10-Q

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, 2016

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 - 2,581,007 shares as of May 1, 2016.

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)	6-8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	9-14
Item 3. Quantitative and Qualitative Disclosures About Market Risk	15
Item 4. Controls and Procedures	15
Part II Other Information	16
Signatures	17

 2

PART I. FINANCIAL INFORMATION

Microwave Filter Company and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

		March 31, 2016			September 30, 2015
Assets
Current Assets:
Cash and cash equivalents	$	905,045		$	896,667
Accounts receivable-trade, net of allowance for doubtful accounts of $4,000 and $4,000		531,540			392,888
Inventories, net		381,810			447,507
Prepaid expenses and other current assets		53,411			44,099
Total current assets		1,871,806			1,781,161
Property, plant and equipment, net		389,245			435,075
Total assets	$	2,261,051		$	2,216,236
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	85,328		$	74,610
Customer deposits		48,952			7,391
Accrued payroll and related expenses		66,859			56,371
Accrued compensated absences		151,791			139,315
Notes payable - short term		45,594			44,528
Other current liabilities		20,003			24,541
Total current liabilities		418,527			346,756
Notes payable - long term		342,527			365,650
Total other liabilities		342,527			365,650
Total liabilities		761,054			712,406
Stockholders’ Equity:
Common stock, $.10 par value Authorized 5,000,000 shares, Issued 4,324,140 shares in 2016 and 2015, Outstanding 2,581,007 shares in 2016 and 2,581,466 in 2015		432,414			432,414
Additional paid-in capital		3,248,706			3,248,706
Accumulated deficit		(487,173	)		(483,575	)
Common stock in treasury, at cost 1,743,133 shares in 2016 and 1,742,674 shares in 2015		(1,693,950	)		(1,693,715	)
Total stockholders’ equity		1,499,997			1,503,830
Total liabilities and stockholders’ equity	$	2,261,051		$	2,216,236

See Accompanying Notes to Condensed Consolidated Financial Statements

 3

Microwave Filter Company and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

	Three months ended						Six months ended
	March 31,						March 31,
	2016			2015			2016			2015
Net sales	$	1,105,853		$	839,433		$	1,873,400		$	1,689,360
Cost of goods sold		653,651			528,946			1,162,393			1,068,759
Gross profit		452,202			310,487			711,007			620,601
Selling, general and administrative expenses		352,357			390,153			711,521			790,341
Income (loss) from operations		99,845			(79,666	)		(514	)		(169,740	)
Other income (expense), net		(3,092	)		(1,318	)		(6,084	)		(5,270	)
Income (loss) before income taxes		96,753			(80,984	)		(6,598	)		(175,010	)
(Benefit) provision for income taxes		(3,000	)		(2,068	)		(3,000	)		(2,068	)
Net income (loss)	$	99,753		$	(78,916	)	$	(3,598	)	$	(172,942	)
Per share data:
Basic and diluted earnings (loss) per common share	$	0.04		$	(0.03	)	$	(0.00	)	$	(0.07	)
Shares used in computing net earnings (loss) per common share:
Basic and diluted		2,581,224			2,581,487			2,581,330			2,582,264

See Accompanying Notes to Condensed Consolidated Financial Statements

 4

Microwave Filter Company and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Six months ended
	March 31
		2016			2015
Cash flows from operating activities:
Net loss	$	(3,598	)	$	(172,942	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		47,059			53,904
Change in operating assets and liabilities:
Accounts receivable-trade		(138,652	)		106,051
Inventories		65,697			350
Prepaid expenses and other assets		(9,312	)		8,054
Accounts payable and customer deposits		52,279			26,191
Accrued payroll and related expenses and compensated absences		22,964			37,526
Other current liabilities		(4,538	)		(2,705	)
Net cash provided by operating activities		31,899			56,429
Cash flows from investing activities:
Property, plant and equipment purchased		(1,229	)		(39,002	)
Net cash used in investing activities		(1,229	)		(39,002	)
Cash flows from financing activities:
Repayment of note payable		(22,057	)		(21,133	)
Purchase of treasury stock		(235	)		(1,196	)
Net cash used in financing activities		(22,292	)		(22,329	)
Increase (decrease) in cash and cash equivalents		8,378			(4,902	)
Cash and cash equivalents at beginning of period		896,667			1,081,567
Cash and cash equivalents at end of period	$	905,045		$	1,076,665
Supplemental Schedule of Cash Flow Information:
Interest paid	$	9,125		$	10,048

