10-Q 1 mfc10q2.txt MFC 10-Q FOR 2ND QTR 2011 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended March 31, 2011 Commission file number 0-10976 MICROWAVE FILTER COMPANY, INC. (Exact name of registrant as specified in its charter.) New York 16-0928443 (State of Incorporation) (I.R.S. Employer Identification Number) 6743 Kinne Street, East Syracuse, N.Y. 13057 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (315) 438-4700 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports, and (2) has been subject to such filing requirements for the past 90 days. YES __X__ NO____ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ____ NO____ (The Registrant is not yet required to submit Interactive Data) Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act). Large accelerated filer ______ Accelerated filer ______ Non-accelerated filer ______ (Do not check if smaller reporting company) Smaller reporting company ____X____. Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ____ NO__X__ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.10 Par Value - 2,588,144 shares as of May 2, 2011. 1 MICROWAVE FILTER COMPANY, INC. Form 10-Q Index Item Page Part I Financial Information Item 1. Financial Statements 3 Consolidated Balance Sheets (unaudited) 3 Consolidated Statements of Operations (unaudited) 4 Consolidated Statements of Cash Flows (unaudited) 5 Notes to Consolidated Financial Statements (unaudited) 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-14 Item 3. Quantitative and Qualitative Disclosures About Market Risk 15 Item 4. Controls and Procedures 16 Part II Other Information 17 Signatures 18 2 PART I. - FINANCIAL INFORMATION MICROWAVE FILTER COMPANY, INC. CONSOLIDATED BALANCE SHEETS March 31, 2011 September 30, 2010 (Unaudited) Assets Current Assets: Cash and cash equivalents $ 1,659,244 $ 1,466,719 Accounts receivable-trade, net of allowance for doubtful accounts of $26,000 and $18,000 271,445 423,666 Inventories 563,125 536,004 Prepaid expenses and other current assets 52,970 92,417 ----------- ----------- Total current assets 2,546,784 2,518,806 Property, plant and equipment, net 457,850 444,418 ----------- ----------- Total assets $ 3,004,634 $ 2,963,224 =========== =========== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 155,239 $ 161,676 Customer deposits 28,554 39,618 Accrued federal and state income taxes payable 2,544 2,544 Accrued payroll and related expenses 71,659 52,932 Accrued compensated absences 212,318 245,055 Other current liabilities 38,294 35,831 ----------- ----------- Total current liabilities 508,608 537,656 ----------- ----------- Total liabilities 508,608 537,656 ----------- ----------- Stockholders' Equity: Common stock,$.10 par value. Authorized 5,000,000 shares, Issued 4,324,140 shares in 2011 and 2010, Outstanding 2,588,144 shares in 2011 and 2,591,486 shares in 2010 432,414 432,414 Additional paid-in capital 3,248,706 3,248,706 Retained earnings 503,716 430,504 --------- --------- 4,184,836 4,111,624 Common stock in treasury, at cost 1,735,996 shares in 2011 and 1,732,654 shares in 2010 (1,688,810) (1,686,056) --------- --------- Total stockholders' equity 2,496,026 2,425,568 --------- --------- Total liabilities and stockholders' equity $ 3,004,634 $ 2,963,224 =========== =========== See Accompanying Notes to Consolidated Financial Statements 3 MICROWAVE FILTER COMPANY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 2011 AND 2010 (Unaudited) Three months ended Six months ended March 31 March 31 2011 2010 2011 2010 Net sales $1,258,316 $1,093,697 $2,552,883 $2,228,755 Cost of goods sold 821,299 731,550 1,648,607 1,446,009 ---------- ---------- ---------- ---------- Gross profit 437,017 362,147 904,276 782,746 Selling, general and administrative expenses 413,896 383,271 835,110 791,641 ---------- ---------- ---------- ---------- Income (loss) from operations 23,121 (21,124) 69,166 (8,895) Other income (net), principally interest 2,498 1,896 4,046 3,751 ---------- ---------- ---------- ---------- Income (loss) before income taxes 25,619 (19,228) 73,212 (5,144) Provision for income taxes 0 0 0 0 ---------- ---------- ---------- ---------- NET INCOME (LOSS) $25,619 ($19,228) $73,212 ($5,144) ========== ========== ========== ========== Per share data: Basic and diluted earnings (loss) per share $0.01 ($0.01) $0.03 $0.00 ========== ========== ========== ========== Shares used in computing net earnings (loss) per share: Basic and diluted 2,588,331 2,592,899 2,589,117 2,593,055 ========== ========== ========== ==========
