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 November 30, 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
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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; 890,672
shares outstanding as of January 8, 1999.
Convertible Preferred Stock, $1.00 par value per share; authorized 500,000
shares; no shares outstanding as of January 8, 1999.
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, 1998 and
November 30, 1998 . . . . . . . . . . . . . . . . . . . 2
Statements of Consolidated Operations for
the Three Months Ended November 30, 1998 and
November 30, 1997 . . . . . . . . . . . . . . . . . . . 3
Statements of Consolidated Operations for
the Six Months Ended November 30, 1998 and
November 30, 1997 . . . . . . . . . . . . . . . . . . . 4
Statements of Consolidated Cash Flows for
the Six Months Ended November 30, 1998 and
November 30, 1997 . . . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis . . . . . . . . 6
Part II. Other Information
- ---------------------------
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . 10
<PAGE>
DIAGNON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, MAY 31, 1998 AND NOVEMBER 30, 1998
- ---------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS NOVEMBER 30, MAY 31,
1998 1998
------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 67,064 $ 65,730
Accounts receivable:
Trade 1,307,770 903,343
Unbilled 614,476 655,554
Other 24,615 29,983
Prepaid expenses 112,956 54,889
Inventories 213,042 45,107
Deferred income taxes - current 18,200 43,700
------------- --------------
Total current assets 2,358,123 1,798,306
------------- --------------
LOANS TO OFFICERS 75,656 90,000
------------- --------------
FIXED ASSETS:
Leasehold improvements 779,045 749,155
Furniture, fixtures and equipment 3,138,206 3,071,181
------------- --------------
Total 3,917,251 3,820,336
Less accumulated depreciation
and amortization 2,483,821 2,327,947
------------- --------------
Fixed assets, net 1,433,430 1,492,389
------------- --------------
DEFERRED INCOME TAXES - NONCURRENT 607,400 661,800
OTHER NONCURRENT ASSETS 196,227 234,375
------------- --------------
TOTAL $ 4,670,836 $ 4,276,870
============= ==============
LIABILITIES
CURRENT LIABILITIES:
Borrowings under line of credit $ 721,908 $ 212,546
Current maturities of long-term debt 140,245 140,245
Accounts payable 157,472 234,425
Accrued compensation and related costs 291,780 390,099
Accrued income taxes 8,109 12,909
Other accrued liabilities 3,566 6,082
------------- --------------
Total current liabilities 1,323,080 996,306
LONG-TERM DEBT 43,814 122,303
------------- --------------
Total liabilities 1,366,894 1,118,609
------------- --------------
STOCKHOLDERS' EQUITY
Convertible preferred stock - par value of $1.00
per share, 500,000 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; November 30, 1998, 890,672 shares, May
31, 1998, 899,505 shares outstanding 16,004 16,004
Additional paid-in capital 7,475,035 7,475,035
Accumulated deficit (3,544,966) (3,704,910)
------------- --------------
Total 3,946,073 3,786,129
Less - treasury stock November 30, 1998, 709,736
shares, May 31, 1998, 700,903 shares, at cost (642,131) (627,868)
------------- --------------
Total stockholders' equity 3,303,942 3,158,261
------------- --------------
TOTAL $ 4,670,836 $ 4,276,870
============= ==============
</TABLE>
See notes to financial statements.
2
<PAGE>
DIAGNON CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS FOR THE
THREE MONTHS ENDED NOVEMBER 30, 1998 AND NOVEMBER 30, 1997
- ----------------------------------------------------------
<TABLE>
<CAPTION>
NOVEMBER 30, NOVEMBER 30,
1998 1997
------------ ------------
<S> <C> <C>
REVENUES AND SALES:
Contract revenues $ 2,666,993 $ 2,308,620
Product sales 2,960 5,580
------------ ------------
Total Revenues and Sales 2,669,953 2,314,200
------------ ------------
OPERATING EXPENSES:
Contract 1,969,541 1,809,642
Cost of goods sold 4,317 7,944
Research and development 44,935 91,305
General and administrative 479,652 496,574
------------ ------------
Total Operating Expenses 2,498,445 2,405,465
------------ ------------
OPERATING INCOME / (LOSS) 171,508 (91,265)
INTEREST INCOME 693 1,231
INTEREST EXPENSE (11,861) (12,537)
------------ ------------
INCOME / (LOSS) BEFORE INCOME TAX 160,340 (102,571)
(PROVISION) CREDIT FOR INCOME TAX (64,100) 31,550
------------ ------------
NET INCOME / (LOSS) $ 96,240 $ (71,021)
============ ============
BASIC EARNINGS / (LOSS) PER SHARE $ 0.11 $ (0.08)
============ ============
DILUTED EARNINGS / (LOSS) PER SHARE $ 0.11 $ (0.08)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING FOR BASIC EPS 896,606 899,620
EFFECT OF DILUTIVE SECURITIES -
OPTIONS 6,843
------------ ------------
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING + DILUTIVE OPTIONS FOR
DILUTIVE EPS 903,449 899,620
============ ============
</TABLE>
See notes to financial statements.
