-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, j0zZ/FYS1trRoX6kiQBxRmUTay1GbEQtOGQ7RkrI6QxMWQmlRtrfPjI1duEJQSWm Ew4ronQigxXdK3a9fXr2lw== 0000067383-95-000005.txt : 19950517 0000067383-95-000005.hdr.sgml : 19950516 ACCESSION NUMBER: 0000067383-95-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950512 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICRO GENERAL CORP CENTRAL INDEX KEY: 0000067383 STANDARD INDUSTRIAL CLASSIFICATION: MISC INDUSTRIAL & COMMERCIAL MACHINERY & EQUIPMENT [3590] IRS NUMBER: 952621545 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-08358 FILM NUMBER: 95537540 BUSINESS ADDRESS: STREET 1: 1740 E WILSHIRE AVE CITY: SANTA ANA STATE: CA ZIP: 92705 BUSINESS PHONE: 7146670557 MAIL ADDRESS: STREET 1: 1740 E WILSHIRE AVE CITY: SANTA ANA STATE: CA ZIP: 92705-4615 FORMER COMPANY: FORMER CONFORMED NAME: MODULEARN INC DATE OF NAME CHANGE: 19810813 10-Q 1 10-Q DOCUMENT P/E 3/31/95 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Quarterly Report Pursuant to Section 13 OR 15(D) of the Securities Exchange Act of 1934 For quarter ended: March 31, 1995 Commission file number: 0-8358 Micro General Corporation (Exact name of registrant as specified in its charter) Delaware 95-2621545 (State or other jurisdiction of ((I.R.S. Employer incorporation or organization) Identification Number) 1740 Wilshire Ave. Santa Ana, California 92705 (Address of principal executive offices) (Zip Code) (714) 667-0557 Registrant's telephone number, including area code 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 for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X ] No [ ] Common Stock, $.05 Par Value - 1,948,166 as of March 31, 1995. PART I. FINANCIAL INFORMATION MICRO GENERAL CORPORATION Balance Sheets March 31, 1995 and December 31, 1994 March 31, 1995 December 31, (unaudited) 1994 -------------- ------------ Assets Current assets Cash $ 1,025,812 $ 152,848 Accounts and notes receivable, less allowance for doubtful receivables and sales returns of $ 91,749 at 3/31/95 and $81,749 at 12/31/94 585,937 618,434 Income tax refund receivable 7,000 7,000 Inventories (note 2) 1,084,332 1,140,183 Prepaid expenses and accrued interest 168,900 277,432 ----------- ------------ Total current assets 2,871,981 2,195,897 Equipment and improvements, net (note 3) 169,606 179,206 Other assets, net (note 4) 39,326 44,688 ----------- ------------ $ 3,080,912 $ 2,419,791 ============ ============= Liabilities and Shareholders' Equity: Current liabilities: Note Payable to bank (note 6) $ 0 $ 0 Accounts payable 68,974 296,071 Accrued expenses 275,668 228,072 Deferred rate change agreement revenue 314,917 159,853 ------------ ------------- Total current liabilities 659,560 683,996 Shareholders' equity: Preferred stock, $.05 par value; 1,000,000 shares authorized no shares issued and outstanding at 3/31/95 and 12/31/94. -- -- Common stock, $.05 par value; 4,000,000 shares authorized 1,948,166 shares issued at 3 /31/95 and 1,888,166 shares at 12/31/94(note 1) 97,408 94,408 Additional paid-in capital 4,174,508 4,111,883 Accumulated deficit (1,850,563) (2,470,496) ------------ ------------- Total shareholders' equity 2,421,352 1,735,795 ------------ ------------- $ 3,080,912 $ 2,419,791 ============ ============= See accompanying notes to financial statements.
MICRO GENERAL CORPORATION Statements of Operations For the Three Months Ended March 31, 1995 and March 31, 1994 March 31, March 31, 1995 1994 Revenues: Product sales, net of returns of $106,334 in 1995 and $ 557,279 $ 683,302 $49,928 in 1994) Service and rate revenues(note 7) 1,616,410 1,161,255 ----------- ----------- Total Revenues 2,173,689 1,844,557 Cost of Sales: Net product sales 499,979 644,806 Service and rate revenues 396,326 314,448 ----------- ----------- Total cost of sales 896,305 959,254 Gross profit 1,277,384 885,303 Operating Expenses: Selling, general and administrative 484,488 498,299 Engineering and development 168,008 110,015 Provision for doubtful receivables 9,000 9,000 ---------- --------- Total operating expenses 661,496 617,314 ---------- --------- Operating profit 615,888 267,989 Interest and other income, net 4,044 1,512 ---------- --------- Income before income tax expense 619,932 269,501 Income tax expense (note 5) 0 0 ---------- --------- Net earnings $ 619,932 $ 269,501 ========== ========== Net income per common share: $ 0.32 $ 0.14 ========== ========== Weighted average number of common shares outstanding 1,922,166 1,882,240 ========== ========== See accompanying notes to financial statements.
