Michelex 10QSB 2006 Q3 Quarterly report (small business)

	Consolidated Balance Sheets		F-2 - F-3

	Consolidated Statements of Operations		F-4

	Consolidated Statements of Cash Flows		F-5

	Notes to Consolidated Financial Statements		F-6 - F-11

The unaudited condensed consolidated financial statements presented herein have been prepared inaccordance with the instructions to Form 10-QSB and do not include all of the information and disclosures required by U.S. Generally Accepted Accounting Principles. Therefore, these financial statements should be read in conjunction with the consolidated financial statements and related footnotes included in the Company’s Form 10-KSB for the year ended December 31, 2005, These financial statements reflect all adjustments that are, in the opinion of management, necessary to fairly state the results for the interim periods reported. Certain amounts from the prior period have been reclassified to be consistent with the current period presentation.

NONE REVIEW BY AUDITORS

Seligson & Giannattasio, LLP auditor for the Company, (the “Auditor”) did not review the 10Q for the Quarter ended September 30, 2006

The audit report of Seligson & Giannattasio, LLP for the years ended December 31, 2004 and December 31, 2005 contained a modification expressing substantial doubt about Michelex, Corp’s ability to continue as a going concern.

The board of directors or an audit or similar committee of the board of directors acknowledged the inability as a matter of time for the auditors to review the financial statements.

During the fiscal years ended Dec 31, 2004 and Dec 31, 2005 and the subsequent period from March 31, 2006, June 30, 2006 nor September 30, 2006 there were no disagreements with the accountant, whether or not resolved, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the former accountant's satisfaction, would have caused it to make reference to the subject matter of the disagreement(s) in connection the periods 2004 and 2005 and any subsequent period preceding.

The Company did not consult with Seligson & Giannattasio, LLP during its fiscal years ending Dec 31, 2004 and Dec 31, 2005 on the application of accounting principles to as specified transaction, the type of opinion that may be rendered on the Company's financial statements, any accounting, auditing or financial reporting issue, or any item that was either the subject of a disagreement or a reportable event as defined in item 304 of Regulation S- K.

The Company has provided Seligson & Giannattasio, LLP with a copy of the disclosures contained in this filing. The 10-QSB filing will be restated once the auditors review it if they determine it to be necessary.

The Company has retained Seligson & Giannattasio, LLP to perform our 2006 audit and statements and to review the quarterly filings.

The Company is responsible for the adequacy and accuracy of disclosure in this filing, and SEC staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing and Michelex may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.

F-1

MICHELEX CORPORATION

AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

	September 30,		December 31,
	2006		2005
ASSETS

Current assets:
Cash	$	41,633	$	16,217
Accounts receivable, net		744,005		650,471
Accounts receivable related party		17,502		14,582
Inventory, net		709,452		726,724
Restricted cash		6,373		20,598
Prepaid expenses and income taxes		340,765		301,245

Total current assets		1,859,730		1,729,837

Fixed assets net of accumulated depreciation
and amortization of $19,731,022 and $19,799,098, respectively		2,335,484		5,380,114

Other assets:
Land and building held for investment		119,500		119,500
Loans receivable related party		264,894		215,245
Other assets		66,213		83,707

Total assets	$	4,645,821	$	7,528,403

See notes to consolidated financial statements

F-2

MICHELEX CORPORATION

AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	2006			2005
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to bank	$	645,607		$	153,709
Current portion of long-term debt		565,258			1,666,310
Current portion of capital leases		261,818			89,176
Convertible debenture		1,124,985			1,258,246
Accounts payable		1,798,226			2,646,359
Accrued expenses		1,230,233			1,009,544
Payroll taxes payable		92,118			236,031

Total current liabilities		5,718,245			7,059,375

Other liabilities:
Long-term debt less current maturities		2,052,500			4,058,125
Note payable officers		574,460			123,395
Capital leases less current maturities		996,444			145,314

Total liabilities		9,341,649			11,386,206

Commitments and contingencies

Shareholders' equity
Common stock - no par value, 1,000,000,000 shares authorized,
87,971,037 and 70,447,309 shares issued and outstanding, respectively		87,971			70,447
Additional paid-in-capital		3,806,790			2,316,953
Retained earnings		(8,590,589	)		(6,245,206	)

Total shareholders' equity		(4,695,828	)		(3,857,806	)

Total liabilities and shareholders' equity	$	4,645,821		$	7,528,403

See notes to consolidated financial statements

F-3

MICHELEX CORPORATION

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended and Nine Months Ended

	September 30,			September 30,			September 30,			September 30,
	2006			2005			2006			2005
	(unaudited)			(unaudited)			(unaudited)			(unaudited)

Net sales-unrelated
parties		673,641			828,303			1,286,244			5,088,227
Net sales-related parties		3,019			1,414			41,593			35,197
Net sales		676,660			829,717			1,327,837			5,123,424
Cost of goods sold		442,710			739,882			671,365			4,034,627

