-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OikcKRT0dMQdRHfum1bxIA5RtuBz9FRN8o5P2dzBAX/+luQGKTNFLEKrpsHRIhoo kI8ENhjEkPqTX+WdSVNMRg== 0000067383-96-000006.txt : 19961118 0000067383-96-000006.hdr.sgml : 19961118 ACCESSION NUMBER: 0000067383-96-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 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: 96665361 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 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarterly period ended: September 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________to_________. 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 [ ] The number of shares outstanding of Common Stock, $.05 Par Value - 1,949,166 shares as of September 30, 1996. MICRO GENERAL CORPORATION FORM 10-Q - QUARTER ENDED SEPTEMBER 30, 1996 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements. Balance Sheets -- September 30, 1996 and December 31, 1995 2 Statements of Operations -- Three months ended September 30, 1996 and September 30, 1995. 3 Statements of Operations --Nine months ended September 30, 1996 and September 30, 1995. 4 Statements of Cash Flows --Nine months ended September 30, 1996 and September 30, 1995. 5 Notes to Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 9 PART II. OTHER INFORMATION Item 5. Other Information 11 Item 6. Exhibits and Reports on Form 8-K. 11 SIGNATURES 12 All other schedules are omitted as the required information is inapplicable or the information is presented in the financial statements or notes thereto. MICRO GENERAL CORPORATION Balance Sheets September 30, 1996 and December 31, 1995 September 30, 1996 December 31, Assets (unaudited) 1995 ------------ ------------ Current assets: Cash $ 379,424 $ 35,222 Accounts and notes receivable, less allowance for doubtful receivables and sales returns of $40,709 at 9/30/96 and $46,594 at 12/31/95 123,056 349,991 Inventories (note 2) 1,132,891 1,324,109 Prepaid expenses and accrued interest 114,889 143,433 ------------ ------------ Total current assets 1,750,260 1,852,755 Equipment and improvements, net (note 3) 184,167 193,691 Other assets, net (note 4) 197,857 37,822 ------------ ------------ $ 2,132,284 $ 2,084,268 ============ ============ Liabilities and Shareholders' Equity Current liabilities: Note payable to bank $ -- $ 275,000 Accounts payable 46,475 51,278 Accrued expenses 169,175 164,545 Deferred revenue 55,087 21,677 ------------ ------------ Total current liabilities 270,737 512,500 Long term liabilities: Long term debt 1,000,000 -- ------------ ------------ Total liabilites 1,270,737 512,500 Shareholders' equity: Preferred stock, $.05 par value; 1,000,000 shares authorized no shares issued and outstanding at 9/30/96 and 12/31/95 -- -- Common stock, $.05 par value; 10,000,000 shares authorized 1,949,166 shares issued at 9/30/96 and 1,948,166 shares at 12/31/95(note 1) 97,458 97,408 Additional paid-in capital 4,175,708 4,174,508 Accumulated deficit (3,411,619) (2,700,148) ------------ ------------ Total shareholders' equity 861,547 1,571,768 ------------ ------------ $ 2,132,284 $ 2,084,268 ============ ============ See accompanying notes to financial statements. MICRO GENERAL CORPORATION Statements of Operations For the Three Months Ended September 30, 1996 and September 30, 1995 (unaudited) September 30, September 30, 1996 1995 ------------- ------------- Revenues: Product sales, net of returns of $67,440 in 1996 and $84,144 in 1995 $ 146,334 $ 424,778 Service and rate revenues 54,824 322,385 ------------- ------------- Total revenues 201,158 747,163 Cost of sales: Net product sales 223,884 361,663 Service and rate revenues 49,192 107,802 ------------- ------------- Total cost of sales 273,076 469,465 ------------- ------------- Gross profit (loss) (71,918) 277,698 Operating expenses: Selling, general and administrative 335,768 403,624 Engineering and development 59,589 122,104 Provision for doubtful receivables 4,000 (42,000) ------------- ------------ Total operating expenses 399,357 483,728 ------------- ------------ Operating loss (471,275) (206,030) Interest income (expense), net (15,491) 6,100 ------------- ------------ Loss before income taxes (486,766) (199,930) Income taxes -- -- ------------- ------------ Net loss $ (486,766) $ (199,930) ============= ============ Net loss per common and common equivilant share (note 1) $ (0.25) $ (0.10) ============= ============ Weighted average shares outstanding(note 1) 1,948,704 1,948,166 ============= ============ See accompanying notes to financial statements. MICRO GENERAL CORPORATION Statements of Operations For the Nine Months ended September 30, 1996 and September 30, 1995 (unaudited) September 30, September 30, 1996 1995 ------------- ------------ Revenues: Product sales, net of returns of $150,384 in 1996 and $381,291 in 1995 $ 688,309 $ 1,389,666 Service and rate revenues 1,247,511 2,196,181 ------------- ------------- Total revenues 1,935,820 3,585,847 Cost of sales: Net product sales 796,310 1,156,587 Service and rate revenues 336,519 587,855 ------------- ------------- Total cost of sales 1,132,829 1,744,442 ------------- ------------- Gross profit 802,991 1,841,405 Operating expenses: Selling, general and administrative 1,121,927 1,299,486 Engineering and development 354,039 489,276 Provision for doubtful receivables 14,000 (29,000) ------------- ------------ Total operating expenses 1,489,966 1,759,762 ------------- ------------ Operating profit (loss) (686,975) 81,643 Interest income (expense), net (23,696) 10,937 ------------- ------------ Earnings (loss) before income taxes (710,671) 92,580 Income taxes 800 -- ------------- ------------ Net earnings (loss) $ (711,471) $ 92,580 ============= ============ Net earnings (loss) per common and common equivilant share (note 1) $ (0.37) $ 0.05 ============= ============ Weighted average shares outstanding(note 1) 1,948,345 1,939,595 ============= ============ See accompanying notes to financial statements. MICRO GENERAL CORPORATION Statements of Cash Flows For the Nine Months Ended September 30, 1996 and September 30, 1995 (unaudited) September 30, September 30, 1996 1995 ------------- ------------- Cash flows from operating activities: Net earnings (loss) $ (711,471) $ 92,580 Adjustments to reconcile net earnings (loss) to net cash provided by (used in)operating activities: Depreciation and amortization 64,379 76,611 Provision for losses on accounts receivable and sales returns, net of write-offs (5,884) (29,814) Change in assets and liabilities: Decrease in accounts receivable 232,819 186,566 Decrease in inventories 191,218 70,448 Decrease in prepaid expenses 28,544 125,672 Decrease in accounts payable (3,815) (222,181) Increase (decrease) in deferred rate revenue 33,410 (76,571) Increase (decrease) in accrued expenses 3,641 (35,867) ----------- ------------ Total adjustments 544,312 94,864 ----------- ------------ Net cash provided by (used in) operating activities (167,159) 187,444 Cash flows used in investing activities-- capital expenditures (214,889) (91,746) Cash flows from financing activities: Common stock proceeds, net 1,250 65,625 Proceeds from long term debt 1,000,000 -- Repayment of note payable to bank (275,000) -- ------------ ------------ Net cash used by financing activities 726,250 65,625 ------------ ------------ Net increase in cash 344,202 161,323 Cash - beginning of year 35,222 152,848 ------------ ------------ Cash - end of period $ 379,424 $ 314,171 ============ ============ Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 23,696 $ -- ============ ============ Income Taxes $ 800 $ -- ============ ============ See accompanying notes to financial statements. NOTES TO THE FINANCIAL STATEMENTS Note 1. Operations and Summary of Significant Accounting Policies General The accompanying condensed financial statements have been prepared by the Company pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such regulations. The condensed financial statements reflect all adjustments and disclosures which are, in the opinion of management, necessary for a fair presentation of the information contained therein. All such adjustments are of a normal recurring nature. The condensed financial statements should be read in conjunction with the financial statements and notes thereto that are contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995. The results of operations for the interim periods are not necessarily indicative of the results of the full fiscal year. This Quarterly Report on Form 10-Q contains forward looking statements, all of which are subject to risks and uncertainties. The Company's actual results may differ significantly from results discussed in the forward looking statements. Factors that might cause such differences include, but are not limited to, those discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 1995 and those described in the Company's other filings with the Securities Exchange Commission. Net Income (Per Common Share) Net income per common share is computed based on weighted average of common shares outstanding. The potential exercise of stock options is not included in the computation of net earnings per common shares since the effect would be less than 3% for the periods presented. Note 2. Inventories Inventories are comprised of the following at September 30, 1996 and December 31, 1995: September 30, 1996 December 31, 1995 Parts & supplies $ 746,651 $ 919,459 Purchased finished goods 355,732 372,763 Consigned inventory 30,508 31,887 ----------- ---------- $1,132,891 $1,324,109 =========== ========== Note 3. Equipment and Improvements Equipment and improvements are as follows at September 30, 1996 and December 31, 1995: September 30, 1996 December 31, 1995 Production equipment, tooling and construction in process $ 448,462 $ 432,902 Office furniture and equipment 576,269 563,557 Leasehold improvements 36,518 30,606 ------------ ----------- 1,061,249 1,027,065 Less accumulated depreciation and amortization 877,082 833,374 ------------ ----------- $ 184,167 $ 193,691 ============ =========== Note 4. Other Assets Other assets are as follows at September 30, 1996 and December 31, 1995: Estimated Useful Life 1996 1995 Excess cost of assets purchased over fair market value 