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, 1997
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)
(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 $.01 5,575,380
------------------------------------------------------
(Title of each Class) (Outstanding at June 30, 1997)
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2
MICEL CORP. AND SUBSIDIARIES
CONSOLIDATED REPORT
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of
June 30, 1997 and September 30, 1996. 3
Condensed Consolidated Statements of Income (loss)
for the nine and three months ended June 30, 1997
and 1996. 4
Condensed Consolidated Statements of Cash Flows
for the nine months ended June 30, 1997 and 1996. 5
Condensed Consolidated Statements of Changes in
Shareholders' Equity. 6
Notes to Condensed Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations 9-12
PART II - OTHER INFORMATION 13
Exhibit 27 14
Signatures 15
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3
MICEL CORP. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
MICEL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30 SEPTEMBER 30
1997 1996
(UNAUDITED) (AUDITED)
------------------- --------------
ASSETS
----------
CURRENT ASSETS
Cash and cash equivalents $ 218,591 $ 81,089
Accounts receivable 664,544 1,339,159
Investment in affiliated company 123,364 -
Inventories 921,549 708,925
------- -------
Total current assets 1,928,048 2,129,173
--------- ---------
Deposits in insurance
companies and pension funds 247,179 181,369
PLANT AND EQUIPMENT (net) 223,415 209,329
------- -------
Total assets 2,398,642 2,519,871
========= =========
LIABILITIES AND SHAREHOLDERS EQUITY
- -------------------------------------
CURRENT LIABILITIES:
Short term bank credit 118,281 321,057
Current maturities of long term debt 19,118 106,957
Accounts payable and accrued
liabilities 1,043,505 1,398,632
Advances from customers 221,085 177,109
------- -------
Total current liabilities 1,401,989 2,003,755
------- -------
LONG TERM DEBT:
net of current maturities 27,139 44,508
ACCRUED SEVERANCE PAY 301,018 226,582
OTHRE LONG TERM LIABILITIES - 45,172
------- -------
Total liabilities 1,730,146 2,320,017
--------- ----------
SHAREHOLDERS' EQUITY:
Common Stock 55,754 53,654
Additional paid-in capital 6,203,886 5,785,986
Accumulated deficit (5,591,144) (5,639,786)
----------- -----------
Total shareholders' equity 668,496 199,854
---------- --------
Total liabilities and shareholders'
equity 2,398,642 2,519,871
========= =========
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4
MICEL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
9 Months Ended June 30 3 Months Ended June 30
-------------------------------- ---------------------------
1997 1996 1997 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
Sales 3,223,000 1,890,560 571,970 516,606
Cost Of Sales 2,372,093 1,469,159 362,117 488,725
------- --------- --------- ---------
Gross Profit 850,907 421,401 209,853 27,881
Research and Development
Expenses (net) 376,997 224,295 128,844 44,580
Marketing and Selling
Expenses (net) 94,495 136,026 31,414 49,456
General and Administrative
Expenses 347,761 181,246 107,539 65,515
------- ------- ------- -------
Total operating
expenses 819,253 541,567 267,797 159,551
Income (loss)
From Operations 31,654 (120,166) (57,944) (131,670)
Interest and
Other Income 32,663 111,532 22,872 107,980
Interest and
Other Expense (39,039) (39,423) 2,506 9,457
Profit (loss) in
affiliated 23,364 27,068
------- --------- ------- ---------
Net Income
(Loss) 48,642 (48,057) (5,498) (14,233)
====== ====== ====== ======
Wheighted average
common shares
outstanding 5,520,880 5,088,463 5,525,780 5,088,463
========= ========= ========= =========
Income (Loss) per
common share $0.01 ($0.01) ($0.00) ($0.00)
========= ========= ========= =========
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5
MICEL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
9 MONTHS ENDED JUNE 30
--------------------------
1997 1996
(Unaudited) (Unaudited)
Cash Flows From Operating Activities:
Net income (loss) $ 48,642 $ (48,057)
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation & amortization 65,644 72,000
(gain) in affiliated company (23,364) -
Changes in Operating assets and liabilities:
Accounts receivable 674,617 75,299
Inventories (212,624) (49,005)
Accounts payable and accrued liabilities (400,301) (47,693)
Advances from customers 43,976 69,347
Accured severance pay 8,626 (12,287)
Capital (gain) of treasury stock (30,875)
--------- --------
Net cash provided by
operating activities 205,216 28,729
------- -------
CASH FLOWS From Investing Activities:
Purchase of equipment (79,730) (9,951)
Investment in affiliated company (100,000) -
-------- ---------
