<PAGE>   1

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-Q/A

(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)

2510 N. Redhill Avenue, 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 August 14, 1998.

Exhibit Index appears on page 11 of 11 sequentially numbered pages.




<PAGE>   2

                                  FORM 10-Q/A

                                QUARTERLY REPORT
                          QUARTER ENDED JUNE 30, 1998

                               TABLE OF CONTENTS

<TABLE>
<S>                                                                                                              <C>
   PART I. FINANCIAL INFORMATION

   Item 1.        Condensed Consolidated Financial Statements

          A.      Condensed Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997...............    3

          B.      Condensed Consolidated Statements of Operations for the three months ended
                     June 30, 1998 and June 30, 1997............................................................    4

          C.      Condensed Consolidated Statements of Operations for the six months ended
                     June 30, 1998 and June 30, 1997............................................................    5

          D.      Condensed Consolidated Statements of Cash Flows for the six months ended
                     June 30, 1998 and June 30, 1997............................................................    6

          E.      Notes to Condensed Consolidated Financial Statements..........................................    7

   Item 2.        Management's Discussion and Analysis of Financial Condition and Results of Operations.........    9

   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..............................................................   12

    SIGNATURES
</TABLE>

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/   Dale W. Christensen                             Date: March 13, 2000
      --------------------------------------------
      Dale W. Christensen
      Chief Financial Officer
      (Principal Financial and Accounting Officer)



                                       2
<PAGE>   3

                            MICRO GENERAL CORPORATION

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                                           JUNE 30,             DECEMBER 31,
                                                                             1998                   1997
                                                                         ------------           ------------
                                                                          (Restated)             (Restated)
<S>                                                                      <C>                    <C>
                                          ASSETS
Current assets:
       Cash                                                              $  1,234,527           $    830,784
       Accounts and notes receivable, less allowance for
          doubtful receivables and sales returns of $193,950
          at 6/30/98 and $321,844 at 12/31/97                                 883,225                183,340
       Trade accounts receivable due from affiliates                               --              4,234,765
       Inventories                                                          1,867,699                505,949
       Prepaid expenses and other assets                                      711,778                119,432
                                                                         ------------           ------------

                             Total current assets                           4,697,229              5,874,270
                                                                         ------------           ------------
Equipment and improvements, net                                             1,993,345                704,504
Other assets, net                                                              33,750                     --
Notes receivable                                                                   --                 31,776
Capitalized software development costs, less accumulated
   amortization of $2,429,936 at 6/30/98 and $2,065,596
   at 12/31/97                                                              1,870,059              2,170,072
Intangibles, less accumulated amortization of $476,871 at
   6/30/98 and $350,546 at 12/31/97                                         7,067,599              1,083,507
                                                                         ------------           ------------
                                                                         $ 15,661,982           $  9,864,129
                                                                         ============           ============

                           LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
       Accounts payable and accrued expenses                             $  2,654,189           $  1,243,975
       Income taxes payable                                                    17,554                     --
       Deferred tax liability                                                 524,098                361,726
       Deferred revenue                                                        15,486                     --
       Current portion of amounts and notes payable to affiliates           1,600,000                695,620
                                                                         ------------           ------------
            Total current liabilities                                       4,811,327              2,301,321

Amounts and notes payable to affiliates                                     7,657,272              5,431,417
                                                                         ------------           ------------
             Total liabilities                                             12,468,599              7,732,738

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 6,546,666 shares issued at
          6/30/98 and 12/31/97                                                327,333                327,333
       Additional paid-in capital                                           4,407,608              3,107,608
       Accumulated deficit                                                 (1,541,558)            (1,303,550)
                                                                         ------------           ------------
       Total stockholders' equity                                           3,193,383              2,131,391
                                                                         ------------           ------------
                                                                         $ 15,661,982           $  9,864,129
                                                                         ============           ============
</TABLE>

     The December 31, 1997 numbers were restated in the 1998 Form 10-K for
     the first time.

     See accompanying notes to condensed consolidated financial statements.



