UNITED STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
(Mark one)
_X_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended__________September 30,
2012__________________________
__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 if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. YES ______ NO
___X___
Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the
Act. YES ______ NO
___X___
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 whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (
§
232.405
of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post
such files).
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. __
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer
or a smaller reporting company (as defined in Rule 12b-2 of the
Exchange Act).
Large accelerated filer ______ Accelerated filer ______
Non-accelerated filer ______ (Do not check if smaller reporting
company) Smaller reporting company ____X____.
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act). YES
____ NO__X__
The aggregate market value of the voting stock held by
non-affiliates of the registrant, based on the closing price of
the common stock on December 1, 2012, was $2,151,118.
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 December 1,
2012: 2,585,321
DOCUMENTS INCORPORATED BY REFERENCE
Part III: Portions of the Definitive Proxy Statement to be
filed with the Securities and Exchange Commission in connection
with the solicitation of proxies for the Company's 2013 Annual
Meeting of Shareholders are incorporated by reference into Part
III. (With the exception of those portions which are
specifically incorporated by reference in this Form 10-K, the
Proxy Statement is not deemed to be filed or incorporated by
reference as part of this report.)
PART I
ITEM 1. BUSINESS.
FORWARD-LOOKING CAUTIONARY STATEMENT
-------------------------------------------------------------------
In an effort to provide investors a balanced view of the
Company's current condition and future growth opportunities,
this Annual Report on Form 10-K may include comments by the
Company's management about future performance. These
statements which are not historical information are
"forward-looking statements" pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of
1995. These, and other forward-looking statements, are
subject to business and economic risks and uncertainties that
could cause actual results to differ materially from those
discussed. These risks and uncertainties include, but are
not limited to: risks associated with demand for and market
acceptance of existing and newly developed products as to which
the Company has made significant investments; general economic
and industry conditions; slower than anticipated penetration
into the satellite communications, mobile radio and commercial
and defense electronics markets; competitive products and
pricing pressures; increased pricing pressure from our
customers; risks relating to governmental regulatory actions in
broadcast, communications and defense programs; as well as other
risks and uncertainties, including but not limited to those
detailed from time to time in the Company's Securities and
Exchange Commission filings. These forward-looking
statements are made only as of the date hereof, and the Company
undertakes no obligation to update or revise the forward-looking
statements, whether as a result of new information, future
events or otherwise. You are encouraged to review
Microwave Filter Company's 2012 Annual Report and Form 10-K for
the fiscal year ended September 30, 2012 and other Securities
and Exchange Commission filings. Forward looking
statements may be made directly in this document or
"incorporated by reference" from other documents. You can
find many of these statements by looking for words like
"believes," "expects," "anticipates," "estimates," or similar
expressions.
GENERAL DEVELOPMENT OF BUSINESS
--------------------------------------------------------
Microwave Filter Company, Inc. (hereinafter
referred to as MFC) was incorporated in New York State on
September 26, 1967. MFC is the successor of Microwave
Filter Company which was founded in April of 1967.
On July 1, 1990, MFC acquired Niagara Scientific,
Inc. (hereinafter referred to as NSI.)
MFC and its subsidiaries are sometimes referred to
collectively as the "Company."
NARRATIVE DESCRIPTION OF BUSINESS
---------------------------------------------------------
Microwave Filter Company, Inc. (MFC)
Established in 1967 in East Syracuse, New York, MFC
occupies a modern 40,000 square foot facility with an impressive
complement of analytical and design software, test
instrumentation, prototype and manufacturing equipment to create
passive filters, components and sub systems in the frequency
range of 10 MHz to 50 GHz.
MFC manufactures RF filters and related components for
eliminating interference and facilitating signal processing for
such markets as Cable Television, Broadcast, Commercial and
Military Communications, Avionics, Radar, Navigation and
Defense. The Company designs waveguide, stripline/
microstrip, transmission line, miniature/subminiature and lumped
constant filters. Configurations include bandpass,
highpass, lowpass, bandstop, multiplexers, tunable notch,
tunable bandpass, high power filters, amplitude equalized, delay
equalized and filter networks. The Company actively
produces over 1,700 standard products and has designed more than
5,000 custom products for specialized applications.
The manufacturing facility includes a modern CAD system,
a test department with automated network analyzers to 50 GHz, a
high capacity conveyor soldering oven and a fully compliant
finishing operation. The Company's Quality Management
System has been certified ISO 9001:2008 recognizing the Company
as a quality vendor.
Efficient computer simulation, design and analysis
software enhanced by proprietary MFC developed software, allow
rapid and accurate filter development at reasonable cost.
Automated network analyzers provide rigorous product testing and
performance data storage on a serial number basis in most cases.
A network based CAD system allows the transfer of data
and programs to the CNC turning and milling centers for
fabrication of machined parts. Prototype PC boards are
similarly produced by computer controlled PC board mills.
A Grieve high capacity conveyor soldering oven is used
for production of large quantity assemblies while smaller
production quantities are assembled at hand soldering or brazing
stations.
ISO 9001:2008 contract and design review procedures
coupled with a QA department that is compliant with MIL-I-45208
inspection systems and MIL-STD-45622 calibration system
standards assures process and product integrity. A
certified staff instructor regularly trains associates to
MIL-STD-2000A (now superceded by J-STD-001.)
Other in-house testing facilities include three
environmental chambers capable of testing products for
temperatures of -40 to 200 degrees Celsius and humidity up to
100 percent. Several high power amplifiers are available
for power tests up to 2500 watts at 220 MHz and 100 watts at
1,000 MHz. Facilities are also available for salt spray,
sand and dust, shock and vibration, RFI leakage and altitude
testing.
MARKETS
--------------
Microwave Filter Company, Inc. (MFC)
-------------------------------------------------
Cable Television (CATV) - The CATV marketplace is
changing due to the transition from analog to digital
television. Digital Television (DTV) is a new type of
broadcasting technology that will transform television
viewing. DTV enables broadcasters to offer television with
movie-quality picture and sound. It also offers greater
multicasting and interactive capabilities. DTV is a more
flexible and spectrum efficient technology than the NTSC
"analog" broadcast system. Rather than being limited to
providing one analog programming channel, a broadcaster will be
able to provide a super sharp "high definition" (HDTV) program
or multiple "standard definition" DTV programs simultaneously
using the RF spectrum more efficiently. Providing several
program streams on one broadcast channel is called
"multicasting." The number of programs a station can send on one
digital channel depends on the level of picture detail, also
known as "resolution." DTV can provide interactive video and
data services that are not possible with "analog"
technology. Converting to DTV will eventually free up
parts of the scarce and valuable broadcast airwaves. Those
portions of the spectrum can then be used for other important
services, such as advanced wireless and public safety services
(police, fire, rescue squads, etc.). Management continues
to project a decrease in demand for Cable TV products due to the
shift from analog to digital television. Due to the
inherent nature of digital modulation versus analog modulation,
fewer filters will be required. The Company has developed
filters for digital television and there will still be
requirements for analog filters for limited applications in
commercial and private cable systems. The demand for these
filters is unknown at this time but is expected to decline.
MFC serves this market principally 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 TV 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 cable operators initially receive programming
via satellite, products from our satellite market cross over
into the cable television market. C-band satellite receive
systems are prone to various types of terrestrial interference
which are curable in many cases by applying MFC bandpass
filters.
Broadcast - Due to the recent analog to digital
conversion within the TV (UHF/VHF) broadcast industry, Microwave
Filter Company has experienced a resurgence in business for both
TV transmit and receive filters. Specifically, in order to
accommodate the wider digital TV signal bandwidths, customers
have been forced to replace their existing (narrower bandwidth)
analog filters with (wider bandwidth) digital filters. As
a result, MFC has developed new products (e.g.- DTV mask
transmit filters) to accommodate the wider bandwidth digital
signals.
Another result of this analog to digital
conversion was the elimination of the uppermost UHF channels
(52-69) that operated between 698 - 806 MHz. Subsequently,
part of this vacated frequency band was allocated for Public
Safety communication use, while much of the remaining band has
been auctioned off for Internet Service Provider (ISP)
operations (e.g. - Verizon, AT&T, etc.) Now referred
to as the "700 MHz Band" - many of these new applications also
require MFC filter products. Some of these operations
actually utilize the same channel allocations formerly used by
those defunct UHF channels.
Consequently, MFC has been able to transform existing
filter product lines into an entirely new filter line to satisfy
many of these new ISP applications, without requiring
significant product modification or new product development.
MFC also continues to serve other segments of the
Broadcast industry such as FM radio, STL (TV
Studio-to-Transmitter Links) and the BAS (Broadcast Auxiliary
Service) band (formerly known as the ENG (Electronic News
Gathering) band.)
