UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES   EXCHANGE ACT OF 1934

For the quarterly period ended:  September 30, 2016

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES   EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File No. 000-55382

MICROPHASE CORPORATION

(Exact name of registrant as specified in its charter)

Connecticut	06-0710848
(State or other jurisdiction of incorporation)	(IRS Employer Identification No.)

100 Trap Falls Road Extension, Suite 400

Shelton, CT 06484

(Address of principal executive offices)

(203) 866-8000

(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 past 12 months, 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 (Sec. 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, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	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

As of November 11, 2016, there were 6,882,461 shares outstanding of the registrant’s common stock.

MICROPHASE CORPORATION

INDEX

		PAGE
PART I	FINANCIAL INFORMATION
Item 1	Condensed Consolidated Balance Sheets September 30, 2016 (Unaudited) and June 30, 2016	F-1
	Unaudited Condensed Consolidated Statements of Operations — Three Months Ended September 30, 2016 and 2015	F-2
	Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) — Three Months Ended September 30, 2016 and 2015	F-3
	Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Deficit — Three Months Ended September 30, 2016	F-4
	Unaudited Condensed Consolidated Statements of Cash Flow — Three Months Ended September 30, 2016 and 2015	F-5
	Notes to Condensed Consolidated Financial Statements (Unaudited)	F-6 - F-22
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2
Item 3	Quantitative and Qualitative Disclosures about Market Risk	9
Item 4	Controls and Procedures	9
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	10
Item 1A.	Risk Factors	10
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	10
Item 3.	Defaults Upon Senior Securities	11
Item 4.	Mine Safety Disclosures	11
Item 5.	Other Information	11
Item 6	Exhibits and Reports on Form 8-K	11
	Signature Page	12

MICROPHASE CORPORATION

Condensed Consolidated Balance Sheets

	September 30,			June 30,
	2016			2016
	(unaudited)
ASSETS
CURRENT ASSETS
Cash	$	16,389		$	81,224
Accounts receivable, net of allowance of $5,000 September 30, 2016 and June 30, 2016		367,019			1,092,482
Inventory		753,059			872,014
Due from related parties		33,295			33,295
Prepaid and other current assets		3,262			63,742
TOTAL CURRENT ASSETS		1,173,024			2,142,757
Property and equipment, net		140,985			158,979
OTHER ASSETS
Cash – restricted		100,000			100,000
Intangible assets		2,625,292			2,629,170
Marketable securities		385,667			200,000
Deferred offering costs		400,000			260,000
Other assets-lease deposit		43,479			43,479
TOTAL OTHER ASSETS		3,554,438			3,232,649
TOTAL ASSETS	$	4,868,447		$	5,534,385
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Credit Facility – Revolving Loan	$	844,926		$	1,474,129
Accounts payable		534,567			553,331
Accrued expenses		1,187,217			1,134,729
Deferred Revenue & Customer Deposits		73,200			117,800
Notes Payable – Related Parties, current portion		212,490			137,150
Asset Acquisition Note Payable-current portion		975,345			975,345
Equity Lines of Credit-current portion		38,236			38,132
Other termed debts – current portion		13,714			13,714
TOTAL CURRENT LIABILITIES		3,879,695			4,444,330
Other termed debts, net of current portion		324,009			26,975
Notes Payable – Related Parties, net of current portion		186,639			257,857
Asset Acquisition Note Payable, net of current portion		1,045,080			1,045,080
Equity Lines of Credit, net of current portion		277,896			281,161
Deferred Lease Obligation		95,441			81,189
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ DEFICIT
6% cumulative preferred stock, $100 par value, 200,000 shares authorized, 15,382 shares issued and outstanding on September 30, 2016 (unaudited) and June 30, 2016, respectively		1,538,200			1,538,200
Common stock, no par value 7,800,000 shares authorized 6,299,123 and, 6,200,789 shares issued and outstanding at September 30, 2016 (unaudited) and June 30, 2016, respectively		9,509,633			9,367,133
Additional Paid In Capital		2,432,111			2,432,111
Accumulated Other Comprehensive Income		185,667			–
Accumulated Deficit		(14,605,924	)		(13,939,651	)
TOTAL STOCKHOLDERS’ DEFICIT		(940,313	)		(602,207	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	4,868,447		$	5,534,385

The accompanying notes are an integral part of these condensed consolidated financial statements.

F-1

MICROPHASE CORPORATION

Condensed Consolidated Statements of Operations

	For the Three Months Ended
	September 30,
	2016			2015
	(unaudited)			(unaudited)
Revenues	$	1,373,064		$	2,451,855
Cost of Sales		979,882			1,415,183
Gross Profit		393,182			1,036,672
Selling, General and Administrative Expenses (including non-cash stock related charges of $97,500 and $0 in Fiscal 2016 and 2015)		738,850			703,000
Engineering and Research expenses		207,660			206,314
Other Income (Loss)		–			2,250
Interest (Expense and Credit costs) net		(111,895	)		(58,171	)
Net Income (Loss) before Income Taxes		(665,223	)		71,437
Income Taxes		(1,050	)		(1,050	)
Net Income (Loss)	$	(666,273	)	$	70,387
Basic Net income (loss) per share:	$	(0.107	)	$	0.015
Diluted Net income (loss) per share:	$	(0.107	)	$	0.011
Weighted Average Number of Shares Outstanding:
Basic		6,201,858			4,775,306
Diluted		6,201,858			6,122,456

The accompanying notes are an integral part of these condensed consolidated financial statements.

F-2

MICROPHASE CORPORATION

Condensed Consolidated Statements of Comprehensive Income (Loss)

	For The Three Months Ended
	September 30,
	2016			2015
	(unaudited)			(unaudited)
Net income (loss)	$	(666,273	)	$	70,387
Other comprehensive income (loss):
Net unrealized gain (loss) on securities available-for-sale, net of income taxes		185,667			(37,067	)
Total comprehensive income (loss)	$	(480,606	)	$	33,320

The accompanying notes are an integral part of these condensed consolidated financial statements.

F-3

MICROPHASE CORPORATION

Condensed Consolidated Statement of Changes in Stockholders’ Deficit

For the Three Months Ended September 30, 2016

(Unaudited)

									Additional		Accumulated Other
	Preferred Stock				Common Stock				Paid In		Comprehensive		Accumulated
	Shares		Amount		Shares		Amount		Capital		Income		Deficit			Amount
Balance, June 30, 2016		15,382	$	1,538,200		6,200,789	$	9,367,133	$	2,432,111		-	$	(13,939,651	)	$	(602,207	)
Issuance of common stock and options for services						65,000		97,500		-							97,500
Issuance of Common Stock and warrants in Private Placements, net of $5,000 costs						33,334		45,000									45,000
Unrealized gain on marketable securities												185,667					185,667
Net Loss For the Three Months Ended September 30, 2016														(666,273	)		(666,273	)
Balance, September 30, 2016		15,382	$	1,538,200		6,299,123	$	9,509,633	$	2,432,111	$	185,667	$	(14,605,924	)	$	(940,313	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

F-4

MICROPHASE CORPORATION

Condensed Consolidated Statements of Cash Flows

	For the Three Months Ended
	September 30,
	2016			2015
	(unaudited)			(unaudited)
Cash Flow Provided by (Used In) Operating Activities:
Net (Loss) Income From Operations	$	(666,273	)	$	70,387
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation and amortization		21,872			23,266
Non-cash charges relating to issuance of common stock for services		97,500			-
Changes in assets and liabilities:
Accounts receivable		725,463			(224,429	)
Inventories		118,955			12,755
Other current assets		60,480			(4,413	)
Deferred Rent		14,252			-
Accounts payable		(158,763	)		(61,823	)
Accrued Expenses		56,609			98,519
Customer deposits & deferred revenue		(44,600	)		-
Due to/from related parties mPhase & Edson Realty		-			(2,250	)
Net cash provided by (used in) operating activities	$	225,495		$	(87,988	)
Cash Flow Used in Investing Activities:
Purchase of fixed assets		-			(35,919	)
Net Cash used in investing activities	$	-		$	(35,919	)
Cash Flow Provided by (Used in) Financing Activities:
Proceeds from issuance of common stock		45,000			-
(Payments) Proceeds from revolving credit facility (net)		(629,203	)		212,060
Payments of equity lines of credit		(3,161	)		(9,090	)
Payments of long-term debt		(871	)		(1,858	)
Proceeds from EDA loan		300,000			-
Payments of capital lease obligations		-			(3,934	)
Payments of extended term arrangement		(2,095	)		(1,993	)
Net cash provided by (used in)  financing activities	$	(290,330	)	$	195,185
Net (decrease) increase in cash	$	(64,835	)	$	71,278
CASH, beginning of period	$	81,224		$	127,093
CASH, end of period	$	16,389		$	198,371

The accompanying notes are an integral part of these condensed consolidated financial statements.

F-5

MICROPHASE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 — BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

Microphase Corporation (the “Company”) is a design to manufacture original equipment manufacturer (OEM) industry leader delivering world-class radio frequency (RF) and microwave filters, diplexers, multiplexers, detectors, switch filters, integrated assemblies and detector logarithmic video amplifiers (DLVA) to the military, aerospace and telecommunications industries. Sales to military markets represent 100% of sales. The Company is headquartered in Shelton, Connecticut.

BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the regulations of the Securities Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three months ending September 30, 2016 are not necessarily indicative of the results that may be expected for a full fiscal year. The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries which include Microphase West LLC and Microphase Instruments, LLC, as of October 23, 2015. All intercompany accounts and transactions have been eliminated.

For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2016. As of June 30, 2016, we had an accumulated deficit of $13,939,651 and a total stockholders’ deficit of $602,207. As of September 30, 2016, we had an accumulated deficit of $14,605,924 and a total stockholders’ deficit of $940,313. A significant amount of capital will be necessary to sustain, grow and advance our business and these conditions raise substantial doubt about our ability to continue as a going concern, as expressed in the report of our Independent Registered Public Accounting Firm for the year ended June 30, 2016.

The Company’s ability to continue as a going concern and its future success is dependent upon its ability to raise capital in the near term to: (1) satisfy its current obligations, (2) continue its research and development efforts, and (3) allow the successful wide scale development, deployment and marketing of its products.

PROPERTY AND EQUIPMENT — Are stated at cost. Provision for depreciation and amortization for financial reporting and income tax purposes is made by annual charges to operations principally under the following methods and estimated useful lives:

	Method	Years
Leasehold Improvements	Straight Line	7
Property held under capital leases	Straight Line	5
Furniture and fixtures	Straight Line	7
Machinery and equipment	Straight Line	5
Computer equipment	Straight Line	3
Transportation equipment	Straight Line	5

MAINTENANCE AND REPAIRS — Charged to expenses as incurred. Cost of major replacements and renewals are capitalized. Upon retirement or other disposition of equipment and improvements, the cost and related depreciation is removed from the accounts, and any gain or loss is recognized in income.

INVENTORIES — are stated at the lower of average cost or market under the first-in, first-out method. The Company regularly reviews inventory quantities on hand and records a provision for excess and obsolete inventory primarily based on our estimated forecast of product demand, anticipated end of product life and production requirements.

F-6

NOTE 1 — BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - ( continued )

OTHER LONG LIVED ASSETS — The Company reviews long-term assets for impairment whenever events or circumstances indicate that the carrying amount of those assets may not be recoverable. The Company assesses these assets for impairment based on their future cash flows. Management has determined that there was no impairment charge to be recorded for the three months ended September 30, 2016.

ACCOUNTS RECEIVABLE — Management records receivables at net realizable value and they generally do not bear interest. This value includes an allowance for estimated uncollectible accounts to reflect any loss anticipated on the accounts receivable balances which is charged to the provision for doubtful accounts. We calculate this allowance based on our history of write-offs, level of past due accounts and economic status of the customers. We consider a receivable delinquent if it is unpaid after 180 days after it is due.

ACCOUNTING ESTIMATES — Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were assumed in preparing the financial statements.

COMPENSATED ABSENCES — Employees of the Company are entitled to vacation pay depending on length of service and current salary. Vacation days accrued in a given year are available in the following year. A limit of 5 days of unused vacation may be carried over to a subsequent year. The Company has provided for vacation liabilities in the accompanying financial statements.

RESEARCH AND DEVELOPMENT EXPENSES — The Company charges the cost of research and development to operations when incurred.

REVENUE RECOGNITION — The Company recognizes revenues when persuasive evidence of an arrangement exists, the product has been shipped, the price is fixed and collectability is reasonably assured.  Revenue is recognized net of estimated sales returns and allowances.

GRANT INCOME — During the three months ended September 30, 2016 the Company was awarded and received the proceeds of a Small Business Express Matching Grant in an amount of $100,000 from the state of Connecticut in connection with the move of our California operation to Connecticut and with the development of the T & M products to be acquired in the Company’s Microphase Instruments, LLC, subsidiary. State grant funding requires a dollar for dollar match on behalf of the Company, which the Company’s obligation was considered funded in full prior to the Grant award. During the three months ended September 30, 2016 the Company recorded $26,800 as a reduction in Selling, General & Administrative expenses for qualified expenditures incurred in the period and at September 30, 2016 has included $73,200 in deferred revenue. Qualified expenditures for capital assets will be recognized as income over the life of the assets based upon the amortization or depreciation of any capitalized assets acquired with grant funds.

RECLASSIFICATIONS- Certain prior year amounts have been reclassified in our Condensed Consolidated Financial Statements to conform to current year classifications

F-7

NOTE 1 — BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - ( continued )

EARNINGS (LOSS) PER SHARE — Basic earnings (loss) per share (“EPS”) is determined by dividing the net earnings (loss) by the weighted-average number of shares of common shares outstanding during the period. Diluted EPS is determined by dividing net earnings (loss) by the weighted average number of common shares used in the basic EPS calculation plus the number of common shares that would be issued assuming conversion of all potentially dilutive securities (such as stock options, preferred stock and convertible securities) outstanding under the treasury stock method. As of September 30, 2016 we have outstanding (i) options to purchase 75,000 shares, (ii) 15,382 shares of preferred stock convertible into 1,025,467 shares, and (iii) $479,129 of debts to related parties convertible into 312,420 shares of our Common stock. In periods reporting a loss the inclusion of warrants and potential common shares to be issued in connection with convertible debt have an anti-dilutive effect on diluted loss per share and have been omitted in such computation.

RECENT ACCOUNTING PRONOUNCEMENTS— The Company is evaluating several pronouncements issued by the FASB which may result in the adoption by the Company of these standards in upcoming accounting periods as follows:

ADOPTION OF NEW ACCOUNTING STANDARDS —

On April 7, 2015, the FASB issued Accounting Standards Update 2015-03, Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires entities to present debt issuance costs related to a recognized debt liability as a direct deduction from the carrying amount of that debt liability. The guidance in Update 2015-03 (see below) does not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. Given the absence of authoritative guidance within Update 2015-03 for debt issuance costs related to line-of-credit arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement to be effective for Fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015; which for us is 1^st interim period of fiscal 2017, or the current quarter ended September 30 2016. The adoption of this standard had no material effect on our financial position, results of operations and cash flows.

ASU 2014-12 — Compensation Stock-Compensation (Topic 718): Accounting for Share Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (a consensus of the FASB Emerging Issues Task Force) to be effective for Annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2015; which for us would be our 1^st interim period of fiscal 2017, or the current quarter ended September 30 2016. The adoption of this standard had no material effect on our financial position, results of operations and cash flows.

ACCOUNTING STANDARDS ISSUED BUT NOT YET EFFECTIVE —

The Company is evaluating several pronouncements issued by the FASB which may result in the adoption by the Company of these standards in upcoming accounting periods as follows:

ASU 2014-09 — Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date-In May 2014, the FASB issued a comprehensive new revenue recognition standard that supersedes nearly all revenue recognition guidance under U.S. GAAP and supersedes some cost guidance for construction-type and production-type contracts. The guidance in this standard is principles-based, and accordingly, entities will be required to use more judgment and make more estimates than under prior guidance, including identifying contract performance obligations, estimating variable consideration to include in the contract price and allocating the transaction price to separate performance obligations.

F-8

NOTE 1 — BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - ( continued )

The guidance in this standard is applicable to all contracts with customers, regardless of industry-specific or transaction-specific fact patterns. Additionally, this standard provides guidance for transactions that were not previously addressed comprehensively (e.g., service revenue, contract modifications and licenses of intellectual property) and modifies guidance for multiple-element arrangements. The core principle of this standard is that entities should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. To help financial statement users better understand the nature, amount, timing and potential uncertainty of the revenue that is recognized, this standard requires significantly more interim and annual disclosures. This standard allows for either “full retrospective” adoption (application to all periods presented) or “modified retrospective” adoption (application to only the most current period presented in the financial statements, as well as certain additional required footnote disclosures). On July 9, 2015, the FASB approved a one-year deferral of the effective date, while permitting entities to elect to adopt one year earlier on the original effective date. As a result, this standard is now effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2017, which for us is our fiscal 2019. We are currently evaluating the impact this standard, if any, will have on our financial position, results of operations and cash flows.

ASU 2015-11 — Inventory (Topic 330): Simplifying the Measurement of Inventory. For public business entities, the content that links to this paragraph shall be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, which for us is our first quarter of fiscal 2018. We are currently evaluating the impact this standard will have on our financial position, results of operations and cash flows.

ASU 2016-02 — In February 2016, the FASB issued a new lease standard that supersedes existing lease guidance under GAAP. This standard requires lessees to record most leases on their balance sheets but recognize expenses on their income statements in a manner similar to existing lease guidance under GAAP. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, with the option to use certain relief. Full retrospective application is prohibited. This standard is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2018, which for us is our fiscal 2020. We are currently evaluating the impact this standard will have on our financial position, results of operations and cash flows.

ASU 2014-15 — Presentation of Financial Statements Going Concern (Subtopic 20540): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern to be effective for Annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016; which for us would be our fiscal 2017 and although early adoption is permitted for this standard, the Company has not adopted nor determined its applicability.

ASU 2016-09 — In March 2016, the FASB issued an accounting standards update making final targeted amendments to the accounting for employee share-based payments. These amendments will require entities to recognize the income tax effects of awards when the awards vest or are settled, will change an employer’s accounting for an employee’s use of shares to satisfy the employer’s statutory income tax withholding obligation and will require entities to elect whether to account for forfeitures of share-based payments by either recognizing forfeitures of awards as they occur or estimating the number of awards expected to be forfeited as is currently required. The required method of adoption varies by amendment. This accounting standards update is effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2016, which for us is our first quarter of fiscal 2018. Early adoption is permitted in any annual or interim period, but all of the guidance is required to be adopted in the same period and any adjustments must be reflected as of the beginning of the fiscal year. We are currently evaluating the impact this accounting standards update will have on our financial position, results of operations and cash flows.

