<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 26, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM _______________TO_______________
Commission File Number: 0-9856
------
AM COMMUNICATIONS, INC.
-----------------------
(Exact name of small business issuer as specified in its charter)
Delaware 23-1922958
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 Commerce Boulevard, Quakertown, Pennsylvania 18951-2237
- ------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
(215) 538-8700
--------------
(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
--- ---
On January 29, 1999, there were 31,072,296 shares of the Registrant's Common
Stock, par value $.10 per share, outstanding.
<PAGE>
AM COMMUNICATIONS, INC.
FORM 10-QSB
FOR THE QUARTER ENDED DECEMBER 26, 1998
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
- ------------------------------ -------
Item 1. Financial Statements
Balance Sheets -- December 26 (Unaudited) and March 28, 1998 3
Statements of Operations -- Three Month Periods and Nine Month 4
Periods Ended December 26, 1998 and December 27, 1997,
(Unaudited)
Statements of Cash Flows -- Nine Months Ended December 26, 1998
and December 27, 1997 (Unaudited) 5
Notes to Financial Statements 6, 7
Item 2. Management's Discussion and Analysis of Operations 8 - 12
PART II. OTHER INFORMATION
- --------------------------
Item 6. Exhibits and Reports on Form 8-K 12
2
<PAGE>
Item 1. Financial Statements
- -------------------------------
AM COMMUNICATIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 26, March 28,
1998 1998
-------------- ---------------
<S> <C> <C>
ASSETS (Unaudited)
Current Assets:
Cash $ 133,000 $ 710,000
Accounts Receivable, Net of Reserves of $32,000
at December 26 and March 28, 1998 1,355,000 1,851,000
Inventory 1,529,000 2,073,000
Prepaid Expenses and Other 67,000 63,000
--------------- --------------
Total Current Assets 3,084,000 4,697,000
Equipment and Fixtures, Net 440,000 734,000
Other Assets 17,000 19,000
-------------- --------------
Total Assets $ 3,541,000 $ 5,450,000
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Portion of Capital Lease Obligations $ 56,000 $ 108,000
Current Portion of Notes Payable 30,000 ---
Bank Line of Credit 250,000 ---
Accounts Payable 818,000 991,000
Advances --- 194,000
Accrued Expenses 1,075,000 987,000
-------------- --------------
Total Current Liabilities 2,229,000 2,280,000
-------------- --------------
Capital Lease Obligations - Long Term --- 39,000
Notes Payable - Long Term 105,000 ---
Senior Convertible Redeemable Preferred Stock, 2,583,000 2,583,000
$100 Par Value, Authorized 1,000,000 Shares; Issued
and Outstanding 25,825 Shares at December 26 and
March 28, 1998
Commitments and Contingencies
Stockholders' Equity:
Common Stock, $.10 Par Value, Authorized 50,000,000
Shares at December 26 and March 28, 1998; Issued
and Outstanding 31,072,296 Shares at December 26
and March 28, 1998 3,107,000 3,107,000
Capital in Excess of Par 31,269,000 31,269,000
Accumulated Deficit (35,752,000) (33,828,000)
--------------- ---------------
Stockholders' Equity (Deficit) (1,376,000) 548,000
--------------- --------------
Total Liabilities and Stockholders' Equity $ 3,541,000 $ 5,450,000
============== ==============
</TABLE>
See Notes to Financial Statements
3
<PAGE>
AM COMMUNICATIONS, INC.
