-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I0i+vUMUbGfRwZUtFalJuk5pKC0dMH0EbcS4mmQMAjLieiZsHQ3sE2BZiUMxRH0d iYTiSNXo823sBfuyUNX25A== 0000716688-00-500003.txt : 20001225 0000716688-00-500003.hdr.sgml : 20001225 ACCESSION NUMBER: 0000716688-00-500003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001221 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICROWAVE FILTER CO INC /NY/ CENTRAL INDEX KEY: 0000716688 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 160928443 STATE OF INCORPORATION: NY FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-10976 FILM NUMBER: 793684 BUSINESS ADDRESS: STREET 1: 6743 KINNE ST CITY: E SYRACUSE STATE: NY ZIP: 13057 BUSINESS PHONE: 3154373953 MAIL ADDRESS: STREET 1: 6743 KINNE ST CITY: EAST SYRACUSE STATE: NY ZIP: 13057 10-K 1 f10k2000.txt MFC 10K FILING SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C 20549 FORM 10-K (Mark one) _X_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended________September 30, 2000_____________________________ OR __TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from____________to____________________________________ Commission file number__________________0-10976_________________________________ _______________________________Microwave Filter Company, Inc____________________ (Exact name of registrant as specified in its charter) __________New York__________________________16-0928443__________________________ (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) _____6743 Kinne Street, East Syracuse, NY________13057_________________________ (Address of principal executive offices) (Zip code) Registrant's telephone number including area code____(315) 438-4700_____________ Securities registered pursuant to Section 12(b) of the Act:_____None____________ Securities registered pursuant to Section 12(g) of the Act: _________________________Common stock, par value $.10 per share_________________ Title of class Indicate by check mark 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.__ 1 The aggregate market value of the voting stock held by non-affiliates of the registrant at the close of business on December 1, 2000 was $3,468,249. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Shares of common stock outstanding at December 1, 2000: 3,088,186 Documents incorporated by reference: None. PART I ITEM 1. BUSINESS. GENERAL DEVELOPMENT OF BUSINESS - ------------------------------- Microwave Filter Company, Inc. (hereinafter referred to as MFC) was incorporated in New York State on September 26, 1967. MFC is the successor of Microwave Filter Company which was founded in April of 1967. On July 1, 1990, MFC acquired Niagara Scientific, Inc. (hereinafter referred to as NSI.) MFC and its subsidiaries are sometimes referred to collectively as the "Company." NARRATIVE DESCRIPTION OF BUSINESS - ---------------------------------- Microwave Filter Company, Inc. (MFC) Established in 1967 in East Syracuse, New York, MFC occupies a modern 40,000 square foot facility with an impressive complement of analytical and design software, test instrumentation, prototype and manufacturing equipment to create passive filters, components and sub systems in the frequency range of 10 MHz to 50 GHz. MFC manufactures filters for eliminating interference and signal processing for such markets as Cable Television, Broadcast, Mobile Communications, Avionics, Radar, Navigation and Defense Electronics. The Company designs waveguide, stripline/ microstrip, transmission line, miniature/subminiature and lumped constant filters in such filter styles as: bandpass, highpass, lowpass, bandstop, multiplexers, tunable notch, tunable bandpass, high power filters, filter networks, amplitude equalized and delay equalized. The Company actively produces over 1,700 standard products and has designed more than 5,000 custom products for specialized applications. A quality plan is developed for each incoming order. Working as a team, engineers, designers, fabricators and technicians identify any potential design or manufacturing challenges before the project begins. With a quality plan, design to shipping time is reduced due to careful resource planning. The manufacturing facility includes a state-of-the-art CAD-CAM system, a test department with automated network analyzers to 50 GHz, a high capacity conveyor soldering oven, a fully compliant finishing operation and a TQM/ISO9000 based quality assurance program to insure the intrinsic quality of the products produced. 2 Efficient 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. A network based CAD-CAM 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-9000 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 -0 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. An automated in-house anechoic chamber provides antenna pattern measurement capability in the 2 to 8 GHz frequency range. Facilities are also available for salt spray, sand and dust, shock and vibration, RFI leakage and altitude testing. Niagara Scientific, Inc. (NSI) - ------------------------------ NSI manufactures material handling equipment for suppliers of consumer goods. Such suppliers would include food processors or any other manufacturer of packaged consumer products that need to be moved into shipping cartons at a certain rate of speed. The Schroeder Machines Division (SMD), in existence for over 50 years, is a division of Niagara Scientific. SMD manufactures a number of case packing solutions but is most noted for its Quadnumatic. The Quadnumatic is an automatic case packing machine that performs all the functions of collating, case forming, loading and sealing products into their shipping cartons at packing speeds ranging from 12 to 30 cases per minute. Other products offered by Schroeder include a servo pick-and-place machine for top loading packaging applications and a case erector/bottom taping machine for customers who still hand pack or need to add a case former to an existing case packing machine. With robotics becoming more prevalent in the handling of food, pharmaceuticals and other large volume consumer products, SMD has become a systems integrator for Staubli of Switzerland and Adept Technology, Inc. of San Jose, CA. Both companies manufacture robot systems for high-speed assembly and packaging operations. This added capability has allowed Schroeder to serve its customer base with the most up-to-date technology. 3 MARKETS - ------- Microwave Filter Company, Inc. (MFC) - ------------------------------------ Cable Television (CATV) - 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 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 operators initially receive programming via satellite, products from our satellite market cross over into cable television. C-band satellite receive systems are prone to various types of terrestrial interference which are curable in many cases by applying filters. Cable television is establishing a place for itself in the afterglow of the Telecommunications Act of 1996. This important federal legislation removed restrictions from telephone companies offering video services and from cable companies offering telephone service. Its purpose was to increase competition among those service providers. A result of this legislation has been the convergence of several industries such as the acquisition of TCI, the largest US cable television company, by AT&T. Though it may appear as though this legislation has encouraged monopoly, instead it has offered companies the ability to combine resources and acquire capital for new projects. In recent years, the demand for fast and varied data services has greatly increased. The next few years will see these converged companies working towards delivering consumers the high-speed voice and data services they demand. Broadcast - Several areas of broadcast are served by Microwave Filter Company with the most active being Wireless Cable. Wireless Cable is a video delivery service that has attempted to compete with cable television throughout this decade with limited success. This service delivers programming over-the-air using microwave frequencies. Television programming is received via a small rooftop antenna. The signals are then down converted for reception by the television set. At the home, the equipment looks the same as that supplied by a cable television company with the exception of the rooftop antenna. Forces that worked against the success of this market were limited financial sources, access to programming, channel limitations and regulatory obstacles. While some of these obstacles were overturned, the industry struggled for financial backing. Unfortunately with modest finances, business plans could not be met. Nor was it possible to invest in new technology necessary to offer new services now being demanded by the public. Despite its problems, Wireless Cable is a viable technology for fast two-way data delivery and telephony. Interest in this technology is still keen. Over the last two years, several telephone companies have been acquiring Wireless Cable systems because of their potential in delivering high speed data. It is also a viable technology in international markets that lack the infrastructure for cable television delivery. The hope is that this market will rebound domestically with the help of the telephone companies. 