MFCO Microwave Filter Company Inc (PK)

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This supplemental information should be read in conjunction with the Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission (the “SEC”) by the Company on February 9, 2012, which should be read in its entirety.

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Please vote ONLY the enclosed “White” proxy and …
DO NOT sign (& return) ANY “blue” proxy you receive from Furlong!


Dear Shareholders:

By now, you may have received proxy material from a Mr. Daniel Rudewicz (or Furlong Financial, LLC) in connection with our upcoming Annual Meeting.  The mailing of his material was not authorized by our Board of Directors and is being done in direct opposition to our Board.

All Boards of publicly held companies have the fiduciary responsibility to act (at all times) in the best interests of the company’s shareholders; the Board of Directors of Microwave Filter Company, Inc. (hereinafter “MFCO”) is no different.  

Microwave Filter Company Board Nominees vs. Dissident (Rudewicz Nominees)

The responsibility of the nominating committee of the Board is to select qualified candidates to serve as Directors on the Company’s Board; our nominating committee continues to provide that service to our Board … as it has in the past.

Let’s look at the facts:

MFCO Board nominees:

An experienced business law attorney and retired partner of a prominent law firm in Central New York (Robert Essig, Esq.) and a senior partner (and former GM Manufacturing Executive) of an Upstate New York management consulting firm (John Kennedy, MBA).

 

Rudewicz (Furlong Financial, LLC) nominees:

Daniel Rudewicz (Furlong Financial LLC) and Ryan Morris appear to be “professional dissident shareholders” who utilize “proxy access” proposals and engage in proxy contests to obtain board seats and eventually, gain control of a target company’s board or gain other “remuneration.”

Currently (or in the recent past) Rudewicz and/or Morris have made such hostile and aggressive attacks on the following companies: (1) Paragon Technologies (PGNT.PK), Easton, PA; (2) KSW, Inc., Long Island City, NY; (3) Pinnacle Airlines Corp (PNCL), Memphis, TN and (4) Infusystem Holdings Inc. (NYSE-AMEX:1NFU), Madison Heights, MI.

 

Page 2

Shareholder Letter 2

Rudewicz (and Morris) are expected to wage a second proxy contest at next years (2013) shareholders’ meeting to install an additional group of three dissident directors and complete their “take over” of your Board using their proposed proxy access proposal (Proposal 2). They expect you to cede control of your Board to a group of stockholders owning as little as 15% of the company shares for as little as 30 days without paying any customary control premiums.

Creating Shareholder Value

Mr. Rudewicz (Furlong Financial LLC) claims that his nominees are primarily concerned about shareholder value whereas he contends the current Board is not. He suggests the repurchase of shares and the payment of dividends, among other things.

Let’s look at the facts:

Fact No. 1:   Return on Shareholder’s Equity has been consistently improving over the last five years to the current level of 17% (annualized) for the 1st quarter of FY12 as shown in Figure 1.
           

Fact No. 2:   Return on Sales (a measure of profitability per unit sales) has also been improving to almost 8% for the 1st quarter of FY12 as shown in Figure 2.

Page 3

Shareholder Letter 2

Fact No. 3:   The Board of Directors has authorized the payment of $678,850 in cash dividends to our shareholders over the last six years ($0.10 in 2006 and $0.15 in 2011).

Fact No. 4:   The Board of Directors has authorized and executed  the repurchase of 323,073 shares which represent an 11.1% buy back of the Company shares since FY2006.

Rudewicz  (Furlong Financial, LLC) Proposal No. 2

The second proposal that has been put forward by Mr. Rudewicz (Furlong Financial, LLC) (Proposal No. 2) would amend the MFC bylaws to provide mandatory access to your Company’s proxy material to a group of not more than 5 shareholders who own 15% of your Company’s stock for a period of as little as one month.

This would effectively bypass the Board of Directors nominating committee and provide leverage to a minority group of shareholders who have owned shares in your Company for a very brief period.  Your Company’s Directors have a fiduciary duty to represent all the shareholders interest. This proposal would empower a small minority who may use the extremely brief holding period for short term advantage by threatening the expense and disruption of a dissident slate of directors running against Board nominees with your Company paying the total cost of the proxy contest!

We feel strongly that this proposed amendment to our Company’s Bylaws is simply unnecessary since shareholders already have the ability to contact our Board and let us know of superior candidates to serve as outside Directors.  Should a vacancy come up and if the best candidate (for that vacancy) happened to be the one recommended by a shareholder, our Board (like any other) would naturally embrace that superior candidate.  

Essentially, Mr. Rudewicz is trying to “fix” a problem … that doesn’t exist.

Once again, we have enclosed our most recent quarterly earnings report. Read for yourself once more how well our present Board & Management Team have performed for you … our shareholders.

Our fundamental and all-consuming goal is “still” to increase long term shareholder value for all shareholders, particularly in these difficult and volatile economic times.  We believe we are on the right track and appreciate the loyalty and confidence of our shareholders.