See Accompanying Notes to Condensed Consolidated Financial Statements

 5

MICROWAVE FILTER COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

MARCH 31, 2016

Note 1. Summary of Significant Accounting Policies

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.

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, 2016		September 30, 2015
Raw materials and stock parts	$	319,849	$	367,344
Work-in-process		18,695		19,884
Finished goods		43,266		60,279
	$	381,810	$	447,507

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.

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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

None.

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 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.

 7

Note 8. Notes Payable

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.

The Company has secured this Note by: (a) a Mortgage, Assignment of Rents, Security Agreement and Fixture Filing which creates a 1^st 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.

Note 9. Earnings Per Share

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.

Note 10. Recent Accounting Pronouncements

In February 2016, the FASB issued FASB ASU No. 2016-02, Leases (Topic 842). 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.

 8

MICROWAVE FILTER COMPANY, INC.

ITEM 2. 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 consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2015 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.

The Company established a warranty reserve which provides for the estimated cost of product returns based upon historical experience and any known conditions or circumstances. Our warranty obligation is affected by product that does not meet specifications and performance requirements and any related costs of addressing such matters.

The Company accounts for income taxes under FASB ASC 740-10. Deferred tax assets and liabilities are based on the difference between the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates which are anticipated to be in effect when these differences reverse. The deferred tax provision is the result of the net change in the deferred tax assets and liabilities. A valuation allowance is established when it is necessary to reduce deferred tax assets to amounts expected to be realized. The Company has provided a full valuation allowance against its deferred tax assets.

 9

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2016 vs. THREE MONTHS ENDED MARCH 31, 2015

The following table sets forth the Company’s net sales by major product group for the three months ended March 31, 2016 and 2015.

Product group		Fiscal 2016		Fiscal 2015
Microwave Filter (MFC):
RF/Microwave	$	470,361	$	482,615
Satellite		323,019		203,216
Cable TV		221,435		98,022
Broadcast TV		86,295		53,211
Niagara Scientific (NSI):		4,743		2,369
Total	$	1,105,853	$	839,433
Sales backlog at March 31	$	733,955	$	989,483

Net sales for the three months ended March 31, 2016 equaled $1,105,853, an increase of $266,420 or 31.7%, when compared to net sales of $839,433 for the three months ended March 31, 2015. The increase in sales can primarily be attributed to increases in the Company’s Cable TV and Satellite product sales.

MFC’s Cable TV product sales increased $123,413 or 125.9% to $221,435 for the three months ended March 31, 2016 when compared to Cable TV product sales of $98,022 during the same period last year. The increase in sales can primarily be attributed to orders from two customers with specific cable applications. Management continues to project flat or a decrease in demand for standard 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 are 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 Satellite product sales increased $119,803 or 59.0% to $323,019 for the three months ended March 31, 2016 when compared to Satellite product sales of $203,216 during the same period last year. The increase in sales can be attributed to an increase in demand for the Company’s filters which suppress strong out-of-band interference caused by military and civilian radar systems and other sources. Management expects demand for these types of filters to continue with the proliferation of earth stations world wide and increased sources of interference.

MFC’s RF/Microwave product sales decreased $12,254 or 2.5% to $470,361 for the three months ended March 31, 2016 when compared to RF/Microwave product sales of $482,615 during the same period last year. The Company’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 31% of total sales for the three months ended March 31, 2016 and approximately 35% of total sales for the three months ended March 31, 2015.