4 The most significant product sold to this market is our channel combiner used at the broadcast site to reduce tower costs. By combining channels at the transmitter, additional expensive coaxial or waveguide runs up the tower become unnecessary. MFC offers the widest selection of channel combiners to meet a variety of system specifications. Combiners in different configurations and constructed of different materials offer the operator better or best options depending on budget or other system requirements. Another area which is predicted to revive Wireless Cable is LMDS, frequencies between 28 and 31 GHz which have been designated for fixed wireless broadband services. Canada has been leading the way in the development of this market by rolling out voice and high speed internet access. In the US, the FCC has also been auctioning off frequencies over the last two years. Several systems utilizing this technology have also been launched in numerous overseas markets. LMDS essentially uses the same operating equipment as Wireless Cable providers. Microwave Filter Company sells a notch and bandpass filter series to remove interference at the transmitter to this market. LPTV - Low Power Television or LPTV is an option in the U.S. as a multichannel subscription television service. A system similar to Wireless Cable can be configured to deliver channels of programming to areas where off air signals cannot be received. The only difference between both services is broadcast frequency and the type of antenna located at the subscriber's home. An LPTV receive antenna would look like any other off air broadcast antenna in contrast to the microwave antenna used for Wireless Cable. LPTV frequencies are easier to obtain and there are more LPTV than Wireless channels available. In fact, due to the limited number of Wireless Cable frequencies, Wireless Cable operators are using a combination of Wireless and LPTV frequencies to increase the number of channels offered to their subscribers. As a broadcaster, LPTV differs from traditional television only in broadcast power. With lower broadcast power, the service has a smaller reception area than high power broadcast stations. Microwave Filter Company provides channel combiners and interference filters for this industry. The channel combiners are used to group channels and eliminate additional coaxial runs to the broadcast tower. Filters are also used in broadcast equipment to eliminate interference. Radio and Television Broadcast - MFC primarily serves these broadcast areas with interference filters to reduce equipment harmonics. Other broadcast areas served also include AML, telemetry and STL/ENG relays. Similar to cable television, the broadcast industry is also moving towards the digital delivery of both audio and video broadcast. Satellite - Filters and traps 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. Direct Broadcast Satellite or DBS is a version of home satellite programming delivered direct to the home. It differs from C-band TVRO by the size of the receive antenna. DBS broadcasts at a higher frequency requiring a smaller satellite dish than C-band TVRO. Both satellite dealers and cable television 5 systems market the service to offer consumers television options. Mobile Radio - 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. With the number of services increasing and our air waves becoming more congested, filters are increasingly important to many transmit operations. Cellular telephone has been the largest mobile radio growth market. The Cellular market is beginning to level off and now Personal Communications Services (PCS) is an area of mobile radio on the rise. Microwave and RF - 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. Niagara Scientific, Inc. (NSI) - ------------------------------ NSI - Like MFC, NSI and its divisions seek niche markets arising from certain demographic changes in the industrial work force which promotes acceptance of automation in both large and small factories. NSI's typical product is customized to the purchaser's operation and is the result of system engineering. The product makes tactical use of precision mechanical movements or sensors of physical characteristics under microprocessor control. These smart machines reduce labor costs through faster operation and increased quality. Typical customers for case packing machines are food processors or makers of cosmetics, pharmaceuticals, candies or hardware whose product must be cased for shipping and storage. Other custom equipment is designed for inspection-rejection, counting, analyzing or otherwise monitoring, reporting or controlling a continuous manufacturing or industrial process. Typical customers are commodity mass producers in the food, drug and paint industries. 6 WORLD TRADE - ----------- Management believes that world marketing is a route to substantial expansion of sales for MFC/NSI. Export opportunities for MFC's communication related products are many - especially in areas of the world such as China, the Pacific Rim and South America. Marketing research reveals that the Company's products are in high demand in these areas of the world. 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 interests in those regions. NSI products are less suitable for export for a number of reasons, including their large size and complexity, less demand in underdeveloped areas for automation and significant local competition. However, NSI is well qualified to produce and or distribute complementary products under license. SUPPLIERS - --------- The Company depends on outside suppliers for raw materials, components and parts, and services. Although items are generally available from a number of suppliers, the Company purchases certain raw materials and components from a single supplier. If such a supplier should cease to supply an item, the Company believes that new sources could be found to provide the raw materials and components. However, manufacturing delays and added costs could result. The Company has not experienced significant delays of this nature in the past, but there can be no assurance that delays in delivery due to supply shortages will not occur in the future. Substantial periods of lead time for delivery of certain materials are sometimes experienced by the Company, making it necessary to inventory varied quantities of materials. PATENTS AND LICENSES - -------------------- The Company has no patents, trademarks, copyrights, licenses or franchises of material importance. SEASONAL FLUCTUATIONS - --------------------- There are no significant seasonal fluctuations in the Company's business. GOVERNMENT CONTRACTS - -------------------- The Company is not dependent in any material respect on government contracts. BACKLOG - ------- At September 30, 2000, the Company's total backlog of orders was $831,388 compared to $1,117,856 at September 30, 1999. At September 30, 2000, MFC's backlog of orders was $630,434 compared to $520,576 at September 30, 1999. At September 30, 2000, NSI's backlog of orders was $200,954 compared to $597,280 at September 30, 1999. The total Company backlog at September 30, 2000 is scheduled to ship during fiscal 2001. 