See Accompanying Notes to Consolidated Financial Statements 4 MICROWAVE FILTER COMPANY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED MARCH 31, 2011 AND 2010 (Unaudited) Six months ended March 31 2011 2010 Cash flows from operating activities: Net income (loss) $ 73,212 $ (5,144) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation 48,386 46,889 Provision for doubtful accounts 8,391 0 Change in assets and liabilities: Accounts receivable 143,830 (147,775) Inventories (27,121) 2,050 Prepaid expenses & other assets 39,447 5,543 Accounts payable and customer deposits (17,501) 1,198 Accrued payroll, compensated absences and related expenses (14,010) 14,878 Other current liabilities 2,463 2,275 --------- --------- Net cash provided by (used in) operating activities 257,097 (80,086) --------- --------- Cash flows from investing activities: Capital expenditures (61,818) (117,787) --------- --------- Net cash (used in) provided by investing activities (61,818) (117,787) --------- --------- Cash flows from financing activities: Purchase of treasury stock (2,754) (381) --------- --------- Net cash (used in) provided by financing activities (2,754) (381) --------- --------- Increase (decrease) in cash and cash equivalents 192,525 (198,254) Cash and cash equivalents at beginning of period 1,466,719 1,476,318 --------- --------- Cash and cash equivalents at end of period $1,659,244 $1,278,064 ========== ========== See Accompanying Notes to Consolidated Financial Statements 5 MICROWAVE FILTER COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011 Note 1. Summary of Significant Accounting Policies The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Regulation S-K. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. 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 six month period ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ended September 30, 2011. For further information, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10K for the year ended September 30, 2010. Note 2. Industry Segment Data The Company's primary business segment involves the operations of Microwave Filter Company, Inc. (MFC) 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 market. Inventories net of reserve for obsolescence consisted of the following: March 31, 2011 September 30, 2010 Raw materials and stock parts $439,075 $414,331 Work-in-process 31,025 25,740 Finished goods 93,025 95,933 -------- -------- $563,125 $536,004 ======== ======== The Company's reserve for obsolescence equaled $403,595 at March 31, 2011 and September 30, 2010. 6 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 deferred tax assets. The Company adopted FASB ASC 740-10. FASB ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an entity's financial statements and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax position taken or expected to be taken on a tax return. Additionally, it provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company determined it has no uncertain tax positions and therefore no amounts are recorded. Note 5. Legal Matters The State of New York Workers' Compensation Board has commenced an action against Microwave Filter Company, Inc. to recover for an underfunded self insured program that Microwave Filter Company, Inc. participated in. Due to the relatively short period of time Microwave Filter Company, Inc. participated in the program and the limited amount of potential exposure, we do not expect the resolution of this action will have a material adverse effect on our financial condition, results of operations or cash flows. Note 6. Fair Value of Financial Instruments The carrying values of the Company cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short maturity of those instruments. The Company currently does not trade in or utilize derivative financial instruments. Note 7. Significant Customers Sales to one customer represented approximately 18% of total sales for the six months ended March 31, 2011. 7 MICROWAVE FILTER COMPANY, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. (MFC) 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 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, and taxes. Note 1 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2010 describes the significant accounting policies used in preparation of the consolidated financial statements. The most significant areas involving management judgments and estimates are described below and are considered by management to be critical to understanding the financial condition and results of operations of the Company. Revenues from product sales are recorded as the products are shipped and title and risk of loss have passed to the customer, provided that no significant vendor or post-contract support obligations remain and the collection of the related receivable is probable. Billings in advance of the Company's performance of such work are reflected as customer deposits in the accompanying consolidated balance sheet. Allowances for doubtful accounts are based on estimates of losses related to customer receivable balances. The establishment of reserves requires the use of judgment and assumptions regarding the potential for losses on receivable balances. The Company's inventories are stated at the lower of cost determined on the first-in, first-out method or market. The Company uses certain estimates and judgments and considers several factors including product demand and changes in technology to provide for excess and obsolescence reserves to properly value inventory. 