                                       3
<PAGE>   4

                            MICRO GENERAL CORPORATION

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                                  THREE MONTH PERIODS ENDED JUNE 30,
                                                                  ----------------------------------
                                                                     1998                  1997
                                                                  -----------           -----------
                                                                   (Restated)           (Restated)
<S>                                                               <C>                   <C>
Revenues:
       Software sales and maintenance                             $ 1,220,947           $   619,891
       Hardware                                                     4,406,447             2,162,009
       Service and license                                          1,189,456               535,180
       Telecommunication services                                     136,758                     -
                                                                  -----------           -----------
                   Total revenues                                   6,953,608             3,317,080
                                                                  -----------           -----------

Cost of sales:
       Software sales and  maintenance                                863,550               483,940
       Hardware                                                     3,965,803             1,687,320
       Service and license                                            618,400               416,654
       Telecommunication services                                     (13,697)                   --
                                                                  -----------           -----------

                   Total cost of sales                              5,434,056             2,587,914
                                                                  -----------           -----------
                   Gross profit                                     1,519,552               729,166
                                                                  -----------           -----------

Operating expenses:
       Selling, general and administrative                            931,663               622,446
       Amortization of goodwill and software development
          costs                                                       187,348               215,310
                                                                  -----------           -----------

                   Total operating expenses                         1,119,011               837,756
                                                                  -----------           -----------

                   Operating income (loss)                            400,541              (108,590)


Interest income (expense), net                                        (42,375)                3,229
                                                                  -----------           -----------

                   Earnings (loss) before income taxes                358,166              (105,361)

Income tax provision (benefit)                                        212,435               (41,408)
                                                                  -----------           -----------
                   Net earnings (loss)                            $   145,731           $   (63,953)
                                                                  ===========           ===========


Income (loss) per share:
       Basic                                                      $       .03           $      (.01)
                                                                  ===========           ===========
       Diluted                                                    $       .03           $      (.01)
                                                                  ===========           ===========

Number of shares used in per share computations:
       Basic                                                        5,603,970             4,597,000
                                                                  ===========           ===========

       Diluted                                                      5,823,136             4,597,000
                                                                  ===========           ===========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.



                                       4
<PAGE>   5

                            MICRO GENERAL CORPORATION

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                    SIX MONTH PERIODS ENDED JUNE 30,
                                                                  -----------------------------------
                                                                      1998                   1997
                                                                  ------------           ------------
                                                                   (Restated)             (Restated)
<S>                                                               <C>                    <C>
Revenues:
       Software sales and maintenance                             $  1,936,167           $  1,173,947
       Hardware                                                      5,914,614              3,814,445
       Service and license                                           2,034,334                893,861
       Telecommunication services                                      859,006                     --
                                                                  ------------           ------------
                   Total revenues                                   10,744,121              5,882,253
                                                                  ------------           ------------


Cost of sales:
       Software sales and maintenance                                1,523,227                905,035
       Hardware                                                      5,823,153              2,932,313
       Service and License                                           1,056,004                687,826
       Telecommunication services                                      364,717
                                                                  ------------           ------------

                   Total cost of sales                               8,767,101              4,525,174
                                                                  ------------           ------------

                   Gross profit                                      1,977,020              1,357,079
                                                                  ------------           ------------


Operating expenses:
       Selling, general and administrative                           1,848,672              1,159,652
       Amortization of goodwill and software development
          costs                                                        363,219                363,014
                                                                  ------------           ------------
                   Total operating expenses                          2,211,891              1,522,666
                                                                  ------------           ------------

                   Operating loss                                     (274,871)              (165,587)



Interest income (expense), net                                         (39,732)                 5,404
                                                                  ------------           ------------

                   Loss before income taxes                           (274,603)              (160,183)

Income tax (benefit)                                                   (36,595)               (76,844)
                                                                  ------------           ------------
                   Net  loss                                      $   (238,008)          $    (83,339)
                                                                  ============           ============


Loss per share:
       Basic                                                      $       (.05)          $       (.02)
                                                                  ============           ============
       Diluted                                                    $       (.05)          $       (.02)
                                                                  ============           ============

Number of shares used in per share computations:
       Basic                                                         5,103,267              4,597,000
                                                                  ============           ============
       Diluted                                                       5,103,267              4,597,000
                                                                  ============           ============
</TABLE>


     See accompanying notes to condensed consolidated financial statements.



