<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
Quarterly Report Under to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: June 30, 1996
Commission File Number: 1-11020
Micel Corp
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(Exact name of Small Business Issuer as specified in its charter)
NEW YORK 11-2882297
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(State of other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
445 Central Ave., Cedarhurst New York 11516
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(Address of Principal executive offices) (Zip Code)
(516) 569-3500
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(Registrant's telephone number, including area code)
170 53rd Street, Brooklyn New York 11232
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(Former name, former address, and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or such shorter period
that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for past 90 days.
YES X NO
----- ------
Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock, as of the latest practicable date.
Common Stock, Par Value $.001 53,771,300
------------------------------------------------------------------
(Title of each Class) (Outstanding at June 30, 1996)
<PAGE>
MICEL CORP. AND SUBSIDIARY
CONSOLIDATED REPORT
TABLE OF CONTENTS
-----------------
PART I - FINANCIAL INFORMATION
PAGE
Item 1. Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets at
June 30, 1996 and September 30, 1995. 3
Condensed Consolidated Statements of Income (loss)
for the three and nine months ended June 30, 1996
and 1995. 4
Condensed Consolidated Statements of Cash Flows
for the nine months ended June 30, 1996 and
1995 5
Condensed Consolidated Statements of Changes in
Shareholders' equity. 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations 8-11
PART II - OTHER INFORMATION 12
Exhibit 27 13
Signatures 14
<PAGE>
MICEL CORP. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
<PAGE>
MICEL CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30 SEPTEMBER 30
1996 1995
(UNAUDITED) (AUDITED)
----------- ---------
<S> <C> <C>
A S S E T S
CURRENT ASSETS
Cash and cash equivalents 263,433 202,327
Accounts receivable 654,695 729,994
Inventories 713,492 664,487
--------- ---------
Total current assets 1,631,620 1,596,808
PLANT AND EQUIPMENT:
Cost 2,520,066 2,510,115
Less - accumulated depreciation 2,350,648 2,282,698
--------- ---------
169,418 227,417
Total assets 1,801,038 1,824,225
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES:
Short-term bank credits - secured 338,118 283,511
Current maturities of long term liabilities 107,614 223,659
Accounts payable and accrued liabilities 1,037,601 1,085,294
Advances from customers 172,919 103,572
--------- ---------
Total current liabilities 1,656,252 1,696,036
LONG TERM LIABILITIES
net of current maturities 56,783 123,967
ACCRUED SEVERANCE PAY 37,631 49,918
SHAREHOLDERS' EQUITY:
Preferred stock of $0.001 per value - redeemable or
convertible: 5,000,000 shares authorized;
10 shares issued and outstanding,
(liquidation preference - $11,200)
Common stock of $0.001 par value - 85,000,000 shares
authorized; 53,771,300 shares issued and outstanding 53,771 50,211
Treasury Stock of $0.001 par value - 617,500 shares
(617) --------
Additional paid-in capital 5,699,604 5,558,422
Retained earnings (accumulated deficit) (5,702,386) (5,654,329)
--------- ---------
Total shareholders' equity 50,372 (45,696)
--------- ---------
Total liabilities and shareholders' equity 1,801,038 1,824,225
--------- ---------
--------- ---------
</TABLE>
<PAGE>
MICEL CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
<TABLE>
<CAPTION>
9 MONTHS ENDED JUNE 30 3 MONTHS ENDED JUNE 30
---------------------- ----------------------
1996 1995 1996 1995
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- -----------
$ $ $ $
<S> <C> <C> <C> <C>
Sales 1,890,560 1,966,947 516,606 613,304
Cost Of Sales 1,469,159 1,500,325 488,725 493,607
--------- --------- ------- -------
Gross Profit 421,401 466,622 27,881 119,697
Research and Development
Expenses 224,295 351,414 44,580 66,834
Selling Expenses 136,026 131,624 49,456 61,229
General and Administrative
Expenses 181,246 264,163 65,515 57,840
--------- --------- ------- -------
Total operating expenses 541,567 747,201 159,551 185,903
