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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________to_________.
Commission file number: 0-8358
Micro General Corporation
(Exact name of registrant as specified in its charter)
Delaware 95-2621545
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1740 Wilshire Ave. Santa Ana, California 92705
(Address of principal executive offices) (Zip Code)
(714) 667-0557
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter periods that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [ X ] No [ ]
The number of shares outstanding of Common Stock, $.05 Par Value -
1,948,166 shares as of June 30, 1996.
<PAGE>
MICRO GENERAL CORPORATION
FORM 10-Q - QUARTER ENDED JUNE 30, 1996
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements.
Balance Sheets -- June 30, 1996 and
December 31, 1995 2
Statements of Operations -- Three months ended
June 30, 1996 and June 30, 1995. 3
Statements of Operations -- Six months ended
June 30, 1996 and June 30, 1995. 4
Statements of Cash Flows -- Six months ended
June 30, 1996 and June 30, 1995. 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K. 14
SIGNATURES 15
All other schedules are omitted as the required information is inapplicable
or the information is presented in the financial statements or notes
thereto.
<PAGE>
<TABLE>
MICRO GENERAL CORPORATION
Balance Sheets
June 30, 1996 and December 31, 1995
<CAPTION>
June 30,
1996 December 31,
(unaudited) 1995
------------ -------------
<S> <C> <C>
Assets
Current assets:
Cash $ 145,216 $ 35,222
Accounts and notes receivable, less allowance
for doubtful receivables and sales returns of
$38,500 at 6/30/96 and $46,594 at 12/31/95 221,841 349,991
Inventories (note 2) 1,198,843 1,324,109
Prepaid expenses and accrued interest 164,164 143,433
----------- -----------
Total current assets 1,730,064 1,852,755
Equipment and improvements, net (note 3) 166,909 193,691
Other assets, net (note 4) 24,598 37,822
----------- -----------
$1,921,571 $2,084,268
=========== ===========
Liabilities and Stockholders' Equity:
Current liabilities:
Note payable to bank (note 6) $ 300,000 $ 275,000
Accounts payable 67,644 51,278
Accrued expenses 168,358 164,545
Deferred revenue 38,505 21,677
----------- -----------
Total current liabilities 574,507 512,500
----------- -----------
Stockholders' equity:
Preferred stock, $.05 par value; 1,000,000 shares
authorized no shares issued and outstanding at
6/30/96 and 12/31/95. -- --
Common stock, $.05 par value; 10,000,000 shares
authorized 1,948,166 shares issued at 6/30/96
and 1,948,166 shares at 12/31/95 (note 1) 97,408 97,408
Additional paid-in capital 4,174,508 4,174,508
Accumulated deficit (2,924,852) (2,700,148)
----------- -----------
Total stockholders' equity 1,347,064 1,571,768
----------- -----------
$1,921,571 $2,084,268
=========== ===========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
MICRO GENERAL CORPORATION
Statements of Operations
For the Three Months Ended June 30, 1996 and June 30, 1995
(Unaudited)
<CAPTION>
June 30, June 30,
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Product sales, net of returns of $42,676 in 1996
and $103,544 in 1995 $ 223,865 $ 411,713
Service and rate revenues 40,409 253,283
----------- -----------
Total revenues 264,274 664,996
Cost of sales:
Net product sales 253,557 298,015
Service and rate revenues 43,334 80,657
----------- -----------
Total cost of sales 296,891 378,672
----------- -----------
Gross profit (loss) (32,617) 286,324
Operating expenses:
Selling, general and administrative 350,442 411,375
Engineering 19,861 91,151
Research and development 124,012 108,013
Provision for doubtful receivables 4,000 4,000
----------- -----------
Total operating expenses 498,315 614,539
Operating (loss) (530,932) (328,215)
Interest income (expense), net (4,792) 793
----------- -----------
Loss before income taxes (535,724) (327,422)
Income taxes (note 5) 0 0
----------- -----------
Net loss $ (535,724) $ (327,422)
=========== ===========