STATEMENTS OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 26, December 27, December 26, December 27,
1998 1997 1998 1997
-------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Revenues $ 2,099,000 $ 4,570,000 $ 6,953,000 $ 12,219,000
Cost and Expenses:
Cost of Sales 1,118,000 2,658,000 3,893,000 6,622,000
Selling, General and Administrative 530,000 669,000 1,889,000 1,854,000
Research and Development 1,136,000 892,000 3,089,000 2,867,000
-------------- ------------- ------------- --------------
Operating Income (Loss) (685,000) 351,000 (1,918,000) 876,000
Other Income (Expense) (4,000) (16,000) (6,000) (34,000)
-------------- ------------- ------------- --------------
Income (Loss) Before Income Taxes (689,000) 335,000 (1,924,000) 842,000
Income Tax Provision --- 10,000 --- 10,000
-------------- ------------- ------------- --------------
Net Income (Loss) $ (689,000) $ 325,000 $ (1,924,000) $ 832,000
================ ============= ============== =============
Basic Net Income (Loss) Per Share $ (0.02) $ 0.01 $ (0.06) $ 0.03
=============== ============= =============== ==============
Diluted Net Income (Loss) Per Share $ (0.02) $ 0.01 $ (0.06) $ 0.02
=============== ============= =============== ==============
Shares Used in Computation of Basic
Net Income (Loss) Per Share 31,072,000 31,052,000 31,072,000 31,052,000
========== ========== ========== ==========
Shares Used in Computation of
Diluted Net Income (Loss) Per Share 31,072,000 33,925,000 31,072,000 33,955,000
========== ========== =========== ==========
</TABLE>
See Notes to Financial Statements
4
<PAGE>
AM COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
December 26, December 27,
1998 1997
-------------- -----------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $(1,924,000) $ 832,000
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided by (Used in) Operating Activities:
Depreciation and Amortization 339,000 406,000
Changes in Assets and Liabilities Which
Provided (Used) Cash:
Accounts Receivable 496,000 (1,134,000)
Inventory 544,000 (624,000)
Prepaid Expenses and Other (16,000) (19,000)
Accounts Payable (173,000) (144,000)
Advances (194,000) (5,000)
Accrued and Other Expenses 88,000 90,000
----------- -----------
Net Cash Used In Operating Activities (840,000) (598,000)
Cash Flows From Investing Activities:
Purchase of Equipment and Intangible Assets (31,000) (267,000)
----------- -----------
Net Cash Used In Investing Activities (31,000) (267,000)
Cash Flows from Financing Activities:
Net Proceeds from Borrowings Under Bank Line of Credit 250,000 400,000
Proceeds from Note Payable 135,000 --
Exercise of Warrants and Stock Options -- 3,000
Payments Under Capital Lease Obligations (91,000) (101,000)
----------- -----------
Net Cash Provided By Financing Activities 294,000 302,000
Net Decrease In Cash (577,000) (563,000)
Cash:
Beginning 710,000 620,000
----------- -----------
Ending $ 133,000 $ 57,000
=========== ===========
Interest Paid $ 13,000 $ 37,000
=========== ===========
Income Taxes Paid $ 19,000 $ --
=========== ===========
Non-Cash Financing Activities:
Equipment Purchased Under Capital Lease $ -- $ 195,000
=========== ===========
</TABLE>
See Notes to Financial Statements
5
<PAGE>
AM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
As of December 26, 1998 and for the
39 Week Periods Ended December
26, 1998 and December 27, 1997
1. The accompanying interim financial statements should be read in conjunction
with the annual financial statements and notes thereto included in AM
Communications, Inc.'s Annual Report. The Balance Sheet as of December 26,
1998 and the related Statements of Operations and Statements of Cash Flows
for the quarters and nine months ended December 26, 1998 and December 27,
1997 are unaudited, but in the opinion of management include all normal and
recurring adjustments necessary for a fair statement of the results for such
interim periods.
