<PAGE> 1
U.S. 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 June 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 1-13333
---------
DBT ONLINE, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 85-0439411
- --------------------------------- -------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
5550 W. FLAMINGO ROAD, SUITE B-5
----------------------------------------
(Address of principal Executive Offices)
LAS VEGAS, NEVADA 89103
----------------------------------------
(702) 257-1112
----------------------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act 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 common shares outstanding as of June 30, 1998 was 18,473,416.
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DBT ONLINE, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 1998
and December 31, 1997..................................................................3
Consolidated Statements of Operations for the Three Months Ended June 30, 1998
and 1997...............................................................................4
Consolidated Statements of Operations for the Six Months Ended June 30, 1998
and 1997...............................................................................5
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1998
and 1997...............................................................................6
Notes to Consolidated Financial Statements......................................................7
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 2. CHANGES IN SECURITIES..........................................................................11
Item 3. DEFAULTS UPON SENIOR SECURITIES................................................................11
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................11
Item 5. OTHER INFORMATION..............................................................................12
Item 6. EXHIBITS AND REPORTS ON FORM 8-K...............................................................12
Signature........................................................................................................13
EXHIBIT
Exhibit 27.1 Financial Data Schedule..............................................................E-1
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -------------------------------------------
DBT ONLINE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
At June 30, At December 31,
1998 1997
----------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $12,541,200 $ 7,689,800
Accounts receivable, less allowance: June 30, 1998 - $339,000
December 31, 1997 - $330,000 6,012,400 4,448,800
Short-term investments 36,898,500 44,207,200
Prepaid expenses and other current assets 2,113,700 1,681,300
Prepaid income taxes 456,200 217,300
----------- -----------
Total current assets 58,022,000 58,244,400
Property and equipment, net 14,795,400 9,034,000
Patents, less amortization: June 30, 1998 - $3,164,900
December 31, 1997 - $2,317,300 10,677,900 11,525,400
Goodwill, less amortization: June 30, 1998 - $757,200
December 31, 1997 - $344,200 5,050,000 5,463,100
Other assets 103,600 341,600
----------- -----------
TOTAL ASSETS $88,648,900 $84,608,500
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities 4,049,700 3,766,600
Due to other patent interest holders 1,280,000 995,200
----------- -----------
Total current liabilities 5,329,700 4,761,800
DEFERRED INCOME TAXES 3,949,100 4,199,600
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.10 par value. 5,000,000 shares
authorized; no shares issued or outstanding
Common stock, $.10 par value. 100,000,000 shares and
40,000,000 shares authorized at June 30, 1998 and
December 31, 1997, respectively. 18,473,416 shares
and 18,388,626 shares issued and outstanding at
June 30, 1998 and December 31, 1997, respectively 1,847,400 1,838,900
Additional paid-in capital 68,971,200 68,564,600
Retained earnings 8,551,500 5,243,600
----------- -----------
Total stockholders' equity 79,370,100 75,647,100
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $88,648,900 $84,608,500
=========== ===========
</TABLE>
See notes to consolidated financial statements.
Page 3
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DBT ONLINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended June 30,
--------------------------------
1998 1997
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $11,299,900 $ 7,019,100
Patent royalties 1,745,300 1,817,500
----------- -----------
Total revenues and royalties 13,045,200 8,836,600
----------- -----------
Cost of revenues 5,651,100 3,401,500
Selling and promotion 1,607,700 704,300
Research and development 634,400 625,200
General and administrative 3,026,700 2,053,600
----------- -----------
Total expenses 10,919,900 6,784,600
----------- -----------
Income from operations 2,125,300 2,052,000
Interest income, net 510,700 238,100
----------- -----------
Income before income taxes 2,636,000 2,290,100
Provision for income taxes 896,200 870,200
----------- -----------
Net income $ 1,739,800 $ 1,419,900
=========== ===========
Net income per common share (basic) $ 0.09 $ 0.09
=========== ===========
Weighted average shares outstanding (basic) 18,465,500 16,418,000
=========== ===========
Net income per common share (diluted) $ 0.09 $ 0.08
=========== ===========
Weighted average shares outstanding (diluted) 19,400,000 17,161,000
=========== ===========
</TABLE>
See notes to consolidated financial statements.