8 The Company established a warranty reserve which provides for the estimated cost of product returns based upon historical experience and any known conditions or circumstances. Our warranty obligation is affected by product that does not meet specifications and performance requirements and any related costs of addressing such matters. The Company 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 deferred tax assets. 9 RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2011 vs. THREE MONTHS ENDED MARCH 31, 2010 The following table sets forth the Company's net sales by major product group for the three months ended March 31, 2011 and 2010. Product group Fiscal 2011 Fiscal 2010 Microwave Filter (MFC): Cable TV $ 354,645 $ 295,576 RF/Microwave 512,240 405,524 Satellite 374,239 349,928 Broadcast TV 16,103 42,384 Niagara Scientific (NSI) 1,089 285 ---------- ---------- Total $1,258,316 $1,093,697 ========== ========== Sales backlog at 3/31 $ 351,030 $ 679,401 ========== ========== Net sales for the three months ended March 31, 2011 equaled $1,258,316, an increase of $164,619 or 15.1%, when compared to net sales of $1,093,697 for the three months ended March 31, 2010. MFC's Cable TV product sales increased $59,069 or 20% to $354,645 for the three months ended March 31, 2011 when compared to Cable TV product sales of $295,576 during the same period last year. The increase can be attributed to a large order received from one customer. Management continues to project a decrease in demand for Cable TV products due to the shift from analog to digital television. Due to the inherent nature of digital modulation versus analog modulation, fewer filters will be required. The Company has developed filters for digital television and there will still be requirements for analog filters for limited applications in commercial and private cable systems. MFC's RF/Microwave product sales increased $106,716 or %26.3 to $512,240 for the three months ended March 31, 2011 when compared to RF/Microwave product sales of $405,524 during the same period last year. Management attributes the increase in sales to the Company's efforts to encourage OEM relationships. MFC's RF/Microwave products are sold primarily to Original Equipment Manufacturers (OEMs) that serve the mobile radio, commercial communications and defense electronics markets. 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. Sales to one OEM customer represented approximately 23% of total sales for the quarter ended March 31, 2011 compared to approximately 21% of total sales for the quarter ended March 31, 2010. 10 MFC's Satellite product sales increased $24,311 or 6.9% to $374,239 for the three months ended March 31, 2011 when compared to Satellite product sales of $349,928 during the same period last year. The increase can be attributed to an increase in demand for the Company's filters which suppress strong out-of- band interference caused by military and civilian radar systems and other sources. Although economic conditions do impact sales, management expects demand for these types of filters to continue with the proliferation of earth stations world wide and increased sources of interference. MFC's Broadcast TV/Wireless Cable product sales decreased $26,281 or 62% to $16,103 for the three months ended March 31, 2011 when compared to sales of $42,384 during the same period last year. The decrease can be attributed to a decrease in demand for UHF Broadcast products which are primarily sold to system integrators for rural communities. MFC's sales order backlog equaled $351,030 at March 31, 2011 compared to sales order backlog of $679,401 at March 31, 2010. 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. Approximately 94% of the total sales order backlog at March 31, 2011 is scheduled to ship by September 30, 2011. Gross profit for the three months ended March 31, 2011 equaled $437,017, an increase of $74,870 or 20.7%, when compared to gross profit of $362,147 for the three months ended March 31, 2010. The dollar increase in gross profit can primarily be attributed to the higher sales volume this year when compared to the same period last year. As a percentage of sales, gross profit equaled 34.7% for the three months ended March 31, 2011 compared to 33.1% for the three months ended March 31, 2010. The increase in gross profit as a percentage of sales can primarily be attributed to the higher sales volume this year providing a higher base to absorb fixed overhead expenses. Selling, general and administrative (SGA) expenses for the three months ended March 31, 2011 equaled $413,896, an increase of $30,625 or 8.0%, when compared to SG&A expenses of $383,271 for the three months ended March 31, 2010. The increase can be primarily be attributed to increases in trade show and promotional expenses. As a percentage of sales, SGA expenses decreased to 32.9% for the three months ended March 31, 2011 when compared to 35.0% for the three months ended March 31, 2010 primarily due to the higher sales volume this year when compared to the same period last year. The Company recorded income from operations of $23,121 for the second quarter ended March 31, 2011 compared to a loss from operations of $21,124 for the three months ended March 31, 2010. The increase in operating income can primarily be attributed to the higher sales volume this year when compared to the same period last year. The provision (benefit) for income taxes equaled $0 for the three months ended March 31, 2011 and March 31, 2010. 