MFCO trades Nasdaq at 1 5/16 by 1 3/8...52wh 3.50...3.7m shares outstanding...my guess is that they will expand their business this year...esp in a couple of the segments described below for wireless/cable/PCS...following from 10-k that came out last week...at 11.20a stock is up 1/8 at 1 3/8 on 25,000...gpg
NARRATIVE DESCRIPTION OF BUSINESS
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Microwave Filter Company, Inc. (MFC)
Established in 1967 in East Syracuse, New York, MFC occupies a modern 40,000
square foot facility with an impressive complement of analytical and design
software, test instrumentation, prototype and manufacturing equipment to create
passive filters, components and sub systems in the frequency range of 10 MHz to
50 GHz.
MFC manufactures filters for eliminating interference and signal processing
for such markets as Cable Television, Broadcast, Mobile Communications,
Avionics, Radar, Navigation and Defense Electronics. The Company designs
waveguide, stripline/ microstrip, transmission line, miniature/subminiature
and lumped constant filters in such filter styles as: bandpass, highpass,
lowpass, bandstop, multiplexers, tunable notch, tunable bandpass, high power
filters, filter networks, amplitude equalized and delay equalized. The Company
actively produces over 1,700 standard products and has designed more than 5,000
custom products for specialized applications.
A quality plan is developed for each incoming order. Working as a team,
engineers, designers, fabricators and technicians identify any potential design
or manufacturing challenges before the project begins. With a quality plan,
design to shipping time is reduced due to careful resource planning.
The manufacturing facility includes a state-of-the-art CAD-CAM system, a test
department with automated network analyzers to 50 GHz, a high capacity conveyor
soldering oven, a fully compliant finishing operation and a TQM/ISO9000 based
quality assurance program to insure the intrinsic quality of the products
produced.
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Efficient simulation, design and analysis software enhanced by proprietary
MFC developed software, allow rapid and accurate filter development at
reasonable cost. Automated network analyzers provide rigorous product testing
and performance data storage on a serial number basis.
A network based CAD-CAM system allows the transfer of data and programs to
the CNC turning and milling centers for fabrication of machined parts.
Prototype PC boards are similarly produced by computer controlled PC board
mills.
A Grieve high capacity conveyor soldering oven is used for production of
large quantity assemblies while smaller production quantities are assembled at
hand soldering or brazing stations.
ISO-9000 contract and design review procedures coupled with a QA department
that is compliant with MIL-I-45208 inspection systems and MIL-STD-45622
calibration system standards assures process and product integrity. A
certified staff instructor regularly trains associates to MIL-STD-2000A (now
superceded by J-STD-001.)
Other in-house testing facilities include three environmental chambers
capable of testing products for temperatures of -0 to 200 degrees Celsius and
humidity up to 100 percent. Several high power amplifiers are available for
power tests up to 2500 watts at 220 MHz and 100 watts at 1,000 MHz. An
automated in-house anechoic chamber provides antenna pattern measurement
capability in the 2 to 8 GHz frequency range. Facilities are also available
for salt spray, sand and dust, shock and vibration, RFI leakage and altitude
testing.
Niagara Scientific, Inc. (NSI)
------------------------------
NSI manufactures material handling equipment for suppliers of consumer goods.
Such suppliers would include food processors or any other manufacturer of
packaged consumer products that need to be moved into shipping cartons at a
certain rate of speed.
The Schroeder Machines Division (SMD), in existence for over 50 years, is a
division of Niagara Scientific. SMD manufactures a number of case packing
solutions but is most noted for its Quadnumatic. The Quadnumatic is an
automatic case packing machine that performs all the functions of collating,
case forming, loading and sealing products into their shipping cartons at
packing speeds ranging from 12 to 30 cases per minute.
Other products offered by Schroeder include a servo pick-and-place machine
for top loading packaging applications and a case erector/bottom taping
machine for customers who still hand pack or need to add a case former to an
existing case packing machine.
With robotics becoming more prevalent in the handling of food,
pharmaceuticals and other large volume consumer products, SMD has become a
systems integrator for Staibli of Switzerland and Adept Technology, Inc. of
San Jose, CA. Both companies manufacture robot systems for high-speed assembly
and packaging operations. This added capability has allowed Schroeder to serve
its customer base with the most up-to-date technology.
