Microwave Filter Co Inc (MFCO) SEC Annual Report (10-K) for 2011

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

PART I
ITEM 1.  BUSINESS.
FORWARD-LOOKING CAUTIONARY STATEMENT
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  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 2011 Annual Report and Form 10-K for the fiscal year ended September 30, 2011 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
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  Microwave Filter Company, Inc.  (hereinafter referred to as MFC) was incorporated in New York State on September 26, 1967.  MFC is the successor of Microwave Filter Company which was founded in April of 1967.  
  On July 1, 1990, MFC acquired Niagara Scientific, Inc.  (hereinafter referred to as NSI.)
  MFC and its subsidiaries are sometimes referred to collectively as the "Company."

NARRATIVE DESCRIPTION OF BUSINESS
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Microwave Filter Company, Inc.  (MFC)
  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
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Microwave Filter Company, Inc.  (MFC)
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  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.
  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.  

  There has been an increased demand for filters in the OEM (Original Equipment Manufacturer) market.  In response to this demand, MFC has purchased new design, fabrication and test equipment to design filters up to 50 GHz.  OEM orders are larger than those received for other markets and facilities such as a soldering oven have been added in the manufacturing area for large volume production.  
WORLD TRADE
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  Management believes that world marketing is a route to substantial expansion of sales for MFC.  Significant efforts have been made over the last year 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 increased $211,141 or 42.4% to $709,310 for the fiscal year ended September 30, 2011 when compared to international sales of $498,169 during the fiscal year ended September 30, 2010.  The increase can be attributed to one large order from an international distributor and an increase in demand for the Company's satellite filters which suppress strong out-of-band interference caused by military and civilian radar systems and other sources.
SUPPLIERS
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  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
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  The Company has no patents, trademarks, copyrights, licenses or franchises of material importance.  
SEASONAL FLUCTUATIONS
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  There are no significant seasonal fluctuations in the Company's business.
GOVERNMENT CONTRACTS
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  The Company is not dependent in any material respect on government contracts.
SIGNIFICANT CUSTOMERS
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  Sales to one customer represented approximately 18% of total sales during fiscal 2011 compared to approximately 15% of total sales for the fiscal year ended September 30, 2010.

EXPORT CONTROLS
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  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
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  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
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  At September 30, 2011, the Company's total backlog of orders, which represents firm orders from customers, was $643,925 compared to $413,159 at September 30, 2010.  The total Company backlog at September 30, 2011 is scheduled to ship during fiscal 2012.  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
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  At September 30, 2011, the Company employed 43 full-time and 2 part-time employees.  
RESEARCH AND DEVELOPMENT
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  The Company maintains and expects to continue to maintain an active research and development program.  The Company believes that such a program is needed to maintain its competitive position in existing markets and to provide products for emerging markets.  Costs in connection with research and development were $428,693 and $448,901 for the fiscal years 2011 and 2010, respectively.  Research and development costs are charged to operations as incurred.  
COMPETITION
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  The principal competitive factors facing both MFC and NSI are price, technical performance, service and the ability to produce in quantity to specific delivery schedules.  Based on these factors, the Company believes it competes favorably in its markets.

AVAILABLE INFORMATION
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  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.
ITEM 4.  (REMOVED AND RESERVED)

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.

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

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
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  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, 2011.

