Company Quick10K Filing
Microwave Filter
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 3 $1
10-Q 2019-08-13 Quarter: 2019-06-30
10-Q 2019-05-13 Quarter: 2019-03-31
10-Q 2019-02-13 Quarter: 2018-12-31
10-K 2018-12-07 Annual: 2018-09-30
10-Q 2018-08-13 Quarter: 2018-06-30
10-Q 2018-05-11 Quarter: 2018-03-31
10-Q 2018-02-13 Quarter: 2017-12-31
10-K 2017-12-08 Annual: 2017-09-30
10-Q 2017-08-11 Quarter: 2017-06-30
10-Q 2017-05-12 Quarter: 2017-03-31
10-Q 2017-02-13 Quarter: 2016-12-31
10-K 2016-12-09 Annual: 2016-09-30
10-Q 2016-08-12 Quarter: 2016-06-30
10-Q 2016-05-13 Quarter: 2016-03-31
10-Q 2016-02-12 Quarter: 2015-12-31
10-K 2015-12-14 Annual: 2015-09-30
10-Q 2015-08-13 Quarter: 2015-06-30
10-Q 2015-05-13 Quarter: 2015-03-31
10-Q 2015-02-13 Quarter: 2014-12-31
10-K 2014-12-18 Annual: 2014-09-30
10-Q 2014-08-12 Quarter: 2014-06-30
10-Q 2014-05-13 Quarter: 2014-03-31
10-Q 2014-02-13 Quarter: 2013-12-31
10-K 2013-12-19 Annual: 2013-09-30
10-Q 2013-08-13 Quarter: 2013-06-30
10-Q 2013-05-14 Quarter: 2013-03-31
10-Q 2013-02-14 Quarter: 2012-12-31
10-K 2012-12-20 Annual: 2012-09-30
10-Q 2012-08-08 Quarter: 2012-06-30
10-Q 2012-05-11 Quarter: 2012-03-31
10-Q 2012-02-13 Quarter: 2011-12-31
10-K 2011-12-21 Annual: 2011-09-30
10-Q 2011-08-12 Quarter: 2011-06-30
10-Q 2011-05-13 Quarter: 2011-03-31
10-Q 2011-02-11 Quarter: 2010-12-31
10-K 2010-12-22 Annual: 2010-09-30
10-Q 2010-08-12 Quarter: 2010-06-30
10-Q 2010-05-13 Quarter: 2010-03-31
10-Q 2010-02-11 Quarter: 2009-12-31
8-K 2019-05-02
8-K 2019-02-06 Shareholder Vote
8-K 2018-02-13
8-K 2018-01-31 Shareholder Vote
8-K 2018-01-25
MFCO 2019-06-30
Note 1. Summary of Significant Accounting Policies
Note 2. Industry Segment Data
Note 3. Inventories
Note 4. Income Taxes
Note 5. Legal Matters
Note 6. Fair Value of Financial Instruments
Note 7. Significant Customers
Note 8. Notes Payable
Note 9. Earnings per Share
Note 10. Recent Accounting Pronouncements
Note 11. Revenue Recognition
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Rzisk Factors
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ex31-1.htm
EX-31.2 ex31-2.htm
EX-32.1 ex32-1.htm

Microwave Filter Earnings 2019-06-30

MFCO 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
NTRR 2 0 1 0 0 -1 -0 2 -8.8 -4,310%
RSRT 1 0 0 0 0 -1 -1 1 -1.1 -581%
FASV 1 0 1 0 0 -1 -1 1 -2.0 -299%
ACUR 1 2 6 0 0 -3 -3 6 0% -2.0 -146%
IAIC 1 2 1 9 2 -0 -0 -0 20% 0.2 -17%
GRVE 1 0 1 0 0 0 0 1 20.4 16%
MFCO 1 2 1 4 2 0 0 1 42% 8.3 8%
OZSC 1 0 4 0 0 -6 -4 3 49% -0.8 -1,431%
DRNG 1 1 2 0 0 -2 -2 2 -1.0 -407%
GFMH 1 0 0 0 0 -0 -0 1 126% -52.4 -4,949%

10-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

FORM 10-Q

 

 

 

Quarterly Report Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934.