Satellite - Microwave filters and IF filters 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. Although
economic conditions have impacted sales, management expects
demand for these types of filters to continue with the
proliferation of earth stations world wide and increased sources
of interference.
Mobile Radio and Data Links - 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. More recently there has been demand for
filters and diplexers for broadband microwave applications for
Voice Over Internet Protocol ("VOIP") With the number of
services increasing and ISP use. The advent of license
exempt applications has increased the need for interference
filtering. With the number of services increasing and our
air waves becoming more congested, filters are increasingly
important to many transmit operations.
RF and Microwave - 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. 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.
MFC's RF/Microwave products are sold primarily to
Original Equipment Manufacturers that serve the mobile radio,
commercial communications and defense electronics markets.
The Company continues to invest in production engineering and
infrastructure development to penetrate OEM market segments as
they become popular. MFC is concentrating its technical
resources and product development efforts toward potential high
volume customers as part of a concentrated effort to provide
substantial long-term growth. The Company is also actively
sourcing complimentary products to distribute to augment sales.
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.
WORLD TRADE
---------------------
Management believes that world marketing is a route to
substantial expansion of sales for MFC. Significant
efforts have been made over the last few years to identify key
international markets and to establish distributors with
appropriate technical backgrounds to represent our products in
those regions. The Company's international sales decreased
$169,545 or 23.9% to $539,765 for the fiscal year ended
September 30, 2012 when compared to international sales of
$709,310 during the fiscal year ended September 30, 2011.
The decrease can be attributed to one large order from an
international distributor shipped during fiscal 2011 and
economic conditions.
SUPPLIERS
---------------
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. 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.
Substantial periods of lead time for delivery of certain
materials are sometimes experienced by the Company, making it
necessary to inventory varied quantities of materials.
PATENTS AND LICENSES
----------------------------------
The Company has no patents, trademarks, copyrights,
licenses or franchises of material importance.
SEASONAL FLUCTUATIONS
---------------------------------------
There are no significant seasonal fluctuations in the
Company's business.
GOVERNMENT CONTRACTS
---------------------------------------
The Company is not dependent in any material respect on
government contracts.
SIGNIFICANT CUSTOMERS
-------------------------------------
Sales to one customer represented approximately 21% of
total sales during fiscal 2012 compared to approximately 18% of
total sales for the fiscal year ended September 30, 2011.
EXPORT CONTROLS
----------------------------
Our products are subject to the Export Administration
Regulations ("EAR") administered by the U.S. Department of
Commerce and may, in certain instances, be subject to the
International Traffic in Arms Regulations ("ITAR") administered
by the U.S. Department of State. EAR restricts the
export of defense products, technical data and defense
services. We believe that we have implemented internal
export procedures and controls in order to achieve compliance
with the applicable U.S. export control regulations.
ENVIRONMENTAL REGULATION
---------------------------------------------
Compliance with federal, state and local requirements
relating to the discharge of substances into the environment,
the disposal of hazardous waste and other activities affecting
the environment has been accomplished without material effect on
the Company's liquidity and capital resources, competitive
position or financial statements and management believes that
such compliance will not have a material effect on the Company's
liquidity and capital resources, competitive position or
financial statements in the future.
BACKLOG
--------------
At September 30, 2012, the Company's total backlog of
orders, which represents firm orders from customers, was
$272,138 compared to $643,925 at September 30, 2011. The
total Company backlog at September 30, 2012 is scheduled to ship
during fiscal 2013.
The Company has
been experiencing a slowdown in orders which management
attributes to the specific decrease in the economic activity in
the military/aerospace sector and related international markets.
However, backlog is not necessarily indicative of future
sales. Accordingly, the Company does not believe that its
backlog as of any particular date is representative of actual
sales for any succeeding period.
EMPLOYEES
-----------------
At September 30, 2012, the Company employed 45 full-time
and 2 part-time employees.
RESEARCH AND DEVELOPMENT
----------------------------------------------
The Company maintains and expects to continue to maintain
an active research and development program. The Company
believes that such a program is needed to maintain its
competitive position in existing markets and to provide products
for emerging markets. Costs in connection with research
and development were $408,335 and $428,693 for the fiscal years
2012 and 2011, respectively. Research and development
costs are charged to operations as incurred.
COMPETITION
--------------------
The principal competitive factors facing both MFC 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.
AVAILABLE INFORMATION
--------------------------------------
Our Internet address is www.microwavefilter.com.
There we make available, free of charge, our annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, our proxy statement and any amendments to those
reports or statements filed or furnished pursuant to Section
13(a) and 15(d) of the Securities Exchange Act of 1934, as
amended, as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the
Securities and Exchange Commission (SEC). Our SEC reports
can be accessed through the investor relations link of our Web
site. The information found on our Web site is not part of
this or any other report we file with or furnish to the SEC.
The public may read and copy any materials that we file
with the SEC at the SEC's Public Reference Room located at 450
Fifth Street NW, Washington, DC 20549. The public may
obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. The SEC also
maintains electronic versions of our reports on its website at
www.sec.gov.
ITEM 1A. RISK FACTORS
Not applicable.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES.
MFC's office and manufacturing facility is located at
6743 Kinne Street, East Syracuse, New York. This facility,
which is owned by MFC, consists of 40,000 square feet of office
and manufacturing space located on 3.7 acres.
ITEM 3. LEGAL PROCEEDINGS.
The State of New York Workers' Compensation Board has
commenced an action against Microwave Filter Company, Inc.
to recover for an underfunded self insured program that
Microwave Filter Company, Inc. participated in. Due
to the relatively short period of time Microwave Filter Company,
Inc. participated in the program and the limited amount of
potential exposure, we do not expect the resolution of this
action will have a material adverse effect on our financial
condition, results of operations or cash flows. The Company has
accrued $12,000 for this action in other current liabilities.
ITEM 4. MINE SAFETY DISCLOSURES
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's securities are currently quoted on The Pink
OTC Markets (www.otcmarkets.com), an electronic quotation
service for securities traded over-the-counter, and the OTCBB
(www.otcbb.com).
The following table shows the high and low closing sales
prices for MFC's common stock for each full quarterly period
within the two most recent fiscal years. The information
set forth was obtained from statements provided by the NASD and
the OTCBB. 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
2012
|
|
High
|
|
Low
|
|
|
|
|
|
Oct.
1, 2011 to Dec. 31, 2011
|
$
|
1.05
|
$
|
0.63
|
Jan.
1, 2012 to Mar. 31, 2012
|
|
1.10
|
|
0.75
|
Apr.
1, 2012 to June 30, 2012
|
|
1.25
|
|
0.83
|
July
1, 2012 to Sept. 30, 2012
|
|
1.05
|
|
0.85
|
|
|
|
|
|
Fiscal
2011
|
|
High
|
|
Low
|
|
|
|
|
|
Oct.
1, 2010 to Dec. 31, 2010
|
$
|
1.08
|
$
|
0.45
|
Jan.
1, 2011 to Mar. 31, 2011
|
|
1.10
|
|
0.76
|
Apr.
1, 2011 to June 30, 2011
|
|
1.05
|
|
0.61
|
July
1, 2011 to Sept. 30, 2011
|
|
1.05
|
|
0.62
|
The Company had approximately 570 holders of record of
its common stock at September 30, 2012.
On June 20, 2012, the Board of Directors declared a
special five cents per share cash dividend to shareholders of
record on July 13, 2012 to be distributed on July 31, 2012.
On August 3, 2011, the Board of Directors declared a
special fifteen cents per share cash dividend to shareholders of
record on August 19, 2011 to be distributed on September 6,
2011.
Payment of future dividends, if any, will be at the
discretion of the Board of Directors after taking into
consideration various factors, including the Company's financial
condition, operating results and current and anticipated cash
needs.
