-----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, B0kRAaNqFHRvP5sptonmhthahzvPRljJtWLohjG++jdkeqa9ZmBjW4dyVBTobmUe bvO9CnCIP2w7HUVlDsyxPA== 0000067383-97-000004.txt : 19970814 0000067383-97-000004.hdr.sgml : 19970814 ACCESSION NUMBER: 0000067383-97-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 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: 97659635 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: June 30, 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 August 15, 1997. MICRO GENERAL CORPORATION FORM 10-Q - QUARTER ENDED JUNE 30, 1997 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Financial Statements. Balance Sheets -- June 30, 1997 and December 31, 1996 2 Statements of Operations -- Three months ended June 30, 1997 3 and June 30, 1996. Statements of Operations -- Six months ended June 30, 1997 4 and June 30, 1996. Statements of Cash Flows --Six months ended June 30, 1997 5 and June 30, 1996. 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 4. Other Information 12 Item 6. Exhibits and Reports on Form 8-K. 12 SIGNATURES 13 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 June 30, 1997 and December 31, 1996 June 30,1997 December 31, (unaudited) 1996 Assets Current assets: Cash $ 223,743 $ 413,533 Accounts and notes receivable, less allowance for doubtful receivables and sales returns of $34,718 at 6/30/97 and $35,333 at 12/31/96 79,959 103,474 Inventories (note 2) 893,369 1,039,972 Prepaid expenses and accrued interest 168,980 104,993 ----------- ----------- Total current assets 1,366,051 1,661,972 Equipment and improvements, net (note 3) 206,531 207,659 Other assets, net (note 4) 602,563 320,598 ----------- ----------- $ 2,175,145 $ 2,190,229 =========== =========== Liabilities and Shareholders' Equity: Current liabilities: Accounts payable $ 77,284 $ 65,480 Accrued expenses 128,272 173,040 Deferred revenue 44,738 60,857 ----------- ----------- Total current liabilities 250,294 299,377 ----------- ----------- Long-term debt 1,950,000 1,500,000 ----------- ----------- Shareholders' equity: Preferred stock, $.05 par value; 1,000,000 shares authorized no shares issued and outstanding at 6/30/97 and 12/31/96. - - Common stock, $.05 par value; 10,000,000 shares authorized 1,949,666 shares issued at 6/30/97 and 1,949,166 shares at 12/31/96 97,483 97,458 Additional paid-in capital 4,176,370 4,175,708 Accumulated deficit (4,299,002) (3,882,314) ------------ ----------- Total shareholders' equity (25,149) 390,852 ------------ ----------- $ 2,175,145 $ 2,190,229 ============ =========== See accompanying notes to financial statements.
MICRO GENERAL CORPORATION Statements of Operations For the Three Months Ended June 30, 1997 and June 30, 1996 (Unaudited) June 30, June 30, 1997 1996 Revenues: ----------- ----------- Product sales, net of returns of $43,741 in 1997 and $42,676 in 1996 $ 178,267 $ 223,865 Service and rate revenues (note 6) 91,203 40,409 ----------- ----------- Total revenues 269,470 264,274 Cost of sales: Net product sales 227,343 253,557 Service and rate revenues 50,688 43,334 ----------- ----------- Total cost of sales 278,031 296,891 ----------- ----------- Gross loss (8,561) (32,617) Operating expenses: Selling, general and administrative 342,172 350,442 Engineering and development 66,985 143,873 Provision for doubtful receivables 5,000 4,000 ----------- ----------- Total operating expenses 414,157 498,315 ----------- ----------- Operating loss (422,718) (530,932) Interest income (expense), net (37,561) (4,792) ----------- ----------- Loss before income taxes (460,279) (535,724) Income taxes (note 5) - - ----------- ----------- Net loss $ (460,279) $ (535,724) =========== =========== Net loss per common and common equivalent share $ (0.24) $ (0.27) =========== =========== Weighted average shares outstanding 1,949,666 1,948,166 =========== =========== See accompanying notes to financial statements.
