SECURITIES AND EXCHANGE COMMISSION
                       Washington, D.C. 20549


                             FORM 10-K

           Annual report pursuant to Section 13 or 15(d) of
                 the Securities Exchange Act of 1934


For the fiscal year ended December 31, 1997  Commission File No.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 Identification
        incorporation or organization)          No.)


       14711 Bentley Circle Tustin, California          92780
     (Address of principal executive offices)       (Zip Code)

     Registrant's Telephone Number, Including Area Code: (714) 731-0557

     Securities registered pursuant to Section 12(b) of the Act: None

     Securities registered pursuant to Section 12(g) of the Act:
                      Common Stock, $.05 par value

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 period 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

As of December 31, 1997, the aggregate market value of the voting stock held
by non-affiliates of the registrant was $985,052 .

As of December 31, 1997, the registrant had 1,949,666 shares of common stock,
$.05 par value outstanding.

The information required by Part III (items 10,11,12 and 13) is incorporated
by reference to portions of the registrant's definitive proxy statement for
the 1998 annual meeting of shareholders which will be filed with the
Securities and Exchange Commission within 120 days after the close of the 1997
fiscal year.

<PAGE>
PART I

Item 1.   BUSINESS

Introduction

     Micro General Corporation (the "Company") designs, markets and sells
parcel shipping systems and electronic postal scales for use in shipping
departments and office mailrooms.  The Company earns revenues both from the
initial sale of shipping systems and scales and from subsequent rate updates
resulting from rate changes by the United States Postal Service ("USPS"),
United Parcel Service ("UPS") and other parcel carriers (see the following
"Rate Change Modifications" discussion).  The Company's products reduce labor
costs in shipping parcels and letters and, by consistent use of accurate
weight and corresponding shipping or postage rates, can significantly reduce
shipping and postage rate errors.
     The Company's products are programmed with the current shipping rates of
USPS, UPS, Roadway Parcel Service ("RPS"), Federal Express ("FedEx") and other
major carriers.  The high-end models of the Company's parcel shipping systems
and each of the Company's postal scale models also permit the customer to
choose additional carriers' rates from the Company's rate library.  The
Company's ability to customize a shipping system or postal scale to include
additional carriers' rates in accordance with each customer's shipping or
mailing preferences permits the customer to choose the optimum carrier and
class of service for a particular parcel or letter by quickly "rate shopping"
between the standard shipping or postal rate of different carriers.

Development of the Company's Business

     In March 1981, the Company acquired all of the outstanding stock of Coda
Enterprises, Inc., a California corporation ("CODA").  Since its 1978
inception, CODA had designed and manufactured an electronic postal scale and a
piece-count scale  and had sold those products under a private label contract
with a distributor of mailroom equipment.  In December 1981, CODA merged with
the Company and the Company changed its name to Micro General Corporation.
The Company has since redirected its resources to the development of its
microprocessor-based parcel shipping systems and postal scales. The Company
has initiated in recent years a postal meter development project to facilitate
its entry into this lucrative market.   In 1988, the Company reincorporated in
Delaware.

Industry Overview

     Prior to 1956, the USPS provided the sole means of letter or parcel
delivery throughout the United States.  Currently many other companies such as
UPS, FedEx and others, provide nationwide coverage in the package delivery
business.  There are currently more than 30 letter and parcel delivery
companies which compete directly with the USPS.  Additionally, deregulation of
the airline and trucking industries has lessened certain prior barriers to
reducing the cost of delivering letters and parcels by these particular modes
of transportation.
     In order to provide reliable delivery information regarding the location
of en-route parcels, parcels must be uniquely tagged or bar-coded so that
package origin, destination, class of service and other data can be quickly
read and input into the carrier's information system.  The ability to produce
this tag has created a significant potential opportunity for the Company
within the mailing and shipping industry.   These products also make data
entry less difficult.  Although carriers are currently investing in plant and
equipment to automate the handling of parcels and letters, many of their
customers still use hand ledgers, manual zip-to-zone charts, spring scales and
other conventional mechanical equipment which lack the accurate weight/cost
precision of the Company's family of microprocessor-based and computer-based
products.
     The Company believes that the number of UPS and other parcel carrier
users who might have a need for the Company's products represents a
significant market.

Products and Markets

     The Company's family of microprocessor-based, computer-based parcel
shipping systems and postal scales are as follows:

     Parcel Shipping Systems.  The Company believes its parcel shipping
systems offer cost and productivity advantages over manual methods of parcel
shipping recording for businesses which consistently use UPS, the USPS or
other parcel carriers.  First, the Company's parcel shipping systems automate
transaction recording and label identification on a package-by-package basis.
For example, a system's "manifest" printout, by itself, adequately documents
parcel shipments for pickup, delivery and accurate billing by a carrier.
Additionally, these systems allow the user to determine the most economically
acceptable method of shipment, to determine and apply the correct shipping
charge, and to record data relevant to the transaction for use both by the
shipper and the parcel carrier.
     The user places the parcel on the system's electronic scale platform
(which has a maximum rating of 150 pounds), then enters the desired carrier
and class of service and the parcel's destination zip code.  Each entry is
accomplished by pushing a single, clearly identified button.  The user can
instantly display the rates for alternative carriers and classes of service by
depressing a single key for each such inquiry.  When a carrier and class of
service have been selected, the user enters a package identification number
and, with a single keystroke, prints the shipping label.  Simultaneously, the
transaction is automatically entered into a computerized memory which both the
carrier and the shipper's accounting department can access.
      The suggested retail prices for the Company's parcel shipping systems
range from $795 to $3,000, excluding options.

     Computer-based Shipping Systems.  The Company currently offers computer
software and "turn-key" systems for shipping and warehouse automation.  The
software programs include many of the standard features already found in the
Company's parcel shipping systems.  The software programs have the ability to
take advantage of all of the carriers now offered with the Company's other
products.  The suggested retail prices for the Company's software programs,
which can be sold with or without equipment, range from $1,195 to $5,000,
excluding options.

     Mailing Scales.  The Company currently offers both digital electronic
scales as well as mechanical spring scales.  The Company's digital display
electronic postal scales are primarily designed for office mailroom use.
Relying upon Company-designed microprocessor-based circuitry, parcel or letter
weight is instantly displayed in digital format.  When a class of service is
selected on the membrane switch keyboard, the precise postage is computed and
displayed.  Sophisticated features, such as the ability to connect directly to
a printer to provide instantaneous accounting for transactions or to an
electronic postage meter for automatic setting and dispensing of postage, are
possible because of the microprocessor-based design.  Use of the Company's
scales enables businesses to decrease postage costs by eliminating the
inefficiencies and errors which commonly occur when mechanical scales and
manual rate tables are used.  The Company's postal scales are available in
maximum weight capacity ratings of 1 to 150 pounds.  The suggested retail
prices for the Company's postal scales range from approximately $10 to $1,295,
excluding options.

     Tape Dispensing Systems.  The Company currently offers a manual and
electronic gummed tape dispensing system.  This system is used for securing
boxes for shipment.  The suggested retail price for the Company's tape
dispensing system is $330 to $1,150, excluding options.

     Rate Change Modifications.  Currently, the Company maintains a rate
library containing rate information for most national and regional parcel
carriers.  The Company updates this library whenever a carrier's rate change
occurs.
     Modifying the Company's units in the field to reflect rate changes by
the USPS, UPS or other carriers in the Company's rate library is done by
inserting programmable read-only memory chips ("PROMS") into designated slots
in the Company's parcel shipping systems and postal scales or via floppy disk
updates for computer-based systems.  The Company generally charges a fee for
each new PROM or disk it provides.  Alternatively, the Company will, for a
one-time fee, provide updated rate PROMS as required for a specified period of
time.  As the Company's installed unit base grows, potential revenues
associated with rate changes represent a significant source of revenue and
profit for the Company.  PROMS related to rate changes are sold both to
dealers and directly by the Company for its installed customer base.  For each
rate PROM sold to an end-user customer, a percentage of the purchase price is
generally credited to the dealer that originally sold the system to the
customer, provided that the dealer is still an authorized Company dealer.  No
such allowances are paid where sales of the underlying equipment were not
through dealers.