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DBT ONLINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------------
1998 1997
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $22,010,400 $13,100,600
Patent royalties 3,459,700 3,335,000
----------- -----------
Total revenues and royalties 25,470,100 16,435,600
----------- -----------
Cost of revenues 11,226,100 6,672,200
Selling and promotion 2,833,600 1,297,300
Research and development 1,297,400 1,154,900
General and administrative 6,213,900 3,853,900
----------- -----------
Total expenses 21,571,000 12,978,300
----------- -----------
Income from operations 3,899,100 3,457,300
Interest income, net 1,112,800 269,400
----------- -----------
Income before income taxes 5,011,900 3,726,700
Provision for income taxes 1,704,000 1,416,100
----------- -----------
Net income $ 3,307,900 $ 2,310,600
=========== ===========
Net income per common share (basic) $ 0.18 $ 0.14
=========== ===========
Weighted average shares outstanding (basic) 18,461,900 15,935,500
=========== ===========
Net income per common share (diluted) $ 0.17 $ 0.14
=========== ===========
Weighted average shares outstanding (diluted) 19,259,100 16,633,500
=========== ===========
</TABLE>
See notes to consolidated financial statements.
Page 5
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DBT ONLINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months ended June 30,
-----------------------------------
1998 1997
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,307,900 $ 2,310,600
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,440,200 2,293,300
Deferred taxes (250,500) (169,700)
Changes in operating assets and liabilities;
Accounts receivable and other
receivables (1,563,600) (1,248,500)
Prepaid expenses and other current assets (432,400) (241,400)
Accounts payable and accrued
liabilities 526,000 1,917,700
Due to other patent interest holders 284,800 (5,500)
Income taxes payable (238,900) (210,000)
------------ ------------
Net cash provided by operating
activities 5,073,500 4,646,500
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment purchased (7,941,000) (3,380,000)
Increase (decrease) in other assets 238,000 (44,500)
Proceeds from maturity of investments 7,308,700
------------ ------------
Net cash used in investing activities (394,300) (3,424,500)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from insurance of Common Stock 46,928,600
Net change in bank line-of-credit (200,000)
Proceeds from exercise of stock options 172,200
Repayments on long-term debt (2,781,300)
------------ ------------
Net cash provided by (used in) financing
activities 172,200 43,947,300
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,851,400 45,169,300
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 7,689,800 6,965,600
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12,541,200 $ 52,134,900
============ ============
</TABLE>
See notes to consolidated financial statements.
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DBT ONLINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto, which are included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
NOTE 1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of DBT Online, Inc. (the "Company") and its wholly-owned subsidiaries, Database
Technologies, Inc., a Florida corporation ("DBT"), The Information Connectivity
Group, Inc., a Nevada Corporation ("ICON") and Patlex Corporation (since August
20, 1996, date of merger), a Pennsylvania corporation ("Patlex"). The interim
consolidated financial statements as of June 30, 1998 and for the three and six
month periods ended June 30, 1998 and 1997 are unaudited. All significant
intercompany accounts and transactions have been eliminated. The accompanying
consolidated financial statements reflect all adjustments which are, in the
opinion of management, necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods
presented. Such adjustments consist solely of normal recurring accruals. Results
for the interim periods are not necessarily indicative of results for a full
year.
NOTE 2. STOCK SPLIT
The Company announced on September 16, 1997, a two-for-one stock split
where the Company would distribute to each shareholder of record on September
26, 1997 one share of Common Stock for each share of Common Stock outstanding.
All share and per share amounts have been restated to give effect to the split.