<TABLE>
<CAPTION>
December 26, March 28,
1998 1998
--------------- --------------
(Unaudited)
<S> <C> <C>
2. Inventory Comprises:
Raw Material $ 1,873,000 $ 2,171,000
Work in Process 716,000 937,000
Finished Goods 155,000 180,000
-------------- --------------
2,744,000 3,288,000
Inventory Reserves (1,215,000) (1,215,000)
--------------- ---------------
Net Inventory $ 1,529,000 $ 2,073,000
============== ==============
3. Accrued Expenses Comprise:
Accrued Compensation $ 341,000 $ 462,000
Accrued Contracted Compensation - NeST 212,000 ---
Accrued Rent 185,000 180,000
Accrued Real Estate Taxes 28,000 29,000
Warranty Reserve 203,000 203,000
Accrued Income Taxes 14,000 32,000
Accrued Professional Fees 33,000 60,000
Other 59,000 21,000
-------------- --------------
$ 1,075,000 $ 987,000
============== ==============
</TABLE>
4. Income Taxes:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109.
6
<PAGE>
The provision for taxes on income consisted of:
Nine Months Ended
-----------------
December 26, December 27,
1998 1997
--------- ---------
Current Income Taxes $ -- $ 10,000
Deferred Income Taxes (787,000) 99,000
Change in Valuation Allowance 787,000 (99,000)
--------- ---------
Net $ -- $ 10,000
========= =========
A reconciliation between the provision (benefit) for income taxes, computed
by applying the statutory federal income tax rate of 34% to income before income
taxes and the actual provision for income taxes follows:
Nine Months Ended
-----------------
December 26, December 27,
1998 1997
------------ ------------
Federal Income Tax Provision (Benefit) at
Statutory Rate $(654,000) $ 286,000
State Income Taxes, Net of Federal Benefit (126,000) 56,000
Research and Development Credits (10,000) (38,000)
Permanent Differences 3,000 3,000
Change in Valuation Allowance 787,000 (99,000)
Expiration (Utilization) of NOL Carryforwards --- (198,000)
---------- ------------
Income Tax Provision $ --- $ 10,000
========== ============
The components of the net deferred tax asset as of December 26 and March
28, 1998 were as follows:
December 26, March 28,
1998 1998
------------ ------------
Deferred Tax Items:
Inventory $ 493,000 $ 493,000
Accrued Expenses and Reserves 173,000 155,000
Net Operating Loss Carryforwards 8,521,000 7,761,000
Tax Credit Carryforwards 757,000 748,000
Valuation Allowance (9,944,000) (9,157,000)
------------ ------------
Net Deferred Tax Assets $ --- $ ---
============ ============
The Company has total net operating loss carryforwards available to offset
future taxable income of approximately $25.1 million expiring at various times
from 1999 through 2012. Due to certain statutory limitations under Internal
Revenue Code Section 382, a portion of such carryforwards may not be available
or may expire before being utilized.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Operations
- ------------------------------------------------------------
The following discussion contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements represent the Company's present expectations or beliefs concerning
future events. The Company cautions that such statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical results or anticipated results. Potential risks and
uncertainties include, without limitation, the impact of economic conditions
generally; the competitive nature of the CATV network monitoring market; the
Company's ability to enhance its existing products and develop and introduce new
products which keep pace with technological developments in the marketplace; and
market demand.
The following discussion should be read in conjunction with the Company's Form
10-KSB for its year ended March 28, 1998.
General
AM Communications is a provider of high technology system level products for the
broadband communications industry, primarily for network monitoring of CATV
transmission systems.
As disclosed in the Company's Form 10-KSB for the fiscal year ended March 28,
1998, the Company experienced a drop in the backlog of open orders during the
end of its 1998 fiscal year. The order slow down was due primarily to the lack
of re-orders related to two major accounts which contributed 34% and 18% of
fiscal 1998 revenues. In both situations, the customers have placed their
capital programs involving the purchase of the Company's products on hold
pending re-evaluation of the program. The Company is unable to determine if
future orders will be forthcoming from these customers and as a result, revenues
for fiscal 1999 to date are significantly below revenues for fiscal 1998 and the
Company has incurred substantial operating losses during fiscal 1999.