 10

MFC’s Broadcast TV/Wireless Cable product sales increased $33,084 or 62.2% to $86,295 for the three months ended March 31, 2016 when compared to sales of $53,211 during the same period last year. The increase can primarily be attributed to the development of wireless diplexers which were sold to one customer.

MFC’s sales order backlog equaled $733,955 at March 31, 2016 compared to sales order backlog of $989,483 at March 31, 2015. 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 93% of the total sales order backlog at March 31, 2016 is scheduled to ship by September 30, 2016.

Gross profit for the three months ended March 31, 2016 equaled $452,202, an increase of $141,715 or 45.6%, when compared to gross profit of $310,487 for the three months ended March 31, 2015. As a percentage of sales, gross profit equaled 40.9% for the three months ended March 31, 2016 compared to 37.0% for the three months ended March 31, 2015. The increases in gross profit can primarily be attributed to the higher sales volume this year when compared to the same period last year providing a higher base to absorb overhead expenses.

Selling, general and administrative (SGA) expenses for the three months ended March 31, 2016 equaled $352,357, a decrease of $37,796 or 9.7%, when compared to SGA expenses of $390,153 for the three months ended March 31, 2015. The decrease can primarily be attributed to decreases in payroll and payroll related expenses and planned decreases in media advertising. 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 insurance benefits or elect to use accrued vacation. As a percentage of sales, SGA expenses decreased to 31.9% for the three months ended March 31, 2016 when compared to 46.5% for the three months ended March 31, 2015 due to both the higher sales volume this year providing a higher base to absorb expenses and the lower SGA expenses this year when compared to the same period last year.

The Company recorded income from operations of $99,845 for the three months ended March 31, 2016 compared to a loss from operations of $79,666 for the three months ended March 31, 2015. The increase in operating income can primarily be attributed to the higher sales volume and the lower SGA expenses this year when compared to the same period last year.

Other income (expense) was an expense of $3,092 for the three months ended March 31, 2016 compared to expense of $1,318 for the three months ended March 31, 2015. Interest expense equaled $4,460 and $4,899 for the three months ended March 31, 2016 and 2015, respectively. Other income generally consists of sales of scrap material, the forfeiture of non-refundable deposits and other incidental items.

The (benefit) provision for income taxes equaled a benefit of $3,000 for the three months ended March 31, 2016 and a benefit of $2,068 for the three months ended March 31, 2015. The benefit for both fiscal years can be attributed to a prior year’s federal refund. 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.

 11

SIX MONTHS ENDED MARCH 31, 2016 vs. SIX MONTHS ENDED MARCH 31, 2015

The following table sets forth the Company’s net sales by major product group for the six months ended March 31, 2016 and 2015.

Product group		Fiscal 2016		Fiscal 2015
Microwave Filter (MFC):
RF/Microwave	$	800,057	$	867,247
Satellite		573,462		510,422
Cable TV		316,477		227,134
Broadcast TV		176,517		79,532
Niagara Scientific (NSI):		6,887		5,025
Total	$	1,873,400	$	1,689,360
Sales backlog at March 31	$	733,955	$	989,483

Net sales for the six months ended March 31, 2016 equaled $1,873,400, an increase of $184,040 or 10.9%, when compared to net sales of $1,689,360 for the six months ended March 31, 2015.

MFC’s RF/Microwave product sales decreased $67,190 or 7.7% to $800,057 for the six months ended March 31, 2016 when compared to RF/Microwave product sales of $867,247 during the same period last year. MFC’s RF/Microwave products are sold primarily to OEMs that serve the mobile radio, commercial communications and defense electronics markets. The Company continues to invest in production engineering and infrastructure development to penetrate OEM market segments as they become popular. MFC is concentrating its technical resources and product development efforts toward potential high volume customers as part of a concentrated effort to provide substantial long-term growth. Sales to one OEM customer represented approximately 31% of total sales for the six months ended March 31, 2016 and March 31, 2015.

