FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended: March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________to_________.
Commission file number: 0-8358
Micro General Corporation
(Exact name of registrant as specified in its charter)
Delaware 95-2621545
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
14711 Bentley Circle, Tustin, California 92780
(Address of principal executive offices) (Zip Code)
(714) 731-0557
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
The number of shares outstanding of Common Stock, $.05 Par Value - 1,949,666
shares as of March 31, 1998.
<PAGE>
MICRO GENERAL CORPORATION
FORM 10-Q - QUARTER ENDED MARCH 31, 1998
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheets -- March 31, 1998 (unaudited) and December 31, 1997
Statements of Earnings -- Three months ended March 31, 1998
and March 31, 1997 (unaudited)
Statements of Cash Flows --Three months ended March 31, 1998
and March 31, 1997 (unaudited)
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 4. Other Information
Item 6. Exhibits and Reports on Form 8-K.
SIGNATURES
All other schedules are omitted as the required information is inapplicable
or the information is presented in the financial statements or notes thereto.
<PAGE>
MICRO GENERAL CORPORATION
Balance Sheets
March 31, 1998 and December 31, 1997
<TABLE>
<CAPTION>
March 31, 1998 December 31,
Assets (Note 6) (unaudited) 1997
-------------- --------------
<S> <C> <C>
Current assets:
Cash $ 178,065 $ 318,845
Accounts and notes receivable, less allowance for
doubtful receivables and sales returns of $17,677
at 3/31/98 and $16,141 at 12/31/97 187,617 97,223
Inventories (note 2) 1,116,352 853,033
Prepaid expenses 239,881 264,970
------------- --------------
Total current assets 1,721,915 1,534,071
Equipment and improvements, net (note 3) 204,178 209,351
Other assets, net (note 4) 1,363,876 1,096,115
------------- --------------
$3,289,969 $ 2,839,537
============= ==============
Liabilities and Shareholders' Deficiency
Current liabilities:
Notes payable(note 6) $ 850,000 $ 850,000
Accounts payable 523,833 163,455
Accrued expenses 180,739 203,791
Deferred revenue 27,856 6,112
------------- --------------
Total current liabilities 1,582,428 1,223,358
_____________ ______________
Long-term debt(note 6) 2,750,000 2,750,000
Shareholders' deficiency:
Preferred stock, $.05 par value; 1,000,000
shares authorized no shares issued and
outstanding at 3/31/98 and 12/31/97. -- --
Common stock, $.05 par value; 10,000,000 shares
authorized 1,949,666 shares issued and outstanding
at 3/31/98 and 1,949,666 shares at 12/31/97. 97,483 97,483
Additional paid-in capital 4,176,370 4,176,370
Accumulated deficit (5,316,312) (5,407,674)
-------------- -------------
Total shareholders' deficiency (1,042,459) (1,133,821)
______________ _____________
Commitments and contingencies (note 7) -------------- -------------
$ 3,289,969 $ 2,839,537
============== =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
MICRO GENERAL CORPORATION
Statements of Earnings
For the Three Months Ended March 31, 1998 and March 31, 1997
(unaudited)
March 31, March 31,
1998 1997
------------- -------------
<S> <C> <C>
Revenues:
Product sales, net of returns of $18,563 in 1998 $ 278,974 $ 152,295
$36,390 in 1997
Service and rate revenues (note 7) 754,847 887,756
-------------- -------------
Total revenues 1,033,821 1,040,051
Cost of sales:
Net product sales 274,674 248,256
Service and rate revenues 178,125 257,496
-------------- -------------
Total cost of sales 452,799 505,752
-------------- -------------
Gross profit 581,022 534,299
Operating expenses:
Selling, general and administrative 380,789 350,825
Engineering and development 22,683 101,208
Provision for doubtful receivables 1,500 6,000
-------------- -------------
Total operating expenses 404,972 458,033
-------------- -------------
Operating profit 176,050 76,266
Interest expense, net (83,888) (31,876)
-------------- -------------
Earnings before income taxes 92,162 44,390
Income taxes (note 5) 800 800
-------------- -------------
Net earnings $ 91,362 $ 43,590
============== =============
Earnings per common share:
Basic $ 0.05 $ 0.02
Diluted 0.05 0.02
============== =============
Weighted average common shares used in computing
per share amounts:
Basic 1,949,666 1,949,584
Diluted 2,017,104 1,951,930
============== =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
MICRO GENERAL CORPORATION
Statements of Cash Flows
For the Three Months Ended March 31, 1998 and March 31, 1997
(unaudited)
March 31, March 31,
1998 1997
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 91,362 $ 43,590
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 23,513 23,903
Provision for losses on accounts receivable
and sales returns, net of write-offs 1,535 (6,437)
Change in assets and liabilities:
(Increase) decrease in accounts receivable (91,929) 17,495
(Increase) decrease in inventories (263,319) 145,990
(Increase) decrease in prepaid expenses 25,089 (103,656)
Increase in accounts payable 360,378 3,506
Increase in deferred rate revenue 21,744 18,390
Decrease in accrued expenses (23,052) (36,077)
-------------- -------------
Total adjustments 53,959 63,114
-------------- -------------
Net cash provided by operating activities 145,321 106,704
Cash flows used in investing activities--
capital expenditures (286,101) (69,262)
Cash flows provided by financing activities common
stock proceeds, net -- 688
-------------- ------------
Net increase (decrease) in cash (140,780) 38,130
Cash - beginning of period 318,845 413,533
-------------- ------------
Cash - end of period $ 178,065 $ 451,663
============== ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 84,750 $ 35,625
============== ============
Income taxes $ 800 $ 800
============== ============
</TABLE>
See accompanying notes to financial statements
<PAGE>
Note 1. Summary of Significant Accounting Policies
General
The operations of Micro General Corporation (the "Company") consist of the
design, manufacture and sale of computerized parcel shipping systems, postal
scales and piece-count scales.
