<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 0-10294
INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.
(Exact Name of Registrant as specified in its charter)
CALIFORNIA 95-3276269
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2131 FARADAY AVENUE, CARLSBAD, CALIFORNIA 92008-7297
(Address of Principal Executive Offices)
(Zip Code)
(760) 931-4000
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve 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 [ ]
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
As of September 30, 1998, 6,009,183 shares of common stock were outstanding.
1
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Index
INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Income Statements 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 5. Nasdaq Notification 11
Signatures 12
Exhibits
</TABLE>
2
<PAGE> 3
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
($ in thousands, except share amounts) 1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,358 $ 2,371
Accounts receivable 2,630 1,040
Costs and estimated earnings in excess of billings on
uncompleted contracts 366 1,716
Inventories 2,539 2,544
Other current assets 80 111
-------- --------
Total current assets 6,973 7,782
Equipment, furniture and fixtures, net 662 802
Other 90 78
-------- --------
$ 7,725 $ 8,662
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 696 $ 575
Billings in excess of costs and estimated earnings on
uncompleted contracts 1,742 386
Employee compensation 719 839
Related party liability 225 146
Other current liabilities 2,006 2,624
-------- --------
Total current liabilities 5,388 4,570
Shareholders' equity:
Common shares, no par value,
50,000,000 shares authorized, 6,009,183 shares
issued and outstanding at 9/30/98 and 12/31/97, 51,103 51,103
Accumulated deficit (48,676) (46,659)
Cumulative translation adjustment (90) (352)
-------- --------
2,337 4,092
-------- --------
$ 7,725 $ 8,662
======== ========
</TABLE>
See notes to consolidated financial statements.
3
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INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.
CONSOLIDATED INCOME STATEMENTS (Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
($ in thousands, except per share amounts) SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Sales of products $ 4,049 $ 1,185 $ 7,699 $ 6,312
Services 287 619 1,380 1,852
------- ------- ------- -------
4,336 1,804 9,079 8,164
Costs of revenues:
Cost of sales of products 2,406 1,269 4,636 4,683
Cost of services 313 420 1,128 1,238
------- ------- ------- -------
2,719 1,689 5,764 5,921
------- ------- ------- -------
Gross profit 1,617 115 3,315 2,243
Engineering, research and development 236 445 1,234 1,083
Selling, general and administrative 1,239 1,361 4,253 4,705
------- ------- ------- -------
Income (loss) from operations 142 (1,691) (2,172) (3,545)
Other income and (expense), net (20) 169 155 473
------- ------- ------- -------
Net income (loss) $ 122 ($1,522) ($2,017) ($3,072)
------- ------- ------- -------
Other comprehensive income:
Foreign currency translation adjustments (23) (22) 262 (225)
------- ------- ------- -------
Comprehensive income (loss) $ 99 ($1,544) ($1,755) ($3,297)
======= ======= ======= =======
Net income (loss) per share - basic and diluted $ 0.02 ($ 0.25) ($ 0.34) ($ 0.51)
======= ======= ======= =======
Number of shares used in computation of net
(income) loss per share - basic and diluted 6,009 6,009 6,009 6,009
======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
4
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INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
($ in thousands) -------------------------
1998 1997
------- -------
<S> <C> <C>
Operating activities
Net loss ($2,017) ($3,072)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization 259 517
Changes in assets and liabilities:
Accounts receivable (1,590) (68)
Costs and estimated earnings in excess of billings
on uncompleted contracts 1,350 1,191
Inventories 5 (86)
Accounts payable 121 143
Billings in excess of costs and estimated earnings
on uncompleted contacts 1,356 182
Accrued payroll and related taxes (120) (47)
Other (588) (318)
------- -------
Net cash used for operating activities (1,224) (1,558)
------- -------
Investing activities
Lottery service agreement sale proceeds and advance
repayments 80 339
Additions to equipment (133) (97)
Proceeds from sale of subsidiary -- 120
Other 2 (21)
------- -------
Net cash provided by (used for) investing activities (51) 341
------- -------
Effect of exchange rate changes on cash 262 (225)
------- -------
Decrease in cash and cash equivalents (1,013) (1,442)
Cash and cash equivalents at beginning of period 2,371 5,387
------- -------
Cash and cash equivalents at end of period $ 1,358 $ 3,945
======= =======
</TABLE>
See notes to consolidated financial statements.