3
<PAGE>
DIAGNON CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS FOR THE
SIX MONTHS ENDED NOVEMBER 30, 1998 AND NOVEMBER 30, 1997
- --------------------------------------------------------
<TABLE>
<CAPTION>
NOVEMBER 30, NOVEMBER 30,
1998 1997
------------ ------------
<S> <C> <C>
REVENUES AND SALES:
Contract revenues $ 5,378,169 $ 4,644,761
Product sales 7,078 6,653
------------ ------------
Total Revenues and Sales 5,385,247 4,651,414
------------ ------------
OPERATING EXPENSES:
Contract 4,064,900 3,573,940
Cost of goods sold 9,390 24,422
Research and development 86,207 209,156
General and administrative 934,443 922,742
------------ ------------
Total Operating Expenses 5,094,940 4,730,260
------------ ------------
OPERATING INCOME / (LOSS) 290,307 (78,846)
INTEREST INCOME 1,641 2,569
INTEREST EXPENSE (25,404) (24,658)
------------ ------------
INCOME / (LOSS) BEFORE INCOME TAX 266,544 (100,935)
(PROVISION) CREDIT FOR INCOME TAX (106,600) 30,900
------------ ------------
NET INCOME / (LOSS) $ 159,944 $ (70,035)
============ ============
BASIC EARNINGS / (LOSS) PER SHARE $ 0.18 $ (0.08)
============ ============
DILUTED EARNINGS / (LOSS) PER SHARE $ 0.18 $ (0.08)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING FOR BASIC EPS 898,106 899,663
EFFECT OF DILUTIVE SECURITIES -
OPTIONS 6,843
------------ ------------
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING + DILUTIVE OPTIONS FOR
DILUTIVE EPS 904,949 899,663
============ ============
</TABLE>
See notes to financial statements.
4
<PAGE>
DIAGNON CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS FOR THE
SIX MONTHS ENDED NOVEMBER 30, 1998 AND NOVEMBER 30, 1997
- --------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
November 30, 1998 November 30, 1997
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 159,944 $ (70,035)
--------------- ---------------
Adjustments to reconcile net income (loss) to net cash
(used for) provided by operating activities:
Depreciation and amortization 155,874 143,241
Deferred income taxes 79,900 (40,400)
(Increase) decrease in accounts receivable (357,981) 409,984
Increase in prepaid expenses (58,067) (25,658)
Increase in inventories (167,935) (11,427)
Decrease in other assets 38,148 54,000
Decrease in accounts payable and accrued expenses (177,788) (55,044)
(Decrease) increase in income taxes payable (4,800) 1,100
--------------- ---------------
Total Adjustments (492,649) 475,796
--------------- ---------------
NET CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES (332,705) 405,761
--------------- ---------------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Capital expenditures (96,915) (135,676)
---------------- ---------------
NET CASH USED FOR INVESTING ACTIVITIES (96,915) (135,676)
---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds (payments) under line-of-credit agreement 509,362 (207,376)
Net proceeds from exercise of stock options 81
Net payments for fractional shares as a result of
1 to 6 share reverse stock split (511)
Principal payments under capital lease obligations (78,489) (60,668)
--------------- ---------------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 430,954 (268,555)
--------------- ---------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,334 1,530
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 65,730 62,638
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 67,064 $ 64,168
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 24,538 $ 24,994
=============== ===============
Income taxes $ 31,500 $ 8,400
=============== ===============
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 are not necessarily
indicative of results for the year.
Inventories
- -----------
Inventories are stated at the lower of cost or market using the average cost
method.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Summary Analysis
- ----------------
In this second quarter of fiscal year 1999, Diagnon realized net income of
$96,240 totalling net income of $159,944 for the first six months of fiscal year
1999.
