<PAGE>   1

================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

(Mark One)
[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
     EXCHANGE ACT OF 1934

                 For quarterly period ended: SEPTEMBER 30, 1998
                                             ------------------

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
     EXCHANGE ACT OF 1934

              For the transition period from _________to_________.


                         Commission file number: 0-8358
                                                 ------


                            MICRO GENERAL CORPORATION
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


            DELAWARE                                         95-2621545
            --------                                         ----------
 (State or other jurisdiction of                          (I.R.S. Employer
  incorporation or organization)                        Identification Number)

2510 N. Red Hill, Suite 230, Santa Ana, California              92705
--------------------------------------------------              -----
    (Address of principal executive offices)                  (Zip Code)


                                 (949) 622-4444
--------------------------------------------------------------------------------
               Registrant's telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X]   No [ ]

Indicate the number of shares outstanding of each of the issuers classes of
Common Stock, as of the latest practicable date.

$.05 par value Common Stock 6,549,666 shares as of November 9, 1998.

================================================================================

<PAGE>   2

                            MICRO GENERAL CORPORATION

                  FORM 10-Q - QUARTER ENDED SEPTEMBER 30, 1998

                                TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
-----------------------------

Item 1.    Condensed Consolidated Financial Statements.

      A.   Condensed Consolidated Balance Sheets as of September 30, 1998      
           and December 31, 1997.                                              2

      B.   Condensed Consolidated Statements of Operations for the three
           months ended September 30, 1998 and September 30, 1997.             3

      C.   Condensed Consolidated Statements of Operations for the nine
           months ended September 30, 1998 and September 30, 1997.             4

      D.   Condensed Consolidated Statements of Cash Flows for the nine
           months ended September 30, 1998 and September 30, 1997.             5

      E.   Notes to Condensed Consolidated Financial Statements.               6

Item 2. .  Management's Discussion and Analysis of Financial           8
           Condition and Results of Operations.


PART II.   OTHER INFORMATION
----------------------------

Items 1-3 & 5. of Part II have been omitted because they are not applicable
               with respect to the current reporting period.

Item 4.        Submission of Matters to Vote of Security Holders 

Item 6.        Exhibits and Reports on Form 8-K.           


SIGNATURES
----------

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                        MICRO GENERAL CORPORATION
                        -------------------------
                              (Registrant)



By: /s/ Brooks A. Corbin                             Date: November 13, 1998
   ------------------------------- 
   Brooks A. Corbin 
   Sr. Vice President, Finance and 
   Chief Financial Officer


                                        1
<PAGE>   3

                            MICRO GENERAL CORPORATION

                      Condensed Consolidated Balance Sheets
                    September 30, 1998 and December 31, 1997

<TABLE>
<CAPTION>
                                                                   September 30,          December 31,
                                                                       1998                   1997
                                                                   ------------           ------------
                                                                   (Unaudited)
<S>                                                                <C>                    <C>         
                        Assets
                        ------

Current assets:
     Cash                                                          $    896,762           $    318,845
     Accounts and notes receivable, less allowance for
       doubtful receivables and sales returns of $219,554
       at 9/30/98 and $16,141 at 12/31/97                               829,689                 97,223
     Inventories                                                      2,711,771                853,033
     Prepaid expenses and other assets                                  410,955                264,970
                                                                   ------------           ------------

                       Total current assets                           4,849,177              1,534,071
                                                                   ------------           ------------
Equipment and improvements, net                                       3,058,531                209,351
Other assets, net                                                                               41,250
                                                                   ------------           ------------
Capitalized software                                                  3,567,879              1,054,865
Intangibles, less accumulated amortization of $305,859
  at 9/30/98                                                          6,379,836                     --
                                                                   ------------           ------------

                                                                   $ 17,855,423           $  2,839,537
                                                                   ============           ============

          Liabilities and Shareholders' Equity
          ------------------------------------

Current liabilities:
     Accounts payable and accrued expenses                         $  1,651,747           $    367,246
     Income taxes payable                                               (77,161)                    --
     Deferred tax liability                                             524,097                     --
     Deferred revenue                                                    12,303                  6,112
     Current portion of long-term debt with affiliates                2,350,001                250,000
     Accounts payable with affiliates                                 1,901,241                600,000
                                                                   ------------           ------------