7 EMPLOYEES - --------- At September 30, 2000, the Company employed 80 full-time permanent employees, 3 part-time permanent employees, and 3 full-time temporary employees. RESEARCH AND DEVELOPMENT - ------------------------ The Company maintains and expects to continue to maintain an active research and development program. The Company believes that such a program is needed to maintain its competitive position in existing markets and to provide products for emerging markets. Costs in connection with research and development were $320,789, $355,366 and $490,153 for the fiscal years 2000, 1999 and 1998, respectively. Research and development costs are charged to operations as incurred. COMPETITION - ----------- 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. 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. MFC presently occupies approximately 35,000 square feet with the balance (approximately 5,000 square feet) occupied by NSI. ITEM 3. LEGAL PROCEEDINGS. There are currently no material pending legal proceedings against the Company or its subsidiaries. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. During the fourth quarter of the fiscal year covered by this Form 10-K, there were no matters submitted to a vote of security holders. 8 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. MFC's common stock is traded on the NASDAQ over-the-counter market under the symbol MFCO. The information set forth was obtained from statements provided by the NASD. The following table shows the high and low sales prices for MFC's common stock for each full quarterly period within the two most recent fiscal years. The quotations represent prices in the over-the-counter market between dealers in securities. They do not include retail mark-ups, mark-downs or commissions. Fiscal 2000 High Low Oct. 1, 1999 to Dec. 31, 1999 $ 3.50 $ 1.00 Jan. 1, 2000 to Mar. 31, 2000 23.00 1.13 Apr. 1, 2000 to June 30, 2000 4.50 1.75 July 1, 2000 to Sept. 30, 2000 2.75 1.50 Fiscal 1999 High Low Oct. 1, 1998 to Dec. 31, 1998 $ 1.31 $ .81 Jan. 1, 1999 to Mar. 31, 1999 3.25 .88 Apr. 1, 1999 to June 30, 1999 1.25 .81 July 1, 1999 to Sept. 30, 1999 1.19 .81 The approximate number of stockholders on September 30, 2000 was 2,800. On January 26, 2000, the Board of Directors declared a five cents per share cash dividend to shareholders of record on February 18, 2000 to be distributed on March 3, 2000. On November 4, 1998, the Board of Directors declared a five cents per share cash dividend to shareholders of record on February 2, 1999, to be distributed on February 17, 1999. On October 29, 1997, the Board of Directors declared a five cents per share cash dividend to shareholders of record on February 3, 1998, to be distributed on February 18, 1998. On January 15, 1997, the Board of Directors declared a five cents per share cash dividend to shareholders of record on February 3, 1997, to be distributed on February 18, 1997. 9 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
September 30 2000 1999 1998 1997 1996 Net Sales $ 7,491,853 $ 6,572,949 $ 6,989,106 $ 6,175,425 $ 7,532,710 Net Income (1) $ 338,736 $ 160,471 $ 69,424 $ 434,772 $ 504,295 Total Assets $ 5,142,708 $ 4,704,630 $ 5,051,078 $ 5,173,481 $ 5,410,266 Long Term Debt $ 0 $ 0 $ 0 $ 46,065 $ 102,774 Earnings Per Share $ .11 $ .05 $ .02 $ .12 $ .14 Weighted Average Number of Common Shares Outstanding* 3,169,061 3,283,098 3,535,522 3,548,240 3,525,362 Stock (%) Dividends 5% Cash ($) Dividends Paid Per Share $ .05 $ .05 $ .05 $ .05 $ .05 *Adjusted for all stock dividends. Net income as a percentage of: 2000 1999 1998 1997 1996 Sales............................. 4.5 2.4 1.0 7.0 6.7 Assets .................... 6.6 3.4 1.4 8.4 9.3 Equity............................ 8.8 4.3 1.7 10.2 12.7
(1) In the fourth quarter of 1997, the Company received life insurance death benefits of $350,000 as a result of the death of a former officer. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - --------------------- The following table sets forth the Company's net sales by major product groups for each of the fiscal years in the three year period ended September 30, 2000. Product group (in thousands) Fiscal 2000 Fiscal 1999 Fiscal 1998 Niagara Scientific $1,285 $ 406 $ 211 Microwave Filter: Cable TV 4,195 4,258 3,588 RF/Microwave 960 1,244 2,119 Broadcast TV 919 522 940 Satellite Communications 133 143 131 Total $7,492 $6,573 $6,989 Sales backlog at 9/30 $ 832 $1,118 $ 747 10 Fiscal 2000 compared to fiscal 1999 Consolidated net sales for the fiscal year ended September 30, 2000 equaled $7,491,853, an increase of $918,904 or 14% when compared to consolidated net sales of $6,572,949 during the fiscal year ended September 30, 1999. The increase in consolidated net sales can primarily be attributed to the increase in sales of Niagara Scientific, Inc., a wholly owned subsidiary. Niagara Scientific, Inc. (NSI) sales increased $878,870 or 216% to $1,285,065 for the fiscal year ended September 30, 2000 when compared to sales of $406,195 for the twelve months ended September 30, 1999. The increase in NSI sales can primarily be attributed to NSI's efforts over the last few years to develop new products by introducing several standard low price products. Microwave Filter Company, Inc. (MFC) sales increased $40,034 or 0.6% to $6,206,788 during the fiscal year ended September 30, 2000 when compared to sales of $6,166,754 during the fiscal year ended September 30, 1999. The increase in MFC sales can primarily be attributed to an increase in the sales of the Company's Broadcast TV product sales. MFC's Broadcast TV product sales, which includes wireless cable products, increased $397,214 or 76.1% to $919,381 during the fiscal year ended September 30, 2000 when compared to sales of $522,167 during the fiscal year ended September 30, 1999. The increase in sales can primarily be attributed to market conditions. MFC's RF/Microwave product sales decreased $283,799 or 22.8% to $959,850 during the fiscal year ended September 30, 2000 when compared to sales of $1,243,649 during the fiscal year ended September 30, 1999. The Company continues to invest in production engineering and infrastructure development to penetrate OEM (Original Equipment Manufacturer) market segments as they become popular. MFC is intentionally de-emphasizing custom product sales in order to concentrate its technical resources and product development efforts toward potential high volume customers. This is part of a concentrated effort to provide substantial long-term growth. MFC's Cable TV product sales decreased $63,253 or 1.5% to $4,194,398 during the fiscal year ended September 30, 2000 when compared to net sales of $4,257,651 during the fiscal year ended September 30, 1999. The decrease in sales can primarily be attributed to a decrease in demand from overseas customers. Gross profit increased $76,890 or 3.0% to $2,611,056 during the fiscal year ended September 30, 2000 when compared to gross profit of $2,534,166 during the fiscal year ended September 30, 1999. The dollar increase in gross profit during fiscal 2000 when compared to fiscal 1999 can primarily be attributed to the increase in sales. As a percentage of sales, gross profit equaled 34.9% during the fiscal year ended September 30, 2000 compared to 38.6% during the fiscal year ended September 30, 1999. The decrease in gross profit as a percentage of sales, when compared to the last year, can primarily be attributed to product sales mix. NSI's sales, whose targeted gross profits are lower than MFC's, equaled 17% of total sales during fiscal 2000 compared to 6% of total sales during fiscal 1999. 