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: March 31, 1998
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) 569-1234
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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 6,000,380
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(Title of each Class) (Outstanding at March 31, 1998)
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2
MICEL CORP. AND SUBSIDIARIES CONSOLIDATED REPORT
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
PAGE
Item 1. Consolidated Financial Statements:Condensed
onsolidated Balance Sheets as of March 31,
1998 (Unaudited) and September 30, 1997. 3
Condensed Consolidated Statements of Income (loss)
for the six and three months ended March 31, 1998
and 1997 (Unaudited). 4
Condensed Consolidated Statements of Cash Flows
for the six months ended March 31, 1998 and
1997 (Unaudited). 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
MARCH 31 SEPTEMBER 30
1998 1997
(UNAUDITED) (AUDITED)
------------------- ------------------
ASSETS
----------
CURRENT ASSETS
Cash and cash equivalents $ 690,816 $ 491,000
Accounts receivable 778,380 521,332
Inventories 802,097 894,992
--------- -----------
Total current assets 2,271,293 1,907,324
---------- ---------
Investment in
Affiliated Company 21,686 19,745
Note Receivable From
affiliated Company 135,000 100,000
Deposits With Insurance
Companies and
Pension Funds 249,657 196,988
PLANT AND
EQUIPMENT (net) 350,037 210,398
---------- ---------
Total assets 3,027,673 2,434,455
========= =========
LIABILITIES AND SHAREHOLDERS EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable and
accrued liabilities 1,043,665 933,188
Bank Overdraft Facilities 13,172 7,621
Current maturities of long
term debt 16,789 18,416
Advances from customers 128,821 323,838
---------- -----------
Total current liabilities 1,202,447 1,283,063
------- -------
ACCRUED SEVERANCE PAY 311,379 251,062
LONG TERM DEBT:
net of current maturities 15,376 23,312
Minority Interest 53,983 0
------- -------
Total liabilities 1,583,185 1,557,437
-------- ----------
SHAREHOLDERS' EQUITY:
Common Stock 60,004 57,504
Additional paid-in capital 7,742,435 7,031,626
Capital Reserve 372,584
Accumulated deficit (6,249,552) (5,848,812)
Deferred Compensation (480,983) (363,300)
----------- -----------
Total shareholders'
equity 1,444,488 877,018
---------- --------
Total liabilities and
shareholders' equity 3,027,673 2,434,455
========= =========
<PAGE>
4
MICEL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
INCOME (LOSS)
6 Months Ended March 31 3 Months Ended March 31
------------------------------- --------------------------
1998 1997 1998 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ---------- -----------
Sales 1,526,281 2,651,030 779,392 835,848
Cost Of Sales 873,469 2,009,976 450,308 521,538
--------- --------- --------- ---------
Gross Profit 652,812 641,054 329,084 314,310
---------- ---------- --------- ---------
Research and Development
Expenses, net 562,079 248,153 353,645 106,634
Selling Expenses
(net) 120,921 63,081 65,684 29,049
General and Administrative
Expenses 534,041 240,222 310,888 136,161
------- ------- --------- ---------
Total operating
expenses 1,217,041 551,456 730,217 271,844
---------- --------- --------- ---------
Income (loss) From
Operations (564,229) 89,598 (401,133) 42,466
Interest and Other
Income 18,783 9,791 5,805 8,103
Interest and Other
Expense (45,817) (41,545) (35,985) (6,404)
Income (Loss) of
Subsidiaries 1,941 (3,704) 16,391 982
Minority Interest in Losses
of Subsidiaries 188,582 160,246
------- --------- --------- ---------
Net Income (Loss) (400,740) 54,140 (254,676) 45,147
====== ====== ====== ======
Loss per share ($0.07) ($0.05)
------- --------- -------- ---------
Shares used in computing
loss per share 5,875,380 5,812,880
---------- --------- --------- ---------
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5
MICEL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
6 MONTHS ENDED MARCH 31
-----------------------------
1998 1997
(Unaudited) (Unaudited)
Cash Flows From Operating Activities:
Net income (400,740) 54,140
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation & amortization 51,016 45,021
Amortization of deferred compensation 95,626
Gain on sale of equipment (10,593)
Minority interest in losses of subsidiaries (188,582)
Loss (gain) in affiliated company (1,941) 3,704
Changes in operating assets and liabilities:
Accounts receivable (257,048) 455,690
Inventories 92,895 (118,898)
Accounts payable and accrued liabilities 110,477 (232,692)
Advances from customers (195,017) 26,726
