-----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, PmGcmRCFae+bW1lLkW48I3DlyJ3T3IY1cGJ2wsib8ZXgrf0O0dYnGLExwoXpcXHV 2T7Q8kDImfjRuA+RU56uoQ== 0000067383-97-000005.txt : 19971117 0000067383-97-000005.hdr.sgml : 19971117 ACCESSION NUMBER: 0000067383-97-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 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: SEC FILE NUMBER: 000-08358 FILM NUMBER: 97720080 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: September 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 92780 (Address of principal executive offices) (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 November 15, 1997. MICRO GENERAL CORPORATION FORM 10-Q - QUARTER ENDED SEPTEMBER 30, 1997 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Financial Statements. Balance Sheets -- September 30, 1997 and December 31, 1996. 2 Statements of Operations -- Three months ended September 30, 1997 3 and September 30, 1996. Statements of Operations -- Nine months ended September 30, 1997 4 and September 30, 1996. Statements of Cash Flows -- Nine months ended September 30, 1997 5 and September 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 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 September 30, 1997 and December 31, 1996 September 30, 1997 December 31, (unaudited 1996 Assets Current assets: Cash $ 186,444 $ 413,533 Accounts and notes receivable, less allowance for doubtful receivables and sales returns of $22,000 at 9/30/97 and $35,333 at 12/31/96 76,525 103,474 Inventories, net (note 2) 81,542 1,039,972 Prepaid expenses and accrued interest 184,887 104,993 ----------- ----------- Total current assets 1,329,398 1,661,972 Equipment and improvements, net (note 3) 222,709 207,659 Other assets, net (note 4) 855,630 320,598 ----------- ----------- $ 2,407,737 $ 2,190,229 =========== =========== Liabilities and Shareholders' Equity: Current liabilities: Accounts payable $ 168,787 $ 65,480 Accrued expenses 159,396 173,040 Deferred revenue 14,908 60,857 ----------- ----------- Total current liabilities 343,091 299,377 Long-term debt 2,550,000 1,500,000 Shareholders' equity: Preferred stock, $.05 par value; 1,000,000 shares authorized no shares issued and outstanding at 9/30/97 and 12/31/96. -- -- Common stock, $.05 par value; 10,000,000 shares authorized 1,949,666 shares issued at 9/30/97 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 (4,759,207) (3,882,314) ----------- ----------- Total shareholders' equity (485,354) 390,852 ----------- ----------- $ 2,407,737 $ 2,190,229 =========== =========== See accompanying notes to financial statements. MICRO GENERAL CORPORATION Statements of Operations For the Three Months Ended September 30, 1997 and September 30, 1996 (Unaudited) September 30, September 30, 1997 1996 Revenues: ------------ ------------ Product sales, net of returns of $20,573 in 1997 and $67,440 in 1996 $ 180,681 $ 147,394 Service and rate revenues (note 6) 68,938 53,764 ------------ ------------ Total revenues 249,619 201,158 Cost of sales: Net product sales 203,307 186,545 Service and rate revenues 99,816 86,531 ------------ ------------ Total cost of sales 303,123 273,076 ------------ ------------ Gross loss (53,504) (71,918) Operating expenses: Selling, general and administrative 308,392 335,768 Engineering and development 62,198 59,589 Provision for doubtful receivables (17,306) 4,000 ------------ ------------ Total operating expenses 353,284 399,357 ------------ ------------ Operating loss (406,788) (471,275) Interest expense, net (53,418) (15,491) ------------ ------------ Loss before income taxes (460,206) (486,766) Income taxes (note 5) -- -- ------------ ------------ Net loss $ (460,206) $ (486,766) ============ ============ Net loss per common and common equivalent share $ (0.24) $ (0.25) ============ ============ Weighted average shares outstanding 1,949,666 1,948,704 ============ ============ See accompanying notes to financial statements. MICRO GENERAL CORPORATION Statements of Operations For the Nine Months Ended September 30, 1997 and September 30, 1996 (Unaudited) September 30, September 30, 1997 1996 Revenues: ------------ ------------ Product sales, net of returns of $100,703 in 1997 and $150,564 in 1996 $ 511,495 $ 691,617 Service and rate revenues (note 6) 1,047,646 1,244,203 ------------ ------------ Total revenues 1,559,141 1,935,820 Cost of sales: Net product sales 436,970 540,885 Service and rate revenues 687,098 591,944 ------------ ------------ Total cost of sales 1,124,068 1,132,829 ------------ ------------ Gross profit 435,073 802,991 Operating expenses: Selling, general and administrative 964,227 1,121,927 Engineering and development 230,391 354,039 Provision for doubtful receivables (6,306) 14,000 ------------ ------------ Total operating expenses 1,188,312 1,489,966 ------------ ------------ Operating loss (753,239) (686,975) Interest expense, net (122,854) (23,696) ------------ ------------ Loss before income taxes (876,093) (710,671) Income taxes (note 5) 800 800 ------------ ------------ Net loss $ (876,893) $ (711,471) ============ ============ Net loss per common and common equivalent share $ (0.45) $ (0.37) ============ ============ Weighted average shares outstanding 1,949,305 1,948,345 ============ ============ See accompanying notes to financial statements. MICRO GENERAL CORPORATION Statements of Cash Flows For the Nine Months Ended September 30, 1997 and September 30, 1996 (Unaudited) September 30, September 