Gross profit		233,950			89,835			656,472			1,088,797

Operating expenses:
Selling and shipping		32,292			(81,202	)		82,715			125,417
General and administrative		477,793			693,587			1,958,519			2,543,351
Depreciation		141,670			209,637			456,933			682,594

Total operating expenses		651,755			822,022			2,498,167			3,351,362

(Loss) income before other
income (expense) and income taxes		(417,805	)		(732,187	)		(1,841,695	)		(2,262,565	)

Other income (expense):
Other income		1,290			252,239			10,847			87,597
Interest expense		(298,512	)		(160,182	)		(755,726	)		(631,988	)
Net income from rental properties		44,391			187,200			112,407			134,738
Loss on sale of Assets		(23,510	)		199,239			(57,259	)		149,764
Gain on Debt Restructuring		186,043			--			186,043			--

Other income (expenses)		(90,298	)		478,496			(503,688	)		(259,889	)

Loss before income taxes		(508,103	)		(253,691	)		(2,345,383	)		(2,522,454	)

Income tax (benefit)		--			(332,501	)		--			(332,401	)

Net (loss) income before discontinued operations		(508,103	)		78,810	)		(2,345,383	)		(2,190,053	)

Net loss from discontinued operations		--			(12,324	)		--			(195,396	)

Net (loss) income		(508,103	)		66,486	)		(2,345,383	)		(2,385,449	)

Weighted shares outstanding:
Basic		83,617,233			70,447,309			73,906,419			67,757,295
Diluted		83,617,233			70,447,309			73,906,419			67,757,295

Basic and diluted (loss) per share:

Loss per share $ (.01),$.001,$(.03),$(.04)

_______________________________________

See notes to consolidated financial statements

F-4

MICHELEX CORPORATION

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Nine Months Ended			Nine Months Ended
		September 30,			September 30,
		2006			2005
		(Unaudited)			(Unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(2,345,383	)	$	(2,385,451	)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		456,933			682,594
Stock issued for services rendered		171,000			--
Gain (Loss) on sale of assets		57,258			149,764
Warrants issued for services		494,119			--
Beneficial Conversion Feature		194,739			126,937
Financial Advisory Fees		142,308			--
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable		93,978			1,980,685
Notes Receivable		(49,649	)		196,220
Inventory		17,272			771,735
Restricted Cash		(14,225	)
Prepaid expenses and taxes		182,021			64,655
Other assets		17,495			(35,317	)
Note Payable		(186,043	)		--
Accounts payable		(521,045	)		(158,451	)
Accrued expenses and taxes		170,688			(103,756	)
Change in assets and liabilities
Held for sale		--			(1,086,677	)

NET CASH FLOWS FROM OPERATING ACTIVITIES		(1,118,534	)		202,938

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets		(120,000	)		(274,371	)
Proceeds from sale of equipment		2,405,853			1,446,687

NET CASH FLOWS FROM INVESTING ACTIVITIES		2,285,853			1,172,316
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt		(4,564,866	)		(607,525	)
Net borrowings from demand notes payable		491,898			(2,287,610	)
Proceeds from issuance of convertible debentures		--			1,000,000
Proceeds from long-term debt		2,480,000			259,490
Borrowings from related parties		451,065			253,534

NET CASH FLOWS BY FINANCING ACTIVITIES		(1,141,903	)		(1,382,111	)

NET INCREASE (DECREASE) IN CASH		25,416			(6,857	)

CASH AT BEGINNING OF PERIOD		16,217			20,976

CASH AT END OF PERIOD	$	41,633			14,119

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Income taxes paid	$	--		$	1,025
Interest paid	$	163,144		$	179,899

See notes to consolidated financial statements

F-5

MICHELEX CORPORATION

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

In the opinion of management, the accompanying financial statements of Michelex Corporation ("Michelex") contain all adjustments necessary to present fairly the Company's financial position as of September 30, 2006 and December 31, 2005, the results of operations and cash flows for the periods ended September 30, 2006 and 2005.

The results of operations for the three months and nine month periods ended September 30, 2006 and 2005 are not necessarily indicative of the results to be expected for the full year.

Except as stated below, the accounting policies followed by the Company are set forth in Note 1 to the Company's financial statements included in its Annual Report on Form 10-KSB for the fiscal year ended December 31, 2005.

NOTE 2 - COMMITMENTS

During the 2003 fiscal year, Michele Audio Corporation of America (the “Company”) entered into a Consulting Agreement with Investor Relations Services, Inc., a Delaware corporation whose address is 120 Flagler Avenue, New Smyrna Beach, Florida and simultaneously a Personal Services Agreement with Mr. Charles Arnold located at 2 Spur Lane, Rolling Hills, California. The agreements were effective June 1, 2003 and they both expire on May 31, 2004. The agreements called for certain services, which are enumerated in the agreements, to be provided by Mr. Arnold and Investor Relations Services for the benefit of the Company. As compensation for these services the Company agreed to issue both Investor Relations Services and Mr. Arnold preferred shares of stock in Michele Audio Corporation of America. Additionally, the preferred shares were to have conversion rights allowing Mr. Arnold and Investor Relations Services, Inc. each to convert their preferred shares to 4.9% undiluted of the common stock issued and outstanding following the first round of financing after the Company became a public entity. It was further agreed the stock when issued would be restricted pursuant to Rule 144.