Accrued severance pay 7,648 6,980
--------- --------
Net cash provided by
operating activities (696,259) 240,671
--------- ---------
CASH FLOWS From Investing Activities:
Purchase of equipment (190,655) (95,294)
Proceeds from sale of equipment 10,593
Investment in affiliated company (35,000) (100,000)
-------- ---------
Net cash used in investing activities (215,062) (195,294)
CASH FLOWS From Financing Activities:
Repayment of long term debt (9,563) (86,516)
Net Changes in short-term bank
overdraft facilities 5,551 (263,544)
Issuance of common stock 500,000 400,000
Issuance of Subsidiary Shares
to Minority 615,149
--------- --------
Net cash provided (used in) by financing
activities 1,111,137 49,940
Increase (decrease) In Cash and Cash
Equivalents 199,816 95,317
CASH AND CASH EQUIVALENTS,
Beginning of Period 491,000 81,089
-------- ---------
CASH AND CASH EQUIVALENTS, end
of period 690,816 176,406
======= =======
Supplemental Cash Flow Information:
Interest Paid: 31,119 22,791
<PAGE>
6
MICEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY FOR THE SIX MONTHS ENDED MARCH 31, 1998
Common Additional Paid Accumulated Deferred Total
Stock No. Value in Capital and Deficit Compensation
of Shares capital reserve
---------- ----- --------------- ------------ ----------- -----
Balance,
September
30, 1997 5,750,380 57,504 7,031,626 (5,848,812) (363,300) 877,018
Issuance of Common Stock
(Net of issuance expenses)
in a private
placement 250,000 2,500 497,500 - - 500,000
Capital Reserves resulting form
Issuance of subsidiary shares to a
third party - - 372,584 - - 372,584
Deferred Compensation 213,309 (213,309)
Amortization of Deferred
Compensation 95,626 95,626
Net Income (400,470) - (400,470)
------- ----- -------------- ------------ ------------------
Balance, March
31, 1998 6,000,380 60,004 8,115,019 (6,249,282) (480,983) 1,444,758
MICEL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet at March 31, 1998, the
consolidated statements of Income (loss) for the six and three months
ended March 31, 1998 and 1997, and the consolidated statements of
cash flows for the six months ended March 31, 1998 and 1997, have
been prepared by the Company, and are unaudited.
Reference should be made to the notes to the Company's September
30,1997 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.
2. Common Stock
During the first and second quarter of 1998, the company raised
$500,000 in a private placement of Common Stock at $2.00 per
share.
3. Micel's Subsidiaries:
a. Microkim
Founded in 1972, by M/A Comm, Microkim is dedicated to
providing advanced products for a broad range of military and
commercial applications. The company is a leading supplier of
portable field testers and simulators, RF and microwave systems,
sub-systems and components for application in Communication,
Electronic warfare, Radar, Test Equipment, Simulators/Testers.
b. RadioTel
RadioTel Ltd., located in Israel, was established to develop managed
wireless SDH transmission network.
Through the use of novel techniques and state of the art technologies
the Company's mission is to extend wideband wireline/fiber services
into the wireless domain. These wireless networks are used to extend
the existing and future infrastructure while at the same time
supplying full transparency of all protocols (i.e. ATM, IP, SDH) with
the same reliability and uninterrupted service of wireline services.
On March 31, 1998, RadioTel supplied an ISDN (Integrated Service Digital
Network) Multi-Link, for technology evaluation, to MadenTech Consulting
Engineering Inc.
The financial statements of RadioTel are consolidated into the
Company's financial statements.
<PAGE>
8
Since September 30 ,1997, Clal Venture Capital Fund Limited
Partnership invested $619,580 of its total investment commitments
which amounts to $1,000,000.
As a result of these investments Micel's share in RadioTel was diluted
to 76.46% and a capital reserve of $372,584 was created as a result.
On April 1, 1998, the company signed a share purchase agreement
with H.B. Radio Investment Limited Partnership (HB), under
which HB would invest over time $750,000 into RadioTel and would
receive 11.11% of RadioTel issued share capital, on a fully diluted basis.
HB has an option to invest additional $250,000 for which it would receive
3.57% of RadioTel issued share capital, on a fully diluted basis.
The option expires on May 31, 1998. In the event HB exercises its option
HB will hold 14.28% of RadioTel issued share capital, on a fully diluted
basis.
c. MICEL Wireless Corp.
MICEL Wireless Corp., 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, 1997 for
additional details.