Marketing, Sales, Warranties and Customers

     Marketing and Sales.  The Company's strategy is to select market niches
in which its technology provides price and/or performance advantages over
products offered by the market leaders.  The Company's position is primarily
in software, but the unique appearance, functionality and built in "ease of
use" of its products are also considered to be significant competitive
advantages.   With the increase of UPS owned equipment and free software
available to the customers, the Company seeks new products to replace the
customers lost to UPS equipment.
     The Company sells its dealer products through a network of more than 140
dealers located throughout the United States and Canada, although
approximately 30 dealers account for the majority of the Company's sales. The
Company believes the loss of any particular dealer would not have a material
adverse effect on the Company's operating results.  All dealer orders accepted
by the Company are shipped and invoiced to dealers at discounts from the
Company's suggested retail list price.  The Company's normal sales terms to
its qualified dealers are net 30 days from invoice date.  Company sales are
generally final and are supported by a Company-issued order entry
acknowledgment which specifies all terms and conditions of the contracted
sales transaction.  However, in addition to any product returns resulting from
product defects, the Company is obligated under some of its dealer agreements
to accept the return of unopened inventory from terminated dealers (subject to
a restocking fee).  The Company, at its discretion, periodically permits
dealers to return products for credit or exchange (subject to a restocking fee
in most cases) due to dealers' lost sales or dealers' errors in ordering or
evaluating end-user customer needs.  Returns as a percentage of product sales
for 1997, 1996, and 1995, were 13%, 19%, and 16%, respectively.  The Company
believes that the allowance for sales returns at December 31, 1997 and
December 31, 1996, is adequate in light of historical experience.
     The Company typically experiences significantly higher revenues in the
first quarter of each year, which is attributable to the sales of carrier rate
changes.  When a USPS or UPS rate change occurs many product users update
their machines with new rates which provides significant rate change revenues
to the Company.
          A comparison of first quarter sales in the last 3 years in
relation to annual sales is as follows:

               1st Quarter         Annual Sales   %
     1997      $1,040,051          $1,774,051          59%
     1996      $1,470,389          $2,155,378          68%
     1995      $2,173,689          $4,041,921          54%


     Even though history has shown that the carrier rate changes
traditionally have occurred in the first quarter, the Company believes this
should not be included as a seasonal impact.  There can be no assurance as to
the timing of future rate changes.
     In 1990, the Company established a network of manufacturer's
representatives to sell the retail products to stationary stores, direct mail
houses, wholesalers and office product resellers.  This portion of the
business in 1997, 1996 and 1995 represents 14%, 20% and 29% of the Company's
total product sales, respectively.

     Warranties.  Individual dealers have responsibility for installation and
service of the Company's products.  The Company's distributed products are
sold with a 90-day warranty on material and labor.  The Company bears the
costs incurred in providing such in-warranty repairs.  The Company invoices
the dealers on a time and materials basis for out-of-warranty repairs
performed by the Company.  In 1997,  1996, and 1995 the Company's costs to
perform both in-warranty and out-of-warranty repairs, in the aggregate were
5%, 8 %, and 13%, respectively, of total product sales.

     Customers.  As of December 31, 1997, the Company estimates it had an
aggregate installed base of approximately 20,000 parcel shipping systems,
postal scales and piece count scales.  Moreover, no individual dealer
accounted for more than 10% of the Company's 1997 total net revenues.

     Backlog.  The Company typically enters facsimile orders from its
dealers, considers these orders part of backlog, and schedules delivery for a
date within 10 days from receipt of the order.  Subsequent confirmation
through a written purchase order is normally obtained.  On a monthly basis,
the Company generates a listing of scheduled and confirmed backlog. Backlog
cancellations have historically been nominal.  The backlog at December 31,
1997, is not material.

Competition
       The Company competes in an industry characterized by intense and
increasing competition.  To the Company's knowledge, there are approximately
20 competitors engaged in either the sale or lease of electronic shipping
systems or postal scales.  Among these, Pitney Bowes, Inc. has a dominant
position in the postage meter market, and UPS has a dominant position in the
parcel  shipping systems market.
     The Company sells principally to shippers having moderate volumes of
daily shipments.  Various firms are selling parcel shipping software that
customers use with their existing in-house computer systems.  Also, various
air express and other shipping firms are now providing free computerized
parcel shipping systems and offering volume discounts to end-user customers
that maintain specified minimum shipping volumes.
     The Company believes that the price/performance features of its products
continue to compare favorably with their various competitors.  Nevertheless,
many of the Company's competitors have far greater financial and personnel
resources than those of the Company, including direct sales branches and
substantial marketing and product development programs.  Consequently, there
can be no assurance that future competition from such competitors will not
have a material adverse effect on the Company's business.
     United Parcel Service has mandated that beginning July 1, 1998, new
installations of shipping systems will be required to be connected
electronically to the carrier's computers.  The Company's "EAGLE BEST RATE
SHIPPER" and "SHIPPER LINK" products will comply by such dates. Products sold
before this date are "grandfathered", and will not be subject to the new
regulations.   Through upgrades and product modifications, the Company does
not expect any negative financial impact from this change.

Distribution
     In recent years, the Company has increased the purchasing of completed
units manufactured outside the United States.  The foreign manufacturers take
advantage of the tooling put in place by the Company, in order to provide the
Company with parts for its specialized needs.    In the fourth quarter of
1995, the Company resumed manufacturing in its California facility to improve
quality and reduce costs on its larger model scales.
     Finished product quality inspection and final testing is performed prior
to shipment by Company personnel at the Company's Tustin, California facility.

Engineering and Development
     For the years ended December 31, 1997, 1996  and 1995, the Company's
expenditures for engineering, research and development approximated $628,000,
$556,000, and $638,000, respectively.  In May 1995, the engineering department
was moved to the Company's facility in Oxford, Connecticut.  The Company's
1997 engineering, research and development activities included the UPS and RPS
rate changes in the first quarter of 1997 and a new multi-carrier scale-based
product, the Shipper Link, released in January 1998.  The postage meter
development project, started in 1995,  is progressing and is scheduled for
submission to the United States Postal service for testing and approval during
the second quarter of 1998.  Product release of the Company's postage meter is
targeted for the third quarter of 1998. It has been reported, in various
publications, that the U.S. Postal Service has announced the decertification
of all mechanical postage meters in the U.S. with the phase-out period to be
completed by March 1999.  It is estimated that 774,000 meters are affected by
this anticipated ruling.   This ruling provides the Company with an
opportunity to enter a major new market.  Submission for approval to the U.S.
Postal Service of the Company's first postage meter is expected by mid-1998.

Patents and Licenses
     The Company has federally registered the trademarks "CODA", "MAILMATE ",
"PC SHIPMATE ", "SMART METER ", "SMART LABEL ", "SHIP SAVER ", "SHIPMATE ",
"SHIP MASTER ", "SHIP-EASY", "SHIP COMMANDER ", "Eagle Best Rate Shipper", and
"SHIPPER LINK".   During 1996 and 1997, the Company has applied for several
patents which pertain to the postage meter project.  Two such patents have
been issued during 1997.

Employees
     As of December 31, 1997, the Company employed 30 people.  The Company's
employees are not represented by a labor union and it has experienced no work
stoppages.  The Company believes that its employee relations are good.  The
Company augments its work force with temporary staff during periods of rate
change shipments.

Item 2.  PROPERTIES

     During 1996, the Company's executive office, distribution and service
facility consisted of a 18,550 square feet in a building located in Santa Ana,
California.  The Company has leased this facility until the year 1999.  In
January 1997, the Company sub-leased its Santa Ana facility and relocated to a
new site in Tustin, California.  The Tustin facility consists of 7,711 square
feet. This facility has been leased until the year 2000.  In April 1995, the
Company  entered into a three-year lease for a 5,000 square foot research and
development office in Oxford, Connecticut, which currently houses engineering,
research and development, technical service and customer service.

Item 3.  LEGAL PROCEEDINGS

     The Company is involved in various claims and legal actions arising in
the ordinary course of business.  In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.

 Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
     None.



