U.S. SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C. 20549

                                 FORM 10-QSB


[X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
       EXCHANGE ACT OF 1934 

              For the quarterly period ended September 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 1-13628


                         INTELLIGENT CONTROLS, INC.
                   (Exact name of small business issuer as
                          specified in its charter)

             Maine                                01-0354107
(State or other jurisdiction of                (I.R.S. Employer
incorporation or organization)                Identification No.)

                 74 Industrial Park Road, Saco, Maine 04072
                  (Address of principal executive offices)

                               (207) 283-0156
                         (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
    ----    ----

There were 5,056,760 shares of Common Stock of the issuer outstanding as of 
October 31, 1998.

Transitional Small Business Disclosure Format:  Yes       No  X 
                                                    ----     ----


                                    PART I

ITEM 1.  FINANCIAL STATEMENTS.

Unaudited financial statements of the Company appear beginning at page F-1 
below, and are incorporated herein by reference.  These financial statements 
include all adjustments which, in the opinion of management, are necessary 
in order to make the financial statements not misleading.


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS

Results of Operations For Nine Months Ended September 26, 1998:

For the nine months ended September 26, 1998, sales grew 13.8% to $11.4 
million, up from $10 million for the same period in 1997.

Petroleum segment sales grew 17.6% to $10.4 million for the first nine 
months of 1998, as compared to $8.8 million for the same period in 1997.  
Sales growth continues due to a market driven by strong new construction and 
a December 22, 1998 EPA compliance deadline for leak detection on 
underground storage tanks.  The TS-1001/2001 line of automatic tank gauges 
has replaced its predecessor the TS-1000/2000 as the primary automatic tank 
gauge sold by the Company.  The Company also introduced a new software 
product, System Sentinel, at the Petroleum Equipment exhibition in September 
1998.

Sales in the Power Utilities and Predictive Maintenance segment declined 
14.8%  for the first nine months of 1998.  During the third quarter of 1998, 
the Company released the Optimizer Plus, an upgraded version of the older 
generation Optimizer product.

Gross margins for the first nine months of 1998 improved to 49.2%, up from 
41.6% for the same period in 1997. Purchased material cost reductions, 
manufacturing volume efficiencies, reduced warranty scrap, and a favorable 
product/features mix continue to be the major components of this performance 
improvement.  Another contributing factor to improved margins is the result 
of the timing of shipments to complete a large lower margin order to the 
Chinese Petroleum Corporation of Taiwan.  In the first nine months of 1997, 
there were two large shipments to Chinese Petroleum while during the first 
nine months of 1998 there was only one shipment made.

Operating expenses were 46.4% of sales for the first nine months of 1998, as 
compared to 34.1% for the same period in 1997. Operating expenses in the 
second quarter of 1998 were significantly affected by added costs related to 
settling two lawsuits.

*    The settlement of a 1996 lawsuit by John Knight (a former executive) 
     involved the repurchase of $607,660 in stock and options from him, on 
     terms equivalent to the second quarter 1998 tender offer to all Company 
     shareholders.  Under generally accepted accounting principles, the 
     repurchase of stock and options from Mr. Knight must be expensed, 
     whereas the repurchase of stock from shareholders through the tender 
     offer is accounted for as an adjustment to shareholders' equity.  The 
     settlement also involved the payment of an additional $40,000 to Mr. 
     Knight, by way of additional severance compensation.

*    A settlement of a patent infringement claim by Hasstech was finalized 
     early in the third quarter.  Terms of this settlement require INCON to 
     pay Hasstech $100,000, in which $50,000 has already been paid in the 
     third quarter of 1998 and $50,000 to be paid in the first quarter of 
     1999.  The entire $100,000 was accrued as an expense in the second 
     quarter of 1998.

(See "Legal Proceedings" below).  Without the effect of these settlement 
costs, operating expenses for the first nine months of 1998 would be 39.8% 
of sales.  In addition to these settlement costs, operating expenses for 
1998 increased from added spending in marketing and sales, R & D, and 
corporate management as compared to the first nine months of 1997.  Expenses 
in 1998 also included charges of approximately $50,000 in legal expense 
indirectly related to an investment by Ampersand Ventures in the Company, 
and approximately $135,000 of legal expense incurred in defending against 
the Hasstech patent infringement claim.