F-9

NOTE 1 — BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - ( continued )

ASU 2015-17 — Deferred Taxes (topic 740): For a particular tax-paying component of an entity and within a particular tax jurisdiction, all current deferred tax liabilities and assets shall be offset and presented as a single amount and all noncurrent deferred tax liabilities and assets, as well as any related valuation allowance, shall be offset and presented as a single noncurrent amount. However, an entity shall not offset deferred tax liabilities and assets attributable to different tax-paying components of the entity or to different tax jurisdictions. For public business entities, the amendments in this Update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods, which for us is our first quarter of fiscal 2018. Early adoption is permitted in any annual or interim period, but all of the guidance is required to be adopted in the same period and any adjustments must be reflected as of the beginning of the fiscal year. We are currently evaluating the impact this accounting standards update will have on our financial position, results of operations and cash flows.

ASU 2016-15 The FASB recently issued ASU 2016-15 to clarify whether the certain items should be categorized as operating, investing or financing in the statement of cash flows. For public business entities, the amendments in this Update are effective for financial statements issued for annual periods beginning after December 15, 2017, and interim periods within those fiscal years, which for us is our fiscal 2019. Early adoption is permitted in any annual or interim period, but all of the guidance is required to be adopted in the same period and any adjustments must be reflected as of the beginning of the fiscal year. We are currently evaluating the impact this accounting standards update will have on our financial position, results of operations and cash flows.

F-10

NOTE 2 — SUPPLEMENTAL CASH FLOW INFORMATION

	For the three months ended
	September 30,
	2016		2015
	(Unaudited)		(Unaudited)
Statement of Operation Information:
Cash paid for income taxes	$	1,850	$	1,850
Interest Paid	$	72,417	$	51,233
Non Cash Investing and Financing Activities:
Assets acquired with debt financing	$	-	$	300,000
Accrued Deferred Offering Costs	$	140,000	$	-

NOTE 3 — INVENTORIES

Inventories consist of the following:

	September 30,			June 30,
	2016			2016
	Amount			Amount
	(unaudited)
Raw materials	$	411,582		$	423,670
Work-in-process		378,477			485,344
Reserve		(37,000	)		(37,000	)
Total	$	753,059		$	872,014

In August 2016, Microphase West operations were transferred to the Shelton Connecticut plant. As of September 30, 2016 Microphase West inventory was combined with the Shelton Connecticut inventory. The inventory reserves were similarly combined to equal $37,000 for September 30, 2016.

F-11

NOTE 4 — PROPERTY AND EQUIPMENT:

Property and equipment was comprised of the following:

	September 30,			June 30,
	2016			2016
	Amount			Amount
	(unaudited)
Leasehold Improvements	$	40,288		$	40,288
Computers, machinery & equipment		3,210,147			3,210,147
Furniture and fixtures		122,350			122,350
Transportation equipment		40,438			40,438
Property held under capital leases		56,013			56,013
		3,469,236			3,469,236
Less: accumulated depreciation and amortization		(3,328,251	)		(3,310,257	)
Total	$	140,985		$	158,979

Depreciation expense was $17,994 and $19,389 during the three months ended September 30, 2016 and 2015, respectively.

NOTE 5 — ACCRUED EXPENSES:

Accrued expenses were comprised of the following:

	September 30,		June 30,
	2016		2016
	(unaudited)
Salaries, wages and other compensation, including $80,000 to related parties at September 30, 2016 and June 30, 2016	$	354,497	$	470,273
Royalties		150,386		146,449
Professional fees		529,162		372,500
Commissions		37,936		37,936
Interest		35,358		47,144
Other miscellaneous accruals		79,878		60,427
	$	1,187,217	$	1,134,729

401 (K) Employee Benefit Plan:

The Company sponsors a 401(K) plan for all eligible employees. Employee contributions are based on a percentage of compensation. Employer contributions for both matching and profit sharing are discretionary and determined annually by management.

Deferred Lease Obligation

At September 30, 2016 the Company has $95,441 of deferred lease obligation associated with the amendment in May of 2016 for its long term lease on the Shelton, Connecticut facility.

F-12

NOTE 6 — FAIR VALUE OF FINANCIAL INSTRUMENTS:

The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Quoted market prices are used to establish fair value when they are available and other valuation techniques are utilized to estimate the fair value of financial instruments that do not have quoted market prices.

The Company has long term debt with fixed interest rates, the carrying amount of which may be different from fair value as of September 30, 2016 and June 30, 2016. The Company decided that it is not practical to estimate the fair value of these financial instruments on the basis that they are held-to-maturity debts which have no immediately available market information on the fair value and the cost of making assumptions and applying estimation methodologies to assess the fair value estimates exceeds the benefit. Information pertinent to estimating the fair value such as carrying amount, effective interest rate, maturity and repayment term are disclosed in Notes 7, 8, 9.

The Company has applied the fair value concepts to its available-for-sale securities. As such, the valuation techniques used to measure fair value is based on the source of the data used to develop the prices. The priority of these sources is defined as follows:

Level 1 — quoted prices in active markets.

Level 2 — other than quoted prices that are directly or indirectly observable.

Level 3 — unobservable inputs for the asset or liability.

Marketable securities, classified as available-for-sale securities, are measured at fair market value (Level 1) on a recurring basis. As of September 30, 2016 these amounted to $385,667.

NOTE 7 — REVOLVING CREDIT LINE

	September 30, 2016		June 30, 2016
	(unaudited)
The Company entered into a revolving loan agreement with Gerber Finance, Inc. (Gerber) in February of 2012 for a maximum of $1,500,000, which was amended to $1,150,000 in November of 2013, and then to $1,400,000 in September 2015.  Under this agreement, the Company can receive funds based on a borrowing base, which consists of various percentages of accounts receivable, inventories, a restricted cash account held by Gerber, and equipment. In connection with this agreement, the Company is subject to an annual facility fee (1.75%) on each anniversary, monthly collateral monitoring fees of $1,500 and other fees. As of September 30, 2016, this line has a limit of $1,400,000 and the interest is currently at the base rate of 7.25%. For the months of March through September 2016, we incurred an additional 2.5% interest charge on over-advance amounts that exceeded the collateral borrowing base and briefly (less than one week) a separate additional charge of 2.5% for exceeding the limit of $1,400,000 in June 2016. This excess utilization was eliminated in early July 2016.	$	844,926	$	1,474,129

The interest expense for the three months ended September 30, 2016 and 2015, respectively, was $45,579 and $27,433, and the fees for the same period ended September 30, 2016 and 2015 were $10,625 and $9,710. The effective annualized interest rate for the three months ended September 30, 2016 was 18.15% and for same three months in 2015 was 9.65%.

There are financial covenants set forth in the Gerber agreement of February 3, 2012 and as amended on February 24, 2012. As of September 30, 2016 the Company was not in compliance with three financial covenants regarding minimum levels of net worth, net income and subordinated debt. The Company has not received a notice of default from Gerber regarding these covenants and has been in discussions with Gerber regarding resolving the noncompliance. The Company expects to meet the minimum level of net worth covenant upon completion of the Offering.

Approximate Value of collateral at balance sheet dates —
	September 30, 2016		June 30, 2016
	(unaudited)
Inventories	$	753,059	$	872,014
Accounts Receivable		367,019		1,092,482
Total	$	1,120,078	$	1,964,496

F-13

NOTE 8 — EQUITY LINES OF CREDIT, OTHER TERMED DEBTS & ACQUISITION NOTES:

EQUITY LINES OF CREDIT:

The Company had previously guaranteed the payment under the terms of an assumption agreement, as amended, of an Equity Line of Credit with Wells Fargo Bank totaling up to $250,000, the proceeds of which the Company received from a concurrent loan from Edson Realty Inc. which was a related party-owned realty holding company at the time the credit line was funded on August 15, 2008. As of June 30, 2016, this first line of credit had $250,000 available, secured by residential real estate owned by a former COO of the Company, of which $218,290 was outstanding, with an interest rate of 3.35%. As of September 30, 2016, this line of credit has $250,000 available, of which $217,259 is outstanding, with an interest rate of 3.35%. The Company charged operations $1,839 and $1,940 for interest on this line of credit in the three months ended September 30, 2016 and 2015, respectively.

Effective June 30, 2014, the Company also has guaranteed to the CEO, under the terms of an assumption agreement, as amended, the repayment of a second Equity Line of Credit with Wells Fargo Bank. The Company received working capital loans from the CEO which were from funds drawn against this Equity Line of Credit. As of June 30, 2016 the second line of credit had $150,000 available, secured by the CEO’s principal residence, of which $101,003 was outstanding, with an interest rate of 3.0%. As of September 30, 2016, this line of credit has $150,000 available, of which $98,873 is outstanding, with an interest rate of 3.00%. The Company charged operations $757 and $910 for interest on this line of credit in the three months ended September 30, 2016 and 2015, respectively.

Other termed debts consist of: (i) Long-term Debt, (ii) Capital Leases, & (iii) Extended Payment Arrangements.