In March of 2004 Mr. Arnold and Investor Relations Services filed for arbitration, as called for in the agreements, against Michelex Corporation claiming they have not been compensated as called for in the agreements. In November 2005, the Company received notice of the settlement of the arbitration. Pursuant to the settlement, the Company is required to pay an aggregate of approximately $290,000 for damages, interest, legal and administrative fees. At December 31, 2005, there is an accrued expense for this settlement payment.

Commitment to Acquire Equipment

In October 2004, the Company agreed to acquire approximately $270,000 of manufacturing equipment. In connection with this agreement, the Company made a deposit toward the purchase of the equipment totaling $16,240. As of December 31, 2004, the Company was attempting to secure the financing necessary to complete the acquisition. In May 2005, the agreement to purchase the equipment was terminated as a result of the Company’s inability to obtain the required financing. The Company reported a loss at that time of the total amount of the deposit.

Subpoena From Securities and Exchanges Commission

In January 2006, the Company received a subpoena from the Securities and Exchanges Commission (“SEC”) as part of an investigation the SEC is conducting into trading in certain over the counter stocks. The Company has not been notified that the SEC is conducting a formal or informal investigation into the Company.

Investor Relations Agreement

In March 2006, the Company entered into an investor relations agreement. Pursuant the investor relations firm would provide public relations and investor relations services for a six month period for a fee of $125,000. The Company had the option at the end of the six month period to renew the agreement for an additional six months for a fee of $75,000. The Company made payments under the contract totaling $45,000 prior to the cancellation of the contract.

Issuance of Shares to Employees

In March 2006, the Company issued 477,500 shares of common stock to employees.

F-6

MICHELEX CORPORATION

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

Warrants issued for Consulting Services

In April 2006, the Company entered into a one year agreement for financial consulting services in exchange for the granting of warrants to purchase 25,000,000 shares of the Company’s common stock. The warrants vest based upon a set schedule over a one-year period and are exercisable at $.02 per share for a period of five years. There was a charge of $114,000 taken for this transaction as of June 30, 2006.

Warrants Granted to Officers

In April 2006, the Company granted to officers of the Company, options to purchase an aggregate of 50,000,000 shares of the Company’s common stock at an exercise price of $.02 per share. The options may be exercised after April 15, 2006 and expire after April 15, 2011. The Company valued the warrants at $494,119 using the Black-Scholes option pricing method. The value was expensed as incurred as there was no vesting period. In August 2006, options to purchase 8,900,000 options were exercised in exchange for $178,000. There was a charge of $494,119 taken for this transaction as of June 30, 2006.

Financing

In April 2006, the Company refinanced several of its properties in Massena, New York through a mortgage agreement totaling $1,200,000. The loan, which has an original due date of April 2007, incurs interest at the greater of 13% per annum or the prime rate plus 6% per annum. If all payments are made timely, the due date on the loan may be extended for an additional twelve months. The mortgage is guaranteed by an officer of the Company. In addition, as an additional incentive to loan the funds, the Company granted a warrant to the mortgage holder to purchase up to 1,000,000 shares of the Company’s common stock at an exercise price of $.02 per share. The warrant is exercisable anytime after April 24, 2006 for a period of one (1) year.

In June 2006, the Company obtained additional mortgage financing totaling $500,000 from a separate lender. Borrowings under the mortgage which is due June 30, 2007 incur interest at the rate of 10% per annum. The Company is required to make payments under the mortgage of $4,167 per month.

In June 2006, the Company entered into a $40,000 secured promissory note with Ayuda Funding Corp. The note incurs interest at the rate of 10% per annum and is due on June 16, 2007. The note can be converted at any time at the option of the holder, into common shares of the Company at the lesser of $.01 per share or 80% of the average closing bid price for the ten days preceding the conversion date.

In July 2006, the Company entered into a Securities Purchase Agreement with several investors whereby the Company would issue an aggregate of $1,200,000 in 6% convertible secured notes and options to purchase up to 10,000,000 shares of the Company’s common stock. The notes are due on July 28, 2009 and may be converted into common stock at any time prior to maturity at the option of the holder. The loan may be converted at a conversion price which is the lesser of $.20 or a discounted average trading price of the shares (the discount being dependent on the meeting of certain registration conditions). The holder is limited in the conversions prior to maturity date to the greater of $60,000 per calendar month or the average daily dollar volume calculated during the ten business days prior to conversion. In addition, the agreement puts limitations on certain types of transactions. In July 2006, the Company closed on the first portion of the notes aggregating $400,000.

