Americhip International (ACHI) 10QSB 2006 Q3 Quarterly report (small business)

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTER ENDING AUGUST 31, 2006

AMERICHIP INTERNATIONAL INC.

(Exact name of registrant as specified in its charter)

Nevada	000-33127	98-0339467
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(I.R.S. Employer Identification)

9282 General Drive, Suite 100, Plymouth, MI	48170-4607
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (734) 207-0338

(Former name or former address, if changed since last report)

Copies of all communications, including all communications sent to the agent for service, should be sent to:

Joseph I. Emas, Attorney at Law

1224 Washington Avenue

Miami Beach, Florida 33139

Telephone: 305.531.1174

Check whether the Issuer (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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes xNo o

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date.

As of October 15, 2006, 415,202,850 shares of $.001 par value common stock were outstanding.

Transitional Small Business Disclosure Format (check one) Yes o No x

Indicate if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x 

AMERICHIP INTERNATIONAL INC.

FORM 10-QSB

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)	1
Consolidated balance sheets at August 31, 2006 and November 30, 2005	F-1
Consolidated statements of operations for the Three Months and Nine Months ended August 31, 2006 and August 31, 2005	F-2
Consolidated statements of cash flows for the Three Months and Nine Months ended August 31, 2006 and August 31, 2005	F-3 - F-4
Notes to condensed financial statements	F-5
Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations	2
Item 3. Controls and Procedures	20
PART II OTHER INFORMATION
Item 1. Legal Proceedings	20
Item 2. Changes in Securities	21
Item 3. Defaults Upon Senior Securities	21
Item 4. Submission of Matters to a Vote of Security Holders	21
Item 5. Other Information	21
Item 6. Exhibits	21
Signatures	22

-i-

PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

The financial statements of the company are set forth beginning on page F-1.

AMERICHIP INTERNATIONAL INC.

CONSOLIDATED BALANCE SHEETS

	August 31
	2006			November 30,
	(unaudited)			2005
ASSETS
CURRENT ASSETS
Cash	$	5,770		$	218
Accounts receivable - trade		41,783			31,646
Prepaid expenses		6,730			5,295
Inventory		218,765			237,047
TOTAL CURRENT ASSETS		273,048			274,206
FIXED ASSETS
Furniture & fixtures		16,903			16,903
Machinery & equipment		586,713			261,620
Less accumulated depreciation		(69,367	)		(19,134	)
TOTAL FIXED ASSETS		534,249			259,389
OTHER ASSETS
Deposits		238,959			238,959
Technology rights and patents, net of amortization		17,354			20,509
Deferred debt offerings costs, net of amortization		—			52,500
TOTAL OTHER ASSETS		256,313			311,968
TOTAL ASSETS	$	1,063,610		$	845,563
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Bank overdraft	$	12		$	4,561
Accounts payable and accrued expenses		779,250			370,149
Related party payable		515,086			1,111,373
Related party notes payable, current portion		23,600			21,129
Convertible debentures, net of discounts		225,579			225,579
Accrued interest - related party		173,748			412,499
Accrued interest - other		15,638			16,368
Deposits - private placements		365,428			325,386
TOTAL CURRENT LIABILITIES		2,098,341			2,487,044
LONG TERM LIABILITIES
Related party notes payable, net of current portion		193,475			213,502
TOTAL LONG TERM LIABILITIES		193,475			213,502
MINORITY INTEREST		3,413			3,413
STOCKHOLDERS' DEFICIT
Common stock, $0.001 par value; 500,000,000 shares authorized,
415,202,850 and 242,031,535 shares issued and outstanding, resepectively		415,203			242,032
Additional paid-in capital		14,381,388			7,607,730
Accumulated deficit		(16,028,210	)		(9,708,158	)
TOTAL STOCKHOLDERS' DEFICIT		(1,231,619	)		(1,858,396	)
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT	$	1,063,610		$	845,563

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

F-1

AMERICHIP INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended						Nine Months Ended
	August 31			August 31			August 31			August 31
	2006			2005			2006			2005
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
REVENUES
Sales	$	30,059		$	29,560		$	111,809		$	88,797
Commissions		—			—			—			226
		30,059			29,560			111,809			89,023
COST OF SALES		20,006			13,787			74,413			47,569
Gross Profit		10,053			15,773			37,396			41,454
EXPENSES
Wages - officers and directors		75,187			—			195,397			—
Wages - other		66,775			—			178,811			—
Administrative service		120,925			65,212			356,423			368,832
Legal and accounting		141,630			52,986			207,119			255,641
Depreciation and amortization		24,042			10,485			53,389			19,998
Consulting expense		1,180,441			977,475			3,874,000			1,041,664
License expense		30,000			90,000			1,410,000			270,000
Office expense		6,262			11,847			23,790			26,708
Total Expenses		1,645,262			1,208,005			6,298,929			1,982,843
LOSS FROM OPERATIONS		(1,635,209	)		(1,192,232	)		(6,261,533	)		(1,941,389	)
OTHER INCOME (EXPENSE)
Forgiveness of debt		—			—			43,904			—
Financing expense		—			(73,613	)		(52,500	)		(255,289	)
Other income		3,158			—			3,158			—
Interest		(14,415	)		(109,635	)		(53,081	)		(290,220	)
Total Other Income (Expense)		(11,257	)		(183,248	)		(58,519	)		(545,509	)
LOSS BEFORE TAXES		(1,646,466	)		(1,375,480	)		(6,320,052	)		(2,486,898	)
INCOME TAX EXPENSE		—			—			—			—
NET LOSS	$	(1,646,466	)	$	(1,375,480	)	$	(6,320,052	)	$	(2,486,898	)
BASIC AND DILUTED NET LOSS PER SHARE	$	(0.01	)	$	(0.01	)	$	(0.02	)	$	(0.02	)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING,
BASIC AND DILUTED		399,404,143			173,921,721			343,240,114			146,960,491

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

F-2

AMERICHIP INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months			Nine Months
	Ended			Ended
	August 31,			August 31,
	2006			2005
	(unaudited)			(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers	$	104,830		$	103,297
Cash paid to suppliers & employees		(411,772	)		(315,620	)
Interest paid		(7,978	)		(158,928	)
Net cash used by operating activities		(314,920	)		(371,251	)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of fixed assets		(325,092	)		(242,645	)
Payments on deposits		—			(50,000	)
Net cash used by investing activities		(325,092	)		(292,645	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loan payable - employee		—			2,025
Payments on loan payable - employee		—			(1,587	)
Payments on related party payable		(6,287	)		(71,534	)
Payments made on related party notes payable		(17,556	)		(11,919	)
Proceeds received on convertible debentures		—			543,000
Proceeds from the issuance of common stock		669,407			35,248
Net cash provided by financing activities		645,564			495,233
NET INCREASE (DECREASE) IN CASH		5,552			(168,663	)
CASH, BEGINNING OF PERIOD		218			180,690
CASH, END OF PERIOD	$	5,770		$	12,027

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

F-3

AMERICHIP INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months			Nine Months
	Ended			Ended
	August 31,			August 31,
	2006			2005
	(unaudited)			(unaudited)
RECONCILIATION OF NET LOSS TO NET CASH
USED BY OPERATING ACTIVITIES
Net loss for the period	$	(6,320,052	)	$	(2,486,898	)
Forgiveness of debt income which did not require the use of cash		(43,904	)		—
Depreciation and amortization which did not require the use of cash		53,389			19,998
Amortization of fniance charges which did not require the use of cash		52,500			215,556
Licenses expense which did not require the use of cash		1,410,000			270,000
Warrants issued for services		388,838			19,524
Common stock issued for interest on convertible debt		—			15,453
Common stock issued for consulting services		3,278,616			1,215,475
Common stock issued for professional services		—			3,750
		(1,180,613	)		(727,142	)
Adjustments to reconcile net loss to net cash used by operating activities
(Increase) Decrease
Accounts receivable - trade		(10,137	)		14,274
Prepaid expenses		(1,436	)		(1,532	)
Inventories		18,282			(2,766	)
Increase (Decrease)
Bank overdraft		(4,549	)		—
Accounts payable and accrued expenses		453,002			168,020
Accrued interest payable		45,103			131,292
Deposits - private placement		365,428			46,603
Net cash used by operating activities	$	(314,920	)	$	(371,251	)
SUPPLEMENTAL NON-CASH ACTIVITY
Stock issued for repayment of convertible debt	$	—		$	925,000
Common stock issued for interest on convertible debt	$	—		$	15,453
Common stock issued for private placement deposits received in prior year	$	325,386		$	—
Contribution of capital related party	$	244,584		$	—

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

F-4

AMERICHIP INTERNATIONAL INC.

