U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-13281
DIAGNON CORPORATION
-----------------------------------------------------------------
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
STATE OF DELAWARE 13-3078199
- -------------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
9600 MEDICAL CENTER DRIVE, ROCKVILLE, MARYLAND 20850
- -------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE (301) 251-2801
NOT APPLICABLE
- -------------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE
LAST REPORT)
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 PAST 12 MONTHS, AND (2)
HAS BEEN SUBJECT TO SUCH FILING REQUIREMENT FOR THE PAST 90 DAYS.
YES X NO
--- ---
COMMON STOCK, $.01 PAR VALUE PER SHARE; AUTHORIZED 25,000,000 SHARES; 1,600,408
SHARES OUTSTANDING AS OF APRIL 8, 1998.
CONVERTIBLE PREFERRED STOCK, $1.00 PAR VALUE PER SHARE; AUTHORIZED 500,000
SHARES; NO SHARES OUTSTANDING AS OF APRIL 8, 1998.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES NO X
--- ---
<PAGE>
DIAGNON CORPORATION
-------------------
INDEX
-----
Part I. Financial Information Page
- ------------------------------ ----
Item 1. Financial Statements.
Consolidated Balance Sheets, May 31, 1997 and
February 28, 1998 (Unaudited) . . . . . . . . . . . 2
Unaudited Statements of Consolidated Operations for
the Three Months Ended February 28, 1998 and
February 28, 1997 . . . . . . . . . . . . . . . . . 3
Unaudited Statements of Consolidated Operations for
the Nine Months Ended February 28, 1998 and
February 28, 1997 . . . . . . . . . . . . . . . . . 4
Unaudited Statements of Consolidated Cash Flows
for the Nine Months Ended February 28, 1998 and
February 28, 1997 . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis . . . . . . . . . . . 6
Part II. Other Information
- ---------------------------
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 9
<PAGE>
DIAGNON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, MAY 31, 1997 AND FEBRUARY 28, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS FEBRUARY 28, MAY 31,
1998 1997
------------ ------------
<S><C>
CURRENT ASSETS:
Cash and cash equivalents $ 64,965 $ 62,638
Accounts receivable:
Trade 1,240,814 1,245,292
Unbilled 514,360 598,922
Other 22,923 49,999
Prepaid expenses 95,883 76,444
Inventories 28,563 44,961
Deferred income taxes - current 50,000 50,000
------------ ------------
Total current assets 2,017,508 2,128,256
------------ ------------
LOANS TO OFFICERS 90,000 90,000
------------ ------------
FIXED ASSETS:
Leasehold improvements 737,913 670,899
Furniture, fixtures and equipment 3,058,396 2,985,508
------------ ------------
Total 3,796,309 3,656,407
Less accumulated depreciation
and amortization 2,252,104 2,182,091
------------ ------------
Fixed assets, net 1,544,205 1,474,316
------------ ------------
DEFERRED INCOME TAXES - NONCURRENT 824,300 797,400
OTHER NONCURRENT ASSETS 150,549 204,549
------------ ------------
TOTAL $ 4,626,562 $ 4,694,521
============ ============
LIABILITIES
- -----------
CURRENT LIABILITIES:
Borrowings under line of credit $ 500,324 $ 536,120
Current maturities of long-term debt 135,971 124,153
Accounts payable 355,962 250,767
Accrued compensation and related costs 205,114 292,956
Accrued income taxes 6,543 5,543
Other accrued liabilities 9,500 12,641
------------ ------------
Total current liabilities 1,213,414 1,222,180
LONG-TERM DEBT 164,675 164,192
------------ ------------
Total liabilities 1,378,089 1,386,372
------------ ------------
STOCKHOLDERS' EQUITY
- --------------------
Convertible preferred stock - par value of $1.00 per
share: February 28, 1998, 500,000 shares, May 31,
1997, 325,000 shares authorized; no shares issued and
outstanding
Common stock - par value of $.01 per share;
25,000,000 shares authorized; 1,600,408 shares
issued; February 28, 1998, 899,505 shares, May 31, 16,004 96,024
1997, 899,707 shares outstanding
Additional paid-in capital 7,475,035 7,395,015
Accumulated deficit (3,614,698) (3,555,533)
------------ ------------
Total 3,876,341 3,935,506
Less - treasury stock February 28, 1998, 700,903
shares, May 31, 1997, 700,701 shares, at cost (627,868) (627,357)
------------ ------------
Total stockholders' equity 3,248,473 3,308,149
------------ ------------
TOTAL $ 4,626,562 $ 4,694,521
============ ============
</TABLE>
See notes to financial statements.
