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: December 31, 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) 569-1234
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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 5,900,380
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(Title of each Class) (Outstanding at December 31, 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
December 31, 1997 and September 30, 1997. 3
Condensed Consolidated Statements of Income (loss)
for the three and three months ended December 31, 1997
and 1996. 4
Condensed Consolidated Statements of Cash Flows
for the three months ended December 31, 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
DECEMBER 31 SEPTEMBER 30
1997 1996
(UNAUDITED) (AUDITED)
------------------- -------------------
ASSETS
----------
CURRENT ASSETS
Cash and cash equivalents $ 829,282 $ 491,000
Accounts receivable 830,326 521,332
Inventories 929,375 894,992
--------- -----------
Total current assets 2,588,983 1,907,324
---------- ---------
Investment in
Affiliated Company 5,295 19,745
Note Receivable From
affiliated Company 135,000 100,000
Deposits With Insurance
Companies and
Pension Funds 212,125 196,988
PLANT AND
EQUIPMENT (net) 281,061 210,398
---------- ---------
Total assets 3,222,464 2,434,455
========= =========
LIABILITIES AND SHAREHOLDERS EQUITY
- ------------------------------------------------------------
CURRENT LIABILITIES:
Short term bank credit 231,173 7621
Current maturities of long
term debt 17,598 18,416
Accounts payable and
accrued liabilities 948,004 933,188
Advances from customers 242,057 323,838
---------- -----------
Total current liabilities 1,438,832 1,283,063
------- -------
LONG TERM DEBT:
net of current maturities 19,385 23,312
ACCRUED SEVERANCE
PAY 261,655 251,062
Minority Interest 38,683 0
------- -------
Total liabilities 1,758,555 1,557,437
-------- ----------
SHAREHOLDERS' EQUITY:
Common Stock 59,004 57,504
Additional Paid in Capital 6,831,860 6,533,386
Capital Reserve 432,981 -
Accumulated deficit (5,859,936) (5,713,872)
----------- -----------
Total shareholders' equity 1,463,909 877,018
---------- --------
Total liabilities and
shareholders' equity 3,222,464 2,434,455
========= =========
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4
MICEL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
3 Months Ended December 31
-----------------------------------
1997 1996
(Unaudited) (Unaudited)
----------- -----------
Sales 746,889 1,815,182
Cost Of Sales 423,161 1,488,438
--------- ---------
Gross Profit 323,728 326,744
---------- ----------
Research and Development
Expenses (net) 208,434 126,701
Marketing and Selling
Expenses (net) 55,237 48,850
General and Administrative
Expenses 223,153 104,061
------- -------
Total operating
expenses 486,824 279,612
---------- ---------
Income (loss) From
Operations (163,096) 47,132
Interest and
Other Income 12,978 1,685
Interest and
Other Expense (9,832) (35,141)
Minority Interest
in Losses of
Subsidiaries 28,336
Equity in Loss
of Affiliates (14,450) (4,686)
------- ---------
Net Loss (146,064) (8,990)
====== ======
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5
MICEL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
3 MONTHS ENDED DECEMBER 31
--------------------------------
1997 1996
(Unaudited) (Unaudited)
Cash Flows From Operating Activities:
Net income (loss) (146,064) 8,990
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation & amortization 24,828 21,774
Minority interest in losses of subsidiaries (28,336)
Income from affiliated company 14,450
Changes in operating assets and liabilities:
Accounts receivable (308,994) (194,525)
Inventories (34,383) (63,863)
Accounts payable and accrued liabilities 14,816 263,889
Advances from customers (81,781) (57,693)
Accrued severance pay (4,544) 10,941
--------- --------
Net cash provided by
operating activities (550,008) (10,487)
------- ---------
CASH FLOWS From Investing Activities:
Purchase of equipment (95,489) (31,347)
Investment in affiliated company (35,000)
-------- ---------
Net cash used in investing activities (130,489) (31,347)
CASH FLOWS From Financing Activities:
Repayment of long term debt (4,745) (40,312)
Credit 223,552 57,409
Issuance of common stock 799,972 400,000
--------- --------
Net cash provided by financing activities 1,018,779 417,097
Increase (decrease) In Cash and Cash
Equivalents 338,282 375,263
CASH AND CASH EQUIVALENTS, Beginning
of Period 491,000 81,089
-------- ---------
CASH AND CASH EQUIVALENTS, end
of period 829,282 456,352
======= =======
Supplemental Cash Flow Information:
Interest Paid: 6,134 22,791
<PAGE>
6
MICEL CORPORATION AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997
Additional paid
in Capital &
Common Stock Capital Accumulated Total
No. of Shares Value Reserves Deficit
------------ ----- ------------- ----------- -----
Balance,
September 30, 1997 5,750,380 57,504 6,533,386 (5,713,872) 877,018
Issuance of Common Stock
(Net of issuance expenses)
in a private
placement 150,000 1500 298,474 - 299,974
Capital Reserves Resulting from
issuance of subsidiary shares to a
third party 432,981 - 432,981
Net Loss (146,064) (146,064)
------- ----- ----------- ---------- ------
Balance, December
31, 1997 5,900,380 59,004 7,264,841 (5,859,936) 1,463,909
MICEL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet at December 31, 1997, the
consolidated statements of Income (loss) for the three months ended
December 31, 1997 and 1996, and the consolidated statements of cash flows
for the three months ended December 31, 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,
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.