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2006

NOTE 1 - BASIS OF PRESENTATION

The foregoing unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Regulation S-B as promulgated by the Securities and Exchange Commission. Accordingly, these financial statements do not include all of the disclosures required by generally accepted accounting principles for complete financial statements. These unaudited interim financial statements should be read in conjunction with the audited financial statements for the period ended November 30, 2005. In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented.

The preparation of financial statements in accordance with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of the Company's financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions that could have a material effect on the reported amounts of the Company's financial position and results of operations.

Certain amounts from prior periods have been reclassified to conform to the current period presentation. This reclassification has resulted in no changes to the Company’s accumulated deficit or net losses presented.

During the nine months ending August 31, 2006, no allocation of losses was made to the minority interest, because the Company’s 80% owned subsidiary, AmeriChip, Inc., is considered dormant and is not expected to conduct business in the future.

Operating results for the nine-month period ended August 31, 2006 are not necessarily indicative of the results that may be expected for the year ending November 30, 2006.

NOTE 2 - GOING CONCERN UNCERTAINTY

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has incurred material recurring losses from operations. At August 31, 2006, the Company had an accumulated deficit of $16,028,210. For the nine months ended August 31, 2006, the Company sustained a net loss of $6,320,052. These factors, among others, indicate that the Company may be unable to continue as a going concern for a reasonable period of time. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that may be necessary should the Company be unable to continue as a going concern.

F-5

AMERICHIP INTERNATIONAL INC.

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2006

The Company’s continuation as a going concern is contingent upon its ability to obtain additional financing and to generate revenue and cash flow to meet its obligations on a timely basis. The Company’s management is currently putting sales strategies in place which will, if successful, mitigate these factors which raise substantial doubt about the Company’s ability to continue as a going concern.

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES

Accounting for Convertible Notes and Securities with Beneficial Conversion Features

Following guidance by EITF 00-27, the Company allocates proceeds received from convertible notes and/or securities first to warrants granted to the note holders. The value of the warrants and the beneficial conversion feature are recorded on the balance sheet as a debt discount and as an increase to shareholders’ equity, respectively. The discounts are amortized over the life of the loans.

Inventories

Inventories, consisting of products available for sale, are recorded using the weighted average method. As of August 31, 2006, the inventory of the Company’s subsidiary AmeriChip Tool and Abrasives, LLC totaled $218,755, consisting of $215,975 of grinding and abrasive products and $2,780 of other materials.

Property and Equipment

Property and equipment are stated at cost. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, which range from three to seven years.

The following is a summary of property and equipment at:

	August 31,			November 31,
	2006			2005
Furniture and fixtures	$	16,903		$	16,903
Plant assets		586,713			261,620
		603,616			278,523
Less accumulated depreciation		(69,367	)		(19,134	)
	$	534,249		$	259,389

The Company recognized $50,234 and $15,791 in depreciation expense for the nine months ended August 31, 2006 and 2005. The Company evaluates the recoverability of property and equipment when events and circumstances indicate that such assets might be impaired. The Company determines impairment by comparing the undiscounted future cash flows estimated to be generated by these assets to their respective carrying amounts. Maintenance and repairs are expensed as incurred. Replacements and betterments are capitalized. The cost and related reserves of assets sold or retired are removed from the accounts and any resulting gain or loss is reflected in results of operations. The Company begins depreciating an asset when it has been placed in service.

F-6

AMERICHIP INTERNATIONAL INC.

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2006

Provision for Taxes

Income taxes are provided based upon the liability method of accounting pursuant to Statement of Financial Accounting Standards No. 109 (hereinafter “SFAS No. 109”), “Accounting for Income Taxes.” Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the “more likely than not” standard imposed by SFAS No. 109 to allow recognition of such an asset.

At August 31, 2006 and November 30, 2005, the Company had deferred tax assets of approximately $5,317,000 and $3,300,000, respectively, principally arising from net operating loss carryforwards for income tax purposes multiplied by an expected tax rate of 34%. As management of the Company cannot determine that it is more likely than not that the Company will realize its benefit of the deferred tax assets, a valuation allowance equal to the deferred tax assets was present at August 31, 2006 and November 30, 2005.

The significant components of the deferred tax assets at August 31, 2006 and November 30, 2005 were as follows:

		August 31,			November 30,
		2006			2005
Net operating loss carryforward	$	16,028,000		$	9,708,000
Warrants issued:	$	388,800		$	—
Deferred tax asset	$	5,317,000		$	3,300,000
Deferred tax asset valuation allowance	$	(5,317,000	)	$	(3,300,000	)

At August 31, 2006 and November 30, 2005, the Company has net operating loss carryforwards of approximately $16,028,000 and $9,708,000, respectively, which expire in the years 2021 through 2026. The Company recognized $388,800 and $0 of losses from issuance of warrants for services as of August 31, 2006 and November 30, 2005, respectively, which are not deductible for tax purposes and are not included in the above calculation of deferred tax assets. The change in the allowance account from November 30, 2005 to May 31, 2006 was $2,017,000.

The Tax Reform Act of 1986 substantially changed the rules relative to the use of net operating losses and general business credit carryforwards in the event of an “ownership change” of a corporation. The Company has issued additional shares of common stock, which may have resulted in restrictions on the future use of net operating losses and tax credit carryforwards generated before an ownership change. The effect of such change has not been determined.

F-7

AMERICHIP INTERNATIONAL INC.

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2006

Revenue and Cost Recognition Policies

The Company recognizes revenue from product sales when products are shipped and title passes to customers. The Company has not provided an allowance for sales returns because the revenues are new and there is no historical experience on which to base an estimate. This assessment may change as the Company develops the appropriate history of transactions in its operating companies and a provision for sales returns will be established. Returns of a product, if permitted by the manufacturer, are charged a 15% restock fee. Specialized machined products created to the customer’s blueprint specifications are also being produced. These product costs are market driven and the Company warrants the finished product to the extent they meet the specifications.

In, 2004, the Company, through its business plan, expanded its focus to include certain agency relationships for multiple vendors. As such, its policy for revenue recognition has been revised to recognize its status as an agent for these vendors. As an agent, the Company recognizes its commissions when earned. Commissions are earned by the Company when an order has been placed, delivery taken, and title has passed to the customer.

During the nine months ended August 31, 2006, the Company recognized $111,809 of revenues from product sales and $0 from the agency relationships. During the nine months ended August 31, 2005, the Company recognized $88,797 from product sales and $226 from the agency relationships. Cost of sales consists of the purchase price of products sold, inbound and outbound shipping charges, and packaging supplies. Cost of sales totaled $74,413 and $47,569 for the nine months ended August 31, 2006 and 2005, respectively.

NOTE 4 - STOCK OPTIONS AND WARRANTS

Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” as revised by Statement of Financial Accounting Standards No. 123(R),defines a fair value-based method of accounting for stock options and other equity instruments. The Company has adopted this method, which measures compensation costs based on the estimated fair value of the award and recognizes that cost over the service period.

Stock Options

On October 22, 2003, the Company’s board of directors approved the AmeriChip International Inc. 2003 Non-Qualified Incentive Stock Option Plan (hereinafter “the Plan”), which as amended through November 30, 2005, allowed the Company to issue up to 80,000,000 shares of the Company’s common stock to officers, directors, employees and consultants. All 80,000,000 shares issuable in accordance with the Plan have been registered with the Securities and Exchange Commission on Form S-8. In the year ended November 30, 2005, the Company issued 59,250,000 stock options to consultants for marketing and advisory services under this plan, of which 10,467,500 were to related parties. As of November 30, 2005, there were 750,000 options remaining under this plan. All other registered shares under this plan were issued in periods prior to the fiscal year ending November 30, 2005. There were no options issued to officers, directors or employees during the year ended November 30, 2005.

F-8

AMERICHIP INTERNATIONAL INC.