MFC’s Satellite product sales increased $63,040 or 12.4% to $573,462 for the six months ended March 31, 2016 when compared to satellite product sales of $510,422 during the same period last year. The increase can be attributed to an increase in demand for the Company’s filters which suppress strong out-of-band interference caused by military and civilian radar systems and other sources. Management expects demand for these types of filters to continue with the proliferation of earth stations world wide and increased sources of interference.

MFC’s Cable TV product sales increased $89,343 or 39.3% to $316,477 for the six months ended March 31, 2016 when compared to Cable TV product sales of $227,134 during the same period last year. The increase in sales can be attributed to orders from two customers with specific cable applications. Management continues to project flat or a decrease in demand for standard 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 are 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 $96,985 or 121.9% to $176,517 for the six months ended March 31, 2016 when compared to sales of $79,532 during the same period last year. The increase can primarily be attributed to the development of wireless diplexers which were sold to one customer.

 12

MFC’s sales order backlog equaled $733,955 at March 31, 2016 compared to sales order backlog of $989,483 at March 31, 2015. 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 93% of the total sales order backlog at March 31, 2016 is scheduled to ship by September 30, 2016.

Gross profit for the six months ended March 31, 2016 equaled $711,007, an increase of $90,406 or 14.6%, when compared to gross profit of $620,601 for the six months ended March 31, 2015. As a percentage of sales, gross profit equaled to 38.0% for the six months ended March 31, 2016 compared to 36.7% for the six months ended March 31, 2015. The increases in gross profit can primarily be attributed to the higher sales volume this year when compared to the same period last year providing a higher base to absorb overhead expenses.

SG&A expenses for the six months ended March 31, 2016 equaled $711,521, a decrease of $78,820 or 10.0%, when compared to SG&A expenses of $790,341 for the six months ended March 31, 2015. The decrease can primarily be attributed to decreases in payroll and payroll related expenses and planned decreases in media advertising. 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 insurance benefits or elect to use accrued vacation. As a percentage of sales, SGA expenses decreased to 38.0% for the six months ended March 31, 2016 compared to 46.8% for the six months ended March 31, 2015 due to the higher sales volume and the lower SGA expenses this year when compared to the same period last year.

The Company recorded a loss from operations of $514 for the six months ended March 31, 2016 compared to a loss from operations of $169,740 for the six months ended March 31, 2015. The improvement can primarily be attributed to the higher sales volume and the lower SGA expenses this year when compared to the same period last year.

Other income (expense) was an expense of $6,084 for the six months ended March 31, 2016 compared to an expense of $5,270 for the six months ended March 31, 2015. Interest expense equaled $9,096 and $10,028 for the six months ended March 31, 2016 and 2015, respectively. Other income generally consists of sales of scrap material, the forfeiture of non-refundable deposits and other incidental items.

The (benefit) provision for income taxes equaled $3,000 for the six months ended March 31, 2016 and $2,068 for the six months ended March 31, 2015. The benefit for both fiscal years can be attributed to a prior year’s federal refund. 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.

Off-Balance Sheet Arrangements

At March 31, 2016 and 2015, 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.

 13

LIQUIDITY and CAPITAL RESOURCES

MFC defines liquidity as the ability to generate adequate funds to meet its operating and capital needs. The Company’s primary source of liquidity has been funds provided by operations.

		March 31, 2016		September 30, 2015
Cash & cash equivalents	$	905,045	$	896,667
Working capital	$	1,453,279	$	1,434,405
Current ratio		4.47 to 1		5.14 to 1
Long-term debt	$	342,527	$	365,650

Cash and cash equivalents increased $8,378 to $905,045 at March 31, 2016 when compared to cash and cash equivalents of $896,667 at September 30, 2015. The increase was a result of $31,899 in net cash provided by operating activities, $1,229 in net cash used for capital expenditures, $22,057 in net cash used for repayment of a note payable and $235 used to purchase treasury stock.