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
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
$
|
4,458,819
|
|
$
|
5,043,934
|
|
$
|
4,691,522
|
|
|
$
|
4,610,313
|
|
|
$
|
5,231,125
|
|
Net Income
|
$
|
75,801
|
|
$
|
242,915
|
|
$
|
146,291
|
|
|
$
|
81,507
|
|
|
$
|
39,516
|
|
Total Assets
|
$
|
2,599,344
|
|
$
|
2,914,960
|
|
$
|
2,963,224
|
|
|
$
|
2,833,345
|
|
|
$
|
2,816,736
|
|
Equity
|
$
|
2,221,661
|
|
$
|
2,275,928
|
|
$
|
2,425,568
|
|
|
$
|
2,280,684
|
|
|
$
|
2,354,667
|
|
Long Term Debt
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Basic Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share
|
$
|
0.03
|
|
$
|
0.09
|
|
$
|
0.06
|
|
|
$
|
0.03
|
|
|
$
|
0.01
|
|
Diluted Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share
|
$
|
0.03
|
|
$
|
0.09
|
|
$
|
0.06
|
|
|
$
|
0.03
|
|
|
$
|
0.01
|
|
Shares Used In Computing Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
2,585,845
|
|
|
2,587,807
|
|
|
2,592,723
|
|
|
|
2,612,152
|
|
|
|
2,894,214
|
|
Diluted
|
|
2,585,845
|
|
|
2,587,807
|
|
|
2,592,723
|
|
|
|
2,612,152
|
|
|
|
2,967,274
|
|
Cash ($) Dividends Paid Per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
|
$
|
0.05
|
|
$
|
0.15
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income as a percentage of:
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
2009
|
|
|
|
2008
|
|
Net Sales
|
|
1.70%
|
|
|
4.80%
|
|
|
3.10%
|
|
|
|
1.80%
|
|
|
|
0.70%
|
|
Assets
|
|
2.90%
|
|
|
8.30%
|
|
|
4.90%
|
|
|
|
2.90%
|
|
|
|
1.40%
|
|
Equity
|
|
3.40%
|
|
|
10.70%
|
|
|
6.00%
|
|
|
|
3.60%
|
|
|
|
1.70%
|
|
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Microwave Filter Company, Inc. (MFC) operates
primarily in the United States and principally in one
industry. The Company extends credit to business
customers, including original equipment manufacturers (OEMs),
distributors and other end users, 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 and commercial and defense
electronics. Niagara Scientific, Inc. (NSI), a
wholly owned subsidiary, 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.
NSI's sales consist of spare parts orders.
RESULTS OF OPERATIONS
--------------------------------------
The following table sets forth the Company's net sales by
major product group for each of the fiscal years in the two year
period ended September 30, 2012.
Product
group (in thousands)
|
Fiscal 2012
|
Fiscal 2011
|
|
|
|
|
|
Microwave Filter:
|
|
|
|
|
RF/Microwave
|
$
|
1,712
|
$
|
1,915
|
Satellite
|
|
1,335
|
|
1,651
|
Cable TV
|
|
1,281
|
|
1,377
|
Broadcast TV
|
|
124
|
|
98
|
Niagara Scientific
|
|
7
|
|
3
|
|
|
----------
|
|
----------
|
Total
|
$
|
4,459
|
$
|
5,044
|
|
|
======
|
|
======
|
Sales backlog at 9/30
|
$
|
272
|
$
|
644
|
|
|
======
|
|
======
|
Fiscal 2012 compared to fiscal 2011
Consolidated net sales for the fiscal year ended
September 30, 2012 equaled $4,458,819, a decrease of $585,115 or
11.6%, when compared to consolidated net sales of $5,043,934
during the fiscal year ended September 30, 2011. The Company has
been experiencing a slowdown in orders which management
attributes to the specific decrease in the economic activity in
the military/aerospace sector and related international markets.
MFC's RF/Microwave product sales decreased $203,645 or
10.6% to $1,711,596 during the fiscal year ended September 30,
2012 when compared to sales of $1,915,241 during the fiscal year
ended September 30, 2011. MFC's RF/Microwave products are
sold primarily to Original Equipment Manufacturers that serve
the mobile radio, commercial communications and defense
electronics markets. The Company continues to invest in
production engineering and infrastructure development to
penetrate OEM market segments as they become popular. MFC
is concentrating its technical resources and product development
efforts toward potential high volume customers as part of a
concentrated effort to provide substantial long-term growth. The
Company is also actively sourcing complimentary products to
distribute to augment sales. Sales to one OEM customer
represented approximately 21% of total sales for the fiscal year
ended September 30, 2012 compared to approximately 18% of total
sales for the fiscal year ended September 30, 2011.
MFC's Satellite product sales decreased $315,395
or 19.1% to $1,335,367 during the fiscal year ended September
30, 2012 when compared to sales of $1,650,762 during the fiscal
year ended September 30, 2011. The decrease can be
attributed to a decrease in demand for filters which suppress
strong out-of-band interference caused by military and civilian
radar systems and other sources. Although current economic
conditions have impacted sales, management expects demand for
these types of filters to continue with the proliferation of
earth stations world wide and increased sources of interference.
MFC's Cable TV product sales decreased $95,024 or 6.9% to
$1,281,548 during the fiscal year ended September 30, 2012 when
compared to Cable TV product sales of $1,376,572 during the
fiscal year ended September 30, 2011. The decrease can be
attributed to one large order received from an international
distributor last year and the shift from analog to digital
television. Digital Television (DTV) is a new type of
broadcasting modulation that will transform television
viewing. DTV enables broadcasters and cable operators to
offer television with movie-quality picture and sound
(HDTV). It also offers greater multicasting and
interactive capabilities. DTV is a more flexible and
efficient technology than the NTSC "analog" modulation
system. Rather than being limited to providing one analog
programming channel, a broadcaster or cable operator will be
able to provide a super sharp "high definition" (HDTV) program
or multiple "standard definition" DTV programs simultaneously
using the RF spectrum more efficiently. Providing several
program streams on one cable or broadcast channel is called
"multicasting." The number of programs a station can send on one
digital channel depends on the level of picture detail, also
known as "resolution." DTV can provide interactive video and
data services that are not possible with "analog"
technology. Converting to DTV will eventually free up
parts of the scarce and valuable broadcast airwaves. Those
portions of the spectrum can then be used for other important
services, such as advanced wireless and public safety services
(police, fire, rescue squads, etc.). Due to the inherent
nature of digital modulation versus analog modulation, fewer
filters will be required. The Company has developed
filters for digital television and there will still be
requirements for analog filters for limited applications in
commercial and private cable systems; however, the demand for
these filters is expected to decline.
MFC's Broadcast TV product sales increased $25,620 or
26.1% to $123,738 for the fiscal year ended September 30, 2012
when compared to sales of $98,118 for the fiscal year ended
September 30, 2011. These products are primarily sold to
system integrators for rural communities.
At September 30, 2012, the Company's total backlog
of orders, which represents firm orders from customers, equaled
$272,138 compared to $643,925 at September 30, 2011. The
total Company backlog at September 30, 2012 is scheduled to ship
during fiscal 2013.
The Company has
been experiencing a slowdown in orders which management
attributes to the specific decrease in the economic activity in
the military/aerospace sector and related international markets.
However, backlog is not necessarily indicative
of future sales. Accordingly, the Company does not believe
that its backlog as of any particular date is representative of
actual sales for any succeeding period.
Gross profit decreased $199,992 or 10.8% to
$1,657,434 during the fiscal year ended September 30, 2012 when
compared to gross profit of $1,857,426 during the fiscal year
ended September 30, 2011. The decrease in gross profit can
primarily be attributed to the lower sales volume this year when
compared to the same period last year.
As a percentage of sales, gross profit equaled 37.2%
during the fiscal year ended September 30, 2012 compared to
36.8% during the fiscal year ended September 30, 2011.
The higher gross profit as a percentage of sales in
fiscal 2012 can primarily be attributed to product cost
improvements and product sales mix.
Selling, general and administrative (SG&A) expenses
decreased $1,969 or 0.1% to $1,648,388 during the fiscal year
ended September 30, 2012 when compared to SG&A expenses of
$1,650,357 during the fiscal year ended September 30, 2011. As a
percentage of sales, SG&A expenses equaled 37.0% during
fiscal 2012 compared to 32.7% during fiscal 2011 primarily due
to the lower sales volume this year when compared to last year.
Income from operations equaled $9,046 for the fiscal year
ended September 30, 2012 compared to income from operations of
$207,069 during the fiscal year ended September 30, 2011.
The decrease can primarily be attributed to the lower sales
volume this year when compared to last year.
Other income increased $19,699 to $28,173 for the fiscal
year ended September 30, 2012 when compared to other income of
$8,474 for the fiscal year ended September 30, 2011. The
increase can be attributed to a $20,000 gain on the sale of a
fixed asset.
The Company recorded a benefit for income taxes of
$38,582 for the fiscal year ended September 30, 2012 compared to
a benefit for income taxes of $27,372 for the fiscal year ended
September 30, 2011. The benefit for the current fiscal year can
be attributed to a New York State qualified research expenses
tax credit. Any provision for income tax expense was fully
offset by a reversal of a portion of the Company's valuation
allowance. Any benefit for losses has been subject to a
valuation allowance since the realization of the deferred tax
benefit is not considered more likely than not. As required by
FASB ASC 740 (Prior Authoritative Literature: SFAS 109,
Accounting for Income Taxes), the Company has evaluated the
positive and negative evidence bearing upon the realization of
its deferred tax assets. The Company has determined that, at
this time, it is more likely than not that the Company will not
realize all of the benefits of federal and state deferred tax
assets, and, as a result, a valuation allowance was established.