During this quarter the following developments occurred:
o The National Cancer Institute (NCI) contract "Studies Using Primate Models
for AIDS Vaccine Research" expired on November 29, 1998. This contract
accounts for approximately 1.7% of the Company's projected revenues for
fiscal year 1999. The expiration of this contract will have a minimal
effect on the Company's revenues and operating capital.
o On October 1, 1998, the Company introduced two nutritional supplements
for the equine industry. The two equine immunoglobulin products are
IMMUNOGAM and MINIGAM. Both products are colostrum supplements that
are recommended for use in newborn foals. MINIGAM is for use in
miniature horses and IMMUNOGAM is intended for use in all other horse
breeds. These products provide an inexpensive oral colostrum
supplement which can be used by lay horse owners and breeders, whereas
Diagnon's pre-existing product, LYPHOMUNE(R), is recommended for
veterinarian use only.
o On October 28, 1998, the Compensation Committee of the Board of
Directors agreed to extend the repayment period of the Company loan
to Dr. Landon from October 31, 1998 to April 30, 2000. In accordance
with the shareholder's prior approval of the Company's plan to
purchase shares of stock from Dr. Landon at market value, the Company
plans to purchase, on a quarterly basis for six quarters, 9,000 shares
of Company stock from Dr. Landon at market value. Any unpaid principal
balance and accrued interest will be paid in cash at the end of the
sixth quarter. Dr. Landon made his first repayment on October 31,
1998 totalling $14,344.
Year 2000
- ---------
The Company has performed an internal assessment of the scope of the Year 2000
computer systems and software problems and its potential effect on the operation
of the Company. The Company is continuing the assessment of its non-information
systems for Year 2000 compliance. The Company is contacting its major suppliers
of products and services to
6
<PAGE>
determine the status of the suppliers' Year 2000 capability. The Company has
received assurances from several providers of critical systems that those
systems are or will be Year 2000 compliant before December 31, 1999. There can
be no assurance that another company's failure to ensure Year 2000 compliance
and capability would not have an adverse effect on the Company. The Company
anticipates incurring approximately $25,000 to $30,000 in each of the next two
fiscal years replacing its Year 2000 non-compliant computers. To date the
Company has spent approximately $6,500 to replace non-compliant computers. The
replacement computers have pre-installed Year 2000 compliant software. Any costs
incurred in connection with Year 2000 compliance will be expensed as incurred.
It is the opinion of management that the Year 2000 computer problem will not
have a material effect on the Company's operation. However, the Company is
monitoring the progress of its largest customer, the National Institutes of
Health (NIH), toward Year 2000 compliance. If the NIH is non-compliant on
January 1, 2000, the Company's financial condition may be adversely affected
until such time that the NIH's non-compliance contingency plan is initiated.
Currently, the Company does not have a Year 2000 non-compliance contingency
plan. Management is continuing to gather information to determine whether or not
a contingency plan is necessary.
Results of Operations
- ---------------------
Three Months Comparison
- -----------------------
For the three months of operations ended November 30, 1998 (the Company's second
quarter), Contract Revenues increased by 15.5% compared to the second quarter of
fiscal year 1998 reflecting increased contract activity and an increase in sales
related to Small Business Innovative Research (SBIR) grants. Product Sales
decreased to $2,960 compared to $5,580 in fiscal year 1998. Contract Operating
Expenses increased 8.8% compared to the second quarter of fiscal year 1998
primarily due to increased contract activity and increased SBIR activity offset
by a $37,300 cost overrun on two contracts completed during the second quarter
of fiscal year 1998. Cost of Goods Sold decreased to $4,317 from $7,944 in the
second quarter of fiscal year 1998. This decrease was primarily due to the
decrease in sales of Lyphomune(R) during this quarter compared to the same
quarter in fiscal year 1998. Research and Development (R&D) expenses decreased
to $44,935 compared to $91,305 in the second quarter of fiscal year 1998. This
decrease is primarily due to the completion of the pre-clinical and clinical
trials for the Company's purified IgG product, Lyphomune(R). General and
Administrative Expenses decreased 3.4% compared to the second quarter of fiscal
year 1998 primarily due to inflationary increases in several items of expense in
this quarter offset by the following one-time expenses incurred in the second
quarter of fiscal year 1998: a $25,000 fee for terminating the private placement
funding effort with Slusser Associates (SA) and a $15,000 fee for listing on the
Chicago Stock Exchange (CHX). Total Operating Expenses increased 3.9% due to the
above.
