The Company's reserve for obsolescence equaled $413,447 at DecemberMarch  31, 20142015 and September 30, 2014. The Company provides for a valuation reserve for certain inventory that is deemed to be obsolete, of excess quantity or otherwise impaired. 

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 28%31% of total sales for the threesix months ended DecemberMarch  31, 20142015 compared to approximately 10%22% of total sales for the threesix months ended DecemberMarch  31, 2013. This one customer has represented approximately 25%, 14% and 21% of total sales for the fiscal years ending September 30, 2014, 2013 and 2012, respectively.2014. A loss of this customer or programs related to this customer could materially impact the Company. Management does anticipate futureThe Company did receive orders totaling $857,550 from this customer upon completion of a current contract.

during the quarter ended March 31, 2015 with shipments beginning in May 2015 and ending in May 2016.

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 DecemberMarch 31, 2015 and 2014 was $431,638 and 2013 was $442,291 and $483,453$473,265 respectively. Interest accrued as of DecemberMarch 31, 2015  and 2014 was $1,565 and 2013 was $1,603 and $1,749$1,648, respectively.

 The Company has secured this Note by: (a) a Mortgage, Assignment of Rents, Security Agreement and Fixture Filing which creates a 1st 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 be givenbegiven 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 ending Decemberended March 31, 20142015 and 2013.2014. 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 DecemberMarch 31, 20142015 and 2013.2014.

Note 10. Recent Accounting Pronouncements

None applicable.

MICROWAVE FILTER COMPANY, INC.

MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Business Overview

   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, 2014 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.

RESULTS OF OPERATIONS

THREE MONTHS ENDED DECEMBERMARCH  31, 20142015 vs. THREE MONTHS ENDED DECEMBERMARCH  31, 20132014

The following table sets forth the Company's net sales by major product group  for the three months ended DecemberMarch  31, 20142015 and 2013.2014.

 Net sales for the three months ended DecemberMarch  31, 20142015  equaled $849,927,  an increase$839,433,  a decrease of $194,480$107,542 or 29.7%11.4%, when compared to net sales of $655,447$946,975 for the three months ended DecemberMarch 31, 2013.2014.  The increaseCompany is experiencing a slowdown in sales can primarily be attributedorders in all product groups. Management attributes this to the increase inslowing economy and the Company’s RF/Microwave product sales.stronger dollar which has hurt exports. Exports sales decreased $47,549  to $103,503 during the three months ended March 31, 2015 when compared to export sales of $151,052 during the same period last year. The Company is actively developing new products and continues to pursue opportunities with current and new customers.

   MFC’s RF/Microwave product sales increased $143,283decreased $23,788 or 59.4%4.7% to $384,632$482,615 for the three months ended DecemberMarch  31, 20142015 when compared to RF/Microwave product sales of $241,349$506,403 during the same period last year. MFC’sThe 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 28%35% of total sales for the three months ended DecemberMarch  31, 20142015 and approximately 10%31% of total sales for the three months ended DecemberMarch  31, 2013.2014.

   MFC’s Satellite product sales increased $1,580decreased $74,852 or 0.5%26.9% to $307,206$203,216 for the three months ended DecemberMarch  31, 20142015 when compared to Satellite product sales of $305,626$278,068 during the same period last year. The increase can be attributed to an increaseDespite the decrease in demand for the Company's filters which suppress strong out-of-band interference caused by military and civilian radar systems and other sources. Although economic conditions do impact sales, management expects demand for these types of filters to continue with the proliferation of earth stations world wide and increased sources of interference.

  MFC’s Cable TV product sales increased $44,427decreased $8,184 or 52.5%7.7% to $129,112$98,022 for the three months ended DecemberMarch  31, 20142015 when compared to Cable TV product sales of $84,685$106,206 during the same period last year. Management continues to project a decrease in demand for Cable TV products due to the shift from analog to digital television. Due to the inherent nature of digital modulation versus analog modulation, fewer filters will be required. The Company has developed filters for digital television and there will still be requirements for analog filters for limited applications in commercial and private cable systems.

