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 December 31, 2017
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 - 2,579,684 shares as of February 1, 2018.
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 Cash Flows (Unaudited) | 5 |
Notes to Condensed Consolidated Financial Statements (Unaudited) | 6-8 |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 9-14 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 15 |
Item 4. Controls and Procedures | 15 |
Part II Other Information | 16 |
Signatures | 17 |
2 |
Microwave Filter Company and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
December 31, 2017 | September 30, 2017 | |||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 654,225 | $ | 667,940 | ||||
Accounts receivable-trade, net of allowance for doubtful accounts of $4,000 and $4,000 | 318,795 | 350,703 | ||||||
Inventories, net | 423,978 | 458,158 | ||||||
Prepaid expenses and other current assets | 29,938 | 27,858 | ||||||
Total current assets | 1,426,936 | 1,504,659 | ||||||
Property, plant and equipment, net | 308,737 | 326,778 | ||||||
Total assets | $ | 1,735,673 | $ | 1,831,437 | ||||
Liabilities and Stockholders' Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 90,359 | $ | 104,349 | ||||
Customer deposits | 22,770 | 43,893 | ||||||
Accrued payroll and related expenses | 37,167 | 39,710 | ||||||
Accrued compensated absences | 96,485 | 96,490 | ||||||
Notes payable - short term | 49,383 | 48,826 | ||||||
Other current liabilities | 16,735 | 22,023 | ||||||
Total current liabilities | 312,899 | 355,291 | ||||||
Notes payable -long term | 257,607 | 270,172 | ||||||
Total other liabilities | 257,607 | 270,172 | ||||||
Total liabilities | 570,506 | 625,463 | ||||||
Stockholders' Equity: | ||||||||
Common stock, $.10 par value Authorized 5,000,000 shares, Issued 4,324,140 shares in 2018 and 2017, Outstanding 2,579,684 shares in 2018 and 2017 | 432,414 | 432,414 | ||||||
Additional paid-in capital | 3,248,706 | 3,248,706 | ||||||
Accumulated deficit | (821,192 | ) | (780,385 | ) | ||||
Common stock in treasury, at cost 1,744,456 shares in 2018 and 2017 | (1,694,761 | ) | (1,694,761 | ) | ||||
Total stockholders' equity | 1,165,167 | 1,205,974 | ||||||
Total liabilities and stockholders' equity | $ | 1,735,673 | $ | 1,831,437 |
See Accompanying Notes to Condensed Consolidated Financial Statements
3 |
Microwave Filter Company and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three months ended | ||||||||
December 31, | ||||||||
2017 | 2016 | |||||||
Net sales | $ | 786,916 | $ | 779,374 | ||||
Cost of goods sold | 498,542 | 530,273 | ||||||
Gross profit | 288,374 | 249,101 | ||||||
Selling, general and administrative expenses | 326,502 | 338,751 | ||||||
Loss from operations | (38,128 | ) | (89,650 | ) | ||||
Other expense, net | (2,679 | ) | (3,549 | ) | ||||
Loss before income taxes | (40,807 | ) | (93,199 | ) | ||||
Benefit for income taxes | 0 | 0 | ||||||
Net loss | $ | (40,807 | ) | $ | (93,199 | ) | ||
Net Loss Per Common Share | ||||||||
Basic and diluted loss per share | $ | (0.02 | ) | $ | (0.04 | ) | ||
Weighted Average Common Shares Outstanding | ||||||||
Shares used in computing net loss per share: | 2,579,684 | 2,581,007 |
See Accompanying Notes to Condensed Consolidated Financial Statements
4 |
Microwave Filter Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three months ended | ||||||||
December 31, | ||||||||
2017 | 2016 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (40,807 | ) | $ | (93,199 | ) | ||
Adjustments to reconcile net loss to net cash | ||||||||
(used in) provided by operating activities: | ||||||||
Depreciation | 18,041 | 19,319 | ||||||
Change in operating assets and liabilities: | ||||||||
Accounts receivable-trade | 31,908 | 99,339 | ||||||
Inventories | 34,180 | 27,354 | ||||||
Prepaid expenses and other assets | (2,080 | ) | (6,723 | ) | ||||
Accounts payable and customer | ||||||||
deposits | (35,113 | ) | 31,024 | |||||
Accrued payroll and related expenses | ||||||||
and compensated absences | (2,548 | ) | (18,255 | ) | ||||
Other current liabilities | (5,288 | ) | 2,924 | |||||
Net cash (used in) provided by operating activities | (1,707 | ) | 61,783 | |||||
Cash flows from investing activities: | ||||||||
Property, plant and equipment purchased | 0 | (41,636 | ) | |||||
Net cash used in investing activities | 0 | (41,636 | ) | |||||
Cash flows from financing activities: | ||||||||
Repayment of note payable | (12,008 | ) | (11,475 | ) | ||||
Net cash used in financing activities | (12,008 | ) | (11,475 | ) | ||||
(Decrease) increase in cash and cash equivalents | (13,715 | ) | 8,672 | |||||
Cash and cash equivalents at beginning of period | 667,940 | 923,117 | ||||||
Cash and cash equivalents at end of period | $ | 654,225 | $ | 931,789 | ||||
Supplemental Schedule of Cash Flow Information: | ||||||||
Interest | $ | 3,583 | $ | 4,116 |
See Accompanying Notes to Condensed Consolidated Financial Statements
5 |
MICROWAVE FILTER COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 2017
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, 2017, 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 three month period ended December 31, 2017 are not necessarily indicative of the results that may be expected for the year ended September 30, 2018. 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:
December 31, 2017 | September 30, 2017 | |||||||
Raw materials and stock parts | $ | 311,340 | $ | 337,462 | ||||
Work-in-process | 22,998 | 21,861 | ||||||
Finished goods | 89,640 | 98,835 | ||||||
$ | 423,978 | $ | 458,158 |
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The Company's reserve for obsolescence equaled $445,158 at December 31, 2017 and September 30, 2017. 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.