Executive Officers of the Registrant

     The following sets forth the name, age and offices presently held by the
Company's executive officers:

Thomas E. Pistilli         55  President, Chief Executive Officer,
                               Chief Financial Officer and Director

John J. Horbal             60 Vice President - Engineering

Linda I. Morton            45 Corporate Secretary and Controller

Robert F. Baker            50 Vice President - Sales and Marketing

THOMAS E. PISTILLI
     Mr. Pistilli has served as the President, Chief Executive Officer, Chief
Financial Officer, and Director since November 1994.  Prior to joining the
Company, Mr. Pistilli served as a management consultant to the Company for
approximately two years.  Mr. Pistilli is the former President and  Chief
Executive Officer of International Mailing Systems, Inc. (ASCOM/HASLER),
Shelton, Connecticut, where he served in that capacity for 11 years and
overall with that Company for 18 years.   Mr. Pistilli, a Certified Public
Accountant, was previously employed by KPMG Peat Marwick LLP, for a period of
seven years.   Mr. Pistilli is a member of the Board of Directors, serving
since November 1994.

JOHN J. HORBAL
     Mr. Horbal joined the Company as Vice President-Research and Development
in January 1995.  Prior to joining the Company, Mr. Horbal was with
ASCOM/HASLER and Better Packages, Shelton, Connecticut, for 25 years serving
as Director of Engineering, Director of Research and Development, and Chief
Engineer.  He was named Vice President of Engineering in June 1995.

LINDA I. MORTON
     Ms. Morton joined the Company in September 1983 serving in various
management accounting positions.  She was appointed Controller in August 1988
and  Corporate Secretary in June 1991.

ROBERT F. BAKER
     Mr. Baker joined the Company as Vice President - Sales and Marketing in
January 1997.  Prior to joining the Company, Mr. Baker was a Vice-President
with Better Homes and Gardens Real Estate since 1989.  Mr. Baker also served
in various senior sales management positions with ASCOM/HASLER, Scriptomatic
and Pitney Bowes.
     PART II

Item 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

Principal Market and Prices

     During 1996, the Company's common stock was traded on the
over-the-counter market on NASDAQ under the symbol MGEN.  On January 10, 1997,
the Company elected to have its common stock delisted form the Nasdaq SmallCap
Market .  The stock is now listed on the OTC Bulletin Board .  The following
table sets forth the range of high and low closing bid quotations per share of
the Company's common stock for the fiscal quarters indicated as reported by
the NASD on its monthly statistical reports.  Such prices represent
interdealer quotations without adjustment for retail markup, markdown, or
commission and do not necessarily represent actual transactions.

Fiscal Quarters                                 Bid Price
                                             High      Low
     Year Ended December 31, 1997
       First Quarter                    $    1.88      1.13
       Second Quarter                        1.38      1.00
       Third Quarter                         1.50      1.13
       Fourth Quarter                        2.38      1.75

     Year Ended December 31, 1996
       First Quarter                    $    3.50      1.50
       Second Quarter                        3.25      2.00
       Third Quarter                         3.38      2.00
       Fourth Quarter                        2.63      1.63


Number of Common Shareholders

     The number of shareholders of record of the Company's common stock at
December 31, 1997 was 596.

Dividends

     The Company intends to continue its policy of retaining all earnings for
reinvestment in the business operations of the Company.  Under Delaware law,
the Company's Board of Directors may declare and pay dividends on its
outstanding shares in cash or property only out of the unreserved and
unrestricted earned surplus.  The Company has an accumulated deficit of
$5,407,674, as of December 31, 1997 and accordingly, Delaware law prohibits
the Company from paying cash dividends except to the extent that the Company
has net profits in any fiscal year or the preceding fiscal year.  There were
no accumulated dividends as of December 31, 1997.
<PAGE>
Item 6.  SELECTED FINANCIAL DATA

This Annual Report Form 10-K contains forward looking statements, which are
subject to known and unknown risks, uncertainties and other factors which may
cause the actual results, performance and achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward looking statements.

The following table summarizes selected financial data.  This data is derived
from and qualified in its entirety by the more detailed financial statements
included elsewhere herein.


                                                  Year Ended
                                      (in thousands, except per share data)

                       12/31/97    12/31/96    12/31/95    12/31/94   12/31/93
                       --------    --------    --------    --------  --------
Net Product Sales      $   672     $   834     $ 1,743     $ 2,710    $ 3,104
Service and Rate
   Change Revenue        1,102       1,321       2,299       2,059      1,950
                       --------    --------    --------    --------   --------
Total Revenues           1,774       2,155       4,042       4,769      5,054
Cost of Sales            1,526       1,399       1,937       2,863      2,864
                       --------    --------    --------    --------   --------
Gross Profit               248         756       2,105       1,906      2,190
                       --------    --------    --------    --------   --------
Net Earnings (Loss)    $(1,525)    $(1,182)    $  (230)    $  (297)   $   375
                       ========    ========    ========    ========   ========
Net Earnings (Loss) Per Share
      Basic            $ (0.78)    $ (0.61)    $ (0.12)    $ (0.16)   $   .20
      Diluted          $ (0.78)    $ (0.61)    $ (0.12)    $ (0.16)   $   .20
                       ========    ========    ========    ========   ========
Weighted Average Number of Shares Used in Computation*
      Basic            1,949,563   1,948,541   1,940,666   1,883,876 1,882,240
      Diluted          1,949,563   1,948,541   1,940,666   1,883,876 1,882,240
_________________________
*Effective December 31, 1997, the company adopted Financial Accounting
Standards No. 128 "Earnings per Share".  All prior periods have been restated
accordingly.


                                                      Year Ended
                                                    (in thousands)
                      12/31/97    12/31/96    12/31/95    12/31/94    12/31/93
                      --------    --------    --------    --------    --------
Working Capital       $   311     $ 1,363     $ 1,340     $ 1,512     $ 1,778

Total Assets            2,840       2,190       2,084       2,420       2,575

Shareholders'
   Equity(Deficiency)  (1,134)        391       1,572       1,736       2,027

<PAGE>

Item 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF             OPERATIONS

Results of Operations

A. Comparison of Fiscal 1997 and Fiscal 1996

     Total revenue for the Company in 1997 decreased $381,327 or 18% compared
to the same period in 1996.  The overall decrease is a combination of a
decrease in product sales of $93,484 or 14% in the dealer channel and $69,076
or 42% in the retail channel, a decrease in service revenue of $25,074 or 27%,
and a decrease in rate change revenue of $193,693 or 16%.  The decline of
sales in the retail channel is due to the Company's withdrawal from a major
supplier's catalog who has exclusive arrangements with one large-scale
supplier.  The decrease in the dealer channel is the result of continued
pressure on the manifest industry by United Parcel Service and other carriers
who provide free software and equipment to customers and a decrease in
placement of new systems.  The decrease in the rate change revenue is a result
of a decline in the customer base due to replacement of Company systems by
carrier systems.  The Company is continuing to develop new products for the
dealer channel.  Introduction of the Shipper Link in December 1997, allows the
dealers to provide a product that will perform like a scale-based manifest
system, but allow electronic transmission of shipper data to carriers like a
PC -based system.  The Company is currently working on new products that will
provide electronic transmission features.  Sales of the Company's
computer-based software program, "The Eagle-Best Rate Shipper", were lower
than expected due to a delay in releasing of the Windows  version.  Release of
the Windows  version occurred in January 1998.

     Cost of sales for product sales increased $132,108 or 13%.  The service
and rate change revenue costs decreased $4,282 or 1% as compared to the same
period in 1996.  The increase in the cost of product sales is due to lower
sales volume resulting in labor and overhead in the manufacturing facility
being absorbed by fewer units produced.

     Gross margin overall decreased 67% for the year ended December 31,1997
as compared to the prior year.  The primary reason was attributable to lower
product sales with a 19% decrease in product sales compared to 1996.

     Operating expenses for the Company in 1997 decreased $305,980 or 16% as
compared to the prior year.  The decrease is a result of a number of factors
including the reduction in the selling, general and administrative expense of
$139,270 or 10% due to downsizing.  The decrease in engineering and
development expenses is a result of an increase of $71,684 in actual expense
offset by an increase in the capitalization of $215,804 of costs  relating to
the postage meter project.  The introduction of the postage meter is
anticipated for late 1998, after submission to the U.S. Postal Service for
testing and approval during the 2nd quarter 1998.  The provision for doubtful
receivables decreased $19,192 as compared to 1996 due to a decrease in the
accounts receivable balance.

     Interest expense for the Company in 1997 increased $147,878 as compared
to the prior year.  This increase is due to the interest associated with
convertible notes issued August 1, 1996 and the additional notes issued
November 25, 1997 (see note 7).