Net cash provided by operating activities can fluctuate between periods as a result of differences in net income, the timing of the collection of accounts receivable, purchase of inventory and payment of accounts payable. The increase of $138,652 in accounts receivable at March 31, 2016 when compared to September 30, 2015 can primarily be attributed to the timing of shipments and collections. Sales for the quarter ended March 31, 2016 equaled $1,105,853 compared to sales of $988,321 for the quarter ended September 30, 2015. The decrease in inventories of $65,697 can primarily be attributed to the timing of purchases and customer’s scheduled delivery dates. The increase of $41,561 in customer deposits can primarily be attributed to a deposit received from a new international customer.

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.

Management believes that its working capital requirements for the forseeable future will be met by its existing cash balances and future cash flows from operations.

 14

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

In an effort to provide investors a balanced view of the Company’s current condition and future growth opportunities, this Quarterly Report on Form 10-Q includes comments by the Company’s management about future performance. These statements which are not historical information are “forward-looking statements” pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These, and other forward-looking statements, are subject to business and economic risks and uncertainties that could cause actual results to differ materially from those discussed. These risks and uncertainties include, but are not limited to: risks associated with demand for and market acceptance of existing and newly developed products as to which the Company has made significant investments; general economic and industry conditions; slower than anticipated penetration into the satellite communications, mobile radio and commercial and defense electronics markets; competitive products and pricing pressures; increased pricing pressure from our customers; risks relating to governmental regulatory actions in broadcast, communications and defense programs; as well as other risks and uncertainties, including but not limited to those detailed from time to time in the Company’s Securities and Exchange Commission filings. These forward-looking statements are made only as of the date hereof, and the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. You are encouraged to review Microwave Filter Company’s 2015 Annual Report and Form 10-K for the fiscal year ended September 30, 2015 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

As a “smaller reporting company” we are not required to provide information required by this item.

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Management’s responsibility includes establishing and maintaining adequate internal control over financial reporting. 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.

 15

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

Not applicable.

Item 2. Changes in Securities

The Company purchased 288 shares of common stock at an average price of $.50 per share into treasury during the three months ended March 31, 2016.

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 Paul W. Mears

31.2 Section 13a-14(a)/15d-14(a) Certification of Richard L. Jones

32.1 Section 1350 Certification of Paul W. Mears and Richard L. Jones

 16

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

	MICROWAVE FILTER COMPANY, INC.
May 13, 2016	/s/ Paul W. Mears
(Date)	Paul W. Mears
	Chief Executive Officer
May 13, 2016	/s/ Richard L. Jones
(Date)	Richard L. Jones
	Chief Financial Officer

 17

EX-31.1

Exhibit 31.1

RULE 13a-14(a) CERTIFICATION

I, Paul W. Mears, certify that:

1. I have reviewed this report Quarterly Report on Form 10-Q of Microwave Filter Company, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 13, 2016	/s/ Paul W. Mears
	Paul W. Mears
	Chief Executive Officer

EX-31.2

Exhibit 31.2

RULE 13a-14(a) CERTIFICATION

I, Richard L. Jones, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Microwave Filter Company, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 13, 2016	/s/ Richard L. Jones
	Richard L. Jones
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Microwave Filter Company, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Paul W. Mears, Chief Executive Officer, and Richard L. Jones, Chief Financial Officer, of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 13, 2016	/s/ Paul W. Mears
	Paul W. Mears
	Chief Executive Officer
Dated: May 13, 2016	/s/ Richard L. Jones
	Richard L. Jones
	Chief Financial Officer

XML

Document and Entity Information - shares	6 Months Ended
	Mar. 31, 2016	May. 01, 2016
Document And Entity Information
Entity Registrant Name	MICROWAVE FILTER CO INC /NY/
Entity Central Index Key	0000716688
Document Type	10-Q
Document Period End Date	Mar. 31, 2016
Amendment Flag	false
Current Fiscal Year End Date	--09-30
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		2,581,007
Trading Symbol	MFCO
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2016