                                       5
<PAGE>   6

                            MICRO GENERAL CORPORATION

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                                            SIX MONTH PERIODS ENDED JUNE 30,
                                                                            --------------------------------
                                                                                 1998              1997
                                                                              -----------      -----------
                                                                              (Restated)        (Restated)
<S>                                                                           <C>              <C>
Cash flows from operating activities:
       Net loss                                                               $  (238,008)     $   (83,339)
       Adjustments to reconcile net loss to net cash provided by
              (used in) operating activities:
                   Depreciation and amortization                                  545,075          363,014

       Change in assets and liabilities:
              Trade accounts receivable                                          (568,027)        (330,385)
              Inventories                                                        (991,750)        (116,704)
              Prepaid expenses and other assets                                  (626,096)          28,167
              Accounts payable and accrued expenses                               805,534         (438,075)
              Deferred revenue                                                     (4,100)              --
              Taxes payable                                                       187,018               --
                                                                              -----------      -----------

              Total adjustments                                                  (652,346)        (493,983)
                                                                              -----------      -----------

                   Net cash provided by (used in) in operating activities        (890,754)        (577,322)
                                                                              -----------      -----------


Cash flows used in investing activities:
       Purchase of equipment and improvements                                  (1,343,251)              --
       (Increase) decrease in notes receivable                                     31,776          (39,673)
       Capitalization of software development costs                               (64,327)        (354,024)
       Merger of Micro General Corporation and ACS                                403,175               --
                                                                              -----------      -----------
                   Net cash used in investing activities                         (972,627)        (393,697)
                                                                              -----------      -----------

Cash flows from financing activities:
       Net increase in borrowings from affiliates                               2,266,724        1,318,860
                                                                              -----------      -----------
                   Net cash provided by financing activities                    2,266,724        1,318,860
                                                                              -----------      -----------
Net increase  in cash                                                             403,743          347,841

Cash - beginning of period                                                        830,784               --
                                                                              -----------      -----------
Cash - end of period                                                          $ 1,234,527      $   347,841
                                                                              ===========      ===========


Supplemental disclosures of cash flow information:
Cash paid during the period for:
              Interest                                                        $    23,750      $        --
                                                                              ===========      ===========
              Income taxes                                                    $        --      $        --
                                                                              ===========      ===========

Non-cash transactions:
Merger of Micro General Corporation and ACS                                   $ 1,300,000
                                                                              ===========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.


                                       6
<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.

    The accompanying financial statements have been restated from those included
in the Company's original filing on Form 10-Q for the quarterly period ended
June 30, 1998. The restatement was the result of a correction of the accounting
method used to account for the merger of the Company and ACS. In the original
filing, the Company incorrectly accounted for the merger as an acquisition of
ACS, rather than a reverse merger (see note 2). Below are selected summary
restated results compared to amounts originally reported.

<TABLE>
<CAPTION>
                        3 months
                     as originally           3 months
                        reported            as restated
                     -------------          -----------
<S>                  <C>                    <C>
Revenue               $ 4,372,672           $ 6,953,608

Net income (Loss)        (481,838)              145,731

Earnings (loss per
 Share                      (0.11)                 0.03

Total Assets           17,918,590            15,661,982

Shareholders' Equity    5,449,991             3,193,383
</TABLE>

<TABLE>
<CAPTION>
                        6 months
                     as originally           6 months
                        reported            as restated
                     -------------          -----------
<S>                  <C>                    <C>
Revenue               $ 5,406,483           $10,744,121

Net income (Loss)        (390,476)             (238,008)

Earnings (loss) per
  Share                     (0.12)                (0.05)

Total Assets           17,918,590            15,661,982

Shareholders' Equity    5,449,991             3,193,383
</TABLE>

    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.

NOTE 2. ACQUISITIONS

    On May 14, 1998, the Company and Fidelity National Financial, Inc. ("FNFI")
completed the merger of Micro General Corporation with ACS Systems, Inc.
("ACS"), a wholly-owned 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 $1.3 million. Following
the merger of Micro General Corporation and ACS, FNFI owned approximately 81.4%
of the common stock of the Company on an undiluted basis. The transaction has
been accounted for as a reverse merger, i.e., Micro General Corporation has been
acquired by FNFI as a majority-owned subsidiary through a merger with ACS, with
Micro General Corporation as the legal surviving entity and ACS as the surviving
entity for accounting purposes. Therefore, the condensed consolidated financial
statements as of and for the quarter and six months ended June 30, 1998 and June
30, 1997 have been restated to reflect the operations of ACS prior to the
merger.

                                       7
<PAGE>   8
    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 merged into 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.

        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                                              $ 11,899,915          $ 7,191,775
                                                     ============          ===========
Net loss                                             $   (394,909)         $  (500,027)
                                                     ============          ===========
Net loss per share - basic and diluted (1)           $      (0.06)         $     (0.11)
                                                     ============          ===========
Weighted average shares outstanding -
  basic and diluted (1)                                 6,549,666            4,597,000
                                                     ============          ===========
</TABLE>
---------------
(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 six-month periods ended June 30, 1998
    were 338,000 and $5,356,000, which represents 77.0% and 77.6% of total
    revenue, respectively.

