-----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, TkjxPiHa4SzyH3yBtuQei2hXTGGu5WBAMj82E6o7UeWMydGsWDsmZ3TNVpbOA9hh 1pPtkDDd2/O2P/Gczl/Ppw== 0000067383-97-000003.txt : 19970520 0000067383-97-000003.hdr.sgml : 19970520 ACCESSION NUMBER: 0000067383-97-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NONE 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: 97606046 BUSINESS ADDRESS: STREET 1: 14711 BENTLEY CIRCLE CITY: TUSTIN STATE: CA ZIP: 92780-7226 BUSINESS PHONE: 714-731-0557 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, 1997 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) 14711 Bentley Circle, Tustin, California (Address of principal executive offices) 92780 (Zip Code) (714) 731-0557 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 - - 1,949,666 shares as of May 15, 1997. MICRO GENERAL CORPORATION FORM 10-Q - QUARTER ENDED MARCH 31, 1997 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1.Financial Statements. Balance Sheets -- March 31, 1997 and December 31, 1996 Statements of Operations -- Three months ended March 31, 1997 and March 31, 1996. Statements of Cash Flows --Three months ended March 31, 1997 and March 31, 1996. 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, 1997 and December 31, 1996 March 31, 1997 December 31, (unaudited) 1996 Assets Current assets: Cash $ 451,663 $ 413,533 Accounts and notes receivable, less allowance for doubtful receivables and sales returns of $28,896 at 3/31/97 and $35,333 at 12/31/96 92,416 103,474 Inventories (note 2) 893,982 1,039,972 Prepaid expenses and accrued interest 208,648 104,993 ---------- ----------- Total current assets 1,646,709 1,661,972 Equipment and improvements, net (note 3) 203,322 207,659 Other assets, net (note 4) 370,294 320,598 ---------- ----------- $2,220,325 $ 2,190,229 =========== ========== Liabilities and Shareholders' Equity: Current liabilities: Accounts payable $ 68,113 $ 65,480 Accrued expenses 137,835 173,040 Deferred revenue 79,248 60,857 ---------- ---------- Total current liabilities 285,196 299,377 Long-term debt 1,500,000 1,500,000 Shareholders' equity: Preferred stock, $.05 par value; 1,000,000 shares authorized no shares issued and outstanding at 3/31/97 and 12/31/96. - - Common stock, $.05 par value; 10,000,000 shares authorized 1,949,666 shares issued at 3/31/97 and 1,949,166 shares at 12/31/96 97,483 97,458 Additional paid-in capital 4,176,370 4,175,708 Accumulated deficits (3,838,724) (3,882,314) ---------- ----------- Total shareholders' equity 435,129 390,852 ---------- ----------- $ 2,220,325 $ 2,190,229 =========== ============ See accompanying notes to financial statements. MICRO GENERAL CORPORATION Statements of Operations For the Three Months Ended March 31, 1997 and March 31, 1996 (Unaudited) March 31, March 31, 1997 1996 --------- --------- Revenues: Product sales, net of returns of $36,390 in 1997 and $ 152,295 $ 319,341 $40,452 in 1996 Service and rate revenues (note 5) 887,756 1,151,047 ---------- ---------- Total revenues 1,040,051 1,470,388 Cost of sales: Net product sales 248,256 318,869 Service and rate revenues 294,658 243,993 ---------- ---------- Total cost of sales 542,914 562,862 ---------- ---------- Gross profit 497,137 907,526 Operating expenses: Selling, general and administrative 313,663 435,715 Engineering and development 101,208 150,579 Provision for doubtful receivables 6,000 6,000 ---------- --------- Total operating expenses 420,871 592,294 ---------- --------- Operating profit 76,266 315,232 Interest income/expense, net 31,876 3,414 ---------- --------- Income before income taxes 44,390 311,818 Income taxes (note 5) 800 800 --------- --------- Net income $ 43,590 $ 311,018 ========= ========= Net income per common and common equivalent share $ 0.02 $ 0.16 ========== ========== Weighted average shares outstanding 1,949,584 1,948,166 See accompanying notes to financial statements. MICRO GENERAL CORPORATION Statements of Cash Flows For the Three Months Ended March 31, 1997 and March 31, 1996 (Unaudited) March 31, March 31, 1997 1996 ---------- ---------- Cash flows from operating activities: Net income $ 43,590 $ 311,018 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 23,903 27,112 Provision for losses on accounts receivable and sales returns, net of write-offs (6,437) 3,516 Change in assets and liabilities: Decrease in accounts receivable 17,495 64,818 Decrease in inventories 145,990 77,796 (Increase) decrease in prepaid expenses (103,656) 27,196 Increase in accounts payable 3,506 14,604 Increase in deferred revenue 18,390 34,505 Increase (decrease) in accrued expenses (36,077) 30,981 --------- --------- Total adjustments 63,114 280,528 Net cash provided by operating activities 106,704 591,546 Cash flows used in investing activities--capital expenditures (69,262) (1,016) Cash flows from financing activities: Exercise of stock options 688 - Proceeds from note payable to bank - 25,000 Repayment of note payable to bank - (150,000) ---------- ---------- Net cash provided (used) by financing activities 688 (125,000) ---------- ---------- Net increase in cash 38,130 465,530 Cash - beginning of period 413,533 35,222 ---------- ---------- Cash - end of period $ 451,663 $ 500,752 ========== ========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 35,625 $ 3,414 ========= ========= Income taxes $ 800 $ 800 ========= ========= See accompanying notes to financial statements MICRO GENERAL CORPORATION FORM 10-Q -- QUARTER ENDED MARCH 31, 1997 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 information included in this report has been prepared in accordance with generally accepted accounting principles and the instructions to Form 10-Q and Article 10 of Regulation S-X. All adjustments, consisting of normal recurring accruals considered necessary for a fair presentation, have been included. This report should be read in conjunction with the Company's 1996 Annual Report on Form 10-K for the year ended December 31, 1996. The results of operations for the three months ended March 31, 1997, are not necessarily indicative of results that may be expected for any other interim period or for the full year ending December 31, 1997. Note 2. Inventories Inventories are comprised of the following at March 31, 1997 and December 31, 1996: March 31, 1997 December 31, 1996 Parts & supplies $ 552,869 $ 683,936 Purchased finished goods 318,592 333,376 Consigned inventory 22,521 22,660 ----------- ---------- $ 893,982 $1,039,972 =========== ========== Note 3. Equipment and Improvements Equipment and improvements are as follows at March 31, 1997 and December 31, 1996: March 31, 1997 December 31, 1996 Production equipment, tooling and construction in process $ 446,232 $ 446,232 Office furniture and equipment 631,506 617,480 Leasehold improvements 39,347 39,347 ------------ ---------- 1,117,085 1,103,059 Less accumulated depreciation and amortization 913,763 895,400 ------------ ----------- $ 203,322 $ 207,659 ============ =========== Note 4. Other Assets Other assets are as follows at March 31, 1997 and December 31, 1996: Estimated Useful Life 1997 1996 Capitalized product costs 3 to 5 years $317,794 $262,558 Excess cost of assets purchased over fair market value 15 years 232,531 232,531 Deferred loan fees 5 years 50,000 50,000 License rights 10 years 41,382 41,382 Other intangible assets 15 years 23,388 23,388 -------- -------- 665,095 609,859 Less accumulated amortization 294,801 289,261 --------- --------- $ 370,294 $ 320,598 ========= ========= During July 1996, the Company reached the technological feasibility stage of development of a project (the Meter Project), which in accordance with Statement of Financial Accounting Standard No. 86, " Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed," is the point at which qualified product costs may be capitalized. The amount capitalized at March 31, 1997 and December 31, 1996 is mainly comprised of salary expense, departmental overhead and an allocation of other indirect costs. All such capitalized costs were incurred subsequent to the achievement of technological feasibility. Note 5. Income Taxes Income tax for the three months ended March 31, 1997 and March 31, 1996 represents the state minimum tax. The expected income tax expense computed by multiplying earnings 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, 1997 1996 Expected tax expense $ 15,092 $ 106,018 Utilization of net operating loss carryforward (22,092) (109,018) Nondeductible amortization of the excess cost of assets purchased over fair market value 7,000 3,000 State income taxes 800 800 ----------- --------- $ 800 $ 800 =========== ========= At March 31, 1997, the Company had available net operating loss carryforwards of approximately $3,009,000 and $952,000 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 2011. The Company also has investment tax credit and research and experimentation credit carryforwards aggregating approximately $80,000 which expire during the period 1997 to 2002. Note 6. Commitments and Contingencies Noncancelable 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. In December 1996, the Company entered into a four-year lease agreement for a new manufacturing and administrative facility in California, and in turn entered into an agreement to sublease the old California facility for the same lease term and same lease payments. Sublease income is shown below as a reduction to total future lease payments. At March 31, 1997, the Company is committed to the following noncancelable operating lease payments: Year ending December 1997(nine months) 152,000 1998 183,000 1999 89,000 2000 60,000 -------- 484,000 Less sublease income 223,000 -------- $ 261,000 ========= 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 the 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, 1997 and March 31, 1996. Recorded revenues from rate changes totaled approximately $888,378 and $1,117,423 for the three months ended March 31, 1997 and March 31, 1996, respectively. Gross profit from rate change totaled $665,372 and $943,037 for these same periods. MICRO GENERAL CORPORATION FORM 10-Q -- QUARTER ENDED MARCH 31, 1997 MANAGEMENT DISCUSSION AND ANALYSIS Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Total net product sales decreased $167,046 or 52% for the three months ended March 31, 1997 ("Q1 1997") compared to the three months ended March 31, 1996 ("Q1 1996") while service and rate change revenues decreased $263,291 or 23% for the same period in 1996. The decrease in net product sales is due to both a decrease in the retail channel of $49,032 or 75% and a decrease in the dealer channel of $118,014 or 47% as compared to Q1 1996. For Q1 1997 and Q1 1996, service and rate change revenues represented approximately 85% and 78% of total revenue, respectively. The decrease in rate change revenues for Q1 1997 as compared to Q1 1996, was primarily due to the decline in the Company's installed base as more scale based systems are replaced by service provider free systems and computer based systems. In Q1 1997 the decrease in the retail channel is a direct result of fewer orders by a major catalog wholesaler as compared to Q1 1996. The Company is continuing to seek other sources of retail distribution to increase sales in this channel. The dealer channel sales also shows a decline in Q1 1997 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, the Company introduced a Windows version of the software in March 1997. Q1 1997 cost of sales for product sales decreased $70,613 or 22% as compared to the same period in 1996. The decrease was due to a change in product mix and a decrease in overall product sales. Though expenses have been reduced for product labor and overhead, the gross margin on product sales remains negative due to the underabsorption of fixed costs and low product sales. The Q1 1997 service and rate change revenue product costs increased $50,665 or 21% as compared to the same period in 1996. This increase is due to the higher costs of material needed to support the UPS rate change in Q1 1997. The overall cost of goods decrease of is due to a decrease in labor and overhead costs associated with product sales. Gross margin Q1 1997 was 48% compared to 62% for the same period the prior year. Operating expenses of the Company in Q1 1997 of $420,871 showed a 29% decrease as compared to Q1 1996. This decrease is a result of a 28% decrease in selling, general and administrative. The 33% decrease in engineering and development expense is due to a deferral of approximately $49,000 in expense related to the Meter Project. 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 due for submission to the United States Postal Service during the second quarter of 1997. Interest expense for the Company in Q1 1997 increased $32,212 as compared to Q1 1996. This increase is due to the interest associated with the convertible notes signed August 1, 1996(see note 6). The decrease in Q1 1997 net earnings of $267,428 or 86% as compared to the same period in 1996, is the result of the decrease in product sales and in rate change revenue as described above. Financial Condition, Liquidity and Capital Resources The Company's ability to generate cash, during the first three months of 1997, depended largely on rate change revenue. The Company's March 31, 1997 cash balance increased $38,130 from December 31, 1996. The increase is primarily attributable to the cash generated from prepaid rate change revenue derived from the UPS rate change effective February 1997. The Company did not request or receive any additional monies from the convertible notes during the first quarter of 1997. The Company's March 31, 1997 net accounts receivable balance decreased $11,058 or 11% from December 31, 1996 levels. This decrease is due to a decrease in product sales for the Q1 1997 period. Working capital was $1,361,513 at March 31, 1997 as compared to $1,362,595 at December 31, 1996. The Company's current ratio at March 31, 1997 was 5.8 as compared to 5.6 at December 31, 1996. The Company's total inventories decreased 145,990 or 14% at March 31, 1997 as compared to December 31, 1996. The decrease in inventory is related to the sale of products and rate change during the first quarter of 1997. 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. At March 31, 1997, the Company was in compliance with all financial covenants associated with the convertible notes. The Company is currently operating without a revolving line of credit agreement to fund working capital requirements. Current liquidity is being funded through the aforementioned product sales, service and rate change revenues and a portion (15% pursuant to the loan agreements) of periodic drawdowns on its note payable. Management is pursuing modifications of the terms of its loan agreements. With these modifications, the Company believes it will have adequate liquidity available thought the remainder of 1997. The Company's investment in capital expenditures during Q1 1997 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. MICRO GENERAL CORPORATION FORM 10-Q -- QUARTER ENDED MARCH 31, 1997 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 March 31, 1997. MICRO GENERAL CORPORATION FORM 10-Q -- QUARTER ENDED MARCH 31, 1997 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 15, 1997 /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
5 3-MOS DEC-31-1996 MAR-31-1997 451,663 0 121,312 (28,896) 893,982 1,646,709 1,117,085 (913,763) 2,220,325 285,196 0 0 0 97,483 4,176,370 435,129 1,040,051 1,040,051 542,914 542,914 414,871 6,000 31,876 44,390 800 43,590 0 0 0 43,590 .02 .02
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