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2006

During the year ended November 30, 2005, options totaling 59,250,000 were exercised at a weighted average price of $0.04 per share for $1,877,327 of consulting fees provided to the Company. When applicable, these options were valued pursuant the terms of the related consulting agreements. The remaining options were valued at the market price on the date of grant. All options were exercised immediately upon grant, and therefore the Company has deemed that no additional value should be assigned to the options. The value of the services provided as a result of these share based payments was determined in accordance with SFAS 123 and SFAS 123 (R).

During the nine month period ending August 31, 2006, the Company registered an additional 120,000,000 shares of common stock under this plan. During this same nine month period, 100,847,000 options were exercised under this plan at an average price of $0.027 per share for $2,683,616 of consulting and advisory services (of which 500,000 were to a director and 5,765,750 were to related parties). The options were valued at the market price on the date of grant. These options were exercised immediately upon grant, and therefore the Company deemed that no additional value should be assigned to the options. As of August 31, 2006, there were 21,903,000 options available to be issued under the plan.

The following is a summary of stock option activity:

	Number of Shares
	Under the Option			Weighted Average
	Plan			Exercise Price
Outstanding December 1, 2004		—			—
Granted		59,250,000		$	0.04
Exercised or expired		(59,250,000	)		(0.04	)
Outstanding November 30, 2005		—		$	—
Weighted average fair value of
options granted during the
period ended November 30, 2005				$	0.04
Outstanding December 1, 2005		—		$	—
Granted		100,847,000			0.027
Exercised or expired		(100,847,000	)		(0.027	)
Outstanding August 31, 2006		—		$	—
Weighted average fair value of
options granted during the
period ended August 31, 2006				$	0.027

Warrants

The fair value of warrants issued in the nine months ended August 31, 2006 was estimated on the grant date using the Black-Scholes Option Price Calculation. The following assumptions were made in estimating fair value: risk-free interest rate is 4%; volatility is 148%; dividend yield is zero; and expected life is 2 years.

F-9

AMERICHIP INTERNATIONAL INC.

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2006

During the nine months ended August 31, 2006, warrants were issued pursuant a consulting agreement, to acquire 1,000,000 shares of common stock at an exercise price of $0.08. The fair value of the warrants, which was determined on the date of grant, was $24,300. Also, during the nine months ended August 31, 2006, warrants were issued pursuant to a consulting agreement to acquire 1,250,000 shares of common stock at an exercise price of $0.12. The fair market value of the warrants which was determined on the date of grant was $27,000. Additionally, during the nine months ended August 31, 2006, warrants were issued pursuant a consulting agreement to acquire 1,375,000 shares of common stock at an exercise price of $0.05.

During the nine months ended August 31, 2006, warrant certificate #38 was issued pursuant an agreement with a director to acquire 10,000,000 shares of common stock at no exercise price. The maturity of these warrants was one year from the grant date. Due to the lack of a specific exercise price, the Black-Scholes Option Price Calculation could not be used in order to determine the value of the warrants on the grant date. Accordingly, the value of these warrants was estimated to be the fair market value of the corresponding stock as of the grant date of $0.03 per share. As a result, the value of these warrants on the grant date was determined to be $300,000. Accordingly, the fair market value of all warrants issued by the Company during the nine months ended August 31, 2006 was $388,838.

During the year ended November 30, 2005, 1,050,000 stock warrants previously issued under certain consulting agreements were cancelled. The Company issued 3,200,000 new three-year warrants to acquire 3,200,000 shares of common stock at an exercise price of $0.035 per share. Additional fair market value of the warrants determined on the new grant date of $19,524 was expensed to consulting and 150,000 warrants of the aforementioned new issuance were exercised during the six months ended May 31, 2005 for common stock for cash of $5,250, which approximates the fair value on the date of grant. In June, 2005, these 3,050,000 of outstanding warrants were cancelled and replaced by the issuance of 6,065,000 shares of common stock.

F-10

AMERICHIP INTERNATIONAL INC.

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2006

Summarized information about stock warrants outstanding and exercisable at August 31, 2006 and the fiscal year ended November 30, 2005 are as follows:

	Number of warrants			Weighted Average Remaining Life		Average exercise price
During the year ended November 30, 2005:
Issued		3,200,000			3.00	$	0.035
Cancelled		(3,050,000	)		2.75	$	0.035
Exercised		(150,000	)		—	$	0.035
Total warrants outstanding at November 30, 2005		—			—		—
Total unexercised warrants at November 30, 2005		—			—		—
During the nine months ended August 31, 2006:
Issued		13,625,000			.44	$	0.07
Cancelled		—			—		—
Exercised		—			—		—
Total warrants outstanding at August 31, 2006		13,625,000			.44	$	0.07
Total unexercised warrants at August 31, 2006		13,625,000			.44	$	0.07

NOTE 5 - COMMON STOCK

In May 2004, the Company’s board of directors elected to increase the authorized capital of the Company from 100,000,000 shares of common stock to 500,000,000 shares of $0.001 par value common stock. All shares have equal voting rights, are non-assessable and have one vote per share. Voting rights are not cumulative and, therefore, the holders of more than 50% of the common stock could, if they choose to do so, elect all of the directors of the Company.

During the nine months ended August 31, 2006, 22,924,315 shares of common stock were issued at an average price of $0.043 per share in a private placement for $994,791 in cash; 24,000,000 shares of common stock were issued to two of the Company’s officers and directors in exchange for unpaid license fees and interest at an average price of $0.085 per share for $2,040,000; 20,500,000 shares of common stock were issued to three of the Company’s officers and directors for consulting services at an average price if $0.04 per share for $820,000; and 105,747,000 shares of common stock were issued at an average price of $0.023 per share for consulting services with a fair value of $2,458,616.

F-11

AMERICHIP INTERNATIONAL INC.

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2006

Also, during the nine months ended August 31, 2006, contributed capital was recorded in the amount of $244,584, which resulted from the conversion of unpaid license fees due to two shareholders into 24,000,000 shares of the Company’s restricted common stock. This debt was converted to common stock at a price of $0.085 per share, for a total conversion price of $2,040,000, while the total amount due to these shareholders for the unpaid license fees was $2,284,584, resulting in contributed capital from these shareholders in the amount of $244,584.

During the year ended November 30, 2005, the Company issued 31,429,368 shares of common stock for an average of $0.03 per share for convertible debt of $880,421 and related interest costs of $15,303. The value of these shares was determined by the agreement between the Company and Cornell Capital Partners LP. The Company also issued 150,000 shares of common stock for the exercise of warrants for cash of $5,250; 6,065,000 shares of common stock were issued in exchange for the cancellation of all outstanding warrants issued by the Company at a price of $0.35 per share for a fair value of $212,275; 13,009,638 shares of common stock were issued at an average price of $0.024 per share in a private placement for $319,914 in cash; and 68,655,274 shares were issued at an average price of $0.03 per share for consulting services with a fair value of $2,209,502.

NOTE 6 - COMMITMENTS AND CONTINGENCIES

The Company entered into a standby equity distribution agreement and various security and debenture agreements with Cornell Capital. The Company agreed to reserve 81,119,403 shares of common shares under these agreements and to pursue a registration of these shares with Securities and Exchange Commission. As of August 31, 2006, 31,429,368 common shares have been distributed to Cornell Capital in accordance with these agreements. As of August, 2006, the Company is in a lawsuit with Cornell Capital regarding Cornell’s claim of shares issued under Section 144 of restricted stock. As of August 31, 2006, the lawsuit has not been resolved. Americhip’s management has demanded that Cornell return shares which have been overdrawn from the escrow account pursuant the standby equity distribution agreement, while Cornell has made demands for the conversion of 1,288,401 shares of the Company’s common stock which they claim have not been delivered. AmeriChip’s management has decided to fully resolve their lawsuit with Cornell prior to any further issuance of common stock under the conversion clauses of their agreements.

NOTE 7 - TECHNOLOGY RIGHTS AND PATENTS

In the year ended November 30, 2003, the Company acquired rights to the patents held by AmeriChip Ventures, Inc., a wholly owned subsidiary of AmeriChip International Inc. These patents are for a process known as Laser Assisted Chip Control technology (“LACC”) which can be used in manufacturing.

Technology licenses and patents are stated at cost. Amortization is provided using the straight-line method over the remaining estimated useful lives of the assets, which is ten years.

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AMERICHIP INTERNATIONAL INC.

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2006

The following is a summary of technology licenses and patents and accumulated amortization:

	August 31, 2006			November 30, 2005
Technology licenses and patents	$	42,069		$	42,069
Less accumulated amortization		(24,715	)		(21,560	)
	$	17,354		$	20,509

Amortization expense was $3,155 in the nine months ended August 31, 2006 and $4,207 in the year ended November 30, 2005.