Long-term Debt:
	September 30, 2016			June 30,  2016
	(unaudited)
Ford Credit Company:
Payable in monthly payments of $499, including interest at 4.90% through April, 2019 secured by transportation equipment.	$	14,952		$	15,823
Total	$	14,952		$	15,823
Less: current portion		(5,336	)		(5,336	)
Long-term portion	$	9,616		$	10,487

The Company charged operations $127 and $533 in interest for these loans for the three months ended September 30, 2016 and 2015, respectively.

Extended Payment arrangements:

The Company is responsible for paying a former employee, disability benefits under a prior self-insured plan, through April, 2019. The plan requires monthly payments until the participant attains age 65. Interest has been imputed on this obligation at 5%.

	September 30, 2016			June 30,  2016
	(unaudited)
Total of extended disability benefits	$	24,363		$	26,721
Less: amount representing interest		(1,592	)		(1,855	)
Present value of disability benefits		22,771			24,866
Less: current portion		(8,378	)		(8,378	)
Long-term portion	$	14,393		$	16,488

Interest expense charged to operations for the extended disability payments was $302 and $402 for the three months ended September 30, 2016 and 2015, respectively.

F-14

NOTE 8 — EQUITY LINES OF CREDIT, OTHER TERMED DEBTS & ACQUISITION NOTES: - ( continued )

Small Business Express Job Creation Incentive loan:	September 30, 2016		June 30, 2016
	(unaudited)
State of Connecticut Small Business Express Program loan, funded August 2016, initial amount of $300,000 at an interest rate of 3.0% for a term of 10 years. Principal and interest payments are deferred for the first year of the loan.	$	300,000	$	-
Total	$	300,000	$	-
Less: current portion		-		-
Long-term portion	$	300,000	$	-

Summary totals for Other termed debts consist of: (i) Long-term Debt & (ii) Extended Payment Arrangements.

	September 30, 2016			June 30, 2016
	(unaudited)
Total minimum long term debt, capital lease & extended disability payments	$	337,723		$	40,689
Less: current portion		(13,714	)		(13,714	)
Long-term portion	$	324,009		$	26,975

ACQUIRED INTANGIBLE ASSETS & ACQUISITION NOTES PAYABLE:

The Company acquired certain assets including specific inventory and fixed assets from a RF services provider, Microsemi Corp-RF Integrated Solutions (“Microsemi”); which had eliminated providing certain RF services similar to that of the Company for approximately 10 customers. The acquisition was pursuant to a contract, originally dated March 27, 2013, which provided for a $100,000 down payment and a note payable for $650,000, with payments through December, 2014 as amended. The total purchase price of $750,000 was allocated to tangible assets inventory and fixed assets associated with these specific RF services, and $155,277 intangible assets consisting of a customer list, non-compete clause and an exclusive license. The Contract also provided for 5% royalty on certain RF services we will provide to the specified 10 customers.

On August 8, 2014 the Company initially signed a strategic partnership agreement with Dynamac, Inc. to develop, manufacture and market a portfolio of low cost RF/Microwave and Millimeter-wave calibrated test probes and related universal test platforms.

On January 21, 2016, Microphase Instruments LLC, a subsidiary of Microphase Corporation (the “Company”) entered into a Purchase Agreement (the “Agreement”) with Dynamac, Inc. (the “Seller”), pursuant to which the Company agreed to acquire certain assets in a line of proprietary RF and microwave test and measurement products, as well as related intellectual property (the “Dynamac Assets”). On November 2, 2016, the Company entered into that certain First Amendment to Purchase Agreement with Dynamac (the “Dynamac Amendment”), pursuant to which, among other things, the Company agreed that Dynamac would retain ownership of the Dynamac assets until the Company has paid all amounts owed pursuant to the Dynamac agreement, with such amounts due within 10 days of the closing of the offering of the Company’s common stock as contemplated in the Registration Statement on Form S-1 filed with the SEC on July 28, 2016 (the “Offering”).

Asset allocation on Acquisition date

Microsemi

The Exclusive License associated with the Microsemi Inc. (“Microsemi”) asset acquisition was valued at $56,861, was ascribed a perpetual life and is subject to evaluation annually for impairment. Management has determined that there was no impairment charge to be recorded for the three months ended September 30, 2016 and 2015. Customer Lists and Non-Compete agreements associated with the Microsemi asset acquisition were ascribed useful lives of 7 and 5 years respectively. The consideration paid for this portion of business was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. We assigned $155,277 to identifiable intangible assets, which consist of a customer list, non-compete clause and an exclusive license. The acquired intangible assets will be amortized over their estimate lives, which range from 5 to 10 years, primarily using accelerated amortization methods based on the cash flow streams used to value those assets. The exclusive license has a contractual indefinite life and is reviewed annually for impairment. There was no excess of the purchase price over the estimated fair value of the net assets acquired and as such no goodwill was recorded. Amortization expense recorded for these intangible assets was $3,878 and $3,878 for the three months ended September 30, 2016 and 2015, respectively.

F-15

NOTE 8 — EQUITY LINES OF CREDIT, OTHER TERMED DEBTS & ACQUISITION NOTES: - ( continued )

Dynamac

The Dynamac License was recorded at cost. The Company deposited $50,000 and provided a $300,000 note payable toward the initial contract during fiscal 2015 which was subsequently revised by the Dynamac agreement of January 21, 2016.

The assets acquired in the Dynamac agreement of January 21, 2016 have been valued at the contract price in our initial measurement, resulting in intangible assets other than goodwill, primarily Intellectual Property consisting of two (2) patents with remaining lives of over 12 years each, a portfolio of product prototypes to be patented, trade secrets, know-how, confidential information and other intellectual property. We expect to incur additional costs to apply for eighteen (18) new patents, in addition to various trademarks and copyrights.

Our accounting for the allocation of the relative fair value of the intangible assets, other than goodwill, acquired in the Dynamac acquisition is still preliminary. The fair value estimates for the assets acquired were based on preliminary calculations, and our estimates and assumptions of the allocation of the relative fair value of these assets to possibly amortizable components, and if any, what period of amortization would be appropriate, are subject to change as we obtain additional information for our estimates during the measurement period (up to one year from the acquisition date). These assets will be subject to periodic evaluation and at a minimum will be reviewed annually for impairment. The Company assesses these assets for impairment based on their future cash flows.

Our Acquisitions have resulted in the following Asset allocation:

	September 30,			June 30,
	2016			2016
	(unaudited)
Intellectual Property	$	2,520,425		$	2,520,425
Customer List		73,017			73,017
Non-Compete Clause		25,399			25,399
Exclusive License		56,861			56,861
Total		2,675,702			2,675,702
Accumulated Amortization		(50,410	)		(46,532	)
Net Total	$	2,625,292		$	2,629,170

Asset Acquisition Note Payable is comprised of the following:

	September 30,		June 30,
	2016		2016
	(unaudited)
Asset Acquisition Note Payable-current portion
- Dynamac agreement	$	975,345	$	975,345
Asset Acquisition Note Payable, net of current portion
- Dynamac agreement		1,045,080		1,045,080
Total Asset acquisition note payable	$	2,020,425	$	2,020,425

The acquisition of Microsemi on March 27, 2013, provided for a $100,000 down payment and a note payable for $650,000, with payments through December, 2014 and was paid in full during Fiscal 2015.

The Dynamac agreement, as revised, of January 21, 2016 was funded by the $50,000 original deposit paid in connection with the previous agreement, $350,000 paid at closing, $100,000 paid in February 2016, and a series of four $550,000 payments payable on the note semi-annually, due in August 2016 & 2017 and February 2017 & 2018. The Company imputed interest at 7%, its most favorable credit line rate, and as such is valued at $2,020,425. On November 2, 2016 the Agreement was extended whereby the initial payment is due November 22, 2016. See Note 13 – Subsequent Events.

F-16

NOTE 9 — RELATED PARTY TRANSACTIONS:

The Company had activities with related parties during the fiscal years 2016 and 2015. The Company sublet office space until March 31, 2015 and a vehicle in fiscal 2015 to mPhase. In fiscal 2016, the rent recorded was $0 for the office space and $9,000 for the vehicle. At September 30, 2016, there was no cost for the vehicle. At Sept 30, 2016 and June 30, 2016, mPhase owed the Company $33,295.

