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. -------------------------------------------------------------------- (Exact name of Small Business Issuer as specified in its charter) NEW YORK 11-2882297 -------------------------------------------------------------------- (State of other jurisdiction of (I.R.S. Employer incorporation of organization) Identification No.) 445 Central Ave., Cedarhurst New York 11516 -------------------------------------------------------------------- (Address of Principal executive offices) (Zip Code) (516) 569-3500 -------------------------------------------------------------------- (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) 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 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 	 ========= 	========= 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) ========= ========= ========= ========= 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 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. 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. 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. 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. 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. 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. 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 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