<PAGE> 1
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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, 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)
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 [ ]
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 August 14, 1998.
Exhibit Index appears on page 11 of 11 sequentially numbered pages.
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<PAGE> 2
MICRO GENERAL CORPORATION
FORM 10-Q - QUARTER ENDED JUNE 30, 1998
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements.
<TABLE>
<S> <C>
A. Condensed Consolidated Balance Sheets as of June 30, 1998 2
and December 31, 1997.
B. Condensed Consolidated Statements of Operations for the three 3
months ended June 30, 1998 and June 30, 1997.
C. Condensed Consolidated Statements of Operations for the six 4
months ended June 30, 1998 and June 30, 1997.
D. Condensed Consolidated Statements of Cash Flows for the six 5
months ended June 30, 1998 and June 30, 1997.
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.-5. of Part II have been omitted because they are not applicable
with respect to the current reporting period.
Item 6. Exhibits and Reports on Form 8-K. 11
</TABLE>
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/ Anthony J. Park Date: August 14, 1998
----------------------------
Anthony J. Park
Vice President and Chief Financial Officer
1
<PAGE> 3
MICRO GENERAL CORPORATION
Condensed Consolidated Balance Sheets
June 30, 1998 and December 31, 1997
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash $ 1,234,527 $ 318,845
Accounts and notes receivable, less allowance for
doubtful receivables and sales returns of $193,950 at 6/30/98
and $16,141 at 12/31/97 900,538 97,223
Inventories 2,615,114 853,033
Prepaid expenses and other assets 967,156 264,970
------------ ------------
Total current assets 5,717,335 1,534,071
------------ ------------
Equipment and improvements, net 2,221,406 209,351
Other assets, net 33,750 41,250
Capitalized software and postage meter development costs 3,475,783 1,054,865
Intangibles, less accumulated amortization of $215,372 at 6/30/98 6,470,316 --
------------ ------------
$ 17,918,590 $ 2,839,537
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses 2,654,189 367,246
Income taxes payable 17,554 --
Deferred tax liability 524,098 --
Deferred revenue 15,486 6,112
Current portion of long-term debt with affiliates 250,000 250,000
Notes payable with affiliates 1,350,000 600,000
------------ ------------
Total current liabilities 4,811,327 1,223,358
------------ ------------
Long-term debt with affiliates 2,750,000 2,750,000
Note payable due to affiliate 4,907,272 --
Shareholders' equity:
Preferred stock, $.05 par value; 1,000,000 shares authorized
no shares issued and outstanding at 6/30/98 and 12/31/97 -- --
Common stock, $.05 par value; 10,000,000 shares authorized
6,549,666 shares issued at 6/30/98 and 1,949,666 shares
issued at 12/31/97 327,483 97,483
Additional paid-in capital 10,920,658 4,176,370
Accumulated deficit (5,798,150) (5,407,674)
------------ ------------
5,449,991 (1,133,821)
------------ ------------
$ 17,918,590 $ 2,839,537
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 4
MICRO GENERAL CORPORATION
Condensed Consolidated Statements of Operations
For the Three Months Ended June 30, 1998 and June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
----------- -----------
<S> <C> <C>
Revenues:
Postal product sales $ 179,468 $ 178,267
Postal service and rate change revenues 38,994 91,203
Software sales and maintenance, including $458,531
with affiliates 617,402 --
Hardware sales and maintenance, including $2,197,151
with affiliates 2,633,675 --
Consulting revenue, including $406,702 with
affiliates 454,759 --
Servicing revenue, including $186,211 with
affiliates 216,737 --
Telecommunication revenue, including $63,755
with affiliates 163,057 --
Other operating revenue, including $8,096 with
affiliates 68,580 --
----------- -----------
Total revenues 4,372,672 269,470
----------- -----------
Cost of sales:
Postal product sales 199,225 227,343
Postal service and rate change revenues 24,474 50,688
Cost of hardware and software 2,162,802 --
----------- -----------
Total cost of sales 2,386,501 278,031
----------- -----------
Gross profit (loss) 1,986,171 (8,561)
Operating expenses:
Selling, general and administrative 2,186,958 347,172
Engineering and development 55,523 66,985
Amortization of goodwill and software development costs 92,371 --
----------- -----------
Total operating expenses 2,334,852 414,157
----------- -----------
Operating loss (348,681) (422,718)
Interest expense (115,603) (37,561)
----------- -----------
Loss before income taxes (464,284) (460,279)
Income taxes 17,554 --
----------- -----------
Net loss $ (481,838) $ (460,279)
=========== ===========
Basic loss per share $ (0.11) $ (0.24)
=========== ===========
Weighted average shares outstanding - basic basis 4,325,490 1,949,666
=========== ===========
Diluted loss per share $ (0.11) $ (0.24)