Income (Loss) From Operation-
Before Financial Income and
Expenses (120,166) (280,579) (131,670) (66,206)
Financial Expenses (39,423) (86,738) 9,457 (28,942)
Financial Income 5,148 7,228 1,596 2,857
Other Income (Expenses) - Net 106,384 36,356 106,384 43
--------- --------- ------- -------
Net (Loss) (48,057) (323,731) (14,233) (92,248)
Weighted average common
shares outstanding 50,884,633 50,211,300 52,064,633 50,211,300
Earnings (loss) per share
of Common Stock $(------) $( 0.01) $(-------) $( ------)
</TABLE>
<PAGE>
MICEL CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
9 MONTHS ENDED JUNE 30
----------------------
1996 1995
(UNAUDITED) (UNAUDITED)
CASH FLOWS From Operating Activities:
Net (loss) (48,057) (323,731)
Adjustments to reconcile net income or loss
to net cash provided by or used in
operating activities:
Depreciation 72,000 76,500
(Decrease) in accrued severance pay (12,287) (18,828)
Capital (gain) of treasury stock (30,875)
Capital (gain) on sale of fixed assets (4,050) (36,313)
Decrease in accounts receivable 75,299 154,186
Increase in inventory (49,005) (79,369)
(Decrease) in accounts
payable and accrued liabilities (47,693) (139,372)
Increase (Decrease) in advances from
customers 69,347 (98,846)
Exchange loss --- 4,587
-------- ---------
Total adjustments 76,788 (137,455)
-------- ---------
Net cash provided by (used in)
operating activities 28,729 (461,186)
CASH FLOWS From Investing Activities:
Purchase of equipment (14,001) (920)
Proceeds from sale of equipment 4,050 46,411
-------- ---------
Net cash provided by (used in)
investing activities (9,951) 45,491
CASH FLOWS From Financing Activities:
Issuance of Common Stock (net of issuance
expenses) 175,000 265,100
Repayment of long term liabilities (183,229) (179,744)
Increase (Decrease) in short term
bank credits 54,607 (109,425)
-------- ---------
Net cash (used in) financing activities 46,378 (24,069)
Effect of exchange rate change on cash ---- 68
-------- ---------
Increase (Decrease) In Cash and
Cash Equivalents 65,156 (439,696)
Cash and Cash Equivalents at
Beginning of Period 202,327 717,542
-------- ---------
CASH and CASH EQUIVALENTS at
End of period 267,483 277,846
-------- ---------
-------- ---------
<PAGE>
MICEL CORPORATION AND SUBSIDARY CONSOLIDATED STATEMENTS
OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED JUNE 30, 1996
Preferred Stock Common Stock Treasury Stock
---------------------- --------------------- ----------------------
No. of Shares Value No. of Shares Value No. of Shares Value
------------- ----- ------------- ----- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1995 10 -- 50,211,30 50,211
Issuance of Common Stock (Net
of issuance expenses)
in a private placement -- -- 3,560,000 3,560
Treasury Stock (recovered in settlement) -- -- -- -- 617,500 (617)
Net loss -- -- -- --
------ ------ ---------- ------- --------- -----
Balance, June 30, 1996 10 -- 53,771,300 53,771 617,500 (617)
<CAPTION>
Additional Paid in Accumulated
Capital Deficit Total
------------------ ------------ -----
<S> <C> <C> <C>
Balance, September 30, 1995 5,558,422 (5,654,329) (45,696)
Issuance of Common Stock (Net
of issuance expenses)
in a private placement 171,440 -- 175,000
Treasury Stock (recovered in settlement) (30,258) (30,875)
Net loss (48,057) (48,057)
--------- --------- -------
Balance, June 30, 1996 5,699,604 (5,702,386) 50,372
</TABLE>
<PAGE>
MICEL CORP. AND SUBSIDIARY NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet at June 30, 1996, the consolidated
statements of income (loss) for the three and nine months ended June 30,
1996 & 1995 the consolidated statements of cash flows for the nine months
ended June 30, 1996 and 1995, and the consolidated statements of changes in
shareholders' equity, have been prepared by the Company, and are unaudited.
Reference should be made to the notes to the Company's September 30, 1995
consolidated financial statements for additional details of the company's
consolidated financial condition, results of operations and cash flows. The
details in those notes have not changed except as a result of normal
transactions in the interim. All adjustments (of normal recurring nature)
which are, in the opinion of management, necessary to a fair presentation
of the results of the interim period have been included.