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 positions 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 determined it has no uncertain tax positions and therefore no amounts are recorded.
On December 22, 2017, the Tax Cuts and Jobs Act (the "Act") was enacted, the Act which among other changes, reduces the Federal statutory corporate income tax rate from 35% to 21% effective January 1, 2018. Based on the provisions of the Act, the Company remeasured their net deferred tax assets applying the new lower income tax rates to the Company's net long term deferred tax assets. As stated above, the Company has provided a full valuation allowance against its net deferred tax assets. The actual impact of the Act may differ due to changes in interpretations, assumptions and the issuance of additional guidance.
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 Company currently does not trade in or utilize derivative financial instruments.
Note 7. Significant Customers
Net sales to two significant customers represented 38.5% of the Company's total sales for the three months ended December 31, 2017 and net sales to one significant customer represented 42.7% of the Company's total sales for the three months ended December 31, 2016. A loss of one of these customers or programs related to these customers could significantly impact the Company.
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Note 8. Notes Payable
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. The total amount outstanding as of December 31, 2017 and September 30, 2017 was $306,990 and $318,998 respectively. Interest accrued as of December 31, 2017 and September 30, 2017 was $1,113 and $1,116 respectively.
The Company has secured this Note by: (a) a Mortgage, Assignment of Rents, Security Agreement and Fixture Filing which creates a 1 st 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 December 31, 2017 and 2016. 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 December 31, 2017 and 2016.
Note 10. Recent Accounting Pronouncements
Management has reviewed the most recent accounting pronouncements issued by the various authoritative standard setting bodies:
Update 2015-14- Revenue from Contracts with Customers (Topic 606) : affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The core principle of the guidance is that an entity should recognize revenue 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 guidance is applicable to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Management plans to evaluate the applicability and impact of the adoption of this standards update over the coming year.
Update 2015-17 - Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes addresses the requirement to reclassify all current deferred income tax assets and liabilities on the balance sheet as non-current assets and liabilities, and is effective retrospectively for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company has adopted this standard in the period ended December 31, 2017. As explained in Note 4, the Company has provided a full valuation allowance against its deferred tax assets, and thus there is no impact from the adoption of this updated standard in the current year or on the balance sheet of any of the periods presented.
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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, 2017 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.
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.
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.
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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. 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 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.
10 |
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 2017 vs. THREE MONTHS ENDED DECEMBER 31, 2016
The following table sets forth the Company's net sales by major product group for the three months ended December 31, 2017 and 2016.
Product group | Fiscal 2018 | Fiscal 2017 | ||||||
Microwave Filter (MFC): | ||||||||
RF/Microwave | $ | 239,969 | $ | 449,044 | ||||
Satellite | 359,690 | 162,437 | ||||||
Cable TV | 78,576 | 123,602 | ||||||
Broadcast TV | 104,026 | 42,905 | ||||||
Niagara Scientific (NSI): | 4,655 | 1,386 | ||||||
Total | $ | 786,916 | $ | 779,374 | ||||
Sales backlog at December 31 | $ | 1,042,517 | $ | 709,156 |
Net sales for the three months ended December 31, 2017 equaled $786,916, an increase of $7,542 or 1.0%, when compared to net sales of $779,374 for the three months ended December 31, 2016.
MFC's Satellite product sales increased $197,253 or 121.4% to $359,690 for the three months ended December 31, 2017 when compared to Satellite product sales of $162,437 during the same period last year. The increase in sales can primarily be attributed to sales of a new product which was developed for one customer and an increase in demand for the Company's filters which suppress strong out-of-band interference caused by military and civilian radar systems and other sources. Sales to this one customer represented 12.6% of sales for the quarter ended December 31, 2017. Based on forecasts, management believes sales of this recently developed product to this customer will continue.
