-----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, WkAirfik+xwiv7xOTe6tINH8K+FMs0jn4hk/WzF2LWHdqSr0V3idpINKXOL23bFd DWnyd2sshXXwsxGd7kFVSg== 0000892569-98-003129.txt : 19981118 0000892569-98-003129.hdr.sgml : 19981118 ACCESSION NUMBER: 0000892569-98-003129 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 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: 98752256 BUSINESS ADDRESS: STREET 1: 2510 N. REDHILL STREET 2: SUITE 230 CITY: SANTA ANA STATE: CA ZIP: 92705 BUSINESS PHONE: 949 622-4444 MAIL ADDRESS: STREET 1: 14711 BENTLEY CIRCLE CITY: TUSTIN STATE: CA ZIP: 927807226 FORMER COMPANY: FORMER CONFORMED NAME: MODULEARN INC DATE OF NAME CHANGE: 19810813 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1998 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (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, 1998 ------------------ 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) 2510 N. Red Hill, Suite 230, Santa Ana, California 92705 - -------------------------------------------------- ----- (Address of principal executive offices) (Zip Code) (949) 622-4444 - -------------------------------------------------------------------------------- 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 [ ] Indicate the number of shares outstanding of each of the issuers classes of Common Stock, as of the latest practicable date. $.05 par value Common Stock 6,549,666 shares as of November 9, 1998. ================================================================================ 2 MICRO GENERAL CORPORATION FORM 10-Q - QUARTER ENDED SEPTEMBER 30, 1998 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION - ----------------------------- Item 1. Condensed Consolidated Financial Statements. A. Condensed Consolidated Balance Sheets as of September 30, 1998 and December 31, 1997. 2 B. Condensed Consolidated Statements of Operations for the three months ended September 30, 1998 and September 30, 1997. 3 C. Condensed Consolidated Statements of Operations for the nine months ended September 30, 1998 and September 30, 1997. 4 D. Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 1998 and September 30, 1997. 5 E. Notes to Condensed Consolidated Financial Statements. 6 Item 2. . Management's Discussion and Analysis of Financial 8 Condition and Results of Operations. PART II. OTHER INFORMATION - ---------------------------- Items 1-3 & 5. of Part II have been omitted because they are not applicable with respect to the current reporting period. Item 4. Submission of Matters to Vote of Security Holders Item 6. Exhibits and Reports on Form 8-K. 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 ------------------------- (Registrant) By: /s/ Brooks A. Corbin Date: November 13, 1998 ------------------------------- Brooks A. Corbin Sr. Vice President, Finance and Chief Financial Officer 1 3 MICRO GENERAL CORPORATION Condensed Consolidated Balance Sheets September 30, 1998 and December 31, 1997
September 30, December 31, 1998 1997 ------------ ------------ (Unaudited) Assets ------ Current assets: Cash $ 896,762 $ 318,845 Accounts and notes receivable, less allowance for doubtful receivables and sales returns of $219,554 at 9/30/98 and $16,141 at 12/31/97 829,689 97,223 Inventories 2,711,771 853,033 Prepaid expenses and other assets 410,955 264,970 ------------ ------------ Total current assets 4,849,177 1,534,071 ------------ ------------ Equipment and improvements, net 3,058,531 209,351 Other assets, net 41,250 ------------ ------------ Capitalized software 3,567,879 1,054,865 Intangibles, less accumulated amortization of $305,859 at 9/30/98 6,379,836 -- ------------ ------------ $ 17,855,423 $ 2,839,537 ============ ============ Liabilities and Shareholders' Equity ------------------------------------ Current liabilities: Accounts payable and accrued expenses $ 1,651,747 $ 367,246 Income taxes payable (77,161) -- Deferred tax liability 524,097 -- Deferred revenue 12,303 6,112 Current portion of long-term debt with affiliates 2,350,001 250,000 Accounts payable with affiliates 1,901,241 600,000 ------------ ------------ Total current liabilities 6,362,228 1,223,358 ------------ ------------ Long-term debt with affiliates 2,000,000 2,750,000 Note payable due to affiliate 5,009,211 -- ------------ ------------ Shareholders' equity: Preferred stock, $.05 par value; 1,000,000 shares authorized no shares issued and outstanding at 9/30/98 and 12/31/97 -- -- Common stock, $.05 par value; 10,000,000 shares authorized 6,549,666 shares issued and outstanding as of 9/30/98 and 1,949,666 shares issued and outstanding as of 12/31/97 327,483 97,483 Additional paid-in capital 10,920,658 4,176,370 Accumulated deficit (6,764,157) (5,407,674) ------------ ------------ 4,483,984 (1,133,821) ------------ ------------ $ 17,855,423 $ 2,839,537 ============ ============