Issuance of Shares for Legal Services

In July 2006, the Company agreed to issue 250,000 shares of the Company’s common stock to its attorneys for legal services. On the date of issuance, the Company reflecteds expenses for legal fees, approximately $5,000 (the market value of the shares on the date of the issuance).

Also in July 2006, the Company agreed to issue 1,000,000 restricted shares of the Company’s common stock to another attorney in connection with services provided in the Arbitration with Mr. Arnold and Investor Relations Services. On the date of issuance, the Company reflecteds expenses for legal fees, approximately $2,000 (the market value of the shares on the date of the issuance)

Issuance of shares to vendors

In August 2006, the Company issued 2,500,000 shares to one of its vendors in partial payment of approximately $188,000 of the balance due.

F-7

MICHELEX CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

NOTE 3 - ACCOUNT RECEIVABLE PURCHASE AGREEMENT

In May 2005, the Company entered into a one (1) year account receivable purchase agreement with Commercial Capital Lending, LLC (“CCL”). Pursuant to the agreement, CCL agrees to purchase up to 80% of the eligible accounts receivable from the Company. The Company may be required to repurchase accounts sold to CCL under certain conditions. The Company is required to pay interest at the rate of prime plus one percent on 80% of the face amount of the accounts purchased. In addition, the Company is required to pay a servicing fee totaling .6% (six tenths of one percent) of the net face amount of the open receivables for each 15 days the account is open. The agreement, among other provisions, is secured by all personal property excluding inventory and equipment.

NOTE 4 - SALE-LEASEBACK OF EQUIPMENT RELATED PARTY

In April and May 2005, the Company transferred certain equipment in exchange for the repayment of the existing debt on the equipment to a corporation controlled by the brother of one of the Company’s officers. The Company subsequently leased back the equipment. Pursuant to the two separate two-year lease agreements, the Company is required to make monthly payments totaling $3,000 and $2,000 per month, respectively. The Company has not made any of the required lease payments pursuant to the agreement.

In May 2006, the Company entered into a sale leaseback agreement with an unrelated third party. Pursuant to the agreement, the Company sold certain of its assets for $1,200,000. As a condition of the agreement, the Company agreed to lease the assets pursuant to a five year lease at a rental of $19,583 per month plus an additional rent factor equal to the 6.5% over the prime rate of the unpaid remaining rental. The Company has the additional option to purchase the assets anytime after the first twelve months for an amount equal to the remaining unpaid lease payments plus $117,500.

F-8

MICHELEX CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

NOTE 5 - MORTGAGE - RELATED PARTY

In May 2005, the Company entered into a secured convertible debenture for $150,000 with the brother of one of the officer/directors. The debenture incurs interest at the rate of 8% per annum and is payable in monthly installments including interest totaling $3,041 through June 2010. The mortgage is secured by one of the Company’s properties as well as the home of the officer/director. The Company has not made the required payments under the mortgage. The Company has recorded a beneficial conversion feature totaling $50,000, which was recorded as a discount on the debentures and was being amortized over the term of the related debenture as additional interest expense.

In June 2006, the note and accrued interest was converted into 8,100,000 shares of the Company’s common stock. At that time, the remaining beneficial conversion feature will be expensed.

NOTE 6 - CAPITAL LEASE ON EQUIPMENT

Franklin Funding, Inc.

The lease dated May 17, 2005 is for certain equipment located in the Salt Lake City facilities. The term of the lease is forty months with monthly payments of $7,755 which is equal to the cost to amortize $250,000 over the lease term at an interest rate of approximately 17% per annum.

The Company had obtained the lease and related underlying equipment through an assumption agreement with one of the Company’s vendors. The vendor declared bankruptcy in 2006. Pursuant to a settlement agreement in June 2006 with Franklin Funding, The Company gave up possession of the equipment and cancelled the lease with Franklin Funding.

Heller Financial Leasing, Inc.

The Company leases equipment under capital lease arrangements with Heller Financial. The terms and amounts are described below. Pursuant to the lease, the lessor retains actual title to the leased property until the termination of the lease, at which time the property can be purchased for one dollar.

The leases dated August 9, 1999 are for thirteen Nissei injection mold machines. The term of the leases is sixty months with monthly payments of $27,362 which is equal to the cost to amortize $1,323,850 over a 5-year period at an interest rate of 8% per annum.

St. Lawrence County Industrial Development Agency.

The Company leases a building and land located on Lot 16 in the Massena Industrial Park from the St. Lawrence County Industrial Development Agency. Pursuant to the lease, the lessor retains actual title to the leased property until the termination of the lease, at which time the property can be purchased for one dollar. The lease dated November 6, 1998 is for 84 monthly payments of $4,431 beginning November 1998.

The Company leases a second building in the Massena Industrial Park from the St. Lawrence County Industrial Development Agency. Pursuant to the lease, the lessor retains actual title to the leased property until the termination of the lease, at which time the property can be purchased for one dollar. The lease dated October 30, 2003 is for 96 monthly payments of $724 beginning November 1, 2003.