NOTE 8 - RELATED PARTY TRANSACTIONS

The Company has a related party payable for advances from a shareholder totaling $85,086 and $91,373 and as of August 31, 2006 and November 30, 2005, respectively. These advances are not interest bearing and are payable upon demand.

See Note 9 regarding long-term debt due to a related entity, Note 5 regarding common stock issued to officers and directors, and Note 4 regarding warrants issued to a director.

NOTE 9 - LONG -TERM DEBT

In August 2004, the Company through its wholly owned subsidiary, AmeriChip Tool & Abrasives LLC, entered into an agreement to acquire certain assets of National Abrasive Systems, Co. (hereinafter “NASCO”), a Michigan corporation. NASCO is considered to be a related party because its president is also the president of the AmeriChip International Inc.

Assets acquired included inventory, equipment, and intangible assets. The transaction was funded by the Company’s execution of a $250,000 promissory note and a UCC-1 security interest in the assets acquired. In recording the transaction, the Company assigned fair values to the equipment and inventory, and no additional value to intangible assets acquired. The purchase was recorded as follows:

Furniture and fixtures	$	6,000
Machinery and equipment		14,000
Inventory		230,000
Total purchase price	$	250,000

Terms of the ten-year promissory note include 3.5% interest per annum, payments of interest only of $729 for the first six months, and monthly payments thereafter of $2,417.

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AMERICHIP INTERNATIONAL INC.

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2006

Payments are due on this note as follows for the next five years ended November 30:

2006	$	7,251
2007	$	29,004
2008	$	29,004
2009	$	29,004

The balance of the note at August 31, 2006 was as follows:

Related party note	$	217,075
Less: Current portion		(23,600	)
Long-term portion	$	193,475

As part of the transaction, the Company also issued 150,000 shares of its common stock valued at $9,000 to two NASCO shareholders for their execution of one-year non-competition agreements in favor of the Company. These non-competition agreements are included in other assets on the balance sheet as intangible assets. The cost is being amortized on the straight-line method over the term of the arrangements. Amortization of zero and $6,750 has been charged to expense as of August 31, 2006 and November 30, 2005, respectively.

NOTE 10 - SUBSEQUENT EVENTS

KSI Machine and Engineering Inc.

On September 14, 2004, the Company executed a letter of intent with KSI Machine and Engineering, Inc. (hereinafter “KSI”) to acquire all of KSI’s outstanding stock. KSI is a manufacturer of automotive die and mold castings which use horizontal spindle 5 axis computer numerical controlled machines. During the year ended November 30, 2004, the Company paid a deposit of $50,000 for this agreement. On December 7, 2004, the Company paid an additional $100,000 and signed a purchase agreement with KSI. On October 6, 2005, the Company paid an additional $30,000 for this agreement. On November 7, 2005, the Company paid an additional $20,000 for this agreement. As of the date of these financial statements, this acquisition has not been completed. The board of directors of AmeriChip International, Inc. entered into a licensing agreement with KSI for the use of AmeriChip’s patented Laser Assisted Chip Control technology. KSI and AmeriChip are also negotiating a joint venture relationship, from which AmeriChip will generate revenues from the application of its proprietary technology in a Tier One environment. The Company intends to continue pursuing this acquisition.

Subsequent to the balance sheet date, a commitment letter was received from Peoples State Bank in order to provide partial funding related to the financing of KSI’s equipment. The Bank agreed to provide a loan in the amount $1,600,000 for the acquisition and financing of KSI’s equipment, subject to approval for an additional loan in the amount of $1,280,000 from the Small Business Administration (SBA). As of the date of this filing, the SBA approval of this additional loan is

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still pending. The date and details of the acquisition of KSI are currently being formed and processed to complete in the last quarter of 2006.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with our unaudited consolidated interim financial statements and related notes thereto included in this quarterly report and Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") contained in our Form 10-QSB for the nine months ended August 31, 2006. Certain statements in the following MD&A are forward looking statements. Words such as "expects", "anticipates", "estimates" and similar expressions are intended to identify forward looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. See “Special Note Regarding Forward Looking Information” below.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements in this Report and in the Company's periodic filings with the Securities and Exchange Commission constitute forward-looking statements. These statements involve known and unknown risks, significant uncertainties and other factors what may cause actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward- looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "should," "could," "intends," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of such terms or other comparable terminology.

The forward-looking statements herein are based on current expectations that involve a number of risks and uncertainties. Such forward-looking statements are based on assumptions that the Company will obtain or have access to adequate financing for each successive phase of its growth, that there will be no material adverse competitive or technological change in condition of the Company's business, that the Company's President and other significant employees will remain employed as such by the Company, and that there will be no material adverse change in the Company's operations, business or governmental regulation affecting the Company. The foregoing assumptions are based on judgments with respect to, among other things, further economic, competitive and market conditions, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the Company's control.

Although management believes that the expectations reflected in the forward-looking statements are reasonable, management cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither management nor any other persons assumes responsibility for the accuracy and completeness of such statements.

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General Development of Business.

GENERAL

The Company

We were incorporated in the State of Nevada on October 17, 2000 as Southborrough Technology Corporation. On March 9, 2001 we changed our name to Southborrough Ventures, Inc. We were in the business of mineral exploration but initially relied upon the mineral exploration of others and never conducted any mineral exploration ourselves. We obtained an option to acquire a 100% interest in a mineral claim located in the Slocan Mining District Province of British Columbia, Canada. We referred to this mineral claim as the Cedar mineral claim. This option was exercisable by us completing further cash payments and share issuances to the option or and by completing minimum required exploration expenditures on the Cedar mineral claim. We allowed the option on this claim to expire on or about June 30, 2003.

Our objective was to conduct mineral exploration activities on the Cedar mineral claim in order to assess whether the claim possessed commercially exploitable reserves of silver, lead or zinc. We were unable to identify any commercially exploitable reserves. Our proposed exploration program was designed to search for commercially exploitable deposits.

On February 27, 2003, our board of directors approved the termination of our exploration activity and the acquisition of the AmeriChip Laser Assisted Chip Control (“LACC”) technology.

On February 27, 2003 our Board of Directors signed an Agreement and Plan of Reorganization with AmeriChip Ventures, Inc. (“AVI”), of Detroit, Michigan to acquire 100% of the outstanding common stock of AVI, in exchange for 60 million shares of our common stock.

On March 22, 2003 the terms of the Agreement and Plan of Reorganization dated February 27, 2003 were consummated pursuant to which we, AVI and AVI shareholders agreed to effect a reorganization under Section 368 (a) (1) (B) of the Internal Revenue Code of 1986, as amended. Pursuant to the Agreement and Plan of Reorganization, we acquired all of the issued and outstanding shares of AVI’s common stock with the result that AVI is now our wholly owned subsidiary corporation. In exchange, for the shares of AVI, we issued 60 million shares common stock to David Howard, the former Chairman of our Board of Directors, Marc Walther, our Chief Executive Officer, and Ed Rutkowski, a member of our Board of Directors. Each of the foregoing individuals received 20 million shares of common stock and were the sole shareholders of AVI.

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On January 21, 2003, Ed Rutkowski, transferred his patent, which covers the technology discussed below, to AVI. In consideration of the transfer of the patent, we were obligated to pay the following: Messrs Howard, Walther and Rutkowski, each received US $1 million payable at the rate of $10,000 on or before the first day of each calendar month beginning September 1, 2003 with interest accruing on any unpaid balance at the greater of (i) five percent (5%) and (ii) the prime rate plus 1% as reported in the Wall Street Journal on the first business day following each July and January 1, of each year until paid in full. The company may repay any or all of this amount without penalty. Messrs Howard, Walther and Rutkowski have agreed to a suspension in payments until we begin generating revenues from operations. The amounts owed to them, however, would continue to accrue.

On October 16, 2003, we executed a definitive Asset Purchase Agreement with American Production Machining LLC, a Michigan limited liability company (“APM”) to acquire certain of its assets, pay APM’s outstanding balance to Comerica Bank and, assume $1,900,000 in liabilities owed by APM to Comerica Bank. The agreement expired on January 24, 2004. We were unable to obtain the necessary funding to conclude the transaction. Currently, we have secured the financing resources to pursue this acquisition with our agreement with Cornell Capital. In August 2004, we tendered a bid to the United States Bankruptcy Court to pursue our acquisition of APM. On April 13^th, 2005, the Company on advice of counsel withdrew its offer to purchase the assets of APM.