30, 1997 1996 Cash flows from operating activities: ------------ ------------ Net loss $ (876,893) $ (711,471) Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 40,133 64,379 Provision for losses on accounts receivable and sales returns, net of write-offs (13,333) (5,884) Change in assets and liabilities: Decrease in accounts receivable 40,282 232,819 Decrease in inventories 158,430 191,218 (Increase) in prepaid expenses (79,894) 28,544 Increase (decrease) in accounts payable 103,307 (3,815) Increase (decrease) in deferred revenue (45,949) 33,410 Increase (decrease) in accrued expenses (13,644) 3,641 ----------- ----------- Total adjustments 189,332 544,312 Net cash used in operating activities (687,561) (167,159) Cash flows used in investing activities--capital expenditures and capitalized product costs (590,215) (214,889) Cash flows from financing activities: Exercise of stock options 687 1,250 Proceeds from notes payable 1,050,000 1,000,000 Proceeds from note payable to bank -- (275,000) ----------- ----------- Net cash provided by financing activities 1,050,687 726,250 ----------- ----------- Net decrease in cash (227,089) (344,202) Cash - beginning of period 413,533 35,222 ----------- ----------- Cash - end of period $ 186,444 $ 379,424 =========== =========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 113,024 $ 17,167 =========== =========== Income taxes $ 800 $ 800 =========== =========== See accompanying notes to financial statements MICRO GENERAL CORPORATION FORM 10-Q -- QUARTER ENDED SEPTEMBER 30, 1997 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 nine months ended September 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 September 30, 1997 and December 31, 1996: September 30, 1997 December 31, 1996 Parts & supplies $ 578,407 $ 683,936 Purchased finished goods 281,850 333,376 Consigned inventory 21,285 22,660 ----------- ----------- $ 881,542 $ 1,039,972 =========== =========== Note 3. Equipment and Improvements Equipment and improvements are as follows at September 30, 1997 and December 31, 1996: September 30, 1997 December 31, 1996 Production equipment, tooling and construction in process $ 459,263 $ 446,232 Office furniture and equipment 664,522 617,480 Leasehold improvements 21,417 39,347 ------------ ---------- 1,145,202 1,103,059 Less accumulated depreciation 922,493 895,400 ------------ ---------- $ 222,709 $ 207,659 ============ ========== MICRO GENERAL CORPORATION FORM 10-Q -- QUARTER ENDED SEPTEMBER 30, 1997 NOTES TO FINANCIAL STATEMENTS Note 4. Other Assets Other assets are as follows at September 30, 1997 and December 31, 1996: Estimated Useful Life 1997 1996 Capitalized product costs 3 to 5 years $ 810,630 $ 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 ---------- ---------- 1,157,931 609,859 Less accumulated amortization 302,301 289,261 ---------- ---------- $ 855,630 $ 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 September 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. MICRO GENERAL CORPORATION FORM 10-Q -- QUARTER ENDED SEPTEMBER 30, 1997 NOTES TO FINANCIAL STATEMENTS Note 5. Income Taxes Income taxes for the nine months ended September 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: September 30, September 30, 1997 1996 Expected tax expense $ (298,144) $ (241,900) Utilization of net operating loss carryforward 291,144 238,900 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 September 30, 1997, the Company had available net operating loss carryforwards of approximately $3,604,000 and $1,546,000 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. MICRO GENERAL CORPORATION FORM 10-Q -- QUARTER ENDED SEPTEMBER 30, 1997 NOTES TO FINANCIAL STATEMENTS 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 September 30, 1997, the Company is committed to the following noncancelable operating lease payments: Year ending December 31, 1997(three months) 51,900 1998 190,100 1999 97,500 2000 68,500 ---------- 382,500 Less sublease income 170,300 ---------- $ 212,200 ========== 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 rates 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/USPS rate change during the nine months ended September 30, 1997 and September 30, 1996. Recorded revenues from rate changes totaled approximately $995,772 and $1,175,875 for the nine months ended September 30, 1997 and September 30, 1996, respectively. Gross profit from rate change totaled $763,275 and $1,005,850 for these same periods. MICRO GENERAL CORPORATION FORM 10-Q -- QUARTER ENDED SEPTEMBER 30, 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 increased $33,287 or 23% for the three months ended September 30, 1997 ("Q3 1997") compared to the three months ended September 30, 1996 ("Q3 1996") while service and rate change revenues increased $15,174 or 28% for the same period in 1996. The increase in net product sales is due to both an increase in the dealer channel of $28,117 or 25% and an increase in the retail channel of $5,170 or 15% as compared to Q3 1996. For Q3 1997 and Q3 1996, service and rate change revenues represented approximately 28% and 27% of total revenue, respectively. The increase in rate change revenues for Q3 1997 as compared to Q3 1996, was due to a minor United States Postal Service ("USPS") rate change in June 1997. In Q3 1997 the increase in the retail channel sales is a direct result of more orders in the channel as compared to Q3 1996. The Company is continuing to seek other sources of retail