          Total current liabilities                                   6,362,228              1,223,358
                                                                   ------------           ------------

Long-term debt with affiliates                                        2,000,000              2,750,000
Note payable due to affiliate                                         5,009,211                     --
                                                                   ------------           ------------

Shareholders' equity:
     Preferred stock, $.05 par value; 1,000,000 shares
       authorized no shares issued and outstanding at
       9/30/98 and 12/31/97                                                  --                     --

     Common stock, $.05 par value; 10,000,000 shares
       authorized 6,549,666 shares issued and outstanding 
       as of 9/30/98 and 1,949,666 shares issued and 
       outstanding as of 12/31/97                                       327,483                 97,483
     Additional paid-in capital                                      10,920,658              4,176,370
     Accumulated deficit                                             (6,764,157)            (5,407,674)
                                                                   ------------           ------------
                                                                      4,483,984             (1,133,821)
                                                                   ------------           ------------
                                                                   $ 17,855,423           $  2,839,537
                                                                   ============           ============
</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 September 30, 1998 and September 30, 1997
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                    September 30,        September 30,
                                                                                        1998                 1997
                                                                                    -------------        -------------
<S>                                                                                 <C>                  <C>        
Revenues:
      Postal product sales                                                          $   146,595           $   180,681
      Postal service and rate change revenues                                            29,493                68,938
      Software sales and maintenance, including $801,358 with affiliates                969,143                    --
      Hardware sales and maintenance, including $2,773,722 with affiliates            2,957,357                    --
      Consulting revenue, including $1,090,954 with affiliates                        1,090,954                    --
      Servicing revenue, including $375,219 with affiliates                             557,969                    --
      Telecommunication revenue, including $687,551 with affiliates                     841,348                    --
      Other operating revenue, including $166,207 with affiliates                       167,654                    --
                                                                                    -----------           -----------
                Total revenues                                                        6,760,513               249,619
                                                                                    -----------           -----------

Cost of sales:
      Postal product sales                                                              185,860               203,307
      Postal service and rate change revenues                                            19,446                99,816
      Cost of hardware and software                                                   2,654,159                    --
                                                                                    -----------           -----------
                Total cost of sales                                                   2,859,465               303,123
                                                                                    -----------           -----------

Operating expenses:
      Selling, general and administrative                                             4,471,129               291,086
      Engineering and development                                                        44,598                62,198
      Amortization of goodwill and software development costs                           181,198                    --
                                                                                    -----------           -----------
                Total operating expenses                                              4,696,925               353,284
                                                                                    -----------           -----------

                Operating loss                                                         (795,876)             (406,788)
                                                                                    -----------           -----------

Interest expense                                                                        267,310                53,418

                Loss before income taxes                                             (1,063,186)             (460,206)

Income taxes                                                                            (97,179)                   --
                                                                                    -----------           -----------
                Net loss                                                            $  (966,107)          $  (460,206)
                                                                                    ===========           ===========

      Basic loss per share                                                          $      (.15)          $      (.24)
                                                                                    ===========           ===========
      Weighted average shares outstanding - basic basis                               6,549,666             1,949,666

      Diluted loss per share                                                        $      (.15)          $      (.24)
                                                                                    ===========           ===========
Weighted average shares outstanding - diluted basis                                   6,549,666             1,949,666
                                                                                    ===========           ===========
</TABLE>


See accompanying notes to condensed consolidated financial statements.


                                       3
<PAGE>   5

                            MICRO GENERAL CORPORATION

                 Condensed Consolidated Statements of Operations
       For the Nine Months Ended September 30, 1998 and September 30, 1997
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                    September 30,          September 30,
                                                                                        1998                   1997
                                                                                    -------------          -------------
<S>                                                                                 <C>                    <C>         
Revenues:
      Postal product sales                                                          $    605,037           $    511,495
      Postal service and rate change revenues                                            823,334              1,047,646
      Software sales and maintenance, including $1,259,889 with affiliates             1,586,545                     --
      Hardware sales and maintenance, including $4,970,873 with affiliates             5,591,032                     --
      Consulting revenue, including $1,497,656 with affiliates                         1,545,713                     --
      Servicing revenue, including $561,430 with affiliates                              774,706                     --
      Telecommunication revenue, including $751,506 with affiliates                    1,004,405                     --
      Other operating revenue, including $174,303 with affiliates                        236,234                     --
                                                                                    ------------           ------------
                Total revenues                                                        12,167,006              1,559,141
                                                                                    ------------           ------------