MICRO GENERAL CORPORATION Statements of Cash Flows For the Three Months Ended March 31, 1995 and March 31, 1994 March 31, March 31, 1995 1994 ---------- ---------- Net earnings $ 619,932 $ 269,501 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 25,346 25,982 Provision for losses on accounts receivable 9,000 8,017 Change in assets and liabilities: Decrease in accounts receivable 23,497 260,025 Decrease in inventories 55,851 58,209 Decrease in prepaid expenses 108,533 101,865 (Decrease) in accounts payable (227,097) (27,072) Increase in deferred rate revenue 155,064 191,537 Increase (decrease) in accrued expenses 47,597 (22,355) ---------- --------- Total adjustments: 197,791 596,208 Net cash provided by operating activities 817,723 865,709 ---------- --------- Cash flows used in investing activities: Capital expenditures (10,384) (17,830) ---------- --------- Cash flows from financing activities: Issuance of common stock 65,625 0 Repayment of note payable to bank 0 (100,000) ---------- --------- Net cash provided by (used in) financing activities 65,625 (100,000) ---------- --------- Net increase in cash 872,964 747,879 Cash at beginning of period 152,848 85,513 ---------- ---------- Cash at end of period $1,025,812 $ 833,392 ========== ========== Supplemental disclosures of cash flow information: Cash received during the period for: Interest $ 4,044 $ 1,512 ========== ========== Income Taxes $ -0- $ -0- ========== ========== See accompanying notes to financial statements
MICRO GENERAL CORPORATION NOTES TO FINANCIAL STATEMENTS March 31, 1995 Note 1. Summary of Significant Accounting Policies General The operations of Micro General Corporation (the "Company" consist of the design, manufacture and sale of computerized parcel shipping systems, postal scales and piece-count scales. The financial statements presented include, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for fair presentation of the results of operations for the periods presented. The results of operations for the three months ended March 31, 1995, are not necessarily indicative of results that may be expected for any other interim period or for the full year ending December 31, 1995. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market (net realizable value). Equipment and Improvements Equipment and improvements are stated at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the respective equipment and improvements. Net Earnings (Per Common Share) Net Earnings per common share is computed based on the weighted average of common shares outstanding. The potential exercise of stock options are included in the computation of net earnings per common share and common share equivalents. Per share computation is net income divided by the weighted average number of common shares and common share equivalents. Income Taxes In February 1992, the Financial Accounting Standards Board issued Statement 109, "Accounting for Income Taxes" ("SFAS 109"). The Company currently accounts for income taxes under Statement of Financial Accounting Standard No. 96, "Accounting for Income Taxes" ("SFAS 96"). Under this method, the Company provides for deferred income taxes using an asset and liability approach for transactions which affect pretax earnings (loss) for financial and income tax reporting purposes in different periods. The current and deferred tax consequences are measured by applying the provisions and rates of enacted tax laws. SFAS 109 also uses the asset and liability method. The objective of the asset and liability method under SFAS 109 is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. SFAS was adopted in the period ending March 31, 1995 and no net material impact was recognized. Warranties The Company's products are sold with a ninety-day warranty on materials and workmanship. Estimated warranty costs based on historical experience are accrued as an expense at the time the products are sold. Intangible Assets Intangible assets are classified under other assets and are amortized on a straight-line basis over periods ranging from 10 to 15 years (see note 4). Deferred Revenue The Company collects fees from its customers in anticipation of future rate changes. Customers prepaying future rate changes receive memory chips with the new tariffs without paying an additional charge. Rate change fees are recorded as revenue on a pro rata basis over the prepaid period. Revenue Recognition Product sales are recorded by the Company when products are shipped to dealers and customers. Rate change revenues are recorded by the Company at the time memory chips are reprogrammed with new tariffs and shipped to the customer. Sales Returns The majority of the Company's product sales are to its authorized dealers who resell the Company's products. The Company's policy is that all sales are final, but dealers may, at the Company's sole discretion and subject to a restocking fee, return certain out-of-warranty products in exchange for products of comparable sales value. Additionally, dealers may, at the Company's sole discretion, be permitted to return their unopened inventory in the event they or the Company terminate their dealership agreement, again subject to a restocking fee. Upon acceptance of returned goods, the Company reconditions the goods, at a nominal cost, and restocks them in inventory to be sold at a later date. The Company provides an allowance for such returns equal to the estimated gross profit on the portion of sales estimated to be returned. This specific allowance is a component of the Company's allowance for doubtful receivables and sales returns. Post Retirement Benefits The Company does not have any postretirement benefits falling within the scope of Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." Note 2. Inventories Inventories are comprised of the following at March 31, 1995 and December 31, 1994:
March 31, 1995 December 31, 1994 -------------- ----------------- Parts & Supplies $ 759,742 $ 753,456 Purchased finished goods 205,056 292,099 Consigned inventory 119,534 94,628 ---------- ---------- $1,084,332 $1,140,183
Note 3. Equipment and Improvements Equipment and improvements are as follows at March 31, 1995 and December 31, 1994:
March 31, 1995 December 31, 1994 -------------- ----------------- Production equipment, tooling and construction in process $424,848 $424,848 Office furniture and equipment 494,612 484,229 Leasehold improvements 19,381 19,381 -------- -------- 938,841 928,458 Less accumulated depreciation and amortization 769,235 749,252 -------- -------- $169,606 $179,206 ======== ========
Note 4. Other Assets Other assets are as follows at March 31, 1995 and December 31, 1994:
Estimated Useful Life 1995 1994 ----------- ----- ----- Excess cost of assets purchased over fair market, value 15 years $232,531 $232,531 License rights 10 years 26,382 26,382 Other intangible assets 15 years 23,388 23,388 -------- -------- $282,301 $282,301 Less accumulated amortization 242,975 237,613 -------- -------- $ 39,326 $ 44,688 ======== ========
Note 5. Income Taxes The expected income tax expense(benefit) computed by multiplying earnings (loss) before income tax expense by the statutory Federal income tax rate of 34% differs from the actual income tax expense as follows:
3/31/95 3/31/94 --------- -------- Expected tax expense $ 210,777 $ 91,630 Utilization of net operating loss carryforward (213,777) (94,630) Nondeductible amortization of the excess cost of assets purchased over fair market value 3,000 3,000 State income taxes - - ---------- --------- $ 0 $ 0 ========== =========
At December 31, 1994, the Company has available net operating loss carryforwards of approximately $1,649,000 and $228,000 for Federal and state income tax purposes, respectively. If not used to offset future taxable income, the net operating loss carryforwards will expire for income tax purposes at various dates through 2009. The Company also has investment tax credit and research and experimentation credit carryforwards aggregating approximately $85,000 which expire during the period 1994 to 2001. Note 6. Notes Payable The Company has a line of credit which is secured by substantially all of the Company's assets and can not exceed 70% of qualifying accounts receivable up to a maximum credit line of $500,000. The interest rate on the line of credit is at the bank's prime rate (9% at March 31, 1995) plus 2.0%. At December 31, 1994 the Company received a waiver on an existing default and March 31, 1995, the Company was in compliance with all financial covenants associated with the line of credit agreement. As of March 31, 1995 and December 31, 1994, the Company has no outstanding loans on the line of credit with the bank. The line of credit is scheduled for renewal in May 1995. Note 7. Commitments and Contingencies Non cancelable operating lease commitments consist principally of the lease for the Company's manufacturing and administrative facility. In February, 1994 the Company extended its facility lease through 1999. At December 31, 1994, the Company is committed to the following noncancelable operating lease payments: Year ending December 1995 100,000 1996 101,000 1997 107,000 1998 114,000 Thereafter 29,000 --------- $ 501,100
At March 31, 1995 and December 31, 1994, the Company was liable for $324,215 and $185,475, respectively for outstanding letters of credit to procure inventory from overseas vendors. These transactions relate solely to transactions denominated in U.S. dollars. The Company has a license agreement with Pitney Bowes which enables the Company to manufacture and sell certain products. The License agreement expires in 2004. Annual expenses for the license agreement are minor. From time to time, the United State Postal Service ("USPS") or United Parcel Service ("UPS") change their rates. For a fee, the Company provides its customers with programmable memory chips with the new tariffs which can be inserted into the Company's products. In some instances, customers prepay a fee to the Company which assures they will receive new programmable memory chips for all rate changes which occur within a predetermined period. In other instances, customers incur a fee for each time they decide to procure a new programmable memory chip. The Company experienced a UPS rate change during the periods ended March 31, 1995 and March 31, 1994, and a USPS rate change during the period ending March 31, 1995. Recorded revenues from rate changes totaled approximately $1,561,463 and $1,097,000 respectively. Gross profit totaled $1,228,122 and $1,007,000 also for the same periods. MICRO GENERAL CORPORATION Management's Discussion and Analysis of Financial Condition and Results of Operations March 31, 1995 Results of Operations Total net product sales decreased $126,023 or 18% in Q1 1995 over Q1 1994 while service and rate change revenues increased $ 455,155 or 39%. This contributed to a $329,132 or 18% increase in total revenue during Q1 1995 over Q1 1994. In Q1 1995 and Q1 1994, service and rate change revenues represented approximately 74% and 60% of total revenue, respectively. The increase in rate change revenues in Q1 1995 as compared to Q1 1995, was the result of