 MFC’s Broadcast TV/Wireless Cable product sales increased $4,739decreased $2,195 to $26,321$53,211 for the three months ended DecemberMarch  31, 20142015 when compared to sales of $21,582$55,406 during the same period last year. The increasedecrease can be attributed to an increase in demand for UHF Broadcast products which are primarily sold to system integrators for rural communities.

  MFC's sales order backlog equaled $352,787$989,483 at DecemberMarch  31, 20142015 compared to sales order backlog of $1,133,100$1,049,592 at DecemberMarch  31, 2013.  The decrease can primarily be attributed to one large OEM order received during the quarter ended December 31, 2013. The Company is still shipping on this order and management anticipates future orders from this Company upon completion of this current contract which ends in April 2015.2014. 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. TheApproximately 69% of the total sales order backlog at DecemberMarch  31, 20142015 is scheduled to ship by September 30, 2015.

   Gross profit for the three months ended DecemberMarch  31, 20142015 equaled $310,114, an increase$310,487, a decrease of $111,580$68,632 or 56.2%18.1%, when compared to gross profit of $198,534$379,119 for the three months ended DecemberMarch  31, 2013.2014. As a percentage of sales, gross profit equaled 36.5%37.0% for the three months ended DecemberMarch  31, 20142015 compared to 30.3%40.0% for the three months ended DecemberMarch  31, 2013.2014.  The improvementsdecreases in gross profit can primarily be attributed to the higherlower sales volume this year when compared to the same period last year providing a largerlower base to absorb fixed expenses.

   Selling, general and administrative (SGA) expenses for the three months ended DecemberMarch  31, 20142015 equaled $400,188,$390,153, an increase of $33,641$30,991 or 9.2%8.6%, when compared to SGA expenses of $366,547$359,162 for the three months ended DecemberMarch  31, 2013.2014.  The increase can primarily be attributed to higherincreases in payroll and payroll related expenses.expenses as a result of the reinstatement of vacation benefits which had been suspended during fiscal 2013. The Company has been participating in the New York State Shared Work Programprogram 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 to supplement their lost wages or elect to use accrued vacation. As a percentage of sales, SGA expenses decreasedincreased to 47.1%46.5% for the three months ended DecemberMarch  31, 20142015 when compared to 55.9%37.9% for the three months ended DecemberMarch  31, 2013 primarily2014 due to both the higherlower sales volume this year when comparedproviding a lower base to the same period last year. 

  The Company recorded a loss from operations of $90,074 for the three months ended December  31, 2014 compared to a loss from operations of $168,013 for the three months ended December  31, 2013. The  improvement can primarily be attributed toabsorb expenses and the higher sales volumeexpenses this year when compared to the same period last year.

 The Company recorded a loss from operations of $79,666 for the three months ended March  31, 2015 compared to income from operations of $19,957 for the three months ended March  31, 2014. The decrease in operating income can primarily be attributed to the lower sales volume and higher SGA expense this year when compared to the same period last year.

Other income (expense) was an expense of $3,952$1,318 for the three months ended DecemberMarch 31, 20142015 compared to an expense of $3,881 for the$2,232 for the three months ended DecemberMarch 31, 20132014 primarily due to interest expense of $5,129$4,899 and $5,302 for the three months ended DecemberMarch 31, 2015 and 2014, respectively. Other income generally consists of sales of scrap material, stock transfer fees, the forfeiture of non-refundable deposits and interest expense of $5,598 for the three months ended December 31, 2013. other incidental items.

   The (benefit) provision for income taxes equaled a benefit of $2,086 for the three months ended March  31, 2015 and $0 for the three months ended DecemberMarch  31, 2014 and December  31, 2013. We have not recognized any (benefit) provision2014.  The benefit for income taxes.the current fiscal year 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.