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.
|
|
2012
|
|
2011
|
Cash & cash equivalents
|
$
|
1,023,017
|
$
|
1,258,885
|
Working capital
|
$
|
1,549,136
|
$
|
1,658,110
|
Current ratio
|
|
5.10 to 1
|
|
3.59 to 1
|
Long-term debt
|
$
|
0
|
$
|
0
|
Cash and cash equivalents decreased $235,868 to
$1,023,017 at September 30, 2012 when compared to $1,258,885
at September 30, 2011. The decrease was a result of
$86,598 in net cash provided by operating activities, $192,398
in net cash used for capital expenditures, $129,273 in net
cash used to pay a special cash dividend and $795 in net cash
used to purchase treasury stock.
The net decrease of $88,669 in accounts receivable at
September 30, 2012, when compared to September 30, 2011, can
be attributable to the lower shipments during the quarter
ended September 30, 2012 when compared to the quarter ended
September 30, 2011. Sales for the quarter ended September 30,
2012 equaled $968,356 compared to sales of $1,311,555 for the
quarter ended September 30, 2011.
The net decrease of $38,186 in inventories at September
30, 2012, when compared to September 30, 2011, can be
attributable to the lower sales order backlog this year when
compared to last year.
The decrease of $103,210 in accounts payable at
September 30, 2012, when compared to September 30, 2011, can
primarily be attributed to timing and the lower inventories at
September 30, 2012 when compared to September 30, 2011.
The decrease of $78,245 in accrued
compensated absences at September 30, 2012, when compared to
September 30, 2011, can primarily be attributed to accrued
vacation used or paid during the fiscal year ended September
30, 2012. Due to the lower sales volume, the Company has been
participating in the New York State Shared Work Program which
allows employers to reduce the hours of all or a particular
group of employees. The employees whose hours are reduced can
receive partial unemployment insurance benefits to supplement
their lost wages or elect to use accrued vacation.
The decrease of $52,346 in other
current liabilities at September 30, 2012, when compared to
September 30, 2011, can primarily be attributed the payment of
a profit sharing contribution of $50,000 which was accrued at
September 30, 2011.
Capital expenditures consisted primarily of machinery
and equipment.
At September 30, 2012, the Company had unused aggregate
lines of credit totaling $750,000 collateralized by all
inventory, equipment and accounts receivable.
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.
Off-Balance Sheet Arrangements
At September 30, 2012 and 2011, the Company did not
have any unconsolidated entities or financial partnerships, such
as entities often referred to as structured finance or special
purpose entities, which might have been established for the
purpose of facilitating off-balance sheet arrangements.
Critical Accounting Policies
The Company's consolidated financial statements are based
on the application of accounting principles generally accepted
in the United States of America (GAAP). GAAP requires the
use of estimates, assumptions, judgments and subjective
interpretations of accounting principles that have an
impact on the assets, liabilities, revenue and expense
amounts reported. The Company believes its use of
estimates and underlying accounting assumptions adhere to GAAP
and are consistently applied. Valuations based on
estimates are reviewed for reasonableness and adequacy on a
consistent basis throughout the
Company. Primary areas where financial information of the
Company is subject to the use of estimates, assumptions and the
application of judgment include revenues, receivables,
inventories, and taxes.
Revenues from product sales are recorded as the products
are shipped and title and risk of loss have passed to the
customer, provided that no significant vendor or post-contract
support obligations remain and the collection of the related
receivable is probable. Billings in advance of the
Company's performance of such work are reflected as customer
deposits in the accompanying consolidated balance sheet.
Allowances for doubtful accounts are based on estimates
of losses related to customer receivable balances. The
establishment of reserves requires the use of judgment and
assumptions regarding the potential for losses on receivable
balances.
The Company's inventories are valued at the lower of cost
or market. The Company uses certain estimates and
judgments and considers several factors including product demand
and changes in technology to provide for excess and obsolescence
reserves to properly value inventory.
The Company established a warranty reserve which provides
for the estimated cost of product returns based upon historical
experience and any known conditions or circumstances. Our
warranty obligation is affected by product that does not meet
specifications and performance requirements and any related
costs of addressing such matters.
The Company has deferred tax assets that are reviewed for
recoverability and valued accordingly. These assets are
evaluated by using estimates of future taxable income streams
and the impact of tax planning strategies. Valuations
related to tax accruals and assets can be impacted by changes to
tax codes, changes in statutory tax rates and the Company's
future taxable income levels. The Company has provided a
full valuation allowance against its deferred tax assets.
NEW ACCOUNTING PRONOUNCEMENTS
----------------------------------------------------------
None applicable.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
----------------------------------------------------------------------------------------------------------------------------------------
In an effort to provide investors a balanced view of the
Company's current condition and future growth opportunities,
this Annual Report on Form 10-K may include comments by the
Company's management about future performance. These
statements which are not historical information are
"forward-looking statements" pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of
1995. These, and other forward-looking statements, are
subject to business and economic risks and uncertainties that
could cause actual results to differ materially from those
discussed. These risks and uncertainties include, but are
not limited to: risks associated with demand for and market
acceptance of existing and newly developed products as to which
the Company has made significant investments; general economic
and industry conditions; slower than anticipated penetration
into the satellite communications, mobile radio and commercial
and defense electronics markets; competitive products and
pricing pressures; increased pricing pressure from our
customers; risks relating to governmental regulatory actions in
broadcast, communications and defense programs; as well as other
risks and uncertainties, including but not limited to those
detailed from time to time in the Company's Securities and
Exchange Commission filings. These forward-looking
statements are made only as of the date hereof, and the Company
undertakes no obligation to update or revise the forward-looking
statements, whether as a result of new information, future
events or otherwise. You are encouraged to review
Microwave Filter Company's 2012 Annual Report and Form 10-K for
the fiscal year ended September 30, 2012 and other Securities
and Exchange Commission filings. Forward looking
statements may be made directly in this document or
"incorporated by reference" from other documents. You can
find many of these statements by looking for words like
"believes," "expects," "anticipates," "estimates," or similar
expressions.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.
The Company has limited exposure to market risk as the
Company has no long term debt as of September 30, 2012.
The Company's available line of credit is based on a factor of
the prime rate; however, there are no outstanding borrowings
under the line of credit. The Company does not trade in
derivative financial instruments. Investments generally
consist of commercial paper, government backed obligations and
other guaranteed commercial debt that have an original maturity
of more than three months and a remaining maturity of less than
one year. Investments are carried at cost which
approximates market. The Company's policy is to hold
investments until maturity. The Company's practice is to
invest cash with financial institutions that have acceptable
credit ratings.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Financial Statements and Financial Statement Schedule
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.
ITEM 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company's management, with the participation of the
Company's Chief Executive Officer and Chief Financial Officer,
has evaluated the effectiveness of the Company's disclosure
controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) as of the end of the period
covered by this report. Based on such evaluation, the
Company's Chief Executive Officer and Chief Financial Officer
have concluded that, as of the end of such period, the
Company's disclosure controls and procedures were effective as
of the end of the period covered by this report.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in the Company's internal
control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) during the
most recent fiscal quarter that have materially affected, or
are reasonably likely to materially affect, the Company's
internal control over financial reporting.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
The Company's management is responsible for
establishing and maintaining adequate internal control over
financial reporting as defined in Rules 13a-15(f) and
15d-15(f) under the exchange act.
Under the supervision and with the participation of the
Company's management, including our principal executive
officer and principal financial officer, the Company conducted
an evaluation of its internal control over financial reporting
based on criteria established in the framework in "Internal
Control-Integrated Framework" issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
Based on this evaluation, the Company's management concluded
and certifies that its internal control over financial
reporting was effective as of September 30, 2012.
This annual report does not include an attestation
report of our registered public accounting firm regarding
internal control over financial reporting. Our report
was not subject to attestation by our registered public
accounting firm pursuant to rules of the SEC that permit the
Company to provide only management's report in this annual
report.
ITEM 9B. OTHER INFORMATION
None.