In December 2003, we changed our name to AmeriChip International Inc. and we now trade on the Bulletin Board operated by the National Association of Securities Dealers, Inc. under the symbol (OTC-BB) under the symbol “ACHI”.

Our principal offices are located at 9282 General Drive, Suite 100, Plymouth, MI 48170-4607 USA.

Summary

As of September 8, 2004, we have two patents covering the technology described below. To support these patents, we have ordered and put a deposit on equipment sufficient to manufacture production and trial orders. The deposit was in the amount of $50,000 and paid to GSI Lumonics, Inc. The total cost of the robot and laser is $229,845. In April 2005, the Company paid the balance owing on the robot and laser and took delivery of the equipment.

Overview

Our core patented technology includes the use of lasers to effect a controlled breaking of the metal chip. Our technology focuses on increasing the machining efficiencies to effect faster feed rates and less down time. The process is designed to work with technologies of existing machines and

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operations. We expect to continue to develop additional proprietary technology to enhance the patent and its benefits.

Our technology, when implemented, will eliminate dangerous ribbon-like steel chips that tangle around moving tool parts, automation devices and other components essential to the machine processing of low to medium grade carbon steels and non-ferrous metal parts. We believe that the result of this process is a superior product manufactured in a safer working environment, avoiding many of the health and safety issues associated with traditional metal processing methodologies, while offering potential cost savings.

We have completed the design and testing of the patented LACC technology. We are currently working with automakers and vendors with a view to supplying processed parts.

Alliances

The Company has the following alliances:

Meritage Solutions is now known as Automated Concepts. This company delivers integrated systems for automated production lines. Automated Concepts has designed production cells that are lasered between centers.

GSI Lumonics - A leading provider of laser equipment. GSI Lumonics has been used as the exclusive supplier of laser equipment to the Company.This is being done, in part, as a result of GSI’s participation and support of the Company during our research and development stage.

Creative Automation - A leading integrator of palletized automation and integration with laser, robots and part quality.

Seco-Carboloy - Carboloy, a Seco Tools company, is a leader in metalworking technology.

The Company does not have written agreements with the three named strategic alliance companies. The Company’s arrangement with GSI Lumonics is that the Company will exclusively purchase lasers and robots from them in exchange for being able to run trials in their laboratory in their Canton, MI testing facility. Meritage, Inc. will be utilized if there is a requirement to process a fully automated system which includes lasers robots and conveyors. Should an order require palletization, then the Company is committed to giving Creative Automation Company the right to fill the requirement on a first come, first serve basis. All of the Company arrangements are sales driven.

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Subsidiaries

On May 5, 2004, the Company created a wholly-owned subsidiary, AmeriChip Tool and Abrasives, LLC. (“ATA”). The new subsidiary will be responsible for providing all the tools necessary for metal removal in the machining process.

On July 19, 2004, ATA secured the right to represent Seco-Carboloy, in addition to Kinik, Superior Abrasive and Val-U-Max. ATA has entered into distribution agreements/arrangements with: Kinik - Grinding Wheels , Superior Abrasive - abrasive products, Valu-U-Max,(Special cutting tools) - ACE Drill Corporation, (High Speed Drills) Sidley Diamond Tool Company, ( Diamond Drills ) Bates Abrasives, Inc. (Abrasive products) The Desmond-Stephan Mfg. Co., Production Tool Supply, (Dressers and Cutters) Michigan Drill Corporation, (Drills) Carboloy, (Carbide Tools) Oil Screen-Reven, (filters) Keo Cutters, (Drills) Morse Cutting Tools (Cutting Tools), Marxman Tools (Cutting Tools) Gemtex (Abrasive products) Indasa (Coated Abrasives) Howell Tool Service (Tooling and Abrasives) Felton Brush ( Brushes) and Mitutoyo Gauges (Gauges) Magafor Precision (Drills), Sandusky CO. (Abrasives), Cumi (Grinding Wheels), and Kinik (Grinding Wheels). These relationships give the Company the right to make sales calls and or sell the products of these companies directly to ATA’s customer base. The right to represent is defined by “being appointed to act as a distributor on behalf of a specific company and given the right to represent their product line on behalf of the subject company.” The products are sold to ATA, which acts as a distributor, at a discount from market price. ATA then sells the product at the market price. The companies provide the Company with all their marketing tools, samples and other selling material, which assists the Company in selling their product line. The Company is also able to offer their products via our on-line marketing section of the Company’s website at www.americhiplacc.com. The Company derives the Company’s income from selling the various companies products to their customers. The primary motivation for having distributors is to eliminate the need for a sales staff. All of the companies, with which ATA has chosen to become associated, make products that are in the metal removal industry, which is consistent with our business model.

On August 3, 2004, ATA announced its purchase of the Nasco Brand name of abrasive products. This line of abrasive products has been sold throughout the United States and Canada for many years. The Company believes that the acquisition of this brand and its inventory will allow its subsidiary, AmeriChip Tool and Abrasives, to immediately generate sales by offering a wider breadth of products for all its current and future customers who require abrasive products in their manufacturing processes. Abrasives are typically used in the process after machining. The purchase of this brand name is consistent with the implementation of the Company’s business model.

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The Process

Traditional methods of handling the residue of machining metal parts has necessitated the manufacture of specially designed chip control inserts and or the use of coolants to assist in the separation and flushing of contaminated metal chips, a problem that has plagued the metal parts manufacturing industry for more than 60 years. The problem, however, has become even more prevalent with the development of highly automated machine tools during the last two decades. Automated machinery was developed to satisfy the demand for the increased production of machined metal components by the automotive sector as well as other industries. Certain operations resulted in such serious chip control problems that some companies were unable to effectively capitalize on the benefits of automation.

The metal machining industry seeks to increase production and automate the machining process. The automotive industry has been particularly hard pressed to effect lower costs both within its own internal operations as well as components manufactured on its behalf by outside suppliers who must remain competitive. Preventing the forfeiting of contracts to foreign parts providers where labor and other costs are considered lower than in the United States is of key importance. Stringy metal chips wrap around automatic gauging and interfere with robotics to cause an interruption or discontinuance of the automation to manual operations. The AmeriChip LACC process allows this problem to be eliminated.

Currently coolant is deployed to flush the long stringy chips out of the machine components and remove them from the machine base itself. If the base becomes clogged it can cause many hours of non-productive down time and added costs while the machinery is cleaned. Coolant represents a major component of the entire manufacturing processes, representing as much as 15% of the total machining production cost. Coolant also has to be disposed of in accordance with environmental regulations, adding even more cost. Additional, coolant fumes may pose potentially serious health risks and the cause of long term problems when inhaled. The International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (“UAW”) has established standards for coolant exposure in the five (5ml) per cubic meter and has requested that even stricter regulations be adopted at ten times more stringent. The multiple cost factor associated with the use of coolant as well as related health and environmental factors represent a challenge for metal machining manufacturing companies to significantly reduce the consumption of coolant or to eliminate its use altogether. By eliminating the use of coolant, incidence of workman’s compensation claims will be dramatically reduced. Additionally, the ribbons of metal chips that remain following the machining of metal components without the contamination of bacteria laden coolant will provide an additional revenue source for the company as the “chips” can be salvaged and recycled.

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We have targeted the automotive sector initially, but our process can be applied to any industry where the machining of metal is a major process of manufacturing of component parts. This includes, but is not limited to oil production and refining, off-road construction, farm implements, aerospace and defense contractors.

Although our main goal is to acquire automotive parts manufacturers such as KSI, we could apply our process to auto parts such as axle shafts, axle tubes, spindles, and connecting rods, in our own facility.

In this scenario, the customer would deliver raw goods (un-machined auto parts) to our facility where we would apply the LACC process and the customer would retrieve the “treated” part for machining at their location. Such a plan would require the purchase of several specialized lasers and robotics and the leasing of approximately 40,000 sq ft. This would allow for space three (3) separate lasers and a holding area of approximately 10,000 sq ft for the raw goods/treated parts.