Cost of sales:
      Postal product sales                                                               659,759                436,970
      Postal service and rate change revenues                                            222,046                687,098
      Cost of hardware and software                                                    4,816,961                     --
                                                                                    ------------           ------------
                Total cost of sales                                                    5,698,766              1,124,068
                                                                                    ------------           ------------

Operating expenses:
      Selling, general and administrative                                              7,040,376                957,921
      Engineering and development                                                        122,812                230,391
      Amortization of goodwill and software development costs                            273,569                     --
                                                                                    ------------           ------------

                Total operating expenses                                               7,436,757              1,188,312
                                                                                    ------------           ------------

                Operating loss                                                          (968,517)              (753,239)
                                                                                    ------------           ------------

Interest expense                                                                         466,791                122,854

                Loss before income taxes                                              (1,435,308)              (876,093)

Income taxes                                                                             (78,825)                   800
                                                                                    ------------           ------------
                Net loss                                                            $ (1,356,483)          $   (876,893)
                                                                                    ============           ============

Basic loss per share                                                                $       (.32)          $       (.45)
                                                                                    ============           ============
      Weighted average shares outstanding - basic basis                                4,291,791              1,949,305

      Diluted loss per share                                                        $       (.32)          $       (.45)
                                                                                    ============           ============
Weighted average shares outstanding - diluted basis                                    4,291,791              1,949,305
                                                                                    ============           ============
</TABLE>


See accompanying notes to condensed consolidated financial statements


                                       4
<PAGE>   6

                            MICRO GENERAL CORPORATION

                 Condensed Consolidated Statements of Cash Flows
       For the Nine Months Ended September 30, 1998 and September 30, 1997
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                        September 30,   September 30,
                                                                            1998            1997
                                                                        ------------    ------------
<S>                                                                     <C>             <C>
Cash flows from operating activities:
      Net loss                                                          $(1,356,483)    $ (876,893)
      Adjustments to reconcile net income to net
           cash provided by (used in) operating activities:
           Depreciation and amortization                                    369,567         40,133
           Provision for losses on accounts receivable
              and sales returns, net of write-offs                           24,158         (13,333)

      Change in assets and liabilities:
           Decrease in accounts receivable                                1,903,040          40,282
           (Increase) decrease in inventories                              (147,064)        158,430
           (Increase) in prepaid expenses                                  (109,565)        (79,894)
           Increase (decrease) in accounts payable and accrued expenses    (300,192)         89,663
           Increase (decrease) in accounts payable due affiliates         1,901,242              --
           Capitalized software and postage meter development costs        (591,974)             --
           Increase (decrease) in deferred revenue                            6,191         (45,949)
           Increase in taxes payable                                        (79,625)             --
                                                                        -----------     -----------
           Total adjustments                                              2,975,778         189,332
                                                                        -----------     -----------

                Net cash provided by (used in) operating activities       1,619,295        (687,561)
                                                                        -----------     -----------
Cash flows used in investing activities:
      Additions to property and equipment                                (1,791,378)       (590,215)
                                                                        ------------    -----------

                Net cash used in investing activities                    (1,791,378)       (590,215)
                                                                        -----------     -----------

Cash flows from financing activities:
      Exercise of stock options                                                  --             687
      Proceeds from notes payable                                           750,000       1,050,000
      Repayment of note payable to bank                                          --              --
                                                                        -----------     -----------
            Net cash provided by financing activities                       750,000       1,050,687

Net increase (decrease) in cash                                             577,917        (227,089)

Cash - beginning of period                                                  318,845         413,533
Cash - end of period                                                    $   896,762     $   186,444
                                                                        ===========     ===========
Supplemental disclosures of cash flow information: 
  Cash paid during the period for:
           Interest                                                     $   202,533     $   113,024
                                                                        ===========     ===========
           Income taxes                                                 $       800     $       800
                                                                        ===========     ===========

Non-cash transactions:
  Stock issued in connection with the acquisition
         of ACS Systems, Inc. (4,600,000 shares)                        $ 6,974,288     $        --
                                                                        ===========     ===========
</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 86% of the revenue generated by ACS is
derived from multiple servicing arrangements with FNFI and its subsidiaries
whereby ACS provides comprehensive electronic data processing systems support,
including selling computer hardware and software products and developing
integrated title and escrow computer applications for FNFI's direct title
operations and agency network.