=========== ===========
Weighted average shares outstanding - diluted basis 4,325,490 1,949,666
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 5
MICRO GENERAL CORPORATION
Condensed Consolidated Statements of Operations
For the Six Months Ended June 30, 1998 and June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
----------- -----------
<S> <C> <C>
Revenues:
Postal product sales $ 458,442 $ 329,800
Postal service and rate change revenues 793,841 979,722
Software sales and maintenance, including $458,531
with affiliates 617,402 --
Hardware sales and maintenance, including $2,197,151
with affiliates 2,633,675 --
Consulting revenue, including $406,702 with
affiliates 454,759 --
Servicing revenue, including $186,211 with
affiliates 216,737 --
Telecommunication revenue, including $63,955
with affiliates 163,057 --
Other operating revenue, including $8,096
with affiliates 68,580 --
----------- -----------
Total revenues 5,406,493 1,309,522
----------- -----------
Cost of sales:
Postal product sales 473,899 475,599
Postal service and rate change revenues 202,599 345,346
Cost of hardware and software 2,162,802 --
----------- -----------
Total cost of sales 2,839,300 820,945
----------- -----------
Gross profit 2,567,193 488,577
Operating expenses:
Selling, general and administrative 2,569,247 666,836
Engineering and development 78,206 168,192
Amortization of goodwill and software development costs 92,371 --
----------- -----------
Total operating expenses 2,739,824 835,028
----------- -----------
Operating loss (172,631)
(346,451)
Interest expense (199,491) (69,437)
----------- -----------
Loss before income taxes (372,122) (415,888)
Income taxes 18,354 800
----------- -----------
Net loss $ (390,476) $ (416,688)
=========== ===========
Basic loss per share $ (0.12) $ (0.21)
=========== ===========
Weighted average shares outstanding - basic basis 3,144,141 1,949,584
=========== ===========
Diluted loss per share $ (0.12) $ (0.21)
=========== ===========
Weighted average shares outstanding - diluted basis 3,144,141 1,949,584
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE> 6
MICRO GENERAL CORPORATION
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1998 and June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (390,476) $ (416,688)
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 92,370 17,922
Provision for losses on accounts receivable
and sales returns, net of write-offs -- (615)
Change in assets and liabilities:
Decrease in accounts receivable 1,856,349 24,130
(Increase) decrease in inventories (50,407) 146,603
Increase in prepaid expenses (699,516) (63,987)
Increase (decrease) in accounts payable and accrued expenses 699,787 (32,964)
Capitalized software and postage meter development costs (499,878)
(291,256)
Increase (decrease) in deferred revenue 9,374 (16,119)
Increase in taxes payable 17,554 --
----------- -----------
Total adjustments 1,425,633 (216,286)
----------- -----------
Net cash provided by (used in) operating activities 1,035,157 (632,974)
Cash flows used in investing activities:
Additions to property and equipment (767,536) (7,503)
----------- -----------
Net cash used in investing activities (767,536) (7,503)
Cash flows from financing activities:
Exercise of stock options -- 687
Proceeds from notes payable 750,000 450,000
Repayment of note payable to bank (101,939) --
----------- -----------
Net cash provided by financing activities 648,061 450,687
----------- -----------
Net increase (decrease) in cash 915,682 (189,790)
Cash - beginning of period 318,845 413,533
----------- -----------
Cash - end of period $ 1,234,527 $ 223,743
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 155,033 $ 74,961
=========== ===========
Income taxes $ 800 $ 800
=========== ===========
Non-cash transactions:
Stock issued in connection with the acquisition of
ACS Systems, Inc. $ 6,974,288 $ --
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
<PAGE> 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 80% 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
<PAGE> 8
Pro forma results assuming the acquisition of ACS had occurred on
January 1, 1998, and January 1, 1997, are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------------
JUNE 30, 1998 JUNE 30, 1997
---------------- -------------
<S> <C> <C>
Revenue $ 11,902,000 $ 7,197,000
================ ===========
Net loss $ (398,000) $ (568,000)
================ ===========
Net loss per share - basic $ (0.06) $ (0.09)
================ ===========
Weighted average shares outstanding - basic 6,549,666 6,549,584
================ ===========
Net loss per share - diluted (2) $ (0.06) $ (0.09)
================ ===========
Weighted average shares outstanding - diluted (2) 6,549,666 6,549,584
================ ===========
</TABLE>
(1) Included in the 1998 pro forma earnings is $675,000 of income related
to charges incurred by ACS in managing the FNFI information services
department that were not properly charged back to FNFI until the current
period.