NOTE 3. ACQUISITION
On August 1, 1997, the Company acquired all of the stock of ICON for
consideration in both cash and stock totaling approximately $6 million. For
accounting purposes, the transaction was treated as a purchase. The company
recorded goodwill of approximately $5.8 million in connection with this
acquisition.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following should be read in conjunction with the Consolidated
Financial Statements of the Company and the Notes thereto. This information
contains certain statements regarding future trends, the accuracy of which is
subject to many risks and uncertainties. Such trends, and their anticipated
impact upon the Company, could differ materially from those presented in this
Form 10-Q.
OVERVIEW OF THE COMPANY
The Company is a holding company with businesses that serve the
electronic information and patent enforcement industries. Its electronic
information businesses are on-line providers of integrated database services
and related reports primarily to law enforcement and other government agencies,
law firms, insurance companies and licensed investigation companies. Its patent
enforcement business is engaged in the exploitation and enforcement of two laser
patents and generates its revenues through patent royalties.
ELECTRONIC INFORMATION GROUP
The Electronic Information Group's ("EIG") revenues increased 61% to
$11,299,900 for the three months ended June 30, 1998 from $7,019,100 for the
same period in 1997. Without regard to acquisitions, EIG revenues increased
54%. The increase in EIG's revenues was attributable to an increase in the
number of active customers and the number of minutes users spent on line. DBT's
active customers (defined as customers accessing the system in a given month)
increased 54% to 11,700 at June 30, 1998 from 7,600 at June 30, 1997. Total
system usage increased 56% to 7.5 million minutes for the three months ended
June 30, 1998, from 4.8 million minutes for the same period in 1997.
EIG's revenues increased 68% to $22,010,400 for the six months ended
June 30, 1998 from $13,100,600 for the same period in 1997. Total system usage
increased 57% to 14.4 million minutes for the six months ended June 30, 1998, up
from 9.2 million minutes for the same period in 1997.
EIG's cost of revenues increased 75% to $5,224,000 for the three months
ended June 30, 1998 from $2,977,700 for the same period in 1997. As a percentage
of EIG revenues, cost of revenues increased to 46.2% for the three months ended
June 30, 1998 from 42.4% for the same period in 1997. In addition to the
acquisition of ICON, the dollar increase in the EIG's cost of revenues was due
primarily to increases in both purchased data costs and depreciation expense as
EIG continued to invest both in its computer facilities and in the expansion of
its databases. The Company expects this trend to continue.
EIG's cost of revenues increased 78% to $10,371,900 for the six months
ended June 30, 1998 from $5,824,600 for the same period in 1997. As a percentage
of EIG revenues, cost of revenues increased to 47.1% for the six months ended
June 30, 1998 from 44.5% for the same period in 1997. In addition to the
acquisition of ICON, the dollar increase in EIG's cost of revenues was due
primarily to increases in both purchased data costs and depreciation expense as
EIG continued to invest both in its computer facilities and in the expansion of
its databases. The Company expects this trend to continue.
EIG's selling and promotion expenses increased 128% to $1,607,700 for
the three months ended June 30, 1998 from $704,300 for the same period in 1997.
The increase was primarily due to increases in payroll and advertising expenses.
As a percentage of EIG's revenues, selling and promotion increased to 14.2% for
the three months ended June 30, 1998 from 10%, for the same period in 1997.
EIG's selling and promotion expenses increased 118% to $2,833,600 for
the six months ended June 30, 1998 from $1,297,300 for the same period in 1997.
In addition to the acquisition of ICON, the increase was primarily due to
increases in payroll and advertising expenses. As a percentage of total
revenues, selling and promotion increased to 12.9% for the six months ended June
30, 1998 from 9.9%, for the same period in 1997.
EIG's research and development expenses increased 2% to $634,400 for
the three months ended June 30,
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1998 from $625,200 for the same period in 1997. This increase was caused by an
increase in payroll and related expenses. As a percentage of total revenues,
research and development expenses were 5.6% for the three months ended June 30,
1998, a decrease from 8.9% for the same period in 1997.
EIG's research and development expenses increased 12% to $1,297,400 for
the six months ended June 30, 1998 from $1,154,900 for the same period in 1997.