Notes Payable — Related Parties:
	September 30, 2016			June 30, 2016
	(unaudited)
Former Employee:
Note payable to a Note Holder formerly employed by the Company, payable in monthly payments of $7,600 as revised in November 2015, with interest at 6% until paid in full. This Note Holder subordinated his debt to the revolving line discussed in Note 7, in February 2012, and converted $170,000 of his debt into 113,333 shares of common stock during the Fiscal year ended June 30, 2015. During FY 2016, the Company has sought to revise the payment schedule with the Note Holder, and to date the parties have not agreed to a revised repayment schedule and the note is in arrears. In May 2016, this lender initiated a Notice of Default and Demand for Payment, and in July 2016 the Note Holder initiated litigation to collect this debt in full. While the Company still seeks a mutually agreeable settlement, the Company believes this debt will be settled for an amount substantially the same as recorded in the financial statement.	$	154,732			152,434
Stockholders:
Two notes previously payable to individuals with monthly payments of $2,715 and $2,750 as revised, including interest at 6% through September 2017. In January 2016, these two notes and loan amortization schedules were revised with monthly payments of $910 and $980 respectively, including interest at 3% through August 2019. The monthly payment amounts increase by $130 and $140 every 4 months, per the revised schedule.	$	119,656			118,762
Other Related Parties:
Previously payable to this individual in monthly payments of $875 as revised, including interest at 6% through September 2017. In January 2016, this note and loan amortization schedule was revised with a monthly payment of $280, including interest at 3% through August 2019. The monthly payment amount increases by $40 every 4 months, per the revised schedule.	$	18,894			18,754
Two notes previously payable to two individuals with identical monthly payments of $2,425 each as revised, including interest at 6% through April 2017. In January 2016, these two notes and loan amortization schedules were revised with monthly payments of $840 each, including interest at 3% through August 2019. The monthly payment amount increases by $120 every 4 months, per the revised schedule.	$	105,847			105,057
Total	$	399,129		$	395,007
Less: current portion		(212,490	)		(137,150	)
Long-term portion	$	186,639		$	257,857

The Company and the note holders (except for the former employee as discussed above) have agreed to revised repayment schedules for 42 months commencing December 2015. As of September 30, 2016, the Company was in arrears on four payments of the revised repayment schedules for each of the note holders.

The Company charged operations $4,122 and $6,938 for interest on these loans for the quarters ended September 30, 2016 and 2015, respectively.

F-17

THE COMPANY HAS MATERIAL DEBT SERVICE COMMITMENTS AT SEPTEMBER 30, 2016 AS DISCUSSED IN NOTES 8 & 9 SUMMARIZED AS FOLLOWS:

	RELATED PARTY LOANS			OTHER TERMED DEBT			EQUITY LINES OF CREDIT			ACQUISITION NOTES			SMALL BUSINESS EXPRESS JOB CREATION INCENTIVE LOAN			TOTAL
EFFECTIVE INTEREST RATE as of September 30, 2016		4.1	%		5.5	%		3.3	%		7	%		3	%
Fiscal Years:
2017	$	141,272		$	13,714		$	38,236		$	975,345		$	—		$	1,168,567
2018		118,645			14,410			39,363			1,045,080			26,996			1,244,494
2019		104,112			9,599			238,533			—			30,308			382,552
2020		35,100			—			—			—			31,229			66,329
2021		—			—			—			—			32,179			32,179
thereafter		—			—			—			—			179,288			179,288
Total	$	399,129		$	37,723		$	316,132		$	2,020,425		$	300,000		$	3,073,409

F-18

NOTE 10 — STOCKHOLDERS’ EQUITY:

Microphase Corporation has authorized capital of 7,800,000 shares of common stock (“Common Stock”) with no par value and 200,000 shares of Series A Convertible Preferred Stock (“Preferred Stock”) with $100 par value per share, with 6% cumulative dividends.

On October 4, 2014, at a special meeting of the shareholders of the Company, the shareholders approved amendments to the Certificate of Incorporation of the Company to: (1) Increase its authorized common stock from 4,800,000 shares of common stock without par value up to 50,000,000 shares of common stock without par value; the Board of Directors has implemented such increase to 7,800,000 shares of Common Stock; (2) increase its authorized preferred stock from 200,000 shares, $100 par value per share up to 2,000,000 shares of 6% convertible preferred stock; such increase has yet to be implemented. Each outstanding and hereafter issued share of the Preferred Stock will: i) continue to be entitled to a cash dividend, payable quarterly on the last business day of each fiscal quarter of the Company, commencing with the fiscal quarter ended December 31, 2014, if and when declared by the Company’s board of directors (the “Board”) . These dividends will be cumulative, will accrue if not declared by the Board, and must be paid before any dividends or other distributions are made to the common shareholders, be entitled, on liquidation of the Company, to receive $100 per share plus accrued dividends before any distributions are made to the common shareholders, be convertible at the option of the holder into Common Stock.

Common Stock

During the three months ended September 30, 2016 the Company issued 10,000 and 55,000, respectively, shares of its Common Stock to two Officers and Directors for services, valued at $97,500, which was charged to operations in the quarter ending September 30, 2016.

During the three months ended September 30, 2015, the Company issued no shares of its common stock.

During the three months ended September 30, 2016 the Company received net $45,000 pursuant to a stock purchase agreement where the Company will issue 33,334 shares of its Common Stock and a warrant to purchase up to 33,334 shares of stock for a period of five years at a price of $2.50 per share to an accredited investor in a private placement of its common stock pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, at $1.50 per share.

Preferred Stock

The Preferred Stock, with respect to dividends, liquidation payments, and liquidation rights, ranks senior to the common stock and of the Company. Holders of Preferred Stock are entitled to receive, when and as declared by the Board of Directors, dividends, at the annual rate of 6% of the stated par value, or $100 per share. Dividends are cumulative and accrue from the effective date of issuance of the Preferred Stock until declared.

F-19

NOTE 10 — STOCKHOLDERS’ EQUITY - ( continued )

As of September 30, 2016, 15,382 shares of Preferred Stock are outstanding and cumulative undeclared dividends on preferred stock are $267,051.

Reserved Shares

Stock Options

The Board approved the implementation of a stock option plan in January 2015, for which the Company will not seek ratification by the shareholders, reserving 250,000 shares of Common Stock for this plan; however, such plan has not yet been set forth in a formal document adopted by the board. During the year ended June 30, 2016 the Company granted options, as part of this plan, to an Officer and Director for services to purchase 75,000 shares of Common Stock, with an exercise price of $2.00, with a term of 7 years, and which rights vest over the next three years as follows; 25,000 shares were exercisable immediately and 25,000 shares vest each October 1 of 2016 and 2017. The total value of these options was estimated to be $106,200 using the Black Scholes method, based on an assumed volatility of 112.5% and an interest rate of .09%. $35,400 was charged to operations in the nine months ending March 31, 2016, deferring the balance of which $35,400 will be charged each October 1 of 2016 and 2017.

Series A Preferred Shares currently convertible

As of September 30, 2016, 15,382 preferred shares were outstanding and cumulative undeclared dividends on preferred stock were $267,051. The preferred shares are convertible into 1,025,467 shares of the Company’s common stock at $1.50, and the dividends, if declared, are convertible into 178,034 common shares stock also at $1.50, until such time the Company’s common stock begins trading.

Certain Debts currently convertible

As of September 30, 2016, $399,129 of loans from related parties and $80,000 of unpaid compensation are convertible into 266,086 and 53,334 shares of the Company’s common stock at $1.50, respectively, until such time the Company’s common stock begins trading.

F-20

NOTE 11 — MAJOR CUSTOMERS AND SEGMENTS:

The Company recorded sales of $796,996 and $1,428,581 with four and three customers for the three months ended September 30, 2016 and 2015 respectively. These customers represent 58% and 58% of sales for the three months ended September 30, 2016 and 2015. At September 30, 2016, those four customers owed the Company $122,598.

Sales to U.S. customers represented 87% and 86% of sales for the three months ended September 30, 2016 and 2015, respectively.

NOTE 12 — COMMITMENTS AND CONTINGENCIES:

The Company moved to Shelton, Connecticut on April 21, 2015, to a facility with 15,000 square feet with monthly rent of $15,000, for a 7-year term with annual escalations of 3%. In December 2015 the Company committed to rent additional space in connection with the acquisition of the Dynamac proprietary line. In June 2016 the monthly rent becomes $18,400 and in August 2016 $24,740. The total commitment on this lease for fiscal year 2017 is approximately $297,000.

Employment and Consultant Contracts:

The Company had previously entered into employment contracts with two long term officers through 2015 that provided for a stated salary of $250,000 per year, plus company benefits. These contracts were subject to other items and included a non-compete covenant. In Fiscal 2015 the Company entered into updated three year employment agreements with these two employees, one as an officer, currently the Company’s president and a director, and one as a strategic consultant upon his resignation as an officer and director. These updated contracts include base compensation of $225,000 per year plus company benefits, severance provisions and non-competition covenants for both individuals. As of September 30, 2016 and June 30, 2016, the Company owed $80,000 and $80,000 to these individuals, respectively.

In Fiscal 2015 the Company also entered into three year employment contracts with two new officers for at will employment with base compensation of $160,000 and $150,000 per year plus company benefits, respectively. Effective July 1, 2016 the Company revised these agreements with these two officers. These updated contracts include base compensation of $175,000 and $165,000 per year plus company benefits, severance provisions and non-competition covenants for both officers.

Effective July 1, 2016 the Company executed a modification to the consulting contract with the general manager through February 1, 2019. The updated contract includes base compensation of $192,000 per year with contract termination fees, comparable to the severance provisions for officers, and non-competition covenants.

The Company leases 5 vehicles under operating leases expiring in 2016 through 2018. As of September 30, 2016 the future minimum rental payments for fiscal 2017 are $27,221.