     The net loss of $1,525,360 is $343,194 or 29% higher than the prior
year.  The loss is primarily attributable to lower total revenue for 1997.
The decline in profit, due to lower sales revenue, was partially offset by
lower operating expenses and capitalized costs associated with the meter
project.

B. Comparison of Fiscal 1996 and Fiscal 1995

     Total revenue for the Company in 1996 decreased $1,886,543 or 47%
compared to the same period in 1995.  The overall decrease was a combination
of a decrease in product sales of $561,572 or 46% in the dealer channel and
$346,762 or 68% in the retail channel, a decrease in service revenue of
$75,025 or 45%, and a decrease in rate change revenue of $903,184 or 42%.  The
decline of sales in the retail channel is a result of a consolidation of
various superstores and catalogue houses who have exclusive arrangements with
one large-scale supplier.  The decrease in the dealer channel is primarily the
result of continued pressure on the manifest industry by United Parcel Service
and other carriers who provide free software and equipment to customers.  The
decrease in the rate change revenue was a result of only a single UPS rate
change in February 1996 versus both a UPS and USPS rate change in both January
and August 1995.  The Company developed new products for the dealer channel.
The introduction in May 1996 of a low priced computer-based software program
"The Eagle-Best Rate Shipper" along with the retail version, "The Eagle Parcel
Center 2000" in early 1997   increased sales volume as the dealers become more
acclimated and better trained to market this product.

     Cost of sales for product sales decreased $341,099 or 25%.  The service
and rate change revenue costs decreased $197,769 or 34% as compared to the
same period in 1995.  The decrease is due to lower sales and a reduction in
other product costs.

     Gross margin overall decreased 64% for the year ended December 31,1996
as compared to the prior year.  The primary reason was attributable to lower
product sales with a 43% decrease in gross margin compared to 1995.

     Operating expenses for the Company in 1996 decreased $458,195 or 20% as
compared to the prior year.  The decrease is a result of a number of factors
including the reduction in the selling, general and administrative expense of
$215,097 or 13% due to downsizing and a decrease in engineering and
development expense of $81,336 and the capitalization of $146,198 of costs
relating to the postage meter project.  The provision for doubtful receivables
decreased $15,564 as compared to 1995.

     Interest expense for the Company in 1996 increased $54,538 as compared
to the prior year.  This increase is due to the interest associated with
convertible notes signed August 1, 1996(see note 7).

     The net loss of $1,182,166 increased $952,514 or 415% from a loss of
$229,652 in the prior year.  The loss is primarily attributable to lower rate
change revenue for 1996 due to only one rate change versus two in 1995.  The
decline in profit, due to lower sales revenue, was partially offset by lower
operating expenses and deferred research and development expense.  The profit
associated with one rate change is approximately $700,000.


C. Financial Condition, Liquidity and Capital Resources

     The Company's ability to generate cash depends on rate change revenue,
long term debt, the sale of inventory and collection of accounts receivable.
The Company's 1997 cash balance decreased $94,688 or 23% from December 31,
1996.  The decrease compared to December 31, 1996 is primarily attributable to
a decrease in sales and an increase in spending related to the "Meter
Project." At December 31, 1997, the Company had borrowed $3,000,000 from the
convertible notes (see note 7) and $600,000 from the new notes signed
November, 1997.  The Company's 1997 net accounts receivable balance decreased
$6,251 or 6% from December 31, 1996 levels.  This decrease is due to reduced
sales.

     Working capital has ranged from $1,362,595 in 1996 to $310,713 in 1997.
The Company's current ratio at December 31, 1997 was 1.3 compared to 5.6 at
December 31, 1996.  The decline is due to the increase in current liabilities
relating to the notes payable signed in November 1997, and the current portion
of the convertible notes issued August 1, 1996.

     The Company's total inventories decreased $186,939 or 18% at December 31,
1997 as compared to the prior year end.  The decrease in inventory is related
to the sale of products and reduced purchasing throughout the year.

     The Company provided cash through the two financing agreements entered
into on August 1, 1996, to provide additional funding primarily for the
retirement of bank debt, operations, and to fund the Company's ongoing
development of a series of high-level security postage meters designed to
comply with the new United States Postal Service proposed regulations and two
additional notes issued November 25, 1997 (see note 7).  At December 31, 1997,
the Company was in compliance with all financial covenants associated with the
convertible notes or has received waivers from the noteholders.

     The Company is currently operating without a revolving line of credit
agreement to fund working capital requirements.  Current liquidity is being
funded through the aforementioned product sales, service and rate change
revenues and note payables.

     Based upon the Company's current cash projections which demonstrate a
cash shortfall using these sources of liquidity, its lack of a revolving
credit agreement and the uncertainty regarding its ability to access other
sources of liquidity, substantial doubt exists regarding its ability to
continue as a going concern.

     Management is pursuing additional sources of new capital.  Based on the
terms of the current notes, note holders would have to approve any additional
funding.  The Company also believes that new product introduction in 1997 will
reduce operating losses.

     The Company's investment in capital expenditures for 1997 increased
slightly over 1996.  There were no material commitments for capital
expenditures as of December 31, 1997.  The Company's only significant domestic
capital expenditures in the near future will relate to the manufacture of it's
line of postage meters.

      The Company does not engage in any material off balance sheet
financing.

Inflation

     The effect of inflation on operating results has,  historically, been
insignificant.

Year 2000

     Many computer programs use only the last two digits of a year to store
or process dates.  This is the case with the accounting program used by the
Company.  As a result, the programs may treat dates after 1999 as earlier than
dates before 2000.  This could adversely affect routines such as calculating
depreciation or aging accounts receivable.  The Company is currently assessing
the issue and will correct this defect in the Company's program.  The Company
expects the defect will be corrected without material cost before the year
2000.  The Company's products are not impacted by the year 2000 changeover.
The Company's customers, suppliers and service providers may use computer
programs with similar defects which, to the extent not corrected, may
adversely affect the Company's operations, such as the receipt of supplies,
services, purchase orders and payments of accounts receivable.
     While the Year 2000 considerations are not expected to materially impact
the Company's internal operations, they may have an effect on some of our
customers and suppliers, and thus indirectly affect the Company.  It is not
possible to quantify the aggregate cost to the Company with respect to
customers and suppliers with Year 2000 problems, although the Company does not
anticipate it will have a material adverse impact on its business.

Item 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The information required by this Item is incorporated herein by
reference to the financial statements and supplementary data listed in Item 14
of Part IV of this Report.

Item 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL             DISCLOSURE

     None.
<PAGE>
     PART III

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Incorporated herein by reference is the information required by this
Item in the Company's definitive proxy statement for the 1998 annual meeting
of shareholders which will be filed with the Securities and Exchange
Commission no later than 120 days after the close of the Company's fiscal year
ended December 31, 1997.

Item 11.  EXECUTIVE COMPENSATION

     Incorporated herein by reference is the information required by this
Item in the Company's definitive proxy statement for the 1998 annual meeting
of shareholders which will be filed with the Securities and Exchange
Commission no later than 120 days after the close of the Company's fiscal year
ended December 31, 1997.

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Incorporated herein by reference is the information required by this
Item in the Company's definitive proxy statement for the 1998 annual meeting
of shareholders which will be filed with the Securities and Exchange
Commission no later than 120 days after the close of the Company's fiscal year
ended December 31, 1997.

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Incorporated herein by reference is the information required by this
Item in the Company's definitive proxy statement for the 1998 annual meeting
of shareholders which will be filed with the Securities and Exchange
Commission no later than 120 days after the close of the Company's fiscal year
ended December 31, 1997.

Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K

Documents filed with Report

     Financial Statements
          The financial statements listed on the accompanying Index to
Financial Statements and Schedule are filed as part of this report.

     Financial Statement Schedule
          The financial statement schedule listed on the accompanying Index
to Financial Statements and Schedule are filed as part of this report.

     Exhibits
          The exhibits listed on the accompanying Index to Exhibits are
filed as part of this report.

     Reports on Form 8-K

     No reports on Form 8-K were filed by the Company during the last quarter
of the fiscal year ended December 31, 1997.