This increase was caused by an increase in payroll and related expenses. As a
percentage of total revenues, research and development expenses were 5.9% for
the six months ended June 30, 1998, a decrease from 8.8% for the same period in
1997.
EIG's general and administrative expenses increased 49% to $2,760,100
for the three months ended June 30, 1998 from $1,856,200 for the same period in
1997. This increase was due to increases in payroll and related expenses. As a
percentage of EIG revenues, general and administrative expenses decreased to
24.4% for the three months ended June 30, 1998 from 26.4% for the same period in
1997.
EIG's general and administrative expenses increased 66% to $5,640,000
for the six months ended June 30, 1998 from $3,402,000 for the same period in
1997. This increase was due to increases in payroll and related expenses. As a
percentage of EIG revenues, general and administrative expenses remained
relatively consistent at 25.6% and 26% for the six months ended June 30, 1998
and 1997, respectively.
PATENT ENFORCEMENT GROUP
Revenues of the Patent Enforcement Group ("PEG") decreased 4% to
$1,745,300 for the quarter ended June 30, 1998 from $1,817,500 for the same
period in 1997. PEG's cost of revenues were consistent at $427,000 for the
quarter ended June 30, 1998 versus $424,000 for the same period in 1997 and
consists solely of the amortization of its patents. PEG's general and
administrative expenses increased to $266,500 for the quarter ended June 30,
1998 from $197,400 for the same period in 1997.
PEG's revenues increased 4% to $3,459,700 for the six months ended June
30, 1998 from $3,335,000 for the same period in 1997. PEG's cost of revenues
were consistent at $854,200 and $847,600 for the six months ended June 30, 1998
and 1997, respectively, and consist solely of the amortization of its patents.
PEG's general and administrative expenses increased to $573, 900 for the six
months ended June 30, 1998 from $451,900 for the same period in 1997.
OPERATING PROFIT
The EIG contributed $1,073,700 in operating profit for the three months
ended June 30, 1998 compared to an operating profit of $855,700 for the same
period in 1997. PEG contributed $1,051,700 in operating profit for the quarter
ended June 30, 1998 compared to $1,196,300 for the same period in 1997.
On a consolidated basis, the Company's operating profit was $2,125,300
for the three months ended June 30, 1998 compared to $2,052,000 for the same
period in 1997.
INTEREST INCOME
Net interest income was $510,700 for the three months ended June 30,
1998 compared to $238,100 for the same period in 1997. The net interest income
is due primarily to the Company's investment earnings on proceeds from the
issuance of Common Stock in May, 1997.
INCOME TAXES
The Company's effective income tax rate was 34% for the six months
ended June 30, 1998 compared to 38% for the same period in 1997. The 1998
effective rate was favorably impacted by non-taxable interest income and reduced
state income taxes.
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NET INCOME
The Company had net income of $3,307,900 for the six months ended June
30, 1998 compared to $2,310,600 for the same period in 1997. The increase is due
to an increase in operating profit, the investment income generated on the
proceeds from the issuance of Common Stock in May, 1997, and the reduced
effective income tax rate.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flow from operations was $5,073,500 and $4,646,500
for the six months ended June 30, 1998 and 1997, respectively. The Company's
capital expenditures of $7,941,000 and $3,380,000 for the six months ended 1998
and 1997, respectively, were primarily attributable to the acquisition of
computer equipment for DBT. The Company had working capital at June 30, 1998 of
$52,692,300 (including cash and cash equivalents of $12,541,200) compared to
$53,482,600 (including cash and cash equivalents of $7,689,800) at December 31,
1997. The Company expects to fund future working capital requirements from its
existing cash and short-term investment balances together with cash generated
from operations.