MICRO GENERAL CORPORATION Statements of Operations For the Six Months Ended June 30, 1997 and June 30, 1996 (Unaudited) June 30, June 30, 1997 1996 Revenues: ------------ ----------- Product sales, net of returns of $43,741 in 1997 and $42,676 in 1996 $ 329,800 $ 541,975 Service and rate revenues (note 6) 979,722 1,192,687 ----------- ----------- Total revenues 1,309,522 1,734,662 Cost of sales: Net product sales 475,599 572,426 Service and rate revenues 345,346 287,326 ----------- ----------- Total cost of sales 820,945 859,752 ----------- ----------- Gross profit 488,577 874,910 Operating expenses: Selling, general and administrative 655,836 786,159 Engineering and development 168,192 294,450 Provision for doubtful receivables 11,000 10,000 ----------- ----------- Total operating expenses 835,028 1,090,609 ----------- ----------- Operating loss (346,451) (215,699) Interest income (expense), net (69,437) (8,205) ----------- ----------- Loss before income taxes (415,888) (223,904) Income taxes (note 5) 800 800 ----------- ----------- Net loss $ (416,688) $ (224,704) =========== =========== Net loss per common and common equivalent share $ (0.21) $ (0.12) =========== =========== 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 Six Months Ended June 30, 1997 and June 30, 1996 (Unaudited) June 30, June 30, 1997 1996 Cash flows from operating activities: ------------ ------------ Net loss $ (416,688) $ (224,704) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 17,922 41,473 Provision for losses on accounts receivable and sales returns, net of write-offs (615) (8,094) Change in assets and liabilities: Decrease in accounts receivable 24,130 136,243 Decrease in inventories 146,603 125,266 (Increase) in prepaid expenses (63,987) (19,931) Increase in accounts payable 11,804 16,555 Increase (decrease)in deferred revenue (16,119) 16,828 Increase (decrease) in accrued expenses (44,768) 2,823 ----------- ------------ Total adjustments 74,970 311,163 Net cash provided by (used in) operating activities (341,718) 86,459 Cash flows used in investing activities--capital expenditures and capitalized research & development (298,759) (1,465) Cash flows from financing activities: Exercise of stock options 687 - Proceeds from notes payable 450,000 - Proceeds from note payable to bank - 175,000 Repayment of note payable to bank - (150,000) ---------- ------------ Net cash provided by financing activities 450,687 25,000 ----------- ------------ Net increase (decrease) in cash (189,790) 109,994 Cash - beginning of period 413,533 35,222 ----------- ------------ Cash - end of period $ 223,743 $ 145,216 =========== ============ Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 74,961 $ 8,205 =========== ============ Income taxes $ 800 $ 800 =========== ============ See accompanying notes to 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. This Quarterly Report on Form 10-Q contains forward looking statements, which are subject to known and unknown risks, uncertainties and other factors which may cause the actual results, performance and achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. 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 six months ended June 30, 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 June 30, 1997 and December 31, 1996: June 30, 1997 December 31, 1996 ------------- ----------------- Parts & supplies $ 567,938 $ 683,936 Purchased finished goods 304,484 333,376 Consigned inventory 20,947 22,660 ----------- ----------- $ 893,369 $1,039,972 =========== =========== Note 3. Equipment and Improvements Equipment and improvements are as follows at June 30, 1997 and December 31, 1996: June 30, 1997 December 31, 1996 Production equipment, tooling and construction in process $ 457,900 $ 446,232 Office furniture and equipment 631,245 617,480 Leasehold improvements 21,417 39,347 ------------ ----------- 1,110,562 1,103,059 Less accumulated depreciation and amortization 904,031 895,400 ------------ ----------- $ 206,531 $ 207,659 ============ =========== Note 4. Other Assets Other assets are as follows at June 30, 1997 and December 31, 1996: Estimated Useful Life 1997 1996 Capitalized product costs 3 to 5 years $553,814 $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 -------- --------- 901,115 609,859 Less accumulated amortization 298,552 289,261 --------- --------- $602,563 $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 June 30, 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 six months ended June 30, 1997 and June 30, 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: June 30, June 30, 1997 1996 Expected tax expense $ (141,742) $ (76,399) Utilization of net operating loss carryforward 134,742 73,399 