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
|
|
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.
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.
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.
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
|
|
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.
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.
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.
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.
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.
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.
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.