Net income per common and common equivalent share
(note 1) $ (0.27) $ (0.17)
=========== ===========
Weighted average shares outstanding (note 1) 1,948,166 1,948,166
=========== ===========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
MICRO GENERAL CORPORATION
Statements of Operations
For the Six Months Ended June 30, 1996 and June 30, 1995
(Unaudited)
<CAPTION>
June 30, June 30,
1996 1995
----------- ----------
<S> <C> <C>
Revenues:
Product sales, net of returns of $83,126
in 1996 and $209,878 in 1995 $ 541,975 $ 964,886
Service and rate revenues 1,192,687 1,873,798
----------- -----------
Total revenues 1,734,662 2,838,684
Cost of sales:
Net product sales 572,426 797,993
Service and rate revenues 287,326 476,983
----------- -----------
Total cost of sales 859,752 1,274,976
----------- -----------
Gross profit 874,910 1,563,708
Operating expenses:
Selling, general and administrative 786,159 895,863
Engineering 35,624 212,478
Research and development 258,826 154,693
Provision for doubtful receivables 10,000 13,000
----------- -----------
Total operating expenses 1,090,609 1,276,034
----------- -----------
Operating profit (loss) (215,699) 287,674
Interest income (expense), net (8,205) 4,837
----------- -----------
Income (loss) before income taxes (223,904) 292,511
Income taxes (note 5) 800 0
----------- -----------
Net income (loss) $ (224,704) $ 292,511
=========== ===========
Net income per common and common equivalent
share (note 1) $ (0.12) $ 0.15
=========== ===========
Weighted average shares outstanding (note 1) 1,948,166 1,935,238
=========== ===========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
MICRO GENERAL CORPORATION
Statements of Cash Flows
For the Six Months Ended June 30, 1996 and June 30, 1995
(Unaudited)
<CAPTION>
June 30, June 30,
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (224,704) $ 292,511
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 41,473 49,002
Provision for losses on accounts receivable
and sales returns, net of write-offs (8,094) 12,817
Change in assets and liabilities:
Decrease in accounts receivable 136,243 221,492
Decrease in inventories 125,266 3,062
(Increase) decrease in prepaid expenses (19,931) 12,019
Increase (decrease) in accounts payable 16,555 (223,704)
Increase (decrease) in deferred revenue 16,828 (8,973)
Increase in accrued expenses 2,823 3,423
----------- -----------
Total adjustments 311,163 69,138
Net cash provided by operating activities 86,459 361,649
Cash flows used in investing activities--capital
expenditures (1,465) (39,510)
Cash flows from financing activities:
Common stock proceeds, net 0 65,625
Proceeds from note payable to bank 175,000 0
Repayment of note payable to bank (150,000) 0
----------- -----------
Net cash provided by financing activities 25,000 65,625
----------- -----------
Net increase in cash 109,994 387,764
Cash - beginning of year 35,222 152,848
----------- -----------
Cash - end of period $ 145,216 $ 540,612
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 8,205 $ 0
=========== ===========
Income taxes $ 800 $ 0
=========== ===========
<FN>
See accompanying notes to financial statements
</TABLE>
<PAGE>
MICRO GENRAL CORPORATION
FORM 10-Q - QUARTER ENDED JUNE 30, 1996
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.
The financial statements presented include, in the opinion of
management, all adjustments (consisting only of normal recurring
adjustments) necessary for fair presentation of the results of
operations for the periods presented.
The results of operations for the three months and six months ended
June 30, 1996, are not necessarily indicative of results that may be
expected for any other interim period or for the full year ending
December 31, 1996.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market (net realizable value).
Equipment and Improvements
Equipment and improvements are stated at cost. Depreciation and
amortization are provided using the straight-line method over the
estimated useful life of the equipment and improvements.
