<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 1O-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 1996
[ ] 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: 0-26226
MICROFIELD GRAPHICS, INC.
(Exact name of small business issuer as specified in its charter)
OREGON 93-0935149
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
7216 SW DURHAM RD.
PORTLAND, OREGON 97224
(Address of principal executive offices and zip code)
(503) 620-4000
(Issuer's telephone number including area code)
Check whether the issuer (1) 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 [ ]
The number of shares outstanding of the Registrant's Common Stock as of October
24, 1996 was 3,193,930 shares.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
MICROFIELD GRAPHICS, INC.
FORM 10-QSB
INDEX
PART I FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Balance Sheets - September 28, 1996
and December 30, 1995 3
Consolidated Statements of Operations -Quarter and
Nine Months Ended September 28, 1996 and September 30, 1995 4
Consolidated Statements of Cash Flows -Nine Months
Ended September 28, 1996 and September 30, 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
2
<PAGE>
MICROFIELD GRAPHICS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 28, December 30,
1996 1995
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,603,735 $ 3,180,872
Short-term investments in marketable securities - 1,564,002
Accounts receivable, net of allowances
of $44,313 and $41,963 1,019,898 965,590
Inventories 632,854 551,619
Prepaid expenses and other 307,729 304,784
-------------- -------------
Total current assets 4,564,216 6,566,867
Property and equipment, net 558,682 318,097
Other assets 89,421 81,300
-------------- -------------
$ 5,212,319 $ 6,966,264
-------------- -------------
-------------- -------------
Current liabilities:
Current portion of capital lease obligation $ 89,103 $ 136,671
Accounts payable 402,297 543,607
Accrued liabilities 480,324 360,737
-------------- -------------
Total current liabilities 971,724 1,041,015
Capital lease obligations, less current portion - 51,483
-------------- -------------
971,724 1,092,498
Shareholders' equity:
Common stock, no par value, 25,000,000 shares
authorized, 3,192,345 and 3,127,954 shares
issued and outstanding 12,138,984 12,060,048
Accumulated deficit (7,898,389) (6,186,282)
-------------- -------------
Total shareholders' equity 4,240,595 5,873,766
-------------- -------------
$ 5,212,319 $ 6,966,264
-------------- -------------
-------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
MICROFIELD GRAPHICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 28, September 30, September 28, September 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales $ 1,662,607 $ 1,361,707 $ 4,788,503 $ 3,878,795
Cost of goods sold 828,474 756,816 2,367,160 2,239,635
------------- -------------- -------------- --------------
Gross profit 834,133 604,891 2,421,343 1,639,160
Operating expenses
Research and development 302,675 282,726 1,048,477 824,985
Marketing and sales 793,957 551,593 2,473,787 1,607,383
General and administrative 222,954 185,890 745,231 517,500
------------- -------------- -------------- --------------
1,319,586 1,020,209 4,267,495 2,949,868
------------- -------------- -------------- --------------
Loss from operations (485,453) (415,318) (1,846,152) (1,310,708)
Other income (expense)
Interest income (expense) 29,625 68,535 115,098 (9,083)
Other income (expense) 12,983 2,439 20,223 3,360
------------- -------------- -------------- --------------
Loss from continuing operations
before income taxes (442,845) (344,344) (1,710,831) (1,316,431)
Provision for income taxes 476 10 1,276 3,210
------------- -------------- -------------- --------------
Loss from continuing operations (443,321) (344,354) (1,712,107) (1,319,641)
Income from discontinued operations - - - 74,780
Gain on disposal of discontinued
operations - - - 472,750
------------- -------------- -------------- --------------
- - - 547,530
------------- -------------- -------------- --------------
Net loss $ (443,321) $ (344,354) $(1,712,107) $ (772,111)
------------- -------------- -------------- --------------
------------- -------------- -------------- --------------
Loss per share:
Loss from continuing operations $ (0.14) $ (0.11) $ (0.54) $ (0.60)
Income from discontinued
operations - - - 0.25
------------- -------------- -------------- --------------
Net loss per share $ (0.14) $ (0.11) $ (0.54) $ (0.35)
------------- -------------- -------------- --------------
------------- -------------- -------------- --------------
Shares used in per share calculations 3,191,589 3,087,366 3,170,770 2,208,663
------------- -------------- -------------- --------------
------------- -------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
MICROFIELD GRAPHICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended
-------------------------------
September 28, September 30,
1996 1995
-------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,712,107) $ (772,111)