        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.

                                       8
<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 1923 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.


                                       9
<PAGE>   10
    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. As discussed in Note 2, the merger of the Company and ACS on May 14,
    1998 has been accounted for as a reverse acquisition. Therefore, the 1997
    financial statements have been restated to reflect the ACS operations and
    included in the second quarter and six-month periods ended June 30, 1998 is
    47 days of operations of Micro General Corporation. Due to the merger with
    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
                         DIVISION        ACS          TOTAL            ACS
                        ----------   ----------    ----------      ----------
<S>                     <C>          <C>           <C>             <C>
Revenues                $   99,000   $6,855,000    $6,954,000      $3,317,000
Cost of sales              112,000    5,322,000     5,434,000       2,588,000
                        ----------   ----------    ----------      ----------
  Gross profit (loss)      (13,000)   1,533,000     1,520,000         729,000

Operating expenses         166,000      953,000     1,119,000         837,000
Interest expense
  (income), net             43,000       (1,000)       42,000          (3,000)
Income tax provision
  (benefit)                     --      213,000       213,000         (41,000)
                        ----------   ----------    ----------      -----------
    Net loss            $ (222,000)  $  368,000    $  146,000      $  (64,000)
                        ==========   ==========    ==========      ==========
</TABLE>

<TABLE>
<CAPTION>
                                            SIX MONTHS ENDED
                        --------------------------------------------------------
                                     JUNE 30, 1998                 JUNE 30, 1997
                        ----------------------------------------   -------------
                           POSTAL
                          DIVISION         ACS           TOTAL          ACS
                        -----------   -----------    -----------    -----------
<S>                     <C>           <C>            <C>            <C>
Revenues                $    99,000   $10,645,000    $10,744,000    $ 5,882,000
Cost of sales               112,000     8,655,000      8,767,000      4,525,000
                        -----------   -----------    -----------    -----------
   Gross profit (loss)      (13,000)    1,990,000      1,977,000      1,357,000

Operating expenses          166,000     2,046,000      2,212,000      1,523,000
Interest expense
  (income), net              43,000        (3,000)        40,000         (6,000)
Income tax benefit
                                 --       (37,000)       (37,000)       (77,000)
                        -----------   ------------   ------------   ------------
    Net loss            $  (222,000)  $   (16,000)   $  (238,000)   $   (83,000)
                        ===========   ===========    ===========    ===========
</TABLE>


(1) The Micro General Corporation results are included in the Company's
    historical financial statements for 47 days during the second quarter of
    1998 and excluded entirely from 1997 results.

         Total revenues for the quarter ended June 30, 1998 increased 110% to
    $6,954,000 from $3,317,000 for the second quarter of 1997. Total revenues
    for the six months ended June 30, 1998 increased 83% to $10,744,000 from
    $5,882,000 for the comparable 1997 period. The ACS contribution for the
    three and six-month periods ended June 30, 1998 was $6,855,000 or 98.6%, and
    $10,645,000 or 99.1% of total revenues. ACS sales and services to FNFI have
    grown substantially. In addition, the Company began offering
    telecommunications services and has grown that business from nothing in 1997
    to $137,000 in the three months ended June 30, 1998 (2.0% of total
    revenues), and to $859,000 in the six months ended June 30, 1998 (8.0% of
    total revenues). In addition, sales growth was across all product lines. In
    the three months, ended June 30, 1998, software and maintenance revenue
    increased 97%, hardware revenue grew 104% and service and license revenue
    was up 112% as compared to the comparable 1997 period. For the six months
    ended June 30, 1998, software and maintenance revenue increased 65%,
    hardware revenue grew 55% and service and license revenue was up 128% when
    compared to the similar 1997 period. Postal product sales were consistent in
    the quarter over quarter comparison.

        Cost of sales for the second quarter of 1998 increased 110% to
    $5,434,000 from $2,588,000 in the 1997 second quarter. For the six months
    ended June 30, 1998 cost of sales increased to $8,767,000, a 94% increase
    from $4,525,000 for the comparable 1997 period. Included in cost of sales
    for the three and six-month periods ended June 30, 1998 is $5,322,000, or
    97.9% and $8,655,000 or 98.7% of the total cost of sales, respectively,
    relating to the operations of ACS. See Note 2. The increases in the 1998
    cost of sales as compared to the 1997 cost of sales is directly related to a
    proportional growth in the Company's revenues.