Net Income (Per Common Share)
Net income per common share is computed based on weighted average of
common shares outstanding. The potential exercise of stock options is
not included in the computation of net earnings per common share since
the effect would be less than 3% for the periods presented.
Income Taxes
The Company accounts for income taxes in accordance with Statements of
Financial Accounting Standards No. 109 ("Statement 109"), "Accounting
for Income Taxes." Statement 109 provides that deferred tax assets and
liabilities be recognized for temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities and expected benefits of utilizing net operation loss and
credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which temporary differences are expected to be recovered or
settled. The impact on deferred taxes of changes in tax rates and
laws, if any, are applied to the years during which temporary
differences are expected to be settled and reflected in the financial
statements in the period enacted. The cumulative effect on the
adoption of Statement 109 was not material at June 30, 1996, nor to the
results of operations for the year ended December 31, 1995.
<PAGE>
Warranties
The Company's products are sold with a ninety-day warranty on materials
and workmanship. Estimated warranty costs based on historical
experience are accrued as an expense at the time the products are sold.
Intangible Assets
Intangible assets are classified under other assets and are amortized
on a straight-line basis over periods ranging from 10 to 15 years (see
note 4).
Deferred Revenue
The Company collects fees from its customers in anticipation of future
rate changes. Customers prepaying future rate changes receive memory
chips with the new tariffs without paying an additional charge. Rate
change fees are recorded as revenue on a pro rata basis over the
prepaid period.
Revenue Recognition
Product sales are recorded by the Company when products are shipped to
dealers and customers. Rate change revenues are recorded by the
Company at the time memory chips are reprogrammed with new tariffs and
shipped to the customer.
Sales Returns
The majority of the Company's product sales are to its authorized
dealers who resell the Company's products. The Company's policy is
that all sales are final, but dealers may, at the Company's sole
discretion and subject to a restocking fee, return certain out-of-
warranty products in exchange for products of comparable sales value.
Additionally, dealers may, at the Company's sole discretion, be
permitted to return their unopened inventory in the event they or the
Company terminate their dealership agreement, again subject to a
restocking fee. Upon acceptance of returned goods, the Company
reconditions the goods, at a nominal cost, and restocks them in
inventory to be sold at a later date. The Company provides an
allowance for such returns equal to the estimated gross profit on the
portion of sales estimated to be returned. This specific allowance is
a component of the Company's allowance for doubtful receivables and
sales returns.
Financial Instruments
The carrying amount of cash, accounts and notes receivable, prepaid
expenses, other asses, accounts payable, accrued expenses, notes
payable to bank and deferred revenue are measured at cost which
approximates their fair value due to the short maturity of these
instruments.
<PAGE>
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Rate change revenue
From time to time, the United State Postal Service ("USPS") and/or
United Parcel Service ("UPS") change their rates. For a fee, the
Company provides its customers with programmable memory chips with the
new tariffs which can be inserted into the Company's products. In some
instances, customers prepay a fee to the Company which assures they
will receive new programmable memory chips for all rate changes which
occur within a predetermined period. In other instances, customers
incur a fee for each time they decide to procure a new programmable
memory chip.
Note 2. Inventories
Inventories are comprised of the following at June 30, 1996 and
December 31, 1995:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
Parts & supplies $ 798,609 $ 919,459
Purchased finished goods 366,582 372,763
Consigned inventory 33,652 31,887
------------- -----------------
$ 1,198,843 $1,324,109
============= =================
</TABLE>
Note 3. Equipment and Improvements
Equipment and improvements are as follows at June 30, 1996 and
December 31, 1995:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
Production equipment, tooling
and construction in process $ 434,848 $ 432,902
Office furniture and
equipment 557,165 563,557
Leasehold improvements 36,518 30,606
------------- -----------------
1,028,531 1,027,065
Less accumulated depreciation
and amortization 861,622 833,374
------------- -----------------
$ 166,909 $ 193,691
============= =================
</TABLE>
<PAGE>
Note 4. Other Assets
Other assets are as follows at June 30, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
Estimated
Useful Life 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
Excess cost of assets purchased
over fair market value 15 years $232,531 $232,531
License rights 10 years 41,382 41,382
Other intangible assets 15 years 23,388 23,388
--------- ---------
297,301 297,301
Less accumulated amortization 272,703 259,479
--------- ---------
$ 24,598 $ 37,822
========= =========
</TABLE>
Note 5. Income Taxes
Income tax for the three months ended June 30, 1996 represents the
state of California minimum tax.