Operating Income increased to $171,508 compared to an operating loss of
($91,265) in the prior year. The increase is primarily due to the increase in
Contract Revenues, the decreases in Cost of Goods Sold and R&D expenses this
quarter and the fiscal year 1998 incurrence of the one-time expenses mentioned
above (the $25,000 SA termination fee, the $15,000 CHX listing fee and the
$37,300 cost overrun on two contracts
7
<PAGE>
completed during the second quarter of fiscal year 1998).
For this quarter, Diagnon had Interest Expense of $11,861 compared to Interest
Expense of $12,537 in the prior year.
In accordance with SFAS No. 109, "Accounting for Income Taxes", the Company
reported a deferred federal income tax expense of $50,900 for the three months
ended November 30, 1998. The Company provided for state income tax which is
estimated at $13,200. State income tax expense is reimbursable under government
contracting regulations.
Earnings Per Share (EPS) - For the three month comparison, options to purchase
59,845 shares of common stock at prices ranging from $1.70 per share to $3.375
per share were outstanding at November 30, 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. Due to the net loss recorded for the
three month period ended November 30, 1997, all options to purchase (72,351)
shares of common stock were not included in the computation of diluted EPS
because the options were antidilutive.
Six Months Comparison
- ---------------------
For the six months of operations ended November 30, 1998, Contract Revenues
increased by 15.8% compared to the first six months of fiscal year 1998
reflecting increased contract activity, an increase in sales related to SBIR
grants, and the funding of a $34,976 indirect rate variance cost overrun of a
contract that expired in fiscal year 1995 (the contract was administratively
closed out on September 30, 1998). Product Sales increased to $7,078 compared to
$6,653 in fiscal year 1998. Contract Operating Expenses increased 13.7% compared
to the first six months of fiscal year 1998 primarily due to increased contract
activity and increased SBIR activity offset by a $37,300 cost overrun on two
contracts completed during the second quarter of fiscal year 1998. Cost of Goods
Sold decreased to $9,390 compared to $24,422 in the first six months of fiscal
year 1998. This decrease was primarily due to the expensing, from inventory, of
147 units of Lyphomune(R) used in a sales promotion in fiscal year 1998 compared
to 31 complimentary units during the first six months of this fiscal year.
Research and Development expenses decreased to $86,207 compared to $209,156 in
the first six months of fiscal year 1998. This decrease is primarily due to the
completion of the pre-clinical and clinical trials for the Company's purified
IgG product, Lyphomune(R) and the award of two SBIR grants to help support the
Company's ongoing research of HELICOBACTER PYLORI (both grants were awarded in
the second quarter of fiscal year 1998). General and Administrative Expenses
increased 1.3% compared to the first six months of fiscal year 1998 primarily
due to inflationary increases in several items of expense in this fiscal year
offset by the following one-time expenses incurred in the second quarter of
fiscal year 1998: the $25,000 fee for terminating the private placement funding
effort with SA and the $15,000 fee for listing on the CHX as discussed in the
Three Months Comparison. Total Operating Expenses increased 7.7%, due to the
above.
Operating Income increased to $290,307 compared to an operating loss of
($78,846) in the prior year. The increase is primarily due to the increase in
Contract Revenues, the decreases in Cost of Goods Sold and R&D expenses this
fiscal year and the fiscal year 1998 incurrence of the
8
<PAGE>
one-time expenses mentioned above (the $25,000 SA termination fee, the $15,000
CHX listing fee and the $37,300 cost overrun on two contracts completed during
the second quarter of fiscal year 1998).
For the six months of this fiscal year, Diagnon had interest expense of $25,404
compared to interest expense of $24,658 in the prior year.
In accordance with SFAS No. 109, "Accounting for Income Taxes", the Company
reported a deferred federal income tax expense of $79,900 for the six months
ended November 30, 1998. The Company provided for state income tax which is
estimated at $26,700. State income tax expense is reimbursable under government
contracting regulations.
Earnings Per Share (EPS) - For the six month comparison, options to purchase
59,845 shares of common stock at prices ranging from $1.70 per share to $3.375
per share were outstanding at November 30, 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. Due to the net loss recorded for the six
month period ended November 30, 1997, all options to purchase (72,351) shares of
common stock were not included in the computation of diluted EPS because the
options were antidilutive.
