PINX:MFCO Microwave Filter Co Inc Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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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, 2012

Commission file number 0-10976


MICROWAVE FILTER COMPANY, INC.
(Exact name of registrant as specified in its charter.)


 
New York
16-0928443
(State of Incorporation)
(I.R.S. Employer Identification Number)



6743 Kinne Street, East Syracuse, N.Y.
13057
(Address of Principal Executive Offices)
(Zip Code)

(315) 438-4700
Registrant's telephone number, including area code


    Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of  the Securities Exchange Act of  1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports, and (2) has been subject to such filing requirements for the past 90 days.     
YES __X__  NO____

    Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
  YES __X__  NO____

    Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act). 
Large accelerated filer ______
Accelerated filer ______
Non-accelerated filer ______ (Do not check if smaller reporting company)
Smaller reporting company ____X____. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
YES ____  NO__X__


Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.  


Common Stock, $.10 Par Value -    2,585,459 shares as of May 1, 2012.



Table of Contents

MICROWAVE FILTER COMPANY, INC.
Form 10-Q

Index


Item Page
   
Part I Financial Information  
   
Item 1. Financial Statements 3
   
          Condensed Consolidated Balance Sheets (unaudited) 3
   
          Condensed Consolidated Statements of Operations unaudited) 4
   
           Condensed Consolidated Statements of Cash Flows (unaudited) 5
   
           Notes to Condensed Consolidated Financial Statements (unaudited) 6-7

 
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
            



<PAGE>                                2


Table of Contents

                        PART I. - FINANCIAL INFORMATION

Microwave Filter Company and Subsidiaries
Condensed Consolidated Balance Sheets

 

 
March 31, 2012
September 30, 2011
 
  (Unaudited)  
Assets                
Current Assets:                
Cash and cash equivalents   
$
1,106,915     $ 1,258,885  
Accounts receivable-trade, net of                
     allowance for doubtful accounts                
     of $26,000 and $26,000     323,512       352,054  
Federal and state income tax recoverable     0       24,828  
Inventories, net     459,913       567,261  
Prepaid expenses and other current assets     73,357       94,114  
                 
Total current assets     1,963,697       2,297,142  
                 
Property, plant and equipment, net     729,609       617,818  
                 
Total assets  
$
2,693,306     $ 2,914,960  
                 
                 
Liabilities and Stockholders' Equity                
                 
Current liabilities:                
Accounts payable  
$
99,672     $ 195,535  
Customer deposits     30,971       51,886  
Accrued payroll and related expenses     71,838       57,514  
Accrued compensated absences     197,213       250,443  
Other current liabilities     44,919       83,654  
                 
Total current liabilities     444,613       639,032  
                 
Total liabilities     444,613       639,032  
                 
Stockholders' Equity:                
Common stock, $.10 par value                
     Authorized 5,000,000 shares, Issued                
     4,324,140 shares in 2012 and 2011,                
     Outstanding 2,586,227 shares in 2012                
     and 2011     432,414       432,414  
Additional paid-in capital     3,248,706       3,248,706  
Retained earnings     258,250       285,485  
                 
Common stock in treasury, at cost                
     1,737,913 shares in 2012 and 2011   ( 1,690,677 )   ( 1,690,677  )
                 
Total stockholders' equity     2,248,693       2,275,928  
                 
Total liabilities and  stockholders' equity  
$
2,693,306     $ 2,914,960  
                 

<FN>
See Accompanying Notes to Condensed Consolidated Financial Statements




<PAGE>                             3


Table of Contents

Microwave Filter Company and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)

                                     
      Three months ended       Six months ended  
      March 31,       March 31,  
      2012         2011       2012         2011  
                                     
Net sales $   1,025,920     $   1,258,316  
$
  2,343,127     $   2,552,883  
                                     
Cost of goods sold     688,306         821,299       1,502,301         1,648,607  
                                     
Gross profit     337,614         437,017       840,826         904,276  
Selling, general and                                    
     administrative expenses     470,737         413,896       892,707         835,110  
                                     
(Loss) income from operations ( 133,123 ) 23,121 ( 51,881 ) 69,166
   
Other income (net)      3,071     2,498     24,646     4,046  
(Loss) income                                    
    before income taxes   ( 130,052 )   25,619   ( 27,235 )   73,212  
(Benefit) provision                                    
    for income taxes     0     0     0     0  
                                     
Net (loss) Income $ ( 130,052 )  
$
  25,619   $ ( 27,235 )  
$
  73,212  
Per share data:                                    
Basic and diluted (loss)                                     
    earnings per share $ ( 0.05 )  
$
  0.01   $ ( 0.01 )  
$
  0.03  
                                     