 

For the quarterly period ended June 30, 2019

 

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)

 

(315) 438-4700

Registrant’s telephone number, including area code

 

 

 

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 (Section 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 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]

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Common Stock, $.10 Par Value - 2,579,238 shares as of August 1, 2019.

 

 

 

   
 

 

MICROWAVE FILTER COMPANY, INC.

Form 10-Q

 

Index

 

Item   Page
     
Part I Financial Information    
     
Item 1. Financial Statements   3
     
Condensed Consolidated Balance Sheets (unaudited)   3
     
Condensed Consolidated Statements of Operations (unaudited)   4
     
Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited)   5
     
Condensed Consolidated Statements of Cash Flows (unaudited)   6
     
Notes to Condensed Consolidated Financial Statements (unaudited)   7-11
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   12-17
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk   18
     
Item 4. Controls and Procedures   18
     
Part II Other Information   19
     
Signatures   20

 

 2 
 

 

Microwave Filter Company and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

 

   June 30, 2019   September 30, 2018 
Assets        
Current Assets:          
Cash and cash equivalents  $537,967   $674,045 
           
Accounts receivable-trade, net of allowance for doubtful accounts of $4,000 and $4,000   391,186    402,760 
Inventories, net   496,027    377,603 
Prepaid expenses and other current assets   33,876    54,416 
Total current assets   1,459,056    1,508,824 
           
Property, plant and equipment, net   283,561    261,474 
Total assets  $1,742,617   $1,770,298 
           
Liabilities and Stockholders’ Equity          
Current liabilities:          
Accounts payable  $107,448   $116,938 
Customer deposits   52,373    35,278 
Accrued payroll and related expenses   43,960    38,711 
Accrued compensated absences   87,075    90,449 
Notes payable - short term   52,846    51,101 
Other current liabilities   17,498    28,838 
Total current liabilities   361,200    361,315 
           
Notes payable - long term   179,198    219,071 
Total other liabilities   179,198    219,071 
Total liabilities   540,398    580,386 
           
Stockholders’ Equity:          
Common stock, $.10 par value Authorized 5,000,000 shares, Issued 4,324,140 shares in 2019 and 2018, Outstanding 2,579,238 shares in 2019 and 2,579,680 in 2018   432,414    432,414 
Additional paid-in capital   3,248,706    3,248,706 
Accumulated deficit   (783,911)   (796,444)
Common stock in treasury, at cost 1,744,902 shares in 2019 and 1,744,460 shares in 2018   (1,694,990)   (1,694,764)
Total stockholders’ equity   1,202,219    1,189,912 
Total liabilities and stockholders’ equity  $1,742,617   $1,770,298 

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 

 3 
 

 

Microwave Filter Company and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

 

   Three months ended   Nine months ended 
   June 30,   June 30, 
   2019   2018   2019   2018 
                 
Net sales  $841,310   $802,140   $2,746,029   $2,323,571 
                     
Cost of goods sold   509,436    475,250    1,619,110    1,446,505 
                     
Gross profit   331,874    326,890    1,126,919    877,066 
                     
Selling, general and administrative expenses   344,736    345,188    1,113,767    1,005,301 
                     
Income (loss) from operations   (12,862)   (18,298)   13,152    (128,235)
                     
Other income (expense), net   389    (2,665)   (569)   (6,461)
                     
Income (loss) before income taxes   (12,473)   (20,963)   12,583    (134,696)
                     
Provision for income taxes   -    -    50    50 
                     
Net income (loss) income  $(12,473)  $(20,963)  $12,533   $(134,746)
                     