                                       10
<PAGE>   11
        Operating expenses for the second quarter of 1998 increased to
    $1,119,000, an increase of $281,000, or 34%, from $838,000 in the 1997
    second quarter. For the six-month period ended June 30, 1998 operating
    expenses were $2,212,000, an increase of $689,000, or 45% over operating
    expenses of $1,523,000 for the comparable 1997 period. The increase in 1998
    operating expenses as compared to 1997 operating expenses results from the
    significant revenue growth in 1998 and the resulting increases in corporate
    infrastructure. In addition, the Company began an expanded sales and
    marketing effort in an attempt to begin increasing revenues from
    non-affiliated companies.

        Interest expense, net of interest income, 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 to $42,000
    from no interest expense in the 1997 second quarter. For the six months
    ended June 1998, interest expense increased to $40,000 from no interest
    expense in the same 1997 period. The increase in interest expense for the
    three and six-month periods ended June 30, 1998, as compared to the same
    1997 periods reflects the increase in debt balances during 1998, which
    result from increases in borrowing under the Company's credit facility (See
    Note 3), and also the inclusion of Micro General Corporation that began to
    be reported using the reverse acquisition accounting treatment as of May 14,
    1998. 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
    existing credit facilities with affiliates. Cash used in operating
    activities exceeded cash provided by operating activities by $890,000 for
    the six months ended June 30, 1998, which compares favorably with cash used
    in operating activities exceeding cash provided by operating activities of
    $577,000 for the six months ended June 30, 1997. 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.

    Year 2000 Issues

        Information technology is an integral part of the Company's business.
    The Company also recognizes the critical nature of and the technological
    challenges associated with the Year 2000 issue. The Year 2000 issue ("Y2K")
    results from computer programs and computer hardware that utilize only two
    digits to identify a year in the date field, rather than four digits. If
    such programs or hardware are not modified or upgraded, information systems
    could fail, lock up, or in general fail to perform according to normal
    expectations. The Company has implemented a program and committed both
    personnel and other resources to determine the extent of potential Y2K
    issues. Included within the scope of this program are systems used in
    servicing customer obligations, information technology products and
    services, telecommunications services, the postage meter and scale division,
    financial management, human resources, payroll and infrastructure. In
    addition to a review of internal systems, the Company has initiated formal
    communications with third parties with which it does business in order to
    determine whether or not they are Y2K compliant and the extent to which the
    Company may be vulnerable to third parties' failure to become Y2K compliant.
    The Company is in the process of identifying Y2K compliant issues in its
    systems, equipment and processes. The Company is making changes to such
    systems, updating or replacing such equipment, and modifying such processes
    to make them Y2K compliant.

        The Company is developing a four phase program to become Y2K compliant.
    Phase I is, "Plan Preparation and Identification of the Problem." This is an
    ongoing phase that will continue beyond the year 2000 itself. Phase II is,
    "Plan Execution and Remediation." Phase III is, "Testing." Phase IV is,
    "Maintaining Y2K Compliance." The Company anticipates that its systems
    processes will be substantially Y2K compliant by July 1999. The status of
    the Y2K compliance program is monitored by senior management of the Company
    and by the Company's Board of Directors. The costs of the Y2K related
    efforts incurred to date have not been material, and the estimate of
    remaining costs to be incurred is not considered to be material. Due to the
    complexities of estimating the cost of modifying applications to become Y2K
    compliant and the difficulties in assessing third parties', ability to
    become Y2K compliant, estimates may be subject to change.


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        Management of the Company believes that its electronic data processing
    and information systems will be Y2K compliant; however, there can be no
    assurance that all of the Company's systems will be Y2K complaint, that the
    costs to be Y2K compliant will not exceed management's current
    expectations, or that the failure of such systems to be Y2K compliant will
    not have a material adverse effect on the Company's business. The Company
    believes that functions currently performed with the assistance of
    electronic data processing equipment could be performed manually or
    outsourced if certain systems were determined not to be Y2K compliant on or
    after January 1, 2000.

        The Company has not yet completed a contingency plan in the event that
    any systems are not Y2K compliant, but will do so once the Phase III process
    of its compliance program is begun. We expect this contingency plan to be
    complete by July 1999.

        The entire section, "Year 2000 Issues", is hereby designated a "Year
    2000 Readiness Disclosure", as defined in the Year 2000 Information and
    Readiness Disclosure Act.

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.


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