15 years $ 232,531 $ 232,531 License rights 10 years 41,382 41,382 Other intangible assets 15 years 23,388 23,388 Loan costs 5 years 50,000 -- Postage meter costs 3 years 130,705 -- --------- --------- 478,006 297,301 Less accumulated amortizati 280,149 259,479 --------- --------- $ 197,857 $ 37,822 ========= ========= Note 5. Notes Payable/Long Term Debt The Company had a line of credit which was secured by substantially all of the Company's assets and could not exceed 70% of qualifying accounts receivable plus 40% of qualifying inventory up to a maximum credit line of $600,000. The interest rate on the line of credit was at the bank's prime rate plus 2.0%. On August 1, 1996, the Company paid the outstanding amount due on the line of credit in full. On August 1, 1996, the Company entered into a $3 million financing agreement to provide additional funding primarily for the retirement of bank debt, operations, and to fund the Company's ongoing development of a series of high-level security postage meters designed to comply with the new United States Postal Service proposed regulations. Two 9-1/2%, five-year convertible notes were issued, one in the amount of $1 million and one in the amount of $2 million, and are held by Fidelity National Financial, Inc., a Delaware corporation and thirty-eight (38%) percent holder of Micro General common stock and Dito Caree L.P. Holding, a Nevada corporation which owns five (5%) of the common stock of Micro General, respectively. Repayment of the notes is on an interest only basis for the first two years, with principal and interest payments for the remaining 3 years of the term. The Company can draw against the Notes in aggregate amounts up to $750,000 per quarter over the twelve months commencing August 1, 1996, if in compliance with certain restrictive covenants. The debt, secured by the assets of the Company, can be converted into 1,344,438 shares of the Company's common stock at a range of $2.00 to $2.50 per share. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Total net product sales decreased $278,444 or 66% for the three months ended September 30, 1996 ("Q3 1996") compared to the three months ended September 30, 1995 ("Q3 1995") while service and rate change revenues decreased $267,561 or 83% for the same period. The decrease in net product sales is due to both a decrease in the retail channel of $44,803 or 57% and a decrease in the dealer channel of $233,642 or 68% as compared to Q3 1995. For Q3 1996 and Q3 1995, service and rate change revenues represented approximately 27% and 43% of total revenue, respectively. The decrease in service and rate revenues is due to the occurrence in Q3 1995 of a United States Postal Service ("USPS") rate change while in Q3 1996 no such rate change occurred. Total net product sales decreased $701,357 or 51% for the nine months ended September 30, 1996 ("YTD 1996") compared to the nine months ended September 30, 1995 ("YTD 1995") while service and rate change revenues decreased $948,670 or 43%. The decrease in net product sales is due to both a decrease in the retail channel of $297,599 or 68% and a decrease in the dealer channel of $403,757 or 43% as compared to YTD 1995. For YTD 1996 and YTD 1995, service and rate change revenues represented approximately 64% and 61% of total revenue, respectively. The decrease in rate change revenues YTD 1996 as compared to the same period in 1995, was primarily due to only a United Parcel Service ("UPS") rate change in 1996 as compared to both a UPS and two USPS rate changes in 1995. The decrease in the retail channel is a direct result of fewer orders by a major catalog wholesaler as compared to the prior period. The Company is continuing to seek other sources of retail distribution to increase sales in this channel. The dealer channel sales decrease continues to be the result of United Parcel Services activities to provide free equipment to a large portion of the Company's customer target market for shipping room manifest systems. The Company is continuing its efforts to add products through outside distribution agreements as well as through its own research and development efforts. A new scale which interfaces with a personal computer is scheduled for release in early 1997. Q3 1996 cost of sales for product sales decreased $137,779 or 38% as compared to the same period in 1995. YTD 1996 cost of sales for product sales decreased $360,277 or 31% as compared to the same period in 1995. The decrease in both periods was due to a change in product mix and a decrease in overall product sales. The Q3 1996 service and rate change revenue costs decreased $58,610 or 54% as compared to the same period in 1995, while YTD 1996 service and rate change revenue costs decreased $251,336 or 43%. The cost of goods decrease is due to a decrease in service and rate change revenues for the same period. Gross margin YTD 1996 was 42% compared to 52% for the same period the prior year. This decrease in the gross margin is due to lower total product sales. Operating expenses of the Company in Q3 1996 of $399,357 showed a 17% decrease as compared to Q3 1995, while