Shares used in computing net                                    
     (loss) earnings per share:     2,586,227         2,588,331       2,586,227         2,589,117  

<FN>
See Accompanying Notes to Condensed Consolidated Financial Statements

<PAGE>                             4   


Table of Contents
Microwave Filter Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)

                   
      Six months ended  
      March 31  
      2012         2011  
                   
Cash flows from operating activities:                  
Net (loss) income $ ( 27,235 )   $   73,212  
                                     
Adjustments to reconcile net (loss)                  
     income to net cash provided by                  
     used in) operating activities:                                    
Depreciation     77,287         48,386  
Gain on sale of fixed assets   ( 20,000 )       0  
Provision for doubtful accounts     0         8,391  
Change in operating assets and liabilities:                  
Accounts receivable-trade     28,542         143,830  
Federal and state income                  
     tax recoverable    
24,828
       
0
                   
Inventories     107,348       ( 27,121 )
Prepaid expenses and other assets     20,757         39,447  
Accounts payable and customer                                    
     deposits   ( 116,778 )     ( 17,501 )
Accrued payroll and related expenses                  
     and compensated absences   ( 38,906 )     ( 14,010 )
Other current liabilities   ( 38,735 )       2,463  
                                     
Net cash provided by                  
    operating activities     17,108         257,097  
                     
Cash flows from investing activities:                  
Property, plant and equipment purchased   ( 189,078 )     ( 61,818 )
Proceeds from sale of fixed assets     20,000         0  
                                     
  Net cash used in investing activities   ( 169,078 )       ( 61,818 )
                                     
Cash flows from financing activities:                  
Purchase of treasury stock     0       ( 2,754 )
                                     
  Net cash used in financing activities     0       ( 2,754 )
                                     
(Decrease) increase  in cash                  
      and cash equivalents   ( 151,970 )       192,525  
                                     
Cash and cash equivalents                  
      at beginning of period     1,258,885         1,466,719  
                                     
Cash and cash equivalents                  
      at end of period $   1,106,915     $   1,659,244  
                   
Supplemental Schedule of Cash Flow Information:                  
     Income taxes paid $   15,000     $   0  


<FN>


See Accompanying Notes to Condensed Consolidated Financial Statements



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MICROWAVE FILTER COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

  MARCH 31, 2012



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, 2012 are not necessarily indicative of the results that may be expected for the year ended September 30, 2012. For further information, refer to the condensed consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10K for the year ended September 30, 2011.


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, 2012
September 30, 2011
   
                 
Raw materials and stock parts     $ 398,987  
$
499,622  
Work-in-process       24,133     14,056  
Finished goods       36,793     53,583  
                     
      $ 459,913  
$
567,261  


                  
 The Company's reserve for obsolescence equaled $392,703 at March 31, 2012 and September 30, 2011.


<PAGE>                             6


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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. The Company has accrued $12,000 for this action in other current liabilities.


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 19% of total sales for the six months ended March 30, 2012 compared to 18% of total sales for the six months ended March 31, 2011.


<PAGE>                             7


Table of Contents

  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 condensed consolidated financial statements are based on the application of United States generally accepted accounting principles (GAAP). GAAP requires the use of estimates, assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue and expense amounts reported. The Company believes its use of estimates and underlying accounting assumptions adhere to GAAP and are consistently applied. Valuations based on estimates are reviewed for reasonableness and adequacy on a consistent basis throughout the Company. Primary areas where financial information of the Company is subject to the use of estimates, assumptions and the application of judgment include revenues, receivables, inventories, and taxes. Note 1 to the condensed consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2011 describes the significant accounting policies used in preparation of the condensed consolidated financial statements. The most significant areas involving management judgments and estimates are described below and are considered by management to be critical to understanding the financial condition and results of operations of the Company.

  Revenues from product sales are recorded as the products are shipped and title and risk of loss have passed to the customer, provided that no significant vendor or post-contract support obligations remain and the collection of the related receivable is probable. Billings in advance of the Company's performance of such work are reflected as customer deposits in the accompanying condensed consolidated balance sheet.

  Allowances for doubtful accounts are based on estimates of losses related to customer receivable balances. The establishment of reserves requires the use of judgment and assumptions regarding the potential for losses on receivable balances.

  The Company's inventories are stated at the lower of cost determined on the first-in, first-out method or 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.


<PAGE>                              8


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  The Company established a warranty reserve which provides for the estimated cost of product returns based upon historical experience and any known conditions or circumstances. 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.