Our customers are expected to find a variety of compelling benefits. We believe that many of these benefits result in operational efficiencies and significant cost savings in the overall machining of metal parts. We believe that the benefits of using our process would include the following:

* Less Machine Down-Time

1.	Chip Clearing by operators of tools and parts
2.	Reduced tool breakage resulting from wrapping of chips, re-cutting of chips
3.	Eliminate down time required for chip pullers to clear machines and under floor conveyers of clogged chip bundles
4.	Increased machine efficiency by eliminating chip bundles from tangling around tool slides, posts, holders and interfering with adjacent moving parts, such as robotics, automation, chucking and in-line process gauging
5.	Predictable tool change management program linked to consistency in tool life
6.	Reduced incidents of on-the-job injury from exposure to sharp, long continuous stringy chips, which requires medical down time. Jobs are handled more quickly and efficiently leading to less frustration and constant worry about dealing with dangerous chips.

* Reduced Costs

1.	Increased throughput as a result of less downtime
2.	Reduction of direct labor - chip pullers are no longer required

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3.	Elimination of maintenance and outside special services to clean and repair chip evacuation systems, thus increasing productivity through reduced machine down time
4.	Reduction of overtime because of increased through-put per machine
5.	Reduced use of Hi-Lo driver’s time to removed containers filled quickly because of the chip bundles. Few containers are necessary due to chip compaction.
6.	Improved tool life due to less breakage because of chip bundles
7.	Less machine maintenance required
8.	Reduced scrap
9.	Elimination of coolant. The LACC process does not require the use of coolant whatsoever. The working environment is therefore less toxic, cleaner and safer.

10.	Reduction in coolant filter cost
11.	Reduction in coolant disposal cost
12.	Reduced costs of gloves and aprons as fewer are needed
13.	Better railcar utilization due to chip compaction
14.	Lower insurance rates as a result in the reduction of injuries related to the handling of long, sharp, stringy chips, cleaner and safer work area, which is less toxic
15.	Uncontaminated chips can now be sold for profit as compared to the cost of removal of contaminated chips.

* Tooling and Process Efficiencies

1.	Elimination of the need for light/semi finish and finish depths of cuts in low to medium carbon materials and non-ferrous metals
2.	Reduced welding and packing of chips, which reduces the wear and tear on cutting tools
3.	Improved chip disposal and handling costs through better management of chip lengths
4.	Reduced capital equipment expenditures since high-pressure coolant systems are no longer necessary
5.	The need for specially designed chip control inserts and the use of coolants to manage the “chip” are no longer required with the LACC process.

The Company believes that as a result of implementing our LACC process on certain automobile parts prior to machining that we well be able to pass on many benefits that will result in operational efficiencies and significant cost savings in the overall machining of metal parts.

With the lasering of parts prior to machining our process reduces machine down time which is traditionally caused because chips have to be cleared by the operators away from tools and parts and the replacement of tools which have

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been broken as a result of the wrapping of chips around them. Down time is also created when time is taken by chip pullers to clear machines and under floor conveyers of clogged chip bundles. Since we can eliminate chip bundles from tangling around tool slides, posts, holders and interfering with adjacent moving parts, such as robotics, automation, chucking and in-line process gauging we increase machine efficiencies. Tools are not damaged from chips and there we can offer predictable tool change management program linked to consistency in tool life. We believe that there will be reduced incidents of on-the-job injury from exposure to sharp, long continuous stringy chips keeping workers working instead of seeking medical treatment. With a continuous job run, projects will be handled more quickly and efficiently leading to less frustration and constant worry about dealing with dangerous chips.

With the implementation of the LACC prior to machining metal parts our client will enjoy reduced costs due to increased throughput as a result of less downtime and the reduction of direct labor since chip pullers will no longer be required. Our process eliminates the need for maintenance and outside special services to clean and repair chip evacuation systems, thus increasing productivity through reduced machine down time. The LACC process provides for increased through-put for each machine and therefore more work can be accomplished per shift, allowing for the reduction of overtime costs required to ensure that jobs are completed on schedule. With no chip bundles being produced, a client would no longer need to use a Hi-Lo driver’s time to removed containers filled with chip bundles. In addition, fewer containers are necessary due to chip compaction adding to reduced costs. Other benefits included improved tool life due to less breakage because of chip bundles, less machine maintenance, reduced scrap and the scrap that remains can be recycled and sold for cash. Uncontaminated chips can now be sold for profit as compared to the cost of removal of contaminated chips.

The LACC process does not require the use of coolant whatsoever and therefore the working environment is therefore less toxic, cleaner and safer. The benefits to the client include a reduction in coolant filter cost, reduction in coolant disposal cost, reduced costs of gloves and aprons as fewer are needed and better railcar utilization due to chip compaction. The reduction of injuries related to the handling of long, sharp, stringy chips in a cleaner and safer work area, in which there are fewer toxins can lead to reduced insurance costs for the client.

One of the key benefits to applying the LACC process prior to machining is that it results in tooling and process efficiencies .This is accomplished due to the elimination of the need for light/semi finish and finish depths of cuts in low to medium carbon materials and non-ferrous metals. In addition, the welding and packing of chips is reduced which normally affects the wear and tear on cutting tools, shortening their life span. Improved chip disposal and handling costs through better management of chip lengths makes the machining process run

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much more smoothly. Since high-pressure coolant systems are no longer necessary, the client will enjoy reduced capital equipment expenditures. The need for specially designed chip control inserts and the use of coolants to manage the “chip” are no longer required with the LACC process.

KSI Machine & Engineering Inc.

On September 14, 2004, the Company executed a letter of intent with KSI Machine and Engineering, Inc. (hereinafter “KSI”) to acquire all of KSI’s outstanding stock. KSI is a manufacturer of automotive die and mold castings which use horizontal spindle 5 axis computer numerical controlled machines. During the year ended November 30, the Company paid a deposit of $50,000 for this agreement. On December 7, 2004 the Company paid an additional $100,000 and signed a stock purchase agreement with KSI. On June 24, 2005 the Company announced that it was entering in to a license agreement with KSI Machine and Engineering Inc. for the use of AmeriChip’s Laser Assisted Chip Control technology. On October 26, 2005 the Company paid an additional deposit of $30,000 and on November 7, 2005, the Company paid another $20,000 deposit for a total of $200,000. KSI and AmeriChip are also negotiating a joint venture relationship from which AmeriChip will generate revenues from the application of its proprietary technology in a Tier One environment. As of the report date of these financial statements, this acquisition has not been completed.  In September 2006, the Company was approved by Peoples Bank for a $1,600,000 loan to complete the purchase of KSI Machine, subject to approval of an additional loan in the amount of $1,280,000 to be provided by the Small Business Administration (SBA). The date and details are being formed and processed to complete in the last calendar quarter of 2006. 

The completion of the transaction is subject to a number of factors, including but not limited to, the satisfactory completion of due diligence, the negotiation and execution of definitive agreements, and other customary closing conditions. There can be no assurance that the purchase will be consummated. The material terms of the agreement are as follows: The stock purchase will be for an aggregate consideration of $3.2 million. The Company agreed under a separate agreement with Mr. Jim Kotsonis, owner of KSI to issue 500,000 restricted shares of the Company’s common stock for consulting services to be rendered over the next 18 months.

Osborn International

On December 2, 2004, we issued a press release to announce the appointment of AmeriChip International as a distributor for Osborn International, the world's largest industrial brush maker and a manufacturer of tools for surface finishes.

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AmeriChip International Holdings, LLC

On September 10, 2004, we established AmeriChip International Holdings, LLC, as a wholly owned subsidiary of AmeriChip International, Inc. This entity was created in order to acquire American Production and Machining, LLC, an unrelated entity, out of bankruptcy. This transaction has not occurred as of the date of this report. Accordingly, AmeriChip International Holdings, LLC is at present a non-operating entity.

RM Communications

In October 2003, we executed a six-month agreement with RM Communications (hereinafter “RMC”), to provide services and website development for AmeriChip. RMC was entitled to receive $2,000 per month for six months, 100,000 shares of common stock upon signing the agreement, 100,000 shares of common stock upon completion of services, and 300,000 three-year warrants, which will expire in January 22, 2007. The warrants are exercisable per the following terms: 100,000 warrants at $0.30, 100,000 warrants at $0.40, and 100,000 warrants at $0.50. We were to also pay additional costs incurred by RMC in performance of the contract.