Net cash used in investing activities (179,730) (9,951)
CASH FLOWS From Financing Activities:
Repayment of long term debt (105,208) (183,229)
Net change in short-term bank
credit (202,776) 54,607
Issuance of common stock 420,000 175,000
--------- --------
Net cash provided by financing activities 112,016 46,378
Increase In Cash and Cash
Equivalents 137,502 65,156
Cash and Cash Equivalents, Beginning of
Period 81,089 202,327
-------- ---------
Cash and Cash Equivalents,
End of period 218,591 267,483
======= =======
Supplemental Cash Flow Information:
Interest Paid: 30,436 22,791
<PAGE>
6
MICEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED JUNE 30, 1997
Common Stock Additional Paid Accumulated Total
No. of Shares Value in Capital Deficit
------------ ----- --------------- ------------ -----
Balance,
September 30, 1996 5,365,380 53,654 5,785,986 (5,639,786) 199,854
Issuance of Common Stock
(Net of issuance expenses)
in a private
placement 210,000 2,100 417,900 - 420,000
Net Income - - 48,642 48,642
------- ----- -------------- ------------ -----
Balance,
June 30, 1997 5,575,380 55,754 6,203,886 (5,591,144) 668,496
MICEL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet at June 30, 1997, the
consolidated statements of income (loss) for the three and nine months
ended June 30, 1997 and 1996, and the consolidated statements of
cash flows for the nine months ended June 30, 1997 and 1996, have been
prepared by the Company, and are unaudited.
Reference should be made to the notes to the Company's September 30,
1996 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, 1997, are
not necessarily indicative of the operating results for the full year.
2. Common Stock
During the first quarter of 1997, the company raised
$400,000 in a private placement of Common Stock at $2.00 per share or
200,000 shares. During the second quarter of 1997 there were no changes in
stock capital. During the three months ended June 30, 1997, the company
raised $20,000 in a private placement of common stock at $2.00 per share
or 10,000 shares.
3. RadioTel
RadioTel, Ltd., was established to develop and manufacture point to
point and point to multipoint wireless radio links for various
applications. RadioTel expects to supply the full spectrum of
frequencies up to 38 GHz with data rates from E1 to 16 E1 including
ATM. RadioTel will attempt to address the market with unique low
cost and innovative solutions to wire-line services. The radio module
which it hopes to develop is expected to be suitable for digital
wireless systems, mainly for telecommunication applications such as
rural telephones and wireless local loop ("WLL") systems in remote
locations (simplified wireless telephone systems for remote
subscribers utilizing radio frequencies for connection into the
public telephone network).
RadioTel supplied an ISDN (Integrated Service Digital Network)
link to MadenTech Consulting Engineering Inc., in June 1997, for
the price of $ 46,370.
RadioTel signed an OEM (Original Equipment Manufacture) agreement with
International Communication Technologies, Inc.(ICT., on December 1996.
ICTI is a broad based communications company which is actively involved in
communication projects in many developing countries worldwide.
RadioTel has signed a strategic alliance agreement with Data TeleMark
GmbH (DTM), on June, 1997, to jointly develop a wireless ISDN link. DTM is
a German communications company with unique expertise in ISDN protocol.
DTM provides ISDN services over all link types.
RadioTel is currently in the process of recruiting new employees for the
R&D department.
RadioTel, a wholly-owned subsidiary located in Israel, was
incorporated in May 1996 and commenced operations in September 1996.
The financial statements of RadioTel are consolidated into the
Company's financial statements.
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8
4. MICEL Wireless Corp.
MICEL Wireless Corp. (formerly Milink), a Florida corporation and a joint
venture between the Company and Export Business & Services, Inc.
("EBS"), is an international telecommunications company engaged in the
sourcing, marketing and sales of wireless telephone terminals and
other related products. MICEL Wireless currently represents certain
manufacturing companies and telecom agencies as a purchasing agent and
sales representative.
MICEL Wireless Corp. designs, manufactures, and sells fixed cellular
terminals for WLL applications in developing countries. The Company
capitalizes on the technical capabilities of RadioTel, the existing
knowledge of the cellular and wireless local loop markets and a
network of distribution channels. Micel Wireless' initial focus has
been in Latin America, where Micel Wireless expects to take immediate
advantage of existing WLL opportunities.