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MARKETS
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Microwave Filter Company, Inc. (MFC)
------------------------------------
Cable Television (CATV) - MFC serves this market principally with three
product groups. One popular area includes standard and custom filters used at
the headend to process signals and remove interference. A very popular
application involves removing or re-routing channels to organize programming
line-ups.
A family of trap filters, "Fastrap," is used by cable operators to restrict
or permit the viewing of pay per view or other premium programming. The traps
can be ordered in small and large quantities, are 100% inspected and delivered
overnight.
Since all operators initially receive programming via satellite, products
from our satellite market cross over into cable television. C-band satellite
receive systems are prone to various types of terrestrial interference which
are curable in many cases by applying filters.
Cable television is establishing a place for itself in the afterglow of the
Telecommunications Act of 1966. This important federal legislation removed
restrictions from telephone companies offering video services and from cable
companies offering telephone service. Its purpose was to increase competition
among those service providers. A result of this legislation has been the
convergence of several industries such as the acquisition of TCI, the largest
US cable television company, by AT&T. Though it may appear as though this
legislation has encouraged monopoly, instead it has offered companies the
ability to combine resources and acquire capital for new projects. In recent
years, the demand for fast and varied data services has greatly increased. The
next few years will see these converged companies working towards delivering
consumers the high-speed voice and data services they demand.
Broadcast - Several areas of broadcast are served by Microwave Filter
Company with the most active being Wireless Cable.
Wireless Cable is a video delivery service that has attempted to compete with
cable television throughout this decade with limited success. This service
delivers programming over-the-air using microwave frequencies. Television
programming is received via a small rooftop antenna. The signals are then down
converted for reception by the television set. At the home, the equipment looks
the same as that supplied by a cable television company with the exception of
the rooftop antenna.
Forces that worked against the success of this market were limited financial
sources, access to programming, channel limitations and regulatory obstacles.
While some of these obstacles were overturned, the industry struggled for
financial backing. Unfortunately with modest finances, business plans could
not be met. Nor was it possible to invest in new technology necessary to offer
new services now being demanded by the public. Despite its problems, Wireless
Cable is a viable technology for fast two-way data delivery and telephony.
Interest in this technology is still keen. Over the last two years, several
telephone companies have been acquiring Wireless Cable systems because of
their potential in delivering high speed data. It is also a viable technology
in international markets that lack the infrastructure for cable television
delivery. The hope is that this market will rebound domestically with the help
of the telephone companies.
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The most significant product sold to this market is our channel combiner used
at the broadcast site to reduce tower costs. By combining channels at the
transmitter, additional expensive coaxial or waveguide runs up the tower
become unnecessary.
MFC offers the widest selection of channel combiners to meet a variety of
system specifications. Combiners in different configurations and constructed
of different materials offer the operator better or best options depending on
budget or other system requirements.
Another area which is predicted to revive Wireless Cable is LMDS,
frequencies between 28 and 31 GHz which have been designated for fixed
wireless broadband services. Canada has been leading the way in the
development of this market by rolling out voice and high speed internet
access. In the US, the FCC has also been auctioning off frequencies over the
last two years. Several systems utilizing this technology have also been
launched in numerous overseas markets. LMDS essentially uses the same
operating equipment as Wireless Cable providers. Microwave Filter Company
sells a notch and bandpass filter series to remove interference at the
transmitter to this market.
LPTV - Low Power Television or LPTV is an option in the U.S. as a
multichannel subscription television service. A system similar to Wireless
Cable can be configured to deliver channels of programming to areas
where off air signals cannot be received. The only difference between both
services is broadcast frequency and the type of antenna located at the
subscriber's home. An LPTV receive antenna would look like any other off air
broadcast antenna in contrast to the microwave antenna used for Wireless
Cable. LPTV frequencies are easier to obtain and there are more LPTV than
Wireless channels available. In fact, due to the limited number of Wireless
Cable frequencies, Wireless Cable operators are using a combination of Wireless
and LPTV frequencies to increase the number of channels offered to their
subscribers. As a broadcaster, LPTV differs from traditional television only
in broadcast power. With lower broadcast power, the service has a smaller
reception area than high power broadcast stations.
Microwave Filter Company provides channel combiners and interference filters
for this industry. The channel combiners are used to group channels and
eliminate additional coaxial runs to the broadcast tower. Filters are also
used in broadcast equipment to eliminate interference.