Income from discontinued operations - (74,780)
Gain on disposal of discontinued operations - (472,750)
--------------- -------------
Loss from continuing operations (1,712,107) (1,319,641)
Adjustments to reconcile loss from continuing operations
to operating cash flows:
Depreciation and amortization 219,090 105,661
Gain on sale and leaseback of property and equipment (6,504) (5,688)
Changes in assets and liabilties:
Accounts receivable (54,308) (315,609)
Inventories (81,235) (191,773)
Prepaid expenses and other (2,945) (134,706)
Accounts payable (141,310) 56,909
Accrued liabilties 126,091 (128,561)
--------------- -------------
Net cash used in operating activities (1,653,228) (1,933,408)
Cash flows from investing activities:
Proceeds from sale of discontinued operations - 1,800,000
Sales of marketable securities 1,564,002 -
Acquisition of property and equipment (451,575) (113,810)
Purchases of other assets (16,221) (17,738)
Advances from discontinued operations - 160,425
Proceeds from sale and leaseback of
equipment - 250,000
--------------- -------------
Net cash provided by investing activities 1,096,206 2,078,877
Cash flows from financing activities:
Payments on line of credit agreement - (1,665,000)
Payments on capital lease obligations (99,051) (32,938)
Proceeds from issuance of common stock - 6,275,416
Proceeds from exercise of common stock options
and warrants 78,936 500,581
--------------- -------------
Net cash (used in) provided by financing activities (20,115) 5,078,059
Net (decrease) increase in cash and cash equivalents (577,137) 5,223,528
Cash and cash equivalents, beginning of period 3,180,872 79,272
--------------- -------------
Cash and cash equivalents, end of period $ 2,603,735 $ 5,302,800
--------------- -------------
--------------- -------------
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 31,547 $ 99,111
Income taxes 1,276 3,210
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
MICROFIELD GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Microfield
Graphics, Inc. (the "Company") for the quarters and the nine months ended
September 28, 1996 and September 30, 1995 have been prepared in accordance with
the rules and regulations of the Securities and Exchange Commission. The
financial information as of December 30, 1995 is derived from the Company's
Annual Report on Form 10-KSB. The accompanying consolidated financial
statements do not include all of the information and footnotes required by
generally accepted accounting principles and should be read in conjunction with
the Company's audited consolidated financial statements and notes thereto for
the year ended December 30, 1995. In the opinion of Company management, the
unaudited consolidated financial statements for the interim periods presented
include all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of the results for such interim periods. Operating
results for the quarter and the nine months ended September 28, 1996 are not
necessarily indicative of the results that may be expected for the full year or
any portion thereof.
The Company's fiscal year is the 52- or 53-week period ending on the
Saturday closest to the last day of December. The Company's last fiscal year was
52 weeks ended December 30, 1995. The Company's third fiscal quarters in fiscal
1996 and 1995 were the 13-week periods ended September 28, 1996, and September
30, 1995, respectively.
2. INVENTORIES
Inventories are stated at the lower of standard cost (which approximates
the first-in, first-out method), or market value, and consist of the following:
September 28, December 30,
1996 1995
------------- ------------
Raw materials $ 540,516 $ 440,592
Work in process 350 9,130
Finished goods 91,988 101,897
------------- ------------
$ 632,854 $ 551,619
------------- ------------
3. PROPERTY AND EQUIPMENT
Property and equipment consist
of the following:
September 28, December 30,
1996 1995
------------- -------------
Machinery and equipment $ 661,803 $ 220,865
Capitalized leased assets 238,618 238,618
------------- -------------
900,421 459,483
Less accumulated depreciation and amortization 341,739 141,386
------------- -------------
$ 558,682 $ 318,097
------------- -------------
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Microfield Graphics, Inc. (the "Company"), develops, manufactures and
markets computer conferencing and telecommunications products to facilitate
group communications. The Company's initial products are a series of digital
whiteboards and digital whiteboard rear projection systems marketed under the
brand name SoftBoard. Information written or drawn on the SoftBoard surface is
recorded and displayed on a personal computer simultaneously and in color using
the Company's proprietary technology. The information is recorded in a computer
file that can be replayed, printed, faxed, e-mailed or saved for future
applications. Optional proprietary software allows the information to be
communicated in real time to remote computers.