See accompanying notes to condensed consolidated financial statements. 2 4 MICRO GENERAL CORPORATION Condensed Consolidated Statements of Operations For the Three Months Ended September 30, 1998 and September 30, 1997 (Unaudited)
September 30, September 30, 1998 1997 ------------- ------------- Revenues: Postal product sales $ 146,595 $ 180,681 Postal service and rate change revenues 29,493 68,938 Software sales and maintenance, including $801,358 with affiliates 969,143 -- Hardware sales and maintenance, including $2,773,722 with affiliates 2,957,357 -- Consulting revenue, including $1,090,954 with affiliates 1,090,954 -- Servicing revenue, including $375,219 with affiliates 557,969 -- Telecommunication revenue, including $687,551 with affiliates 841,348 -- Other operating revenue, including $166,207 with affiliates 167,654 -- ----------- ----------- Total revenues 6,760,513 249,619 ----------- ----------- Cost of sales: Postal product sales 185,860 203,307 Postal service and rate change revenues 19,446 99,816 Cost of hardware and software 2,654,159 -- ----------- ----------- Total cost of sales 2,859,465 303,123 ----------- ----------- Operating expenses: Selling, general and administrative 4,471,129 291,086 Engineering and development 44,598 62,198 Amortization of goodwill and software development costs 181,198 -- ----------- ----------- Total operating expenses 4,696,925 353,284 ----------- ----------- Operating loss (795,876) (406,788) ----------- ----------- Interest expense 267,310 53,418 Loss before income taxes (1,063,186) (460,206) Income taxes (97,179) -- ----------- ----------- Net loss $ (966,107) $ (460,206) =========== =========== Basic loss per share $ (.15) $ (.24) =========== =========== Weighted average shares outstanding - basic basis 6,549,666 1,949,666 Diluted loss per share $ (.15) $ (.24) =========== =========== Weighted average shares outstanding - diluted basis 6,549,666 1,949,666 =========== ===========
See accompanying notes to condensed consolidated financial statements. 3 5 MICRO GENERAL CORPORATION Condensed Consolidated Statements of Operations For the Nine Months Ended September 30, 1998 and September 30, 1997 (Unaudited)
September 30, September 30, 1998 1997 ------------- ------------- Revenues: Postal product sales $ 605,037 $ 511,495 Postal service and rate change revenues 823,334 1,047,646 Software sales and maintenance, including $1,259,889 with affiliates 1,586,545 -- Hardware sales and maintenance, including $4,970,873 with affiliates 5,591,032 -- Consulting revenue, including $1,497,656 with affiliates 1,545,713 -- Servicing revenue, including $561,430 with affiliates 774,706 -- Telecommunication revenue, including $751,506 with affiliates 1,004,405 -- Other operating revenue, including $174,303 with affiliates 236,234 -- ------------ ------------ Total revenues 12,167,006 1,559,141 ------------ ------------ Cost of sales: Postal product sales 659,759 436,970 Postal service and rate change revenues 222,046 687,098 Cost of hardware and software 4,816,961 -- ------------ ------------ Total cost of sales 5,698,766 1,124,068 ------------ ------------ Operating expenses: Selling, general and administrative 7,040,376 957,921 Engineering and development 122,812 230,391 Amortization of goodwill and software development costs 273,569 -- ------------ ------------ Total operating expenses 7,436,757 1,188,312 ------------ ------------ Operating loss (968,517) (753,239) ------------ ------------ Interest expense 466,791 122,854 Loss before income taxes (1,435,308) (876,093) Income taxes (78,825) 800 ------------ ------------ Net loss $ (1,356,483) $ (876,893) ============ ============ Basic loss per share $ (.32) $ (.45) ============ ============ Weighted average shares outstanding - basic basis 4,291,791 1,949,305 Diluted loss per share $ (.32) $ (.45) ============ ============ Weighted average shares outstanding - diluted basis 4,291,791 1,949,305 ============ ============
See accompanying notes to condensed consolidated financial statements 4 6 MICRO GENERAL CORPORATION Condensed Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 1998 and September 30, 1997 (Unaudited)