2
<PAGE>
DIAGNON CORPORATION AND SUBSIDIARIES
UNAUDITED STATEMENTS OF CONSOLIDATED OPERATIONS FOR THE
THREE MONTHS ENDED FEBRUARY 28, 1998 AND FEBRUARY 28, 1997
FEBRUARY 28, FEBRUARY 28,
1998 1997
------------ ------------
REVENUES AND SALES:
Contract revenues $ 2,542,915 $ 2,252,066
Product sales 45,373 12,908
------------ ------------
Total Revenues and Sales 2,588,288 2,264,974
------------ ------------
OPERATING EXPENSES:
Contract 1,939,012 1,761,634
Cost of goods sold 58,329 13,002
Research and development 89,706 74,516
General and administrative 452,366 402,017
------------ ------------
Total 2,539,413 2,251,169
------------ ------------
OPERATING INCOME 48,875 13,805
INTEREST INCOME 1,351 1,165
INTEREST EXPENSE (16,456) (10,342)
------------ ------------
INCOME BEFORE INCOME TAX 33,770 4,628
PROVISION FOR INCOME TAX 22,900 1,500
------------ ------------
NET INCOME $ 10,870 $ 3,128
============ ============
BASIC EARNINGS PER SHARE $ 0.01 $ 0.00
============ ============
DILUTED EARNINGS PER SHARE $ 0.01 $ 0.00
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING FOR BASIC EPS 899,505 899,707
EFFECT OF DILUTIVE SECURITIES -
OPTIONS 7,536 13,350
------------ ------------
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING + DILUTIVE OPTIONS FOR
DILUTED EPS 907,041 913,057
============ ============
See notes to financial statements.
3
<PAGE>
DIAGNON CORPORATION AND SUBSIDIARIES
UNAUDITED STATEMENTS OF CONSOLIDATED OPERATIONS FOR THE
NINE MONTHS ENDED FEBRUARY 28, 1998 AND FEBRUARY 28, 1997
FEBRUARY 28, FEBRUARY 28,
1998 1997
------------ ------------
REVENUES AND SALES:
Contract revenues $ 7,187,676 $ 6,772,597
Product sales 52,026 16,766
------------ ------------
Total Revenues and Sales 7,239,702 6,789,363
------------ ------------
OPERATING EXPENSES:
Contract 5,512,953 5,130,150
Cost of goods sold 82,751 15,358
Research and development 298,861 244,068
General and administrative 1,375,108 1,289,279
------------ ------------
Total 7,269,673 6,678,855
------------ ------------
OPERATING (LOSS)/INCOME (29,971) 110,508
INTEREST INCOME 3,920 4,757
INTEREST EXPENSE (41,114) (33,211)
------------ ------------
(LOSS)/INCOME BEFORE INCOME TAX (67,165) 82,054
(CREDIT)/PROVISION FOR INCOME TAX (8,000) 32,800
------------ ------------
NET (LOSS)/INCOME $ (59,165) $ 49,254
============ ============
BASIC (LOSS)/EARNINGS PER SHARE $ (0.07) $ 0.05
============ ============
DILUTED (LOSS)/EARNINGS PER SHARE $ (0.07) $ 0.05
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING FOR BASIC EPS 899,611 899,707
EFFECT OF DILUTIVE SECURITIES -
OPTIONS 13,305
------------ ------------
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING + DILUTIVE OPTIONS FOR
DILUTIVE EPS 899,611 913,057
============ ============
See notes to financial statements.
4
<PAGE>
DIAGNON CORPORATION AND SUBSIDIARIES
UNAUDITED STATEMENTS OF CONSOLIDATED CASH FLOWS FOR THE
NINE MONTHS ENDED FEBRUARY 28, 1998 AND FEBRUARY 28, 1997
<TABLE>
<CAPTION>
FEBRUARY 28, 1998 FEBRUARY 28, 1997
----------------- -----------------
<S><C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income $ (59,165) $ 49,254
--------------- ---------------
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 217,885 190,017
Deferred income taxes (26,900) 9,400
Decrease (increase) in accounts receivable 116,116 (485,857)
Increase in prepaid expenses (19,439) (41,960)
Decrease in inventories 16,398 12,290
Decrease in other assets 54,000
Increase (decrease) in accounts payable and accrued
expenses 14,212 (128,418)
Increase in income taxes payable 1,000 2,283
--------------- ---------------
Total Adjustments 373,272 (442,245)
--------------- ---------------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES 314,107 (392,991)
--------------- ---------------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Capital expenditures (177,734) (356,011)
--------------- ---------------
NET CASH USED FOR INVESTING ACTIVITIES (177,734) (356,011)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments for fractional shares as a result of
1 to 6 share reverse stock split (511)
Net (payments) proceeds under line-of-credit agreement (35,796) 690,231
Principal payments under capital lease obligations (97,739) (83,968)
--------------- ---------------
NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES (134,046) 606,263
--------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,327 (142,739)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 62,638 218,543
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 64,965 $ 75,804
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 39,733 $ 31,199
=============== ===============
Income taxes $ 12,400 $ 15,900
=============== ===============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
The Company issued:
Long-term debt issued in connection with capital
leases $ 110,040
===============
</TABLE>
See notes to financial statements.