XML

Condensed Consolidated Balance Sheets (Unaudited) - USD ($)	Mar. 31, 2016	Sep. 30, 2015
Current Assets:
Cash and cash equivalents	$ 905,045	$ 896,667
Accounts receivable-trade, net of allowance for doubtful accounts of $4,000 and $4,000	531,540	392,888
Inventories, net	381,810	447,507
Prepaid expenses and other current assets	53,411	44,099
Total current assets	1,871,806	1,781,161
Property, plant and equipment, net	389,245	435,075
Total assets	2,261,051	2,216,236
Current liabilities:
Accounts payable	85,328	74,610
Customer deposits	48,952	7,391
Accrued payroll and related expenses	66,859	56,371
Accrued compensated absences	151,791	139,315
Notes payable - short term	45,594	44,528
Other current liabilities	20,003	24,541
Total current liabilities	418,527	346,756
Notes payable -long term	342,527	365,650
Total other liabilities	342,527	365,650
Total liabilities	761,054	712,406
Stockholders' Equity:
Common stock, $.10 par value Authorized 5,000,000 shares, Issued 4,324,140 shares in 2016 and 2015, Outstanding 2,581,007 shares in 2016 and 2,581,466 in 2015	432,414	432,414
Additional paid-in capital	3,248,706	3,248,706
Accumulated deficit	(487,173)	(483,575)
Common stock in treasury, at cost 1,743,133 shares in 2016 and 1,742,674 shares in 2015	(1,693,950)	(1,693,715)
Total stockholders' equity	1,499,997	1,503,830
Total liabilities and stockholders' equity	$ 2,261,051	$ 2,216,236

XML

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($)	Mar. 31, 2016	Sep. 30, 2015
Statement of Financial Position [Abstract]
Accounts receivable, allowance for doubtful accounts	$ 4,000	$ 4,000
Common stock, par value	$ 0.10	$ 0.10
Common stock, shares authorized	5,000,000	5,000,000
Common stock, shares, issued	4,324,140	4,324,140
Common stock, shares, outstanding	2,581,007	2,581,466
Treasury stock, shares	1,743,133	1,742,674

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Mar. 31, 2016	Mar. 31, 2015
Income Statement [Abstract]
Net sales	$ 1,105,853	$ 839,433	$ 1,873,400	$ 1,689,360
Cost of goods sold	653,651	528,946	1,162,393	1,068,759
Gross profit	452,202	310,487	711,007	620,601
Selling, general and administrative expenses	352,357	390,153	711,521	790,341
Income (loss) from operations	99,845	(79,666)	(514)	(169,740)
Other income (expense), net	(3,092)	(1,318)	(6,084)	(5,270)
Income (loss) before income taxes	96,753	(80,984)	(6,598)	(175,010)
(Benefit) provision for income taxes	(3,000)	(2,068)	(3,000)	(2,068)
Net income (loss)	$ 99,753	$ (78,916)	$ (3,598)	$ (172,942)
Per share data:
Basic and diluted earnings (loss) per common share	$ 0.04	$ (0.03)	$ (0.00)	$ (0.07)
Shares used in computing net earnings (loss) per common share:
Basic and diluted	2,581,224	2,581,487	2,581,330	2,582,264

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	6 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Cash flows from operating activities:
Net loss	$ (3,598)	$ (172,942)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation	47,059	53,904
Change in operating assets and liabilities:
Accounts receivable-trade	(138,652)	106,051
Inventories	65,697	350
Prepaid expenses and other assets	(9,312)	8,054
Accounts payable and customer deposits	52,279	26,191
Accrued payroll and related expenses and compensated absences	22,964	37,526
Other current liabilities	(4,538)	(2,705)
Net cash provided by operating activities	31,899	56,429
Cash flows from investing activities:
Property, plant and equipment purchased	(1,229)	(39,002)
Net cash used in investing activities	(1,229)	(39,002)
Cash flows from financing activities:
Repayment of note payable	(22,057)	(21,133)
Purchase of treasury stock	(235)	(1,196)
Net cash used in financing activities	(22,292)	(22,329)
Increase (decrease) in cash and cash equivalents	8,378	(4,902)
Cash and cash equivalents at beginning of period	896,667	1,081,567
Cash and cash equivalents at end of period	905,045	1,076,665
Supplemental Schedule of Cash Flow Information:
Interest paid	$ 9,125	$ 10,048

XML

Summary of Significant Accounting Policies

6 Months Ended

Mar. 31, 2016

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Note 1. Summary of Significant Accounting Policies

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.