<PAGE>                              9


Table of Contents

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2012 vs. THREE MONTHS ENDED MARCH 31, 2011

The following table sets forth the Company's net sales by major product group for the three months ended March 31, 2012 and 2011.

             
Product group
Fiscal 2012
 
Fiscal 2011
 
Microwave Filter (MFC):            
     RF/Microwave $ 369,112  
$
512,240  
     Satellite   370,976     374,239  
     Cable TV   247,622     354,645  
     Broadcast TV   35,822     16,103  
Niagara Scientific (NSI):   2,388     1,089  
                 
Total $ 1,025,920  
$
1,258,316  
                 
Sales backlog at March 31
$ 612,412  
$
351,030  


  Net sales for the three months ended March 31, 2012 equaled $1,025,920, a decrease of $232,396 or 18.5%, when compared to net sales of $1,258,316 for the three months ended March 31, 2011.

  MFC’s RF/Microwave product sales decreased $143,128 or 27.9% to $369,112 for the three months ended March 31, 2012 when compared to RF/Microwave product sales of $512,240 during the same period last year. Management attributes the decrease in sales to the economy. The Company has experienced a slowdown in requests for quotes and orders over the last six months.  MFC’s RF/Microwave products are sold primarily to Original Equipment Manufacturers (OEM) 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 both the quarter ended March 31, 2012 and March 31, 2011. The Company did receive two large orders from this one OEM customer on March 28, 2012 with shipments beginning in April 2012 and ending in December 2012.  

  MFC’s Satellite product sales decreased $3,263 or 0.9% to $370,976 for the three months ended March 31, 2012 when compared to Satellite product sales of $374,239 during the same period last year. The decrease can be attributed to a decrease 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.

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  MFC’s Cable TV product sales decreased $107,023 or 30.2% to $247,622 for the three months ended March 31, 2012 when compared to Cable TV product sales of $354,645 during the same period last year. The decrease can primarily be attributed to one large order received from an international distributor last year. 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 Broadcast TV/Wireless Cable product sales increased $19,719 to $35,822 for the three months ended March 31, 2012 when compared to sales of $16,103 during the same period last year. The increase can be attributed to an increase in demand for UHF Broadcast products which are primarily sold to system integrators for rural communities.

  MFC's sales order backlog equaled $612,412 at March 31, 2012 compared to sales order backlog of $351,030 at March 31, 2011. 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 88% of the total sales order backlog at March 31, 2012 is scheduled to ship by September 30, 2012.

  Gross profit for the three months ended March 31, 2012 equaled $337,614, a decrease of $99,403 or 22.7%, when compared to gross profit of $437,017 for the three months ended March 31, 2011. The dollar decrease in gross profit can primarily be attributed to the lower sales volume this year when compared to the same period last year. As a percentage of sales, gross profit equaled 32.9% for the three months ended March 31, 2012 compared to 34.7% for the three months ended March 31, 2011. The decrease in gross profit as a percentage of sales can primarily be attributed to the lower sales volume this year providing a lower base to absorb fixed expenses.

  Selling, general and administrative (SGA) expenses for the three months ended March 31, 2012 equaled $470,737, an increase of $56,841 or 13.7%, when compared to SGA expenses of $413,896 for the three months ended March 31, 2011. The increase can primarily be attributed to legal and professional fees associated with the recent proxy contest. As previously disclosed, a shareholder filed proxy materials proposing proxy access and nominating two directors for election at the Annual Meeting of Shareholders which was held on March 28, 2012. On March 27, 2012, the night before the annual meeting, the Company received an e-mail from this same shareholder indicating that neither he nor anyone acting on his behalf would be attending the shareholder meeting to nominate directors or present the proxy access proposal. Per our FORM 8-K filing on March 29, 2012, management’s nominees were elected. As a percentage of sales, SGA expenses increased to 45.9% for the three months ended March 31, 2012 when compared to 32.9% for the three months ended March 31, 2011 primarily due to the lower sales volume this year when compared to the same period last year, as well as the above mentioned increase in SGA expenses due to the above referenced proxy contest.

  The Company recorded a loss from operations of $133,123 for the three months ended March 31, 2012 compared to income from operations of $23,121 for the three months ended March 31, 2011. The decrease in operating income can primarily be attributed to the lower sales volume and the higher SGA expenses this year when compared to the same period last year.