5 year Shelton Facility lease and Car lease schedules as of September 30, 2016:

Fiscal year	Shelton Facility Lease		Car leases		Total
2017	$	298,358	$	27,221	$	325,579
2018		307,240		16,567		323,807
2019		316,361		4,491		320,852
2020		325,721		0		325,721
2021		335,348		0		335,348
Thereafter		691,126		0		691,126
Total	$	2,274,154	$	48,279	$	2,322,433

We are subject to legal proceedings and other claims arising out of the conduct of our business, including proceedings and claims relating to commercial and financial transactions; government contracts and sub-contracts; alleged lack of compliance with applicable laws and regulations; production partners; product liability; patent and trademark infringement; employment disputes; and environmental, safety and health matters. Some potential legal proceedings and claims could seek damages, fines or penalties in substantial amounts or remediation of environmental contamination. As a government sub-contractor, we are subject to audits, reviews and investigations to determine whether our operations are being conducted in accordance with applicable regulatory requirements. Under federal government procurement regulations, certain claims brought by the U.S. Government could result in our suspension or debarment from U.S. Government contracting for a period of time. On the basis of information presently available, we do not believe that there are any existing proceedings or potential claims that would have a material effect on our financial position or results of operations.

F-21

NOTE 13 — SUBSEQUENT EVENTS:

During September and October 2016, the Company commenced a private placement for 333,334 shares issuable to accredited investors in an interim private placement of our common stock pursuant to section 4(2) of the Securities Act of 1933, as amended. This pending private placement and issuance is expected to generate $450,000 of net proceeds to the Company after deducting $50,000 of placement fees upon completion. The terms also provide for 333,334 shares issuable upon exercise of warrants issued in connection with the private placement of 333,334 shares discussed above at an exercise price of $2.50 per share. Additionally, the Company entered into a one year agreement for investment banking services which calls for $60,000 of consulting fees to be paid in cash from the proceeds of this placement and $50,000 to be paid in common stock, at the per share value of the Offering, upon the completion of the Offering.

Through November 9, 2016 the Company has received $400,000 of these proceeds, of which $50,000 was received during the Quarter ended September 30, 2016.

Also in October 2016, the Company has offered to issue notes for bridge loans for a total of $700,000 from accredited investors that are expected to generate $630,000 in net proceeds to the Company after deducting $70,000 of placement fees upon completion. Additionally; the Company entered into a one year agreement for investment banking services which calls for $120,000 of consulting fees to be paid in cash from the proceeds of the bridge loans and $90,000 to be paid in common stock, at the per share value of the Offering, upon the completion of the Offering.

The terms of this bridge debt will be pursuant to note purchase agreements with purchasers that are accredited investors, for notes up to in the aggregate amount of $700,000, at an interest rate of 10% per annum (the “Notes”), from financing sources identified by and placed by Spartan Capital Securities, LLC (“Spartan”) in accordance with a certain Selling Agreement by and between the Company and Spartan. Each of the Notes will be repaid as follows: (i) in the event that the public offering of the Company’s securities that is contemplated pursuant to a registration statement on Form S-1 filed with the SEC on July 28, 2016 (the “Offering”) closes prior to the first anniversary of the issuance date of such Note, the amount that is equal to (A) the entire original principal amount of such Note multiplied by 1.25 plus (B) the interest, if any, accrued quarterly, every 90 days, beginning on the date that is 90 days from the issuance date of such Note on the entire outstanding principal amount, will be due and payable by no later than five days from the date of the Offering; or (ii) in the event that the Offering has not closed prior to the first anniversary of the issuance date of such Note, on such first anniversary of the issuance date of such Note, the amount that is equal to (A) the amount that is equal to the entire original principal amount of such Note multiplied by 1.25, plus (B) the interest accrued quarterly, every 90 days, beginning on the date that is 90 days from the issuance date of such Note on the entire outstanding principal amount will be due and payable. In the event that the Offering closes on a date that is sooner than 90 days from the issuance date of the Notes, no interest will accrue.

On November 2, 2016, we entered into that certain First Amendment to Purchase Agreement with Dynamac (the “Dynamac Amendment” and, the January Dynamac Agreement, as amended by the Dynamac Amendment, the “Dynamac Transaction”), pursuant to which, among other things, the Company agreed that Dynamac would retain ownership in the Dynamac Assets until the Company has delivered all amounts owed pursuant to the Dynamac Transaction, with such amounts due within 10 days of the closing of the Offering and the Company to pay such amounts from the proceeds thereof. In connection with this amendment the Company has agreed to issue 300,000 shares of our Common Stock and the August 22, 2016 payment has been extended to November 22, 2016.

F-22

ITEM 2.   MANAGEMENT’S DISCUSSION OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

This quarterly report on Form 10-Q and other reports filed by Microphase Corporation (the “Company”) from time to time with the SEC (collectively, the “Filings”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the Filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks relating to the Company’s business, industry, and the Company’s operations and results of operations. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report.

RESULTS OF OPERATIONS OVERVIEW

Microphase Corporation designs and manufactures custom RF (radio frequency) and microwave products from DC to 40 GHz. Our products include components, subsystems and multi-function assemblies for the military and commercial markets. The Company has been in business for over 60 years and is one of the oldest and most established RF and microwave products companies in the industry.

The Company’s RF and microwave products enable the transmission, reception and processing of high frequency signals in defense electronics, homeland security systems and telecommunication networks. Our RF products are typically used in high frequency applications and include filters, switch filters, diplexers, multiplexers, detectors, detector logarithmic video amplifiers (DLVA) and multi-function assemblies. The end products in which the Company’s products are used include fighter planes, missiles, submarines, ships, drones, and IED jammers. Customers include Lockheed Martin, Raytheon, Saab, BAE Systems and the U. S. Government. Sales to the military markets comprised 100% of sales for 2016 and the first three months of fiscal 2017.

Many years of deficit spending have caused U.S. Government budgets to come under significant pressure in recent years. In particular, the Budget Control Act of 2011 resulted in automatic spending reductions known as sequestration, through budget caps for both defense and non-defense spending. According to usgovernmentspending.com spending on Military Defense has gone from $693.5 billion in the government fiscal year 2010 (ending September 30) to $705.6 billion in 2011, $677.9 billion in 2012, $633.4 billion in 2013, $603.5 in 2014, $597.5 in 2015 and $604.5 in 2016. This decrease has had a significant negative impact on Microphase’s customers, with a resultant negative impact on Microphase’s results during and prior to the past three fiscal years.

The Company has been selling the same products to the same customers for many years. While every product order is manufactured to each customer’s specifications, the overall product offering has not changed substantially. The Company believes it will need to introduce new products to the market in order to grow sales, in accordance with its strategy described in “Current Status and Management’s Plans.” The Company has been addressing its working capital needs by raising additional debt from insiders, by executing private placements of common stock, and through debt facility with Gerber Finance, Inc.

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Growth Strategy

While our core market historically has been the military electronics defense industry, we intend to leverage our high-frequency RF and microwave expertise to expand into high growth sectors of the wireless and RF microwave industries where we believe that we can command significant leadership. Our strategic plan for future growth is to develop and/or acquire proprietary technologies and solutions that will improve upon existing solutions and products in the areas of cost, size, weight, reliability and performance.

As a customer-driven global provider of RF/Microwave components, devices, and integrated assemblies, we plan to expand market penetration in emerging technology markets, including fifth generation (5G) wireless mobile communications, commercial drone systems, and the Internet of Things (“IoT”), which provides for advanced interconnection of devices, systems, and services within the existing Internet infrastructure and is expected to rely heavily on wireless links to enable automation in nearly all fields from residential to commercial, healthcare and industrial markets.

The Company is working to develop innovative solutions that we expect will drive our strategic roadmap for long-term growth and profitability. Discussions are underway for collaboration and joint development with certain potential strategic partners as we aggressively pursue access to niche products and solutions with first-to-market opportunities in these high growth market segments. This strategy could enable Microphase to broaden its customer base and reduce risk by spreading its revenue base across multiple market sectors. Acquisitions and/or joint ventures, if completed successfully, could increase our market share and the technology value of our product lines as well as broaden our product offerings and diversify our customer base. We believe that we are well positioned to capitalize on growth opportunities in the following three key market segments:

· test and measurement;

· electronic filters; and

· high power amplifiers.

ACQUISITIONS AND STRATEGIC INVESTMENTS

The Company is responding to the decrease in the defense budget by pursuing the acquisition of companies and product lines which are similar and/or related to the Company’s existing product lines and which may provide the Company with opportunities to expand beyond military markets. On March 27, 2013, the Company acquired the assets of a DLVA manufacturing business in Folsom, California from Microsemi Corp. pursuant to a purchase agreement (the “Microsemi Agreement”) for a purchase price comprised of $100,000 in cash plus a $650,000 note, which was paid in full prior to its maturity in December 2014 (the “Microsemi Transaction”). The assets acquired pursuant to the Microsemi Transaction were operated as a division and referred to as “Microphase West,” until such operations were moved to Shelton, Connecticut in July 2016.

On July 9, 2014, the Company executed a securities purchase agreement with AmpliTech Group Inc. of Bohemia, N.Y. to purchase, as amended, 8,666,666 AmpliTech common shares at $0.023 per share for a total purchase price of $200,000. The purchase price was made up of two installments of $100,000. AmpliTech designs, engineers and assembles amplifiers for micro-wave components primarily for communication systems. As of May 12, 2016, we owned 18.8% of the outstanding shares of Amplitech Common Stock. To date, this has been a passive investment. As of September 30, 2016, the value of these shares was $385,667.