The expected income tax expense (benefit) computed by multiplying
earnings (loss) before income tax expense by the statutory Federal
income tax rate of 34% differs from the actual income tax expense
as follows:
<TABLE>
<CAPTION>
June 30, June 30,
1996 1995
------------ ------------
<S> <C> <C>
Expected tax expense $ (76,399) $ 99,454
Utilization of net operating
loss carryforward 73,399 (102,454)
Nondeductible amortization of the
excess cost of assets purchased
over fair market value 3,000 3,000
State income taxes 800 -
------------ ------------
$ 800 $ 0
============ ============
</TABLE>
At both June 30, 1996 and December 31, 1995, the Company had
available net operating loss carryforwards of approximately
$1,839,000 and $217,000 for Federal and state income tax purposes,
respectively. If not used to offset future taxable income, the net
operating loss carryforwards will expire at various years through
2010. The Company also has investment tax credit and research and
experimentation credit carryforwards aggregating approximately
$85,000 which expire during the period 1996 to 2002.
<PAGE>
Note 6. Notes Payable
The Company had a line of credit which was secured by substantially
all of the Company's assets and could not exceed 70% of qualifying
accounts receivable plus 40% of qualifying inventory up to a
maximum credit line of $600,000. The interest rate on the line of
credit was at the bank's prime rate plus 2.0%. At June 30, 1996
and December 31, 1995 the Company was either in compliance with all
financial covenants or had obtained waivers of such covenants from
the bank. The credit line expired July 31, 1996. On August 1,
1996, the Company paid the outstanding amount due on the line of
credit in full.
On August 1, 1996, the Company entered into a $3 million financing
agreement 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. Two 9-1/2%, five-year convertible notes were
issued, one in the amount of $1 million and one in the amount of
$2 million, and are held by Fidelity National Financial, Inc., a
Delaware corporation and thirty-eight (38%) percent holder of Micro
General common stock and Dito Caree L.P. Holding, a Nevada
corporation which owns five (5%) of the common stock of Micro
General, respectively. Repayment of the notes is on an interest
only basis for the first two years, with subsequent principal and
interest payments for the remaining 3 years of the term. The
Company can draw against the Notes in an amount up to $750,000 on a
quarterly basis over the next twelve months commencing August 1,
1996, if in compliance with certain restrictive covenants. The
debt, secured by the assets of the Company, can be converted into
1,344,438 shares of the Company's common stock at a range of $2.00
to $2.50 per share.
Note 7. Commitments and Contingencies
Noncancelable operating lease commitments consisted principally of
the leases for the Company's manufacturing and administrative
facility in California and it's research and development facility
in Connecticut. At June 30, 1996, the Company is committed to the
following noncancelable operating lease payments:
<TABLE>
<CAPTION>
Year ending December
<S> <C>
1996(six months) 68,000
1997 145,000
1998 124,000
1999 29,000
----------
$ 366,000
==========
</TABLE>
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.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Total net product sales decreased $187,848 or 46% for the three months
ended June 30, 1996 ("Q2 1996") compared to the three months ended June
30, 1995 ("Q2 1995") while service and rate change revenues decreased
$212,874 or 84% for the same period. The decrease in net product sales is
due to both a decrease in the retail channel of $53,642 or 58% and a
decrease in the dealer channel of $134,206 or 42% as compared to Q2 1995.