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. 11 SIX MONTHS ENDED MARCH 31, 2011 vs. SIX MONTHS ENDED MARCH 31, 2010 The following table sets forth the Company's net sales by major product group for the six months ended March 31, 2011 and 2010. Product group Fiscal 2011 Fiscal 2010 Microwave Filter (MFC): Cable TV $ 751,220 $ 701,515 RF/Microwave 931,570 683,520 Satellite 821,591 721,727 Broadcast TV 47,255 118,915 Niagara Scientific (NSI) 1,247 3,078 ---------- ---------- Total $2,552,883 $2,228,755 ========== ========== Sales backlog at 3/31 $ 351,030 $ 679,401 ========== ========== Net sales for the six months ended March 31, 2011 equaled $2,552,883, an increase of $324,128 or 14.5%, when compared to net sales of $2,228,755 for the six months ended March 31, 2010. MFC's Cable TV product sales increased $49,705 or 7.1% to $751,220 for the six months ended March 31, 2011 when compared to Cable TV product sales of $701,515 during the six months ended March 31, 2010. The increase can be attributed to a large order received from one customer. Management continues to project a decrease in demand for Cable TV products due to the shift from analog to digital television. Due to the inherent nature of digital modulation versus analog modulation, fewer filters will be required. The Company has developed filters for digital television and there will still be requirements for analog filters for limited applications in commercial and private cable systems. MFC's RF/Microwave product sales increased $248,050 or 36.3% to $931,570 for the six months ended March 31, 2011 when compared to RF/Microwave product sales of $683,520 during the same period last year. Management attributes the increase in sales to the Company's efforts to encourage OEM relationships. MFC's RF/Microwave products are sold primarily to Original Equipment Manufacturers (OEMs) that serve the mobile radio, commercial communications and defense electronics markets. 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. Sales to one OEM customer represented approximately 18% of total sales for the six months ended March 31, 2011 compared to approximately 15% of total sales for the six months ended March 31, 2010. 12 MFC's Satellite product sales increased $99,864 or 13.8% to $821,591 for the six months ended March 31, 2011 when compared to satellite product sales of $721,727 during the same period last year. The increase can be attributed to an increase in demand for the Company's filters which suppress strong out-of- band interference caused by military and civilian radar systems and other sources. Although economic conditions do impact sales, management expects demand for these types of filters to continue with the proliferation of earth stations world wide and increased sources of interference. MFC's Broadcast TV/Wireless Cable product sales decreased $71,660 or 60.3% to $47,255 for the six months ended March 31, 2011 when compared to sales of $118,915 during the same period last year. The decrease can be attributed to a decrease in demand for UHF Broadcast products which are primarily sold to system integrators for rural communities. Gross profit for the six months ended March 31, 2011 equaled $904,276, an increase of $121,530 or 15.5%, when compared to gross profit of $782,746 for the six months ended March 31, 2010. The increase can primarily be attributed to the higher sales volume this year when compared to the same period last year. As a percentage of sales, gross profit equaled 35.4% for the six months ended March 31, 2011 compared to 35.1% for the six months ended March 31, 2010. SG&A expenses for the six months ended March 31, 2011 equaled $835,110, an increase of $43,469 or 5.5%, when compared to SG&A expenses of $791,641 for the six months ended March 31, 2010. The increase can be primarily be attributed to increases in trade show and promotional expenses. As a percentage of sales, SGA expenses decreased to 32.7% for the six months ended March 31, 2011 compared to 35.5% for the six months ended March 31, 2010 primarily due to the higher sales volume this year when compared to the same period last year. The Company recorded income from operations of $69,166 for the six months ended March 31, 2011 compared to a loss from operations of $8,895 for the six months ended March 31, 2010. The improvement can primarily be attributed to the higher sales volume this year when compared to the same period last year. Other income for the six months ended March 31, 2011 equaled $4,046, an increase of $295, when compared to other income of $3,751 for the six months ended March 31, 2010. Other income is primarily interest income earned on invested cash balances. Other income may fluctuate based on market interest rates and levels of invested cash balances. The provision (benefit) for income taxes equaled $0 for the six months ended March 31, 2011 and March 31, 2010. 