5
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INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
($ in thousands)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared
in accordance with generally accepted accounting principles (GAAP) for
interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly they do not include all
of the information and footnotes required by GAAP for complete
financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments), considered necessary
for a fair presentation have been included. The preparation of
financial statements in conformity with GAAP 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.
The results of operations for the interim periods shown in this report
are not necessarily indicative of the results to be expected for the
full year. The accompanying unaudited consolidated financial statements
should be read in conjunction with the audited financial statements
incorporated by reference in the Registrant's Annual Report on Form
10-K for the year ended December 31, 1997.
On June 12, 1998, a 3 for 1 Reverse Stock Split was effected, as
approved by the Registrant's Shareholders at the Annual Meeting on June
1, 1998. This action was initiated in order to increase the stock price
of the Common Stock to a level that will make it more likely that the
Registrant will be able to meet the $1.00 minimum bid price requirement
for its NASDAQ listing. The number of authorized shares of Common Stock
remains at 50,000,000. As of the result of the action, the number of
shares issued and outstanding of the Company's stock decreased from
18,027,548 to 6,009,183 and all references in the accompanying
financial statements and footnotes to the number of shares and earnings
per share have been presented to reflect the result of the reverse
split.
The Registrant's consolidated financial statements were prepared on a
continuing operations basis which contemplates the realization of
assets and the settlement of liabilities and commitments in the normal
course of business. The Registrant is largely dependent upon
significant contracts for its revenue, which typically include a
deposit upon contract signing and up to 3 months lead-time before
delivery of hardware begins. The Registrant has incurred significant
net losses and decreased revenues for the last three fiscal years.
During the nine months ended September 30, 1998, revenues were $9,079
and the Registrant incurred a net loss of $2,017.
At September 30, 1998, the Registrant had working capital of $1,585.
Management recognizes that the Registrant must recover its investment
in existing contracts and generate additional contract sales to
maintain its current level of operations. Additionally, management is
currently seeking additional sources of funding through debt or equity
financing and consideration of other business transactions, including
the proposed acquisition of a controlling interest in Prime Gaming
Philippines Inc., which management believes should generate sufficient
resources to assure continuation of the Registrant's operations.
6
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INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.
Historically, approximately $1.4 million of the Registrant's annual
revenues or 70% of Registrant's annual service revenues have been
derived from a terminal maintenance agreement with an Australian
lottery customer which expires on December 31, 1998. In October 1998,
the Australian lottery customer, as a result of a competitive bid,
awarded this contract to a competitor of the Registrant. Due to delays
in the award and implementation of this new agreement, it is
anticipated, though it is not assured, that the Registrant's current
maintenance agreement will be extended through 1999.
Management anticipates that it will be successful in recovering its
investment in existing contracts and obtaining sufficient contracts to
enable the Registrant to continue normal operations; however, no
assurances can be given that the Registrant will be successful in
realizing sufficient new contract revenues or obtaining additional
financing. If the Registrant is unable to recover its investment in
existing contracts, obtain sufficient new contract revenue or
financing, management will be required to reduce the Registrant's
operations.
On February 27, 1998, Berjaya, the Registrant's largest shareholder,
agreed to provide financial support if and when necessary to ensure
that the Registrant's operations continue for at least one year from
December 31, 1997. The Registrant's ability to continue its on-going
operations on a long-term basis is dependent upon its ability to
recover its investment in existing contracts, obtain additional
financing, secure additional new contracts, and ultimately achieve a
sustainable level of profit from operations.
2. INVENTORIES
The inventories at September 30, 1998 and December 31, 1997 are
composed entirely of raw materials and work in process.
3. PRIME GAMING ACQUISITION
On June 19, 1998, the Registrant signed an agreement with Berjaya,
pursuant to which the Registrant would acquire a controlling interest
in Prime Gaming Philippines Inc. ("Prime") from Berjaya and/or current
Prime shareholders in exchange for the issuance of shares of the
Registrant's common stock. Under the proposed transaction the
Registrant would issue approximately 9.5 million new common shares to
Berjaya and/or other current Prime shareholders in exchange for a
52.25% interest in Prime.