On January 21, 2016, the Company entered the T&M industry by entering into a purchase agreement (as subsequently amended, the “Dynamac Agreement”) with Dynamac, Inc. (“Dynamac”), pursuant to which the Company agreed to acquire certain assets in a line of proprietary RF and microwave test and measurement products, as well as related intellectual property (“Dynamac Assets”). On November 2, 2016, the Company entered into that certain First Amendment to Purchase Agreement with Dynamac (the “Dynamac Amendment”), pursuant to which, among other things, the Company agreed that Dynamac would retain ownership of the Dynamac assets until the Company has paid all amounts owed pursuant to the Dynamac agreement, with such amounts due within 10 days of the closing of the Offering. The Company intends to pay all amounts owed to Dynamac pursuant to the Dynamac agreement from the proceeds thereof.

We believe the Dynamac Assets to be acquired pursuant to the Dynamac Transaction will enable us to grow sales revenue in accordance with our growth strategy.

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THREE MONTHS ENDED SEPTEMBER 30, 2016 VS. SEPTEMBER 30, 2015

Revenues.   Total revenues for the three months ended September 30, 2016 were $1,373,064, down from $2,451,855 in the same period in 2015, a decrease of $1,078,791 or 44%. The revenue decrease was primarily due to a reduction in overall customer orders resulting in a reduced backlog, with a less efficient mix of products. In addition, the closure of the California plant in July 2016 and the transfer of inventory and work in process back to the East Coast plant in Shelton reduced shipments in the quarter. Additionally, there was a significant slow-down for the quarter on an important program, due to a critical vendor part not being available. The decrease to domestic customers was $913,391 in that period for 2016 and the decrease in shipments to foreign customers was $165,400.

Cost of Sales.   Cost of sales decreased $471,301 for the three month period ended September 30, 2016 from $1,451,183 in 2015 to $979,882 in 2016, a decrease of 33%. The decrease in the cost of sales was primarily due to the decrease in revenues. The gross profit margin for that same period for 2015 was 42%, whereas the gross profit margin for the same 2016 period was 29%. The decrease in the gross profit margin was due to a less profitable product mix.

General and Administrative Expenses.   Selling, general and administrative expenses were $738,850 for the 3 months ended September 30, 2016 compared to $703,000 for the same period in 2015, an increase of $35,850 or 5%. The increase resulted from stock-based compensation of $97,500 plus Microphase Instruments rental expense of $40,704 for their new Shelton work spaces adjacent to Microphase, less reduced SG&A costs resulting from the California plant closure, and $26,800 reduction of expenses from a grant received from the State of Connecticut.

Engineering and Research Expenses.   Engineering and research for the three months ended September 30, 2016 were up to $207,660 from $206,314 in the same period in 2015, an increase of $1,346 or 0.7%. Engineering and research expenses were essentially flat year over year.

Non-operating Income (Loss).   Non-operating income was $2,250 for the three months ended September 30, 2015 and $0 for the same period in 2016.

Interest (Expense and Credit costs) net.   Interest expense and credit costs were $58,171 for the three months ended September 30, 2015 and $111,895 for the three months ended September 30, 2016, an increase of $53,734. The higher interest costs in 2016 were primarily the result of increased interest rates on over-advances from the Gerber Loan facility plus approximately $35,000 accrued interest on the Dynamac Loan repayment plan.

Net Income (Loss).   The Company recorded a net loss of ($666,273) for the three months ended September 30, 2016, as compared to net income of $70,387 for the same period in 2015, a decrease of $736,660. The decrease was caused by the significant decline in revenues period over period, initial operational costs of $81,259 for Microphase Instruments in 2016 vs $0 in 2015, and the extra costs relative to the move of our California operations to Connecticut.

This represents basic (loss) per common share of $(0.107) in 2016 as compared to income per common share of $0.015 in 2015, based upon basic weighted average common shares outstanding during the three month periods ending September 30, 2016 and September 30, 2015 of 6,201,858 and 4,775,306, respectively. This represents diluted loss per common share of $(0.107) in 2016 as compared to diluted income per common share of $0.011 in 2015, based upon basic weighted average & diluted common shares outstanding during the same periods, of 6,201,858 and 6,122,456 respectively.

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LIQUIDITY AND CAPITAL RESOURCES

Through the three months ended September 30, 2016, the Company reported net loss of $666,273 and had cash of $16,389. At September 30, 2016, we had an accumulated deficit of $14,605,924. At September 30, 2016, the Company had a working capital deficit of $2,706,671 as compared to a working capital deficit of $2,301,573 as of June 30, 2016, an increase of $405,098 in the deficit.

This decrease is primarily due to the reduction in accounts receivable of $725,463, other current assets of $60,480 and inventory of $118,955. The working capital deficit was also increased by $140,000 additional expenditures in connection with our impending stock offering. We were able to reduce our credit line by $629,203 due to the dramatic reduction in accounts receivable.

Our financial condition raises substantial doubt that we will be able to continue as a “going concern”, and our Independent Registered Public Accounting Firm included an explanatory paragraph regarding this uncertainty in their report on our financial statements as of June 30, 2016 when we had an accumulated deficit of $13,939,651 and a working capital deficit of $2,301,573.

During the three months ended September 30, 2016, the cash from operating activities was $225,495, primarily because of the net loss of ($666,273) was offset by depreciation and amortization of $21,872, decreases in accounts receivable of $725,463, inventory of $118,955 and other current assets of $60,480, and an increase in accrued expenses of $56,609. The cash from operating activities was reduced primarily by a reduction of accounts payable of $158,763 and deferred revenue of $44,600.

During the three months ended September 30, 2015, the cash used in operating activities was ($87,988), primarily because of net income of $70,387, which was offset by an increase in accounts receivable of $224,429, a decrease in accounts payable of $61,823, and an increase in amounts due from related parties of $2,250. Cash provided by operating activities increased due to depreciation and amortization of $23,266, to a decrease in inventory of $12,755, and to an increase in accrued expenses of $98,519.

Cash (Used In) Investing Activities consisted of no activity during the three month period ended in September 30, 2016, as compared to the purchase of $35,919 of fixed assets during the same three month period in 2015.

During the three months ended September 30, 2016, the company received net $45,000 pursuant to a stock purchase agreement where the Company will issue 33,334 shares of common stock and warrants to purchase an additional 33,334 shares of common stock to an accredited investor in a private placement of its common stock pursuant to section 4(2) of the Securities Act of 1933, as amended. During the same 3 month period in 2015, the Company did not issue any shares of its common stock.

The Company entered into a revolving credit facility with Gerber Finance, Inc (“Gerber”) in 2012 with a maximum for this line, as amended, of $1,400,000. The outstanding balance as of September 30, 2016 was $844,926 and as of June 30, 2015 was $1,474,129. Under this agreement the Company receives funds based on a borrowing base which consists of various percentages of certain assets. The current interest rate is 7%, and there is an annual facility fee of 1.75%, plus monthly collateral monitoring fees of $1,500 and other fees. As of September 30, 2016 the Company was not in compliance with these financial covenants regarding minimum levels of net worth, net income and subordinated debt. The Company has not received a notice of default from Gerber regarding these covenants and has been in discussions with Gerber regarding resolving the noncompliance. The Company expects to meet the minimum level of net worth covenant upon completion of the Offering.

Cash (Used In) Financing activities totaled $290,330 during the three month period in 2016, primarily from the $629,203 pay down of the borrowings from our line from Gerber, reduced by debt service of $3,161 for our equity lines, reduced by $871 for long term debt, and reduced by $2,095 for payments for extended term arrangements. There was also an increase in financing activities from a note from the State of Connecticut for $300,000 and also the issuance of common stock for $45,000.

The terms and conditions of the purchase agreement with Dynamac require semi-annual payments due in August 2016 and 2017 and February 2017 and 2018 of $550,000, which the Company imputed interest at 7%, its most favorable credit line rate, and as such is valued at $2,020,425. The payment owed to Dynamac in August 2016 has a grace period until October 22, 2016. On November 2, 2016, we entered into that certain First Amendment to Purchase Agreement with Dynamac (the “Dynamac Amendment” and, the January Dynamac Agreement, as amended by the Dynamac Amendment, the “Dynamac Transaction”), pursuant to which, among other things, the Company agreed that Dynamac would retain ownership in the Dynamac Assets until the Company has delivered all amounts owed pursuant to the Dynamac Transaction, with such amounts due upon closing of the Offering and the Company to pay such amounts from the proceeds thereof.

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The amounts owed by the Company pursuant to the related party notes are four months in arrears.

THE COMPANY HAS MATERIAL DEBT SERVICE COMMITMENTS AT SEPTEMBER 30, 2016 AS DISCUSSED IN NOTES 8 & 9 SUMMARIZED AS FOLLOWS:

	RELATED PARTY LOANS			OTHER TERMED DEBT			EQUITY LINES OF CREDIT			ACQUISITION NOTES			SMALL BUSINESS EXPRESS JOB CREATION INCENTIVE LOAN			TOTAL
EFFECTIVE INTEREST RATE as of September 30, 2016		4.1	%		5.5	%		3.3	%		7	%		0	%
Fiscal Years:
2017	$	141,272		$	13,714		$	38,236		$	975,345		$	—		$	1,168,567
2018		118,645			14,410			39,363			1,045,080			26,996			1,244,494
2019		104,112			9,599			238,533			—			30,308			382,552
2020		35,100			—			—			—			31,229			66,329
2021		—			—			—			—			32,179			32,179
future years		—			—			—			—			179,288			179,288
Total	$	399,129		$	37,723		$	316,132		$	2,020,425		$	300,000		$	3,073,409

During September and October 2016, the Company commenced a private placement for 333,334 shares issuable to accredited investors in an interim private placement of our common stock pursuant to section 4(2) of the Securities Act of 1933, as amended. This pending private placement and issuance is expected to generate $450,000 of net proceeds to the Company after deducting $50,000 of placement fees upon completion. The terms also provide for 333,334 shares issuable upon exercise of warrants issued in connection with the private placement of 333,334 shares discussed above at an exercise price of $2.50 per share. Additionally, the Company entered into a one year agreement for investment banking services which calls for $60,000 of consulting fees to be paid in cash from the proceeds of this placement and $50,000 to be paid in common stock, at the per share value of the Offering, upon the completion of the Offering.