(2) 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 six-month periods ended June
30, 1998 were $3,321,000, representing 75.9% and 61.4% of total revenue,
respectively. Trade accounts receivable with affiliates of $3,718,000 has
been offset against accounts payable and accrued expenses with the same
affiliates of $3,716,000, with the minor difference applied to note
payable due to affiliate.
Included in notes payable and long-term debt at June 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 June 30, 1998 is $900,000 and $2,000,000, respectively,
due to Dito Caree L.P. Holding, an affiliate.
NOTE 4.
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
<PAGE> 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 six-month periods ended June
30, 1998 and 1997. Included in the second quarter and six-month period
ended June 30, 1998 is 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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------
JUNE 30, 1998 JUNE 30, 1997
--------------------------------------------------- -----------
Postal Postal
Division ACS Total Division
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 219,000 $ 4,154,000 $ 4,373,000 $ 269,000
Cost of sales 224,000 2,163,000 2,387,000 278,000
----------- ----------- ----------- -----------
Gross profit (loss) (5,000) 1,991,000 1,986,000 (9,000)
Operating expenses 383,000 1,952,000 2,335,000 414,000
Interest expense 85,000 31,000 116,000 38,000
Income tax expense -- 18,000 18,000 --
----------- ----------- ----------- -----------
Net loss $ (472,000) $ (10,000) $ (482,000) $ (460,000)
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------------------------------------------------
JUNE 30, 1998 JUNE 30, 1997
--------------------------------------------------- -----------
Postal Postal
Division ACS Total Division
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 1,252,000 $ 4,154,000 $ 5,406,000 $ 1,310,000
Cost of sales 676,000 2,163,000 2,839,000 821,000
----------- ----------- ----------- -----------
Gross profit 576,000 1,991,000 2,567,000 489,000
Operating expenses 788,000 1,952,000 2,740,000 835,000
Interest expense 168,000 31,000 199,000 69,000
Income tax expense -- 18,000 18,000 1,000
----------- ----------- ----------- -----------
Net loss $ (380,000) $ (10,000) $ (390,000) $ (416,000)
=========== =========== =========== ===========
</TABLE>
(1) The ACS division is included in the Company's historical financial
statements for 47 days during the second quarter of 1998 and excluded
entirely from 1997 results.
8
<PAGE> 10
Total revenue for the quarter ended June 30, 1998 increased 1,525.7% to
$4,373,000 from $269,000 for the second quarter of 1997. Total revenue
for the six months ended June 30, 1998 increased 312.7% to $5,406,000
from $1,310,000 for the comparable 1997 period. The ACS contribution for
the three and six-month periods ended June 30, 1998 was $4,154,000, or
95.0% and 76.8% of total revenue, respectively. Excluding the ACS
contribution, total revenue for the second quarter decreased by $50,000,
or 18.6%, which reflects the decrease in postal service and rate change
business. Postal product sales were consistent in the quarter over
quarter comparison.
Total revenue for the six months ended June 30, 1998 excluding the ACS
contribution decreased by $58,000, or 4.4%, which reflects the increase
in postal product sales during the first quarter of 1998 offset by a
decrease in service and rate change revenues. Product sales increased by
$128,000, or 38.8%, while service and rate change revenues decreased by
$186,000, or 19.0%, comparing the six-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 revenues relates to the decline in the Company's installed product
base as more scale-based systems are being replaced by free service
provider systems and computer-based systems.