        In addition to these services, ACS provides products and services to
FNFI and unaffiliated customers, including telecommunications hardware and long
distance reselling, technical services, consulting services, Internet access and
services and computer hardware and systems software.

        The acquisition of ACS has been accounted for using the purchase method
of accounting. The intangibles resulting from this acquisition are being
amortized over 20 years. A preliminary allocation of the purchase price has been
made, but the entire purchase accounting process has not yet been completed. The
results of operations of the Company include the operations of ACS since the
date of acquisition.

                                       6

<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>
                                                                       NINE MONTHS ENDED
                                                           ----------------------------------------
                                                           SEPTEMBER 30, 1998    SEPTEMBER 30, 1997
                                                           ------------------    ------------------
<S>                                                        <C>                   <C>
        Revenue                                                $18,663,000           $11,529,000
                                                               ===========           ===========
        Net loss                                               $(1,364,000)          $  (369,000)
                                                               ===========           ===========
        Net loss per share - basic                             $      (.20)          $      (.06)
                                                               ===========           ===========
        Weighted average shares outstanding - basic              6,549,666             6,549,584
                                                               ===========           ===========
        Net loss per share - diluted (2)                       $      (.20)          $      (.06)
                                                               ===========           ===========
        Weighted average shares outstanding - diluted (2)        6,549,666             6,549,584
                                                               ===========           ===========
</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 nine-month periods ended September 30, 1998 were $5,895,011
and $9,215,657, representing 90% and 86% of total revenue, respectively. Trade
accounts receivable with affiliates of $3,913,028 has been offset against
accounts payable and accrued expenses with the same affiliates of $5,814,269,
resulting in a net accounts payable with affiliates of $1,901,241.

        Included in notes payable and long-term debt at September 30, 1998 is
$450,000 and $1,000,000, respectively, due to Cal West Service Corporation, a
subsidiary of FNFI. Also included in notes payable and long-term debt at
September 30, 1998 is $900,000 and $2,000,000, respectively, due to Dito Caree
L.P. Holding, an affiliate. The notes were in default, but waivers were 
obtained through December 31, 1998 on all notes. Of these notes, $2,350,000 is 
classified as current liabilities.

NOTE 4. RECENT ACCOUNTING PRONOUNCEMENTS

        In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 establishes standards for public business
enterprises to report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. This statement supercedes FASB Statement
No. 14, "Financial Reporting for Segments of a Business Enterprise," but retains
the requirement to report information about major customers. It amends FASB
Statement No. 94, "Consolidation of All Majority-Owned Subsidiaries," to remove
the special disclosure requirements for previously unconsolidated subsidiaries.
SFAS 131 requires, among other items, that a public business enterprise report a
measure of segment profit or loss, certain specific revenue and expense items,
segment assets, information about the revenues derived from the enterprise's
products or services and major customers. SFAS 131 also requires that the
enterprise report descriptive information about the way that the operating
segments were determined and the products and services provided by the operating
segments. SFAS 131 is effective for financial statements for periods beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated. SFAS 131 need not be applied to
interim financial statements in the initial year of its application, but
comparative information for interim periods in the initial year of application
is to be reported in financial statements for interim periods in the second year
of application. Management has not determined whether the adoption of SFAS 131
will have a material impact on the Company's financial reporting.


                                       7

<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 nine-month periods ended September 30, 1998
and 1997. Included in the nine-month period ended September 30, 1998 is three
months and 47 days of operations of ACS, which was acquired on May 14, 1998. See
Note 2. Due to the acquisition of ACS, results of operations may differ
substantially when comparing 1998 periods with 1997 periods.