Results of Operations
- ----------------------
Quarter 3 Fiscal 1999 vs. 1998
- ------------------------------
Quarter 3 Quarter 3
Fiscal 1999 Fiscal 1998
----------- -----------
Revenues 100.0% 100.0%
Cost of Sales 53.2 58.2
Selling, General and Administrative 25.3 14.6
Research and Development 54.1 19.5
---- ----
Operating Income (Loss) 32.6 7.7
Revenues
Revenues for the third quarter of fiscal 1999 ended December 26, 1998 were $2.1
million and $7.0 million for the first nine months of fiscal 1999, representing
a 54% and 43% decline, respectively, compared to the prior year periods. The
decline in revenues is due primarily to the previously described drop-off of
revenues from two key customers. The Company's efforts to
8
<PAGE>
replace this business have been impacted by a slow down in OEM activity and
competitive issues related to certain of the Company's products. During November
1998, the Company announced a strategic partnership with NeST (Network Systems &
Technologies Ltd.), which is providing a significant number of development
resources in a planned effort to upgrade the Company's systems products to
improve its competitive position. In addition, the Company hired a Vice
President for sales and marketing in January 1999. The Company continues to
maintain key strategic OEM relationships with General Instrument, Philips, and
Scientific-Atlanta. Backlog at December 26, 1998 was $1.4 million compared to
$5.2 million a year ago. The Company is also focusing on upgrading its
technology base using the NeST resources to re-establish its competitive
position in the marketplace. Initial results subsequent to December 1998 have
shown improvement as backlog has risen to $2.4 million as of February 1, 1999.
Development and software revenues totaled $234,000 and $137,000 in the third
quarter of fiscal 1999 and 1998, respectively and $959,000 and $749,000 in the
first nine months of fiscal 1999 and 1998, respectively. Development revenues
primarily relate to OEM development efforts which are recognized when defined
milestones are reached, the timing of which may be different from when the
related development expenses were incurred. The related development costs are
reported as research and development expense. All software development costs are
charged to research and development when incurred.
Cost of Sales
Cost of sales includes manufacturing costs of the Company's hardware products.
Cost of sales represented 53% of revenues in the third quarter of fiscal 1999
compared to 58% in the third quarter of fiscal 1998 and 56% and 54% in the first
nine months of fiscal 1999 and 1998, respectively. The Company's margins are
generally dependent on product mix and customer mix, with sales to OEM customers
generally having a lower profit margin.
Selling, General and Administrative
Selling, general and administrative (S, G&A) expenses were $530,000 and $669,000
in the third quarter of fiscal 1999 and fiscal 1998, respectively and $1.9
million for the first nine months of both fiscal 1999 and 1998. Expenses have
decreased in the third quarter of fiscal 1999 due to staffing reductions
implemented in response to the decline in revenues.
Research and Development
Research and development expense totaled approximately $1.1 million and $892,000
for the third quarter of fiscal 1999 and 1998, respectively and approximately
$3.1 million and $2.9 million for the first nine months of fiscal 1999 and 1998,
respectively. The Company was previously severely limited in its access to
development resources which has negatively impacted its competitive position. As
a result of the NeST partnership, the Company has significantly increased the
number of engineering staff and is presently undertaking a major upgrade of its
OmniVU software platform.
In November 1998, the Company announced a new strategic development relationship
with Network Systems & Technologies Ltd. (NeST). NeST is a provider of system
solutions and electronic manufacturing resources located in Southwest India.
Under the agreement, AM will integrate the NeST technology resources as a
dedicated part of its engineering organization. Engineering efforts at the
Company's headquarters will continue to focus on product specification,
technical customer support and project management. NeST will perform product
design and development, predominately in India. The Company also expects to
utilize the NeST
9
<PAGE>
manufacturing resources on a turnkey basis to reduce manufacturing costs of
products. The Company has the option of paying for development services in cash
or AM stock. A total of $212,000 of NeST expenses were incurred during the three
months ended December 26, 1998 and have been reported as an accrued liability as
of December 26, 1998. As a result of the NeST relationship, the Company expects
to increase its development staff working on critical programs, reduce its
present cash outlays for product development as initial development will be
funded with a mix of cash and AM stock, and identify manufacturing cost
reductions as product manufacturing is transferred to India. NeST is a company
with a substantial portion of its ownership held by Mr. Jay Hassan, the
Company's Chairman and holder of majority voting rights in AM.