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Interim Financial Statements
- ----------------------------
In the opinion of management, all adjustments consisting only of normal
recurring accruals necessary for a fair presentation of such amounts have been
included. The results of operations for the quarter and nine months are not
necessarily indicative of results for the year.
Inventories
- -----------
Inventories are stated at the lower of cost or market.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Summary Analysis
- ----------------
In this third quarter of fiscal year 1998, Diagnon realized a net income of
$10,870. For the first nine months of fiscal year 1998, Diagnon has a net loss
of ($59,165). The loss for the nine month period is primarily due to one-time
costs of $15,000 for the listing fee to the Chicago Stock Exchange and $25,000
for the termination fee related to the tabled private placement funding effort
incurred in the second quarter of fiscal year 1998. Further contributing to the
loss was approximately $37,300 of applied indirect costs on two completed
contracts which caused the total incurred costs of each contract to exceed its
funding (this also occurred in the second quarter of fiscal year 1998). These
indirect costs are currently not available for reimbursement and therefore
revenue cannot be recognized. According to Federal Acquisition Regulations, the
Company may be able to recover all or part of these costs after a government
indirect cost audit for fiscal year 1998 has been completed.
Results of Operations
- ---------------------
Three Months Comparison
- -----------------------
For the three months of operations ended February 28, 1998 (the Company's third
quarter), Contract Revenues increased by 12.9% compared to the prior year. The
increase is primarily due to increased contract activity including the billing
of approximately $119,000 of contract procured equipment and $37,800 for a
contract toxicology study. Product Sales increased to $45,373 from $12,908 from
the prior year third quarter. Contract Operating Expenses increased 10.1%
primarily due to 1) increased contract activity, 2) the purchase of
approximately $119,000 of contract procured equipment and $37,800 for a contract
toxicology study during the third quarter of fiscal year 1998 and 3) costs
incurred associated with the production of the Company's product Lyphomune(R).
Cost of Goods Sold increased to $58,329 from $13,002 in the third quarter of
FY97. This increase was primarily due to increased sales of Lyphomune(R) during
this quarter compared to the same quarter in FY97 and the expensing, from
inventory, of 118 units of Lyphomune(R) used in an on-going sales promotion
during this quarter. Research and Development (R&D) expenses increased to
$89,706 compared to $74,516 in the third quarter of FY97. This increase was
primarily due to increased costs associated with the Company's ongoing
Helicobacter pylori research program. General and Administrative (G&A) Expenses
increased 12.5%
6
<PAGE>
compared to the prior fiscal year primarily due to $29,842 in legal and transfer
agent fees. Total Operating Expenses increased 12.8% due to the above.
For this quarter, Diagnon had Operating Income of $48,875 compared to $13,805 in
the prior year primarily due to Operating Revenues and Product Sales increasing
at a greater rate than Operating Expenses.
For this quarter, Diagnon had interest expense of $16,456 compared to interest
expense of $10,342 in the third quarter of the prior year. The increase is
primarily attributable to increased average Borrowings Under Line-of-Credit.
In accordance with SFAS No. 109, "Accounting for Income Taxes", the Company
reported a deferred federal income tax expense of $13,500 for the three months
ended February 28, 1998. The Company provided for state income tax which is
estimated at $9,400. State income tax expense is reimbursable under government
contracting regulations.
For comparison purposes, all share and per share data in the financial
statements have been retroactively adjusted to reflect the one-for-six share
reverse stock split effected on October 22, 1997.
Earnings Per Share (EPS) - For the three month comparison, options to purchase
59,345 shares of common stock at prices ranging from $1.80 per share to $3.375
per share were outstanding at February 28, 1998 but were not included in the
computation of diluted EPS because the options' exercise price was greater than
the market price of the common shares. Options to purchase 30,502 shares of
common stock at prices ranging from $2.26875 per share to $3.375 per share were
outstanding at February 28, 1997 but were not included in the computation of
diluted EPS because the options' exercise price was greater than the market
price of the common shares.