11 Selling, general and administrative (SG&A) expenses decreased $131,274 or 5.5% to $2,271,904 during the fiscal year ended September 30, 2000 when compared to SG&A expenses of $2,403,178 during the fiscal year ended September 30, 1999. Planned decreases were realized during fiscal 2000 in media advertising expense, trade show expenses and consulting fees and payroll expenses decreased during fiscal 2000, primarily due to employee turnover, when compared to fiscal 1999. As a percentage of sales, SG&A expenses equaled 30.3% during the fiscal year ended September 30, 2000 compared to 36.6% during the fiscal year ended September 30, 1999. The decrease can primarily be attributed to the increase in sales. Income from operations increased $208,164 to $339,152 during the fiscal year ended September 30, 2000 when compared to income from operations of $130,988 during the fiscal year ended September 30, 1999. On an industry segment basis, MFC's income from operations increased $152,062 to $563,706 for the fiscal year ended September 30, 2000 when compared to income from operations of $411,644 for the fiscal year ended September 30, 1999. The increase can primarily be attributed to the decreases in SG&A expenses. NSI recorded a loss from operations of $150,966 for the fiscal year ended September 30, 2000 compared to a loss from operations of $209,043 for the fiscal year ended September 30, 1999. NSI's loss from operations during fiscal 2000 can primarily be attributed to cost overruns associated with new products and the absorption of fixed overhead expenses. Corporate expenses increased $1,975 to $73,588 for the fiscal year ended September 30, 2000 when compared to $71,613 for the fiscal year ended September 30, 1999. The Company's effective income tax rate increased to 24.9% during fiscal 2000 compared to 18.1% during fiscal 1999 primarily due to the higher levels of pre-tax income. 12 Fiscal 1999 compared to fiscal 1998 Consolidated net sales for the fiscal year ended September 30, 1999 equalled $6,572,949, a decrease of $416,157 or 6% when compared to consolidated net sales of $6,989,106 during the fiscal year ended September 30, 1998. Microwave Filter Company, Inc. (MFC) sales decreased $611,040 or 9% to $6,166,754 during the fiscal year ended September 30, 1999 when compared to sales of $6,777,794 during the fiscal year ended September 30, 1998. The decrease in MFC sales can primarily be attributed to a decrease in the sales of the Company's RF/Microwave products to OEMs (Original Equipment Manufacturers). MFC's RF/Microwave product sales decreased $875,402 or 41.3% to $1,243,649 during the fiscal year ended September 30, 1999 when compared to sales of $2,119,051 during the the fiscal year ended September 30, 1998. The decrease in MFC's RF/Microwave product sales was primarily due to the completion of OEM contracts during fiscal 1998. The Company believes there will continue to be an increased demand for filters in the OEM market. Part of the Company's long term strategy has been to invest in product and infrastructure development to exploit new markets such as LMDS (Cellular TV), PCS and PCN; and, continue to develop OEM relationships. MFC's Cable TV product sales increased $669,743 or 18.7% to $4,257,651 during the fiscal year ended September 30, 1999 when compared to net sales of $3,587,908 during the fiscal year ended September 30, 1998. The increase in sales can primarily be attributed to an increase in demand from overseas customers. MFC's Broadcast TV product sales, which includes wireless cable products, decreased $417,995 or 44.5% to $522,167 during the fiscal year ended September 30, 1999 when compared to sales of $940,162 during the fiscal year ended September 30, 1998. The decrease in sales can primarily be attributed to market conditions. Niagara Scientific, Inc. (NSI), a wholly owned subsidiary, sales increased $194,883 or 92% to $406,195 for the fiscal year ended September 30, 1999 when compared to sales of $211,312 for the twelve months ended September 30, 1998. The increase in sales can be attributed to NSI's efforts to develop new products by introducing several standard low price products and a new capability to integrate "Robotics" into case packing and other material handling machines. NSI's backlog of orders at September 30, 1999 increased $497,755 to $597,280 when compared to $99,525 at September 30, 1998. Gross profit decreased $210,992 or 7.7% to $2,534,166 during the fiscal year ended September 30, 1999 when compared to gross profit of $2,745,158 during the fiscal year ended September 30, 1998. The dollar decrease in gross profit during fiscal 1999 when compared to fiscal 1998 can primarily be attributed to the decrease in sales. As a percentage of sales, gross profit equalled 38.6% during the fiscal year ended September 30, 1999 when compared to 39.3% during the fiscal year ended September 30, 1998. 13 Selling, general and administrative (SG&A) expenses decreased $358,244 or 13% to $2,403,178 during the fiscal year ended September 30, 1999 when compared to SG&A expenses of $2,761,422 during the fiscal year ended September 30, 1998. Planned decreases were realized during fiscal 1999 in research and development expenses and advertising and promotional expenses. Sales commissions expense was also down during fiscal 1999 when compared to last year primarily due to the decrease in MFC's RF/Microwave product sales. As a percentage of sales, SG&A expenses equaled 36.6% during the fiscal year ended September 30, 1999 when compared to 39.5% during the fiscal year ended September 30, 1998. Income from operations increased $147,252 to $130,988 during the fiscal year ended September 30, 1999 when compared to a loss from operations of $16,264 during the fiscal year ended September 30, 1998. On an industry segment basis, MFC's income from operations decreased $68,407 to $411,644 for the fiscal year ended September 30, 1999 when compared to income from operations of $480,051 for the fiscal year ended September 30, 1998. The decrease can primarily be attributed to the decrease in MFC sales. NSI recorded a loss from operations of $209,043 for the fiscal year ended September 30, 1999 compared to a loss from operations of $419,778 for the fiscal year ended September 30, 1998. NSI's improvement can primarily be attributed to the increase in sales and planned decreases in research and development and advertising and promotional expenses during fiscal 1999 when compared to fiscal 1998. Corporate expenses decreased $4,924 to $71,613 for the fiscal year ended September 30, 1999 when compared to $76,537 for the fiscal year ended September 30, 1998. The decrease can be attributed to a decrease in legal expenses during fiscal 1999 when compared to fiscal 1998. The Company's effective income tax rate equaled 18.1% during fiscal 1999 compared to 4.0% during fiscal 1998 primarily due to the higher levels of pre- tax income. 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. September 30 2000 1999 1998 Cash & cash equivalents $625,477 $264,147 $1,236,513 Investments $925,067 $774,649 $ 0 Working capital $2,582,446 $2,213,458 $2,558,181 Current ratio 3.11 to 1 3.35 to 1 3.78 to 1 Long-term debt $ 0 $ 0 $ 0 Cash and cash equivalents increased $361,330 to $625,477 at September 30, 2000 when compared to $264,147 at September 30, 1999. The increase was a result of $826,976 in net cash provided by operating activities, $246,996 in net cash used in investing activities and $218,650 in net cash used in financing activities. Cash used in investing activities during fiscal 2000 consisted of funds used to purchase investments and funds used for capital expenditures. Cash used in financing activities consisted of funds used to repurchase common stock of the Company and funds used to pay a cash dividend. 14 The Company's Board of Directors had authorized the repurchase of up to 500,000 shares of the Company's outstanding common stock. On January 26, 2000, the Company's Board of Directors authorized the repurchase of an additional 500,000 shares of the Company's outstanding common stock. The repurchases will be made from time to time on the open market at prevailing market prices or in negotiated transactions off the market. During fiscal 2000, 49,866 shares were repurchased using existing cash balances. Management believes the common stock repurchase program, given the Company's present cash position as well as the current market price of the stock, reflects its belief in the fundamental strength of the business and also reflects its commitment to enhancing shareholder value. At September 30, 2000, the Company had unused aggregate lines of credit totaling $600,000. Of these lines, $100,000 is for the purchase of equipment and is collateralized by equipment and $500,000 is for working capital and is collateralized by accounts receivable, inventories and equipment. Management believes that its working capital requirements for the foreseeable future will be met by its existing cash balances, future cash flows from operations and its current credit arrangements. 