials and components from a
single supplier. If such a supplier should cease to supply an item, the
Company believes that new sources could be found to provide the raw materials
and components. However, manufacturing delays and added costs could result and
adversely affect the business of the Company. The company has not experienced
significant delays of this nature in the past, but there can be no assurance
that delays in delivery due to supply shortages will not occur in the future.
The Company has and will continue to devote the resources necessary to
address any year 2000 issues. The Company's contingency plan is to replace or
repair systems which fail unexpectedly after January 1, 2000. The Company
estimates that the costs associated with its "year 2000" contingency, if
required, to be less than $75,000.
<PAGE>
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.
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.
February 12, 1999 Carl F. Fahrenkrug
(Date) --------------------------
Carl F. Fahrenkrug
Chief Executive Officer
February 12, 1999 Richard L. Jones
(Date) --------------------------
Richard L. Jones
Chief Financial Officer
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