<PAGE>
          MICRO GENERAL CORPORATION
          Annual Report - Form 10-K
          Items 8, 14(a)(1) and 14(a)(2)
          Financial Statements and Schedules
          December 31, 1997, 1996 and 1995
          (With Independent Auditors' Report Thereon)
<PAGE>

MICRO GENERAL CORPORATION

Index to Financial Statements and Schedule

Independent Auditors' Report                                              1

Balance Sheets - December 31, 1997 and 1996                               2

Statements of Operations - Years ended December 31, 1997, 1996 and 1995   3

Statements of Shareholders' Equity (Deficiency) - Years ended
   December 31, 1997, 1996 and 1995                                       4

Statements of Cash Flows - Years ended December 31, 1997, 1996 and 1995   5

Notes to Financial Statements                                             6

Schedule
Valuation and Qualifying Accounts - Schedule II

All other schedules are omitted as the required information is inapplicable or
the information is presented in the financial statements or notes thereto.



<PAGE>

Independent Auditors' Report
The Board of Directors and Shareholders
Micro General Corporation:
     We have audited the accompanying balance sheets of Micro General
Corporation as of December 31, 1997 and 1996 and the related statements of
operations, shareholders' equity (deficiency) and cash flows for each of the
years in the three-year period ended December 31, 1997.  These financial
statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these financial statements based on
our audits.
     We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable basis
for our opinion.
     In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Micro General
Corporation as of December 31, 1997 and 1996 and the results of its operations
and its cash flows for each of the years in the three-year period ended
December 31, 1997 in conformity with generally accepted accounting principles.
     The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern.  As discussed in note 2 to the
financial statements, the Company has suffered recurring losses from
operations and has limited working capital resources that raise substantial
doubt about its ability to continue as a going concern.  Management's plans in
regard to these matters are also described in note 2.  The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.

/s/ KPMP PEAT MARWICK LLP
Orange County, California
February 20, 1998

<PAGE>
MICRO GENERAL CORPORATION
Balance Sheets
December 31, 1997 and 1996

               Assets (Note 7)                       1997              1996
                                                   ---------       ----------

Current assets:
     Cash                                        $  318,845         413,533
   Accounts and notes receivable, less allowance
     for doubtful receivables and sales returns of
     $16,141 and $35,333 in 1997 and 1996,
     respectively                                    97,223         103,474
   Inventories (note 3)                             853,033       1,039,972
   Prepaid expenses                                 264,970         104,993
                                                  ---------       ---------
          Total current assets                    1,534,071       1,661,972

   Equipment and improvements, net (note 4)         209,351         207,659
   Other assets, net (note 5)                     1,096,115         320,598
                                                  ---------       ---------
                                                 $2,839,537       2,190,229
                                                  =========       =========

  Liabilities and Shareholders' Equity (Deficiency)

Current liabilities:
  Notes payable (note 7)                         $  850,000              --
  Accounts payable                                  163,455          65,480
  Accrued expenses                                  203,791         173,040
  Deferred revenue                                    6,112          60,857
                                                  ---------       ---------

          Total current liabilities               1,223,358         299,377
                                                  ---------       ---------
  Long-term debt (note 7)                         2,750,000       1,500,000
                                                  ---------       ---------

Shareholders' equity (deficiency) (note 8):
  Preferred stock, $.05 par value.  Authorized
    1,000,000 shares;  none issued and outstanding       --              --
  Common stock, $.05 par value.  Authorized
   10,000,000 shares; issued and outstanding
   1,949,666 and 1,949,166 shares in 1997 and
   1996, respectively                                97,483          97,458
  Additional paid-in capital                      4,176,370       4,175,708
  Accumulated deficit                            (5,407,674)     (3,882,314)
                                                 ----------      ----------
       Total shareholders' equity (deficiency)   (1,133,821)        390,852

  Commitments and contingencies (note 10)                --              --
                                                 ----------      ----------
                                                 $2,839,537       2,190,229
                                                 ==========      ==========
See accompanying notes to financial statements.

<PAGE>
MICRO GENERAL CORPORATION
Statements of Operations
Years ended December 31, 1997, 1996 and 1995

                                              1997        1996        1995
                                            ----------  ---------  ----------
Revenues:
 Product sales, net of returns of $86,061,
   $158,435 and $278,839 in 1997, 1996 and
   1995, respectively                      $  672,049    834,609   1,742,943
 Service and rate change revenues (note 10) 1,102,002  1,320,769   2,298,978
                                           ----------  ---------  ----------
          Total revenues                    1,774,051  2,155,378   4,041,921

Cost of sales:
  Products                                  1,141,026  1,008,918   1,350,017
  Service and rate changes                    385,316    389,598     587,367
                                           ----------  ---------- -----------
          Total cost of sales               1,526,342  1,398,516   1,937,384
                                           ----------  ---------- -----------
          Gross profit                        247,709    756,862   2,104,537

Operating expenses:
  Selling, general and administrative       1,319,955  1,459,225   1,674,322
  Engineering and development                 266,242    410,362     637,896
  Provision for (collections of)
     doubtful receivables                      (6,305)    16,285      31,849
                                            ----------  ---------  ----------
          Operating loss                    (1,332,183)(1,129,010)  (239,530)

Interest and other income (expense), net      (192,377)   (52,356)    10,678
                                            ----------- ---------- -----------
          Loss before income tax expense    (1,524,560)(1,181,366)  (228,852)

Income tax expense (note 6)                        800        800        800
                                            ----------- ---------- -----------
          Net loss                         $(1,525,360)(1,182,166)  (229,652)
                                          ============ =========== ============
Loss per common share:
  Basic                                   $      (.78)       (.61)      (.12)
  Diluted                                        (.78)       (.61)      (.12)
                                          ============ =========== ============
Weighted average common shares used in
  computing per share amounts:
  Basic                                     1,949,563   1,948,541   1,940,666
  Diluted                                   1,949,563   1,948,541   1,940,666
                                          ============ =========== ============
See accompanying notes to financial statements.
<PAGE>

MICRO GENERAL CORPORATION
Statements of Shareholders' Equity (Deficiency)
Years ended December 31, 1997, 1996 and 1995

<TABLE>
                  <S>      <S>      <S>      <S>      <S>        <S>        <S>
                                                                             Total
                                                      Additional              shareholders
                  Preferred stock   Common stock      paid-in    Accumulated   equity
                   Shares  Amount   Shares    Amount    capital     deficit   (deficiency)
                  ------- -------  ---------  -------  ---------  ----------- ------------
                  <C>     <C>      <C>        <C>      <C>        <C>         <C>
Balance at
December 31, 1994   --  $   --      1,888,166 $94,408  4,111,883  (2,470,496)  1,735,795

 Stock options
 exercised (note 8)  --      --       60,000   3,000     62,625          --      65,625

 Net loss            --      --           --      --         --    (229,652)   (229,652)
                  ------- -------  --------- -------- ---------  ----------- ------------
Balance at
 December 31, 1995   --      --    1,948,166  97,408  4,174,508  (2,700,148)  1,571,768

Stock options
 exercised (note 8)  --      --        1,000      50      1,200          --       1,250

Net loss             --      --           --      --         --  (1,182,166) (1,182,166)
                  ------- -------  --------- -------- ---------  ----------- -----------
Balance at
 December 31, 1996   --      --    1,949,166  97,458  4,175,708  (3,882,314)    390,852

Stock options
 exercised (note 8)  --      --          500      25        662          --         687

Net loss             --      --           --      --         --  (1,525,360) (1,525,360)
                  ------- -------  --------- -------- ---------  ----------- -----------
Balance at
 December 31, 1997   --   $ --    $1,949,666 $97,483  4,176,370  (5,407,674) (1,133,821)
                  ======= =======  ========= ======== =========  =========== ===========

See accompanying notes to financial statements.
</TABLE>
<PAGE>

MICRO GENERAL CORPORATION
Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995