15 SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 - -------------------------------------------------------------------------------- Any statements contained in this report which are not historical facts are forward looking statements; and, many important factors could cause actual results to differ materially from those in the forward looking statements. Such factors include, but are not limited to, changes (legislative, regulatory and otherwise) in the MMDS, LPTV or Cable industry, demand for the Company's products (both domestically and internationally), the development of competitive products, competitive pricing, market acceptance of new product introductions, technological changes, general economic conditions, litigation and other factors, risks and uncertainties which may be identified in the Company's Securities and Exchange Commission filings. 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, 2000. 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. 16 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Financial Statements and Financial Statement Schedules 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: Common Shares Actually or Percent Beneficially of Director Principal occupation Owned 12/1/00 Class TRUDI B. ARTINI Mrs. Artini is an independent 82,435 2.7% (a)(b)(d) investor in MFC and various other Age 78 business enterprises in Syracuse, Director since 1974 New York. DAVID B. ROBINSON MD Dr. Robinson is Emeritus Professor 58,571 1.9% (a)(b)(d) of Psychiatry at Upstate Medical Age 76 University, State University of New Director since 1977 York at Syracuse. He was a faculty member from 1958 until his retirement in 1985 and served as Acting Chairman of the Dept. of Psychiatry for six of those years. He has elected to serve as a Skaneateles Town Councilman from 1990 to 1998. In 1980, he was a founding member of the Skaneateles Festival of Chamber Music. LOUIS MISENTI President and Principal 399,114 12.9% Age 73 shareholder of SCI Corp., Director since 1976 Syracuse, New York since 1984. SCI manufactures polishing compounds for the automobile and silverware industries. Mr. Misenti is also the managing partner of Northern Pines Golf Course, Cicero, New York which was founded in 1970. He was elected Chairman of the Board of Directors of MFC on March 27, 1993. 17 Common Shares Actually or Percent Beneficially of Director Principal occupation Owned 12/1/00 Class CARL F. FAHRENKRUG PE Mr. Fahrenkrug was appointed 56,273 1.8% (a)(d) President and Chief Executive Age 58 Officer of MFC on October 7, Director since 1984 1992. He has also served as President and Chief Executive Officer of NSI since prior to 1986. He served as Vice President of Engineering at Microwave Systems, Inc., Syracuse, N.Y. from 1972-1976. Mr. Fahrenkrug has a B.S. and M.S. in Engineering and an MBA from Syracuse University. MILO PETERSON Mr. Peterson has served as 108,570 3.5% (a)(d) Executive Vice President and Age 60 Corporate Secretary of NSI since Director since 1990 January 1, 1992. Mr. Peterson graduated from programs at Yale University and Syracuse University. He served as Vice President of Manufacturing of Microwave Systems, Inc., Syracuse, N.Y. from 1970-1976. He was elected Vice President And Corporate Secretary of MFC On March 27, 1993. FRANK S. MARKOVICH Mr. Markovich is a consultant in 4,340 * (c)(d) the manufacturing operations Age 55 and training field. Prior to that Director since 1992 he was the Director of the Manufacturing Extension Partnership at UNIPEG Binghamton. He held various high level positions in operations, quality and product management in a 20 year career with BF Goodrich Aerospace, Simmonds Precision Engine Systems of Norwich, New York. He completed US Navy Electronics and Communications Schools and received an MBA from Syracuse University. 18 Common Shares Actually or Percent Beneficially of Director Principal occupation Owned 12/1/00 Class ROBERT R. ANDREWS Mr. Andrews is the President and 1,214 * (a)(c) Principal shareholder of Morse Age 59 Manufacturing Co., Inc., East Director since 1992 Syracuse, N.Y. which produces specialized material handling equipment and has served in that capacity since prior to 1985. He received a B.A degree from Arkansas University and has served as Vice President and a director of the Manufacturers' Association of Central New York, President of the Citizens Foundation, a Trustee of Dewitt Community Church, director of the Salvation Army and Chairman of the Business and Industry Council of Onondaga Community College. SIDNEY CHONG Mr. Chong is Manager of Corporate 13,335 * (a)(b)(c) Accounting for Carrols Corp. in Age 59 Syracuse. Prior to joining Carrols Director since 1995 Corp., he was a Senior Accountant with Price Waterhouse and Co. in New York City. Mr. Chong has a Bachelor of Science degree in accounting from California State University. Daniel Galbally Mr. Galbally is an accountant 1,489 * (b)(c) for Auburn Steel Company, Inc. Age 53 in Auburn, New York. Prior to Director since 1995 joining Auburn Steel, he was the controller of Diamond Card Exchange, Inc. in Syracuse, New York. He was the controller of Evaporated Metal Films (EMF) in Ithaca, N.Y. Before joining EMF, he worked as controller and acting vice president of finance at Philips Display Components Co. He has a bachelor's degree in accounting and an MBA from Syracuse University. (a)Member of Executive Committee (b)Member of Compensation Committee (c)Member of Finance and Audit Committee (d)Member of Nominating Committee * Denotes less than one percent of class. 19 The Directors listed above and executive officers as a group own 727,227 shares or approximately 24% of the outstanding common shares of the Company. IDENTIFICATION OF EXECUTIVE OFFICERS Name Age Position Carl F. Fahrenkrug 58 President and Chief Executive Officer Richard L. Jones 52 Vice President and Chief Financial Officer Milo J. Peterson 60 Vice President and Corporate Secretary Paul W. Mears 41 Vice President of Engineering Terry C. Owens 46 Vice President of Sales All of the officers serve at the pleasure of the Board of Directors. Carl F. Fahrenkrug was elected President and Chief Executive Officer of MFC on October 7, 1992. Prior to that date, he had been Executive Vice President and Chief Operating Officer of MFC. Prior to January 1, 1992, he was President and CEO of NSI and Vice President of Corporate Development for MFC. Richard L. Jones joined MFC in August 1983 as controller. In February 1985, he was appointed Vice President and Treasurer of MFC. On October 7, 1992, he was appointed Vice President and Chief Financial Officer. Milo J. Peterson was elected Vice President and Corporate Secretary of MFC on March 27, 1993. Mr. Peterson has served as Executive Vice President and Corporate Secretary of NSI. He served as Vice President of Manufacturing of Microwave Systems, Inc., Syracuse, NY, from 1970 - 1976. Paul W. Mears began his association with MFC as a Co-op while attending RIT in 1981. He became a full time employee in 1984 when he began his duties as an Electrical Engineer in Research and Development. In 1988 he became a Senior Design and Quotation Engineer and in 1989, he was promoted to Assistant Chief Engineer, Manager of Engineering of the Filter Division and in April of 1998, Was appointed Vice President of Engineering. Terry C. Owens began his association with MFC in 1982 as an Associate Chief Engineer. He served as a Project Engineer with Anaren Microwave from 1988 until 1992 when he began employment with Laser Precision Corp., in Utica, New York, as a Product Specialist. He returned to MFC as Sales Manager, Assistant Marketing Manager in February of 1995 and in April 1998, was appointed Vice President of Sales. 