Through November 9, 2016 the Company has received $400,000 of these proceeds, of which $50,000 was received during the Quarter ended September 30, 2016.

Also in October 2016, the Company has offered to issue notes for bridge loans for a total of $700,000 from accredited investors that are expected to generate $630,000 in net proceeds to the Company after deducting $70,000 of placement fees upon completion. Additionally; the Company entered into a one year agreement for investment banking services which calls for $120,000 of consulting fees to be paid in cash from the proceeds of the bridge loans and $90,000 to be paid in common stock, at the per share value of the Offering, upon the completion of the Offering.

The terms of this bridge debt will be pursuant to note purchase agreements with purchasers that are accredited investors, for notes (up to) in the aggregate amount of $700,000, at an interest rate of 10% per annum (the “Notes”), from financing sources identified by and placed by Spartan Capital Securities, LLC (“Spartan”) in accordance with a certain Selling Agreement by and between the Company and Spartan. Each of the Notes will be repaid as follows: (i) in the event that the public offering of the Company’s securities that is contemplated pursuant to a registration statement on Form S-1 filed with the SEC on July 28, 2016 (the “Offering”) closes prior to the first anniversary of the issuance date of such Note, the amount that is equal to (A) the entire original principal amount of such Note multiplied by 1.25 plus (B) the interest, if any, accrued quarterly, every 90 days, beginning on the date that is 90 days from the issuance date of such Note on the entire outstanding principal amount, will be due and payable by no later than five days from the date of the closing of the Offering; or (ii) in the event that the Offering has not closed prior to the first anniversary of the issuance date of such Note, on such first anniversary of the issuance date of such Note, the amount that is equal to (A) the amount that is equal to the entire original principal amount of such Note multiplied by 1.25, plus (B) the interest accrued quarterly, every 90 days, beginning on the date that is 90 days from the issuance date of such Note on the entire outstanding principal amount will be due and payable. In the event that the Offering closes on a date that is sooner than 90 days from the issuance date of the Notes, no interest will accrue.

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CURRENT STATUS AND MANAGEMENT’S PLAN OF OPERATIONS

The Company has been seeking to diversify its market focus beyond its core products. By utilizing our current capabilities together with positioning ourselves through targeted acquisitions, strategic alliances and product partnering we believe we can augment our current product offerings enabling us to continue to introduce a mix of new military and commercial products for the wireless telecom, autonomous auto, test & measurements, and medical instrumentation markets. This strategy should enable Microphase to broaden its customer base and reduce risk by spreading its revenue base across multiple market sectors. Targeted strategic acquisitions should increase our market share and the technology value of our product lines as well as broaden our product offering and diversify our customer base.

The Company plans on continuing financing operations through its debt facility with Gerber Financial, the issuance of debt to management, the settlement of debts for equity, and the sale of common and preferred securities though private placements, until such time it can complete its initial public offering, when and if declared effective, as described in its registration statement and impending amendment(s) on Form S-1, during the second quarter of fiscal 2017. The Company also continues to boost efforts to increase the sales of its traditional RF and DLVA business and anticipates the product growth plan to include the launch of its initial T&M products by the later portion of fiscal 2017 implementing the assets acquired from Dynamac in January 2016. Management has also taken steps in fiscal 2016 to contain operating expenses, including a reduction in the number of employees, primarily by consolidating all of its traditional design to manufacture RF and DLVA business into the Shelton, Connecticut location. The Company has expanded its facility in square footage and utility as such to house both our traditional RF and DLVA business, and enable the launch and delivery of its initial T&M products.

Management believes that these steps will permit the Company to maintain the continuation of our traditional operations, and should we become further capitalized, allow us to implement our product growth plan, which we believe will enable the Company to achieve and maintain a level of operations which generates sustainable profitability and to continue as a going concern. However there can be no assurance that this will be the case.

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND ASSUMPTIONS

The SEC defines critical accounting policies as those that are, in management’s view, most important to the portrayal of our financial condition and results of operations and those that require significant judgments and estimates.

The discussion and analysis of our financial condition and results of operations is based upon our financial statements that have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities. On an on-going basis, we evaluate our estimates including the allowance for doubtful accounts, the salability and recoverability of inventory, income taxes and contingencies. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We cannot predict what future laws and regulations might be passed that could have a material effect on our results of operations. We assess the impact of significant changes in laws and regulations on a regular basis and update the assumptions and estimates used to prepare our financial statements when we deem it necessary.

Allowance for Doubtful Accounts

The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company’s estimate is based on historical collection experience and a review of the current status of Accounts Receivable. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change in the future.

Depreciation and Amortization

Property and equipment are recorded at cost. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The Company uses other depreciation methods (generally, accelerated depreciation methods) for tax purposes where appropriate. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the remaining lease term or the estimated useful lives of the improvements.

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Income Taxes

The Company accounts for income taxes under the provisions of Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 740 “  Income Tax  ”. ASC 740 requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and tax bases of certain assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company has adopted the provisions of FASB ASC 740-10-05 “Accounting for Uncertainty in Income Taxes”. The ASC clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Inventory Obsolescence

Inventory quantities and related values are analyzed at the end of each fiscal quarter to determine those items that are slow moving or obsolete. An inventory reserve is recorded for those items determined to be slow moving with a corresponding charge to cost of goods sold. Inventory items that are determined obsolete are written off currently with a corresponding charge to cost of goods sold.

Revenue Recognition

Revenues and costs of revenues are recognized during the period in which the products are shipped. The Company applies the provisions of FASB Accounting Standards Codification (“ASC”) 605-10, Revenue Recognition in Financial Statements ASC 605-10, which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the SEC. ASC 605-10 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. In general, the Company recognizes revenue for sale of products when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the fee is fixed or determinable, and (iv) the collectability is reasonably assured.

The Company’s sources of revenue are from the sale of various component amplifiers and filters. Revenue is recognized upon shipment of such products, FOB shipping point. The Company offers a 100% satisfaction guarantee against defects for 90 days after the sale of their product except for a few circumstances. There are no maintenance or service contracts related to any product sale.

OFF BALANCE SHEET TRANSACTIONS

As of November 11, 2016, we did not have any off-balance sheet arrangements.

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ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is not exposed to changes in interest rates as the Company has no debt arrangements and no investments in certain held-to-maturity securities. Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes. A hypothetical 100 basis point adverse move in interest rates along the entire interest rate yield curve would not materially affect the fair value of any financial instruments at September 30, 2016.

ITEM 4.   CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures.

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.

(b) Changes in Internal Control over Financial Reporting.

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

ITEM 1A. RISK FACTORS.

We believe there are no changes that constitute material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the Fiscal Year Ended June 30, 2016, filed with the SEC on October 3, 2016.

ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

During the three months ended September 30, 2016 the Company issued 65,000 shares of its Common Stock to two Officers and Directors for services, valued at $97,500, which was charged to operations in the quarter ending September 30, 2016.

During the three months ended September 30, 2016 the Company received net $45,000, net of fees, pursuant to a stock purchase agreement where the Company will issue 33,334 shares of common stock and a warrant to purchase 33,334 additional shares of common stock for five years at $2.50 per share to an accredited investor in a private placement of its common stock pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, at $1.50 per share.

The above issuances were made in reliance on an exemption from registration set forth in Section 4(a)(2) of the Securities Act of 1933, as amended, and/or Regulation D promulgated there under.

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ITEM 3.   DEFAULTS UPON SENIOR SECURITIES .

There has been no default in the payment of principal, interest sinking or purchase fund installment, or any other material default, with respect to indebtedness of the Company.

ITEM 4.   MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5.   OTHER INFORMATION.

There is no other information required to be disclosed under this item which was not previously disclosed.

ITEM 6.   EXHIBITS

EXHIBITS
4.1	Form of Common Stock Purchase Warrant*
10.1	Amendment to Purchase Agreement (incorporated herein by reference to the current report on Form 8-K filed with the SEC on November 8, 2016)
10.2	Form of Subscription Agreement*
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes - Oxley Act of 2002.*
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes - Oxley Act of 2002.*
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes - Oxley Act of 2002.*
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes - Oxley Act of 2002.*
101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema Document*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB	XBRL Taxonomy Extension Label Linkbase Document*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document*

* filed herewith.

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SIGNATURES

Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant, has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	MICROPHASE CORPORATION
Dated: November 14, 2016	By:	/s/ Necdet Ergul
	Name:	Necdet Ergul
	Title:	Chief Executive Officer (Principal Executive Officer)
	By:	/s/  James Ashman
	Name:	James Ashman
	Title:	Chief Financial Officer
		(Principal Financial Officer)
		(Principal Accounting Officer)

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