The Company is committed to provide to Micel Wireless a working
capital loan in the amount of $150,000. As of March 31, 1998 the
outstanding loan to Micel Wireless is $135,000. 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. The Company applies the equity method of accounting for its
investments in Micel Wireless.
4. 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.
On March 30, 1997, the judge granted M/A Com's motion for the
cancellation of the company's request for "out of boundaries"
jurisdiction.
On July 23, 1997, the company resubmitted the request and it was
granted.
In November 1997, the complaint and accompanying papers were
again served on M/A Com.
During the second quarter of 1998, M/A Com filed a motion to
cancel the "out of boundaries" Jurisdiction service and requested to
take the deposition of a former officer of the company. The motion
has been fixed for hearing on July 5, 1998.
<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.
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. All transactions gains and
losses from remeasurement of monetary balance sheet items denominated in
non-dollar currencies are reflected in the statements of operations as
financial income or expenses, as appropriate.
<PAGE>
10
FINANCIAL CONDITION:
In the six months of Fiscal 1998 the company raised $500,000 through the
issuance of 250,000 shares of common stock in a private placement at $2.00 per
share.
The company's operations in the first six months of the fiscal year
ending on September 30, 1998 ('Fiscal 1998') have been financed principally
from revenues from sales, research and development grants, by a private
placement of shares of common stock and by a private placement in RadioTel.
The total amount of outstanding loans, credit facilities and guarantees
from banks is approximately $388,000 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 $32,165 of long term borrowings from Israel Industrial
Development Bank Ltd., to be repaid between 1997 and 2000. This also includes
approximately $343,000 of performance guarantees pursuant to contracts with
customers.
In the six months ended March 31, 1998 net cash equivalents increased by
$199,816 as a result of $1,115,149 proceeds from issuance of common
stock (including issuance of common stock of consolidated company to
a third party), $5551 from bank overdraft facilities and proceeds from sale of
equipment of $10,593, offset by the repayment of long term liabilities of
$9563, purchases of fixed assets of $190,655, a loan to an affiliated
company of $35,000 and in operating activities $696,259.
The company is committed to fund RadioTel in the amount of $735,000
through October 30, 1998. In the event that additional funding is not
provided to RadioTel, Micel's ownership in RadioTel may be diluted.
11
RESULTS OF OPERATIONS
Six months ended March 31, 1998 compared to the Six months ended
March 31, 1997.
Sales in the six months ended March 31, 1998 were $1,526,281 as
compared with $2,651,030 in the six months ended March 31, 1997. The decrease
in sales compared to the 1997 period resulted from the completion of a
certain project in the first quarter of fiscal 1997 representing sales of
$1,189,000. Cost of sales in the six months ended March 31, 1998 was
57.23% of sales or $873,469 as compared with 75.8% or $2,009,976 in
the same period in 1997.
Research and development expenses (net) increased to $562,079 or 37%
of sales in the six months ended March 31, 1998 from $248,153 or 9% of sales
in the same period in 1997. The increase was caused by new research and
development activities performed by RadioTel.
Selling expenses in the six months ended March 31, 1998 were $120,921 or
7.91% of sales compared to $63,081 or 2.37% of sales in the same period in
1997. The increase was mainly due to the increase in operations of RadioTel.
General and administrative expenses increased to $534,041 or 35% of
sales in the six months ended March 31, 1998 from $240,222 or 9.0% of sales
in the same period in 1997. The increase was mainly due to the increase in
operations of RadioTel.
Financial expenses in the six months ended March 31, 1998 were $45,817 or
3% of sales compared with $41,545 or 1.57% of sales in the same period in
1997.
Minority share in RadioTel losses amounted to $188,582 (see also note 3b above).
Company's share in profit of its 50% held affiliate, Micel Wireless, for
the first six months of fiscal year 1998, were $1,941 compared with a
loss of $3,704 in the first half of 1997.
In the six months ended March 31, 1998, the company reported a loss of
$400,470. In the same period in 1997, the Company had profit of
$54,140. The loss is attributable mainly to the operations of RadioTel.
The inventories at March 31, 1998, consisted of $448,086 raw materials
and $354,011 work in process as compared to $450,518 raw materials and
$444,474 work in process at September 30, 1997.
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 six months of fiscal 1998, in the
amount of $15,709.
<PAGE>
12
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, 1997.
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
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14
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: May 14th, 1998 By: /s/ Ron Levy
-------------------------------
President and
Chief Executive and Financial Officer
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