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 June 30, 1997, the Company had available net operating loss carryforwards of approximately $3,144,000 and $1,086,000 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 Noncancellable operating lease commitments consist principally of the leases for the Company's manufacturing and administrative facility in California and the research and development facility in Connecticut. In December 1996, the Company entered into a four- year lease agreement for a manufacturing and office facility in California, and in turn entered into an agreement to sublease the former 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 June 30, 1997, the Company is committed to the following noncancelable operating lease payments: Year ending December 31, 1997(six months) $ 101,000 1998 183,000 1999 89,000 2000 60,000 --------- 433,000 Less sublease income 196,000 --------- $ 237,000 ========= 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 six months ended June 30, 1997 and June 30, 1996. Recorded revenues from rate changes totaled approximately $955,789 and $1,143,011 for the six months ended June 30, 1997 and June 30, 1996, respectively. Gross profit from rate change totaled $723,622 and $976,386 for these same periods. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Total net product sales decreased $45,598 or 20% for the three months ended June 30, 1997 ("Q2 1997") compared to the three months ended June 30, 1996 ("Q2 1996") while service and rate change revenues increased $50,794 or 126% for the same period in 1996. The decrease in net product sales is due to both a decrease in the retail channel of $23,354 or 10% and a decrease in the dealer channel of $22,244 or 10% as compared to Q2 1996. For Q2 1997 and Q2 1996, service and rate change revenues represented approximately 34% and 15% of total revenue, respectively. The increase in rate change revenues for Q2 1997 as compared to Q2 1996, was due to a minor U.S.P.S. rate change in June 1997. In Q2 1997 the decrease in the retail channel is a direct result of fewer orders in the channel as compared to Q2 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 Q2 1997 as compared to the prior year. This continues to be the result of United Parcel Services("UPS") 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 Company's introduction of a Windows(TM) version of The EAGLE BEST RATE SHIPPER software in May 1997, is targeted to compete against the UPS activities. Total net product sales decreased $212,175 or 39% for the six months ended June 30, 1997 ("YTD 1997") compared to the six months ended June 30, 1996 ("YTD 1996") while service and rate change revenues decreased $212,965 or 18% for the same period in 1996. The decrease in net product sales is due to both a decrease in the retail channel of $72,386 or 13% and a decrease in the dealer channel of $139,789 or 26% as compared to YTD 1996. For YTD 1997 and YTD 1996, service and rate change revenues represented approximately 75% and 69% of total revenue, respectively. The decrease in rate change revenues for YTD 1997 as compared to YTD 1996, was primarily due to a decline in the company's installed base as more scale based systems are replaced by service provider free systems and computer based systems. In YTD 1997 the decrease in the retail channel is a direct result of fewer orders by a major catalog wholesaler as compared to YTD 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 YTD 1997 as compared to the prior year. This continues to be the result of United Parcel Services("UPS") 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 Company's DOS based EAGLE BEST RATE SHIPPED and introduction of a Windows(TM) version of The EAGLE BEST RATE SHIPPER software in May 1997, are both targeted to compete against the UPS activities and other software companies. Q2 1997 cost of sales for product sales decreased $26,214 or 10% 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. The Q2 1997 service and rate change revenue product costs increased $7,354 or 17% as compared to the same period in 1996. This increase is due to minor USPS rate change in June 1997. Gross loss Q2 1997 was (3%) compared to (12%) for the same period the prior year. YTD 1997 cost of sales for product sales decreased $96,827 or 17% 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 for both the three and six months ended June 30, 1997, remains negative due to the under absorption of fixed costs and low product sales. The YTD 1997 service and rate change revenue product costs increased $58,020 or 20% 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 and the minor USPS rate change in June 1997. The overall cost of goods decrease is due to a decrease in labor