In April 2004, we executed a continuation of the aforementioned agreement for an additional year. RMC is entitled to receive $3,500 per month, 200,000 shares of common stock upon signing the agreement, and 3-year warrants exercisable at $0.25, payable in increments of 150,000 to be issued at the beginning of each quarter. During the year ended November 30, 2004, 100,000 shares of common stock, 300,000 warrants, and $9,000 in cash were paid to RMC. During the three months ended August 31, 20055, the Company entered into a new agreement with RMC and cancelled all 1,050,000 existing warrants issued to RMC. The Company issued 3,200,000 new three-year warrants to acquire 3,200,000 shares of common stock at an exercise price of $0.035 per share. Additional fair value of the warrants determined on the new grant date of $19,524 was expensed to consulting and 150,000 warrants of the aforementioned new issuance were exercised for common stock for cash of $5,250. In June 2005, the Company cancelled all remaining warrants issued to RM Communications. In June 2005, the Company issued 6,065,000 shares of its capital stock pursuant to Rule 144. These shares replaced all outstanding warrants and completed the Company’s contract with RM Communications. The Company did not renew its contract in January 2006.

AmeriChip Automotive Inc. and Richard H. Rossmann

On April 17, 2006, we established AmeriChip Automotive Inc., as a wholly owned subsidiary of AmeriChip International, Inc. On April 18, 2006 Mr. Richard H. Rossmann was appointed President of AmeriChip Automotive Inc. and Executive

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Director of Manufacturing of AmeriChip International Inc. Mr. Rossmann’s main focus will be new business development and manufacturing implementation.

Quality Control System

On April 20, 2006, AmeriChip International Inc. announced that it had established a quality control system ISO0001:2000/TS16949. The implementation of this system affords the Company an opportunity to introduce its patented processes, to all metal finishing industries in the United States and worldwide. The Company has set the last quarter of 2006 to be certified to the ISO9001:2000/TS16949 Quality Standard.

General Motors

On April 25, 2006 the Company received its official supplier status from General Motors. On June 28, 2006 the Company received its first two purchase orders for a large volume transmission component. Revenues realized from these purchases orders will be disclosed in the period ending August 31, 2006. The Company is waiting for delivery of special chucks and gages for completion of preproduction quality verifications. The chucks were delayed due to a error in the supplier blue prints.

Doosan Turning Center

On April 27, 2006, the Company took delivery of a Doosan 670LM turning center at its KSI location in Clinton Township, MI. The turning center will enable the Company to significantly reduce the time required for the trial to purchase order process and will allow for onsite demonstration of superior production capabilities. The turning center capital represented an expenditure of $262,000.

Customized Laser Heads

On May 2, 2006, the Company took delivery of one of three custom laser heads which were built according to the Company’s specifications for continuous improvement and development of its applications. The first of the three heads represented a capital expenditure of $262,235.

Metallurgical Centre

In July 2006, the Company took delivery of metallurgical analysis equipment manufactured by LECO. The equipment will be used to help measure, analyze and document data for verification of process parameters for implementation of the LACC parts. The center is also a quality department for the Laser Assisted Chip Control laboratory to meet with ISO and TS certification requirements established by the Company.

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Frankfurt Exchange Listing

On July 31, 2006 the Company reported that the Company had been listed on the Frankfurt Exchange with the trading symbol SZS.f.

ISO9001:2000 Certification

On August 8, 2006 the Company reported that it had received certification of registration for ISO:9001;2000, a quality management system. This worldwide certification for a quality management system was assessed and approved by American Institute of Quality Registrars (AIQR).   The Quality Management System is applicable to “Design, Process and Manufacturing, Integrating the Company’s Patented Laser Assisted Chip Control Technology into Industrial Metal Machining Applications”.  This Certification is an absolute requirement by all markets worldwide.

The Ford Motor Company

On August 29, 2006, the Company announced that it had received a purchase order from The Ford Motor Company for application of the Company’s Laser Assisted Chip Control technology for the manufacturing of transmission drum assembly components. Special laser head is on order and processing will begin when delivery is made from supplier.

CMM

The Company took delivery of a Co-ordinate Measuring Machine (“CMM”) which is in an integral piece of equipment that does fine measurement for machined parts in September 2006. Coordinate Measuring Machines (CMM) are mechanical systems designed to move a measuring probe to determine coordinates of points on a work piece surface.  CMM’s are comprised of four main components: the machine itself, the measuring probe, the control or computing system, and the measuring software.  Machines are available in a wide range of sizes and designs with a variety of different probe technologies. This equipment is a key component in the validation and evaluation of processed parts.

License Agreement For Patented Metal Polishing Technology

The Company entered into a licensing agreement with its President and Chief Operating Officer for the use of his patented metal polishing technology. The Company believes that this patent will significantly increase its sales potential by expanding its product line and revenue producing ability. The license agreement allows the Company to have exclusive use of the patented technology, except for prior arrangements by the President and Chief Operating Officer with Ford, Visteon and Global Technologies.

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This process augments the existing Laser Assisted Chip Control Technology platform from which the Company currently operates, offering a broader scope of products to its customers, thereby increasing its revenue potential.

This patent is a “process” patent that uses a combination of high speed machining and abrasive brushes that reduce labor and capital required to manufacture dies and molds. This process allows for a method to automatically finish free-form contoured metal or hard die surfaces. As a result, the cost to machine and polish a mold or die can be reduced by 50%.

The President and Chief Operating Officer of the Company will receive a royalty on any revenues generated by the Company and its subsidiaries through license opportunities and implementation of the process. As of the date of this filing, no revenue has been generated by the Company as a result of this process and no royalties have been paid by the Company.

Current Products and Services

Our patented laser assisted chip control process is readily applicable to any metal component that requires precision finishing. We believe that our process will provide significant value to our customers by decreasing the costs and increasing the efficiency of their operations. We are targeting our service to businesses in the following markets:

* Automobiles

* Oil Production and Refining

* Aerospace

* Off-Road Construction

* Farm Implements Manufacturing

* Defense Contractors

Sales & Marketing

We intend to transition from being a company focusing almost solely on product development and testing, to focusing on sales and marketing. We expect to sell a service and a product. The service will be the manufacturing of a finished product using equipment with the LACC technology. We further anticipate that customers will purchase equipment using LACC technology from one of our strategic alliances and also pay AmeriChip a royalty for use of the LACC technology. Initially we will focus on customers in the automobile industry.

Management has identified what is believed to be large markets that remain underserved but would be logical, potentially strong candidates given an appropriate product and service offering at the right price. Just for automotive products, management has identified particular market segments that would be

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likely to benefit from our LACC technology: axle shafts, axle tubes, torque converters, spindles, pinions, input/output shafts, side gears and connecting rods.

Insurance

We do not maintain any keyman insurance but are securing quotes from various insurance underwriters to select the best plan for the Company. Since we are not manufacturers of product, we are not required to carry product liability insurance.

Government Regulations

In addition to regulations applicable to businesses in general, our plant operations will be subject to other regulations that are common in industrial manufacturing.

Competition

We compete with other parts machining companies. We have generated some revenues from our wholly owned subsidiary, AmeriChip Tool and Abrasives, and are a minuscule participant in the parts manufacturing business.

Intellectual Property

We rely on our patents to protect our technology. We also have unpatented proprietary technology. We rely on nondisclosure and other contractual provisions to protect our proprietary technology. Currently, we have two patents granted and we intend to file other patent applications for enhancements to the existing patents. As part of our confidentiality procedures, we generally enter into nondisclosure agreements with our employees, consultants, distributors and partners and limit the dissemination and access to our technical documentation and other proprietary information. There is no assurance our patents will provide us with adequate protection. If a third party infringes on our patents, we do not have adequate funds available for protracted litigation and consequently may not be able to enforce our rights under applicable patent laws.

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As of September 8, 2004, we had filed a total of two patent applications with the U.S. Patent and Trademark Office (PTO) covering our technology, both of which have been approved. The approved patents are as follows:

1.	“UNITED STATES PATENT RUTKOWSKI” with PTO Patent Number 5,200,593, issued April 6, 1993.
2.	“UNITED STATES PATENT RUTKOWSKI” with PTO Patent Number 5,384,446, issued January 24, 1995.

RESULTS OF OPERATIONS

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

COMPARISON OF NINE MONTHS ENDED AUGUST 31, 2005, TO NINE MONTHS ENDED AUGUST 31, 2006.