In June 1994 the Company entered into an exclusive OEM agreement with
Steelcase Inc. ("Steelcase") for sale of SoftBoard products into the office
furniture market through its subsidiary, Metropolitan Furniture Corporation
("Metro"). The initial phase of the agreement concluded at the end of June
1995. In May 1995, the agreement was verbally extended through December 1995,
at the same monthly shipment rate that had been in effect over the previous nine
month period ended March, 1995. In July 1995, Metro informed the Company that
it was experiencing non-SoftBoard related material shortages that were causing
shipping delays of its product that incorporates SoftBoard. Metro has not
purchased a material amount of product since the third quarter of 1995. In the
third quarter of 1996 and 1995, approximately 0% and 20%, respectively, of the
Company's sales were attributable to sales to Steelcase and Metro. For the nine
months ended September 28, 1996 and September 30, 1995, approximately 0% and 20%
of the Company's sales were attributable to Steelcase and Metro. The Company is
unable to predict when, if ever, Steelcase or Metro will resume purchases of a
substantial quantity of SoftBoard products from the Company.
In November 1994, the Company entered into an exclusive distributorship
arrangement with Sord Computer Corporation ("SORD"), a subsidiary of Toshiba
Corporation, to market SoftBoards in Japan. In the third quarter of 1996 and
1995, approximately 12% and 16%, respectively, of the Company's sales were
attributable to SORD. For the nine months ended September 28, 1996 and
September 30, 1995 approximately 18% and 19%, respectively, of the Company's
sales were attributable to SORD. Although SORD is experiencing significant
sales growth of SoftBoard products, they are expected to purchase fewer units
over the next several months in order to balance inventories. The Company has
no commitment from SORD to purchase product past the fourth quarter of 1996, and
no assurance SORD will purchase significant quantities of SoftBoard products in
the future.
As with any large OEM or distributor relationship, order rates may be
subject to quarterly fluctuations as demand builds and inventories are adjusted.
The absence of sales to Steelcase and Metro in the first nine months of 1996 has
had an adverse effect on the company's business. In addition, the failure of
SORD to continue its purchase of SoftBoard products at rates comparable to its
historic levels could have a material adverse effect on the Company's financial
condition and results of operations.
Prior to the introduction of SoftBoard, the Company designed, developed,
manufactured and marketed advanced graphics hardware and software. Imagraph
Corporation, acquired by the Company in January 1991, developed, manufactured
and marketed advanced graphics controllers and frame grabbers. On March 31,
1995, the Company sold all of the stock of Imagraph Corporation, a wholly-owned
subsidiary of the Company (the "Discontinued Operations"), for $2.0 million,
including securities of the acquiring company valued at approximately $200,000.
The Company recognized a gain on the sale of Imagraph Corporation of
approximately $473,000 in fiscal 1995. In December 1995, the securities of the
acquiring company were sold, resulting in a gain of approximately $74,000. The
Company's consolidated financial statements reflect the results of operations of
the Discontinued Operations in a single line item, which encompasses revenue
from the Discontinued Operations offset by related expenses associated solely
with those operations. Following the sale of the Discontinued Operations, the
Company's business consists principally of the development, manufacture and
marketing of computer conferencing and telecommunications products.
7
<PAGE>
The Company's SoftBoard products are expected to provide the substantial
majority of its sales in the foreseeable future. The Company's results will
therefore depend on continued and increased market acceptance of these products
and the Company's ability to modify them to meet the needs of its customers.
Any reduction in demand for, or increasing competition with respect to, these
products would have a material adverse effect on the Company's financial
condition and results of operations.
Except as otherwise noted, the financial and related information presented
below under "Results of Operations" relates solely to the SoftBoard business.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of sales, certain
consolidated statement of operations data relating to the SoftBoard Business for
the periods indicated.
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
--------------------------- ---------------------------
September 28, September 30, September 28, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . 100% 100% 100% 100%
Cost of goods sold. . . . . . . . . . . 50 56 49 58
---- ---- ---- ----
Gross profit . . . . . . . . . . . . 50 44 51 42
Research & development expenses . . . . 18 20 22 21
Marketing & sales expenses. . . . . . . 48 40 52 42
General & administrative expenses . . . 13 14 16 13
---- ---- ---- ----
Loss from operations . . . . . . . . (29) (30) (39) (34)
Other income. . . . . . . . . . . . . . 2 5 3 --
---- ---- ---- ----
Loss from continuing operations
before income taxes. . . . . . . . (27) (25) (36) (34)
Provision for income taxes. . . . . . . -- -- -- --
---- ---- ---- ----
Loss from continuing operations. . . (27) (25) (36) (34)
Discontinued operations:. . . . . . . .