SIX MONTHS ENDED MARCH  31, 2015 vs. SIX MONTHS ENDED MARCH 31, 2014

The following table sets forth the Company's net sales by major product group for the six months ended March  31, 2015 and 2014.

  Net sales for the six months ended March  31, 2015 equaled $1,689,360, an increase of $86,938 or 5.4%, when compared to net sales of $1,602,422 for the six months ended March  31, 2014. The increase in sales can primarily be attributed to the increase in the Company’s RF/Microwave product sales.

 MFC’s RF/Microwave product sales increased $119,495 or 16.0% to $867,247 for the six months ended March  31, 2015 when compared to RF/Microwave product sales of $747,752 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, 2015 compared to approximately 22% of total sales for the six months ended March  31, 2014.

   MFC’s Satellite product sales decreased $73,272 or 12.6% to $510,422 for the six months ended March  31, 2015 when compared to satellite product sales of $583,694 during the same period last year. The decrease can be attributed to a decrease in demand for the Company’s filters which suppress strong out-of-band interference caused by military and civilian radar systems and other sources. Although economic conditions do impact sales, management expects demand for these types of filters to continue with the proliferation of earth stations world wide and increased sources of interference.

   MFC’s Cable TV product sales increased $36,243 or 19.0% to $227,134 for the six months ended March  31, 2015 when compared to Cable TV product sales of $190,891 during the same period last year. Management continues to project a decrease in demand for Cable TV products due to the shift from analog to digital television. Due to the inherent nature of digital modulation versus analog modulation, fewer filters will be required. The Company has developed filters for digital television and there will still be requirements for analog filters for limited applications in commercial and private cable systems.

 MFC’s Broadcast TV/Wireless Cable product sales increased $2,544 or 3.3% to $79,532 for the six months ended March  31, 2015 when compared to sales of $76,988 during the same period last year. The increase can be attributed to an increase in demand for UHF Broadcast products which are primarily sold to system integrators for rural communities.

   MFC's sales order backlog equaled $989,483 at March  31, 2015 compared to sales order backlog of $1,049,592 at March  31, 2014. 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 69% of the total sales order backlog at March  31, 2015 is scheduled to ship by September 30, 2015.

  Gross profit for the six months ended March  31, 2015 equaled $620,601, an increase of $42,948 or 7.4%, when compared to gross profit of $577,653 for the six months ended March 31, 2014.  As a percentage of sales, gross profit equaled to 36.7% for the six months ended March  31, 2015 compared to 36.0% for the six months ended March  31, 2014.  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 fixed expenses.

 SG&A expenses for the six months ended March  31, 2015 equaled $790,341,  an increase of $64,632 or 8.9%, when compared to SG&A expenses of $725,709 for the six months ended March  31, 2014.  The increase can primarily be attributed to higher payroll and payroll related expenses as a result of the reinstatement of vacation benefits which had been suspended during fiscal 2013. 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 increased to 46.8% for the six months ended March  31, 2015 compared to 45.3% for the six months ended March  31, 2014 primarily due to the higher expenses this year when compared to the same period last year.

 The Company recorded a loss from operations of $169,740 for the six months ended March  31, 2015 compared to a loss from operations of $148,056 for the six months ended March  31, 2014.  The decrease in operating income can primarily be attributed to the higher SGA expenses this year when compared to the same period last year.

Other income (expense) was an expense of $5,270 for the six months ended March 31, 2015 compared to an expense of $6,113 for the six months ended March 31, 2014 primarily due to interest expense of $10,028 and $10,900 for the six months ended March 31, 2015 and 2014, respectively. Other income generally consists of sales of scrap material, stock transfer fees, the forfeiture of non-refundable deposits and other incidental items.

 The (benefit) provision for income taxes equaled $2,068 for the six months ended March  31, 2015 and $0 for the six months ended March  31, 2014.  The benefit for the current fiscal year 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