distribution to further increase sales in this channel. The increase in the dealer channel is a result of greater sales of the Company's EAGLE BEST RATE SHIPPER manifest software and an increased demand for multi-carrier systems due to the UPS strike in August 1997. The Company is continuing its efforts to add products through outside distribution agreements as well as through its own research and development efforts. Total year-to-date net product sales decreased $180,122 or 26% for the nine months ended September 30, 1997 ("YTD 1997") compared to the nine months ended September 30, 1996 ("YTD 1996") while service and rate change revenues decreased $196,557 or 16% for the same period in 1996. The decrease in net product sales is due to both a decrease in the retail channel of $67,216 or 48% and a decrease in the dealer channel of $112,906 or 21% as compared to YTD 1996. For YTD 1997 and YTD 1996, service and rate change revenues represented approximately 67% and 64% 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 product sales 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 SHIPPER and introduction of a Windows version of The EAGLE BEST RATE SHIPPER software in May 1997, are both targeted to compete against the UPS activities and other software companies. As a result of the UPS strike in August 1997, the Company experienced an increase in dealer product sales due to the multi-carrier features of their products enabling customers the ability to ship goods during the UPS strike with other carriers. A new product offering in this area, The ShipperLink, will be introduced during late fourth quarter of 1997 to help "resurrect" this product area. MICRO GENERAL CORPORATION FORM 10-Q -- QUARTER ENDED SEPTEMBER 30, 1997 MANAGEMENT DISCUSSION AND ANALYSIS Q3 1997 cost of sales for product sales increased $16,762 or 9% as compared to the same period in 1996. The increase was due to an increase in overall product sales. The Q3 1997 service and rate change revenue product costs increased $13,285 or 15% as compared to the same period in 1996. This increase is due to minor USPS rate change in June 1997. Gross loss Q3 1997 was (21%) compared to (36%) for the same period the prior year. YTD 1997 cost of sales for product sales decreased $103,915 or 19% 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 YTD 1997 service and rate change revenue product costs increased $95,154 or 16% 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 28% compared to 41% for the same period the prior year. Operating expenses of the Company in Q3 1997 of $353,284 showed a decrease of $46,073 or 12% as compared to Q3 1996. Expenses for YTD 1997 of $1,188,312 showed a decrease of $301,654 or 20% as compared to the same period in 1996. The decreases in expenses for the three and nine month periods are the result of a decreases in selling, general and administrative costs. The 35% decrease in YTD 97 engineering and development expense is due to the deferral during the nine months ended September 30, 1997 of approximately $548,072 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 submitted for comment to the United States Postal Service. Interest expense for the Company in YTD 1997 increased $99,158 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 $165,422 or 23% 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. MICRO GENERAL CORPORATION FORM 10-Q -- QUARTER ENDED SEPTEMBER 30, 1997 MANAGEMENT DISCUSSION AND ANALYSIS Financial Condition, Liquidity and Capital Resources The Company's ability to generate cash, during the first nine months of 1997, depended largely on rate change revenue and funds generated from the notes payable signed August 1996. The Company's September 30, 1997 cash balance decreased $227,089 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 nine months ended September 30, 1997 totaling $1,050,000. The Company's September 30, 1997 net accounts receivable balance decreased $26,949 or 26% from December 31, 1996 levels. This decrease is due to a decrease in product sales for the YTD 1997 period. Working capital was $986,307 at September 30, 1997 as compared to $1,362,595 at December 31, 1996. The Company's current ratio at September 30, 1997 was 3.9 as compared to 5.6 at December 31, 1996. The Company's total net inventories decreased $158,430 or 15% at September 30, 1997 as compared to December 31, 1996. The decrease in inventory is related to the sale of products for the nine months ended September 30, 1997 and rate change products 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 September 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 does not engage in any significant off balance sheet financing. Inflation The effect of inflation on operating results has, historically, been insignificant. MICRO GENERAL CORPORATION FORM 10-Q -- QUARTER ENDED SEPTEMBER 30, 1997 PART II - OTHER INFORMATION PART II - OTHER INFORMATION 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, 1997. MICRO GENERAL CORPORATION FORM 10-Q -- QUARTER ENDED SEPTEMBER 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: November 14, 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 9-MOS DEC-31-1997 SEP-30-1997 186,444 0 98,525 (22,000) 881,543 1,329,398 1,145,202 (922,493) 2,407,737 343,091 0 0 0 97,483 4,176,370 2,407,737 1,559,141 1,559,141 1,124,068 1,124,068 1,194,618 (6,306) 122,854 (876,093) 800 (876,893) 0 0 0 (876,893) (.45) (.45)
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