Income from discontinued . . . . . .
operations . . . . . . . . . . . . -- -- -- 2
Gain on disposal of . . . . . . . .
discontinued operations. . . . . . -- -- -- 12
---- ---- ---- ----
Net loss. . . . . . . . . . . . . . . . (27)% (25)% (36)% (20)%
---- ---- ---- ----
</TABLE>
THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 28, 1996 COMPARED WITH THIRD
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1995
SALES. Sales increased $301,000 (22%) to $1,663,000 in the third quarter
of 1996 from $1,362,000 in the third quarter of 1995. Sales increased $910,000
(23%) to $4,789,000 in the first nine months of 1996 from $3,879,000 in the
first nine months of 1995. The increases resulted primarily from overall
increased demand for the Company's SoftBoard products and accessories. SEE
OVERVIEW
GROSS PROFIT. Cost of goods sold includes the cost of raw materials needed
to assemble the products, assembly and preparation by vendors and direct and
indirect costs associated with the procurement, testing, scheduling and quality
assurance functions performed by the Company. The Company's gross margin
improved to 50% in the third quarter of 1996 from 44% in the third quarter of
1995. The Company's gross margin improved to 51% in the first nine months of
1996 from 42% in the first nine months of 1995. The improvements in gross
margins were due primarily to increased sales through the end user channel which
provided higher overall average sales prices on those products. The increase
was also affected by increased software and accessory sales, more effective
capacity utilization due to higher volume, and to decreases in materials costs
gained from the Company's ongoing product cost reduction program.
8
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES. Research and development costs are
expensed as incurred. These expenses increased $20,000 (7%) to $303,000 in the
third quarter of 1996 from $283,000 in the third quarter of 1995. These expenses
increased $223,000 (27%) to $1,048,000 in the first nine months of 1996 from
$825,000 in the first nine months of 1995. The increases were due primarily to
an accelerated rate of expenditure related to the development of the System 400
SoftBoard rear projection unit introduced in June 1996. Additionally, the lower
rate of spending in 1995 was caused by a shortage of working capital during the
first six months of that period. The Company also reduced salaried employees'
pay from between 20 to 50% for a period of time in the first quarter of 1995.
Research and development expenses increased as a percentage of sales to 22% in
the first nine months of 1996 from 21% in the first nine months of 1995. The
development of the System 400 was substantially complete as of the end of June
1996.
MARKETING AND SALES EXPENSES. Marketing and sales expenses increased
$242,000 (44%) to $794,000 in the third quarter of 1996 from $552,000 in the
third quarter of 1995. These expenses increased $867,000 (54%) to $2,474,000 in
the first nine months of 1996 from $1,607,000 in the first nine months of 1995.
The increases were due primarily to additional marketing and sales expenses
incurred to increase product awareness and to increase the penetration of
products into the marketplace. These included increases in advertising,
marketing and participation in additional trade shows. This increase was also a
result of the Company's expense reduction plan carried out in the first quarter
1995 due to the shortage of working capital. Marketing and sales expenses
increased as a percentage of sales to 52% in the first nine months of 1996 from
42% in the first nine months of 1995.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $37,000 (20%) to $223,000 in the third quarter of 1996 from $186,000
in the third quarter of 1995. These expenses increased $227,000 (44%) to
$745,000 in the first nine months of 1996 from $518,000 in the first nine months
of 1995. The increase was due primarily to the higher insurance and
administrative costs associated with status as a public company. The increase
in the first nine months of 1996 was also a result of the Company's expense
reduction plan carried out in the first quarter 1995 to help ease the shortage
of working capital. General and administrative expenses increased as a
percentage of sales to 16% in the first nine months of 1996 from 13% in the
first nine months of 1995.
OTHER INCOME (EXPENSE). Other income (expense) includes interest income,
interest expense, and miscellaneous income. Other income, net was $43,000 in
the third quarter of 1996 compared to $71,000, net in the third quarter of 1995.