  The (benefit) provision for income taxes equaled $0 for the three months ended March 31, 2012 and March 31, 2011. We have not recognized any (benefit) provision for income taxes.  Any benefit for losses has been subject to a valuation allowance since the realization of the deferred tax benefit is not considered more likely than not.  As required by FASB ASC 740 (Prior Authoritative Literature: SFAS 109, Accounting for Income Taxes), the Company has evaluated the positive and negative evidence bearing upon the realization of its deferred tax assets. The Company has determined that, at this time, it is more likely than not that the Company will not realize all of the benefits of federal and state deferred tax assets, and, as a result, a valuation allowance was established.


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  SIX MONTHS ENDED MARCH 31, 2012 vs. SIX MONTHS ENDED MARCH 31, 2011

The following table sets forth the Company's net sales by major product group for the six months ended March 31, 2012 and 2011.

             
Product group
Fiscal 2012
 
Fiscal 2011
 
Microwave Filter (MFC):            
     RF/Microwave $ 895,044  
$
931,570  
     Satellite   702,330     821,591  
     Cable TV   681,069     751,220  
     Broadcast TV   60,950     47,255  
Niagara Scientific (NSI):   3,734     1,247  
                 
Total $ 2,343,127  
$
2,552,883  
                 
Sales backlog at March 31  $ 612,412  
$
351,030  


  Net sales for the six months ended March 31, 2012 equaled $2,343,127, a decrease of $209,756 or 8.2%, when compared to net sales of $2,552,883 for the six months ended March 31, 2011.

   MFC’s RF/Microwave product sales decreased $36,526 or 3.9% to $895,044 for the six months ended March 31, 2012 when compared to RF/Microwave product sales of $931,570 during the same period last year. Management attributes the decrease in sales to the economy. The Company has experienced a slowdown in requests for quotes and orders over the last six months. MFC’s RF/Microwave products are sold primarily to Original Equipment Manufacturers 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 19% of total sales for the six months ended March 31, 2012 compared to approximately 18% of total sales for the six months ended March 31, 2011. The Company did receive two large orders from this one OEM customer on March 28, 2012 with shipments beginning in April 2012 and ending in December 2012.

   MFC’s Satellite product sales decreased $119,261 or 14.5% to $702,330 for the six months ended March 31, 2012 when compared to satellite product sales of $821,591 during the same period last year. The decrease can be attributed to a decrease 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.

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  MFC’s Cable TV product sales decreased $70,151 or 9.3% to $681,069 for the six months ended March 31, 2012 when compared to Cable TV product sales of $751,220 during the same period last year. The decrease can primarily be attributed to one large order received from an international distributor last year. 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 Broadcast TV/Wireless Cable product sales increased $13,695 or 29% to $60,950 for the six months ended March 31, 2012 when compared to sales of $47,255 during the same period last year. The increase can be attributed to an increase 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, 2012 equaled $840,826, a decrease of $63,450 or 7%, when compared to gross profit of $904,276 for the six months ended March 31, 2011. The decrease can primarily be attributed to the lower sales volume this year when compared to the same period last year. As a percentage of sales, gross profit equaled to 35.9% for the six months ended March 31, 2012 compared to 35.4% for the six months ended March 31, 2011.

  SG&A expenses for the six months ended March 31, 2012 equaled $892,707, an increase of $57,597 or 6.9%, when compared to SG&A expenses of $835,110 for the six months ended March 31, 2011. The increase can primarily be attributed to expenses associated with the recent proxy contest. As previously disclosed, a shareholder filed proxy materials proposing proxy access and nominating two directors for election at the Annual Meeting of Shareholders which was held on March 28, 2012. On March 27, 2012, the night before the annual meeting, the Company received an e-mail from this same shareholder indicating that neither he nor anyone acting on his behalf would be attending the shareholder meeting to nominate directors or present the proxy access proposal. Per our FORM 8-K filing on March 29, 2012, management’s nominees were elected. As a percentage of sales, SGA expenses increased to 38.1% for the six months ended March 31, 2012 compared to 32.7% for the six months ended March 31, 2011 primarily due to the lower sales volume this year when compared to the same period last year, as well as the above mentioned increase in SGA expenses due to the above referenced proxy contest.

  The Company recorded a loss from operations of $51,881 for the six months ended March 31, 2012 compared to income from operations of $69,166 for the six months ended March 31, 2011. The decrease in operating income can primarily be attributed to the lower sales volume and the higher SGA expenses this year when compared to the same period last year.

  Other income for the six months ended March 31, 2012 equaled $24,646, an increase of $20,600 when compared to other income of $4,046 for the six months ended March 31, 2011. The increase can be attributed to a $20,000 gain in the sale of a fixed asset.