INFLATION
The rate of inflation has not had a material impact on the operations
of the Company. Moreover, if inflation remains at its recent levels, it is not
expected to have a material impact on the operations of the Company for the
foreseeable future.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Information contained above with respect to the Company's investment in
its computer facilities and the expansion of its databases, and other statements
in this Management's Discussion and Analysis of Financial Condition and Results
of Operations, regarding expected future events and financial results is
forward-looking and subject to risks and uncertainties. Those statements are
forward-looking statements within the meaning of Section 31E of the Securities
Exchange Act of 1934. The following important factors could affect the future
results of the Company and could cause those results to differ materially from
those expressed in the forward-looking statements: (i) the ability to manage
DBT's rapid expansion, (ii) protecting DBT's proprietary technology, (iii)
impact of future government regulation on the availability of public records,
and (iv) the extent, timing and success of competition from other database
providers.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None to report.
ITEM 2. CHANGES IN SECURITIES
None to report.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None to report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
At the Annual Meeting of Shareholders for the Company held on May 12,
1998, the shareholders took the following action with respect to the following
four matters which were the only matters submitted to a vote of the
shareholders:
(A) Elected three Class II directors consisting of those persons
listed below. The number of votes for and votes withheld from each
nominee for director are set forth opposite each director's name.
NOMINEE FOR TERM TOTAL VOTE FOR TOTAL VOTE WITHHELD FROM
EXPIRING IN 2001 EACH DIRECTOR EACH DIRECTOR
---------------- -------------- ------------------------
Frank Borman 16,655,559 35,761
Jack Hight 16,656,175 35,145
Andrall E. Pearson 16,656,951 34,369
Messrs. Kenneth G. Langone, Charles A. Lieppe, Eugene L. Step and Ms.
Sari Zalcberg continued as Class I directors whose term expires at the Annual
Meeting of Shareholders to be held in 2000. Messrs. Hank Asher, Gary E. Erlbaum
and Bernard Marcus continued as Class III directors whose term expires at the
Annual Meeting of Shareholders to be held in 1999.
(B) Approved a proposed amendment to the Company's Amended and
Restated Stock Option Plan to increase the number of authorized
shares from 3,000,000 to 6,000,000 shares available for issuance
under the Amended and Restated Stock Option Plan. The vote on this
amendment was as follows:
FOR 12,737,941
AGAINST 598,337
ABSTAIN 17,256
BROKER NON-VOTES 3,337,786
(C) Approved a proposed amendment to the Company's Amended and
Restated Articles of Incorporation to increase the number of
authorized shares of Common Stock from 40,000,000 to 100,000,000.
The vote on this amendment was as follows:
FOR 16,063,236
AGAINST 616,470
ABSTAIN 11,614
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(D) Ratified the selection of Deloitte & Touche LLP as the independent
public accountants of the Company for the fiscal year ending
December 31, 1998. The vote on this matter was as follows:
FOR 16,679,425
AGAINST 4,042
ABSTAIN 7,853
BROKER NON-VOTES 0
ITEM 5. OTHER INFORMATION
None to report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1* Financial Data Schedule (for SEC use only).
- ------------
* Filed herewith.
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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.
DBT ONLINE, INC.
/s/ Timothy M. Leonard
--------------------------------------
TIMOTHY M. LEONARD
Vice President, Finance, Treasurer and
Chief Financial Officer
(Duly authorized officer and chief
financial officer)
Date: August 10, 1998
Page 13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 12,541,200
<SECURITIES> 36,898,500
<RECEIVABLES> 6,351,400
<ALLOWANCES> 339,000
<INVENTORY> 0
<CURRENT-ASSETS> 58,022,000
<PP&E> 24,223,100
<DEPRECIATION> (9,427,700)
<TOTAL-ASSETS> 88,648,900
<CURRENT-LIABILITIES> 5,329,700
<BONDS> 0
0
0
<COMMON> 1,847,400
<OTHER-SE> 68,971,200
<TOTAL-LIABILITY-AND-EQUITY> 88,648,900
<SALES> 11,299,900
<TOTAL-REVENUES> 13,045,200
<CGS> 5,651,100
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,268,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 510,700
<INCOME-PRETAX> 2,636,000
<INCOME-TAX> 896,200
<INCOME-CONTINUING> 1,739,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,739,800
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