September 30, September 30, 1998 1997 ------------ ------------ Cash flows from operating activities: Net loss $(1,356,483) $ (876,893) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 369,567 40,133 Provision for losses on accounts receivable and sales returns, net of write-offs 24,158 (13,333) Change in assets and liabilities: Decrease in accounts receivable 1,903,040 40,282 (Increase) decrease in inventories (147,064) 158,430 (Increase) in prepaid expenses (109,565) (79,894) Increase (decrease) in accounts payable and accrued expenses (300,192) 89,663 Increase (decrease) in accounts payable due affiliates 1,901,242 -- Capitalized software and postage meter development costs (591,974) -- Increase (decrease) in deferred revenue 6,191 (45,949) Increase in taxes payable (79,625) -- ----------- ----------- Total adjustments 2,975,778 189,332 ----------- ----------- Net cash provided by (used in) operating activities 1,619,295 (687,561) ----------- ----------- Cash flows used in investing activities: Additions to property and equipment (1,791,378) (590,215) ------------ ----------- Net cash used in investing activities (1,791,378) (590,215) ----------- ----------- Cash flows from financing activities: Exercise of stock options -- 687 Proceeds from notes payable 750,000 1,050,000 Repayment of note payable to bank -- -- ----------- ----------- Net cash provided by financing activities 750,000 1,050,687 Net increase (decrease) in cash 577,917 (227,089) Cash - beginning of period 318,845 413,533 Cash - end of period $ 896,762 $ 186,444 =========== =========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 202,533 $ 113,024 =========== =========== Income taxes $ 800 $ 800 =========== =========== Non-cash transactions: Stock issued in connection with the acquisition of ACS Systems, Inc. (4,600,000 shares) $ 6,974,288 $ -- =========== ===========
See accompanying notes to condensed consolidated financial statements 5 7 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF FINANCIAL STATEMENTS The financial information included in this report includes the accounts of Micro General Corporation and its subsidiaries (collectively, the "Company") and 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 Annual Report on Form 10-K for the year ended December 31, 1997 and the Company's Current Report on Form 8-K dated July 27, 1998. Certain reclassifications have been made in the 1997 Condensed Consolidated Financial Statements to conform to the classifications used in 1998. DESCRIPTION OF BUSINESS Historically, the operations of the Company consisted of the design, manufacture and sale of computerized parcel shipping systems, postal scales and piece-count scales. These operations are currently performed through the Company's postage meter and scale division. On May 14, 1998, the Company and Fidelity National Financial, Inc. ("FNFI") completed the merger of a wholly-owned subsidiary of Micro General Corporation with ACS Systems, Inc. ("ACS"), a subsidiary of FNFI. As a result of the merger all of the outstanding shares of ACS were exchanged for 4.6 million shares of Micro General Corporation common stock. The transaction was valued at $6.9 million. FNFI now owns 81.4% of the common stock of the Company on an undiluted basis. NOTE 2. ACQUISITIONS ACS, a wholly-owned subsidiary of the Company, was founded in 1985 as an escrow software development company. ACS was acquired by FNFI in April 1994 and subsequently acquired by the Company on May 14, 1998 for 4.6 million shares of the Company's common stock. Approximately 86% of the revenue generated by ACS is derived from multiple servicing arrangements with FNFI and its subsidiaries whereby ACS provides comprehensive electronic data processing systems support, including selling computer hardware and software products and developing integrated title and escrow computer applications for FNFI's direct title operations and agency network. In addition to these services, ACS provides products and services to FNFI and unaffiliated customers, including telecommunications hardware and long distance reselling, technical services, consulting services, Internet access and services and computer hardware and systems software. The acquisition of ACS has been accounted for using the purchase method of accounting. The intangibles resulting from this acquisition are being amortized over 20 years. A preliminary allocation of the purchase price has been made, but the entire purchase accounting process has not yet been completed. The results of operations of the Company include the operations of ACS since the date of acquisition. 6 8 Pro forma results assuming the acquisition of ACS had occurred on January 1, 1998, and January 1, 1997, are as follows:
NINE MONTHS ENDED ---------------------------------------- SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 ------------------ ------------------ Revenue $18,663,000 $11,529,000 =========== =========== Net loss $(1,364,000) $ (369,000) =========== =========== Net loss per share - basic $ (.20) $ (.06) =========== =========== Weighted average shares outstanding - basic 6,549,666 6,549,584 =========== =========== Net loss per share - diluted (2) $ (.20) $ (.06) =========== =========== Weighted average shares outstanding - diluted (2) 6,549,666 6,549,584 =========== ===========
