-----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, T0uvQGNHhOZgGyG1jlzp9BsRE/HFWAF3tniZ5BqB8R5I5HMUkcoFZtFYnIz9vgK6 ro0IVXxKSfvDWAiPxfBpaQ== 0000067383-96-000003.txt : 19960514 0000067383-96-000003.hdr.sgml : 19960514 ACCESSION NUMBER: 0000067383-96-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960513 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: 96560867 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 :March 31, 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 - 1,948,166 shares as of May 15, 1996. MICRO GENERAL CORPORATION FORM 10-Q - QUARTER ENDED MARCH 31, 1996 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Financial Statements. Balance Sheets -- March 31, 1996 and December 31, 1995 Statements of Operations -- Three months ended March 31, 1996 and March 31, 1995. Statements of Cash Flows --Three months ended March 31, 1996 and March 31, 1995. Notes to Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. PART II. OTHER INFORMATION Item 4. Other Information Item 6. Exhibits and Reports on Form 8-K. SIGNATURES 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 March 31, 1996 and December 31, 1995 March 31, 1996 December 31, (unaudited) 1995 ----------- ------------ Assets Current assets: Cash $ 500,752 $ 35,222 Accounts and notes receivable, less allowance for doubtful receivables and sales returns of $50,109 at 3/31/96 and $46,594 at 12/31/95 281,657 349,991 Inventories (note 2) 1,246,313 1,324,109 Prepaid expenses and accrued interest 117,037 143,433 ----------- ------------ Total current assets 2,145,759 1,852,755 Equipment and improvements, net (note 3) 174,208 193,691 Other assets, net (note 4) 31,210 37,822 ----------- ------------ $ 2,351,177 $ 2,084,268 =========== ============ Liabilities and Stockholders' Equity: Current liabilities: Note payable to bank (note 6) $ 150,000 $ 275,000 Accounts payable 65,693 51,278 Accrued expenses 196,515 164,545 Deferred revenue 56,182 21,677 ----------- ------------ Total current liabilities 468,390 512,500 Stockholders' equity: Preferred stock, $.05 par value; 1,000,000 shares authorized no shares issued and outstanding at 3/31/95 and 12/31/95. -- -- Common stock, $.05 par value; 4,000,000 shares authorized 1,948,166 shares issued at 3/31/96 and 1,888,166 shares at 12/31/95 (note 1) 97,408 97,408 Additional paid-in capital 4,174,508 4,174,508 Accumulated deficits (2,389,129) (2,700,148) ----------- ------------ Total stockholders' equity 1,882,787 1,571,768 ----------- ------------ $ 2,351,177 $ 2,084,268 =========== ============ See accompanying notes to financial statements.
MICRO GENERAL CORPORATION Statements of Operations For the Three Months Ended March 31, 1996 and March 31, 1995 (Unaudited) March 31, March 31, 1996 1995 ------------ ------------ Revenues: Product sales, net of returns of $40,452 in 1996 and $106,334 in 1995. $ 319,341 $ 557,279 Service and rate revenues (note 7) 1,151,047 1,616,410 ------------ ------------ Total revenues 1,470,388 2,173,689 Cost of sales: Net product sales 318,869 499,979 Service and rate revenues 243,993 396,326 ------------ ------------ Total cost of sales 562,862 896,305 ------------ ------------ Gross profit 907,526 1,277,384 Operating expenses: Selling, general and administrative 435,715 484,488 Engineering and development 150,579 168,008 Provision for doubtful receivables 6,000 9,000 ------------ ------------ Total operating expenses 592,294 661,496 ------------ ------------ Operating profit 315,232 615,888 Interest income (expense), net (3,414) 4,044 ------------ ------------ Income before income taxes 311,818 619,932 Income taxes (note 5) 800 0 ------------ ------------ Net income $ 311,018 $ 619,932 ============ ============ Net income per common and common equivalent share (note 1) $ 0.16 $ 0.32 ============ ============ Weighted average shares outstanding (note 1) 1,948,166 1,922,166 ============ ============ See accompanying notes to financial statements.