The results of operations for the period ended June 30, 1996, are not
necessarily indicative of the operating results for the full year.
2. COMMON STOCK
During the nine months ended June 30, 1996, the company raised $175,000 in
a private placement of Common Stock at $0.05 per share or 3,560,000 shares.
3. Radiotel
On May 30, 1996 the company registered a new subsidiary in Israel
-Radiotel Ltd. The new subsidiary will concentrate the commercial
communication activities of the company. Some of these activities will be
transfered from Microkim Radiotel will start its activity during financial
year 1997.
4. LEGAL PROCEEDINGS
In April 1994, Dr. Hillel Weinstein, the former President of the Company,
commenced an action against the Company in Labor Court in Israel claiming
that the Company owes him a total of approximately $91,200 for yearly
bonuses and cost of living increases not given to him, for sick days not
taken, for the repayment a 10% across the board salary reduction instituted
in December 1992, and for amounts withheld from his paycheck. The company
responded to this claim by denying each of the claims.
This claim was withdrawn pursuant to agreement dated 27 May 1996, (see
below).
<PAGE>
In March 1994, Microkim commenced a civil action in Israel against Dr.
Weinstein, the former President of the Company, and his wife claiming
among other things, that Dr. Weinstein purchased from Microkim a company
car at a price below the fair market value at the date of purchase, did
not make all the payments on the car, sold his family car to Microkim at a
higher than fair market value, drew unauthorized checks to himself
aggregating approximately $29,333, made unauthorized payments from
Microkim for personal expenses and without proper invoices, used
Microkim's credit cards to pay personal expenses and aiding and abetting
Arie Huber, the former chief financial officer, to embezzle Microkim funds
for his own use. The total amount of the claim is approximately $243,000.
Dr. Weinstein has denied these charges.
This matter was settled pursuant to agreement dated 27 May 1996, (see
below).
In July 1994, the Company commenced a civil action in Israel in the
approximate amount of $3,000,000 against M/A Com and Hillel Weinstein for
false representations made by M/A Com and Dr. Weinstein in connection with
the purchase of Microkim Ltd. from M/A Com and for subsequent damages
resulting from such misrepresentations. Dr. Weinstein has denied the
charges and has counterclaimed against the Company and certain officers
for indemnification in the event that the Company is successful. In
addition, he has counterclaimed against the Company for approximately
$33,000 claiming that he is entitled to be indemnified by the Company for
legal fees. Dr. Weinstein reserved his right to raise the amount of his
counter claims and third party notice. M/A Com filed a motion in Israel to
dismiss the suit due to limitation of action or alternatively to stay the
proceedings in Israel since the appropriate venue is in the United States.
In July 1996, the Court ruled that the service on defendant M/A Com was
not effective, since the affidavit accompanying the application to the
court for leave to serve a non resident (M/A Com) was not submitted in
accordance with the requirements of law. Since that date, the court's
decision has been appealed. In addition, a new application and affidavit
has been prepared and will be filed in accordance with the requirements
delineated in the court's decision. In addition, Dr. Weinstein is no longer
a defendant or counter claimant in this action as a result of the agreement
reached 27 May 1998 (see below).
In 27 May 1996, an overall agreement was reached between Dr. Weinstein, on
one side, and Microkim Ltd. and Micel Inc., on the other side whereby all
existing litigation, complaints, and disputes between the two sides
and/or by one side against the other would be withdrawn with prejudice.
Dr. Weinstein paid $80,000 to Microkim and surrendered 617,500 shares of
Micel Inc., but did not admit any wrongdoing.
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
GENERAL
Impact of inflation, devaluation and fluctuation of currencies on the results
operations.
All of the Company's operations are conducted through its Israeli subsidiary,
Microkim. A substantial portion of sales and purchases of materials are in, or
linked to the United States dollar. Most of other expenses are linked to the
Israeli Shekel. Transactions and balances originally denominated in dollars are
presented at their original amounts.
Transactions and balances in currencies other than the dollar are translated
into dollars in accordance with the principles set forth in statement No. 52 of
the Financial Accounting Standards Board.