                                            1997          1996         1995
                                         ------------  ------------ ------------
Cash flows from operating activities:
  Net loss                               $(1,525,360)   (1,182,166)   (229,652)
  Adjustments to reconcile net loss to net
   cash used in operating activities:
     Depreciation and amortization            90,547       111,223     108,281
     Provision for (collections of)
      doubtful receivables                    (6,305)       16,285      31,849
     Provision for sales returns              86,061       158,435      62,739
     Decrease (increase) in assets:
       Accounts and notes receivabl          (73,505)       71,797     173,855
       Income tax receivable                      --            --       7,000
       Inventories                           186,939       284,137    (183,926)
       Prepaid expenses                     (159,977)       34,440     133,999
       Other assets, net                    (792,307)     (308,558)    (15,000)
     Increase (decrease) in liabilities:
       Accounts payable                       97,975        14,202    (244,793)
       Accrued expenses                       30,751         8,495     (63,527)
       Deferred revenue                      (54,745)       39,180    (138,176)
                                         ------------   -----------  -----------
         Net cash used in
          operating activi                (2,119,926)     (752,530)   (357,351)
                                         ------------   -----------  -----------
Cash flows used in investing
  activities--capital expenditures           (75,449)      (95,409)   (100,900)
                                         ------------   -----------  -----------
Cash flows from financing activities:
  Proceeds from notes payable              2,100,000     1,500,000          --
  Net proceeds (repayment) of notes
    payable to bank                               --      (275,000)    275,000
  Issuance of common stock                       687         1,250      65,625
                                         ------------   -----------  -----------
    Net cash provided by financing
      activities                           2,100,687     1,226,250     340,625
                                         ------------   -----------  -----------
    Net increase (decrease) in cash          (94,688)      378,311    (117,626)

Cash at beginning of year                    413,533        35,222     152,848
                                         ------------   -----------  -----------
Cash at end of year                      $   318,845       413,533      35,222
                                         ============   ===========  ===========
Supplemental disclosures of cash flow information:
  Cash paid during the year for:
    Interest                             $   174,158        54,539       2,000
    Income taxes                                 800           800         800
                                          ==========   ===========   ===========
See accompanying notes to financial statements.
<PAGE>


MICRO GENERAL CORPORATION
Notes to Financial Statements
December 31, 1997, 1996, 1995

(1)  Summary of Significant Accounting Policies

General

The operations of Micro General Corporation (the Company) consist of the
design, purchase, distribution and manufacturing of computerized parcel
shipping systems, postal scales and piece-count scales.  Product sales are
achieved through the use of authorized company dealers and through dealers in
the office products and superstore channels throughout the United States.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, demand deposits and
investments with original maturities of three months or less.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market
(net realizable value).

Equipment and Improvements

Equipment and improvements are stated at cost.  Depreciation and amortization
are provided using the straight-line method over the estimated useful lives of
the respective equipment and improvements.

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

The Company adopted the provisions of Statement of Financial Accounting
Standard No. 121 (Statement No. 121), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," on January 1,
1996.  This Statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.  Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset.  If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the assets.  Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell.  Adoption of this Statement did not have a material
impact on the Company's financial position, results of operations or
liquidity.

New Accounting Pronouncements

Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128).  This
statement replaces the previously reported primary and fully diluted earnings
per share with basic and diluted earnings per share.  Unlike primary earnings
per share, basic earnings per share excludes any dilutive effects of options
and convertible securities.  Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share.  All loss per share
amounts for all periods have been restated to conform to the SFAS No. 128
requirements.

Income Taxes

Income taxes are accounted for under the asset and liability method.  Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases and tax
credit carryforwards.  Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.  The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.

Warranties

The Company's products are sold with a 90-day warranty on materials and
workmanship.  Estimated warranty costs based on historical experience are
accrued as an expense at the time products are sold.

Intangible Assets

Intangible assets are classified under other assets and are amortized on a
straight-line basis over periods ranging from 10 to 15 years.

Capitalized Software Development Costs

Software development costs incurred after the establishment of technological
feasibility are capitalized and amortized using the straight-line method over
the estimated economic life of the product.

Revenue Recognition

Product sales are recorded by the Company when products are shipped to dealers
and customers.  Rate change revenues are recorded by the Company at the time
memory chips are reprogrammed with new tariffs and shipped to the customer.

The Company collects fees from some customers in anticipation of future rate
changes.  Customers prepaying future rate changes receive memory chips with
the new tariffs, upon notice of a rate change, without paying an additional
charge.  These prepaid rate change fees are recorded as revenue on a pro rata
basis over the prepaid period.

Sales Returns

The majority of the Company's product sales are to its authorized dealers who
resell the Company's products.  The Company's policy is that all sales are
final, but dealers may, at the Company's sole discretion and subject to a
restocking fee, return certain out-of-warranty products in exchange for
products of comparable sales value.  Additionally, dealers may, at the
Company's sole discretion, be permitted to return their unopened inventory in
the event they or the Company terminate their dealership agreement, again
subject to a restocking fee.  Upon acceptance of returned goods, the Company
reconditions the goods, at a nominal cost, and restocks them in inventory to
be sold at a later date.  The Company provides an allowance for such returns
equal to the estimated gross profit on the portion of sales estimated to be
returned.  This specific allowance is a component of the Company's allowance
for doubtful receivables and sales returns.

Fair Value of Financial Instruments

The carrying amount of cash, accounts receivable, deferred revenue, notes
receivable, prepaid expenses, other assets, accounts payable and accrued
expenses are measured at cost which approximates their fair value due to
the short maturity of these instruments.

The fair values of notes payable and long-term debt are estimated based
on quoted market prices for similar issues.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Stock Option Plan
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees," and related
interpretations.  As such, compensation expense would be recorded on the date
of grant only if the current market price of the underlying stock exceeded the
exercise price.  On January 1, 1996, the Company adopted Statement of
Financial Accounting Standard No. 123 (SFAS No. 123), "Accounting for
Stock-Based Compensation," which permits entities to recognize as expense over
the vesting period the fair value of all stock-based awards on the date of
grant.  Alternatively, SFAS No. 123 also allows entities to continue to apply
the provisions of APB Opinion No. 25 and provide pro forma net income (loss)
and pro forma earnings (loss) per share disclosures for employee stock option
grants made in 1995 and future years as if the fair-value-based method defined
in SFAS No. 123 had been applied.  The Company has elected to continue to
apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123 (note 8).

(2)  Liquidity and Going Concern

The Company has suffered losses from operations for each of the years in the
three years ended December 31, 1997.  In addition, the Company is currently
operating without a revolving line of credit agreement to fund working capital
requirements.  Current liquidity is being funded through product sales,
service and rate change revenues.

Based upon the recurring losses from operations, the Company's current cash
projections which demonstrate a cash shortfall using the above-mentioned
sources of liquidity, its lack of a revolving credit agreement and the
uncertainty regarding its ability to access other sources of liquidity,
substantial doubt exists regarding the Company's ability to continue as a
going concern.

Management is pursuing additional sources of new capital.  Based on the terms
of the current notes, note holders would have to approve any additional
funding.  The Company also believes that new product introductions in 1997
will reduce operating losses.

(3)  Inventories

Inventories are comprised of the following at December 31, 1997 and 1996:

                                           1997             1996
                                       ------------    ------------
      Parts and supplies               $  646,594         683,936
      Purchased finished goods            180,738         333,376
      Consigned inventory                  25,701          22,660
                                       ------------    ------------
                                       $  853,033       1,039,972
                                       ============    ============
(4)  Equipment and Improvements

Equipment and improvements consist of the following at December 31, 1997 and
1996:

                                Useful life          1997           1996
                               -------------     ------------   ------------
      Production equipment,
        including tooling          5 years       $   454,501       446,232
      Office furniture and
          equipment                5 years           667,026       617,480
      Leasehold improvements       5 years            24,246        39,347
                                                 ------------   ------------
                                                   1,145,773     1,103,059
      Less accumulated depreciation
        and amortization                            (936,422)     (895,400)
                                                 ------------   ------------
                                                 $   209,351       207,659
                                                 ============   ============
(5)  Other Assets

Other assets consist of the following at December 31, 1997 and 1996:

                                 Estimated
                                useful life          1997           1996
                               -------------     ------------   ------------
  Software development costs       5 years       $ 1,054,865        262,558
  Excess cost of assets purchased
    over fair market value        15 years           232,531        232,531
  Deferred loan fees and
    commitment fee                 5 years            50,000         50,000
  License rights                  10 years            41,382         41,382
  Other intangible assets         15 years            23,388         23,388
                                                 ------------   ------------
                                                   1,402,166        609,859
  Less accumulated amortization                     (306,051)      (289,261)
                                                 ------------   ------------
                                                 $ 1,096,115        320,598
                                                 ============   ============

During July 1996, the Company reached the technological feasibility stage of
software development on the Meter Project, which, in accordance with Statement
of Financial Accounting Standard No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed," is the point after which
qualified software development costs may be capitalized.  The amounts
capitalized at December 31, 1997 and 1996 are mainly comprised of salary
expense, departmental overhead and an allocation of other indirect costs.  All
such capitalized costs were incurred subsequent to the achievement of
technological feasibility.


