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0000716688
MICROWAVE FILTER CO INC /NY/
2581007
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<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Note 1. Summary of Significant Accounting
Policies</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.15in">The following condensed
balance sheet as of September 30, 2015, which has been derived from audited financial statements, and the unaudited interim condensed
consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the company believes
that the disclosures made are adequate to make the information not misleading. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have been included. The operating results for the six
month period ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ended September
30, 2016. 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, 2015.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Note 2. Industry Segment Data</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.15in">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Note 3. Inventories</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.15in">Inventories are
stated at the lower of cost determined on the first-in, first-out method or market.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.15in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.15in">Inventories net
of reserve for obsolescence consisted of the following:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">March 31, 2016</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">September 30, 2015</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 62%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Raw materials and stock parts</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">319,849</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">367,344</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Work-in-process</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">18,695</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">19,884</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Finished goods</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">43,266</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">60,279</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">381,810</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">447,507</font></td>
<td style="line-height: 115%"> </td></tr>
</table>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.15in">The Company’s
reserve for obsolescence equaled $429,255 at March 31, 2016 and September 30, 2015. The Company provides for a valuation reserve
for certain inventory that is deemed to be obsolete, of excess quantity or otherwise impaired.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Note 4. Income Taxes</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.15in">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.15in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.15in">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Note 5. Legal Matters</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.15in">None.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Note 6. Fair Value of Financial Instruments</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.15in">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.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.15in">The Company currently
does not trade in or utilize derivative financial instruments.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Note 7. Significant Customers</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.15in">Sales to one customer
represented approximately 31% of total sales for the six months ended March 31, 2016 and March 31, 2015. This one customer has
represented approximately 33%, 25% and 14% of total sales for the fiscal years ending September 30, 2015, 2014 and 2013, respectively.
A loss of this customer or programs related to this customer could materially impact the Company.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Note 8. Notes Payable</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.15in">On July 2, 2013,
Microwave Filter Company, Inc. (the “Company”) entered into a Ten Year Term Loan with KeyBank National Association
in the amount of Five Hundred Thousand and No/100 Dollars ($500,000.00). The amount of all advances outstanding together with accrued
interest thereon shall be due and payable on July 2, 2023 (“Maturity”). The Company shall pay interest on the outstanding
principal balance of this Note at the rate per annum equal to 4.5%. The net proceeds from the Term Loan will be available to provide
working capital as needed. The total amount outstanding as of March 31, 2016 and September 30, 2015 was $388,121 and $410,178 respectively.
Interest accrued as of March 31, 2016 and September 30, 2015 was $1,407 and $1,436, respectively.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.15in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.15in">The Company has
secured this Note by: (a) a Mortgage, Assignment of Rents, Security Agreement and Fixture Filing which creates a 1<sup>st </sup>lien
on real property situated in the Town of Dewitt, County of Onondaga, and State of New York and known as 6743 Kinne Street, East
Syracuse, New York; (b) a General Assignment of Rents and Leases; (c) an Environmental Compliance and Indemnification; and (d)
such other security as may now or hereafter begiven to Lender as collateral for the loan.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Note 9. Earnings Per Share</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.15in">The Company presents
basic earnings per share (“EPS”), computed based on the weighted average number of common shares outstanding for the
period, and when applicable diluted EPS, which gives the effect to all dilutive potential shares outstanding (i.e. options) during
the period after restatement for any stock dividends. There were no dividends declared during the quarters ended March 31, 2016
and 2015. Income (loss) used in the EPS calculation is net income (loss) for each period. There were no dilutive potential shares
outstanding for the periods ending March 31, 2016 and 2015.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">Note 10. Recent Accounting Pronouncements</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"> </p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.15in">In February 2016,
the FASB issued FASB ASU No. 2016-02, <i>Leases (Topic 842)</i>. The core principle of Topic 842 is that a lessee should recognize
the assets and liabilities that arise from leases. For operating leases, a lessee is required to recognize a right-of-use asset
and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position. For
leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset
not to recognize lease assets and lease liabilities. The accounting applied by a lessor is largely unchanged from that applied
under previous GAAP. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within
those fiscal years. Earlier application is permitted. In transition, lessees and lessors are required to recognize and measure
leases at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently evaluating
the effect that the adoption of this ASU will have on its financial statements.</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.15in">Inventories net
of reserve for obsolescence consisted of the following:</p>
<p style="font: 10pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">March 31, 2016</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td colspan="2" style="text-align: center; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">September 30, 2015</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 62%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Raw materials and stock parts</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">319,849</font></td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"> </td>
<td style="width: 1%; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">367,344</font></td>
<td style="width: 1%; line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Work-in-process</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">18,695</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">19,884</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">Finished goods</font></td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">43,266</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">60,279</font></td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="text-align: right; line-height: 115%"> </td>
<td style="line-height: 115%"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">381,810</font></td>
<td style="line-height: 115%"> </td>
<td style="line-height: 115%"> </td>
<td style="border-bottom: black 1.5pt solid; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 1.5pt solid; text-align: right; line-height: 115%"><font style="font: 10pt Times New Roman, Times, Serif">447,507</font></td>
<td style="line-height: 115%"> </td></tr>
</table>