Per share data:                    
Basic and diluted earnings (loss) per common share  $0.00   $(0.01)  $0.00   $(0.05)
                     
Shares used in computing net income (loss) per common share:                    
Basic and diluted   2,579,238    2,579,680    2,579,451    2,579,682 

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 

 4 
 

 

Microwave Filter Company and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the Nine Months Ended June 30, 2019

(Unaudited)

 

       Additional           Total 
   Common   Paid in   Accumulated   Treasury   Stockholders’ 
   Stock   Capital   Deficit   Stock   Equity 
                     
September 30, 2017  $432,414   $3,248,706   $(780,385)  $(1,694,761)  $1,205,974 
Net loss             (40,807)        (40,807)
                          
December 31, 2017   432,414    3,248,706    (821,192)   (1,694,761)   1,165,167 
Net loss             (72,976)        (72,976)
Purchase of treasury stock                  (3)   (3)
March 31, 2018   432,414    3,248,706    (894,168)   (1,694,764)   1,092,188 
Net loss             (20,963)        (20,963)
                          
June 30, 2018  $432,414   $3,248,706   $(915,131)  $(1,694,764)  $1,071,225 

 

       Additional           Total 
   Common   Paid in   Accumulated   Treasury   Stockholders’ 
   Stock   Capital   Deficit   Stock   Equity 
                     
September 30, 2018  $432,414   $3,248,706   $(796,444)  $(1,694,764)  $1,189,912 
Net loss             (60,224)        (60,224)
                          
December 31, 2018   432,414    3,248,706    (856,668)   (1,694,764)   1,129,688 
Net income             85,230         85,230 
Purchase of treasury stock                  (226)   (226)
March 31, 2019   432,414    3,248,706    (771,438)   (1,694,990)   1,214,692 
Net loss             (12,473)        (12,473)
                          
June 30, 2019  $432,414   $3,248,706   $(783,911)  $(1,694,990)  $1,202,219 

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 

 5 
 

 

Microwave Filter Company and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

   Nine months ended 
   June 30, 
   2019   2018 
Cash flows from operating activities:          
Net income (loss)  $12,533   $(134,746)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:          
Depreciation   39,233    54,375 
Change in operating assets and liabilities:          
Accounts receivable-trade   11,574    40,826 
Inventories   (118,424)   35,134 
Prepaid expenses and other assets   20,540    (4,918)
Accounts payable and customer deposits   7,605    (59,037)
Accrued payroll and related expenses and compensated absences   1,875    (2,843)
Other current liabilities   (11,340)   (2,890)
Net cash used in operating activities   (36,404)   (74,099)
           
Cash flows from investing activities:          
Property, plant and equipment purchased   (61,320)   (7,348)
Net cash used in investing activities   (61,320)   (7,348)
           
Cash flows from financing activities:          
Repayment of note payable   (38,128)   (36,436)
Purchase of treasury stock   (226)   (3)
Net cash used in financing activities   (38,354)   (36,439)
           
Decrease in cash and cash equivalents   (136,078)   (117,886)
           
Cash and cash equivalents at beginning of period   674,045    667,940 
           
Cash and cash equivalents at end of period  $537,967   $550,054 
           
Supplemental Schedule of Cash Flow Information:          
Interest paid  $8,645   $10,337 
Income taxes paid  $50   $50 

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 

 6 
 

 

MICROWAVE FILTER COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

JUNE 30, 2019

 

Note 1. Summary of Significant Accounting Policies

 

In these notes, the terms “MFC” and “Company” mean Microwave Filter Company, Inc. and its subsidiary companies.

 

The following condensed balance sheet as of September 30, 2018, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the company believes that the disclosures made are adequate to make the information not misleading. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The operating results for the nine month period ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ended September 30, 2019. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Company’s latest shareholders’ annual report (Form 10-K).