Operating Income (Loss)
The Company experienced operating losses of $689,000 in the third quarter of
fiscal 1999 and $1.9 million for the first nine months of fiscal 1999 primarily
due to a significant drop-off of revenues as previously described. The Company
has reduced its annual operating costs going forward primarily through staff
reductions at its Quakertown facility. However, such cost reductions have been
offset by increased spending related to the NeST technical resources. Should the
Company's revenue levels not improve, further operating losses would be incurred
and the Company would expect to further reduce operating costs to minimize such
losses.
Income Taxes
Due to the significant net operating loss carry-forward, the Company is subject
to minimum income taxes which include state income taxes and federal income
taxes based on an "alternative minimum tax" calculation.
Industry Factors
The cable and broadband communications industry is undergoing significant change
as cable television (CATV) operators continue to expand and consolidate their
operations. Operators are also implementing new interactive services such as
video on demand, Internet access and telephony. In addition, competition for
video services has increased with new entrants, including telephone and
satellite providers. This has resulted in existing CATV operators planning to
expand and upgrade their distribution infrastructures and new providers planning
to construct new distribution systems capable of providing a mix of services.
There continue to be many unresolved issues and uncertainties impacting this
convergence of CATV and telecommuni-cations industries, including governmental
regulations, competing distribution technologies, and significant capital costs.
Demand for CATV network monitoring products has generally increased as
monitoring of cable distribution systems has become an important factor in
increasing operating efficiency and reliability. However, the Company's
operations are subject to the timing and success of new product introductions,
the scheduling of orders by customers and the Company's ability to support its
technology in the field. In the past, the Company has experienced technical
field problems primarily with its software product, which has required the
Company to incur added expenses in field applications and development and which
has impacted new selling efforts. The Company also continues to identify product
development needs in excess of its available development resources, which has
negatively impacted its competitive position. While the Company's new
relationship with NeST is expected to improve the Company's ability to introduce
new products and its competitive position, improvement in the Company's
operating position is dependent on timely transition to NeST of critical
development programs and the successful introduction of new technology products.
10
<PAGE>
Due to the effects of these factors on future operations, past performance is a
limited indicator in assessing potential future performance which could impact
the trading price of the Company's common stock.
Liquidity and Capital Resources
In the first nine months of fiscal 1999, the Company consumed net cash of
$577,000 compared to consuming net cash of $563,000 during the comparable period
in fiscal 1998.
As of December 26, 1998, the Company's cash totaled $133,000 compared to
$710,000 at March 28, 1998 and the Company had outstanding $250,000 under its
bank line of credit. As discussed above, the Company expects to incur operating
losses during fiscal 1999, though it has taken aggressive steps to reduce the
ongoing cash requirements including staff reductions and entering into the NeST
technical relationship which provides flexibility as to the method of payment
for such services. The Company believes that existing cash and available lending
lines, combined with recent operating expense and staff reductions and the NeST
relationship, are sufficient to support operations for the remainder of the
fiscal year. Should operating losses continue or exceed planned levels, the
Company would expect to further reduce operating expenses, including additional
staff reductions, to allow continued operation of the business. The Company is
also evaluating the need to raise additional capital. There can be no assurance
that such additional capital will be available on terms acceptable to the
Company.
During the quarter ended September 26, 1998, the Company received $135,000 in
proceeds from a $150,000 technology improvement fund loan from the Ben Franklin
Technology Center of Southeastern Pennsylvania. The loan is for the development
of the Company's OmniVU 2000 software package. The loan principal is payable in
quarterly installments of $7,500 over the next five years. Interest is payable
quarterly contingent on the commercial success of the product in an amount equal
to 3% of the product sales for the immediately preceding quarter until a
cumulative amount equal to fifty percent of the loan has been repaid.