The Company owns 50% of MICEL Wireless. Refer to the Company's Form
10-KSB for the period ended September 30, 1996 for additional details.
The Company is committed to provide to Micel Wireless a working capital
loan in the amount of $150,000. As of June 30, 1997 the outstanding loan
to Micel Wireless is $100,000. The working capital loan shall bear interest
at 12% per annum, payable annually. The loan will become due after 12
months from the date of the loan or when otherwise mutually agreed upon by
the Company and EBS. At a time and terms to be mutually agreed upon among
the Company, EBS and MICEL Wireless, the working capital loan may be
converted into nonvoting preferred stock of MICEL Wireless.
Micel Wireless commenced activities in the first quarter of Fiscal
1997, in which the Company lent Micel Wireless $100,000. The Company
applies the equity method of accounting for its investments in Micel
Wireless.
During the nine months ended June 30, 1997, Micel Wireless Corp.
established a base of operations including a range of products and a
target group through which those products are tested. MICEL Wireless
signed a few representation agreements covering certain core countries
in South America.
5. Legal Proceedings
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 is no longer a defendant or counter claimant in this action
as a result of an agreement reached on May 27, 1996. M/A Com filed a
motion for cancellation of the Company's request for "out of
boundaries" jurisdiction. M/A Com denies the judicial competence of
the Israeli Court to deliberate the suit. M/A Com also claims
prescription and other preliminary claims. At the hearing held on
March 30, 1997, it was agreed that a new affidavit should be submitted
to the Court by someone with better knowledge about the case. After
submitting the new affidavit, a new date for hearing will be furnished
by the Court.
See form 10-KSB for year ended September 30, 1996 for description of
the litigation which the Company is involved in.
<PAGE>
6. Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earning
Per Share. This Statement establishes standards for computing and
presenting earning per share (EPS), replacing the presentation of
currently required primary EPS with a presentation of Basic EPS. For
entities with complex capital structures, the statement requires the
dual presentation of both Basic EPS and Diluted EPS on the face of the
statement of operations. Under this new standard, Basic EPS is computed
based on weighted average shares outstanding and excludes any potential
dilution; Diluted EPS reflects potential dilution from the exercise or
conversion of securities into common stock or from other contracts to issue
common stock and is similar to the currently required fully diluted EPS,
SFAS 128 is effective for financial statements issued for periods ending
after December 15, 1997,including interim periods, and earlier application
is not permitted. When adopted, the Company will be required to restate its
EPS data for all prior periods presented. The Company does not expect the
impact of the adoption of this statement to be material to previously
reported EPS amounts.
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.
The Company's operations are conducted through its Israeli subsidiaries,
MicroKim and RadioTel. 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, 1997, the Israeli Consumer Price Index
("ICPI") increased by 7.29% , as compared with a devaluation of the Shekel of
12.37% against the U.S dollar. During the period starting July 1,1997 until
present the Israeli Shekel was revaluated approximately 1.21% against the U.S.
dollar. To the extent the rate of devaluation of the shekel with respect to the
U.S. dollar does not substantially offset the change in the rate of inflation in
Israel, the expenses in, or linked to, the shekel will be impacted when
translated to 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.
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 projects with ASDI and ArrayCom. A
significant portion of the future revenues of the company will be dependent on
the success of these two projects.
<PAGE>
10
FINANCIAL CONDITION:
In the first nine months of Fiscal 1997 the company issued 210,000 shares of
common stock in a private placement at $2.00 per share.
The company's operations in the first nine months of the fiscal year ending on
September 30, 1997 ('Fiscal 1997') have been financed principally from revenues
from sales, research and development grants and by a private placement of shares
of common stock.
The total amount of outstanding loans, credit facilities and guarantees from
banks are approximately $373,600 and is secured by liens on certain of
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
$46,250 of long term borrowings from Israel Industrial Development Bank Ltd.,
to be repaid between 1997 and 2000. This also includes approximately $209,000
of performance guarantees pursuant to contracts with customers. At June 30,
1997, the company had approximately $133,000 unused lines of credit.
In the nine months ended June 30, 1997 net cash equivalents increased by
$137,502 as a result of $205,216 provided by operating activities, $420,000
proceeds from issuance of common stock offset by the repayment of long
term liabilities of $105,208, a decrease in bank overdraft facilities of
$202,776, purchases of fixed assets of $79,730 and a loan to an affiliated
company of $100,000.