Radio and Television Broadcast - MFC primarily serves these broadcast areas
with interference filters to reduce equipment harmonics. Other broadcast areas
served also include AML, telemetry and STL/ENG relays.
Similar to cable television, the broadcast industry is also moving towards
the digital delivery of both audio and video broadcast.
Satellite - Filters and traps for removing interference are provided to both
commercial and home C-band TVRO antennas. A variety of products are available
that offer protection and or solutions to interference that affects the
feedhorn, downconverter, and receiver. A variety of filters are also available
for satellite services utilizing higher frequency bands such as 12, 13 and 18
GHz.
Direct Broadcast Satellite or DBS is a version of home satellite programming
delivered direct to the home. It differs from C-band TVRO by the size of the
receive antenna. DBS broadcasts at a higher frequency requiring a smaller
satellite dish than C-band TVRO. Both satellite dealers and cable television
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systems market the service to offer consumers television options.
Mobile Radio - MFC provides filters to a variety of mobile radio services
such as cellular telephone, two way radio and paging to eliminate interference
in transmit or receive equipment. With the number of services increasing and
our air waves becoming more congested, filters are increasingly important to
many transmit operations. Cellular telephone has been the largest mobile
radio growth market. The Cellular market is beginning to level off and now
Personal Communications Services (PCS) is an area of mobile radio on the rise.
Microwave and RF - This market encompasses both commercial and military
applications. Filters in defense applications are used for such purposes as
air to ground communications, radar and land communications. In commercial
areas, filters are used to protect such equipment as receivers, transmitters,
transceivers and any other electronics used for signal processing. In addition
to filters, this market is also served with MFC's Ferrosorb product line.
Ferrosorb is a microwave absorbing material available in sheets, loads and a
variety of other shapes. The product is used to offer protection by shielding
signals or absorbing selective bands.
In 1992, MFC's acquisition of certain assets of Chesterfield Products added
an expanded line of products to enhance the RF filter line. Many of MFC's
traditional filters are components added onto a system. Chesterfield provided
MFC with the capability to manufacture miniature and subminiature filters
which are components built into electronic systems. Another Chesterfield
capability has provided us with the resources to expand our filter design
range down to 5 KHz.
There has been an increased demand for filters in the OEM (Original Equipment
Manufacturer) market. In response to this demand, MFC has purchased new design,
fabrication and test equipment to design filters up to 50 GHz. OEM orders are
larger than those received for other markets and facilities such as a soldering
oven have been added in the manufacturing area for large volume production.
Niagara Scientific, Inc. (NSI)
------------------------------
NSI - Like MFC, NSI and its divisions seek niche markets arising from
certain demographic changes in the industrial work force which promotes
acceptance of automation in both large and small factories. NSI's typical
product is customized to the purchaser's operation and is the result of system
engineering. The product makes tactical use of precision mechanical movements
or sensors of physical characteristics under microprocessor control. These
smart machines reduce labor costs through faster operation and increased
quality.
Typical customers for case packing machines are food processors or makers of
cosmetics, pharmaceuticals, candies or hardware whose product must be cased
for shipping and storage.
Other custom equipment is designed for inspection-rejection, counting,
analyzing or otherwise monitoring, reporting or controlling a continuous
manufacturing or industrial process.
Typical customers are commodity mass producers in the food, drug and paint
industries.
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WORLD TRADE
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Management believes that world marketing is a route to substantial expansion
of sales for MFC/NSI. Export opportunities for MFC's communication related
products are many - especially in areas of the world such as China, the
Pacific Rim and South America. Marketing research reveals that the Company's
products are in high demand in these areas of the world. Significant efforts
have been made over the last year to identify key international markets and to
establish distributors with appropriate technical backgrounds to represent our
interests in those regions.
NSI products are less suitable for export for a number of reasons, including
their large size and complexity, less demand in underdeveloped areas for
automation and significant local competition. However, NSI is well qualified
to produce and or distribute complementary products under license.
Fiscal 1999 compared to fiscal 1998
Consolidated net sales for the fiscal year ended September 30, 1999 equalled
$6,572,949, a decrease of $416,157 or 6% when compared to consolidated net
sales of $6,989,106 during the fiscal year ended September 30, 1998.
Microwave Filter Company, Inc. (MFC) sales decreased $611,040 or 9% to
$6,166,754 during the fiscal year ended September 30, 1999 when compared to
sales of $6,777,794 during the fiscal year ended September 30, 1998.