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. 13 Off-Balance Sheet Arrangements At March 31, 2011 and 2010, the Company did not have any unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which might have been established for the purpose of facilitating off-balance sheet arrangements. LIQUIDITY and CAPITAL RESOURCES Mar. 31, 2011 Sep. 30, 2010 Cash & cash equivalents $1,659,244 $1,466,719 Working capital $2,038,176 $1,981,150 Current ratio 5.00 to 1 4.68 to 1 Long-term debt $ 0 $ 0 Cash and cash equivalents increased $192,525 to $1,659,244 at March 31, 2011 when compared to cash and cash equivalents of $1,466,719 at September 30, 2010. The increase was a result of $257,097 in net cash provided by operating activities, $61,818 in net cash used for capital expenditures and $2,754 in net cash used to purchase treasury stock. The decrease in accounts receivable of $152,221 at March 31, 2011 when compared to September 30, 2010 can be attributed to improved collections and the decrease in shipments during the month of March 2011 when compared to the month of September 2010. The decrease in prepaid expenses and other current assets of $39,447 at March 31, 2011 when compared to September 30, 2010 can primarily be attributed to timing. At March 31, 2011, the Company had unused aggregate lines of credit totaling $750,000 collateralized by all inventory, equipment and accounts receivable. Management believes that its working capital requirements for the forseeable future will be met by its existing cash balances, future cash flows from operations and its current credit arrangements. 14 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 2010 Annual Report and Form 10-K for the fiscal year ended September 30, 2010 and other Securities and Exchange Commission filings. Forward looking statements may be made directly in this document or "incorporated by reference" from other documents. You can find many of these statements by looking for words like "believes," "expects," "anticipates," "estimates," or similar expressions. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There has been no significant change in our exposures to market risk during the six months ended March 31, 2011. For a detailed discussion of market risk, see our Annual Report on Form 10-K for the fiscal year ended September 30, 2010, Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk. 15 ITEM 4. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a- 15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures were effective as of the end of the period covered by this report. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING There have been no changes in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a- 15(f) and 15d-15(f) under the exchange act. Under the supervision and with the participation of the Company's management, including our principal executive officer and principal financial officer, the Company conducted an evaluation of its internal control over financial reporting based on criteria established in the framework in "Internal Control-Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, the Company's management concluded and certifies that its internal control over financial reporting was effective as of March 31, 2011. This Quarterly Report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm. 16 PART II - OTHER INFORMATION Item 1. Legal Proceedings The State of New York Workers' Compensation Board has commenced an action against Microwave Filter Company, Inc. to recover for an underfunded self insured program that Microwave Filter Company, Inc. participated in. Due to the relatively short period of time Microwave Filter Company, Inc. participated in the program and the limited amount of potential exposure, we do not expect the resolution of this action will have a material adverse effect on our financial condition, results of operations or cash flows. Item 1A. Risk Factors Not applicable. Item 2. Changes in Securities None during this reporting period. Item 3. Defaults Upon Senior Securities The Company has no senior securities. Item 4. (Removed and Reserved) Item 5. Other Information None. Item 6. Exhibits a. Exhibits 31.1 Section 13a-14(a)/15d-14(a) Certification of Carl F. Fahrenkrug 31.2 Section 13a-14(a)/15d-14(a) Certification of Richard L. Jones 32.1 Section 1350 Certification of Carl F. Fahrenkrug 32.2 Section 1350 Certification of Richard L. Jones 17 Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MICROWAVE FILTER COMPANY, INC. May 13, 2011 Carl F. Fahrenkrug (Date) -------------------------- Carl F. Fahrenkrug Chief Executive Officer May 13, 2011 Richard L. Jones (Date) -------------------------- Richard L. Jones Chief Financial Officer 18