- --------------- (1) Earnings per share on a diluted basis is anti-dilutive given that the Company had a net loss for the period presented; therefore basic and diluted shares and earnings per share are equal. NOTE 3. RELATED PARTY TRANSACTIONS On May 14, 1998, in connection with the Company's acquisition of ACS, a $5.0 million line of credit facility was established between the Company and Fidelity National Title Company, a subsidiary of FNFI. Under the terms of the agreement, accrued interest shall be payable quarterly with any unpaid balance, including principle and accrued interest, due and payable on May 14, 2000. Interest accrues at a rate of 9% per annum. As described in Note 1, the primary source of revenue for both ACS and the Company is fees resulting from sales and services to FNFI and subsidiaries, an affiliate. Revenues generated from the sales and services to affiliates during the three and nine-month periods ended September 30, 1998 were $5,895,011 and $9,215,657, representing 90% and 86% of total revenue, respectively. Trade accounts receivable with affiliates of $3,913,028 has been offset against accounts payable and accrued expenses with the same affiliates of $5,814,269, resulting in a net accounts payable with affiliates of $1,901,241. Included in notes payable and long-term debt at September 30, 1998 is $450,000 and $1,000,000, respectively, due to Cal West Service Corporation, a subsidiary of FNFI. Also included in notes payable and long-term debt at September 30, 1998 is $900,000 and $2,000,000, respectively, due to Dito Caree L.P. Holding, an affiliate. The notes were in default, but waivers were obtained through December 31, 1998 on all notes. Of these notes, $2,350,000 is classified as current liabilities. NOTE 4. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards for public business enterprises to report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to stockholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. This statement supercedes FASB Statement No. 14, "Financial Reporting for Segments of a Business Enterprise," but retains the requirement to report information about major customers. It amends FASB Statement No. 94, "Consolidation of All Majority-Owned Subsidiaries," to remove the special disclosure requirements for previously unconsolidated subsidiaries. SFAS 131 requires, among other items, that a public business enterprise report a measure of segment profit or loss, certain specific revenue and expense items, segment assets, information about the revenues derived from the enterprise's products or services and major customers. SFAS 131 also requires that the enterprise report descriptive information about the way that the operating segments were determined and the products and services provided by the operating segments. SFAS 131 is effective for financial statements for periods beginning after December 15, 1997. In the initial year of application, comparative information for earlier years is to be restated. SFAS 131 need not be applied to interim financial statements in the initial year of its application, but comparative information for interim periods in the initial year of application is to be reported in financial statements for interim periods in the second year of application. Management has not determined whether the adoption of SFAS 131 will have a material impact on the Company's financial reporting. 7 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Factors That May Affect Operating Results The statements contained in this report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1993 and Section 21E of the Securities Exchange Act of 1934, including statements regarding the Company's expectations, hopes, intentions or strategies regarding the future. All forward-looking statements included in this document are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. It is important to note that the Company's actual results could differ materially from those in such forward-looking statements. The reader should consult the risk factors listed from time to time and other information disclosed in the Company's reports on Forms 10-Q, 10-K and filings under the Securities Act of 1933, as amended. Results of Operations The following discussion and analysis reflects the results of operations for the Company for the three and nine-month periods ended September 30, 1998 and 1997. Included in the nine-month period ended September 30, 1998 is three months and 47 days of operations of ACS, which was acquired on May 14, 1998. See Note 2. Due to the acquisition of ACS, results of operations may differ substantially when comparing 1998 periods with 1997 periods. The following table presents information regarding the components of revenues and expenses for the Company on a historical basis by division:
THREE MONTHS ENDED --------------------------------------------------------- SEPTEMBER 30, SEPTEMBER 30, 1998 1997 --------------------------------------- ------------- Postal Postal Division ACS Total Division --------- ---------- ---------- --------- Revenues $ 176,088 $6,584,425 $6,760,513 $ 249,619 Cost of sales 205,306 2,654,158 2,859,464 303,123 Operating expenses 354,299 4,342,626 4,696,925 353,284 Interest expense 84,750 182,560 267,310 53,418 Income tax expense -- (97,179) (97,179) -- --------- ---------- ---------- --------- Net loss $(468,267) $ (497,740) $ (966,007) $(460,206) ========= ========== ========== =========
NINE MONTHS ENDED --------------------------------------------------------- SEPTEMBER 30, SEPTEMBER 30, 1998 1997 --------------------------------------- ------------- Postal Postal Division ACS Total Division --------- ---------- ---------- --------- Revenues $1,428,371 $10,738,635 $12,167,006 $1,559,141 Cost of sales 881,804 4,816,962 5,698,766 1,124,068 Operating expenses 1,139,865 6,296,892 7,436,757 1,188,312 Interest expense 254,250 212,541 466,791 122,854 Income tax expense (78,825) (78,825) 800 ---------- ----------- ----------- ---------- Net loss $ (847,548) $ (508,935) $(1,356,483) $ (876,893) ========== =========== =========== ==========
- -------------------- (1) The ACS division is included in the Company's historical financial statements for three months and 47 days during the nine month period ended September 30,1998 and excluded entirely from 1997 results. 8 10 The revenue for the quarter ended September 30, 1998 increased 2,609% to $6,760,513 from $249,619 for the third quarter of 1997. Total revenue for the nine months ended September 30, 1998 increased 681%to $12,167,006 from $1,559,141 for the comparable 1997 period. The ACS contribution for the three and nine month periods ended September 30, 1998 was $6,584,425 or 98% and $10,738,635 or 89% of the total revenue, respectively. Excluding the ACS contribution, total revenue for the third quarter decreased by $73,611, or 30%, which reflects the decrease in postal service and rate change business. Postal product sales were consistent in the quarter over quarter comparison. The revenue for the nine months ended September 30, 1998 excluding ACS contribution decreased by $130,770, or 9%, which reflects the increase in postal product sales during the second quarter of 1998 offset by a decrease in service and rate change revenues. Product sales increased by $93,542, or 19% while service and rate change revenues decreased by $224,312, or 22%, comparing the nine month periods of 1998 and 1997. The primary reason for the increase in product sales is the dealer-based sales of the Shipper Link product and the Company's Eagle Best Rate Shipper software for Windows and DOS. The decrease in service and rate change revenue relates to the decline in Company's installed product base as more scale-based systems are being replaced by free service provider system and company-based systems. Cost of sales for the third quarter of 1998 increased 818% to $2,859,464 from $303,123 in the 1997 third quarter. For the nine months ended September 30, 1998, cost of sales increased to $5,698,766, a 407% increase from $1,124,068 for the comparable 1997 period. Included in cost of sales for three months ended September 30, 1998 is $2,654,158, or 96% and for nine months is $4,817,159 or 86% of total sales, respectively, relating to the operations of ACS. See Note 2. Excluding the cost of sales related to ACS, cost of sales decreased $97,817 and $242,264 for the three and nine months ended September 30, 1998, respectively, which is consistent with the decrease in revenues discussed above. In addition, cost of sales related to postal product sales have decreased as a percentage of sales due to expense reductions in product labor and overhead. Operating expenses for the third quarter of 1998 increased to $4,696,925, an increase of $4,343,641, or 1,230%, from $353,284 in the 1997 third quarter. For the nine month period ended September 30, 1998, operating expenses were $7,436,757, an increase of $6,248,445, or 526% over operating expenses of $1,188,312 for the comparable 1997 period. Excluding ACS operating expenses of $4,342,626, or 93% and $6,296,892, or 85% of total operating expenses for the three and nine month periods ended September 30, 1998, respectively, operating expenses increased by $1,015 in the quarter and $48,447 for the nine month period ended September 30, 1998. Interest expense incurred by the Company relates to notes payable, long-term debt and a note to an affiliate. See Note 3. Interest