Net income for the first nine months of 1998 was $45,089 as compared to net 
income of $336,524 for the same months in 1997.  The onetime legal charges 
for settling two lawsuits were the reason for the reduced earnings during 
this otherwise profitable nine month period. Income from operations, before 
legal settlement costs, was $717,615 for the quarter ended September 26, 
1998 as compared to $480,443 for the third quarter of 1997 and $1,067,259 
for the first nine months of 1998 as compared to and $758,689 for the same 
period in 1997.

Liquidity and Capital Resources at September 26, 1998:

As of September 26, 1998 the Company had $3.7 million in cash and 100% 
availability on its $3.5 million line of credit.  The Company expects that 
current resources will be sufficient to finance the Company's operating 
needs for at least the next 12 months.

Capital was increased by nearly $5.6 million in May 1998 through (i) a 
$5,325,001 purchase of Common Stock at $3.25 per share by two investment 
funds affiliated with Ampersand Ventures, in Wellesley, Massachusetts and 
(ii) a $250,000 purchase of Common Stock at $3.25 per share by Roger E. 
Brooks (the Company's new President and Chief Executive Officer) as part of 
a restricted stock arrangement with him.

The Company used more than $3.3 million of this capital to (i) fund the 
Company's recent tender offer to repurchase 475,000 shares of Common Stock 
from existing shareholders at $3.25 per share ($1,543,750), (ii) pay costs 
associated with the Ampersand transaction and the tender offer ($143,974), 
(iii) repay approximately $1 million of existing indebtedness, and (iv) fund 
approximately $700,000 expense to settle the Knight and Hasstech lawsuits. 
The Company plans to use the remaining capital primarily for its plans to 
expand its business through increased marketing and sales efforts, continued 
development of new products, international expansion, and acquisitions.

Year 2000 Compliance:

Year 2000 (Y2K) issues arise from the inability of many computer-based 
systems to properly recognize and handle information containing dates after 
12/31/99.

Earlier this year, INCON initiated a Year 2000 compliance plan, consisting 
of (1) evaluation of IT (information technology) systems including its 
accounting, payroll, and inventory software and its desktop PCs and related 
networks; (2) evaluation of non-IT systems including telephone, voicemail, 
security, and heating, ventilation and cooling; (3) evaluation of INCON 
products including ATGs, LLDs, and Power Utility Predictive Maintenance 
Instruments; and (4) surveys of INCON's key vendors and to evaluate their 
vulnerability to Y2K issues.

By the first quarter of 1999, INCON plans to have tested all IT and non-IT 
systems deemed to be critical (accounting, payroll, telephone, and HVAC), by 
running them under different Year 2000 scenarios.  Based on the Company's 
initial assessment of these systems (including information received from 
vendors of those systems), management does not expect to find significant 
Y2K compliance issues.

The subject receiving the greatest attention in the Company's Y2K compliance 
program is testing of INCON's products.  Failure of those products to 
perform properly after the Year 2000 could undercut INCON's reputation for 
quality products and for products previously sold as being Y2K compliant 
could give rise to warranty expense.  Based on current information, however, 
management expects that INCON products in the field will not experience any 
significant disruption due to Y2K issues.  The Company has determined that 
its Automatic Tank Gauge (ATG) Models TS-1001 and TS-2001 containing 
firmware prior to version 1.1 will not handle Y2K dates following a power 
outage.  These units will need to have the internal clock reset following 
power outages to handle dates after 1999.  The Company will be sending 
simple reprogramming instructions to the relevant customers and 
distributors.  The Company is also offering to replace the firmware with a 
Y2K compliant version, as an alternative means for addressing this issue. 
Management presently estimates that  the cost of upgrading the firmware for 
the ATG Models TS-1001 and TS-2001 will be approximately $75 a unit and that 
there are approximately 750 units that may qualify for the upgrade.  All 
other INCON products sold after approximately September 14, 1998 are 
believed to be Y2K compliant.

The Company has not yet adopted contingency plans for internal and external 
Year 2000 issues, but intends to do so by the end of first quarter 1999.