 

Note 2. Industry Segment Data

 

The Company’s primary business segment involves the operations of Microwave Filter Company, Inc. 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. Markets served include cable television, television and radio broadcast, satellite broadcast, mobile radio, commercial communications and defense electronics.

 

Note 3. Inventories

 

Inventories are stated at the lower of cost determined on the first-in, first-out method or net realizable value.

 

Net realizable value is determined as the estimated selling price in the normal course of business minus the cost of completion, disposal and transportation.

 

Inventories net of the reserve for obsolescence consisted of the following:

 

   June 30, 2019   September 30, 2018 
         
Raw materials and stock parts  $403,659   $306,658 
Work-in-process   10,696    37,062 
Finished goods   81,672    33,883 
           
   $496,027   $377,603 

 

 7 
 

 

The Company’s reserve for obsolescence equaled $463,286 at June 30, 2019 and September 30, 2018. The Company provides for a valuation reserve for certain inventory that is deemed to be obsolete, of excess quantity or otherwise impaired.

 

Note 4. Income Taxes

 

The Company accounts for income taxes under FASB ASC 740-10. 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 net deferred tax assets.

 

The Company follows FASB ASC 740-10, which 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. The Company will include interest on income tax liabilities in interest expense and penalties in operations if such amounts arise. The Company determined it has no uncertain tax positions and therefore no amounts are recorded. There is no provision for Federal income taxes for the three and nine months ended June 30, 2019 and 2018 as net operating loss carryforwards were used to reduce taxable income tax to zero.

 

Note 5. Legal Matters

 

None.

 

Note 6. Fair Value of Financial Instruments

 

The carrying value of the Company’s cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short maturity of those instruments. The carrying value of the Company’s note payable approximates is fair value.

 

The Company currently does not trade in or utilize derivative financial instruments.

 

Note 7. Significant Customers

 

Net sales to two significant customers represented 54.0% of the Company’s total sales for the nine months ended June 30, 2019 and net sales to two significant customer represented 42.1% of the Company’s total sales for the nine months ended June 30, 2018. A loss of one of these customers or programs related to these customers could significantly impact the Company.

 

 8 
 

 

Note 8. Notes Payable

 

On July 2, 2013, Microwave Filter Company, Inc. (the “Company”) entered into a Ten Year Term Loan with KeyBank National Association in the amount of Five Hundred Thousand and No/100 Dollars ($500,000.00). The amount of all advances outstanding together with accrued interest thereon shall be due and payable on July 2, 2023 (“Maturity”). The Company shall pay interest on the outstanding principal balance of this Note at the rate per annum equal to 4.5%. The net proceeds from the Term Loan will be available to provide working capital as needed. The total amount outstanding as of June 30, 2019 and September 30, 2018 was $232,044 and $270,172, respectively. Interest accrued as of June 30, 2019 and September 30, 2018 was $812 and $946, respectively.

 

The Company has secured this Note by: (a) a Mortgage, Assignment of Rents, Security Agreement and Fixture Filing which creates a 1st lien on real property situated in the Town of Dewitt, County of Onondaga, and State of New York and known as 6743 Kinne Street, East Syracuse, New York; (b) a General Assignment of Rents and Leases; (c) an Environmental Compliance and Indemnification; and (d) such other security as may now or hereafter be given to Lender as collateral for the loan.

 

Note 9. 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. There were no dividends declared during the quarters ended June 30, 2019 and 2018. Income (loss) used in the EPS calculation is net income (loss) for each period. There were no dilutive potential shares outstanding for the periods ended June 30, 2019 and 2018.

 

Note 10. Recent Accounting Pronouncements

 

In February 2016, the FASB issued FASB ASU No. 2016-02, Leases (Topic 842). The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. For operating leases, a lessee is required to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Earlier application is permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently evaluating the effect that the adoption of this ASU will have on its financial statements.