US Bancorp Leasing

The Company leases Sumitomo injection molding machines under capital lease arrangements with US Bancorp Leasing. The Lease, dated September 11, 2001, is for 48 months with monthly payments of $10,012, which is equal to the cost to amortize $420,490 over a four-year period at an interest rate of 6.125% per annum. Pursuant to the leases the lessor retains actual title to the leased property until the termination of the lease, at which time the property can be purchased for one dollar.

F-9

MICHELEX CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

NOTE 6 - CAPITAL LEASE ON EQUIPMENT (continued)

Buyout of capital leases

In July 2005, the Company entered into an agreement with the St. Lawrence County Industrial Development Agency (“St. Lawrence IDA”) whereby the Company relinquished its use of one of the properties located in the Massena industrial park. The Company leased this property under an operating lease. Although the Company was not notified it was in default at the time the agreement, the Company was late in the payment of several of the monthly lease payments. Pursuant to this agreement, in exchange for allowing the Company to terminate its obligations under the operating lease for the above property, the St. Lawrence IDA issued credits to the Company in satisfaction of capital leases for two other properties also located in the Massena Industrial Park. The remaining principle balances at December 31, 2004 due on these capital leases totaled approximately $150,000. The total amount of the credits has been reflected as a lease buyout and included as a component of other income.

In December 2005, the Company entered into an agreement with the St. Lawrence IDA whereby the Company relinquished its use of one of the properties located in the Massena industrial park. The Company leased this property under a capital lease. The Company was late in the payment of several of the monthly lease payments on this and a lease on another property administered by the St. Lawrence IDA. Pursuant to this agreement, in exchange for allowing the Company to terminate its obligations under the lease for the above property, the St. Lawrence IDA issued credits to the Company in satisfaction of the capital leases for another property also located in the Massena Industrial Park. The total amount of the credits has been reflected as a lease buyout and included as a component of gain (loss) on sale of assets.

Sale-Leaseback Equipment

NOTE 7 - CONVERTIBLE DEBENTURES

5% Convertible Debentures

During the quarter ended September 30, 2004 and through October 1, 2004, the Company issued $503,250 of 5% Convertible Debentures ("5% Debentures"). The 5% Debentures require the Company to issue non-restricted shares of the Company's common stock within 41 days of funding at a conversion price of $.17 per share. In the event non-restricted shares of the Company's common stock is not issued within the 41 days, then each debenture holder is entitled to 3 shares of restricted stock for each share of non-restricted shares required under the conversion provisions of the debenture. Additionally, if the Company fails to deliver non-restricted shares of the Company's common stock to the debenture holders within one (1) year after the first closing date, the Company shall be required to deliver additional shares of restricted stock in sufficient quantities to guarantee the holders a 45% return on their investment. The Private Placement Memorandum further grants the Placement Agent the right of first refusal on all subsequent offerings by the Company for a period of 2 years. The Company aggregated net proceeds of $408,865 from the offering. The Company has recorded a beneficial conversion feature totaling $270,981, which was recorded as a discount on the debenture and had been amortized over the term of the debenture. At December 31, 2004, the entire beneficial conversion feature had been amortized to interest expense.

12% Convertible Debentures

The Company issued 12% Secured Convertible Debentures (“Convertible Debentures”) totaling $300,000 and $150,000 respectively. The Convertible Debentures will be due in September 2005 and may be prepaid in whole at any time after giving 20 days advance notice. The holders of the Convertible Debentures may elect at any time to convert the principle balance due into shares of the Company’s common stock at the lesser of $.1875 per share or 75% of the current market price at conversion. The Convertible Debentures are secured by a second security interest in all the Company’s assets. In November 2004, $300,000 of the Convertible Debentures were converted into 1,600,000 shares of the Company’s common stock (4,800,000 shares after the 3 for 1 stock split). In January 2005, the remaining $150,000 in Convertible Debentures were converted into 2,400,000 shares of the Company’s common stock (after giving effect to the 3 for 1 stock split). The Company recorded a beneficial conversion feature totaling $100,000 and $50,000, respectively, which were recorded as a discount on the debentures and amortized over the term of the related debenture. In November 2004, as a result of the conversion of one of the debentures, the balance of the beneficial conversion feature was expensed to interest expense. In January 2005, the remaining debentures were converted into common stock and the remaining beneficial conversion feature was expensed to interest expense.

F-10

MICHELEX CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006

NOTE 7-CONVERTIBLE DEBENTURES (continued)

Hindsight Debenture

In January 2005, the Company through its Hindsight Records, Inc, subsidiary closed on an aggregate of $1,000,000 5% Secured Convertible Debenture. The debentures are due December 29, 2006. The debenture is secured by the assets of Hindsight. The debentures are convertible at any time at the lesser of the price of the stock on the date of the closing or 75% of the price of the stock for the 5 trading days prior to the date of the conversion. The Company has recorded a beneficial conversion feature totaling $333,333, which has been recorded as a discount on the debentures and is being amortized over the term of the related debenture. During the first quarter of 2005, $351,000 of the debentures were converted into 8,893,215 shares of the Company’s common stock.