Other income, net was $135,000 in the first nine months of 1996 compared to
$6,000 of other expense, net in the first nine months of 1995. The decrease
between quarters was due primarily to lower interest earned on a smaller
invested cash balance in 1996 compared to the interest earned in the third
quarter 1995 on the cash balances available immediately following the Company's
June 1995 initial public offering. The difference between the nine month
periods ending September 1996 and 1995 was due to interest income earned on
available cash balances in the first nine months of 1996, compared to the
interest expense on the borrowings under the Company's line of credit during six
of the first nine months of 1995.
INCOME TAXES. As of September 28, 1996 the Company had available net
operating loss carryforwards of approximately $6.8 million for federal income
tax purposes. Such carryforwards may be used to reduce consolidated taxable
income, if any, in future years through their expiration in 2003 to 2010.
Utilization of net operating loss carryforwards may be limited due to the
ownership changes resulting from the Company's initial public offering in 1995
and other stock transactions. In addition, the Company has research and
development credits aggregating approximately $189,000 for income tax purposes
at September 28, 1996. Such credits may be used to reduce taxes payable, if
any, on a consolidated basis in future years through their expiration in 2000 to
2009.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
On June 28, 1995 the Company sold 1,100,000 shares of Common Stock to the
public in conjunction with its initial public offering at $6.00 per share. An
additional 165,000 shares were sold at $6.00 per share on July 6, 1995 pursuant
to an overallotment option exercised by the underwriters of the initial public
offering. In total, the Company received net proceeds from the offering of
approximately $6.6 million.
At September 28, 1996, the Company had working capital of approximately
$3.6 million and its principal sources of liquidity consisted of $2.6 million in
cash and cash equivalents, and $2.25 million under two lines of credit, of
which there were no amounts outstanding at September 28, 1996. Accounts
receivable and inventories increased in the first nine months of 1996 due to
increased sales. Fixed assets increased in the first nine months of 1996 due
primarily to the Company's move to its new headquarters in July 1996. Accounts
payable decreased in the first nine months of 1996 due to the timing of
inventory purchases.
During the third quarter of 1996, the Company obtained a $2.0 million
operating line of credit with interest at prime (8.25% at September 28, 1996),
which is secured by the Company's assets. This line of credit expires at the
end of September 1997.
At September 28, 1996 the Company had no material commitments for capital
expenditures. The Company believes its existing cash and cash equivalents,
amounts available under its credit facilities and cash from operations will be
sufficient to fund its operations for the next 12 months.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibit filed as part of this report is listed below:
EXHIBIT NO.
11 Statement regarding computation of per share loss
27 Financial data schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 28, 1996.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the issuer caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: November 7, 1996
MICROFIELD GRAPHICS, INC.
By:/s/JOHN B. CONROY
------------------
John B. Conroy
President and Chief Executive Officer
(Principal Executive Officer)
By:/s/ RANDALL R. REED
-------------------
Randall R. Reed
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
11
<PAGE>
EXHIBIT 11
MICROFIELD GRAPHICS, INC.
CALCULATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------------- ---------------------------------
SEPTEMBER 28, SEPTEMBER 30, SEPTEMBER 28, SEPTEMBER 30,
1996 1995 1996 1995
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Actual weighted average
shares outstanding for
the period 3,191,589 3,087,366 3,170,770 2,179,492
Dilutive common stock
options and warrants
using the treasury stock
method -- -- -- 29,193
----------- ----------- ----------- -----------
Total shares used in per
share calculations 3,191,589 3,087,366 3,170,770 2,208,663
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net loss $ (443,221) $ (344,354) $ (1,712,107) $ (772,111)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net loss per share $ (0.14) $ (0.11) $ (0.54) $ (0.35)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOUND IN THE COMPANY'S FORM 10-QSB FOR THE
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 28, 1996, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> SEP-28-1996
<CASH> 2,604
<SECURITIES> 0
<RECEIVABLES> 1,064
<ALLOWANCES> 44
<INVENTORY> 633
<CURRENT-ASSETS> 4,564
<PP&E> 900
<DEPRECIATION> 342
<TOTAL-ASSETS> 5,212
<CURRENT-LIABILITIES> 972
<BONDS> 0
0
0
<COMMON> 12,139
<OTHER-SE> (7,898)
<TOTAL-LIABILITY-AND-EQUITY> 5,212
<SALES> 4,789
<TOTAL-REVENUES> 4,789
<CGS> 2,367
<TOTAL-COSTS> 2,367
<OTHER-EXPENSES> 4,267
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,712)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,712)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,712)
<EPS-PRIMARY> (.54)
<EPS-DILUTED> (.54)
</TABLE>