YTD 1996 operating expenses of $1,489,966 showed a 15% decrease as compared to the same period in 1995. This decrease is a result of a decrease in both selling, general and administrative expenses. While expenses are expected to be reduced in the selling, general and administrative departments, as a result of, layoffs and cost reductions, expenses will be increased in the research and development areas as the Company continues to increase activity to support new products for the dealer channel and further development of the Company's high-security postage meter project. The advanced stage of development on the Company's postage meter project allows for certain expenses to be capitalized in future periods. The product under development is expected to submitted for approval to the United States Postal Service near the end of the first quarter in 1997. The decrease in YTD 1996 net earnings of $804,051 or 869% as compared to the same period in 1995, is primarily a result of the decreases in both product sales and in rate change revenue described above and a significant increase in research and development costs. The loss experienced in the third quarter is due to a decrease in product sales and reduced rate change revenue. Additionally, there was a significant increase in research and development expenses related to the Company's ongoing development of a series of postage meters designed to comply with the new USPS proposed regulations. Submission of the meter to the United States Postal Service is expected to occur in the first quarter of 1997. Financial Condition, Liquidity and Capital Resources The Company's ability to generate cash depends on rate change revenue, long term debt, the sale of inventory and collection of accounts receivable. The Company's September 30, 1996 cash balance increased $344,202 from December 31, 1995. The increase is primarily attributable to the cash generated from amounts borrowed from the convertible notes signed August 1, 1996. At September 30, 1996, the Company had borrowed $1,000,000 from the convertible notes (see note 5). The Company's September 30, 1996 net accounts receivable balance decreased $226,935 or 65% from December 31, 1995 levels. This decrease is due to a decrease in product sales for the YTD 1996 period. Working capital was $1,479,523 at September 30, 1996 as compared to $1,340,255 at December 31, 1995. The Company's current ratio at September 30, 1996 was 6.5 as compared to 3.6 at December 31, 1995. This change is a result of a reduction in current liabilities at September 30, 1996 which is due to the retirement of the notes payable to bank. The Company's total inventories decreased 191,218 or 14% at September 30, 1996 as compared to December 31, 1995. This decrease is due to product sales during the nine months ended September 30, 1996. The Company has available liquidity through the two financing agreements entered into on August 1, 1996, to provide additional funding primarily for the retirement of bank debt, operations, and to fund the Company's ongoing development of a series of high-level security postage meters designed to comply with the new United States Postal Service proposed regulations (see note 5). It is the Company's belief that through cash flow from the aforementioned convertible notes, adequate liquidity will be available through the remainder of 1996. At September 30, 1996 and December 31, 1995, the Company was in compliance with all financial covenants associated with the convertible notes. The Company's YTD 1996, current liabilities have decreased 47% compared to the December 31, 1995 balances. This is primarily with the retirement of the Company's note payable to bank on July 31, 1996. The Company's investment in capital expenditures during six months ended September 30, 1996 were not material. The Company's increase in other assets is a result of deferred research and development costs associated with the postage meter project. The postage meter which is in the final development stage, is projected to be submitted to the United States Postal Service in early 1997. The Company does not engage in any significant off balance sheet financing. PART II - OTHER INFORMATION ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits (listed by numbers corresponding to the 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 September 30, 1996. MICRO GENERAL CORPORATION FORM 10-Q -- QUARTER ENDED SEPTEMBER 30, 1996 PART II - SIGNATURES 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. Date: November 14, 1996 /s/ Thomas E. Pistilli ------------------------- Thomas E. Pistilli President Chief Executive Officer Chief Financial Officer /s/ Linda I. Morton ------------------------ Linda I. Morton Controller EX-27 2 ARTICLE 5 FIN. DATA SCHEDULE FOR 3ND QTR 10-Q
5 1 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 379,424 0 163,765 40,709 1,132,891 1,750,260 1,061,249 877,082 2,132,284 270,737 0 97,458 0 0 4,175,708 861,547 1,935,820 1,935,820 1,132,829 1,132,829 1,489,966 14,000 23,696 (710,671) 800 (711,471) 0 0 0 (711,471) (.37) (.37)
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