  MFC's Satellite product sales increased $103,725 or 6.7% to $1,650,762 during the fiscal year ended September 30, 2011 when compared to sales of $1,547,037 during the fiscal year ended September 30, 2010.  The increase can be attributed to an increase 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 do impact 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 $93,630 or 6.4% to $1,376,572 during the fiscal year ended September 30, 2011 when compared to Cable TV product sales of $1,470,202 during the fiscal year ended September 30, 2010.  The decrease can primarily be attributed to 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 decreased $129,701 or 56.9% to $98,118 for the fiscal year ended September 30, 2011 when compared to sales of $227,819 for the fiscal year ended September 30, 2010.  These products are primarily sold to system integrators for rural communities.
   At September 30, 2011, the Company's total backlog of orders, which represents firm orders from customers, equaled $643,925 compared to $413,159 at September 30, 2010.  The total Company backlog at September 30, 2011 is scheduled to ship during fiscal 2012.  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 increased $162,317 or 9.6% to $1,857,426 during the fiscal year ended September 30, 2011 when compared to gross profit of $1,695,109 during the fiscal year ended September 30, 2010.  As a percentage of sales, gross profit increased to 36.8% during the fiscal year ended September 30, 2011 compared to 36.1% during the fiscal year ended September 30, 2010.  The increases in gross profit can primarily be attributed to the higher sales volume this year resulting in a higher base to absorb fixed expenses.
  Selling, general and administrative (SG&A) expenses increased $94,949 or 6.1% to $1,650,357 during the fiscal year ended September 30, 2011 when compared to SG&A expenses of $1,555,408 during the fiscal year ended September 30, 2010.  The dollar increase can be attributed to higher payroll and payroll related expenses, a higher profit sharing contribution and higher promotional expenses this year when compared to last year.  As a percentage of sales, SG&A expenses decreased to 32.7% during fiscal 2011 compared to 33.2% during fiscal 2010 due to the higher sales volume this year when compared to last year.
  Income from operations equaled $207,069 for the fiscal year ended September 30, 2011 compared to income from operations of $139,701 during the fiscal year ended September 30, 2010.  The improvement can primarily be attributed to the higher sales volume this year when compared to last year.
  Other income increased $1,624 to $8,474 for the fiscal year ended September 30, 2011 when compared to other income of $6,850 for the fiscal year ended September 30, 2010.  Other income is primarily interest income earned on invested cash balances.  Other income may fluctuate based on market interest rates and levels of invested cash balances.
  The Company recorded a benefit for income taxes of $27,372 for the fiscal year ended September 30, 2011 compared to a provision for income taxes of $260 for the fiscal year ended September 30, 2010. The benefit for the current fiscal year can be attributed to a New York State qualified research expenses tax credit which was received during the quarter ended December 31, 2011 (the first quarter of Fiscal 2012.) 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.

Off-Balance Sheet Arrangements
   At September 30, 2011 and 2010, 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
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  In June 2011, the FASB issued an Accounting Standard Update ("ASU"), bringing amendments to how other comprehensive income (OCI) is presented in the financial statements.  This update outlines that OCI and its components cannot be reported in the Company's consolidated statements of changes in stockholders' equity.  This guidance is effective from the beginning of the Company's 2013 fiscal year.  This update will not have a material impact to the Company and the Company will comply with the OCI disclosure changes required by the update.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
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  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 2011 Annual Report and Form 10-K for the fiscal year ended September 30, 2011 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, 2011.  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.

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:

The Directors listed above and executive officers as a group own 111,787 shares or approximately 4% of the outstanding common shares of the Company.
The Board of Directors of Microwave Filter Company, Inc.  has determined that  Mr.  Chong and Mr.  Galbally, both members of the Audit Committee, are "audit committee financial experts" as defined by the SEC's regulations.
IDENTIFICATION OF EXECUTIVE OFFICERS

ITEM 11.  EXECUTIVE COMPENSATION.
  Information required by this Item is contained in the Company's proxy statement filed with respect to the 2012 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 $50,000 and $0 for the years ended September 30, 2011 and 2010, 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 2011.  The maximum corporate match was 6% of an employee's compensation during fiscal 2011.  
  MFC's matching contributions to the 401-K plan for the years ended September 30, 2011 and 2010 amounted to $103,188 and $101,049, respectively.
COMPENSATION OF DIRECTORS
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  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.

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 22, 2011
  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:

                    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)

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, 2011 and 2010, and the related  statements of operations, stockholders' equity, and cash flows for each of the years in the two-year period ended September 30, 2011.  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, 2011 and 2010, and the results of its operations and its cash flows for each of the years in the two-year period ended September 30, 2011 in conformity with accounting principles generally accepted in the United States of America.
/s/ EFP Rotenberg, LLP
EFP Rotenberg, LLP
Rochester, New York
December 22, 2011

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 $428,693 and $448,901 for the fiscal years 2011 and 2010, 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.
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 $5,000 and $8,000 for the fiscal years ended September 30, 2011 and 2010, 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, 2011 and 2010.
q.  New Accounting Pronouncements
  In June 2011, the FASB issued an Accounting Standard Update ("ASU"), bringing amendments to how other comprehensive income (OCI) is presented in the financial statements.  This update outlines that OCI and its components cannot be reported in the Company's consolidated statements of changes in stockholders' equity.  This guidance is effective from the beginning of the Company's 2013 fiscal year.  This update will not have a material impact to the Company and the Company will comply with the OCI disclosure changes required by the update.

2.  INVENTORIES
Inventories net of provision for obsolescence consisted of the following:

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, 2011 and 2010 amounted to $9,290 and $8,940, respectively.
  Minimum rental commitments at September 30, 2011 for these leases are:

The temporary differences which give rise to deferred tax assets and (liabilities) at September 30 are as follows:

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.

Microwave Filter Company and Subsidiaries
Schedule II - VALUATION AND QUALIFYING ACCOUNTS