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 12/1/12
|
|
Class
|
|
|
|
|
|
|
|
ROBERT R. ANDREWS
(a)(b)(c)(d)
Age 72
Director since 1992
|
|
Mr. Andrews is the Chairman of the Board and past
President of Morse Manufacturing Co., Inc., East
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. Mr. Andrews was
elected Chairman of the Board of Directors of Microwave
Filter Company, Inc. on November 17, 2004.
|
|
1,214
|
|
*
|
|
|
|
|
|
|
|
ANNE
TINDALL
(a)(b)
Age 59
Director since 2012
|
|
Ms. Tindall is the
founder and President of Employee Management Strategies,
Inc. in Fayetteville, New York which provides a variety
of comprehensive on and off-site professional and human
resource-related services to employers. Ms. Tindall is a
graduate of the State University College at Buffalo with
a Bachelor of Arts in Human Development - Family and
Community Relations, in addition to a number of human
resource-related courses and seminars.
|
|
0
|
|
|
|
|
|
|
|
|
|
SIDNEY CHONG
(a)(b)(c)
Age 71
Director since 1995
|
|
Mr. Chong was a
corporate accountant for Carrols Corp. in Syracuse prior
to his retirement in January 2011. Prior to joining
Carrols Corp., he was a Senior Accountant with Price
Waterhouse and Co. in New York City. Mr. Chong has a
Bachelor of Science degree in accounting from California
State University.
|
|
1,000
|
|
*
|
|
|
|
|
|
|
|
CARL F. FAHRENKRUG, PE
(a)
Age 70
Director since 1984
|
|
Mr. Fahrenkrug was appointed President and Chief
Executive Officer of MFC on October 7, 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.
|
|
72,298
|
|
2.8%
|
|
|
|
|
Common Shares
|
|
|
|
|
|
|
Actually or
|
|
Percent
|
|
|
|
|
Beneficially
|
|
of
|
Director
|
|
Principal occupation
|
|
Owned 12/1/12
|
|
Class
|
|
|
|
|
|
|
|
ROBERT
D. SHIROKI
(c)
Age 49
Director since 2012
|
|
Mr. Shiroki is a Certified Public Accountant in the
State of New York and the owner of Shiroki Associates
CPA's located in Fayetteville, New York, which
specializes in small businesses and startups. Prior to
joining Shiroki Associates, he was the controller for
Hart Lyman Companies of East Syracuse, New York. Mr.
Shiroki has a Bachelor of Science in Finance from SUNY
Brockport and a Bachelor of Science in Accounting from
Syracuse University.
|
|
88,482
|
|
3.4%
|
|
|
|
|
|
|
|
ROBERT D. ESSIG
(a)(d)
Age 67
Director since 2012
|
|
Mr. Essig is Of Counsel to the Law Firm of Costello,
Cooney & Fearon, PLLC in Syracuse, New York. His
primary areas of practice have been Commercial Law,
Commercial Real Estate, Environmental Law, Municipal Law
and Zoning Law. Mr. Essig graduated with honors from
Fordham University School of Law, J.D., in June of 1975.
Mr. Essig was admitted to the New York State Bar and the
Federal District Court (NDNY) in 1976. Mr. Essig is a
member of the New York State Bar Association, the
American Bar Association and the Onondaga County Bar
Association.
|
|
0
|
|
|
|
|
|
|
|
|
|
RICHARD
L.
JONES
Age 64
Director since 2004
|
|
Mr. Jones was appointed a Director of Microwave Filter
Company, Inc. on September 7, 2004. Mr. Jones has served
as a Vice President and the Chief Financial Officer of
Microwave Filter Company, Inc. since October 7, 1992. He
has a Bachelor of Science degree in accounting from
Syracuse University.
|
|
0
|
|
|
|
|
|
|
|
|
|
JOHN
J.
KENNEDY
(a)(b)(d)
Age 63
Director since 2009
|
|
Mr. Kennedy is the Senior Partner and Co-founder of
Hawthorne Consulting Group, LLC, a continuous
improvement consulting firm dedicated to the education
and training of business owners, managers and their
employees in the concepts of the Toyota Production
System. Prior to that, Mr. Kennedy was a senior
consultant with Seven Pines Consulting Group/Rutherford
Associates. He has also held various management
positions with Orion Bus Industries Ltd, General Motors
Corp. and the Miller Brewing Company. He holds an MBA
from Syracuse University and a BS degree from the
University of Pennsylvania.
|
|
1,000
|
|
*
|
|
|
|
|
Common Shares
|
|
|
|
|
|
|
Actually or
|
|
Percent
|
|
|
|
|
Beneficially
|
|
of
|
Director
|
|
Principal occupation
|
|
Owned 12/1/12
|
|
Class
|
|
|
|
|
|
|
|
FRANK
S. MARKOVICH
(c)(d)
Age 68
Director since 1992
|
|
Mr. Markovich is a consultant in the manufacturing
operations and training field. Prior to that he was the
Director of the Manufacturing Extension Partnership at
UNIPEG Binghamton. He held various high level positions
in operations, quality and product management in a 20
year career with BF Goodrich Aerospace, Simmonds
Precision Engine Systems of Norwich, New York. He
completed US Navy Electronics and Communications Schools
and received an MBA from Syracuse University.
|
|
4,340
|
|
*
|
(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 168,334 shares or approximately 6.5% of the
outstanding common shares of the Company.
The Board of Directors of Microwave Filter Company, Inc.
has determined that Mr. Chong and Mr. Shiroki,
both members of the Audit Committee, are "audit committee
financial experts" as defined by the SEC's regulations.
IDENTIFICATION OF EXECUTIVE OFFICERS
|
Name
|
Age
|
Position
|
|
|
|
|
|
Carl F. Fahrenkrug, Sr
|
70
|
President and Chief Executive Officer
|
|
|
|
|
|
Richard L. Jones
|
64
|
Vice President, Chief Financial
|
|
|
|
Officer and Corporate Secretary
|
|
|
|
|
|
Paul W. Mears
|
53
|
Vice President of Engineering
|
|
|
|
|
|
Carl F. Fahrenkrug, Jr
|
44
|
Vice President of Manufacturing and Systems
|
All of the officers serve at the pleasure of the Board of
Directors.
Carl F. Fahrenkrug, Sr 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.
Paul W. Mears began his association with MFC as a Co-op
while attending RIT in 1981. He became a full time
employee in 1984 when he began his duties as an Electrical
Engineer in Research and Development. In 1988 he became a
Senior Design and Quotation Engineer and in 1989, he was
promoted to Assistant Chief Engineer, Manager of Engineering of
the Filter Division and in April of 1998, was appointed Vice
President of Engineering.
Carl F, Fahrenkrug, Jr joined MFC in 1989 as an engineering
intern. In 1992, he became a full time employee when he
began his duties as an electrical engineer. On April 8,
2009, he was appointed Vice President.
The Company has adopted a Code of Ethics and Business Conduct
for all of our employees and directors, including our Chief
Executive Officer and Chief Financial Officer. A copy of
our Code of Ethics and Business Conduct is available free of
charge on our Company web site at www.microwavefilter.com.
ITEM 11. EXECUTIVE COMPENSATION.
Information required by this Item is contained in the
Company's proxy statement filed with respect to the 2013
Annual Meeting of Shareholders and is incorporated by
reference herein.
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's
contributions to the profit sharing plan were $0 and $50,000
for the years ended September 30, 2012 and 2011,
respectively.
MFC also has a voluntary 401-K plan.
Eligibility is the same as the Profit Sharing Plan.
Contributions to the 401-K plan were matched at a rate of
100% of an employee's first 6% of contributions during
fiscal 2012. The maximum corporate match was 6% of an
employee's compensation during fiscal 2012.
MFC's matching contributions to the 401-K plan for
the years ended September 30, 2012 and 2011 amounted to
$96,709 and $103,188, respectively.
COMPENSATION OF DIRECTORS
-----------------------------------------------
Non-officer directors currently receive fees of
$300.00 per board and committee meetings. MFC also
reimburses directors for reasonable expenses incurred in
attending meetings. The Chairman of the Board receives
$500.00 per board and committee meetings. Officer
members receive no compensation for their attendance at
meetings.
ITEM 12. SECURITIES OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
Information required by this Item is contained in
the Company's proxy statement filed with respect to the
2013 Annual Meeting of Shareholders and is incorporated by
reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.
None
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information required by this Item is contained in
the Company's proxy statement filed with respect to the
2013 Annual Meeting of Shareholders and is incorporated by
reference herein.
PART IV
ITEM 15. FINANCIAL STATEMENT SCHEDULES AND EXHIBITS.
(a) 1. and 2. Financial
Statements and Schedules:
Reference is made to the list of Financial Statements and
the Financial Statement Schedule submitted as a separate
section of this report.
(b) Exhibits:
Reference is made to
the List of Exhibits submitted as a separate
section of this report.