For Q2 1996 and Q2 1995, service and rate change revenues represented
approximately 15% and 38% of total revenue, respectively.
Total net product sales decreased $422,911 or 44% for the six months
ended June 30, 1996 ("YTD 1996") compared to the six months ended June 30,
1995 ("YTD 1995") while service and rate change revenues decreased $681,111
or 36%. The decrease in net product sales is due to both a decrease in the
retail channel of $252,797 or 70% and a decrease in the dealer channel of
$170,114 or 28% as compared to YTD 1995. For YTD 1996 and YTD 1995,
service and rate change revenues represented approximately 69% and 66% of
total revenue, respectively. The decrease in rate change revenues for Q2
1996 and YTD 1996 as compared to the same period in 1995, was primarily
due to only a UPS rate change in 1996 as compared to both a UPS and USPS
rate change in 1995. The decrease in the retail channel is a direct result
of fewer orders by a major catalog wholesaler as compared to the prior
period. The Company is continuing to seek other sources of retail
distribution to increase sales in this channel. The dealer channel sales
decrease continues to be 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.
Q2 1996 cost of sales for product sales decreased $83,805 or 39% as
compared to the same period in 1995. YTD 1996 cost of sales for product
sales decreased $215,265 or 41% as compared to the same period in 1995.
The decrease in both periods was due to a change in product mix and a
decrease in overall product sales. The Q2 1996 service and rate change
revenue costs decreased $39,090 or 47% as compared to the same period in
1995, while YTD 1996 service and rate change revenue costs decreased
$193,564 or 40%. The cost of goods decrease is due to a decrease in service
and rate change revenues for the same period.
Gross margin YTD 1996 was 50% compared to 55% for the same period the
prior year. This decrease in the gross margin is due to lower total
product sales.
Operating expenses of the Company in Q2 1996 of $503,107 showed a 18%
decrease as compared to Q2 1995, while YTD 1996 operating expenses of
$1,098,814 showed a 14% decrease as compared to the same period in 1995.
This decrease is a result of a decrease in both selling, general and
administrative, and engineering and development expense due to cost
controls and restructuring of the Company. While expenses are expected to
be reduced 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 high-security postage meter project.
<PAGE>
The decrease in YTD 1996 net earnings of $517,215 or 177% as compared
to the same period in 1995, is primarily a result of the decreases in both
product sales and in rate change revenue described above and a significant
increase in research and development costs. The loss experienced in the
second quarter is due to a decrease in product sales and reduced rate
change revenue. Additionally, there was a significant increase in research
and development expenses related to the Company's ongoing development of a
series of postage meters designed to comply with the new USPS proposed
regulations. A prototype of the Company's new high-level security postage
meter is currently under development.
Financial Condition, Liquidity and Capital Resources
The Company's ability to generate cash depends on rate change revenue,
the sale of inventory and collection of accounts receivable. The Company's
June 30, 1996 cash balance increased $145,216 from December 31, 1995. The
increase is primarily attributable to the cash generated from amounts
borrowed against the Company's line of credit. The Company's June 30,
1996 net accounts receivable balance decreased $128,150 or 37% from
December 31, 1995 levels. This decrease is due to a decrease in product
sales for the YTD 1996 period.
Working capital was $1,155,557 at June 30, 1996 as compared to
$1,340,255 at December 31, 1995. The Company's current ratio at June 30,
1996 was 3.0 as compared to 3.6 at December 31, 1995. This change is a
result of lower accounts receivable balances at June 30, 1996 due to the
lower YTD 1996 Company sales and slightly higher liabilities at June 30,
1996 which is due to an increase in notes payable to bank.
The Company's total inventories decreased 125,266 or 9% at June 30,
1996 as compared to December 31, 1995. This decrease is due to product
sales during the six months ended June 30, 1996.