The Company has spent approximately $5,500 on its Y2K compliance efforts to 
date, which primarily consists of department manager and support personnel 
time.  Management presently estimates the future costs of these efforts at 
approximately $40,000.  All increased costs are being funded from operating 
cash flow and are being expensed as incurred.  Management does not 
anticipate deferring any other technology-related projects as a result of 
these costs.

This discussion of Y2K issues contains forward-looking statements, as 
defined in Section 21E of the Securities Exchange Act of 1934.   Examples of 
such statements include estimates of completion dates for evaluation of 
systems and estimates of costs associated with Y2K compliance efforts.  The 
Company cautions investors that numerous factors could cause actual results 
to differ materially from those reflected in such forward-looking statements 
 including, but not limited to, the following: unanticipated problems with 
IT systems that vendors have represented as Y2K compliant, unanticipated 
customer or distributor resistance to INCON plans for addressing Y2K issues 
on the Model TS-1001/2001 ATGs, or unanticipated problems in the field with 
installed INCON products believed to be Y2K compliant.

PART II

ITEM 1.  LEGAL PROCEEDINGS

The Company reached a final settlement, early in the third quarter, with 
Hasstech which had brought suit in October 1997 claiming that INCON's line 
leak detector infringed a certain Hasstech patent.  Under the settlement 
INCON paid Hasstech $50,000 in September 1998 and will pay Hasstech and 
additional $50,000 in the first quarter of 1999.  In addition, the Company 
has potential small ongoing payments in the event of sales to a specific 
market segment, within which the Company is not currently active.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

An index of the exhibits filed with this report appears beginning at page 
E-1 below, and is incorporated herein by reference.


                                 SIGNATURES

In accordance with the requirements of the Exchange Act, the Company caused 
this report to be signed on its behalf by the undersigned, thereunto duly 
authorized.


                                       INTELLIGENT CONTROLS, INC.
                                       By: 
                                           --------------------------------
                                           Andrew B. Clement, Controller
                                           (on behalf of the Company and as 
                                           principal financial officer)
Date:  November 10, 1998


                                 SIGNATURES

In accordance with the requirements of the Exchange Act, the Company caused 
this report to be signed on its behalf by the undersigned, thereunto duly 
authorized.


                                       INTELLIGENT CONTROLS, INC.
                                       By:  /s/ Andrew B. Clement
                                           --------------------------------
                                           Andrew B. Clement, Controller
                                           (on behalf of the Company and as 
Date:  November 10, 1998                   principal financial officer)


                              Index to Exhibits

Exhibit No.        Description
-----------        -----------

     27            Financial Data Schedule


                      REPORT OF INDEPENDENT ACCOUNTANTS


October 16, 1998


To the Board of Directors and Shareholders of
INTELLIGENT CONTROLS, INC.

We have reviewed the accompanying balance sheet of Intelligent Controls, Inc., 
as of September 26, 1998 and the related statements of income and cash flows 
for the three and nine month periods ended September 26, 1998 and September 30, 
1997. These financial statements are the responsibility of the Company's 
management.

We conducted our review in accordance with standards established by the 
American Institute of Certified Public Accountants. A review of interim 
financial information consists principally of applying analytical procedures to 
financial data and making inquiries of persons responsible for financial and 
accounting matters. It is substantially less in scope than an audit conducted 
in accordance with generally accepted auditing standards, the objective of 
which is the expression of an opinion regarding financial statements taken as a 
whole. Accordingly, we do not express such an opinion. We previously audited 
and expressed an unqualified opinion on the Company's consolidated financial 
statements for the year ended December 27, 1997 (not presented herein). In our 
opinion, the information set forth in the accompanying balance sheet as of 
December 27, 1997, is fairly stated in all materials respects, in relation to 
the statement of financial position from which it has been derived. 

Based on our review, we are not aware of any material modifications that should 
be made to the accompanying financial statements for them to be in conformity 
with generally accepted accounting principles.