 

 9 
 

 

Note 11. Revenue Recognition

 

Revenue Recognition

 

Effective October 1, 2018, the Company adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), using the modified retrospective method. This update outlined a comprehensive new revenue recognition model designed to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard also requires additional quantitative and qualitative disclosures, as explained below. The adoption allows companies to apply the new revenue standard to reporting periods beginning in the year the standard is first implemented, while prior periods continue to be reported in accordance with previous accounting guidance. Since the adoption of Accounting Standards Codification (“ASC”) 606 did not have a significant impact on the recognition of revenue, the Company did not have an opening retained earnings adjustment or an effect on prior reported periods.

 

Pursuant to Topic 606, revenues are recognized upon the application of the following steps:

 

Identification of the contract, or contracts, with a customer;
   
Identification of the performance obligations in the contract;
   
Determination of the transaction price;
   
Allocation of the transaction price to the performance obligations in the contract; and
   
Recognition of revenues when, or as, the contractual performance obligations are satisfied.

 

The Company accounts for a contract with a client when it has written approval, the contract (or customer sales order) is committed, the rights of the parties, including payment terms, are identified, the contract has commercial substance and consideration is probable of collection.

 

The Company allocates the transaction price to each performance obligation on a standalone selling price basis, as agreed-upon between the customer and the Company in the related customer sales order.

 

Revenue is recognized when the performance obligation has been satisfied: at the time products are shipped and title and risk of loss have passed to the customer, 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 condensed consolidated balance sheet.

 

Product Warranty

 

The Company has established a warranty reserve which provides for the estimated cost of product returns based upon historical experience and any known conditions or circumstances. No revenues are recognized in connection with the performance of the warranty repair or fulfillment function. The warranty obligation is affected by product that does not meet specifications and performance requirements and any related costs of addressing such matters. Products must be returned within one year of the date of purchase. The warranty liability was insignificant at June 30, 2019 and September 30, 2018.

 

 10 
 

 

Disaggregation of Revenue

 

The following tables provide details of revenue by major products group:

 

Product group  Fiscal 2019   Fiscal 2018 
Microwave Filter (MFC):          
RF/Microwave  $1,115,731   $950,099 
Satellite   632,505    877,520 
Cable TV   361,551    246,854 
Broadcast TV   636,158    244,261 
Niagara Scientific (NSI):   84    4,837 
Total  $2,746,029   $2,323,571 
           
Sales backlog at June 30  $741,835   $1,193,829 

 

 11 
 

 

MICROWAVE FILTER COMPANY, INC.

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Business Overview

 

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. 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.

 

Critical Accounting Policies

 

The Company’s condensed consolidated financial statements are based on the application of United States generally accepted accounting principles (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, warranty reserves and taxes. Note 1 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018 describes the significant accounting policies used in preparation of the condensed consolidated financial statements. The most significant areas involving management judgments and estimates are described below and are considered by management to be critical to understanding the financial condition and results of operations of the Company.

 

Effective October 1, 2018, the Company adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), using the modified retrospective method. This update outlined a comprehensive new revenue recognition model designed to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In general, 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 condensed consolidated balance sheet. See Note 11 to the condensed consolidated financial statements.

 

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 stated at the lower of cost determined on the first-in, first-out method or net realizable value. Net realizable value is determined as the estimated selling price in the normal course of business minus the cost of completion, disposal and transportation. 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.

 

 12 
 

 

The Company accounts for income taxes under FASB ASC 740-10. 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 net deferred tax assets.

 

RESULTS OF OPERATIONS

 

THREE MONTHS ENDED JUNE 30, 2019 vs. THREE MONTHS ENDED JUNE 30, 2018

 

The following table sets forth the Company’s net sales by major product group for the three months ended June 30, 2019 and 2018.