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Industry Segment Data

6 Months Ended

Mar. 31, 2016

Segment Reporting [Abstract]

Industry Segment Data

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.

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Inventories

6 Months Ended

Mar. 31, 2016

Inventory Disclosure [Abstract]

Inventories

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, 2016		September 30, 2015
Raw materials and stock parts	$	319,849	$	367,344
Work-in-process		18,695		19,884
Finished goods		43,266		60,279
	$	381,810	$	447,507

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.

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Income Taxes

6 Months Ended

Mar. 31, 2016

Income Tax Disclosure [Abstract]

Income Taxes

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.

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Legal Matters

6 Months Ended

Mar. 31, 2016

Commitments and Contingencies Disclosure [Abstract]

Legal Matters

Note 5. Legal Matters

None.

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Fair Value of Financial Instruments

6 Months Ended

Mar. 31, 2016

Investments, All Other Investments [Abstract]

Fair Value of Financial Instruments

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.

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Significant Customers

6 Months Ended

Mar. 31, 2016

Risks and Uncertainties [Abstract]

Significant Customers

Note 7. Significant Customers

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.

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Notes Payable

6 Months Ended

Mar. 31, 2016

Debt Disclosure [Abstract]

Notes Payable

Note 8. Notes Payable

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.

The Company has secured this Note by: (a) a Mortgage, Assignment of Rents, Security Agreement and Fixture Filing which creates a 1^st 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.

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Earnings Per Share

6 Months Ended

Mar. 31, 2016

Per share data:

Earnings Per Share

Note 9. Earnings Per Share

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.

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Recent Accounting Pronouncements

6 Months Ended

Mar. 31, 2016

Accounting Changes and Error Corrections [Abstract]

Recent Accounting Pronouncements

Note 10. Recent Accounting Pronouncements

In February 2016, the FASB issued FASB ASU No. 2016-02, Leases (Topic 842). 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.

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Inventories (Tables)

6 Months Ended

Mar. 31, 2016

Inventory Disclosure [Abstract]

Schedule of Inventories Net of Reserve for Obsolescence

Inventories net of reserve for obsolescence consisted of the following:

	March 31, 2016		September 30, 2015
Raw materials and stock parts	$	319,849	$	367,344
Work-in-process		18,695		19,884
Finished goods		43,266		60,279
	$	381,810	$	447,507

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Inventories (Details Narrative) - USD ($)	Mar. 31, 2016	Sep. 30, 2015
Inventory Disclosure [Abstract]
Reserve for obsolescence	$ 429,255	$ 429,255

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Inventories - Schedule of Inventories Net of Reserve for Obsolescence (Details) - USD ($)	Mar. 31, 2016	Sep. 30, 2015
Inventory Disclosure [Abstract]
Raw materials and stock parts	$ 319,849	$ 367,344
Work-in-process	18,695	19,884
Finished goods	43,266	60,279
Inventory net	$ 381,810	$ 447,507

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Significant Customers (Details Narrative)	6 Months Ended		12 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2013
One Customer [Member]
Percentage of sales	31.00%	31.00%	33.00%	25.00%	14.00%

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Notes Payable (Details Narrative) - USD ($)	Jul. 02, 2013	Mar. 31, 2016	Sep. 30, 2015
Outstanding total amount		$ 388,121	$ 410,178
Interest accrued		$ 1,407	$ 1,436
Key Bank National Association [Member]
Loan term	10 years
Loan amount	$ (500,000)
Loan maturity date	Jul. 02, 2023
Percentage of interest rate	4.50%

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Earnings Per Share (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Mar. 31, 2016	Mar. 31, 2015
Per share data:
Dividends
Dilutive potential shares outstanding