/s/  PricewaterhouseCoopers LLP
-------------------------------


                         INTELLIGENT CONTROLS, INC.
                               BALANCE SHEETS

                                   ASSETS
                                   ------

<TABLE>
<CAPTION>

                                                         (unaudited)
                                                         September 26   December 27
                                                             1998           1997

<S>                                                      <C>            <C>    <C>
Current Assets:
  Cash and cash equivalents                              $3,744,814     $      300
  Accounts receivable, net of allowance for doubtful
   accounts of $101,986 in 1998 and $50,000 in 1997       2,912,260      2,200,062
  Inventories                                             1,588,921      1,854,328
  Prepaid expenses and other                                152,664        257,704
  Income taxes receivable                                                  119,099
  Deferred income taxes                                     192,464        192,464
                                                         -------------------------

    Total current assets                                  8,591,123      4,623,957

Property, Plant, and Equipment, net                         828,262        856,581

Other Assets                                                 30,317         27,176
                                                         -------------------------
                                                         $9,449,702     $5,507,714
                                                         =========================

                    LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Non-interest bearing overdraft                                            67,259
  Note payable - bank                                                      754,366
  Income taxes payable                                       93,752
  Accounts payable                                          993,555        769,097
  Accrued expenses                                        1,180,415        520,709
  Current portion long-term debt                            138,200        194,700
                                                         -------------------------

     Total current liabilities                            2,405,922      2,306,131

Long-term debt, net of current portion                      236,297        372,401

Deferred taxes                                               67,295         67,295

Stockholders' equity:
  Common Stock, no par value; 8,000,000 shares            7,583,080      2,293,841
   authorized; 5,056,760 issued at September 26, 1998
   and 3,274,306 issued at December 27, 1997
  Retained Earnings                                         513,135        468,046
  Less:
    Shareholder note receivable                          (1,332,500)
    Treasury Stock, 108,521 shares                          (23,527)
                                                         -------------------------
                                                          6,740,188      2,761,887
                                                         -------------------------
                                                         $9,449,702     $5,507,714
                                                         =========================
</TABLE>


                           See accompanying notes.

                          INTELLIGENT CONTROLS, INC.
                      STATEMENTS OF INCOME (unaudited)


<TABLE>
<CAPTION>

                                             Three Months Ended              Nine Months Ended

                                         September 26   September 30   September 26    September 30
                                             1998           1997           1998            1997

<S>                                      <C>            <C>            <C>              <C>
Net sales                                $ 4,451,620    $ 3,796,604    $11,371,108      $9,994,590

Cost of sales                              2,067,782      2,107,496      5,775,590       5,827,823
                                         ---------------------------------------------------------
                                           2,383,838      1,689,108      5,595,518       4,166,767

Operating expenses:
  Selling, general and administrative      1,423,595      1,019,025      3 823 402       2,816,974
  Research and development                   242,628        189,640        704,857         591,104
  Legal settlement charges                                                 747,660
                                         ---------------------------------------------------------
                                           1,666,223      1,208,665      5,275,919       3,408,078

Operating income                             717,615        480,443        319,599         758,689

Other income (expense)
  Interest income (expense)                   30,324        (40,461)        (7,052)       (141,669)
  Other expense                              (21,100)       (14,462)       (46,407)        (44,787)
                                         ---------------------------------------------------------
                                               9,224        (54,923)       (53,459)       (186,456)

Income before income tax                     726,839        425,520        266,140         572,233

Income tax expense                          (292,469)      (180,200)      (221,051)       (235,709)
                                         ---------------------------------------------------------

Net income                               $   434,370    $   245,320    $    45,089     $   336,524
                                         =========================================================

Net income per share
 basic and diluted                       $       .09    $      0.07    $       .01     $      0.10
Weighted average number of
 common shares outstanding                 4,949,171      3,435,191      4,206,642       3,324,662
Weighted average common and
 common equivalent shares outstanding      4,965,181      3,435,191      4,251,785       3,324,662


</TABLE>

                           See accompanying notes.


                         INTELLIGENT CONTROLS, INC.
                    STATEMENTS OF CASH FLOWS (unaudited)

<TABLE>
<CAPTION>

                                                           Nine Months Ended

                                                      September 26    September 30
                                                          1998            1997
                                                      ---------------------------
<S>                                                    <C>             <C>
Cash flows from operating activities:
  Net income                                              45,089          336,524
  Adjustments to reconcile net income to net cash
   provided (used) by operating activities:
    Depreciation                                         194,868          175,831
    Deferred taxes                                                         36,333
    Changes in assets and liabilities:
      Accounts receivable                               (712,198)        (465,225)
      Inventories                                        265,407          976,612
      Prepaid expenses and other current assets          105,040           79,631
      Income tax receivable                              119,099          160,000
      Income tax payable                                  93,752          237,722
      Accounts payable and accrued expenses              884,164          (94,859)
      Other                                               (3,141)          (3,534)
                                                       --------------------------
  Net cash created by operating activities               992,080        1,439,035
                                                       --------------------------