20 ITEM 11. EXECUTIVE COMPENSATION. The following table sets forth for the fiscal years ended September 30, 2000, 1999 and 1998, compensation paid by MFC to the named executive officers in all capacities in which they served. SUMMARY COMPENSATION TABLE Annual Compensation Salary Bonus Name and principal position Year ___$___ ___$___ Carl F. Fahrenkrug 2000 120,197 - President and CEO 1999 110,966 - 1998 110,966 - 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 also has a voluntary 401-K plan. Eligibility is the same as the Profit Sharing Plan. Contributions to the 401-K plan are currently matched at a rate of 100% of an employee's first 3% of contributions and 50% of an employee's next 2% of contributions. The maximum corporate match is 4% of an employee's compensation. MFC's contributions to the plans for the years ended September 30, 2000, 1999 and 1998 amounted to $115,932, $82,720 and $78,211, respectively. STOCK OPTIONS - ------------- On April 9, 1998, the Board of Directors and Shareholders of Microwave Filter Company, Inc. approved the 1998 Microwave Filter Company, Inc. Incentive Stock Plan (the "1998 Plan"). Under the 1998 Plan, the Company may grant incentive stock options ("ISOs"), non-qualified stock options ("NQSOs") and stock appreciation rights to directors, officers and employees of the Company and its affiliates. The 1998 Plan reserves 150,000 shares for issuance. The exercise price of the ISOs and NQSOs will be 100% of the fair market value of the Common Stock on the date the ISOs and NQSOs are granted. The 1998 Plan will terminate on April 10, 2008. There were no stock options or stock appreciation rights granted or outstanding at September 30, 2000 or 1999. 21 COMPENSATION OF DIRECTORS - ------------------------- Non-officer directors receive fees of $400.00 per board and committee meeting. MFC also reimburses directors for reasonable expenses incurred in attending meetings. The Chairman of the Board and Officer members receive no compensation for their attendance at meetings. During fiscal 2000, the Company paid Louis S. Misenti $23,000 in compensation for his services as Chairman of the Board of Directors of Microwave Filter Company, Inc. ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth information as to the only persons known by the Company to own beneficially more than 5% of the Common Stock of the Company on December 1, 2000. % of Outstanding Number of shares Common Name of Beneficial Owner Address Beneficially Owned ____Stock____ Frederick A. Dix & 209 Watson Rd. 244,007 7.9% Marjorie Dix N. Syracuse, NY 13212 Louis S. Misenti 140 Clearview Rd. 399,114 12.9% Dewitt, NY 13214 The information relating to the ownership of common stock held by the directors and executive officers of the corporation is set forth in item 10 of this report. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None 22 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (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) Reports On Form 8-K: There are no reports on Form 8-K for the three months ended September 30, 2000. (C) Exhibits: Reference is made to the List of Exhibits submitted as a separate section of this report. 23 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, 2000 Pursuant to the requirements Of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated: |S| Louis S. Misenti |S| Carl F. Fahrenkrug - ------------------------ -------------------------- Louis S. Misenti Carl F. Fahrenkrug (Director) (Director) |S| Milo J. Peterson |S| Robert R. Andrews - ------------------------ ----------------------- Milo J. Peterson Robert R. Andrews (Director) (Director) |S| Sidney Chong - -------------------- Sidney Chong (Director) Dated: December 22, 2000 24 ANNUAL REPORT ON FORM 10-KSB MICROWAVE FILTER COMPANY, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE ITEM 8, ITEM 14(a)(1) and (2) CONSOLIDATED FINANCIAL STATEMENTS: Page Independent Auditors' Report.....................................26 Consolidated Balance Sheets as of September 30, 2000 and 1999....27 Consolidated Statements of Operations for the Years Ended September 30, 2000, 1999 and 1998 .......................28 Consolidated Statements of Stockholders' Equity for the Years Ended September 30, 2000, 1999 and 1998 .......................29 Consolidated Statements of Cash Flows for the Years Ended September 30, 2000, 1999 and 1998 .......................30 Notes to Consolidated Financial Statements.......................31-37 SCHEDULE FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998: Independent Auditors' Report on Schedules........................39 II-Valuation and Qualifying Accounts.............................40 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. 25 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Microwave Filter Company, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Microwave Filter Company, Inc. and Subsidiaries at September 30, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2000, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit 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, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP November 10, 2000 26 Microwave Filter Company and Subsidiaries Consolidated Balance Sheets September 30 Assets 2000 1999 - ------ ---- ---- Current assets: Cash and cash equivalents $ 625,477 $ 264,147 Investments 925,067 774,649 Accounts receivable-trade, net of allowance for doubtful accounts of $44,000 and $46,000 896,821 696,677 Inventories 1,103,830 1,192,259 Deferred tax asset - current 177,901 163,060 Prepaid expenses and other current assets 77,455 66,114 --------- --------- Total current assets 3,806,551 3,156,906 Property, plant and equipment, net 1,336,157 1,547,724 --------- --------- Total Assets $5,142,708 $4,704,630 ========== ========== Liabilities and Stockholders' Equity - ------------------------------------ Current liabilities: Accounts payable $ 392,118 $ 215,099 Customer deposits 155,372 271,025 Accrued federal and state income taxes 188,769 75,528 Accrued payroll and related expenses 100,057 70,258 Accrued compensated absences 267,327 240,343 Other current liabilities 120,462 71,195 --------- --------- Total current liabilities 1,224,105 943,448 Deferred tax liability - noncurrent 48,276 5,545 Deferred compensation and other liabilities 0 5,396 --------- --------- Total liabilities 1,272,381 954,389 --------- --------- Commitments Stockholders' equity: Common stock, $.10 par value. Authorized 5,000,000 shares Issued 4,317,688 in 2000 and 4,317,688 in 1999 431,769 431,769 Additional paid-in capital 3,239,867 3,239,867 Retained earnings 1,322,871 1,142,344 Common stock in treasury, at cost, 1,153,502 shares in 2000 and 1,103,636 shares in 1999 (1,124,180) (1,063,739) --------- --------- Total stockholders' equity 3,870,327 3,750,241 --------- --------- Total Liabilities and Stockholders' Equity $5,142,708 $4,704,630 ========== ========== The accompanying notes are an integral part of the consolidated financial statements. 27 Microwave Filter Company and Subsidiaries Consolidated Statements of Operations For the Years Ended September 30 2000 1999 1998 ---- ---- ---- Net sales $7,491,853 $6,572,949 $6,989,106 Cost of goods sold 4,880,797 4,038,783 4,243,948 --------- --------- --------- Gross profit 2,611,056 2,534,166 2,745,158 Selling, general and administrative expenses 2,271,904 2,403,178 2,761,422 --------- --------- --------- Income (loss) from operations 339,152 130,988 (16,264) Non-operating Income (Expense) Interest income 66,976 43,514 56,869 Interest expense (902) (2,174) (5,838) Miscellaneous 46,018 23,513 37,567 --------- --------- --------- Income before income taxes 451,244 195,841 72,334 Provision for income taxes 112,508 35,370 2,910 --------- --------- --------- NET INCOME $338,736 $160,471 $69,424 ========= ========= ========= Earnings Per Share $0.11 $0.05 $0.02 ========= ========= ========= Weighted average number of common shares outstanding 3,169,061 3,283,098 3,535,522 ========= ========= ========= The accompanying notes are an integral part of the consolidated financial statements. 28 Microwave Filter Company and Subsidiaries Consolidated Statements of Stockholders' Equity For the Years Ended September 30, 2000, 1999 and 1998 -----------------------------------------------------