Cost of sales for the second quarter of 1998 increased 758.6% to
$2,387,000 from $278,000 in the 1997 second quarter. For the six months
ended June 30, 1998 cost of sales increased to $2,839,000, a 245.8%
increase from $821,000 for the comparable 1997 period. Included in cost
of sales for the three and six-month periods ended June 30, 1998 is
$2,163,000, or 90.6% and 76.2% of total cost of sales, respectively,
relating to the operations of ACS. See Note 2. Excluding the cost of
sales related to ACS, cost of sales decreased $54,000 and $145,000 for
the three and six months ended June 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 second quarter of 1998 increased to
$2,335,000, an increase of $1,921,000, or 464.0%, from $414,000 in the
1997 second quarter. For the six-month period ended June 1998 operating
expenses were $2,740,000, an increase of $1,905,000, or 228.1% over
operating expenses of $835,000 for the comparable 1997 period. Excluding
ACS operating expenses of $1,952,000, or 83.6% and 71.2% of total
operating expenses for the three and six-month periods ended June 1998,
respectively, operating expenses decreased $31,000 in the second quarter
and $47,000 for the six-month period ended June 30, 1998 due to a further
decrease in operating expenses of $16,000 during the first quarter of
1998. The first quarter 1998 decrease represents a minor increase in
selling, general and administrative expenses offset by a decrease in
postage meter development expenses as more development costs were
capitalized. The second quarter 1998 decrease reflects increased sales
expense associated with a concerted effort to market the new products and
to stimulate interest in the postage meter, offset by a decrease in
certain general and administrative salaries, consulting fees and an
increase in capitalized postage meter development costs.
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 second quarter of 1998 increased 205.3% to $116,000 from $38,000
in the 1997 second quarter. For the six months ended June 1998, interest
expense increased $130,000, or 188.4%, to $199,000 from $69,000 in the
same 1997 period. Excluding the interest expense related to ACS of
$31,000, or 26.7% and 15.6% of total interest expense for the three and
six-month periods ended June 30, 1998, respectively, interest expense
increased $47,000, or 123.7%, and $99,000, or 143.5%, for those periods.
The increase in interest expense for the three and six-month periods
ended June 1998 as compared to the 1997 periods reflects the increase in
average debt balances of $2,467,000, to $4,267,000 for the quarter ended
June 1998 from $1,800,000 for the same 1997 quarter, and an increase of
$2,200,000, to $3,850,000 for the six months ended June 1998 compared to
$1,650,000 for the same 1997 period. The interest rates on the various
financing agreements are between 9% and 9.5% depending on convertibility
features and warrants.
Liquidity and Capital Resources
The Company's cash requirements include debt service, operating
expenses and potential acquisitions. The Company believes that all
anticipated cash requirements will be met from internally generated funds
and through
9
<PAGE> 11
existing credit facilities with affiliates. Cash provided by operating
activities exceeded cash used by operating activities by $1,035,000 for
the six months ended June 30, 1998, which compares favorably with cash
used in operating activities exceeding cash provided by operating
activities of $633,000 for the six months ended June 30, 1997. The
increase in cash from operations primarily relates to payments received
on accounts receivable from affiliates which were acquired in the
non-cash acquisition of ACS. Management believes that short-term
modifications of existing affiliate credit facilities 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.
10
<PAGE> 12
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.
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.
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,234,527
<SECURITIES> 0
<RECEIVABLES> 1,094,488
<ALLOWANCES> (193,950)
<INVENTORY> 2,615,114
<CURRENT-ASSETS> 5,717,335
<PP&E> 3,236,424
<DEPRECIATION> (1,015,018)
<TOTAL-ASSETS> 17,918,590
<CURRENT-LIABILITIES> 4,811,327
<BONDS> 0
0
0
<COMMON> 327,483
<OTHER-SE> 5,122,508
<TOTAL-LIABILITY-AND-EQUITY> 17,918,590
<SALES> 5,406,493
<TOTAL-REVENUES> 5,406,493
<CGS> 2,839,300
<TOTAL-COSTS> 2,839,300
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<INTEREST-EXPENSE> 199,491
<INCOME-PRETAX> (372,122)
<INCOME-TAX> 18,354
<INCOME-CONTINUING> (390,476)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (390,476)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