Thank you for taking the time to read this letter.  Enclosed you will find another “WHITE” proxy.  We again ask you to please sign, date and return the “WHITE” proxy today, or cast your vote via the internet or telephone.  You are also urged to discard any blue proxy that you receive.

Robert R. Andrews		Carl F. Fahrenkrug, P.E.
Chairman		President and CEO

Carl F. Fahrenkrug, P.E.		Robert R. Andrews
President and CEO		Chairman

			Three months ended
			December 31,
			2011			2010
Net sales		$	1,317,207		$	1,294,567
Cost of goods sold			813,995			827,308
Gross profit			503,212			467,259
Selling, general and administrative expenses			421,970			421,214
Income from operations			81,242			46,045
Other income (net)			21,575			1,548
Income before income taxes			102,817			47,593
Provision (benefit) for income taxes			0			0
NET INCOME		$	102,817		$	47,593
Per share data:
Basic and diluted earnings   per share		$	0.04		$	0.02
Shares used in computing net
earnings per share:			2,586,227			2,589,885

			Three months ended
			December 31
			2011					2010
Cash flows from operating activities:
Net income	$		102,817			$		47,593
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation			37,583					22,759
Gain on sale of fixed assets		(	20,000	)				0
Change in assets and liabilities:
Accounts receivable			130,368					67,268
Federal and state income tax recoverable			25,402					0
Inventories			49,870				(	17,252	)
Prepaid expenses and other assets			12,247					20,292
Accounts payable and customer deposits		(	37,811	)				91,436
Accrued payroll, compensated absences
and related expenses		(	39,691	)			(	36,128	)
Other current liabilities		(	51,899	)				5,375
Net cash provided by (used in)
operating activities			208,886					201,343
Cash flows from investing activities:
Capital expenditures		(	189,078	)			(	4,470	)
Proceeds from sale of fixed assets			20,000					0
Net cash (used in) provided by
investing activities		(	169,078	)			(	4,470	)
Cash flows from financing activities:
Purchase of treasury stock			0				(	1,912	)
Net cash (used in) provided by
financing activities			0				(	1,912	)
Net increase (decrease) in cash
and cash equivalents			39,808					194,961
Cash and cash equivalents
at beginning of period			1,258,885					1,466,719
Cash and cash equivalents
at end of period	$		1,298,693			$		1,661,680
Supplemental Schedule of Cash Flow Information:
Income taxes paid	$		15,000			$		0

		December 31, 2011					September 30, 2011
	Assets
	Current Assets:
	Cash and cash equivalents		$		1,298,693			$		1,258,885
	Accounts receivable-trade, net of
	allowance for doubtful accounts
	of $26,000 and $26,000				221,686					352,054
	Federal and state income tax recoverable				0					24,828
	Inventories, net				517,391					567,261
	Prepaid expenses and other current assets				81,867					94,114
	Total current assets				2,119,637					2,297,142
	Property, plant and equipment, net				769,313					617,818
	Total assets		$		2,888,950			$		2,914,960
	Liabilities and Stockholders' Equity
	Current liabilities:
	Accounts payable		$		151,701			$		195,535
	Customer deposits				57,909					51,886
	Accrued federal and state income taxes				574					0
	Accrued payroll and related expenses				39,421					57,514
	Accrued compensated absences				228,845					250,443
	Other current liabilities				31,755					83,654
	Total current liabilities				510,205					639,032
	Total liabilities				510,205					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				388,302					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				2,378,745					2,275,928
	Total liabilities and  stockholders' equity		$		2,888,950			$		2,914,960

The undersigned hereby appoints Robert R. Andrews and Carl F. Fahrenkrug proxies of the undersigned, with full power of substitution, to vote shares of common stock of the Company which the undersigned is entitled to vote at the 2012 Annual Meeting of the Shareholders to be held on Wednesday, March 28, 2012 at 10:00 a.m. and any adjournments thereof as follows:

(1)  ELECTION OF DIRECTORS
    
      To vote for all nominees, place an X in box number 1.  To withhold authority to vote for any individual nominee, place an X in box number 2, and draw a line through his/her name in the list below.

                           1.    [  ] For All Nominees
    
                           2.    [  ] For All Nominees Except Those With A Line Through Their Name
       


(2)  Proposal to ratify the appointment of EFP Rotenberg, LLP as the Company’s independent auditors for the fiscal year ending September 30, 2012.    



(3)  In their discretion, the proxies are authorized to vote upon other matters properly coming before the meeting or any adjournments thereof.





NOTE:  Please date and sign exactly as your name or names appear below and return in the enclosed postage paid envelope.

When signing as an Attorney, Executor, Trustee, Guardian or Officer of a Corporation, please give title as such.

                                                         

		_______________________	_________
		Signature	Date
		_______________________	_________
		Signature if held jointly	Date

                            
  To assist the Company in planning the Annual Meeting please check the following:
          
I plan to attend the Annual Meeting  _____    I do not plan to attend the Annual Meeting  _____