Fluctuations in the rate of exchange between the dollar and such other
currencies result in the recognition of financial income or loss. The Company
manages its Israeli operations with the object of protecting against material
net financial loss in U.S. dollar terms from the impact of Israeli inflation and
currency devaluation on its non - U.S. dollar assets and liabilities. In the
nine month period ended June 30, 1996, the Israeli Consumer Price Index ("ICPI")
increased by 10.18% , as compared with a devaluation of the Shekel of 6.94%
against the U.S dollar. In the three month period ended June 30, 1996, the ICPI
increased by 4.1% as compared with a devaluation of the shekel of 2.96% against
the U.S. dollar. During the period starting July 1,1996 until present the
Israeli Shekel was reevaluated approximately 1.6% against the U.S. dollar.
There can be no assurance that the Government of Israel will devalue the shekel
from time to time to offset the effects of inflation in Israel.
As a result of non devaluation of the U.S dollar, company expenses that are
linked to the Israeli Shekel increase when translated to U.S. dollar.
<PAGE>
FINANCIAL CONDITION:
The company's operations in the first nine months of Fiscal 1996 have been
financed principally from revenues from sales, research and development grants
and by a private placement of shares of common stock.
In Fiscal 1996 the company issued 3,560,000 shares of common stock in a private
placement at $.05 per share. During this period 617,500 shares of common stock
were recovered from the former president of the company. These shares were
recorded by the company as Treasury Stock at a market value of $30,875.
The total amount of outstanding loans, credit facilities and guarantees from
banks are approximately $721,000 and is secured by liens on certain Microkim's
property and equipment, share capital and insurance rights, and by a secured
interest in all of Microkim's assets. This amount includes approximately
$165,000 of long term borrowings from Israel Industrial Development Bank Ltd, to
be repaid between 1996 and 2000. This also includes approximately $219,000
performance guarantees pursuant to contracts with customers. The company does
not have any unused lines of credit.
During Fiscal 1995, the Company's Israeli subsidiary reached an agreement with
its lessor to repay approximately $130,000 in back rent in 51 monthly
installments. The Company guaranteed this agreement. As of June 30, 1996 the
outstanding balance of back rent is approximately $86,000.
In the nine months ended June 30, 1996 net cash equivalents increased by $91,981
as a result of $175,000 net proceeds from issuance of common stock, increase of
$54,607 in short term bank credits and $55,554 cash provided by operating
activities, partially offset by repayment of long term liabilities of $183,229
and investing activities of $9,951.
The Company has been experiencing difficulty in making timely payments to its
trade and other creditors. As of June 30, 1996, the Company had past due
payables in the amount of approximately $120,000. Deferred payment terms have
been negotiated with most of these vendors. However, certain vendors have
suspended parts deliveries to the Company. As a result, the Company may not
always be able to make all shipments on time, although no orders have been
canceled to date. Were significant volumes of orders to be canceled, the
Company's ability to continue to operate would be jeopardized.
<PAGE>
Due to the weakness of the defense market, the Company intends to place emphasis
on increasing its commercial line of products and commercial market base. It is
the policy of the Company to accept only those orders which are worthwhile
economically and the Company has also tended to accept mainly larger orders for
a limited number of projects, the most important of which tend to be with
strategic partners as with the project with ASDI. The company is establishing
the production capability for the Radio Module (developed together with AIL),
and intends to market and sell the product worldwide. As a result of this
activity, the company has recorded an allowance of $70,000 for future losses to
be incurred by the company during the first two quarters of Fiscal Year 1997. A
significant portion of the future revenues of the Company will be dependent on
the success of these two projects.
The Company does not have any additional arrangements for any equity or debt
financing at this time. The satisfaction of the Company's cash requirements
after September 30, 1996 will depend in large part on the ability of the Company
to raise capital or obtain loans from shareholders and to attain profitability.
The additional financing, if obtained, will be used for repayment of current
maturities of long term liabilities and to compensate negative cash flow
resulting from the production of the Radio Module activity. In the event that
such additional financing is not consummated, the Company will be required
to renegotiate the repayment with the Bank and to delay payments to its
suppliers. There is no assurance that such renegotiation will be successful.