Nine Months Comparison
- ----------------------
For the nine months of operations ended February 28, 1998, Contract Revenues
increased by 6.1% compared to the prior year primarily due to increased contract
activity including the billing of approximately $119,000 of contract procured
equipment and $37,800 for a contract toxicology study. Product Sales increased
to $52,026 from $16,766 from the first nine months of the prior year. Contract
Operating Expenses increased 7.5% primarily due to 1) increased contract
activity, 2) the purchase of approximately $119,000 of contract procured
equipment and $37,800 for a contract toxicology study during the third quarter
of fiscal year 1998, 3) costs incurred associated with the production of the
company's product Lyphomune(R), and 4) approximately $37,300 of applied indirect
costs on two completed contracts which caused the total incurred costs of each
contract to exceed its funding. These indirect costs are currently not available
for reimbursement and therefore revenue cannot be recognized. According to
Federal Acquisition Regulations, the Company may be able to recover all or part
of these costs after a government indirect cost audit for fiscal year 1998 has
been completed. Cost of Goods Sold increased to $82,751 from $15,358 through the
first nine months of the fiscal year. This increase was primarily due to
increased sales of Lyphomune(R) during this nine month period compared to the
same period in FY97 and the expensing, from inventory, of 265 units of
Lyphomune(R) used in an on-going sales
7
<PAGE>
promotion. General and Administrative Expenses increased 6.7% compared to the
prior year primarily due to the $25,000 fee for terminating the private
placement funding effort with Slusser Associates, Inc. (SA) and the $15,000 fee
for listing on the CHX incurred in the second quarter of fiscal year 1998 and
$29,842 in legal and transfer agent fees as discussed in the Three Months
Comparison. Total Operating Expenses increased 8.8%, due to the above.
During this nine months, Operating Income decreased $140,479 to an operating
loss of ($29,971) compared to the prior year operating income of $110,508. This
loss was primarily due to the incurrence of the one-time costs mentioned above
(the $25,000 SA termination fee, the $15,000 CHX listing fee, and the $37,300
cost overrun on two contracts) in addition to Operating Expenses increasing at a
greater rate than Operating Revenues and Product Sales.
For the nine months of this fiscal year, Diagnon had interest expense of $41,114
compared to interest expense of $33,211 in the prior year. The increase is
primarily attributable to increased average borrowings under Line-of-Credit.
In accordance with SFAS No. 109, "Accounting for Income Taxes", the Company
reported a deferred federal income tax benefit of $26,900 for the nine months
ended February 28, 1998. The Company provided for state income tax which is
estimated at $18,900. State income tax expense is reimbursable under government
contracting regulations.
For comparison purposes, all share and per share data in the financial
statements have been retroactively adjusted to reflect the one-for-six share
reverse stock split effected on October 22, 1997.
Earnings Per Share (EPS) - For the nine month comparison, due to the net loss
recorded for the nine month period ended February 28, 1998, all outstanding
options (72,351) to purchase shares of common stock are not included in the
computation of diluted EPS because the options are antidilutive. Options to
purchase 30,502 shares of common stock at prices ranging from $2.26875 per share
to $3.375 per share outstanding at February 28, 1997 were not included in the
computation of diluted EPS because the options' exercise price was greater than
the market price of the common shares.
Liquidity and Capital Resources
- -------------------------------
Assets
The changes in Cash and Cash Equivalents are detailed in the Statements of
Consolidated Cash Flows on page 5. Accounts Receivable have decreased by
$116,116 consisting primarily of 1) a decrease of $4,478 to Trade Receivables,
2) a decrease of $84,562 to Unbilled Accounts Receivable primarily due to the
billing of $60,420 of previously unbilled contract fee retention in November, a
$164,354 decrease in prior year unbilled direct costs that were billed in June
1997 offset by a $94,539 accrual of current period unbilled direct costs to be
billed during the fourth quarter of fiscal year 1998, a $18,027 accrual of
contract fee retention to be billed at the completion of the respective
contracts and an increase of $27,646 in reimbursable indirect rate variances for
the first nine months of fiscal year 1998, and 3) a $27,076 decrease to Other
Accounts Receivable primarily due to the
8
<PAGE>
collection of a prior year receivable from the Medical Center Drive facility
landlord. Other Noncurrent Assets decreased $54,000 due to the completion of a
nonhuman primate housing order from the previous fiscal year.