Additional Total Common Stock Paid-in Retained Treasury Stock Stockholders' Shares Amt Capital Earnings Shares Amt Equity ------ --- ------- -------- ------ --- ------ Balance, September 30, 1997 4,275,259 $427,526 $3,206,360 $1,254,570 730,202 ($637,727) $4,250,729 Net income 69,424 69,424 Stock issued to directors 19,474 1,947 16,253 18,200 Purchase of treasury stock 80,000 (84,063) (84,063) Donated capital 1 Cash dividend paid ($.05 per share) (177,478) (177,478) --------- -------- ---------- -------- ------- ---------- ---------- Balance, September 30, 1998 4,294,733 429,473 3,222,613 1,146,516 810,203 (721,790) 4,076,812 Net income 160,471 160,471 Stock issued to directors 22,955 2,296 17,254 19,550 Purchase of treasury stock 293,380 (341,949) (341,949) Donated capital 53 Cash dividend paid ($.05 per share) (164,643) (164,643) --------- -------- ---------- -------- ------- ---------- ---------- Balance, September 30, 1999 4,317,688 431,769 3,239,867 1,142,344 1,103,636 (1,063,739) 3,750,241 Net income 338,736 338,736 Purchase of treasury stock 49,866 (60,441) (60,441) Cash dividend paid ($.05 per share) (158,209) (158,209) ---------- --------- ---------- ---------- ------- ---------- ---------- Balance September 30, 2000 4,317,688 $431,769 $3,239,867 $1,322,871 1,153,502 ($1,124,180) $3,870,327 ========== ======== ========== ========== ========= =========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 29 Microwave Filter Company and Subsidiaries Consolidated Statements of Cash Flows Increase (Decrease) in Cash and Cash Equivalents ------------------------------------------------ For the Years Ended September 30 -------------------------------- 2000 1999 1998 ---- ---- ---- Cash flows from operating activities: Net income $338,736 $160,471 $69,424 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 308,145 306,600 333,285 Inventory obsolescence provision 0 528 0 Stock compensation 0 19,550 18,200 Deferred income taxes 27,890 (34,068) 142,829 Changes in assets and liabilities: Accounts receivable-trade, net (200,144) (44,926) (107,161) Federal and state income taxes 113,241 131,341 (85,921) Inventories 88,429 135,599 (66,444) Other assets (11,341) (28,233) 66,399 Accounts payable and customer deposits 61,366 19,383 96,539 Accrued payroll, compensated absences and related expenses 56,783 (15,506) 1,024 Other current liabilities 49,267 (10,047) 3,534 Deferred compensation (5,396) (6,598) (5,972) -------- -------- ------- Net cash provided by operating activities 826,976 634,094 465,736 -------- -------- ------- Cash flows from investing activities: Investments (150,418) (774,649) 0 Capital expenditures (96,578) (280,368) (345,321) -------- -------- -------- Net cash used in investing activities (246,996)(1,055,017) (345,321) -------- --------- -------- Cash flows from financing activities: Principal payments on long-term debt 0 (44,851) (56,834) Purchase of treasury stock (60,441) (341,949) (84,063) Cash dividend paid (158,209) (164,643) (177,478) -------- -------- -------- Net cash used in financing activities (218,650) (551,443) (318,375) -------- -------- -------- Net increase (decrease) in cash and cash equivalents 361,330 (972,366) (197,960) Cash and cash equivalents at beginning of year 264,147 1,236,513 1,434,473 -------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR $625,477 $264,147 $1,236,513 ======== ======== ========== Supplemental disclosures of cash flows: Cash paid during the year for (approximately): Interest $900 $2,800 $7,000 Income taxes $5,700 $25,000 $27,000 The accompanying notes are an integral part of the consolidated financial statements. 30 Microwave Filter Company and Subsidiaries Notes to Consolidated Financial Statements ------------------------------------------ 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Nature of Business Microwave Filter Company, Inc. operates primarily in the United States and principally in two industries. 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 and defense electronics. Niagara Scientific, Inc. 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. b. Basis of Consolidation The consolidated financial statements include the accounts of Microwave Filter Company, Inc. (MFC) and its wholly-owned subsidiaries, Niagara Scientific, Inc. (NSI) and Microwave Filter International, LTD. (MFI); located in Syracuse, New York. All significant intercompany balances and transactions have been eliminated in consolidation. c. Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of 90 days or less to be cash equivalents. The carrying value at September 30, 2000 and September 30, 1999 approximates fair value. Substantially all cash balances were invested at one financial institution at September 30, 2000 and 1999. d. Investments Investments consist of commercial paper and government backed obligations that have an original maturity of more than three months and a remaining maturity of less than one year. 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. 31 e. Inventories Inventories are stated at the lower of cost determined on the first-in, first- out method or market. f. Research and Development Costs in connection with research and development, which amount to $320,789, $355,366 and $490,153 for the fiscal years 2000, 1999 and 1998, respectively, are charged to operations as incurred. g. 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. 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. h. Income Taxes The Company accounts for income taxes under Statement of Financial Accounting Standards (SFAS) No. 109. 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. i. 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 diluted EPS, which gives the effect to all dilutive potential shares outstanding (i.e. options) during the period after restatement for any stock dividends. The Company had no dilutive potential common shares outstanding for the years ended September 30, 2000, 1999 or 1998. Income used in the EPS calculation is net income for each year. j. 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. 32 2. INVENTORIES Inventories net of provision for obsolescence consisted of the following: September 30 2000 1999 ---- ---- Raw materials and stock parts $675,120 $755,086 Work-in-process 325,270 317,434 Finished goods 103,440 119,739 -------- --------- $1,103,830 $1,192,259 ========== ========== 3. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following: September 30 2000 1999 ---- ---- Land $143,000 $143,000 Building and improvements 1,803,653 1,803,653 Machinery and equipment 2,743,584 2,684,498 Office equipment and fixtures 1,385,137 1,347,645 Other 46,753 46,753 --------- --------- 6,122,127 6,025,549 Less: Accumulated depreciation 4,785,970 4,477,825 --------- --------- $1,336,157 $1,547,724 ========== ========== 33 4. CREDIT FACILITIES The Company has unused aggregate lines of credit totaling $600,000. Of these lines, $100,000 is for the purchase of equipment and is collateralized by equipment and $500,000 is for working capital and is collateralized by accounts receivable, inventories and equipment. 5. PROFIT SHARING AND 401-K PLANS The Company maintains both a non-contributory profit sharing plan and a contributory 401-K plan for all employees over the age of 21 with one year of service. Annual contributions to the profit sharing plan are determined by the Board of Directors and are made from current or accumulated earnings, while contributions to the 401-K plan are currently matched at a rate of 100% of an employee's first 3% of contributions and 50% of an employee's next 2% of contributions. The maximum corporate match is 4% of an employee's compensation. The Company's matching contributions to the 401-K plan for the years ended September 30, 2000, 1999 and 1998 were $65,932, $62,720 and $58,211 , respectively. Additionally, the Company may make discretionary contributions to the non-contributory profit sharing plan. These contributions were $50,000, $20,000 and $20,000 in 2000, 1999 and 1998, respectively. 