        The following table presents information regarding the components of
revenues and expenses for the Company on a historical basis by division:

<TABLE>
<CAPTION>
                                                   THREE MONTHS ENDED
                              ---------------------------------------------------------
                                                                          SEPTEMBER 30,
                                         SEPTEMBER 30, 1998                   1997
                              ---------------------------------------     -------------
                               Postal                                        Postal
                              Division         ACS           Total          Division
                              ---------     ----------     ----------       ---------
<S>                           <C>           <C>            <C>              <C>      
Revenues                      $ 176,088     $6,584,425     $6,760,513       $ 249,619
Cost of sales                   205,306      2,654,158      2,859,464         303,123

Operating expenses              354,299      4,342,626      4,696,925         353,284
Interest expense                 84,750        182,560        267,310          53,418
Income tax expense                   --        (97,179)       (97,179)             --
                              ---------     ----------     ----------       ---------
   Net loss                   $(468,267)    $ (497,740)    $ (966,007)      $(460,206)
                              =========     ==========     ==========       =========
</TABLE>


<TABLE>
<CAPTION>
                                                   NINE MONTHS ENDED
                              ---------------------------------------------------------
                                                                          SEPTEMBER 30,
                                          SEPTEMBER 30, 1998                  1997
                              ---------------------------------------     -------------
                               Postal                                        Postal
                              Division         ACS           Total          Division
                              ---------     ----------     ----------       ---------
<S>                           <C>           <C>            <C>              <C>      

Revenues                     $1,428,371    $10,738,635    $12,167,006      $1,559,141
Cost of sales                   881,804      4,816,962      5,698,766       1,124,068

Operating expenses            1,139,865      6,296,892      7,436,757       1,188,312
Interest expense                254,250        212,541        466,791         122,854
Income tax expense                             (78,825)       (78,825)            800
                             ----------    -----------    -----------      ----------
    Net loss                 $ (847,548)   $  (508,935)   $(1,356,483)     $ (876,893)
                             ==========    ===========    ===========      ==========
</TABLE>

--------------------

(1)   The ACS division is included in the Company's historical financial
      statements for three months and 47 days during the nine month period ended
      September 30,1998 and excluded entirely from 1997 results.


                                       8


<PAGE>   10

        The revenue for the quarter ended September 30, 1998 increased 2,609% to
$6,760,513 from $249,619 for the third quarter of 1997. Total revenue for the
nine months ended September 30, 1998 increased 681%to $12,167,006 from
$1,559,141 for the comparable 1997 period. The ACS contribution for the three
and nine month periods ended September 30, 1998 was $6,584,425 or 98% and
$10,738,635 or 89% of the total revenue, respectively. Excluding the ACS
contribution, total revenue for the third quarter decreased by $73,611, or 30%,
which reflects the decrease in postal service and rate change business. Postal
product sales were consistent in the quarter over quarter comparison.

        The revenue for the nine months ended September 30, 1998 excluding ACS
contribution decreased by $130,770, or 9%, which reflects the increase in postal
product sales during the second quarter of 1998 offset by a decrease in service
and rate change revenues. Product sales increased by $93,542, or 19% while
service and rate change revenues decreased by $224,312, or 22%, comparing the
nine month periods of 1998 and 1997. The primary reason for the increase in
product sales is the dealer-based sales of the Shipper Link product and the
Company's Eagle Best Rate Shipper software for Windows and DOS. The decrease in
service and rate change revenue relates to the decline in Company's installed
product base as more scale-based systems are being replaced by free service
provider system and company-based systems.

        Cost of sales for the third quarter of 1998 increased 818% to $2,859,464
from $303,123 in the 1997 third quarter. For the nine months ended September 30,
1998, cost of sales increased to $5,698,766, a 407% increase from $1,124,068 for
the comparable 1997 period. Included in cost of sales for three months ended
September 30, 1998 is $2,654,158, or 96% and for nine months is $4,817,159 or
86% of total sales, respectively, relating to the operations of ACS. See Note 2.
Excluding the cost of sales related to ACS, cost of sales decreased $97,817 and
$242,264 for the three and nine months ended September 30, 1998, respectively,
which is consistent with the decrease in revenues discussed above. In addition,
cost of sales related to postal product sales have decreased as a percentage of
sales due to expense reductions in product labor and overhead.