NOTE 8 - SALE OF ASSETS

In April 2005, the Company sold several of its properties to MPG Development LLC (“MPG”), a limited liability company controlled by officers of the Company and their immediate families. The properties, which had a carrying amount on the books of $199,970, were transferred in exchange for the satisfaction of certain loans to the officers totaling $375,000. Certain of these properties are used as collateral pursuant to the amended agreement with Pittsford.

In September 2005, the Company sold one of its properties in Salt Lake City, Utah to 3553 Main, LLC, a limited liability company, one of whose members is an officer of the Company. The property, which had a carrying amount on the books of $618,269, was transferred in exchange for the assumption of the underlying mortgage and a payment of $28,000.

In April 2006, the Company sold its remaining facilities in Utah to an unrelated party for $2,500,000 in a sale-leaseback transaction. In addition, the Company entered into an operating lease agreement for the rental of these facilities for a 36 month period through monthly payments of $9,000 commencing on the first anniversary of the lease agreement.

NOTE 9 - MANAGEMENT’S PLAN OF OPERATION AND GOING CONCERN MATTERS

The Company has reported losses from operations for the last two years. In addition, the Company has a working capital deficiency, a deficiency in stockholders’ equity and has been notified by its lender that it is in default of its credit facility. The Company has also not paid many of its other obligations in a timely manner.

During 2005 and 2006, we have made a significant effort to obtain additional financing. These financings have included the mortgaging of certain properties, the obtaining of additional lines of credit and the factoring of its receivables. We have also refinanced a number of its equipment and properties in what it believes will be beneficial to its future cash flow. In addition, a number of the debenture issuances have been converted into common stock.

The financial statements have been prepared assuming Company is able to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of assets or liabilities that might be necessary should the Company be unable to continue as a going concern.

NOTE 10 - SUBSEQUENT EVENTS

In November, 2006, the Company entered into a letter of intent to acquire Ag Pro, Ltd Ag Pro Ltd. operates a press process soy oilseed crushing plant and a physical method vegetable oil refinery.

F-11

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation.

Some of the information in this report contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as "may," "will," "expect," "anticipate," "believe," "estimate" and "continue," or similar words. You should read statements that contain these words carefully because they:

·	discuss our future expectations;

·	contain projections of our future results of operations or of our financial condition; and

·	state other "forward-looking" information.

We believe it is important to communicate our expectations. However, there may be events in the future that we are not able to accurately predict or over which we have no control. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements.

General Overview

We are designers and manufacturers of high quality customized and standard plastic components. We provide precision products manufactured with state-of-the-art equipment using only the finest materials meeting or exceeding our rigorous standards.

MICHELEX DIVISION

Michelex Division imports, manufactures and sells plastic injection molded media packaging products. Our products also consist of paper, vinyl, tyvek and board mailer-based media packaging for use with CD and DVD media. This is the larger of our two (2) divisions in terms of revenues, personnel, and infrastructure. For the 12 months ended December 31, 2004 this division accounted for approximately 70% of total company sales. For the 12 months ended December 31, 2005 this division accounted for approximately 85% of total company sales. Revenues for this division for the nine months ended September 30, 2006 accounted for 73% of total sales.

MICHELE AUDIO.

Michele Audio involved primarily in the duplication and packaging of music and spoken word communication products. For the 12 months ended December 31, 2004 this division accounted for approximately 30% of total company sales. For the 12 months ended December 31, 2005 this division accounted for approximately 15% of total company sales. Revenues for this division for the nine months ended September 30, 2006 accounted for 27% of total sales.

In 2006, Michele Audio and Wells Fargo entered into an agreement to settle the debt owed to Wells Fargo. In April 2005, Michele Audio and Wells Fargo entered into a letter agreement (the “Letter Agreement”) whereby the balances due under the line of credit were accelerated causing Michele Audio to seek alternative financing to repay the borrowings. Pursuant to the agreement, Michele Audio agreed to make payments of $1,025,000 in June 2006 (the “June Payment”), $1,150,000 in August 2006 (the “August Payment”) and $250,000 in December 2006 and interest only payments at the prime rate on the remaining unpaid balance until the final payment is made in December 2006. The June Payment and August Payment including the interest only payments have been made.

Our revenues decreased from $14.8 million for the year ended December 31, 2004 to $5.5 million for the year ended December 31, 2005. Management believes that this decrease was the result of Wells Fargo canceling our Line of Credit and demanding full payment of the term loan, totaling approximately $3,900,000.

In June 2005, Michele Audio entered into an agreement with Pittsford to amend its existing promissory notes and convert the loan into a term loan. The amended note will incur interest at the rate of ten percent (10%) per annum and is payable in monthly installments including interest of $7,720 through July 1, 2008. The note may be prepaid at any time and if prepaid prior to July 1, 2006, Pittsford agrees to forgive $25,000 of the principle amount outstanding. The loan is secured by certain of Michele Audio’s properties as well as certain of the properties of MPG Development LLC (“MPG”) located in Massena, New York. The note is guaranteed by MPG in addition to certain officers of Michele Audio. As of December 31, 2005, Michele Audio owes $794,644 to Pittsford.