In September 1997, the Company received a working capital line of credit from a
commercial bank to provide up to $1 million based on the value of accounts
receivable. Under terms of the agreement, all the Company's assets are pledged
and interest is payable at 1 1/2% above prime. The Company borrowed up to
$612,000 under this line during fiscal 1998, which was repaid, and no amounts
were outstanding at March 28, 1998. The line of credit expired July 31, 1998 and
the Company received a commitment letter extending the line at a reduced level
of $750,000 through July 30, 1999. The Company also received up to a $250,000
commitment from its primary shareholder to provide working capital through July
1999 at 10% interest and payment of outstanding borrowings due by September 30,
1999.
Capital expenditures totaled $31,000 in the first nine months of fiscal 1999 and
$267,000 in the comparable period of fiscal 1998 which include capital leases,
computers, manufacturing assembly and test equipment and facility related
improvements and fixtures.
11
<PAGE>
Change in Management Structure
The Company announced the appointment of Javad (Jay) K. Hassan as a director and
Chairman of the Board in November 1998. Mr. Hassan is the founder and principal
shareholder of Network Systems & Technologies (NeST), a provider of software and
system solutions located in India which provides development resources to the
Company. In addition, Mr. Hassan has entered into a Voting Trust Agreement with
the Company's primary shareholder in which Mr. Hassan has voting control over
14,391,837 shares held by the principal shareholder. Mr. Hassan has taken an
active role as Chairman with the goal of expanding the Company's focus into
other communications system areas, as well as re-establishing growth in the
network monitoring area.
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruption of operations, including among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company believes that it has minimal exposure to contingencies related to
the Year 2000 Issue for the products it has sold.
The Company has determined that its internal reporting system will not properly
utilize dates beyond December 31, 1999. A plan has been initiated to implement a
replacement software system. Management expects this software system will be
installed and fully operational during 1999. The anticipated cost of this
project is $150,000.
The Company plans to engage in formal communication with all of its significant
suppliers and large customers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
Issue. There can be no guarantee that the systems of other companies on which
the Company's systems rely or interface with will be timely converted, or that a
failure to convert by another company, or a conversion that is incompatible with
the Company's systems, would not have a material adverse effect on the Company.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- --------------------------------------------
(a) Exhibits.
27 - Financial Data Schedule
(b) The Company filed a report on Form 8-K in November, 1998 reporting
upon a change in control of the Company. Voting rights with respect
to shares owned by the majority stockholder, Alvin Hoffman, have been
transferred to Javad K. Hassan resulting in a change of control of
the Company from Mr. Hoffman to Mr. Hassan.
<PAGE>
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.
AM COMMUNICATIONS, INC.
(Registrant)
Date: February 9, 1999 By: /s/ Keith D. Schneck
---------------- -------------------------------------
Keith D. Schneck
President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-START> SEP-27-1998
<PERIOD-END> DEC-26-1998
<CASH> 133,000
<SECURITIES> 0
<RECEIVABLES> 1,355,000
<ALLOWANCES> 32,000
<INVENTORY> 1,529,000
<CURRENT-ASSETS> 3,084,000
<PP&E> 4,352,000
<DEPRECIATION> 3,912,000
<TOTAL-ASSETS> 3,541,000
<CURRENT-LIABILITIES> 2,229,000
<BONDS> 0
2,583,000
0
<COMMON> 3,107,000
<OTHER-SE> 31,269,000
<TOTAL-LIABILITY-AND-EQUITY> 3,541,000
<SALES> 2,099,000
<TOTAL-REVENUES> 2,099,000
<CGS> 1,118,000
<TOTAL-COSTS> 2,784,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,000
<INCOME-PRETAX> (689,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (689,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (689,000)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