The Registrant's shares to be issued in the transaction would represent
approximately 61% of the Registrant's outstanding shares upon
completion of the transaction. In the event that the other current
Prime shareholders assign their interest in the transaction to Berjaya,
Berjaya's percentage ownership of the Registrant would then increase
from its present 36.6% to 75.4%. If none of the current Prime
shareholders assign their interest in the transaction to Berjaya,
Berjaya's percentage ownership of the Registrant would be approximately
39%.
On September 18, 1998, a preliminary proxy was filed with the SEC.
Comments were received October 23, 1998 and the Registrant is preparing
a response. If accepted by the SEC, a proxy will be forwarded to the
Registrant's shareholders for approval. Subject to the vote by the
Registrant's shareholders and shareholders of Berjaya Group Berhad (the
parent of Berjaya), the transaction is expected to close in early 1999.
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INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.
4. ACCOUNTING PRONOUNCEMENTS
On January 1, 1998 the Registrant adopted SFAS No. 130, "Reporting
Comprehensive Income." The effect of the implementation was to show the
change in the foreign currency translation adjustment in shareholders'
equity as a component of the statement of operations and comprehensive
income.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities"
which is required to be adopted for the fiscal quarter beginning after
June 15, 1999. At this time, the Registrant has not entered into any
derivative instruments or hedging activities.
In March 1998, the Accounting Standards Executive Committee (AcSEC)
issued AICPA Statement of Position (SOP) 98-1, "Accounting for Costs of
Computer Software Developed or Obtained for Internal Use." This
statement provides guidance on accounting for the costs of computer
software developed or obtained for internal use and identifies
characteristics of internal use software and provides assistance in
determining when computer software is for internal use. SOP 98-1 is
effective for fiscal years beginning after December 15, 1998, with
earlier application permitted. The Registrant has not yet determined
what impact, if any, the adoption of SOP 98-1 will have on the
Registrant's consolidated financial statements, results of operations,
or related disclosures thereto.
In April 1998, the Accounting Standards Executive Committee (AcSEC)
issued AICPA Statement of Position (SOP) 98-5, "Reporting on the Costs
of Start-Up Activities." This statement provides guidance on financial
reporting of start-up costs and organization costs and requires that
such costs of start-up activities be expensed as incurred. SOP 98-5 is
effective for fiscal years beginning after December 15, 1998, with
earlier application permitted. The Registrant has not yet determined
what impact, if any, the adoption of SOP 98-5 will have on the
Registrant's consolidated financial statements, results of operations,
or related disclosures thereto.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ( $ in thousands)
FORWARD LOOKING STATEMENTS
The statements in this filing which are not historical facts are forward-looking
statements that are subject to risks and uncertainties that could cause actual
results to differ materially from those set forth or implied by forward-looking
statements. These risks and uncertainties include the absence of significant
contract backlog, the dependence on business from foreign customers sometimes in
politically unstable regions, political and governmental decisions as to the
establishment of lotteries and other wagering industries in which the
Registrant's products are marketed, fluctuations in quarter-by-quarter operating
results and other factors described in the Registrant's Annual Report on Form
10-K for the year ended December 31, 1997.
8
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INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.
RESULTS OF OPERATIONS
Product sales in the third quarter of fiscal 1998 increased by 242% or $2,864,
versus the third quarter of fiscal 1997. This is primarily the result of the
shipment of 399 terminals in the 1998 third quarter compared to 115 terminals in
the 1997 third quarter. Service revenues decreased 54%, or $332 in the quarter
ended September 30, 1997. This decrease is the result of fewer customer support
projects and the impact of lower Australian exchange rates in 1998.
The gross profit on third quarter product sales was 41% in 1998, compared with a
loss of 7% in 1997. The increased gross profit percentage was due to the
manufacturing efficiencies achieved with the increased level of production,
lower production related expenses and sales of earlier model terminals which
previously had been fully reserved. The gross profit on third quarter service
revenues was a loss of 9% in 1998 compared to 32% in 1997. The decrease in
services gross profit is a result of the recording of reserves for excess
inventory pertaining to the Australian terminal maintenance contract.
Engineering, research and development expenses in the third quarter of 1998
decreased 47% to $236 compared to $445 in the third quarter of 1997. The
reduction is primarily the result of efforts being directed more to specific
customer projects rather than generic DataTrak software development. Selling,
general and administrative expenses decreased by 9%, or $122, for the third
quarter of 1998 compared to the third quarter of 1997. 1997 costs included
higher costs related to the New South Wales Lottery proposal.