This Quarterly Report on Form 10-Q 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 future results, performance or achievements
expressed or implied by such forward looking statements.
The financial information included in this report has been prepared in
accordance with generally accepted accounting principles and the instructions to
Form 10-Q and Article 10 of Regulation S-X. All adjustments, consisting of
normal recurring accruals considered necessary for a fair presentation, have
been included. This report should be read in conjunction with the Company's
1997 Annual Report on Form 10-K for the year ended December 31, 1997. The
results of operations for the three months ended March 31, 1998, are not
necessarily indicative of results that may be expected for any other interim
period or for the full year ending December 31, 1998.
Earnings per share
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 earnings per share
amounts for all periods have been restated to conform to the SFAS No.128
requirement.
Reclassification
Certain amounts in the 1997 financial statements have been reclassified to
conform to the 1998 presentation.
Note 2. Inventories
Inventories are comprised of the following:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Parts & supplies $ 906,195 $ 646,594
Purchased finished goods 182,016 180,738
Consigned inventory 28,141 25,701
------------- -----------------
$1,116,352 $ 853,033
============= =================
</TABLE>
Note 3. Equipment and Improvements
Equipment and improvements are as follows:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Production equipment and tooling $ 464,750 $ 454,501
Office furniture and equipment 670,828 667,026
Leasehold improvements 24,786 24,246
-------------- -----------------
1,160,364 1,145,773
Less accumulated depreciation
and amortization (956,186) (936,422)
--------------- ----------------
$ 204,178 $ 209,351
=============== ================
</TABLE>
Note 4. Other Assets
Other assets are as follows:
<TABLE>
<CAPTION>
Estimated March 31, December 31,
Useful Life 1998 1997
-------------- ------------ ------------
<S> <C> <C> <C>
Software development costs 5 years $1,326,376 $1,054,865
Excess cost of assets purchased over
fair market value 15 years 232,531 232,531
Deferred loan fees and commitment fees 5 years 50,000 50,000
License rights 10 years 41,382 41,382
Other intangible assets 15 years 23,388 23,388
----------- -----------
1,673,677 1,402,166
Less accumulated amortization (309,801) (306,051)
----------- -----------
$1,363,876 $1,096,115
=========== ===========
</TABLE>
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 March 31, 1998 and December 31, 1997, 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.
Note 5. Income Taxes
Income tax expense for the three months ended March 31, 1998 and March 31,
1997 represents state minimum tax.
The expected income tax expense computed by multiplying earnings before
income tax expense by the statutory Federal income tax rate of 34% differs from
the actual income tax expense as follows:
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
------------ ------------
<S> <C> <C>
Expected tax expense $ 31,335 $ 15,092
Effect of net operating loss carryforward
not recognized for financial statement purposes (36,335) (22,092)
Nondeductible amortization of the excess cost of
assets purchased over fair market value 5,000 7,000
State income taxes 800 800
------------ -------------
$ 800 $ 800
============ =============
</TABLE>
At March 31, 1998, the Company had available 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.
Note 6. 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 ("USPS") 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 Dito Caree L.P. Holding ("Dito Caree"). At December
31, 1997, all amounts had been advanced on these notes. 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 noteholders. 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 at the
noteholder's option into 1,334,438 shares of the Company's common stock at
prices ranging from $2.00 to $2.50 per share. 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. In conjunction
with these notes, the Company issued to the note holders, two detachable warrant
certificates, in the amount of 100,000 shares to Dito Caree and 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.
Interest on the two notes is payable quarterly. The Company has the right to
prepay all or a portion of the interest and principal due on the notes anytime
prior to the due date of May 31, 1998. All payments must be allocated two-
thirds to Dito Caree and one-third to CalWest.