MFC's RF/Microwave product sales decreased $209,075 or 46.6% to $239,969 for the three months ended December 31, 2017 when compared to RF/Microwave product sales of $449,044 during the same period last year. MFC'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 $129,380 to $203,425 or 25.9% of total sales for the three months ended December 31, 2017 compared to sales of $332,805 or 42.7% of total sales for the three months ended December 31, 2016. These sales are in connection with a multiyear program in which the Company is a subcontractor. The Company's backlog of orders with this customer is $902,675 and is scheduled to ship over the next twelve months. Sales to the U.S. Government decreased $26,475 to $4,750 during the three months ended December 31, 2017 compared to sales of $31,496 during the same period last year. 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.
11 |
MFC's Cable TV product sales decreased $45,026 or 36.4% to $78,576 for the three months ended December 31, 2017 when compared to Cable TV product sales of $123,602 during the same period last year. The decrease in sales can be attributed to an order received last year from one customer with specific cable applications. Management continues to project flat or 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.
MFC's Broadcast TV/Wireless Cable product sales increased $61,121 or 142.5% to $104,026 for the three months ended December 31, 2017 when compared to sales of $42,905 during the same period last year. The increase in sales can primarily be attributed to the UHF band relocation that has resulted in channel reassignments for hundreds of TV stations across the country. New equipment including filters and combining systems are needed to help facilitate the changeover.
The Company's international sales equaled $60,376 for the three months ended December 31, 2017 when compared to international sales of $58,130 during the same period last year.
MFC's sales order backlog equaled $1,042,517 at December 31, 2017 compared to sales order backlog of $709,156 at December 31, 2016. 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. 91.8% of the sales order backlog at December 31, 2017 is scheduled to ship by September 30, 2018.
Gross profit for the three months ended December 31, 2017 equaled $288,374, an increase of $39,273 or 15.8%, when compared to gross profit of $249,101 for the three months ended December 31, 2016. As a percentage of sales, gross profit equaled 36.6% for the three months ended December 31, 2017 compared to 32.0% for the three months ended December 31, 2016. The increase in gross profit as a percentage of sales can primarily be attributed to lower direct material costs primarily due to product sales mix and lower payroll and payroll related expenses due to a reduction in headcount in production labor and production support positions due to retirement and employee turnover with the positions not immediately filled.
Selling, general and administrative (SGA) expenses for the three months ended December 31, 2017 equaled $326,502, a decrease of $12,249 or 3.6%, when compared to SGA expenses of $338,751 for the three months ended December 31, 2016. The decrease can primarily be attributed to lower payroll and payroll related expenses during the three months ended December 31, 2017 when compared to the same period last year. As a percentage of sales, SGA expenses equaled 41.5% for the three months ended December 31, 2017 compared to 43.5% for the three months ended December 31, 2016 primarily due to the lower SGA expenses this year.
The Company recorded a loss from operations of $38,128 for the three months ended December 31, 2017 compared to a loss from operations of $89,650 for the three months ended December 31, 2016. The improvement can primarily be attributed to the higher gross profit and lower SGA expenses this year when compared to the same period last year.
Other expense for the three months ended December 31, 2017 was $2,679 compared to other expense of $3,549 for the for the three months ended December 31, 2016 primarily due to interest expense of $3,580 offset by miscellaneous non-operating income of $901 for the three months ended December 31, 2017 and interest expense of $4,120 offset by miscellaneous non-operating income of $571 for the three months ended December 31, 2016. Miscellaneous non-operating income generally consists of sales of scrap material and the forfeiture of non-refundable deposits and other incidental items.
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The benefit for income taxes equaled $0 for the three months ended December 31, 2017 and December 31, 2016. We have not recognized any benefit for income taxes. 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 December 31, 2017 and 2016, 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.
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.
December 31, 2017 | September 30, 2017 | |||||||
Cash & cash equivalents | $ | 654,225 | $ | 667,940 | ||||
Working capital | $ | 1,114,037 | $ | 1,149,368 | ||||
Current ratio | 4.56 to 1 | 4.24 to 1 | ||||||
Long-term debt | $ | 257,607 | $ | 270,172 |
Cash and cash equivalents decreased $13,715 to $654,225 at December 31, 2017 when compared to cash and cash equivalents of $667,940 at September 30, 2017. The decrease was a result of $1,707 in net cash used in operating activities and $12,008 in net cash used for repayment of a note payable.
Net cash provided by operating activities can fluctuate between periods as a result of differences in net income, the timing of the collection of accounts receivable, purchase of inventory and payment of accounts payable.
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.
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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 2017 Annual Report and Form 10-K for the fiscal year ended September 30, 2017 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.
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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.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk 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 |
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Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MICROWAVE FILTER COMPANY, INC. | |
February 13, 2018 | /s/ Paul W. Mears |
(Date) | Paul W. Mears |
Chief Executive Officer | |
February 13, 2018 | /s/ Richard L. Jones |
(Date) | Richard L. Jones |
Chief Financial Officer |
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