 

Product group  Fiscal 2019   Fiscal 2018 
Microwave Filter (MFC):          
RF/Microwave  $323,070   $413,611 
Satellite   210,071    204,474 
Cable TV   134,314    101,467 
Broadcast TV   173,855    82,588 
Niagara Scientific (NSI):   0    0 
Total  $841,310   $802,140 
           
Sales backlog at June 30  $741,835   $1,193,829 

 

Net sales for the three months ended June 30, 2019 equaled $841,310, an increase of $39,170 or 4.9%, when compared to net sales of $802,140 for the three months ended June 30, 2018.

 

MFC’s RF/Microwave product sales decreased $90,541 or 21.9% to $323,070 for the three months ended June 30, 2019 when compared to RF/Microwave product sales of $413,611 during the same period last year. The Company’s RF/Microwave products are sold primarily to Original Equipment Manufacturers that serve the mobile radio, commercial communications and defense electronics markets. Sales to one OEM customer decreased $51,225 to $272,500 for the three months ended June 30, 2019, compared to sales of $323,725 for the three months ended June 30, 2018. These sales are in connection with a multiyear program in which the Company is a subcontractor. 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. Over the last year, MFC, in conjunction with various OEM’s, has developed and supplied prototypes as well as small production runs in support of new programs being introduced to the marketplace. It is our belief that a continuation of this effort will help increase sales as well as reinforcing MFC’s position as a quality manufacturer of RF filters and assemblies.

 

MFC’s Satellite product sales increased $5,597 or 2.7% to $210,071 for the three months ended June 30, 2019 when compared to Satellite product sales of $204,474 during the same period last year.

 

 13 
 

 

MFC’s Cable TV product sales increased $32,847 or 32.4% to $134,314 for the three months ended June 30, 2019 when compared to Cable TV product sales of $101,467 during the same period last year. The increase can primarily be attributed to sales to one customer. Management continues to project flat or a decrease in demand for standard 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 are 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.

 

MFC’s Broadcast TV/Wireless Cable product sales increased $91,267 to $173,855 for the three months ended June 30, 2019 when compared to sales of $82,588 during the same period last year. The increase can primarily be attributed to sales to one customer.

 

MFC’s sales order backlog equaled $741,835 at June 30, 2019 compared to sales order backlog of $1,193,829 at June 30, 2018. 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. 96.7% of the total sales order backlog at June 30, 2019 is scheduled to ship by September 30, 2019.

 

Gross profit for the three months ended June 30, 2019 equaled $331,874, an increase of $4,984 or 1.5%, when compared to gross profit of $326,890 for the three months ended June 30, 2019. The increase can primarily be attributed to the increase in sales. As a percentage of sales, gross profit equaled 39.4% for the three months ended June 30, 2019 compared to 40.8% for the three months ended June 30, 2018.

 

Selling, general and administrative (SGA) expenses for the three months ended June 30, 2019 equaled $344,736, a decrease of $452 or 0.1%, when compared to SGA expenses of $345,188 for the three months ended June 30, 2018. As a percentage of sales, SGA expenses decreased to 41.0% for the three months ended June 30, 2019 when compared to 43.0% for the three months ended June 30, 2018 primarily due to the higher sales volume this year providing a higher base to absorb expenses.

 

The Company recorded a loss from operations of $12,682 for the three months ended June 30, 2019 compared to a loss from operations of $18,298 for the three months ended June 30, 2018. The improvement in operating income can primarily be attributed to the higher sales volume this year when compared to the same period last year.

 

Other income (expense) was income of $389 for the three months ended June 30, 2019 compared to expense of $2,665 for the three months ended June 30, 2018 primarily due to interest expense of $2,722 offset by interest income of $2,416 and miscellaneous non-operating income of $695 for the three months ended June 30, 2019 and interest expense of $3,266 offset by interest income of $248 and miscellaneous non-operating income of $353 for the three months ended June 30, 2018. Other income generally consists of sales of scrap material, the forfeiture of non-refundable deposits and other incidental items.

 

The provision for income taxes equaled $0 for both the three months ended June 30, 2019 and 2018. 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, 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. See notes 1 and 4.