the USPS rate change in Q1 1995. While sales in the retail channel increased $148,239 or 124% as compared to the same period in 1994, the sales in the historical dealer channel decreased $278,368 or 49%. The decrease in the historical dealer channel resulting in a decrease in units sold is due to temporary channel "conflict" and the introduction of lower priced models. New product introductions in future periods, which will include product differentiation properly priced for the two distribution channels, are expected to improve volume and eliminate the possibility of any significant channel "conflict". The Company anticipates a further reduction in expenses and improved profit margins in the retail channel in future years. Cost of sales for product sales decreased $144,827 or 23%. The decrease is due to a change in product mix and a decrease in the historical dealer channel sales. The service and rate change revenue costs increased $81,878 or 26% as compared to the same period in 1994. This increase is due to an increase in service and rate change revenues for the same period. Gross margin increased 44% at March 31, 1995, as compared to the prior year. The increase is comprised of a 4% increase in product gross margin and a 2% increase in service and rate change revenue gross margin. The increase in the service and rate change revenue margin is due to higher rate change revenue, while the slight decrease in the product gross margin is a result of higher sales in the retail distribution channel. Operating expenses of the Company in Q1 1995 increased $44,182 or 7% as compared to Q1 1994. An increase in engineering and development expense is a result of further development of the computer based shipping system. Expenses are expected to remain the same in future periods. The increase in net earnings of $350,431 or 130% as compared to the same period in 1994, is a result to the increase in rate change revenue. Financial Condition, Liquidity and Capital Resources The Company's ability to generate cash depends on, rate change revnue, the sale of inventory and collection of accounts receivable. The Company's Q1 1995 cash balance increased $872,964 or 571% from December 31, 1994. The increase is primarily attributable to the cash generated from prepaid rate change revenue derived from the United States Postal Service ("USPS") rate change effective January 1995 and the United Parcel Service ("UPS") rate change effective February 1995. The Company's Q1 1995 net accounts receivable balance decreased $32,497 or 5% from December 31, 1994 levels. This decrease is due to a decrease in product sales for the Q1 1995 period. Working capital was $2,212,421 at March 31, 1995 as compared to the December 31 1994 amount of $1,511,901. The Company's current ratio at March 31, 1995 was 4.4 as compared to 3.2 at December 31, 1994. This change is a result of higher cash balances at March 31, 1995 due to the Q1 1995 rate changes. The Company's total inventories decreased $55,581 or 5% at March 31, 1995 as compared to December 31, 1994. The decrease in inventory is related to sales in the retail channel during Q1 1995. The Company has available liquidity through a line of credit agreement with a bank (See note 6, of Notes to the Financial Statements). The availability is based upon certain qualified accounts receivable balances with maximum availability of $500,000. At March 31, 1995, the Company had no balance outstanding on this line of credit. The line of credit expires in May, 1995. The Company plans to renew or seek another similar financing agreement upon expiration. At March 31, 1995, the Company was in compliance with all financial covenants associated with the line of credit agreement. The Company's Q1 1995, current liabilities have decreased 4% over the December 31, 1994 balances. This is associated with a decrease in the Company's accounts payable balance as compared to the December 31, 1994 balance. The Company believes future liquidity requirements will be covered from operations. The Company's investment in capital expenditures for Q1 1995 increased slightly over December 31, 1994 balances. There were no material commitments for capital expenditures as of March 31, 1995. The Company does not anticipate any significant domestic capital expenditures in the future. The Company does not have any material off balance sheet risks at March 31, 1995. The Company does not engage in any off balance sheet financing. Inflation The effect of inflation on operating results has, historically, been insignificant. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits (listed by numbers corresponding to Exhibit Table of Item 601 of Regulation S-K): 11. Computation of earnings (loss) per share is not provided as the calculation can be clearly determined from the material contained in Item 1 of Part I. b. The Company did not file any reports on Form 8-K during the three months ended March 31, 1995 . MICRO GENERAL CORPORATION 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. MICRO GENERAL CORPORATION Registrant Date: May 15, 1995 /s/ Thomas E. Pistilli Thomas E. Pistilli President Chief Executive Officer Chief Financial Officer Date: May 15, 1995 /s/ Linda I. Morton Linda Morton Controller EX-27 2 ARTICLE 5 FIN. DATA SCHEDULE FOR 1ST QTR 10-Q
5 1 3-MOS Dec-31-1995 JAN-01-1995 MAR-31-1995 1,025,812 0 677,686 91,749 1,084,332 2,871,981 938,841 769,235 3,080,912 659,560 0 97,408 0 0 4,174,508 3,808,912 2,173,689 2,173,689 896,305 896,305 661,496 0 0 619,932 0 619,932 0 0 0 619,932 .32 .32
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