On April 8, 1998, an amendment to the Loan Agreement dated November 25,
1997 was executed, extending the due date to October 31, 1998. All other terms
remain in effect.
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
===========
On April 8, 1998, the Company entered into a $750,000 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 $500,000 and $250,000
and are held by Dito Caree and CalWest, respectively. In conjunction with these
notes, the Company issued to the note holders, two detachable warrant
certificates, in the amount of 125,000 shares to Dito Caree and in the amount of
62,500 shares to CalWest, giving the note holders the right to purchase 187,500
shares of the Company's common stock at $1.50 per share. The warrants can be
exercised any time between April 8, 1998 and April 7, 2003. Interest on the two
notes is payable quarterly. The Company has the right to prepay all or a
portion of the interest and principal due on the notes anytime prior to the due
date of October 1, 1998. All payments must be allocated two-thirds to
Dito Caree and one-third to CalWest.
Note 7. Commitments and Contingencies
Noncancellable operating lease commitments consisted principally of the
leases for the Company's manufacturing and administrative facility in California
and the research and development facility in Connecticut through 2001. In
December 1996, the Company entered into a four-year lease agreement for a new
manufacturing and administrative facility in California, and in turn entered
into an agreement to sublease the old California facility for the same lease
term and same lease payments. Sublease income is shown below as a reduction to
total future lease payments. On March 16, 1998, the Company entered into an
agreement to extend the lease on their Connecticut facility through March 31,
2001. At March 31, 1998, the Company was committed to the following
noncancellable operating lease payments:
Year ending December
1998 (nine months) $ 160,591
1999 128,314
2000 101,593
2001 36,126
----------
426,624
Less sublease income (115,752)
----------
$ 310,872
==========
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 not significant.
From time to time, the United State Postal Service ("USPS") and/or the
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 experienced a UPS rate change during
the three months ended March 31, 1998 and March 31, 1997. Recorded revenues
from rate changes totaled approximately $728,687 and $883,378 for the three
months ended March 31, 1998 and March 31, 1997, respectively. Gross profit from
rate change totaled $567,225 and $650,372, respectively, for these same
periods.
Note 8. Subsequent Event
On April 1, 1998, the Company's Board of Directors approved a plan to
acquire ACS Systems, Inc. a wholly-owned subsidiary of Fidelity National
Financial, Inc. The transaction is valued at $6.9 million and will involve the
issuance of approximately 4.6 million shares of Micro General common stock,
subject to a fairness opinion with respect to the value of such shares. The
transaction is subject to a definititive agreement expected to be signed by
early May 1998. This acquisition is expected to provide adequate liquidity for
the remainder of 1998.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Total net product sales increased $126,679 or 83% for the three months
ended March 31, 1998 (AQ1 1998@) compared to the three months ended March 31,
1997 (AQ1 1997@) while service and rate change revenues decreased $132,909 or
15% for the same period in 1997. The increase in net product sales is due to
both an increase in the retail channel of $20,161 or 107% and an increase in the
dealer channel of $106,518 or 81% as compared to Q1 1997. For Q1 1998 and Q1
1997, service and rate change revenues represented approximately 73% and 85% of
total revenue, respectively. The decrease in rate change revenues for Q1 1998
as compared to Q1 1997, was primarily due to the decline in the Company's
installed base as more scale based systems are replaced by service provider free
systems and computer-based systems. In Q1 1998 the increase in the retail
channel is a direct result of establishing more retail distribution to increase
sales in this channel. The dealer channel sales also shows an increase in Q1
1998 as compared to the prior year. Initial shipments of the Shipper LinkJ
product in Q1 1998, along with increased sales of the Company's computer-based
Eagle Best Rate Shipper software for Windows and DOS, were the major components
of the increase in dealer-based product sales.
Q1 1998 cost of sales for product sales increased $26,418 or 11% as
compared to the same period in 1997. The increase was due to an increase in
overall product sales. Through expense reduction for product labor and
overhead, the gross margin on product sales was a positive $4,300 or 1.5%.
The Q1 1998 service and rate change revenue product costs decreased $79,371 or
31% as compared to the same period in 1997. This decrease is due to the lower
costs of material needed to support the UPS rate change in Q1 1998. The
overall cost of goods decrease of $52,953 or 11% is due to a decrease in rate
change revenue product costs. Gross margin Q1 1998 was 56% compared to 51% for
the same period the prior year.
Operating expenses of the Company in Q1 1998 of $404,972 represented a 12%
decrease as compared to Q1 1997. This decrease is a combination of a 9%
increase in selling, general and administrative expense and a 78% decrease in
engineering and development expense. The decrease in engineering and
development expense is due to a deferral of approximately $155,681 in expense
related to the Meter Project. While expenses are expected to remain relatively
constant in the selling, general and administrative departments, expenses will
increase in the research and development area as final development continues on
the Company's postage meter project due for submission to the United States
Postal Service in the near future. The Company's postage meter, previewed at
the National Postal Forum in March 1998, was well received by the Company's
dealers and representatives of the United States Postal Service.