Liquidity and Capital Resources
- -------------------------------
Assets
The changes in Cash and Cash Equivalents are detailed in the Statements of
Consolidated Cash Flows on page 5. Total Assets increased $393,966. Accounts
Receivable increased by $357,981 consisting mainly of 1) an increase of $404,427
to Trade Receivables reflecting a slower collection rate compared to the
collection rate at the end of the previous year end, 2) a decrease of $41,078 to
Unbilled Accounts Receivable primarily due to a $185,791 decrease in prior year
unbilled direct costs that were billed in June 1998 and September 1998 and a
decrease of $45,863 in reimbursable indirect rate variances for the first six
months of fiscal year 1999 offset by a $178,886 accrual of current period
unbilled direct costs to be billed during the third quarter of fiscal year 1999
and an $11,690 accrual of contract fee retention to be billed at the completion
of the related contracts, and 3) a $5,368 decrease to Other Accounts Receivable.
Inventories increased $167,935 as the Company continues to produce LYPHOMUNE(R)
for the upcoming foaling season (Spring 1999). Prepaid Expenses increased
$58,067 primarily due to the prepayment of life insurance premiums and real
estate and personal property taxes.
The increase above is partially offset by 1) a decrease in Fixed Assets, net of
Accumulated Depreciation and Amortization, of $58,959 reflecting depreciation
and amortization of $155,874 offset by fixed asset purchases of $96,915 (mainly
lab equipment and facility improvements), 2) Deferred Income Taxes decreased by
$79,900 primarily as a result of utilizing a portion of the federal income tax
loss carryforward, and 3) Other Noncurrent Assets decreased $38,148 due to the
delivery and final payment on a new freeze drying equipment order from the
previous fiscal year end.
Liabilities
In the first six months of operations, Total Liabilities increased
9
<PAGE>
$248,285 as compared to May 31, 1998. This increase is primarily attributable to
an increase to Borrowings Under Line-of-Credit of $509,362 reflecting the
increase in Inventories, the payment of accrued bonuses from the previous fiscal
year, and the increase in Trade Receivables.
The above increase is partially offset by 1) a decrease in Accrued Compensation
and Related Costs of $98,319 reflecting the payment of accrued bonuses from
fiscal year 1998 during the first quarter of fiscal year 1999, 2) payments
totalling $78,489 on capital leases reducing Long-Term Debt, and 3) a decrease
in Accounts Payable of $76,953.
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.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Annual Meeting - October 28, 1998
Election of Directors
Four directors were elected:
For Withheld
------- --------
J. Thomas August, M.D. 769,168 5,339
Charles C. Francisco 769,168 5,339
Charles F. Gauvin 769,119 5,388
John C. Landon, Ph.D. 768,736 5,771
There were no other directors whose term of office as a director continued after
the meeting.
Other Matters Voted Upon at the Meeting
Proposal 2 To approve the appointment of Deloitte & Touche LLP as independent
public accountants for the Company.
Affirmative Votes 770,284
Negative Votes 3,481
Abstain 742
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 January 13, 1999 /s/ John C. Landon
-------------------- --------------------------------
Chairman of the Board,
President and Chief Executive
Officer
DATE January 13, 1999 /s/ Michael P. O'Flaherty
-------------------- --------------------------------
Chief Operating Officer and
Secretary
DATE January 13, 1999 /s/ David A. Newcomer
-------------------- --------------------------------
Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> NOV-30-1998
<PERIOD-TYPE> 6-MOS
<EXCHANGE-RATE> 1
<CASH> 67,064
<SECURITIES> 0
<RECEIVABLES> 1,946,861
<ALLOWANCES> 0
<INVENTORY> 213,042
<CURRENT-ASSETS> 2,358,123
<PP&E> 3,917,251
<DEPRECIATION> 2,483,821
<TOTAL-ASSETS> 4,670,836
<CURRENT-LIABILITIES> 1,323,080
<BONDS> 0
<COMMON> 16,004
0
0
<OTHER-SE> 3,287,938
<TOTAL-LIABILITY-AND-EQUITY> 4,670,836
<SALES> 7,078
<TOTAL-REVENUES> 5,378,169
<CGS> 9,390
<TOTAL-COSTS> 5,008,733
<OTHER-EXPENSES> 86,207
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,404
<INCOME-PRETAX> 266,544
<INCOME-TAX> 106,600
<INCOME-CONTINUING> 159,944
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 159,944
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
<FN>
<F1> Identify specific financial statements.
<F2> Identify filing.
</FN>
</TABLE>