The results of operations for the period ended December 31, 1997, are
not necessarily indicative of the operating results for the full year.
2. Common Stock
During the first quarter of 1998, the company raised
$300,000 in a private placement of Common Stock at $2.00 per share or
150,000 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).
The financial statements of RadioTel are consolidated into the Company's
financial statements.
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8
During the quaretr the company signed an investment agreement according
to which the investor is to invest $1,000,000 in consideration for 16%
of RadioTel shares.
Through December 31, 1997, the investor invested $500,000 out of the
$1,000,000, causing Micel's share in RadioTel to be diluted to 91%.
As a result, Micel had a capital reserve of $432,981.
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, 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 December 31, 1997 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, in which the Company lent Micel Wireless $100,000. The Company
applies the equity method of accounting for its investments in Micel
Wireless.
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.
On March 30, 1997, the judge granted M/A Com's motion for the
cncellation of the company's request for "out of boundries" 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.
<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
three month period ended Dec 31, 1997, the Israeli Consumer Price Index
("ICPI") increased by 0.59% , as compared with a devaluation of the Shekel of
1.12% 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 three months of Fiscal 1998 the company issued 150,000 shares of
common stock in a private placement at $2.00 per share.
The company's operations in the first three months of the fiscal year ending on
September 30, 1998 ('Fiscal 1998') 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 $614,800 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
$36,983 of long term borrowings from Israel Industrial Development Bank Ltd.,
to be repaid between 1997 and 2000. This also includes approximately $396,000
of performance guarantees pursuant to contracts with customers.
In the three months ended December 31, 1997 net cash equivalents increased by
$338,282 as a result of $799,974 proceeds from issuance of common stock and
$223,552 from bank overdraft facilities, offset by the repayment of long
term liabilities of $4745, purchases of fixed assets of $95,489, a loan to an
affiliated company of $35,000 and in operating activities $550,010.
<PAGE>
The company is committed to fund RadioTel in the amount of $ 935,000
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
Three months ended December 31, 1997 compared to the three months ended
December 31, 1996.
Sales in the three months ended December 31 , 1997 were $746,889 as compared
with $1,815,182 in the three months ended December 31, 1996. The sales of the
first quarter of fiscal 1997 included the completion of a certain project, sales
of which were $1,189,000. Cost of sales in the three months ended December 31,
1997 was 56.66% of sales or $423,161 as compared with 82% or $1,488,438 in the
same period in 1996.
The sales in the first quarter of Fiscal 1998 are not indicative of sales
for the whole year.
Research and development expenses (net) increased to $208,434 or 28% of sales
in the three months ended Dec 31, 1997 from $126,701 or 16.96% of sales in the
same period in 1996. The increase was caused by new research and development
activities.
Selling expenses in the three months ended December 31, 1997 were $55,237 or
7.4% of sales compared to $48,850 or 2.69% of sales in the same period in
1996.
General and administrative expenses increased to $223,153 or 29.9% of sales in
the three months ended December 31, 1997 from $104,061 or 5.7% of sales in the
same period in 1996. The increase was mainly due to the operations of RadioTel.
Financial expenses in the three months ended December 31, 1997 were $9,832 or
1.3% of sales compared with $35,141 or 1.9% of sales in the same period in
1996.
Minority share in RadioTel losses amounted to $28,336 (see also paragraph
3 above).
Company's share in losses of its 50% held affiliate, Micel Wireless, were
$14,450 compared with $4,686 in the first quarter of 1996.
In the three months ended December 31, 1997, the company reported a loss of
$146,066 In the same period in 1996, the Company incurred a loss of $38,142.
The loss is attributable mainly to the operation of RadioTel.
The inventories at December 31, 1997, were comprised of $498,083 raw materials
and $431,292 work in process as compared to $500,741 raw materials and $272,047
work in process at December 31, 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.
<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
<PAGE>
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: February 19th, 1998 By: /s/ Ron Levy
-------------------------------
President and
Chief Executive and Financial Officer
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