  The (benefit) provision for income taxes equaled $0 for the six months ended March 31, 2012 and March 31, 2011. We have not recognized any (benefit) provision for income taxes.  Any benefit for losses has been subject to a valuation allowance since the realization of the deferred tax benefit is not considered more likely than not.  As required by FASB ASC 740 (Prior Authoritative Literature: SFAS 109, Accounting for Income Taxes), the Company has evaluated the positive and negative evidence bearing upon the realization of its deferred tax assets. The Company has determined that, at this time, it is more likely than not that the Company will not realize all of the benefits of federal and state deferred tax assets, and, as a result, a valuation allowance was established.

 

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Off-Balance Sheet Arrangements

  At March 31, 2012 and 2011, 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
       
  March 31, 2012 September 30, 2011  
       
Cash & cash equivalents $1,106,915 $1,258,885  
Working capital $1,519,084 $1,658,110  
Current ratio 4.42 to 1 3.59 to 1  
Long-term debt $0 $0  

  Cash and cash equivalents decreased $151,970 to $1,106,915 at March 31, 2012 when compared to cash and cash equivalents of $1,258,885 at September 30, 2011. The decrease was a result of $17,108 in net cash provided by operating activities and $169,078 in net cash used for capital expenditures.

  The decrease in inventories of $107,348 at March 31, 2012 when compared to September 30, 2011 can primarily be attributed to the slowdown in orders over the last six months and customers scheduled delivery dates.

  The decrease in accounts payable of $95,863 at March 31, 2012 when compared to September 30, 2011 can primarily be attributed to the decrease in inventories.

  The decrease in accrued compensated absences of $53,230 at March 31, 2012 when compared to September 30, 2011 can primarily be attributed to accrued vacation used or paid during the six months ended March 31, 2012. Due to the lower sales volume, the Company has been participating in the New York State Shared Work Program which allows employers to reduce the hours of all or a particular group of employees. The employees whose hours are reduced can receive partial unemployment benefits or use earned vacation or personal time to supplement their lost wages.

  The decrease in other current liabilities of $38,735 at March 31, 2012 when compared to September 30, 2011 can primarily be attributed to the payment of a $50,000 profit sharing contribution which was accrued at September 30, 2011.

  Capital expenditures totaling $189,078 for the six months ended March 31, 2012 consisted primarily of machinery.

  At March 31, 2012, 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.

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SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995


  In an effort to provide investors a balanced view of the Company's current condition and future growth opportunities, this Quarterly Report on Form 10-Q includes comments by the Company's management about future performance. These statements which are not historical information are "forward-looking statements" pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These, and other forward-looking statements, are subject to business and economic risks and uncertainties that could cause actual results to differ materially from those discussed. These risks and uncertainties include, but are not limited to: risks associated with demand for and market acceptance of existing and newly developed products as to which the Company has made significant investments; general economic and industry conditions; slower than anticipated penetration into the satellite communications, mobile radio and commercial and defense electronics markets; competitive products and pricing pressures; increased pricing pressure from our customers; risks relating to governmental regulatory actions in broadcast, communications and defense programs; as well as other risks and uncertainties, including but not limited to those detailed from time to time in the Company's Securities and Exchange Commission filings. These forward-looking statements are made only as of the date hereof, and the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. You are encouraged to review Microwave Filter Company’s 2011 Annual Report and Form 10-K for the fiscal year ended September 30, 2011 and other Securities and Exchange Commission filings. Forward looking statements may be made directly in this document or “incorporated by reference” from other documents. You can find many of these statements by looking for words like “believes,” “expects,” “anticipates,” “estimates,” or similar expressions.


ITEM 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, 2012. For a detailed discussion of market risk, see our Annual Report on Form 10-K for the fiscal year ended September 30, 2011, Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk.


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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.



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                     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. The Company has accrued $12,000 for this action in other current liabilities.

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.  Mine Safety Disclosures
    
          Not applicable.

Item 5.  Other Information

         None. 

Item 6.  Exhibits

         a.  Exhibits

            31.1  Section 13a-14(a)/15d-14(a) Certification of 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

 


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    Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


                               MICROWAVE FILTER COMPANY, INC.


  May 11, 2012                Carl F. Fahrenkrug
(Date)                              --------------------------
                                        Carl F. Fahrenkrug
                                        Chief Executive Officer

  May 11, 2011                 Richard L. Jones
(Date)                               --------------------------
                                         Richard L. Jones
                                         Chief Financial Officer







<PAGE>                             18

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PINX:MFCO Microwave Filter Co Inc Quarterly Report 10-Q Filing - 3/31/2012
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