(6)  Income Taxes

Income tax expense for the three years ended December 31, 1997 represents the
state minimum tax.

The expected income tax benefit computed by multiplying loss before income tax
expense by the statutory Federal income tax rate of 34% differs from the
actual income tax expense as follows:
                                       1997            1996           1995
                                   ------------    ------------   ------------
Expected tax benefit               $  (518,000)       (402,000)       (78,000)
Effect of net operating loss
  carryforward not recognized for
  financial statement purposes         513,000         395,000         71,000

Nondeductible amortization of the
  excess cost of assets purchased
  over fair market value                 5,000           7,000          7,000

State income tax expense                   800             800            800
                                   ------------    ------------   ------------
                                   $       800             800            800
                                   ============    ============   ============

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.  Significant components
of the Company's deferred tax assets and liabilities as of December 31, 1997
and 1996 are as follows:

                                                   1997            1996
                                               ------------    ------------
Deferred tax assets:
Net operating loss carryforwards               $ 1,701,000       1,118,000
Reserves and accruals not recognized for income
   tax purposes                                         --          56,000
Tax credit carryforwards                            75,000          80,000
Accelerated depreciation for financial statement
purposes in excess of income tax depreciation       16,000           8,000
                                               ------------    ------------
   Total deferred tax assets                     1,792,000       1,262,000

Less valuation allowance                        (1,792,000)     (1,262,000)
                                                ------------    ------------
   Net deferred tax assets                     $        --              --
                                                ============    ============

The net change in the total valuation allowance during 1997 was an increase of
$530,000.  Management believes the existing net deductible temporary
differences will reverse during periods in which the Company will have the
ability to utilize the deductions to offset other reversing temporary
differences which give rise to taxable income.  However, there can be no
assurance that the Company will generate any earnings or any specific level of
continuing earnings in future years which may also facilitate the realization
of the net deferred tax assets.

At December 31, 1997, the Company had net operating loss carryforwards of
approximately $4,551,000 and $1,734,000 for Federal and state income tax
purposes, respectively.  If not used to offset future taxable income, the net
operating loss carryforwards will expire at various years between 2006 and
2012.  The Company also has investment tax credit and research and
experimentation credit carryforwards aggregating approximately $75,000 which
expire during the period 1998 to 2002.

(7)  Notes Payable/Long-Term Debt

On August 1, 1996, the Company entered into a $3 million financing agreement
which provided additional funding primarily for the retirement of bank debt,
operations, and to fund the Company's ongoing development of a series of
high-level security postage meters designed to comply with the new United
States Postal Service proposed regulations.  Two 9.5%, five-year convertible
notes were made available, one in the amount of $1 million and one in the
amount of $2 million, and are held by Cal West Service Corporation (CalWest),
a California corporation and 38% holder of Micro General common stock and Dito
Caree L.P. Holding (Dito Caree), a Nevada cooperation which owns 5% of the
common stock of Micro General, respectively.  As stipulated in the note
agreements, a maximum of 85% of these borrowings must be used to fund the
Meter Project and the remaining 15% may be used for operations.  Amendment to
the 85%/15% split is at the sole discretion of the note holders.  At December
31, 1997, the Company was not in compliance with this stipulation but did
obtain waivers from both note holders.

The debt, secured by the assets of the Company, can be converted into
1,344,438 shares of the Company's common stock at prices ranging from $2.00 to
$2.50 per share.  At December 31, 1997, there was $3,000,000 outstanding on
these notes.  In conjunction with the $3,000,000 financing agreement, the
Company paid a 1% commitment fee to the noteholders.  This fee amounted to
$20,000 and $10,000 to Dito Caree and CalWest, respectively, and is being
amortized over the term of the notes.

Repayment of the notes is on an interest-only basis for the first two years,
with principal and interest payments for the remaining three years of the
term.

On November 25, 1997, the Company entered into a $600,000 financing agreement
which provided additional funding to be used by the Company for cash flow
purposes.  Two 9.00% notes were issued in the amount of $400,000 and $200,000
and are held by Dito Caree and CalWest, respectively.

Interest on the two notes is to be paid quarterly.  The Company has the right
to prepay all or a portion of the interest and principal due on the notes at
any time prior to the due date of May 31, 1998.  All payments must be
allocated two-thirds to Dito Caree and one-third to CalWest.

In conjunction with the short-term notes, the Company issued to the note
holders, two detachable warrant certificates, one in the amount of 100,000
shares to Dito Caree and one in the amount of 50,000 shares to CalWest, giving
the note holders the right to purchase 150,000 shares of the Company's common
stock at $1.50 per share.  The warrants can be exercised any time between
November 25, 1997 and November 25, 2002.

Principal maturities of the notes payable and long-term debt are as follows:

                               1998      $  850,000
                               1999       1,000,000
                               2000       1,000,000
                               2001         750,000
                                         -----------
                               Total     $3,600,000
                                         ===========

At December 31, 1997, the Company was in compliance with restrictive debt
covenants on the $600,000 notes payable and received waivers from the note
holders for the events of noncompliance on the $3,000,000 long-term debt.

(8)  Stock Option Plans

Under terms of the Company's Incentive Stock Option Plan (the Plan), the
exercise price of options granted is to be equal to the stock's fair market
value at the date of grant.  Common stock initially available for option under
the Plan was 220,000 shares.  Options are exercisable no later than 5 years
from the date of grant.  Options which are not exercised or canceled revert
back to the Plan and are subject to subsequent reissuance.  This Plan expired
on October 7, 1991 and was renewed at the 1993 annual shareholders' meeting.
There are no remaining shares available for grant under this Plan as of
December 31, 1997.

In 1995, the Company's Board of Directors approved a new stock option plan
(the 1995 Plan). Common stock available for option under the 1995 Plan is
132,499 shares and all shares were available for grant as of December 31,
1997.

The per share weighted-average fair value of stock options granted during
1997, 1996 and 1995 was $0.77, $1.02 and $1.05 on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions:

                                        1997            1996            1995
                                    ------------    ------------   ------------
Expected dividend yield                  0%              0%              0%
Risk-free interest rate range        5.94%-6.73%     5.91%-6.48%   5.96%-7.47%
Volatility factor                      67.05%          46.49%          46.49%
Expected life                          4 years         4 years         4 years
                                    ============    ============   =============

The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements.  Had the Company determined compensation cost based
on the fair value at the grant date for its stock options under SFAS No. 123,
the Company's net loss would have been increased to the pro forma amounts
indicated below:

                                        1997            1996            1995
                                    ------------    ------------   ------------
Net loss:
  As reported                       $(1,525,360)     (1,182,166)      (229,652)
  Pro forma                          (1,686,197)     (1,304,893)      (324,677)
                                    ============    ============   ============
Net loss per share:
  As reported:
    Basic                           $      (.78)           (.61)          (.12)
    Diluted                                (.78)           (.61)          (.12)
                                    ============    ============   ============

Pro forma:
    Basic                           $      (.86)           (.67)          (.17)
    Diluted                                (.86)           (.67)          (.17)
                                    ============    ============   ============

Pro forma net loss reflects only options granted since January 1, 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net loss amounts
presented above because compensation cost is reflected over the options'
vesting period and compensation cost for options granted prior to January 1,
1995 is not considered.

A summary of all stock option transactions for the three-year period ended
December 31, 1997 follows:
                                                       Weighted
                                                        average
                                       Shares       exercise price
                                    ------------    --------------
Options granted and outstanding:
  At December 31, 1994                 189,500       $    1.46
   Granted                             110,000            2.31
   Exercised                           (60,000)           1.09
   Canceled                           (100,000)           1.52
                                    ------------    --------------
  At December 31, 1995                 139,500            2.25
   Granted                              26,500            2.26
   Exercised                            (1,000)           1.25
   Canceled                            (20,000)           2.22
                                    ------------    --------------
  At December 31, 1996                 145,000            2.26
   Granted                              78,000            1.38
   Exercised                              (500)           1.38
   Canceled                             (6,500)           2.24
                                    ------------    --------------
  At December 31, 1997                 216,000         $  1.94
                                    ============    ==============

The aggregate value of options outstanding at December 31, 1997, 1996 and 1995
was approximately $419,000, $328,000 and $314,000, respectively.  At December
31, 1997, options for 96,667 shares of common stock were vested and
exercisable at prices ranging from $1.25 to $2.50 per share.