        Operating expenses for the third quarter of 1998 increased to
$4,696,925, an increase of $4,343,641, or 1,230%, from $353,284 in the 1997
third quarter. For the nine month period ended September 30, 1998, operating
expenses were $7,436,757, an increase of $6,248,445, or 526% over operating
expenses of $1,188,312 for the comparable 1997 period. Excluding ACS operating
expenses of $4,342,626, or 93% and $6,296,892, or 85% of total operating
expenses for the three and nine month periods ended September 30, 1998,
respectively, operating expenses increased by $1,015 in the quarter and $48,447
for the nine month period ended September 30, 1998.

        Interest expense incurred by the Company relates to notes payable,
long-term debt and a note to an affiliate. See Note 3. Interest expense for the
third quarter of 1998 increased 401% to $267,310 from $53,418 in the 1997 third
quarter. For the nine months ended September 30, 1998, interest expenses
increases $343,927 or 280%, to $466,791 from $122,854 in the same 1997 period.
Excluding the interest expense related to ACS of $182,560, or 69% and $212,541,
or 46% of total interest expense for the three and nine months period ended
September 30, 1998, respectively, interest expense increased $31,332, or 63%,
and $131,396 or 207%, for those periods.

        Liquidity and Capital Resources

        The Company's cash requirements include debt service, operating
expenses, capital investments and potential acquisitions. The Company believes
that all anticipated cash requirements will be met from internally generated
funds, future lines of credit and through additional credit facilities with
affiliates. Cash provided by operating activities exceeded cash used by
operating activities by $1,619,295 for the nine months ended September 30, 1998,
which compares favorably with cash used in operating activities exceeding cash
provided by operating activities of $687,561 for nine months ended September 30,
1997. The increase in cash from operations primarily relates to payments
received on accounts receivable from affiliates. Management believes that
short-term modifications of existing affiliates credit facilities and potential
future lines of credit will enable the Company to expand its business
relationships with unaffiliated third parties and expects the Company to
generate cash flows sufficient to support its future operations.

        In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 establishes standards for public business
enterprises to report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. This statement supercedes FASB Statement
No. 14, "Financial Reporting for Segments of a Business Enterprise," but retains
the requirement to report information about major customers. It amends FASB
Statement No. 94, "Consolidation of All Majority-Owned Subsidiaries," to remove
the special disclosure requirements for previously unconsolidated subsidiaries.
SFAS 131 requires, among other items, that a public business enterprise report a
measure of segment profit or loss, certain specific revenue and expense items,
segment assets, information about the revenues derived from the enterprise's
products or services and major customers. SFAS 131 also requires that the
enterprise report descriptive information about the way that the operating
segments were determined and the products and services provided by the operating
segments. SFAS 131 is effective for financial statements for periods beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated. SFAS 131 need not be applied to
interim financial statements in the initial year of its application, but
comparative information for interim periods in the initial year of application
is to be reported in financial statements for interim periods in the second year
of application. Management has not determined whether the adoption of SFAS 131
will have a material impact on the Company's financial reporting.


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<PAGE>   11

PART II - OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTER TO VOTE OF SECURITY HOLDERS

        On August 11, 1998, the Company held its Annual Meeting of Stockholders 
pursuant to a Notice and Proxy Statement dated July 22, 1998. At the meeting, 
stockholders elected William P. Foley II (4,802,504 for and 750 against), 
Patrick F. Stone (4,802,754 for and 500 against) S. Bruce Crair, (4,803,004 for 
and 250 against) George Olenik (4,803,004 for and 250 against) Richard Pickup
(4,803,004 for and 250 against) Thomas E. Pistilli (4,802,504 for and 750
against) and Carl A.  Strunk (4,802,754 for and 500 against). The shareholders
approved the adoption  of a 1998 Stock Option Plan in a vote of 4,802,064 for,
790 against and 400  abstaining. The shareholders ratified the adoption of the
1998 Employee Stock  Purchase Plan by a vote of 4,802,064 for, 790 against and
400 abstaining.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        a. Exhibits (listed by numbers corresponding to the Exhibit Table of 
           Item 601 of Regulation S-K):

           11.  Computation of earnings (loss) per share is not provided as the 
                calculation can be clearly determined from the material
                contained in Item 1 of Part I.

           27.  Financial Data Schedule

        b. Current Reports on Form 8-K:

           Current Report on Form 8-K, dated July 27, 1998, relating to the
           merger of a wholly-owned subsidiary of Micro General Corporation into
           ACS Systems, Inc. on May 14, 1998.


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