In May 2005, the Company entered into a secured convertible debenture for $150,000 with the brother of one of the officer/directors. The debenture incurs interest at the rate of 8% per annum and is payable in monthly installments including interest totaling $3,041 through June 2010. The mortgage is secured by one of the Company’s properties as well as the home of the officer/director. The Company has not made the required payments under the mortgage. The Company has recorded a beneficial conversion feature totaling $50,000, which were recorded as a discount on the debentures and are being amortized over the term of the related debenture as additional interest expense. In June 2006, the note and accrued interest were converted into 8,100,000 shares of the Company’s common stock. At that time, the remaining beneficial conversion feature will be expensed.

In May 2005, the Company entered into a lease for equipment under capital lease arrangements with Franklin Funding, Inc. Pursuant to the lease, among other provisions, the lessor retains actual title to the leased property until the termination of the lease, at which time the property can be purchased for one dollar. The lease dated May 17, 2005 is for certain equipment located in the Salt Lake City facilities. The term of the lease is forty months with monthly payments of $7,755 which is equal to the cost to amortize $250,000 over the lease term at an interest rate of approximately 17% per annum. The Company had obtained the lease and related underlying equipment through an assumption agreement with one of the Company’s vendors. The vendor declared bankruptcy in 2006. Pursuant to a settlement agreement in June 2006 with Franklin Funding, The Company gave up possession of the equipment and cancelled the lease with Franklin Funding.

In April, 2005 Wells Fargo cancelled our line of credit and demanded full payment of the term loan totaling $3,900,000. Management believes that this was the result of a dispute between the Company and Wells Fargo regarding a financing deal between the Company and Argilus Capital LLC that was not completed.

The Line of Credit with Wells Fargo was an ongoing relationship that was renewed in March, 2005 (See Note 4). At that time, the Company incurred a charges of approximately $37,000 for the renewal and there was no indication of any problems. As such, the cancellation of the credit line and demand for payment was completely unexpected by management.

The Company’s arrangement with Wells Fargo was an asset based lending arrangement and as of the cancellation date in April, 2005, Wells Fargo proceeded to retain all of the Company’s cash as it came it. This prevented the Company from operating and essentially put the Company in a “shut down mode” with the majority of the work force being laid off and the Company operating at a very limited capacity. This had a large impact on the Company’s customer base.

In order to keep the Company solvent, management obtained capital through the sale of assets and property. This resulted in a significant decline in our fixed assets balance from December 31, 2004 to December 31, 2005. In addition, loans were obtained from officers and related parties.

In January 2005, Michele Audio entered into a revolving line of credit agreement with Ringsport, Ltd., a British Virgin Islands corporation. Pursuant to the agreement, Michele Audio may borrow up to one million dollars ($1,000,000) for a term of one (1) year. The line bears interest at the rate of prime plus one percent. The line is collateralized by the cash, marketable securities and investments of Michele Audio. In 2005, Michele Audio borrowed $50,000 under the line.

Our efforts in 2004 and 2005 were spent on a number of financing deals that ultimately did not come to fruition. Management did not obtain financing until April, 2006 causing revenues to suffer in 2005.

In November 2004, we signed a Standby Equity Distribution Agreement with Cornell Capital Partners, LP (“Cornell”) whereby Cornell agreed to purchase, during the next two (2) years, up to $10,000,000 of our common stock. We have not borrowed any funds under the agreement.

In September 2003, Michele Audio entered into a short-term note agreement with Pittsford Capital Mortgage Partners, LLC (“Pittsford”) for $775,000. The note, which was due September 17, 2004, unless repaid sooner, bears interest at the rate of sixteen percent (16%) per annum. Interest only payments are due monthly.

In March 2002, Michele Audio entered into a $7,000,000 revolving note agreement (the “Note Agreement”) with Wells Fargo Business Credit, Inc. (“Wells Fargo”) for working capital and issuance of letters of credit. Interest was payable monthly at Well’s Fargo’s then base rate plus 3%. The note was payable on demand. At December 31, 2004 total borrowings under the Note Agreement totaled $1,666,319 placing Michele Audio in default. In April 2004, the Note Agreement was amended to change certain of the provisions including the formula used to calculate the funds available for borrowing and settlement of certain default charges.

Competition .

Two (2) of our competitors in the plastics and packaging industry went out of out of business. We believe that this will give us an opportunity to regain the market share that was lost in 2005 and 2006.

Significant Income or Loss .

In 2005, there was no significant income or loss arising from our continuing operations. In 2006, we incurred charges related to options offered in exchange for outstanding loans due. These are one time charges.