(9)  401(k) Plan

The Company maintains a 401(k) plan whereby all employees who have completed
three months of service may elect to make pretax contributions of 1% to 20% of
their annual pay not to exceed contributions of $9,500 per year.  The Company
has a 25% employer matching program contingent upon Company earnings of at
least $100,000.  As the Company did not meet the minimum earnings requirement
for employer matching in 1997, 1996, and 1995, no Company contributions were
made to the plan for those years.

(10) Commitments and Contingencies

Noncancelable operating lease commitments consist principally of the lease for
the Company's distribution and administrative facility.  In February 1994, the
Company extended this facility lease through 1999.  In December 1996, the
Company entered into a four-year lease agreement for a new distribution and
administration facility and in turn entered into an agreement to sublease the
old distribution and administration facility for the same lease term and same
lease payments.  Sublease income is shown below as a reduction to total future
lease payments. At December 31, 1997, the Company was committed to the
following noncancelable operating lease payments:

       Year ending December:
             1998                $  183,000
             1999                    92,000
             2000                    65,000
                                 ----------
                                    340,000
      Less sublease income         (143,000)
                                 ----------
      Net minimum lease payments $  197,000
                                 ==========

Rental expense was approximately $113,000 in 1997, $150,000 in 1996, and
$130,400 in 1995.

The Company has a license agreement with Pitney Bowes which enables the
Company to manufacture and sell certain products.  The license agreement
expires in 2004.  Annual expenses for the license agreement are minor.

From time to time, the United States Postal Service (USPS) or United Parcel
Service (UPS) change their rates.  For a fee, the Company provides its
customers with programmable memory chips with the new tariffs which can be
inserted into the Company's products.  In some instances, customers prepay a
fee to the Company which assures they will receive new programmable memory
chips for all rate changes which occur within a predetermined period.  In
other instances, customers incur a fee for each time they decide to procure a
new programmable memory chip.  The Company has experienced UPS rate changes in
1997, 1996 and 1995 and a USPS rate change in 1997 and 1995.  During 1997,
1996, and 1995, the Company recorded revenues from rate changes totaling
approximately $1,035,000, $1,229,000 and $2,132,000, respectively.  Gross
profits related to rate changes in 1997, 1996 and 1995 totaled approximately
$725,000, $902,000 and $1,805,000, respectively.  A UPS rate change also
occurred in February 1998.  However, there can be no assurance that future
rate changes by UPS or USPS will occur.

The Company is involved in various claims and legal actions arising in the
ordinary course of business.  In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
<PAGE>

MICRO GENERAL CORPORATION
Valuation and Qualifying Accounts
Years ended December 31, 1997, 1996 and 1995
<TABLE>
                                                   Additions to
                                                    costs and
                                      Balance at     expenses                 Balance at
                                      beginning of  (account                  end of
         Description                     period     recoveries)   Deductions  period
        ------------                  ------------ ------------ ------------  ------------
                                      <C>          <C>          <C>           <C>
Allowance for doubtful receivables:
  Year ended December 31, 1997        $   28,333       (6,305)      12,887      9,141
                                      ============ ============ ============ ============
  Year ended December 31, 1996        $   39,594       16,285       27,546     28,333
                                      ============ ============ ============ ============
  Year ended December 31, 1995        $   74,749       31,849       67,004     39,594
                                      ============ ============ ============ ============

Allowance for sales returns:
  Year ended December 31, 1997        $    7,000       86,061       86,061       7,000
                                      ============ ============ ============ ============
  Year ended December 31, 1996        $    7,000      158,435      158,435       7,000
                                      ============ ============ ============ ============
  Year ended December 31, 1995        $    7,000       62,739       62,739*      7,000
                                      ============ ============ ============ ============

*    Represents gross profit on sales returns.

</TABLE>

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities 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
Dated:    March 31, 1998           By:      /s/ Thomas E. Pistilli
                                         Thomas E. Pistilli
                                         President
                                         Chief Executive Officer
                                         Chief Financial Officer

                                   By:    /s/ Linda I. Morton
                                         Linda I. Morton
                                         Controller
                                         Corporate Secretary

     Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates so indicated.
Signature                     Title                    Date

    /s/ Thomas E. Pistilli    President and Director   March 31, 1998
Thomas E. Pistilli

   /s/ John J. Cahill         Director            March 31, 1998
John J. Cahill

   /s/ William P. Foley ,II   Director            March 31, 1998
William P. Foley, II

   /s/ George E. Olenik       Director            March 31, 1998
George E. Olenik

   /s/ Richard H. Pickup      Director            March 31, 1998
Richard H. Pickup

 /s/ Carl A. Strunk           Director            March 31, 1998
Carl A. Strunk

<PAGE>
Index of Exhibits                                                      Page#

3.1      Restated Articles of Incorporation of the Company (incorporated by
         reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K
         for the year ended December 25, 1988 (the "1988 Form 10-K Amendment
         1"))

3.11    Restated Articles of Incorporation of the Company - Article
        Fourth of the Certificate of Incorporation((Incorporated by reference
        to the Company's Annual Report on Form 10-K for the year ended
        December 31, 1996 (the "1996 Form 10-K"))

3.2     Bylaws of the Company (incorporated by reference to Exhibit 3.2 to
        the "1988 Form 10-K Amendment 1")

10.1    Incentive Stock Option Plan and form of Incentive Stock Option
        Agreement in use prior to 1987 (incorporated by reference to Exhibit
        10.1 to the 1984 Form 10-K) Option Plan and form of Incentive Stock
        Option Agreement in use commencing in 1987 (incorporated by reference to
        Exhibit 10 to the Company's Annual Report for the year ended December
        28,1986 (the "1986 Form 10-K"))

10.3    Lease of 1740 E. Wilshire Ave., Santa Ana, California, 92705, facilities
        between Shaw Investment and the Company (incorporated by reference to
        the Company's Annual Report on Form 10-K for the year ended December 25,
        1988 (the "1988 Form 10-K Amendment 1"))

10.4    Lease of 115 Hurley Road., Oxford, Connecticut, 06478, facilities
        between Hurley Farms Business Park and the Company dated March 20, 1995.
        (Incorporated by reference to the Company's Annual Report on
        Form 10-K for the year ended December 31, 1996 (the"1996 Form 10-K"))

10.5    Sub-lease of 1740 E. Wilshire Ave., Santa Ana, California, 92705
        facilities between Micro General Corporation and Secure Communications
        dated October 29, 1996.(Incorporated by reference to the Company's
        Annual Report on Form 10-K for the year ended December 31, 1996 (the
        "1996 Form 10-K"))

10.6    Leases of 14711 Bentley Circle, Tustin, California, 92780 facilities
        between Andrew S. Friedman and the Company dated November 6, 1996.
        (Incorporated by reference to the Company's Annual Report on Form
        10-K for the year ended December 31, 1996 (the "1996 Form
        10-K"))

10.16.3  Amendment to Loan Agreement between the Company and Silicon Valley
         Bank dated December 10, 1993. (Incorporated by reference to the
         Company's Annual Report on Form 10-K for the year ended
         December 31, 1993)

10.16.4  Amendment to Loan Agreement between the Company and Silicon Valley
         Bank dated January 27, 1994. (Incorporated by reference to the
         Company's Annual Report on Form 10-K for the year ended
         December 31, 1994)

10.17   Loan Agreement between the Company and First Bank and Trust dated
        November 15, 1995. (Incorporated by Reference to the Company's Annual
        Report on Form 10-K for the year ended December 31, 1995)

10.18   Convertible Note Purchase Agreement between Micro General
        Corporation and CalWest Service Corporation dated August 1, 1996.
        (Incorporated by reference to the Company's Annual Report on
        Form 10-K for the year ended December 31, 1996 (the "1996 Form 10-K"))

10.19   Convertible Note Purchase Agreement between Micro General
        Corporation and Dito Caree L.P. dated August 1, 1996.(Incorporated by
        reference to the Company's Annual Report on Form 10-K for the year ended
        December 31, 1996 (the "1996 Form 10-K"))

10.20   Loan Agreement and Agreement to issue Detachable Warrants
        between Micro General Corporation and CalWest Service
        Corporation and Dito Caree L.P. Holding dated November
        25, 1997 (filed herewith)                                      40

23.1    Consent of KPMG Peat Marwick LLP (filed herewith)              38