 

 14 
 

 

NINE MONTHS ENDED JUNE 30, 2019 vs. NINE MONTHS ENDED JUNE 30, 2018

 

The following table sets forth the Company’s net sales by major product group for the nine months ended June 30, 2019 and 2018.

 

Product group  Fiscal 2019   Fiscal 2018 
Microwave Filter (MFC):          
RF/Microwave  $1,115,731   $950,099 
Satellite   632,505    877,520 
Cable TV   361,551    246,854 
Broadcast TV   636,158    244,261 
Niagara Scientific (NSI):   84    4,837 
Total  $2,746,029   $2,323,571 
           
Sales backlog at June 30  $741,835   $1,193,829 

 

Net sales for the nine months ended June 30, 2019 equaled $2,746,029, an increase of $422,458 or 18.2%, when compared to net sales of $2,323,571 for the nine months ended June 30, 2018.

 

MFC’s RF/Microwave product sales increased $165,632 or 17.4% to $1,115,731 for the nine months ended June 30, 2019 when compared to RF/Microwave product sales of $950,099 during the same period last year. MFC’s RF/Microwave products are sold primarily to OEMs that serve the mobile radio, commercial communications and defense electronics markets. Sales to one OEM customer increased $221,075 to $952,525 for the nine months ended June 30, 2019 compared to sales of $731,450 for the nine months ended June 30, 2018. These sales are in connection with a multiyear program in which the Company is a subcontractor. 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. Over the last year, MFC, in conjunction with various OEM’s, has developed and supplied prototypes as well as small production runs in support of new programs being introduced to the marketplace. It is our belief that a continuation of this effort will help increase sales as well as reinforcing MFC’s position as a quality manufacturer of RF filters and assemblies.

 

MFC’s Satellite product sales decreased $245,015 or 27.9% to $632,505 for the nine months ended June 30, 2019 when compared to satellite product sales of $877,520 during the same period last year. The decrease in sales can primarily be attributed to a decrease in sales to one customer.

 

MFC’s Cable TV product sales increased $114,697 or 46.5% to $361,551 for the nine months ended June 30, 2019 when compared to Cable TV product sales of $246,854 during the same period last year. The increase can primarily be attributed to sales to one customer. Management continues to project flat or a decrease in demand for standard 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 are 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.

 

MFC’s Broadcast TV/Wireless Cable product sales increased $391,897 to $636,158 for the nine months ended June 30, 2019 when compared to sales of $244,261 during the same period last year. The increase in sales can primarily be attributed to sales to one customer.

 

 15 
 

 

MFC’s sales order backlog equaled $741,835 at June 30, 2019 compared to sales order backlog of $1,193,829 at June 30, 2018. 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. 96.7% of the total sales order backlog at June 30, 2019 is scheduled to ship by September 30, 2019.

 

Gross profit for the nine months ended June 30, 2019 equaled $1,126,919, an increase of $249,853 or 28.5%, when compared to gross profit of $877,066 for the nine months ended June 30, 2018. The increase can primarily be attributed to the increase in sales. As a percentage of sales, gross profit equaled 41.0% for the nine months ended June 30, 2019 compared to 37.7% for the nine months ended June 30, 2018. The increase in gross profit as a percentage of sales can primarily be attributed the higher sales volume providing a higher base to absorb overhead expenses.

 

SG&A expenses for the nine months ended June 30, 2019 equaled $1,113,767, an increase of $108,466, when compared to SG&A expenses of $1,005,301 for the nine months ended June 30, 2018. The increase can primarily be attributed to higher payroll and payroll related expenses due primarily to the hiring of two sales professionals. As a percentage of sales, SGA expenses decreased to 40.6% for the nine months ended June 30, 2019 compared to 43.3% for the nine months ended June 30, 2018 due primarily to the higher sales volume this year when compared to the same period last year.