Cash flows from investing activities:
  Capital expenditures                                  (166,549)        (150,283)
                                                       --------------------------

  Net cash used by investing activities                 (166,549)        (150,283)

Cash flows from financing activities:
  Decrease in non-interest bearing overdraft             (67,259)
  Net payment on note payable - bank                    (754,366)      (1,260,769)
  Issuance of long-term debt                                               13,483
  Repayment of long-term debt                                            (192,604)
  Issuance of common stock, net                        3,956,739           20,487
  Acquisition of treasury stock                          (23,527)           4,306
  Decrease in restricted cash balances                                   (199,120)
  Decrease in liability to shareholder                                    199,120
                                                       --------------------------
  Net cash provided (used) by financing activities     2,918,983       (1,222,493)
                                                       --------------------------

Net increase in cash                                   3,744,514           66,259

Cash and cash equivalents at beginning of year               300          133,690
                                                       --------------------------

Cash and cash equivalents at end of period             3,744,814          200,039

Supplemental disclosures of cash flow information:
  Cash paid during the period for:
    Interest                                              40,461          141,669
    Income taxes                                               0                0

</TABLE>

                           See accompanying notes.


                         INTELLIGENT CONTROLS, INC.

                  NOTES TO FINANCIAL STATEMENTS (Unaudited)


1.  The consolidated financial statements included herein have been prepared 
by the Company, without audit, pursuant to the rules and regulations of the 
Securities and Exchange Commission.  Certain information and footnote 
disclosures normally included in financial statements prepared in accordance 
with generally accepted accounting principles have been condensed or omitted 
pursuant to such rules and regulations, although the Company believes that 
the disclosures are adequate to make the information presented not to be 
misleading.  In the opinion of management, the amounts shown reflect all 
adjustments necessary to present fairly the financial position and results 
of operations for the periods presented.  All such adjustments are of a 
normal recurring nature.  The year-end condensed balance sheet was derived 
from audited financial statements, but does not include all disclosures 
required by generally accepted accounting principles.

Certain reclassifications have been made to the December 27, 1997 financial 
statements to conform with the September 26, 1998 presentations.

It is suggested that the financial statements be read in conjunction with 
the financial statements and notes thereto included in the Company's 10-KSB.

2.  Earnings Per Common Share
    -------------------------

Basic earnings per share of common stock have been determined by dividing 
net earnings by the weighted average number of shares of common stock 
outstanding during the periods presented.  Diluted earnings per share 
reflect the potential dilution that would occur if existing stock options 
were exercised.  The effect of exercising existing stock options is not 
taken into account where the results would be anti-dilutive (i.e. in periods 
with net losses).  Following is a reconciliation of the dual presentations 
of earnings per share for the periods presented.

<TABLE>
<CAPTION>

                                        Net Income     Common Shares    Earnings
                                        (Numerator)    (Denominator)    Per Share
                                        -----------------------------------------
Quarter Ended September 26, 1998
--------------------------------

<S>                                      <C>             <C>              <C>
Basic earnings per share                 $434,370        4,949,171        $ .09
                                                                          =====
Dilutive potential shares                                   16,010
                                         -------------------------
Diluted earnings per share               $434,370        4,965,181        $ .09
                                         ======================================

Nine Months Ended September 26, 1998
------------------------------------

Basic earnings per share                 $ 45,089        4,206,642        $ .01
                                                                          =====
Dilutive potential shares                                   45,143
                                         -------------------------
Diluted earnings per share               $ 45,089        4,251,785        $ .01
                                         ======================================


Quarter Ended September 30, 1997
--------------------------------

Basic earnings per share                 $245,320        3,324,662        $0.07
                                                                          =====
Dilutive potential shares                                        0
                                         -------------------------
Diluted earnings per share               $245,320        3,324,662        $0.07
                                         ======================================