During Fiscal 1995, MicroKim reached an agreement with its landlord to repay
approximately $130,000 in back rent in 51 monthly installments. The Company
guaranteed this agreement. At September 30, 1996 the outstanding balance of
back rent was approximately $79,000. In January 1997, MicroKim settled the debt
in one installment of $50,000. The Company was released from its obligation to
the landlord.
<PAGE>
11
The Company believes, based upon the budget for Fiscal 1997, that its remaining
cash resources as of June 30, 1997, plus additional funds of up to $600,000
currently anticipated to be raised through the sale of stock at $2.00 per share
through September 1997, will be sufficient to fund the Company's operations
through September 30, 1997. The additional $600,000 will be used for financing
the development operations of RadioTel. In the event that such additional
financing is not consummated, the Company will be required to reduce the
activities of RadioTel.
There can, however, be no assurance that current sales agreements will not be
canceled, and/or funding from the Chief Scientist of the state of Israel or
BIRD Foundation will be received at all or at anticipated levels, or that
unanticipated events requiring the expenditure of funds will not occur.
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, 1997 will depend in large part on the ability of the
Company to raise capital or obtain loans from shareholders and to maintain
profitability.
The company has been engaged in preliminary negotiations with an entity located
in Israel which has expressed an interest in purchasing an equity interest in
RadioTel in exchange for an investment of between $1,000,000 and $3,000,000.
The company would also be required to make a capital contribution to RadioTel.
Although, negotiations are ongoing, the terms have not been finalized, nor has
it been approved by the board of directors of the company. There can
therefore be no assurances that an agreement will be concluded.
In the event that the necessary cash resources are not received prior to
September 30, 1997, or in the event that any unforeseen events require an
unexpected outlay of cash resources prior to September 30, 1997, the Company
will need to substantially reduce its operations, including further reductions
in personnel, research and development and in other expenses, and reduce the
activities of RadioTel.
<PAGE>
12
RESULTS OF OPERATIONS
Nine months ended June 30, 1997 compared to the nine months ended June
30, 1996.
Sales in the nine months ended June 30, 1997 were $3,223,000 as compared
with $1,890,560 in the nine months ended June 30, 1996. The increase in sales
was caused by the completion of a certain project in the first quarter of
fiscal 1997, sales of which were $1,189,000. Cost of sales in the nine
months ended June 30, 1997 was 73.59% of sales or $2,372,093 as compared with
77.71% or $1,469,159 in the same period in 1996.
The sales in the first three quarters of Fiscal 1997 are not indicative of sales
for the whole year.
Research and development expenses (net) increased to $376,997 or 11.7% of sales
in the nine months ended June 30, 1997 from $224,295 or 11.86% of sales in the
same period in 1996. The increase was caused by new research and development
activities.
Selling expenses in the nine months ended June 30, 1997 were $94,495 or
2.93% of sales compared to $136,026 or 7.19% of sales in the same period in
1996.
General and administrative expenses increased to $347,761 or 10.8% of sales in
the nine months ended June 30, 1997 from $181,246 or 9.6% of sales in the
same period in 1996. The increase was mainly due to the operations of RadioTel.
Financial expenses in the nine months ended June 30, 1997 were $39,034 or
1.2% of sales compared with $39,423 or 2.1% of sales in the same period in
1996.
In the nine months ended June 30, 1997, the company reported a profit of
$48,642. In the same period in 1996, the Company incurred a loss of $48,057.
The profit is attributable mainly to increase of gross profit.
The inventories at June 30, 1997, were comprised of $591,559 raw materials and
$329,990 work in process as compared to $533,257 raw materials and $180,235
work in process at June 30, 1996.
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%-3% of proceeds from sales of such products up to the amount of such grant.
Royalties were paid during the first nine months of Fiscal 1997 at the amount
of $3,630.
<PAGE>
13
MICEL CORP. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceeding
Reference is made to Form 10-KSB for the year ended
September 30, 1996.
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
<PAGE>
15
MICEL CORP. AND SUBSIDIARIES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on behalf by the undersigned
hereunto duly authorized.
MICEL CORP.
Registrant
Date: August 11th, 1997 By: /s/ Ron Levy
-------------------------------
President and
Chief Executive and Financial Officer
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