The decrease in MFC sales can primarily be attributed to a decrease in the
sales of the Company's RF/Microwave products to OEMs (Original Equipment
Manufacturers). MFC's RF/Microwave product sales decreased $875,402 or 41.3%
to $1,243,649 during the fiscal year ended September 30, 1999 when compared to
sales of $2,119,051 during the the fiscal year ended September 30, 1998. The
decrease in MFC's RF/Microwave product sales was primarily due to the
completion of OEM contracts during fiscal 1998. The Company believes there
will continue to be an increased demand for filters in the OEM market. Part
of the Company's long term strategy has been to invest in product and
infrastructure development to exploit new markets such as LMDS (Cellular TV),
PCS and PCN; and, continue to develop OEM relationships.
MFC's Cable TV product sales increased $669,743 or 18.7% to $4,257,651 during
the fiscal year ended September 30, 1999 when compared to net sales of
$3,587,908 during the fiscal year ended September 30, 1998. The increase in
sales can primarily be attributed to an increase in demand from overseas
customers.
MFC's Broadcast TV product sales, which includes wireless cable products,
decreased $417,995 or 44.5% to $522,167 during the fiscal year ended September
30, 1999 when compared to sales of $940,162 during the fiscal year ended
September 30, 1998. The decrease in sales can primarily be attributed to
market conditions.
Niagara Scientific, Inc. (NSI), a wholly owned subsidiary, sales increased
$194,883 or 92% to $406,195 for the fiscal year ended September 30, 1999 when
compared to sales of $211,312 for the twelve months ended September 30, 1998.
The increase in sales can be attributed to NSI's efforts to develop new
products by introducing several standard low price products and a new
capability to integrate "Robotics" into case packing and other material
handling machines. NSI's backlog of orders at September 30, 1999 increased
$497,755 to $597,280 when compared to $99,525 at September 30, 1998.
Gross profit decreased $210,992 or 7.7% to $2,534,166 during the fiscal
year ended September 30, 1999 when compared to gross profit of $2,745,158
during the fiscal year ended September 30, 1998. The dollar decrease in gross
profit during fiscal 1999 when compared to fiscal 1998 can primarily be
attributed to the decrease in sales. As a percentage of sales, gross profit
equalled 38.6% during the fiscal year ended September 30, 1999 when compared
to 39.3% during the fiscal year ended September 30, 1998.
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<PAGE>
Selling, general and administrative (SG&A) expenses decreased $358,244 or
13% to $2,403,178 during the fiscal year ended September 30, 1999 when
compared to SG&A expenses of $2,761,422 during the fiscal year ended September
30, 1998. Planned decreases were realized during fiscal 1999 in research and
development expenses and advertising and promotional expenses. Sales
commissions expense was also down during fiscal 1999 when compared to last
year primarily due to the decrease in MFC's RF/Microwave product sales. As a
percentage of sales, SG&A expenses equalled 36.6% during the fiscal year ended
September 30, 1999 when compared to 39.5% during the fiscal year ended
September 30, 1998.
Income from operations increased $147,252 to $130,988 during the fiscal year
ended September 30, 1999 when compared to a loss from operations of $16,264
during the fiscal year ended September 30, 1998. On an industry segment basis,
MFC's income from operations decreased $68,407 to $411,644 for the fiscal year
ended September 30, 1999 when compared to income from operations of $480,051
for the fiscal year ended September 30, 1998. The decrease can primarily be
attributed to the decrease in MFC sales. NSI recorded a loss from operations
of $209,043 for the fiscal year ended September 30, 1999 compared to a loss
from operations of $419,778 for the fiscal year ended September 30, 1998.
NSI's improvement can primarily be attributed to the increase in sales and
planned decreases in research and development and advertising and promotional
expenses during fiscal 1999 when compared to fiscal 1998. Corporate expenses
decreased $4,924 to $71,613 for the fiscal year ended September 30, 1999 when
compared to $76,537 for the fiscal year ended September 30, 1998. The decrease
can be attributed to a decrease in legal expenses during fiscal 1999 when
compared to fiscal 1998.
The Company's effective income tax rate equalled 18.1% during fiscal 1999
compared to 4.0% during fiscal 1998 primarily due to the higher levels of pre-
tax income. |