Nine Months Ended September 30, 1997
------------------------------------

Basic earnings per share                 $336,524        3,324,662        $0.10
                                                                          =====
Dilutive potential shares                                        0
                                         -------------------------
Diluted earnings per share               $336,524        3,324,662        $0.10
                                         ======================================

</TABLE>

3.  Property, Plant, and Equipment
    ------------------------------

Property, plant, and equipment, at cost,

<TABLE>
<CAPTION>

                                                  (Unaudited)
                                                 September 26,   December 27,
                                                      1998           1997

<S>                                               <C>             <C>
Leasehold improvements                            $  153,904      $  111,983
Equipment                                          1,236,025       1,139,210
Computer software                                    179,891         154,560
Furniture and Fixtures                               106,792         104,312
                                                  --------------------------
                                                   1,676,612       1,510,065

Less accumulated depreciation and amortization      (848,350)       (653,484)
                                                  --------------------------
                                                  $  828,262      $  856,581
                                                  ==========================
</TABLE>

4.  Inventories consisted of the following at September 26, 1998 and 
December 27, 1997.

<TABLE>
<CAPTION>

                      (Unaudited)
                       June 27,     December 27,
                         1998           1997

<S>                   <C>           <C>
Raw Material          $  911,738    $1,214,749
Work in Progress         271,016       229,824
Finished Goods           340,441       356,974
Other                     65,726        52,781
                      ------------------------
                      $1,588,921    $1,854,328
                      ========================
</TABLE>


5.  New Accounting Pronouncements
    -----------------------------

In June 1997, the Financial Accounting Standards Board issued Statement of 
Financial Accounting Standards (SFAS) No. 130 - Reporting Comprehensive 
Income, which requires the separate reporting of all changes to 
shareholders' equity, and SFAS No. 131 - Disclosures about Segments of an 
Enterprise and Related Information, which revises existing guidelines about 
the level of financial disclosure of a company's operations.  Both 
statements are effective for financial statements issued for fiscal years 
beginning after December 15, 1997.  The Company has determined that the new 
standard will not necessitate any changes to existing financial reporting.

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133  
--  Accounting for Derivative Instruments and Hedging Activities, which 
establishes accounting and reporting standards for derivative instruments, 
including certain derivatives embedded in other contracts, and for hedging 
activities.  SFAS No. 133 requires that an entity recognize all derivatives 
as either assets or liabilities in the balance sheet and measure those 
instruments at fair value.  The statement is effective January 1, 2000.  The 
Company has not yet determined what effect, if any, the statement will have 
on the financial statements.

6.  Litigation
    ----------

In May 1998, the Company settled a lawsuit with a former executive who had 
filed suit alleging that the Company owed him $287,100 in unpaid bonus 
payments over a six and one-half year period under his 1986 Employment 
Agreement, plus $574,200 in punitive damages.  The plaintiff also challenged 
the Company's refusal to allow his post-termination exercise of certain 
stock options for 248,240 shares.  The case was settled by allowing the 
plaintiff to exercise some of his options followed by a $647,660 cash 
payment to the plaintiff, $607,660 to purchase back 100,000 shares and all 
of his outstanding options, as well as $40,000 as additional severance.  The 
entire amount was expensed in the second quarter 1998.

The Company reached a final agreement, early in the third quarter, with 
Hasstech which had brought suit in  October 1997 claiming that INCON's line 
leak detector infringed a certain Hasstech patent. A settlement reached in 
mediation, and recorded in the court records, calls for an agreement between 
the parties whereby INCON will pay Hasstech $100,000, half in September 1998 
and half in the first quarter of 1999. The entire $100,000 obligation was 
recognized as an operating expense in the second quarter of 1998.

7.  Stockholders' Equity
    --------------------

On May 1, 1998, the Company received $5,325,001 of proceeds from the sale of 
1,638,462 shares of common stock to two investment funds affiliated with 
Ampersand Ventures.  In addition, on May 6, 1998, the company sold an 
additional 486,923 shares of common stock as part of a restricted stock 
arrangement with he new President and Chief Executive Officer.  Proceeds on 
this sale amounted to $250,000 cash and the acceptance of a $1,332,500 
promissory note.

On May 1, 1998, the Company completed a tender offer to existing 
shareholders, whereby the Company repurchased and canceled 475,000 shares of 
common stock for approximately $1,544,000.