The Company had available liquidity through a line of credit agreement
with a bank at June 30, 1996 (See note 6, of Notes to the Financial
Statements). On August 1, 1996, the Company entered into a $3 million
financing agreement 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. Two
9-1/2%, five-year convertible notes were issued, one in the amount of $1
million and one in the amount of $2 million, and are held by Fidelity
National Financial, Inc., a Delaware corporation and thirty-eight (38%)
percent holder of Micro General common stock and Dito Caree L.P. Holding, a
Nevada corporation which owns five (5%) of the common stock of Micro
General, respectively. Repayment of the notes is on an interest only basis
for the first two years, with subsequent principal and interest payments
for the remaining 3 years of the term. The Company can draw against the
Notes in an amount up to $750,000 on a quarterly basis over the next twelve
months commencing August 1, 1996, if in compliance with certain restrictive
covenants. The debt, secured by the assets of the Company, can be converted
into 1,344,438 shares of the Company's common stock at a range of $2.00 to
$2.50 per share.
It is the Company's belief that through cash flow from operations and
the aforementioned convertible notes, adequate liquidity will be available
through the remainder of 1996. At June 30, 1996 and December 31, 1995, the
Company was in compliance with all financial covenants associated with the
line of credit agreement or has obtained waivers.
<PAGE>
The Company's YTD 1996, current liabilities have increased 12%
compared to the December 31, 1995 balances. This is associated with an
increase in the Company's note payable to bank as compared to the December
31, 1995 balance.
The Company's investment in capital expenditures during six months
ended June 30, 1996 were not 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.
Impact of Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board issued a new
statement titled "Accounting for Impairment of Long-Lived Assets." In
October 1995, the Financial Accounting Standards Board issued a new
statement titled "Accounting for Stock-Based Compensation" (FASB 123). The
new statements are effective for fiscal years beginning after December 15,
1995. The Company does not believe that adoption of the new standards will
have a material effect on the financial statements.
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a. The Annual Meeting of Stockholders was held on May 21, 1996.
b. Voting for the election of Directors at said meeting was duly and
properly conducted by ballot. The following five persons were
duly nominated, and each received the number of votes shown
opposite his name and was elected a Director.
<TABLE>
<CAPTION>
For Withheld
Continuing
<S> <C> <C>
John J. Cahill 1,675,927 332
William P. Foley II 1,675,927 332
George E. Olenik 1,675,927 332
Thomas E. Pistilli 1,675,927 332
Carl A. Strunk 1,675,927 332
</TABLE>
c. Voting on the proposal to amend the Company's Certificate of
Incorporation to increase the number of shares of Common Stock
which the Company is authorized to issue from 4,000,000 to
10,000,000. There were 1,639,189 votes cast for the proposal,
32,648 votes cast against the proposal, 422 abstentions, and
4,000 broker non-votes. The vote for the amendment constituted a
majority of the shares outstanding and the amendment was
therefore approved.
ITEM 5. OTHER INFORMATION
On August 1, 1996, the Company entered into a $3 million financing
agreement 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. Two 9-1/2%, five-year convertible notes were
issued, one in the amount of $1 million and one in the amount of
$2 million, and are held by Fidelity National Financial, Inc., a
Delaware corporation and thirty-eight (38%) percent holder of Micro
General common stock and Dito Caree L.P. Holding, a Nevada
corporation which owns five (5%) of the common stock of Micro
General, respectively. Repayment of the notes is on an interest
only basis for the first two years, with subsequent principal and
interest payments for the remaining 3 years of the term. The
Company can draw against the Notes in an amount up to $750,000 on a
quarterly basis over the next twelve months commencing August 1,
1996, if in compliance with certain restrictive covenants. The
debt, secured by the assets of the Company, can be converted into
1,344,438 shares of the Company's common stock at a range of $2.00
to $2.50 per share.
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, 1996.
<PAGE>
MICRO GENERAL CORPORATION
10-Q -- QUARTER ENDED JUNE 30, 1996
PART II - SIGNATURES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
MICRO GENERAL CORPORATION
Date: August 13, 1996 /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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