6. OBLIGATIONS UNDER OPERATING LEASES The Company leases equipment under operating lease agreements expiring at various dates through September 30, 2003. Rental expense under these leases for the years ended September 30, 2000, 1999 and 1998 amounted to $15,353, $61,420 and $97,256, respectively. Minimum rental commitments at September 30, 2000 for these leases are: Year Ended Principal September 30 Payments ------------ -------- 2001 9,923 2002 9,923 2003 6,615 ------- $26,461 ======= 34 7. INCOME TAXES The provision for income taxes consisted of the following: Year Ended September 30 2000 1999 1998 Currently payable (recoverable): Federal $ 78,618 $68,438 $(142,019) State 6,000 1,000 2,100 Deferred (credit) 27,890 (34,068) 142,829 ------- ------- ------- $112,508 $35,370 $2,910 ======== ======= ======= A reconciliation of the statutory federal income tax rate and the Company's effective income tax rate is as follows: Year ended September 30 ______2000______ ______1999______ ______1998______ Amount % Amount % Amount % Statutory tax rate $153,423 34.0% $66,586 34.0% $24,593 34.0% Surtax exemption (6,958) (3.5%) (11,510) (15.9%) State income tax net of: Federal benefit 3,960 0.9% 820 0.4% 1,722 2.4% Foreign sales corp. benefit (14,712) (3.3%) (5,558) (2.8%) (2,792) (3.9%) Research and experimentation tax credits (29,398) (6.5%) (27,903) (14.3%) (8,057) (11.1%) Other (765) (0.2%) 8,383 4.3% (1,046) (1.5%) -------- ------ ------- ------ ------- ------ $112,508 24.9% $35,370 18.1% $2,910 4.0% ======== ===== ======= ===== ====== ==== The temporary differences which give rise to deferred tax assets and liabilities at September 30 are as follows: 2000 1999 ---- ---- Inventory $98,354 $115,015 Accrued vacation 65,215 66,077 Other 14,332 (18,032) ------- ------- Net deferred tax assets - current $177,901 $163,060 ======== ======== Accelerated depreciation ($90,068) ($100,576) Research and experimentation tax credit carry forward 2,393 61,934 AMT credit carry forward 39,399 42,181 Other 0 (9,084) ------ -------- Net deferred tax liabilities - noncurrent ($48,276) ($5,545) ======== ======= Based on the Company's history of taxable earnings and its expectations for the future, management has determined that operating income will more likely than not be sufficient to recognize its deferred tax assets. At September 30, 2000, the Company's federal AMT credit can be carried forward indefinitely. 35 8. INDUSTRY SEGMENT DATA The Company's primary business segments involve (1) operations of Microwave Filter Company, Inc. (MFC) which manufactures electronic filters used for preventing interference or signal processing in cable television, satellite, broadcast, aerospace and government markets; and (2) operations of Niagara Scientific, Inc. (NSI) which manufactures industrial automation equipment. Information by industry segment is as follows: (thousands of dollars) 2000 1999 1998 Net Sales (Unaffiliated): MFC $6,207 $6,167 $6,778 NSI 1,285 406 211 Total $7,492 $6,573 $6,989 Operating Profit (Loss): (a) MFC $563 $412 $480 NSI (151) (209) (420) Corporate (73) (72) (76) Total $339 $131 $(16) Identifiable Assets: (b) MFC $3,921 $4,014 $3,535 NSI 597 427 279 Subtotal 4,518 4,441 3,814 Corporate Assets-Cash and Cash Equivalents 625 264 1,237 Total $5,143 $4,705 $5,051 Depreciation & Amortization Expense: MFC $282 $280 $304 NSI 26 27 29 Total $308 $307 $333 Capital Expenditures: MFC $91 $280 $284 NSI 6 0 61 Total $97 $280 $345 Significant Export Sales: MFC $808 $845 $546 Sales to Significant Customers: MFC: Motorola Government Systems - $707 (a) Operating profit (loss) is total revenue less operating expenses. In computing operating profit, none of the following items have been added or deducted: general corporate expenses, interest expense, income taxes and miscellaneous income. Expenses incurred on behalf of both Companies are allocated based upon estimates of their relationship to each entity. (b) Identifiable assets by industry are those assets that are used in the Company's operations in each industry. 36 9. STOCK OPTIONS On April 9, 1998, the Board of Directors and Shareholders of Microwave Filter Company, Inc. approved the 1998 Microwave Filter Company, Inc. Incentive Stock Plan (the "1998 Plan"). Under the 1998 Plan, the Company may grant incentive stock options ("ISOs"), non-qualified stock options ("NQSOs") and stock appreciation rights to directors, officers and employees of the Company and its affiliates. The 1998 Plan reserves 150,000 shares for issuance. The exercise price of the ISOs and NQSOs will be 100% of the fair market value of the Common Stock on the date the ISOs and NQSOs are granted. The 1998 Plan will terminate on April 10, 2008. There were no stock options or stock appreciation rights granted or outstanding at September 30, 2000. 10. LEGAL MATTERS There are currently no material pending legal proceedings against the Company or its subsidiaries. 37 EXHIBIT INDEX Page Exhibit No. Description Number 3.1 MFC Certificate of Corporation, as amended. * 3.2 MFC Amended and Restated Bylaws. * 10.1 Bond Purchase Agreement dated as of February 22,1984 * among MFC, Onondaga County Industrial Development Agency ("OCIDA") and Key Bank of Central New York ("Bondholder"). 10.2 Lease Agreement dated as of February 22, 1984 between MFC and OCIDA. * 10.3 Mortgage and Security Agreement dated as of February 22, 1984 from * MFC and OCIDA to the Bondholder. 10.4 Guaranty Agreement dated as of February 22, 1984 from MFC to OCIDA * and the Bondholder. 10.5 Application by Debtor in Possession for Authority to Sell General * Intangible Assets and Order (MFC's acquisition of CT-1000 System). 10.6 Stock Purchase Agreement dated February 8, 1993 between Glyn and * Emily Bostick and MFC. * Previously filed 38 INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors and Stockholders of Microwave Filter Company, Inc. Our audits of the consolidated financial statements referred to in our report dated November 10, 2000 included in this 2000 Annual Report on Form 10-K of Microwave Filter Company, Inc. and Subsidiaries also included an audit of the financial statement schedule listed in ITEM 14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP November 10, 2000 39 Microwave Filter Company and Subsidiaries Schedule II - VALUATION AND QUALIFYING ACCOUNTS SEPTEMBER 30, 2000, 1999 and 1998
Col. A Col. B Col. C Col. D Col. E Additions Balance at Charged to Charged to Beginning Costs and Other Balance at Description of Period Expenses Accounts Deductions End of Period - ----------- --------- ----------------------- ---------- ------------- Year ended September 30, 2000 Allowance for doubtful accounts $45,970 $1,947 $44,023 Inventory valuation reserves 373,162 50,061 323,101 -------- -------- ------- ------- -------- $419,132 $0 $0 $52,008 $367,124 ======== ======== ======= ======== ======== Year ended September 30, 1999 Allowance for doubtful accounts $52,622 $0 $6,652 $45,970 Inventory valuation reserves 372,634 528 0 373,162 -------- -------- ------- ------- -------- $425,256 $528 $0 $6,652 $419,132 ======== ======== ======= ======= ======== Year ended September 30, 1998 Allowance for doubtful accounts $57,905 $5,283 $52,622 Inventory valuation reserves 613,813 241,179 372,634 -------- -------- ------- ------- -------- $671,718 $0 $0 $246,462 $425,256 ======== ======== ======= ======== ========
40 EX-27 2 fds-2000.frm FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the financial statements for Microwave Filter Company, Inc. filed with Form 10-K for the twelve months ended September 30, 2000 and is qualified in its entirety by reference to such financial statements. U.S.DOLLARS 12-MOS Oct-01-1999 Sep-30-2000 Sep-30-2000 1 625,477 0 896,821 44,023 1,103,830 3,806,551 6,122,127 4,785,970 5,142,708 1,224,105 0 0 0 431,769 3,438,558 5,142,708 7,491,853 7,491,853 4,880,797 7,152,701 0 0 902 451,244 112,508 338,736 0 0 0 338,736 0.11 0.11
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