The decreases above were partially offset by 1) an increase in Prepaid Expenses
of $19,439 primarily due to the prepayment of real estate and personal property
taxes, and 2) an increase in Fixed Assets, net of Accumulated Depreciation and
Amortization, of $69,889 reflecting fixed asset purchases of $287,774 (mainly
nonhuman primate housing units and laboratory and production equipment) reduced
by a $147,872 fully depreciated equipment write off and disposal during this
quarter offset by depreciation and amortization of $217,885 during this nine
month period reduced by the $147,872 fully depreciated equipment write off
previously mentioned. The balance of the decrease is due to other miscellaneous
factors.
Liabilities
In the first nine months of operations, Total Liabilities decreased $8,283. This
decrease is primarily attributable to 1) a decrease to Borrowings Under
Line-of-Credit of $35,796 and 2) a decrease in Accrued Compensation and Related
Costs of $87,842 reflecting a shorter accrual period this quarter when compared
to the prior year end.
The decreases above are partially offset by 1) an increase to Long-Term Debt of
$12,301 related to a capital lease of $110,040 for nonhuman primate housing
units at the Research Boulevard facility, offset by $97,739 of payments on
capital leases and 2) a $105,195 increase to Accounts Payable primarily
reflecting a $90,000 purchase of contract equipment. The balance of the decrease
is due to other miscellaneous factors.
Stockholders' Equity
On October 22, 1997, the Company's shareholders affirmatively voted to effect a
reverse split of the shares of the Common Stock in which each six shares of
Common Stock became one share of Common Stock. The Company's Common Stock shares
decreased from 9,602,452 shares issued to 1,600,408 shares issued, outstanding
shares decreased from 5,398,244 shares to 899,505 shares, while the Treasury
stock decreased from 4,204,208 shares to 700,903 shares. Fractional shares, as a
result of the reverse split, were repurchased by the Company and recorded as
Treasury Stock.
The Company believes it has sufficient cash and financing sources to provide for
its ongoing operations and the Company continues to believe that the impact of
inflation, or the absence of it, will have no significant effect on its
operations.
Part II. Other Information
Item 1. LEGAL PROCEEDINGS
On September 3, 1997 Lourdes Weisgerber, a former employee, filed a Complaint in
the United States District Court for the District of Maryland (Southern
Division) Case No. PJM 972970 alleging that BIOQUAL, Inc. violated her
employment rights under the Americans With
9
<PAGE>
Disabilities Act. This allegation was previously reported as an administrative
law matter within the Equal Employment Opportunity Commission (EEOC) and the
Montgomery County Human Relations Commission. The investigation conducted by the
Montgomery County Human Relations Commission found no discrimination. Ms.
Weisgerber asked for and received a Notice of Right to Sue upon the dismissal of
the administrative complaint by Montgomery County and the EEOC. The Plaintiff
has sued for backpay, emotional distress, pain and suffering, punitive damages,
and attorneys' fees and costs. The case is now in the discovery phase. While the
Company intends to continue to defend this action vigorously and believes that
it will not have a material effect on its financial condition, it can not give
any assurance of the results of this pending litigation.
10
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange act of 1934, the
registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIAGNON CORPORATION
DATE April 13, 1998 /s/ John C. Landon, Ph.D.
____________________ _________________________
Chairman of the Board,
President and Chief Executive
Officer
DATE April 13, 1998 /s/ Michael P. O'Flaherty
____________________ _________________________
Chief Operating Officer and
Secretary
DATE April 13, 1998 /s/ David A. Newcomer
____________________ _________________________
Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> FEB-28-1998
<EXCHANGE-RATE> 1
<CASH> 64,965
<SECURITIES> 0
<RECEIVABLES> 1,778,097
<ALLOWANCES> 0
<INVENTORY> 28,563
<CURRENT-ASSETS> 2,017,508
<PP&E> 3,796,309
<DEPRECIATION> 2,252,104
<TOTAL-ASSETS> 4,626,562
<CURRENT-LIABILITIES> 1,213,414
<BONDS> 0
0
0
<COMMON> 16,004
<OTHER-SE> 3,232,469
<TOTAL-LIABILITY-AND-EQUITY> 4,626,562
<SALES> 52,026
<TOTAL-REVENUES> 7,187,676
<CGS> 82,751
<TOTAL-COSTS> 7,269,673
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,114
<INCOME-PRETAX> (67,165)
<INCOME-TAX> (8,000)
<INCOME-CONTINUING> (59,165)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (59,165)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