Product sales in the first nine months of fiscal 1998 increased 22% or $1,387
from the same period in 1997. This increase is the result of the shipment of 998
terminals in 1998 compared to 715 terminals in 1997. Service revenues decreased
by 25%, or $472, to $1,380 from $1,852 which is the result of a lower level of
customer support projects in 1998 and the impact of lower Australian exchange
rates.
The gross profit on product sales was 40% for the nine months ended September
30, 1998, compared to 26% in 1997. The increase in 1998 gross profit was due to
the efficiencies achieved from the higher level of manufacturing volume and the
sale of earlier model terminals as discussed above. The gross profit on services
was 34% in 1998, compared to 33% for the same period in 1997. The decrease was
due to the recording of inventory reserves for excess inventory pertaining to
the Australian terminal maintenance contract.
Engineering, research and development expenses for the first nine months of 1998
increased $151, or 14%, to $1,234 as compared to $1,083 for the same period in
1997. Costs for 1998 were primarily related to expanding the functionality of
the DataTrak lottery software. Selling, general and administrative costs
decreased by $452, or 10%, for the nine month period ended September 30, 1998
compared to the same period in 1997. This decrease is the result of cost
reduction actions taken in 1997 and lower 1998 marketing expenses. Other income
and expense, net, decreased $318, or 67%. The decrease primarily relates to the
one time 1997 gain recognized from the sale of the McKinnie & Associates
subsidiary.
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended September 30, 1998, the Registrant's working capital
increased by $170 primarily as a result of the net income for the quarter. The
Registrant's consolidated financial statements for the year ended December 31,
1997 and the nine months ended September 30, 1998 have been prepared on a
continuing operations basis which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of business. At
September 30, 1998, the Registrant had working capital of $1,585. Management
recognizes that the Registrant must generate additional contract sales to
maintain its current level of operations.
9
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INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.
Additionally, management is currently seeking additional sources of funding
through debt or equity financing and consideration of other business
transactions, including the proposed acquisition of a controlling interest in
Prime Gaming Philippines Inc., which management believes would generate
sufficient resources to assure continuation of the Registrant's operations.
Management anticipates that it will be successful in obtaining sufficient
contracts to enable the Registrant to continue normal operations; however, no
assurances can be given that the Registrant will be successful in realizing
sufficient contract revenue or obtaining additional funding. If the Registrant
is unable to obtain sufficient contract revenue or funding, management will be
required to reduce the Registrant's operations.
On February 27, 1998, the Registrant's largest shareholder, Berjaya, agreed to
provide financial support if and when necessary to ensure that the Registrant's
operations continue for at least one year from December 31, 1997. The
Registrant's ability to continue its on-going operations on a long-term basis is
dependent upon its ability to recover its investment in existing contracts,
obtain additional financing, secure additional new contracts and ultimately
achieve a sustainable level of profit from operations.
As of September 30, 1998 there were no material commitments for capital
expenditures.
The Registrant intends to strategically pursue long-term service contracts as a
source of revenue. Service contracts pose capital investment risks for the
Registrant that do not exist in its product sale business. Service contracts
require up-front investments of capital which is repaid only after a system
becomes operational, based upon a percentage of the customer's gross receipts
from the system. The Registrant, therefore, bears the risk that scheduling
delays may occur, a system may not become operational or that the customer's
gross receipts from the system may be less than projected. If the Registrant
enters into a long-term service contract, the Registrant must seek the funds
necessary to implement the project from Berjaya or other sources.
FOREIGN EXCHANGE FLUCTUATION
The Registrant's reporting currency is the U.S. dollar. Historically, a majority
of the Registrant's sales have been denominated in U.S. dollars, with the
balance denominated in foreign currencies. These foreign currency sales have
been effected principally by the Registrant's international subsidiaries.
Changes from reporting period to reporting period in the exchange rates between
various foreign currencies and the U.S. dollar have had, and will in the future
continue to have, an impact on revenues and expenses reported by the Registrant,
and such effect may be material in any individual reporting period. As the
contracts are predominantly denominated in the functional currency of the
subsidiary performing under the contract, the Registrant has historically
incurred immaterial amounts of transaction gains or losses.