Interest expense for the Company in Q1 1998 increased $52,012 as compared
to Q1 1997. This increase is due to the interest associated with various
outstanding financial agreements of the Company(see Note 6).
The increase in Q1 1998 net earnings of $47,772 or 110% as compared to the
same period in 1997, is primarily due to increased product sales as well as a
reduction in expenses associated with rate change revenue and operating
expenses, excluding interest expense.
Financial Condition, Liquidity and Capital Resources
The Company's ability to generate cash, during the first three months of
1998, depended largely on rate change revenue. The Company's March 31, 1998
cash balances decreased $140,780 from December 31, 1997. The decrease is
primarily attributable to the purchases of inventory, meter project expenses,
and interest payments. The Company's March 31, 1998 net accounts receivable
balance increased $90,394 or 93% from December 31, 1997 levels. This increase
is due to an increase in product sales for the Q1 1998 period.
Working capital was $139,487 at March 31, 1998 as compared to $310,713 at
December 31, 1997. The Company's current ratio at March 31, 1998 was 1.1 as
compared to 1.3 at December 31, 1997. The decrease in working capital is due
to a $360,378 or 221% increase in accounts payable as compared to the balance at
December 31, 1997. This increase is a result of purchases in support of the
Meter project and material need for the Q1 1998 UPS rate change.
The Company's total inventories increased $263,319 or 31% at March 31, 1998
as compared to December 31, 1997. The increase in inventory is related to the
purchase of rate change product during the first quarter of 1998.
The Company has had available liquidity through multiple financial
instruments. Two convertible notes, totaling $3 million, entered into on August
1, 1996, 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. At March 31, 1997, the Company was in
compliance with or had obtained waivers in reference to all financial covenants
associated with the convertible notes. The two note agreements entered into on
November 25, 1997, totaling $600,000 and amended on April 8, 1998, provided
additional funding for operations. The Company also obtained two additional
funding agreements on April 8, 1998, totaling $750,000, which will provide
funding for operations (note 6).
Current liquidity is being funded through product sales, service and rate
change revenues, and the most recent funding agreements.
The Company's investments in capital expenditures during Q1 1998 were not
material.
The Company does not engage in any significant 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 change over. 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 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.
Subsequent Event
On April 1, 1998, the Company's Board of Directors approved a plan to acquire
ACS Systems, Inc. a wholly-owned subsidiary of Fidelity National Financial, Inc.
The transaction is valued at $6.9 million and will involve the issuance of
approximately 4.6 million shares of Micro General common stock, subject to a
fairness opinion with respect to the value of such shares. The transaction is
subject to a definititive agreement expected to be signed by early May 1998.
This acquisition is expected to provide adequate liquidity for the remainder of
1998.
<PAGE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits (listed by numbers corresponding to the Exhibit Table of
Item 601 of Regulation S-K):
11. Computation of earnings (loss) per share is not provided as
the calculation can be clearly determined from the material
contained in Item 1 of Part I.
b. The Company did not file any reports on Form 8-K during the three
months ended March 31, 1998.
<PAGE>
MICRO GENERAL CORPORATION
FORM 10-Q -- QUARTER ENDED MARCH 31, 1998
PART II - SIGNATURES
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 hereunto duly authorized.
MICRO GENERAL CORPORATION
Date: May 11, 1998 /s/ Thomas E. Pistilli
------------------------------
Thomas E. Pistilli
President
Chief Executive Officer
Chief Financial Officer
/s/ Linda I. Morton
-------------------------------
Linda I. Morton
Controller
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 178,065
<SECURITIES> 0
<RECEIVABLES> 205,294
<ALLOWANCES> (17,677)
<INVENTORY> 1,116,352
<CURRENT-ASSETS> 1,721,915
<PP&E> 1,160,364
<DEPRECIATION> (956,186)
<TOTAL-ASSETS> 3,289,969
<CURRENT-LIABILITIES> 1,582,428
<BONDS> 0
0
0
<COMMON> 97,483
<OTHER-SE> 4,176,370
<TOTAL-LIABILITY-AND-EQUITY> 3,289,969
<SALES> 1,033,821
<TOTAL-REVENUES> 1,033,821
<CGS> 452,799
<TOTAL-COSTS> 452,799
<OTHER-EXPENSES> 403,472
<LOSS-PROVISION> 1,500
<INTEREST-EXPENSE> 83,888
<INCOME-PRETAX> 92,162
<INCOME-TAX> 800
<INCOME-CONTINUING> 92,162
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 92,162
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