Issuance of Unregistered Stock

In July 2006, the Company agreed to issue 250,000 shares of the Company’s common stock to its attorneys for legal services. On the date of issuance, the Company will reflect as expenses for legal fees, approximately $5,000 (the market value of the shares on the date of the issuance).

Also in July 2006, the Company agreed to issue 1,000,000 shares of the Company’s common stock to another attorney in connection with services provided in the Arbitration with Mr. Arnold and Investor Relations Services. On the date of issuance, the Company will reflect as expenses for legal fees, approximately $20,000 (the market value of the shares on the date of the issuance).

In August 2006, the Company issued 2,500,000 shares to one of its vendors in partial payment for the balance due to the vendor for materials.

In March 2006, the Company issued 477,500 shares of common stock to employees.

Forward-Looking Information.

Statements made in this Form 10-QSB which are not purely historical are forward-looking statements with respect to the goals, plan objectives, intentions, expectations, financial condition, results of operations, future performance and business of our Company, including, without limitation, statements preceded by, followed by or that include the words "may", "would", "could", "should", "expects", "projects", "anticipates", "believes", "estimates", "plans", "intends", "targets" or similar expressions.

Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond our Company's control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following, in addition to those contained in our Company's reports on file with the Securities and Exchange Commission: (i) general economic or industry conditions, nationally and/or in the communities in which our Company may conduct business; (ii) changes in the interest rate environment, legislation or regulatory requirements; (iii) conditions of the securities markets; (iv) changes in the industries in which the Company competes; (v) the development of products or services that may be superior to products or services offered or developed by our Company; (vi) competition; (vii) changes in the quality or composition of products or services developed by our Company; (viii) our ability to develop new products or services; (ix) our ability to raise capital; (x) changes in accounting principals, policies or guidelines; (xi) financial or political instability;

(xii) acts of war or terrorism; (xiii) other economic, competitive, governmental, regulatory and technical factors affecting our Company's operations, products, services and prices.

Accordingly, results actually achieved may differ materially from expected results in these statements. Forward-looking statements speak only as of the date they are made. The Company does not undertake, and specifically disclaims, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.

Item 3. Controls and Procedures.

The Company's President and Treasurer are responsible for establishing and maintaining disclosure controls and procedures.

(a) Evaluation of Disclosure Controls and Procedures

Based on their evaluation as of June 30, 2006, the President and the Treasurer have concluded that the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) are effective to ensure that information required to be disclosed in reports that the Company files or submits under the Securities Exchange Act, as amended is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

(b) Changes in internal controls

Based on their evaluation as of June 30, 2006, the President and the Treasurer have concluded that there were no significant changes in the Company's internal controls over financial reporting or in any other areas that could significantly affect the Company's internal controls subsequent to the date of his most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

Except as indicated below, the Company is not a party to any pending legal proceeding. To the knowledge of management, no federal, state or local governmental agency is presently contemplating any proceeding against the Company. No director, executive officer or affiliate of the Company or owner of record or beneficially of more than five percent (5%) of its common stock is a party adverse to the Company or has a material interest adverse to the Company in any proceeding.

In January 2006, the Company received a subpoena from the SEC as part of an investigation the SEC is conducting into trading in certain over the counter stocks. The Company has not been notified that the SEC is conducting a formal or informal investigation into the Company.

In November 2005, the Company received notice of the settlement of arbitration between Michele Audio, Investor Relations Services, Inc., a Delaware corporation (“Investor Relations”) and Charles Arnold. Pursuant to the settlement, the Company is required to pay an aggregate of $290,928 for damages, interest, legal and administrative fees relating to a claim filed by Investor Relations and Charles Arnold that they had not been compensated as called for pursuant to a Consulting Agreement and Personal Services Agreement respectively (the “Agreements”).

Michele Audio had simultaneously entered into the Agreements with Investor Relations and Mr. Arnold during the 2003 fiscal year. Both Investor Relations and Mr. Arnold had agreed to be compensated with preferred shares of Michele Audio stock.

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

None; not applicable.

Item 3. Defaults Upon Senior Securities.

None; not applicable.

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

On December 20, 2005, our Board of Directors and majority shareholders voted to increase the authorized number of shares from 100,000,000 to 1,000,000,000.

On September 9, 2003, our Board of Directors and majority stockholders voted to amend Article I of our Articles of Incorporation to change our name to “Michelex Corporation.” The amendment became effective on September 29, 2003. A definitive information statement was filed on September 8, 2003.

Item 5. Other Information.

None; not applicable.

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits.

31.1 - 302 Certification Thomas Gramuglia.

31.2 - 302 Certification Sharon Bishop.

32 - 906 Certification.

(b) Reports on Form 8-K.

None.

SIGNATURES

Pursuant to the requirements 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.

MICHELEX, INC.


Date: November 22, 2006		/s/Thomas Gramuglia
		Thomas Gramuglia
		President and Director


Date: November 22, 2006		/s/Sharon Bishop
		Sharon Bishop
		Security and Director

Michelex (MLXO) Inactive 10QSB2006 Q3 Quarterly report (small business)