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 20, 2012
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| Robert R. Andrews
|
|S| Carl F. Fahrenkrug
|
-----------------------------
|
----------------------------
|
Robert R. Andrews
|
Carl F. Fahrenkrug
|
(Director)
|
(Director)
|
|
|S| Frank Markovich
|
|S| Richard L. Jones
|
--------------------------
|
--------------------------
|
Frank Markovich
|
Richard L. Jones
|
(Director)
|
(Director)
|
|
|S| Sidney Chong
|
----------------------
|
Sidney Chong
|
(Director)
|
Dated: December 20, 2012
ANNUAL
REPORT ON FORM 10-K
MICROWAVE FILTER COMPANY, INC.
AND SUBSIDIARIES
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
ITEM 8, ITEM 15(a)(1) and (2)
CONSOLIDATED FINANCIAL
STATEMENTS:
|
Page
|
|
Report of Independent Registered Public Accounting
Firm ..................................
|
29
|
Consolidated Balance Sheets as of September 30,
2012 and 2011 ........................
|
30
|
Consolidated Statements of Operations for the
Years
|
Ended September 30,
2012 and 2011
................................................................
|
31
|
Consolidated Statements of Stockholders' Equity
for the Years
|
Ended September 30,
2012 and 2011
................................................................
|
32
|
Consolidated Statements of Cash Flows for the
Years
|
Ended September 30,
2012 and 2011
................................................................
|
33
|
Notes to Consolidated Financial
Statements ..........................................................
|
34-41
|
|
|
|
|
|
|
|
All other schedules for which provision is made in
the applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable and therefore have been
omitted.
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Microwave Filter Company, Inc.
We have audited the accompanying consolidated balance sheets
of Microwave Filter Company, Inc. and Subsidiary as of
September 30, 2012 and 2011, and the related
statements of operations, stockholders' equity, and cash
flows for each of the years in the two-year period ended
September 30, 2012. Microwave Filter Company,
Inc.'s management is responsible for these consolidated
financial statements. Our responsibility is to express
an opinion on these consolidated financial statements based
on our audits.
We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. The company is not required to have, nor
were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included
consideration of internal control over financial reporting
as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the company's
internal control over financial reporting.
Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements,
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 consolidated financial statements
referred to above present fairly, in all material respects,
the financial position of Microwave Filter Company, Inc. as
of September 30, 2012 and 2011, and the results of its
operations and its cash flows for each of the years in the
two-year period ended September 30, 2012 in conformity with
accounting principles generally accepted in the United
States of America.
/s/ EFP Rotenberg, LLP
EFP Rotenberg, LLP
Rochester, New York
December 20, 2012
Microwave Filter Company and
Subsidiaries
|
Consolidated Balance Sheets
|
Assets
|
|
|
2012
|
|
|
|
2011
|
|
---------
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
|
1,023,017
|
|
$
|
|
1,258,885
|
|
Accounts
receivable-trade, net of allowance for
|
|
|
|
|
|
|
|
|
doubtful
accounts of $26,000 and $26,000
|
|
|
263,385
|
|
|
|
352,054
|
|
Federal and state
income tax recoverable
|
|
|
0
|
|
|
|
24,828
|
|
Inventories, net of
obsolete inventory reserve
|
|
|
|
|
|
|
|
|
of $408,340 and $392,703
|
|
|
529,075
|
|
|
|
567,261
|
|
Prepaid expenses and
other current assets
|
|
|
111,342
|
|
|
|
94,114
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,926,819
|
|
|
|
2,297,142
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
672,525
|
|
|
|
617,818
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
$
|
|
2,599,344
|
|
$
|
|
2,914,960
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
----------------------------------------------
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
|
92,325
|
|
$
|
|
195,535
|
|
Customer deposits
|
|
|
30,563
|
|
|
|
51,886
|
|
Accrued payroll and
related expenses
|
|
|
51,289
|
|
|
|
57,514
|
|
Accrued compensated
absences
|
|
|
172,198
|
|
|
|
250,443
|
|
Other current
liabilities
|
|
|
31,308
|
|
|
|
83,654
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
377,683
|
|
|
|
639,032
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
377,683
|
|
|
|
639,032
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
|
Common stock, $.10
par value. Authorized 5,000,000 shares
|
|
|
|
|
|
|
|
|
Issued
4,324,140 in 2012 and 2011, Outstanding
|
|
|
|
|
|
|
|
|
2,585,321
in 2012 and 2,586,227 in 2011
|
|
|
432,414
|
|
|
|
432,414
|
|
Additional paid-in
capital
|
|
|
3,248,706
|
|
|
|
3,248,706
|
|
Retained earnings
|
|
|
232,013
|
|
|
|
285,485
|
|
|
|
|
|
|
|
|
|
|
Common stock in
treasury, at cost, 1,738,819
|
|
|
|
|
|
|
|
|
shares in 2012 and
1,737,913 shares in 2011
|
|
(
|
1,691,472
|
)
|
|
(
|
1,690,677
|
)
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
2,221,661
|
|
|
|
2,275,928
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
$
|
|
2,599,344
|
|
$
|
|
2,914,960
|
|
The accompanying notes are an integral part of the
consolidated financial statements.
Microwave Filter Company and
Subsidiaries
|
Consolidated
Statements of Operations
|
|
|
For the Years Ended September 30
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
|
4,458,819
|
|
$
|
5,043,934
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
2,801,385
|
|
|
3,186,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
1,657,434
|
|
|
1,857,426
|
|
|
|
|
|
|
|
|
|
Selling, general
|
|
|
|
|
|
|
|
and administrative
expenses
|
|
|
1,648,388
|
|
|
1,650,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
9,046
|
|
|
207,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating Income
|
|
|
|
|
|
|
|
Interest
income
|
|
|
4,282
|
|
|
6,664
|
|
Miscellaneous
|
|
|
23,891
|
|
|
1,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
37,219
|
|
|
215,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit for income taxes
|
|
(
|
38,582
|
)
|
(
|
27,372
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
$
|
|
75,801
|
|
$
|
242,915
|
|
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
Basic and Diluted Earnings
|
|
|
|
|
|
|
|
Per Common Share
|
$
|
|
0.03
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
Shares used in computing net
|
|
|
|
|
|
|
|
earnings per common
share:
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
2,585,845
|
|
|
2,587,807
|
|
The accompanying notes are an integral part of the
consolidated financial statements.
Microwave Filter Company and
Subsidiaries
|
Consolidated
Statements of Stockholders' Equity
|
For the Years Ended September
30, 2012 and 2011
|
-----------------------------------------------------------------
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Treasury Stock
|
|
|
Stockholders'
|
|
|
Shares
|
|
Amt
|
|
|
Capital
|
|
|
|
Earnings
|
|
|
|
Shares
|
|
|
|
Amt
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
4,324,140
|
$
|
432,414
|
|
$
|
3,248,706
|
|
$
|
|
430,504
|
|
|
|
1,732,654
|
|
$
|
(
|
1,686,056
|
)
|
$
|
|
2,425,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
242,915
|
|
|
|
|
|
|
|
|
|
|
|
242,915
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,259
|
|
|
(
|
4,621
|
)
|
|
(
|
4,621
|
)
|
Cash dividend paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($.15) per share
|
|
|
|
|
|
|
|
|
|
(
|
387,934
|
)
|
|
|
|
|
|
|
|
|
|
(
|
387,934
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011
|
|
4,324,140
|
|
432,414
|
|
|
3,248,706
|
|
|
|
285,485
|
|
|
|
1,737,913
|
|
|
(
|
1,690,677
|
)
|
|
|
2,275,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
75,801
|
|
|
|
|
|
|
|
|
|
|
|
75,801
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
906
|
|
|
(
|
795
|
)
|
|
(
|
795
|
)
|
Cash dividend paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($.05) per share
|
|
|
|
|
|
|
|
|
|
(
|
129,273
|
)
|
|
|
|
|
|
|
|
|
|
(
|
129,273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
4,324,140
|
$
|
432,414
|
|
$
|
3,248,706
|
|
$
|
|
232,013
|
|
|
|
1,738,819
|
|
$
|
(
|
1,691,472
|
)
|
|
$
|
2,221,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the
consolidated financial statements.