MICRO GENERAL CORPORATION Statements of Cash Flows For the Three Months Ended March 31, 1996 and March 31, 1995 (Unaudited) March 31, March 31, 1996 1995 ------------ ------------ Cash flows from operating activities: Net earnings $ 311,018 $ 619,932 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 27,112 25,346 Provision for losses on accounts receivable and sales returns, net of write-offs 3,516 9,000 Change in assets and liabilities: Decrease in accounts receivable 64,818 23,497 (Increase) decrease in inventories 77,796 55,851 Decrease in prepaid expenses 27,196 108,533 Decrease in accounts payable 14,604 (227,097) Increase (decrease) in deferred revenue 34,505 155,064 Decrease in accrued expenses 30,981 47,597 ------------ ------------ Total adjustments 280,528 197,791 ------------ ------------ Net cash provided by operating activities 591,546 817,723 Cash flows used in investing activities--capital expenditures (1,016) (10,384) Cash flows from financing activities: Common stock proceeds, net 0 65,625 Proceeds from note payable to bank 25,000 0 Repayment of note payable to bank (150,000) 0 ------------ ------------ Net cash used by financing activities (125,000) 65,625 ------------ ------------ Net increase in cash 465,530 872,964 Cash - beginning of year 35,222 152,848 ------------ ------------ Cash - end of period $ 500,752 $ 1,025,812 ============ ============ Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 3,414 $ 0 ============ ============ Income taxes $ 800 $ 0 ============ ============ See accompanying notes to financial statements
NOTES TO THE FINANCIAL STATEMENTS 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, 1996, are not necessarily indicative of results that may be expected for any other interim period or for the full year ending December 31, 1996. 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 life of the equipment and improvements. Net Income (Per Common Share) Net income per common share is computed based on the weighted average of common shares outstanding. The potential exercise of stock options not included in the computation of net earnings per common share since the effect would be antidilutive for the periods presented. Income Taxes In February 1992, the Financial Accounting Standards Board issued Statement 109, "Accounting for Income Taxes"("SFAS 109"). Under the asset and liability method of Statement 109,deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 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. Financial Instruments The carrying amount of cash, accounts and notes receivable, prepaid expenses, other asses, accounts payable, accrued expenses, notes payable to bank and deferred revenue are measured at cost which approximates their fair value due to the short maturity of these instruments. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Note 2. Inventories Inventories are comprised of the following at March 31, 1996 and December 31, 1995: March 31, 1996 December 31, 1995 Parts & supplies $ 822,788 $ 919,459 Purchased finished goods 394,386 372,763 Consigned inventory 29,139 31,887 ----------- ----------- $ 1,246,313 $ 1,324,109 =========== =========== Note 3. Equipment and Improvements Equipment and improvements are as follows at March 31, 1996 and December 31, 1995: March 31, 1996 December 31, 1995 Production equipment, tooling and construction in process $ 434,848 $ 432,902 Office furniture and equipment 565,458 563,557 Leasehold improvements 27,776 30,606 ------------ ----------- 1,028,082 1,027,065 Less accumulated depreciation and amortization 853,874 833,374 ------------ ----------- $ 174,208 $ 193,691 ============ =========== Note 4. Other Assets Other assets are as follows at March 31, 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 -------- -------- 297,301 297,301 Less accumulated amortization 266,091 259,479 -------- -------- $ 31,210 $ 37,822 ======== ======== Note 5. Income Taxes Income tax for the three months ended March 31,1996 represents the state minimum tax. 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: March 31, March 31, 1996 1995 Expected tax expense $ 106,018 $ 210,777 Utilization of net operating loss carryforward (109,018) (213,777) Nondeductible amortization of the excess cost of assets purchased over fair market value 3,000 3,000 State income taxes 800 - ----------- ----------- $ 800 $ 0 =========== =========== At both March 31, 1996 and December 31, 1995, the Company had available net operating loss carryforwards of approximately $1,839,000 and $217,000 for Federal and state income tax purposes, respectively. If not used to offset future taxable income, the net operating loss carryforwards will expire at various years through 2010. The Company also has investment tax credit and research and experimentation credit carryforwards aggregating approximately $85,000 which expire during the period 1996 to 2002. Note 6. Notes Payable The Company has a line of credit which is 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%. At March 31, 1996 and December 31, 1995 the Company was either in compliance with all financial covenants or had obtained waivers of such covenants from the bank. The credit line expires July 31, 1996. Note 7. Commitments and Contingencies Non cancelable operating lease commitments consisted principally of the leases for the Company's manufacturing and administrative facility in California and the research and development facility in Connecticut through 1999. At March 31, 1996, the Company is committed to the following noncancelable operating lease payments: Year ending December 1996(nine months) $ 102,000 1997 145,000 1998 124,000 1999 29,000 ---------- $ 400,000 ========== 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") and/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 three months ended March 31, 1996 and March 31, 1995, and a USPS rate change during the three months ended March 31, 1996. Recorded revenues from rate changes totaled approximately $1,117,423 and $1,561,463 for the three months ended March 31, 1996 and March 31, 1995, respectively. Gross profit totaled $943,037 and $1,228,122 also for the same periods. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Total net product sales decreased $235,064 or 43% for the three months ended March 31, 1996 ("Q1 1996") compared to the three months ended March 31, 1995 ("Q1 1995") while service and rate change revenues decreased $468,237 or 29%. The decrease in net product sales is a mainly due to a decrease in the retail channel of $199,155 or 74% as compared to Q1 1995. Service and rate change revenue in Q1 1996 decreased $465,363 or 29% as compared to the prior year. For Q1 1996 and Q1 1995, service and rate change revenues represented approximately 76% and 71% of total revenue, respectively. The decrease in rate change revenues for Q1 1996 as compared to Q1 1995, was primarily due to only a UPS rate change in Q1 1996 as compared to both a UPS and USPS rate change in Q1 1995. In Q1 1996 the decrease in the retail channel is a direct result of fewer orders by a major catalog wholesaler as compared to Q1 1995. The Company is currently seeking other sources of retail distribution to increase sales in this channel. The dealer channel sales also decreased in Q1 1996 as compared to the prior year. This is primarily 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. The EAGLE BEST RATE SHIPPER was introduced in March 1996 to expand the product offering in the computer manifest market. Q1 1996 cost of sales for product sales decreased $181,110 or 36% as compared to the same period in 1995. The decrease was due to a change in product mix and a decrease in overall product sales. The Q1 1996 service and rate change revenue costs decreased $152,333 or 38% as compared to the same period in 1995. The cost of goods decrease is due to a decrease in service and rate change revenues for the same period. Gross margin Q1 1996 was 62% compared to 59% for the same period the prior year. This increase in the gross margin due to lower cost of goods for rate change products. Operating expenses of the Company in Q1 1996 of $592,294 showed a 10% decrease as compared to Q1 1995. This decrease is a result of a 10% decrease in both selling, general and administrative and engineering and development expense due to cost controls and restructuring of the Company. While expenses are expected to remain relatively constant in the selling, general and administrative departments, expenses will be increase in the research and development areas as the Company increases activity to support new products for the dealer channel and further development the Company's postage meter project. The decrease in Q1 1996 net earnings of $308,914 or 50% as compared to the same period in 1995, is primarily a result of the decrease in rate change revenue described above. Financial Condition, Liquidity and Capital Resources The Company's ability to generate cash depends on rate change revenue, the sale of inventory and collection of accounts receivable. The Company's March 31, 1996 cash balance increased $465,530 from December 31, 1995. The increase is primarily attributable to the cash generated from prepaid rate change revenue derived from the UPS rate change effective February 1995. The Company's March 31, 1996 net accounts receivable balance decreased $68,334 or 20% from December 31, 1995 levels. This decrease is due to a decrease in product sales for the Q1 1996 period. Working capital was $1,677,369 at March 31, 1996 as compared to $1,340,255 at December 31, 1995. The Company's current ratio at March 31, 1996 was 4.6 as compared to 3.6 at December 31, 1995. This change is a result of higher cash balances at March 31, 1996 due to the Q1 1996 rate changes and lower liabilities at March 31, 1996 which is due to a decrease in notes payable to bank. The Company expects to completely retire the debt to the bank by June 30, 1996. The Company's total inventories decreased 77,796 or 6% at March 31, 1996 as compared to December 31, 1995 was due mainly to shipments of rate change chips which had been accumulated in inventory at December 31, 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 and inventory balances with maximum availability of $600,000. At March 31, 1996, of the $600,000 available, $150,000 was outstanding on the line of credit while at December 31, 1995, $275,000 was outstanding. The line of credit expires July 31, 1996. It is the Company's belief that through cash flow from operations, replacement of its current credit facility, or other sources of available financing, adequate liquidity will be available through the remainder of 1996. The Company is considering its options with respect to equity and/or debt financing to fund the Company's ongoing postage meter research and development efforts. At March 31, 1996 and December 31, 1995, the Company was in compliance with all financial covenants associated with the line of credit agreement or has obtained waivers. The Company's Q1 1996, current liabilities have decreased 9% compared to the December 31, 1995 balances. This is associated with a decrease in the Company's note payable to bank as compared to the December 31, 1995 balance. The Company's investment in capital expenditures during Q1 1996 were not material. The Company does not engage in any off balance sheet financing. Inflation The effect of inflation on operating results has, historically, been insignificant. Impact of Recently Issued Accounting Standards In March 1995, the Financial Accounting Standards Board issued a new statement titled "Accounting for Impairment of Long-Lived Assets." In October 1995, the Financial Accounting Standards Board issued a new statement titled "Accounting for Stock-Based Compensation" (FASB 123). The new statements are effective for fiscal years beginning after December 15, 1995. The Company does not believe that adoption of the new standards will have a material effect on the financial statements. 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 March 31, 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. MICRO GENERAL CORPORATION Date: May 13, 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 1ST QTR 10-Q
5 1 3-MOS Dec-31-1996 MAR-31-1995 500,572 0 331,766 50,109 1,246,313 2,145,759 1,028,082 853,874 2,351,177 468,390 0 97,408 0 0 4,174,508 2,351,177 1,470,388 1,470,388 562,862 435,715 150,579 6,000 3,414 311,818 800 311,018 0 0 0 311,018 .16 .16
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