and overhead costs associated with product sales. Gross margin YTD 1997 was 37% compared to 50% for the same period the prior year. Operating expenses of the Company in Q2 1997 of $414,157 showed a 17% decrease as compared to Q2 1996. Expenses for YTD 1997 of $835,028 showed a 23% decrease as compared to the same period in 1996. The decreases in expenses for the three and six month periods are the result of a decreases in selling, general and administrative costs. The 43% decrease in engineering and development expense is due to a deferral during the six months ended June 30, 1997 of approximately $291,256 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 increased in the research and development areas as the Company increases activity to support new products for the dealer channel and further development of the Company's postage meter project currently scheduled to be submitted for comment to the United States Postal Service during the third quarter of 1997. Interest expense for the Company in YTD 1997 increased $66,756 as compared to YTD 1996. This increase is due to the interest associated with the convertible notes signed August 1, 1996. The increase in YTD 1997 net loss of $191,984 or 85% 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 six months of 1997, depended largely on rate change revenue and funds generated from the notes payable signed August 1996. The Company's June 30, 1997 cash balance decreased $189,790 from December 31, 1996. The decrease is primarily attributable to the cash used for the postage meter development project. The Company did request and receive additional monies from the convertible notes during the six months ended June 30, 1997 totaling $450,000. The Company's June 30, 1997 net accounts receivable balance decreased $24,130 or 17% from December 31, 1996 levels. This decrease is due to a decrease in product sales for the YTD 1997 period. Working capital was $1,115,757 at June 30, 1997 as compared to $1,362,595 at December 31, 1996. The Company's current ratio at June 30, 1997 was 5.5 as compared to 5.6 at December 31, 1996. The Company's total inventories decreased 146,603 or 14% at June 30, 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 two financing agreements entered into on August 1, 1996, to provide additional funding primarily for operations and 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 June 30, 1997, the Company was not in compliance with certain of the financial covenants associated with the convertible notes, and received a waiver. The Company is currently operating without a revolving line of credit agreement to fund working capital requirements since this is prohibited by the terms of the note agreements. Current liquidity is being funded through the aforementioned product sales, service and rate change revenues and a portion of periodic drawdowns on its financing agreements. 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 YTD 1997 was material. The Company does not engage in any significant off balance sheet financing. Inflation The effect of inflation on operating results has, historically, been insignificant. PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS a. The Annual Meeting of Shareholders was held on May 20,1997. b. Voting for the election of Directors at said meeting was duly and properly conducted by ballot. The following six persons were duly nominated, and each received the number of votes shown opposite his name and was elected a Director. For Withheld John J. Cahill 1,516,522 758 William P. Foley, II 1,516,576 704 George E. Olenik 1,516,576 704 Richard F. Pickup 1,516,536 744 Thomas E. Pistilli 1,516,576 704 Carl A. Strunk 1,516,576 704 ITEM 5. OTHER INFORMATION On July 17, 1997, the Company submitted for comment to the United States Postal Service, various components of the Company's postage meter which it believes conforms to the new proposed regulations. The Company intends to submit to U.S.P.S. for comment additional components during the third quarter of 1997. 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 June 30, 1997. MICRO GENERAL CORPORATION FORM 10-Q -- QUARTER ENDED JUNE 30, 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: August 14, 1997 /s/ Thomas E. Pistilli Thomas E. Pistilli President Chief Executive Officer Chief Financial Officer /s/ Linda I. Morton Linda I. Morton Controller
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5 6-MOS DEC-31-1997 JUN-30-1997 233,743 0 114,677 (34,718) 893,369 1,366,051 1,110,562 (904,031) 2,175,145 250,294 0 0 0 97,483 4,176,370 2,175,145 1,309,522 1,309,522 820,945 820,945 824,028 11,000 69,437 (415,888) 800 (416,688) 0 0 0 (416,688) (.21) (.21)
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