Microwave Filter Company and
Subsidiaries
|
Consolidated
Statements of Cash Flows
|
Increase
(Decrease) in Cash and Cash Equivalents
|
-------------------------------------------------------------------
|
|
For
the Years Ended September 30
|
|
|
|
2012
|
|
|
|
2011
|
|
Cash flows from
operating activities:
|
|
Net
income
|
$
|
|
75,801
|
|
$
|
|
242,915
|
|
|
Adjustments to
reconcile net income to
|
net
cash provided by (used in) operating
|
activities:
|
Depreciation
|
|
|
157,691
|
|
|
|
107,902
|
|
Gain on sale of fixed assets
|
|
(
|
20,000
|
)
|
|
|
0
|
|
Provision for doubtful accounts
|
|
|
0
|
|
|
|
8,390
|
|
Inventory obsolescence provision
|
|
|
15,637
|
|
|
(
|
10,892
|
)
|
Changes in assets
and liabilities:
|
Accounts
receivable-trade
|
|
|
88,669
|
|
|
|
63,222
|
|
Federal
and state income tax recoverable
|
|
|
24,828
|
|
|
(
|
27,372
|
)
|
Inventories
|
|
|
22,549
|
|
|
(
|
20,365
|
)
|
Prepaid and other current assets
|
|
(
|
17,228
|
)
|
|
(
|
1,697
|
)
|
Accounts
payable and customer deposits
|
|
(
|
124,533
|
)
|
|
|
46,127
|
|
Accrued
payroll, compensated absences and
|
related
expenses
|
|
(
|
84,470
|
)
|
|
|
9,970
|
|
Other
current liabilities
|
|
(
|
52,346
|
)
|
|
|
47,823
|
|
|
Net
cash provided by
|
operating
activities
|
|
|
86,598
|
|
|
|
466,023
|
|
|
Cash flows from
investing activities:
|
Capital expenditures
|
|
(
|
212,398
|
)
|
|
(
|
281,302
|
)
|
Proceeds from sale of fixed assets
|
|
|
20,000
|
|
|
|
0
|
|
|
Net
cash used in
|
investing
activities
|
|
(
|
192,398
|
)
|
|
(
|
281,302
|
)
|
|
Cash flows from
financing activities:
|
Purchase
of treasury stock
|
|
(
|
795
|
)
|
|
(
|
4,621
|
)
|
Cash
dividend paid
|
|
(
|
129,273
|
)
|
|
(
|
387,934
|
)
|
|
Net
cash used in
|
financing
activities
|
|
(
|
130,068
|
)
|
|
(
|
392,555
|
)
|
|
Net
decrease in cash and
|
cash
equivalents
|
|
(
|
235,868
|
)
|
|
(
|
207,834
|
)
|
|
Cash and cash
equivalents at
|
beginning
of year
|
|
|
1,258,885
|
|
|
|
1,466,719
|
|
|
Cash and cash
equivalents at end of year
|
$
|
|
1,023,017
|
|
$
|
|
1,258,885
|
|
|
Supplemental
disclosures of cash flows:
|
Cash
paid during the year for :
|
Interest
|
$
|
|
0
|
|
$
|
|
0
|
|
Income
taxes
|
$
|
|
0
|
|
$
|
|
13,030
|
|
The accompanying notes are an integral part of the
consolidated financial statements.
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 one
industry. The Company extends credit to business
customers based upon ongoing credit evaluations.
Microwave Filter Company, Inc. (MFC) 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
communications and defense electronics. Niagara
Scientific, Inc. (NSI), a wholly owned subsidiary,
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. For the last three years, NSI's sales
have consisted of spare parts orders.
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) (dormant); located in Syracuse, New
York. All significant intercompany balances and
transactions have been eliminated in consolidation.
c. Revenue Recognition
The Company recognizes revenue at the time products
are shipped to customers and title and risk of loss have
passed to the customer. The Company is not required
to install any of its products. Payments received
from customers in advance of products shipped are recorded
as customer deposits until earned.
d. Cash and Cash Equivalents
The Company's financial instruments that are
exposed to concentrations of credit risk consist primarily
of cash and accounts receivable. The Company's cash
is held at federally insured institutions and balances may
periodically exceed insured limits. The Company has
not experienced any losses in such accounts and believes
it is not exposed to any significant credit risk with
respect to cash. The Company also routinely assesses
the financial strength of its customers and, as a
consequence, believes that its trade accounts receivable
credit risk exposure is limited.
e. Investments
Investments generally consist of commercial paper,
government backed obligations and other guaranteed
commercial debt that have an original maturity of more
than three months and a remaining maturity of less than
one year. Investments are carried at cost which
approximates market. The Company's policy is to hold
investments until maturity. The Company's practice
is to invest cash with financial institutions that have
acceptable credit ratings.
f. Trade Accounts Receivable and Allowance for
Doubtful Accounts
Trade accounts receivable are recorded at the
invoiced amount and do not bear interest. The
allowance for doubtful accounts is the Company's best
estimate of the amount of probable credit losses in the
Company's existing accounts receivable. The Company
reviews its allowance for doubtful accounts monthly.
Past due balances over 90 days are reviewed individually
for collectibility. Account balances are charged off
against the allowance after all means of collection have
been exhausted and the potential for recovery is
considered remote. The Company does not have any
off-balance-sheet credit exposure related to its
customers.
g. Inventories and Reserve for Obsolescence
Inventories are stated at the lower of cost
determined on the first-in, first-out method or market.
The Company records a reserve for obsolete or
excess inventory. The Company considers inventory
quantities greater than a one-year supply based on current
year activity as well as any additional specifically
identified inventory to be excess. The Company also
provides for the total value of inventories that are
determined to be obsolete based on criteria such as
customer demand and changing technologies.
h. Research and Development
Costs in connection with research and development,
which amount to $408,335 and $428,693 for the fiscal years
2012 and 2011, respectively, are charged to operations as
incurred.
i. 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. Buildings and building
improvements are depreciated over an estimated service
life of 20 to 30 years. Machinery and equipment are
depreciated over an estimated useful life of 3 to 10
years. Office equipment and fixtures are depreciated
over an estimated useful life of 3 to 10 years. 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.
j. Income Taxes
The Company accounts for income taxes under FASB
ASC 740-10 (Prior Authoritative Literature: Statement of
Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes). 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. The Company has
provided a full valuation allowance against its deferred
tax assets.
The Company adopted FASB ASC 740-10 (Prior
Authoritative Literature: FASB Interpretation No.
48, Accounting for Uncertainty in Income Taxes - An
Interpretation of FASB Statement No. 109 (FIN 48) as
of October 1, 2007. FASB ASC 740-10 clarifies the
accounting for uncertainty in income taxes recognized in
an entity's financial statements and prescribes a
recognition threshold and measurement attributes for
financial statement disclosure of tax position taken or
expected to be taken on a tax return. Additionally,
it provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods,
disclosure and transition. No adjustments were
required upon adoption.
K. Earnings Per Share
The Company presents basic earnings per share
("EPS"), computed based on the weighted average number of
common shares outstanding for the period, and when
applicable diluted EPS, which gives the effect to all
dilutive potential shares outstanding (i.e. options)
during the period after restatement for any stock
dividends. Income used in the EPS calculation is net
income for each year. There were no dilutive potential
shares outstanding for the years ended September 30, 2012
and 2011.
l. Fair Value of Financial Instruments
The carrying values of the Company cash and cash
equivalents, accounts receivable and accounts payable
approximate fair value because of the short maturity of
those instruments.
The Company currently does not trade in or utilize
derivative financial instruments.
m. Miscellaneous Non-operating Income
Miscellaneous non-operating income generally
consists of sales of scrap material, stock transfer fees,
the forfeiture of non-refundable deposits and other
incidental items.
n. 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.
o. Warranty
Costs
The Company established a warranty reserve which
provides for the estimated cost of product returns based
upon historical experience and any known conditions or
circumstances. Our warranty obligation is affected
by product that does not meet specifications and
performance requirements and any related costs of
addressing such matters. Warranty costs were
approximately $7,000 and $5,000 for the fiscal years ended
September 30, 2012 and 2011, respectively.
p. Impairment of Long-Lived Assets
The carrying values of long-lived assets other than
goodwill are generally evaluated for impairment only if
events or changes in facts and circumstances indicate that
carrying values may not be recoverable. Any
impairment determined would be recorded in the current
period and would be measured by comparing the fair value
of the related asset to its carrying value. Fair
value is generally determined by identifying estimated
undiscounted cash flows to be generated by those
assets. No impairments have been recorded for the
fiscal years ended September 30, 2012 and 2011.
q. New Accounting Pronouncements
None applicable.