There can, however, be no assurance that current sales agreements will not be
canceled, and / or funding from the Chief Scientist will be received at all or
at anticipated levels, or that unanticipated events requiring the expenditure of
funds will not occur.
In the event that the necessary cash resources are not received prior to
September 30, 1996, or in the event that any unforeseen events require an
unexpected outlay of cash resources prior to September 30, 1996, the Company
will need to substantially reduce its operations, including further reductions
in personnel, research and development and in other expenses.
<PAGE>
RESULTS OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1996 COMPARED TO THE NINE MONTHS ENDED JUNE 30, 1995
Sales in the nine months ended June 30, 1996 were $1,890,560 as compared with
$1,966,947 in the nine months ended June 30, 1995. Cost of sales in the nine
months ended June 30, 1996 was 77.7% of sales or $1,469,159 as compared with
76.3% or $1,500,325 in the same period in 1995. The cost of sales in the nine
months ended June 30, 1996 includes $70,000 allowance for future losses
recognized by the company related to a specific order for manufacture of Radio
Modules.
Research and development expenses (net) decreased to $224,295 or 11.9% of sales
in the nine months ended June 30, 1996 from $351,414 or 17.9% of sales in the
same period in 1995. The decrease in net research and development expenses is
mainly due to grants received from the OCS in amount of $117,190 in the nine
month ended June 30, 1996 compared to $26,710 in the same period in 1995.
Selling expenses increased in the nine months ended June 30, 1996 to $136,026 or
7.2% of sales from $131,624 or 6.7% of sales in the same period in 1995. The
increase resulted from an increase in marketing expenses due to increase in
marketing activities.
General and administrative expenses decreased to $181,246 or 9.6% of sales in
the nine months ended June 30, 1996 from $264,163 or 13.4% of sales in the same
period in 1995 as a result of the cost reduction program.
Financial expenses in the nine months ended June 30, were $39,423 or 2.1% of
sales compared with $86,738 or 4.3% of sales in the same period in 1995. The
decrease in financial expenses is mainly due to repayment of long term
borrowings, and changes of 6.94% in the exchange rate of the U.S. dollar from
September 30, 1995 to June 30, 1996.
Interest income in the nine months ended June 30, 1996 decreased to $5,148 as
compared with $7,228 in the same period in 1995.
In the nine months ended June 30, 1996, the company reported a loss of $48,057.
In the same period in 1995, the Company incurred a loss of $323,731. The
decreased loss in attributable mainly to decrease in research and development
expenses and decrease in general and administrative expenses, and to a net
income of $102,333 from a settlement with the former president of the company.
The company is committed to pay royalties to the office of the Chief Scientist
of the State of Israel ("OCS") in respect to products under development for
which the OCS participated by way of grant. The royalty is computed at the rate
of 2% of proceeds from sales of such products up to the amount of such grant.
During the nine months ended June 30, 1996 the amount royalties paid to the OCS
was $2,472. During the first nine months of Fiscal 1995, the amount of royalties
paid was approximately $6,000.
<PAGE>
MICEL CORP. AND SUBSIDIARY
PART II - OTHER INFORMATION
Item 1. Legal Proceeding
Reference is made to Form 10K-SB for the year ended
September 30, 1995.
Item 2. Changes in Securities
None.
Item 3. Default on Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 263,433
<SECURITIES> 0
<RECEIVABLES> 654,695
<ALLOWANCES> 20,000
<INVENTORY> 713,492
<CURRENT-ASSETS> 1,631,620
<PP&E> 2,520,066
<DEPRECIATION> 2,350,648
<TOTAL-ASSETS> 1,801,038
<CURRENT-LIABILITIES> 1,656,252
<BONDS> 0
0
0
<COMMON> 53,711
<OTHER-SE> (3,399)
<TOTAL-LIABILITY-AND-EQUITY> 1,801,038
<SALES> 1,890,560
<TOTAL-REVENUES> 1,890,560
<CGS> 1,469,159
<TOTAL-COSTS> 1,469,159
<OTHER-EXPENSES> 541,567
<LOSS-PROVISION> 70,000
<INTEREST-EXPENSE> 34,275
<INCOME-PRETAX> (48,057)
<INCOME-TAX> 0
<INCOME-CONTINUING> (48,057)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (48,057)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