expense for the third quarter of 1998 increased 401% to $267,310 from $53,418 in the 1997 third quarter. For the nine months ended September 30, 1998, interest expenses increases $343,927 or 280%, to $466,791 from $122,854 in the same 1997 period. Excluding the interest expense related to ACS of $182,560, or 69% and $212,541, or 46% of total interest expense for the three and nine months period ended September 30, 1998, respectively, interest expense increased $31,332, or 63%, and $131,396 or 207%, for those periods. Liquidity and Capital Resources The Company's cash requirements include debt service, operating expenses, capital investments and potential acquisitions. The Company believes that all anticipated cash requirements will be met from internally generated funds, future lines of credit and through additional credit facilities with affiliates. Cash provided by operating activities exceeded cash used by operating activities by $1,619,295 for the nine months ended September 30, 1998, which compares favorably with cash used in operating activities exceeding cash provided by operating activities of $687,561 for nine months ended September 30, 1997. The increase in cash from operations primarily relates to payments received on accounts receivable from affiliates. Management believes that short-term modifications of existing affiliates credit facilities and potential future lines of credit will enable the Company to expand its business relationships with unaffiliated third parties and expects the Company to generate cash flows sufficient to support its future operations. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards for public business enterprises to report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to stockholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. This statement supercedes FASB Statement No. 14, "Financial Reporting for Segments of a Business Enterprise," but retains the requirement to report information about major customers. It amends FASB Statement No. 94, "Consolidation of All Majority-Owned Subsidiaries," to remove the special disclosure requirements for previously unconsolidated subsidiaries. SFAS 131 requires, among other items, that a public business enterprise report a measure of segment profit or loss, certain specific revenue and expense items, segment assets, information about the revenues derived from the enterprise's products or services and major customers. SFAS 131 also requires that the enterprise report descriptive information about the way that the operating segments were determined and the products and services provided by the operating segments. SFAS 131 is effective for financial statements for periods beginning after December 15, 1997. In the initial year of application, comparative information for earlier years is to be restated. SFAS 131 need not be applied to interim financial statements in the initial year of its application, but comparative information for interim periods in the initial year of application is to be reported in financial statements for interim periods in the second year of application. Management has not determined whether the adoption of SFAS 131 will have a material impact on the Company's financial reporting. 9 11 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTER TO VOTE OF SECURITY HOLDERS On August 11, 1998, the Company held its Annual Meeting of Stockholders pursuant to a Notice and Proxy Statement dated July 22, 1998. At the meeting, stockholders elected William P. Foley II (4,802,504 for and 750 against), Patrick F. Stone (4,802,754 for and 500 against) S. Bruce Crair, (4,803,004 for and 250 against) George Olenik (4,803,004 for and 250 against) Richard Pickup (4,803,004 for and 250 against) Thomas E. Pistilli (4,802,504 for and 750 against) and Carl A. Strunk (4,802,754 for and 500 against). The shareholders approved the adoption of a 1998 Stock Option Plan in a vote of 4,802,064 for, 790 against and 400 abstaining. The shareholders ratified the adoption of the 1998 Employee Stock Purchase Plan by a vote of 4,802,064 for, 790 against and 400 abstaining. 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. 27. Financial Data Schedule b. Current Reports on Form 8-K: Current Report on Form 8-K, dated July 27, 1998, relating to the merger of a wholly-owned subsidiary of Micro General Corporation into ACS Systems, Inc. on May 14, 1998. 10 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 896,762 0 1,116,316 (219,554) 2,711,771 4,849,177 4,169,547 (1,111,016) 17,855,423 6,362,228 0 0 0 327,483 4,156,501 17,855,423 12,167,006 12,167,006 5,698,766 5,698,766 7,412,599 24,158 466,791 (1,435,308) 78,825 (1,356,483) 0 0 0 (1,356,483) (.32) (.32)
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