ASIA
A significant portion of the Registrant's revenues are derived from customers
located in Asia. In the last 18 months the currencies of the Asian countries in
which the Registrant's customers are located have declined significantly against
the U.S. dollar. Although the Registrant generally has been paid in U.S.
dollars, this decline has effectively increased the cost of the Registrant's
products to its customers. The Registrant does not believe that its on-going
business has been negatively impacted by the Asian currency exchange situation,
however, one current customer has asked, and the Registrant has agreed, to delay
to a later undefined date the scheduled delivery of terminals which will result
in the delay of ILTS revenues and cash receipts of approximately $1 million.
10
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INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.
YEAR 2000
Management has initiated an enterprise-wide program to prepare the Registrant's
computer systems and applications for the Year 2000. The Registrant expects to
incur internal staff costs as well as other expenses related to infrastructure
and facilities enhancements necessary to prepare the systems for the Year 2000.
The Registrant has evaluated the effort required and believes that the related
costs will be immaterial and will be expensed as incurred. In addition, the
Registrant has reviewed the software systems and hardware it has previously sold
and determined they are Year 2000 compliant.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Walters v ILTS - On November 3, 1995, Mr. James T. Walters, the former chairman
and president of the Registrant, who retired in 1994, filed a defamation and
invasion of privacy action in the San Diego County Superior Court against the
Registrant, its former president, Frederick A. Brunn and other parties, relating
to statements in a magazine article. The other parties previously settled with
Mr. Walters. Mr. Walters sought general and special damages of $9 million and
punitive damages. On November 1, 1996, a summary judgment was entered in favor
of the Registrant. Oral argument on the appeal was held September 16, 1998 but a
decision has not been rendered.
ITEM. 5. NASDAQ NOTIFICATION
As a result of the Registrant's Form 10-Q filed on May 15, 1998, Nasdaq
determined that the Registrant no longer met the $4 million net tangible asset
requirement for continued listing on the Nasdaq National Market. Subsequent to
the Registrant's oral hearing on August 7, 1998, Nasdaq determined to grant the
Registrant's securities a listing on The Nasdaq SmallCap Market effective
October 23, 1998, pursuant to the following exception: On or before December 15,
1998, the Registrant must make a public filing with the Securities and Exchange
Commission and Nasdaq evidencing a minimum of $6 million in net tangible assets.
The filing must contain a balance sheet, no older than 45 days, with pro forma
adjustments for any significant events or transactions occurring on or before
the filing date. In addition, on or before December 15, the Registrant must
evidence a minimum bid price of $1.00 per share; thereafter, the Registrant must
meet or exceed a $1.00 per share bid price for a minimum of ten consecutive
trading days. In order to fully comply with the terms of this exception, the
Registrant must be able to demonstrate compliance with all requirements for
continued listing on The Nasdaq SmallCap Market. In the event the Registrant
fails to meet any of the terms of this exception, the Registrant's securities
will be delisted from the Nasdaq SmallCap Market.
The Registrant believes that it can meet these conditions assuming shareholder
approval of the Prime acquisition is received; however, there can be no
assurance that it will do so. If at a future date the Registrant's securities
should cease to be listed on The Nasdaq SmallCap Market, they may continue to be
listed in the OTC-Bulletin Board. For the duration of the exception, the
Registrant's Nasdaq symbol will be ITSIC.
ITEM 6. (27) FINANCIAL DATA SCHEDULE
11
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INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.
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.
INTERNATIONAL LOTTERY & TOTALIZATOR SYSTEMS, INC.
/s/ M. Mark Michalko
- --------------------------------------
M. Mark Michalko
President
/s/ Dennis D. Klahn
- --------------------------------------
Dennis D. Klahn
Chief Financial Officer
Date: November 13, 1998
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1998
<CASH> 1,358
<SECURITIES> 0
<RECEIVABLES> 2,630
<ALLOWANCES> 0
<INVENTORY> 2,539
<CURRENT-ASSETS> 6,973
<PP&E> 662
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,725
<CURRENT-LIABILITIES> 5,388
<BONDS> 0
0
0
<COMMON> 51,103
<OTHER-SE> (48,676)
<TOTAL-LIABILITY-AND-EQUITY> 7,725
<SALES> 4,336
<TOTAL-REVENUES> 4,336
<CGS> 2,719
<TOTAL-COSTS> 2,719
<OTHER-EXPENSES> 1,475
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 122
<INCOME-TAX> 0
<INCOME-CONTINUING> 122
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 122
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