Revenue Recognition. We have generated revenues from our operations during the last two years. We recognize revenue when the earnings process is complete of which there is no assurance of such recognition as described below, in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." Revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed, and collectibility is reasonably assured.

Revenues and Sales. Revenues for the nine months ended August 31, 2006 increased $88,797 for the nine months ended August 31, 2005 to $111,809 Gross profit for the nine months August 31, 2006 decreased from $41,454 for the nine months ended August 31, 2005 to $37,396. The decreases were primarily from the sales of product less $74,413 in costs of sales. The lesser cost of sales for the nine months ending August 31, 2006 is due to the sale of industry items with a higher test and a corresponding smaller profit margin than the items sold during the nine months ending August 31 2005. .

Operating ExpensesOperating expenses, which include administrative expenses, legal and accounting expenses, consulting expenses and license increased from $1,982,843 for the nine months ended August 31, 2005 to $6,298,929 for the nine months ending August 31, 2006, an increase of $4,316,086. This increase is due to a larger amount of start up costs incurred during the nine months ended August 31, 2006, as well as additional consulting expenses and the recognition of the remaining unrecognized license expense converted to common stock during the nine months ending August 31, 2005. .

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Net Loss.    Net loss increased from a net loss of ($2,486,898) for the nine months ended August 31, 2005 to a net loss of ($6,320,062) for the nine months August 31, 2006, primarily due to the larger operating expenses during the nine months ending August 31, 2006, as described previously.

PLAN OF OPERATION

While we are in the process of finalizing our relationship with KSI Machine and Engineering, we are now in a position to implement our technology. We anticipate that the operations of KSI Machine and Engineering will bring to the consolidated balance sheet of AmeriChip annual revenues of approximately $3,400,000 based on revenues generated in 2005. 

The facilities of KSI Machine and Engineering are large enough to permit allocation of space for our new laser and robotic equipment which is now in operation at the KSI location,. This equipment is required in the implementation of the LACC process and we are currently conducting pilot projects for various Tier One suppliers.

KSI Machine and Engineering is a manufacturer of automotive die and mold castings which use horizontal spindle 5 axis computer numerical controlled machines.

We believe that the patented technology, Laser Assisted Chip Control process ("LACC") for companies engaged in the machining of automobile parts can produce significant revenues for us. While we are optimistic about our initial customer experiences, there can be no assurances that the savings realized will be experience by all customers or that we will achieve significant revenues.

LIQUIDITY AND CAPITAL RESOURCES

We have not attained profitable operations since inception and we have not progressed significantly in our operations. We have incurred recurring losses and at November 30, 2005 had an accumulated deficit of ($9,708,158) and for the quarter ended August 31, 2006, we had an accumulated deficit of ($16,028,210) For the year ended November 30, 2005, we sustained a net loss of ($4,294,876) and for the nine months ended August 31, 2006 , we had a net loss of ($6,320,052).

On April 23, 2003, the Company executed a letter of intent with American Production Machining, LLC (hereinafter “APM”) to acquire certain assets of APM subject to the execution of a definitive agreement. APM is manufacturer of automotive, truck and aircraft parts. They use computer numerical controlled machines and state of the art inspection equipment. On October 16, 2003, the Company executed a definitive Asset Purchase Agreement which required the payment of cash and the assumption of $1,900,000 in liabilities owed by APM to

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Comerica Bank. The original closing date for this transaction was November 15, 2003. We were, at the time, unable to obtain the necessary funding to conclude the transaction. Currently, the Company has secured the financing resources to pursue this acquisition with its agreement with Cornell Capital. In August 2004, the Company tendered a bid to the United States Bankruptcy Court to pursue its acquisition of APM. In April 2005, the Company withdrew its bid with the court.

As a result of our new relationship with KSI Machine and Engineering, we no longer need to access the Line of Credit arranged with Cornell Capital Partners, LLC. Accordingly, on June 20, 2005, we notified Cornell Capital Partners, LLC in writing that we would no longer draw down any funds against the existing SEDA. We also requested that Cornell Capital Partners, LLC provide a full accounting of all transactions from inception with respect to our account with Cornell Capital Partners, LLC. We believe a full accounting will show that we have overpaid Cornell Capital Partners, LLC, although we can have no assurances of such an overpayment until a full accounting is provided.

As of the date of this filing, the Company is involved in a lawsuit with Cornell Capital Partners, LLC related to shares of the Company’s stock issued in escrow on behalf of Cornell pursuant a standby equity agreement and various security and debenture agreements. AmeriChip has demanded that Cornell return shares that have been overdrawn from the escrow account by Cornell, while Cornell has demanded the conversion of 1,288,401 shares of the Company’s stock which they claim have not been delivered. Management cannot currently estimate what the outcome of the lawsuit will be.

Even though we have secured adequate funding, no assurances can be provided that our business activities will generate sufficient revenues which may result in net profits for the Company.

Our auditors have raised substantial doubt as to our ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

We intend to continue to explore potential business combinations with other parties which may enhance or supplement the operation of our business or which may generate new or additional sources of revenues related to the patented Laser Assisted Chip process. For example, we are exploring whether it may be feasible to acquire the assets of an existing manufacturing firm engaged in manufacturing automobile parts which we could subsequently enhance and benefit through the use of the patented process. Any additional acquisition or other business combination will be dependent on our ability to obtain financing from traditional sources or from seller carryback financing, or a combination thereof. There is no assurance that we will be able to obtain any financing to pursue any future acquisitions or combinations. Even if adequate financing is obtained, no assurance can be provided that any additional acquisition or

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combination will generate sufficient revenues which may result in net profits for us.

ITEM 3. CONTROLS AND PROCEDURES

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.

Evaluation of Disclosure and Controls and Procedures. As of the end of the period covered by this Quarterly Report, we conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) of the Exchange Act). Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in Internal Controls Over Financial Reporting. There have not been any changes in the our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

Item 1. Legal Proceedings

We are subject to various claims and legal actions in the ordinary course of business. We are not aware of any pending or threatened litigation, except for our lawsuit with Cornell Capital Partners, LLC, that we believe is reasonably likely to have a material adverse affect on our results of operations, financial position or liquidity. None of these matters, in the opinion of management, is likely to result in a material effect on us based upon information available at this time.

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Item 2. Changes in Securities and Small Business Issuer Purchases of Equity Securities

There were no changes in securities or purchase or sales of securitiesduring the period ended August 31, 2006 .

Item 3. Defaults upon Senior Securities

There were no defaults upon senior securities during the period ended August 31, 2006.

Item 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted to the vote of securities holders during the period ended August 31, 2006.

Item 5. Other Information

KSI Machine and Engineering Inc.

On September 14, 2004, the Company executed a letter of intent with KS1 Machine and Engineering, Inc. (hereinafter "KSI") to acquire all of KSI's outstanding stock. KSI is a manufacturer of automotive die and mold castings which use horizontal spindle 5 axis computer numerical controlled machines. During the year ended November 30, 2004, the Company paid a deposit of $50,000 for this agreement. On December 7, 2004, the Company paid an additional $100,000 and signed a purchase agreement with KSI. On October 6, 2005, the Company paid an additional $30,000 for this agreement. On November 7, 2005, the Company paid an additional $20,000 for this agreement. As of the date of herein, this acquisition has not been completed. The Board of Directors of the Company entered into a licensing agreement with KSI for the use of AmeriChip's patented Laser Assisted Chip Control technology. KSI and AmeriChip are also negotiating a joint venture relationship, from which AmeriChip will generate revenues from the application of its proprietary technology in a Tier One environment. The Company intends to continue pursuing this acquisition.

Recently, a commitment letter was received from Peoples State Bank (the “Bank”) in order to provide partial funding related to the financing of KSI's equipment. The Bank agreed to provide a loan in the amount $1,600,000 for the acquisition and financing of KSI's equipment, subject to approval for an additional loan in the amount of $1,280,000 from the Small Business Administration (SBA). As of the date herein, the SBA approval of this additional loan is still pending.

Item 6. Exhibits

A. Exhibits:

31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.
31.2	Certification of Principal Financial and Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.
32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.
32.2	Certification of Principal Financial and Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.

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SIGNATURE

Pursuant to the requirements of 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.

Date: October 15, 2006	By:	/s/ Marc Walther
		Marc Walther, President, CEO, Director and Authorized Signatory

By:	/s/ Thomas P Schwanitz
	Thomas P Schwanitz, Principal Financial and Accounting Officer

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