 

The Company recorded income from operations of $13,152 for the nine months ended June 30, 2019 compared to a loss from operations of $128,235 for the nine months ended June 30, 2018. The improvement can primarily be attributed to the higher sales volume this year when compared to last year.

 

Other expense was $569 for the nine months ended June 30, 2019 compared to $6,461 for the nine months ended June 30, 2018 primarily due to interest expense of $8,511 offset by interest income of $5,418 and miscellaneous non-operating income of $2,524 for the nine months ended June 30, 2019 and interest expense of $10,209 offset by interest income of $920 and miscellaneous non-operating income of $2,828 and for the nine months ended June 30, 2018. Other income generally consists of sales of scrap material, the forfeiture of non-refundable deposits and other incidental items.

 

The provision for income taxes equaled $50 for the nine months ended June 30, 2019 and June 30, 2018. 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, 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. See notes 1 and 4.

 

Off-Balance Sheet Arrangements

 

At June 30, 2019 and 2018, 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.

 

 16 
 

 

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.

 

   June 30, 2019   September 30, 2018 
         
Cash & cash equivalents  $537,967   $674,045 
Working capital  $1,097,856   $1,147,509 
Current ratio   4.04 to 1    4.18 to 1 
Long-term debt  $179,198   $219,071 

 

Cash and cash equivalents decreased $136,078 to $537,967 at June 30, 2019 when compared to cash and cash equivalents of $674,045 at September 30, 2018. The decrease was a result of $36,404 in net used in operating activities, $61,320 in net cash used for capital expenditures, $38,128 in net cash used for repayment of a note payable and $226 used to purchase treasury stock.

 

Net cash used in operating activities can fluctuate between periods as a result of differences in net income (loss), the timing of the collection of accounts receivable, purchase of inventory and payment of accounts payable.

 

The increase in inventories of $118,424 when compared to September 30, 2018 can primarily be attributed to customer scheduled deliveries. $717,585 of backlog is scheduled to ship during the fourth quarter.

 

The $61,320 in fixed asset purchases consisted of $54,900 to replace part of the roof and $4,575 used to purchase computer software and $1,845 to purchase computer equipment.

 

On July 2, 2013, the Company entered into a Ten Year Term Loan with KeyBank National Association in the amount of Five Hundred Thousand and No/100 Dollars ($500,000.00). The amount of all advances outstanding together with accrued interest thereon shall be due and payable on July 2, 2023 (“Maturity”). The Company shall pay interest on the outstanding principal balance of this Note at the rate per annum equal to 4.5%. The net proceeds from the Term Loan will be available to provide working capital as needed.

 

Management believes that its working capital requirements for at least the next twelve months will be met by its existing cash balances, future cash flows from operations and its current credit arrangements.

 

 17 
 

 

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 Quarterly Report on Form 10-Q includes 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 2018 Annual Report and Form 10-K for the fiscal year ended September 30, 2018 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a “smaller reporting company” we are not required to provide information required by this item.

 

ITEM 4. CONTROLS AND PROCEDURES

 

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

 

Management’s responsibility includes establishing and maintaining adequate internal control over financial reporting. 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.

 

 18 
 

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

None.

 

Item 1A. Rzisk Factors

 

Not applicable.

 

Item 2. Changes in Securities

 

None.

 

Item 3. Defaults Upon Senior Securities

 

The Company has no senior securities.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

a. Exhibits

 

31.1 Section 13a-14(a)/15d-14(a) Certification of Paul W. Mears

 

31.2 Section 13a-14(a)/15d-14(a) Certification of Richard L. Jones

 

32.1 Section 1350 Certification of Paul W. Mears and Richard L. Jones

 

 19 
 

 

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  MICROWAVE FILTER COMPANY, INC.  
     
August 13, 2019 /s/ Paul W. Mears  
(Date) Paul W. Mears  
  Chief Executive Officer  
     
August 13, 2019 /s/ Richard L. Jones  
(Date) Richard L. Jones  
  Chief Financial Officer  

 

 20