2. INVENTORIES
Inventories net of provision for obsolescence consisted of
the following:
|
|
2012
|
|
|
2011
|
|
Raw materials and stock parts
|
$
|
455,000
|
|
$
|
499,622
|
Work-in-process
|
|
13,554
|
|
|
14,056
|
Finished goods
|
|
60,521
|
|
|
53,583
|
|
|
$
|
529,075
|
|
$
|
567,261
|
The Company's reserve for obsolescence equaled
$408,340 at September 30, 2012 and $392,703 at September
30, 2011.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
Land
|
$
|
143,000
|
|
$
|
143,000
|
Building and improvements
|
|
1,865,502
|
|
|
1,865,502
|
Machinery and equipment
|
|
3,407,157
|
|
|
3,295,490
|
Office equipment and fixtures
|
|
1,830,781
|
|
|
1,805,196
|
|
|
|
|
|
|
|
|
7,246,440
|
|
|
7,109,188
|
Less: Accumulated depreciation
|
|
6,573,915
|
|
|
6,491,370
|
|
|
|
|
|
|
Property, plant and equipment, net
|
$
|
672,525
|
|
$
|
617,818
|
|
|
|
|
|
|
Depreciation expense
|
$
|
157,691
|
|
$
|
107,902
|
4. CREDIT FACILITIES
The Company has unused aggregate lines of credit
totaling $750,000 collateralized by inventory, equipment
and accounts receivable. The variable interest rate is the
"prime rate" as published each business day in the "Money
Rates" column of the Wall Street Journal.
5. 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 determined by the Board of Directors and are made
from current or accumulated earnings, while contributions
to the 401-K plan were matched at a rate of 100% of an
employee's first 6% of contributions during fiscal
2012. The maximum corporate match was 6% of an
employee's compensation during fiscal 2012.
The Company's matching contributions to the 401-K
plan for the years ended September 30, 2012 and 2011 were
$96,709 and $103,188, respectively. Additionally,
the Company may make discretionary contributions to the
non-contributory profit sharing plan. These
contributions were $0 and $50,000 in 2012 and 2011,
respectively.
6. OBLIGATIONS UNDER OPERATING
LEASES
The Company leases equipment under operating lease
agreements expiring at various dates through September 30,
2014. Rental expense under these leases for the
years ended September 30, 2012 and 2011 amounted to $9,290
and $9,290, respectively.
Minimum rental commitments at September 30, 2012
for these leases are:
|
Year Ended
|
|
Lease
|
|
September 30,
|
|
Payments
|
|
----------------
|
|
------------
|
|
2013
|
$
|
9,290
|
|
2014
|
|
1,490
|
|
|
|
|
|
|
|
|
|
|
$
|
10,780
|
|
|
|
|
7. INCOME TAXES
The provision for income taxes consisted of the
following:
|
|
|
|
Year Ended September 30,
|
|
|
|
|
|
2012
|
|
|
|
|
2011
|
|
Currently payable:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
0
|
|
|
$
|
|
13,030
|
|
State
|
|
|
(
|
38,582
|
)
|
|
|
(
|
40,402
|
)
|
Deferred (credit)
|
|
|
|
0
|
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(
|
38,582
|
)
|
|
$
|
(
|
27,372
|
)
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes differs from the
amount that would result from applying the federal
statutory rate for the periods ended September 30, 2012
and 2011 as follows:
|
|
|
Year ended September 30,
|
|
|
|
2012
|
|
2011
|
|
|
|
Amount
|
|
|
%
|
|
|
|
Amount
|
|
|
%
|
|
Statutory tax rate
|
$
|
|
12,654
|
|
|
34.0
|
%
|
$
|
|
73,285
|
|
|
34.0
|
%
|
State income tax net of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal benefit
|
|
(
|
25,464
|
)
|
(
|
68.4
|
%)
|
|
(
|
26,665
|
)
|
(
|
12.4
|
%)
|
Research and experimentation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
tax credits
|
|
(
|
26,784
|
)
|
(
|
72.0
|
%)
|
|
(
|
27,865
|
)
|
(
|
12.9
|
%)
|
Federal graduated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
rate
differential
|
|
|
0
|
|
|
0.0
|
%
|
|
(
|
10,152
|
)
|
(
|
4.7
|
%)
|
Valuation allowance change
|
|
|
685
|
|
|
1.8
|
%
|
|
(
|
114,754
|
)
|
(
|
53.2
|
%)
|
NOL true up
|
|
|
0
|
|
|
0.0
|
%
|
|
|
78,577
|
|
|
36.5
|
%
|
Permanent differences
|
|
|
327
|
|
|
0.9
|
%
|
|
|
202
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(
|
38,582
|
)
|
(
|
103.7
|
%)
|
$
|
(
|
27,372
|
)
|
(
|
12.7
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The temporary differences which give
rise to deferred tax assets and (liabilities) at September
30 are as follows:
|
|
|
2012
|
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
Inventory
|
$
|
|
144,338
|
|
$
|
|
139,354
|
|
Accrued warranty
|
|
|
4,250
|
|
|
|
4,250
|
|
Accrued vacation
|
|
|
71,683
|
|
|
|
98,286
|
|
Accounts receivable
|
|
|
8,895
|
|
|
|
8,895
|
|
Valuation allowance
|
|
(
|
229,166
|
)
|
|
(
|
250,785
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
|
|
|
|
|
|
(liabilities) - current
|
$
|
|
0
|
|
$
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated depreciation
|
$
|
(
|
55,691
|
)
|
$
|
(
|
32,634
|
)
|
Research and experimentation
|
|
|
|
|
|
|
|
|
tax credit carry forward
|
|
|
224,187
|
|
|
|
197,403
|
|
AMT credit carry forward
|
|
|
39,399
|
|
|
|
39,399
|
|
NOL carry forward
|
|
|
18,577
|
|
|
|
0
|
|
Valuation allowance
|
|
(
|
226,472
|
)
|
|
(
|
204,168
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
|
|
|
|
|
|
(liabilities) – noncurrent
|
$
|
|
0
|
|
$
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
$
|
|
0
|
|
$
|
|
0
|
|
As required by FASB ASC 740 (Prior Authoritative
Literature: SFAS 109, Accounting for Income Taxes) the
Company has evaluated the positive and negative evidence
bearing upon the realization of its deferred tax
assets. The Company has determined that, at this
time, it is more likely than not that the Company will not
realize all of the benefits of federal and state deferred
tax assets, and, as a result, a valuation allowance was
established. The research and experimentation tax
credit carry forwards and NOL carry forwards expire in
2031. At September 30, 2012, the Company's federal
AMT credit can be carried forward indefinitely. The
Company is currently open to audit under the statute of
limitations by the Internal Revenue Service for the fiscal
years September 30, 2010 through September 30, 2012.
8. INDUSTRY SEGMENT DATA
The Company's primary business segment involves the
operations of Microwave Filter Company, Inc. (MFC)
which 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.
9. SIGNIFICANT CUSTOMERS
Sales to one customer represented approximately 21%
of total sales during fiscal 2012 compared to
approximately 18% of total sales for the fiscal year ended
September 30, 2011.
10. LEGAL MATTERS
The State of New York Workers' Compensation Board
has commenced an action against Microwave Filter Company,
Inc. to recover for an underfunded self insured
program that Microwave Filter Company, Inc.
participated in. Due to the relatively short period
of time Microwave Filter Company, Inc. participated
in the program and the limited amount of potential
exposure, we do not expect the resolution of this action
will have a material adverse effect on our financial
condition, results of operations or cash flows.
The Company has accrued $12,000 for this
action in other current liabilities.
|
EXHIBIT INDEX
|
|
|
|
|
Page
|
|
|
|
|
|
Exhibit No.
|
Description
|
Number
|
|
|
|
|
|
3.1
|
"MFC Certificate of Corporation, as amended."
|
*
|
|
|
|
|
|
3.2
|
MFC Amended and Restated Bylaws.
|
*
|
|
|
|
|
|
10.1
|
"Bond Purchase Agreement dated as of February
22,1984"
|
*
|
|
|
"among MFC, Onondaga County Industrial
Development Agency"
|
|
|
|
"(""OCIDA"") and Key Bank of Central New York
(""Bondholder"")."
|
|
|
|
|
|
|
10.2
|
"Lease Agreement dated as of February 22, 1984
between MFC and OCIDA."
|
*
|
|
|
|
|
|
10.3
|
"Mortgage and Security Agreement dated as of
February 22, 1984 from"
|
*
|
|
|
MFC and OCIDA to the Bondholder.
|
|
|
|
|
|
|
10.4
|
"Guaranty Agreement dated as of February 22,
1984 from MFC to OCIDA"
|
*
|
|
|
and the Bondholder.
|
|
|
|
|
|
|
31.1
|
Section 13a-14(a)/15d-14(a) Certification of
Carl F. Fahrenkrug
|
|
|
|
|
|
|
31.2
|
Section 13a-14(a)/15d-14(a) Certification of
Richard L. Jones
|
|
|
|
|
|
|
32.1
|
Section 1350 Certification of Carl F. Fahrenkrug
|
|
|
|
|
|
|
32.2
|
Section 1350 Certification of Richard L. Jones
|
|
* Previously filed
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