<PAGE>
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, 1999
-----------------
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; 881,672
shares outstanding as of April 9, 1999.
Convertible Preferred Stock, $1.00 par value per share; authorized 500,000
shares; no shares outstanding as of April 9, 1999.
Transitional Small Business Disclosure Format (Check one): Yes ___ No X
---
<PAGE>
DIAGNON CORPORATION
-------------------
INDEX
-----
<TABLE>
<CAPTION>
Part I. Financial Information Page
- ------------------------------ ----
<S> <C>
Item 1. Financial Statements.
Consolidated Balance Sheets, May 31, 1998 and
February 28, 1999 . . . . . . . . . . . . . . . . . . . 2
Statements of Consolidated Operations for
the Three Months Ended February 28, 1999 and
February 28, 1998 . . . . . . . . . . . . . . . . . . . 3
Statements of Consolidated Operations for
the Nine Months Ended February 28, 1999 and
February 28, 1998 . . . . . . . . . . . . . . . . . . . 4
Statements of Consolidated Cash Flows for
the Nine Months Ended February 28, 1999 and
February 28, 1998 . . . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis . . . . . . . 6
</TABLE>
Part II. Other Information
- ---------------------------
None
<PAGE>
DIAGNON CORPORATION AND SUBSIDIARIES
- ------------------------------------
CONSOLIDATED BALANCE SHEETS, MAY 31, 1998 AND FEBRUARY 28, 1999
- ---------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS FEBRUARY 28, MAY 31,
1999 1998
------------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 68,066 $ 65,730
Accounts receivable:
Trade 1,873,164 903,343
Unbilled 481,055 655,554
Other 25,878 29,983
Prepaid expenses 92,668 54,889
Inventories 264,872 45,107
Deferred income taxes - current 7,900 43,700
----------- -----------
Total current assets 2,813,603 1,798,306
----------- -----------
LOANS TO OFFICERS 54,281 90,000
----------- -----------
FIXED ASSETS:
Leasehold improvements 788,117 749,155
Furniture, fixtures and equipment 3,215,250 3,071,181
----------- -----------
Total 4,003,367 3,820,336
Less accumulated depreciation
and amortization 2,563,824 2,327,947
----------- -----------
Fixed assets, net 1,439,543 1,492,389
----------- -----------
DEFERRED INCOME TAXES - NONCURRENT 615,200 661,800
OTHER NONCURRENT ASSETS 196,227 234,375
----------- -----------
TOTAL $ 5,118,854 $ 4,276,870
=========== ===========
LIABILITIES
- -----------
CURRENT LIABILITIES:
Borrowings under line of credit $ 1,122,460 $ 212,546
Current maturities of long-term debt 140,245 140,245
Accounts payable 285,519 234,425
Accrued compensation and related costs 254,854 390,099
Accrued income taxes 6,533 12,909
Other accrued liabilities 4,342 6,082
----------- -----------
Total current liabilities 1,813,953 996,306
LONG-TERM DEBT 8,313 122,303
----------- -----------
Total liabilities 1,822,266 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; February 28, 1999, 881,672 shares, May
31, 1998, 899,505 shares outstanding 16,004 16,004
Additional paid-in capital 7,475,035 7,475,035
Accumulated deficit (3,530,945) (3,704,910)
----------- -----------
Total 3,960,094 3,786,129
Less - treasury stock February 28, 1999, 718,736
shares, May 31, 1998, 700,903 shares, at cost (663,506) (627,868)
----------- -----------
Total stockholders' equity 3,296,588 3,158,261
----------- -----------
TOTAL $ 5,118,854 $ 4,276,870
=========== ===========
See notes to financial statements.
</TABLE>
2
<PAGE>
DIAGNON CORPORATION AND SUBSIDIARIES
- ------------------------------------
STATEMENTS OF CONSOLIDATED OPERATIONS FOR THE
- ---------------------------------------------
THREE MONTHS ENDED FEBRUARY 28, 1999 AND FEBRUARY 28, 1998
- ----------------------------------------------------------
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1999 1998
------------ ------------
<S> <C> <C>
REVENUES AND SALES:
Contract revenues $2,649,698 $2,542,915
Product sales 35,897 45,373
------------ ------------
Total Revenues and Sales 2,685,595 2,588,288
------------ ------------
OPERATING EXPENSES:
Contract 2,102,682 1,939,012
Cost of goods sold 27,253 58,329
Research and development 54,749 89,706
General and administrative 462,570 452,366
------------ ------------
Total Operating Expenses 2,647,254 2,539,413
------------ ------------
OPERATING INCOME 38,341 48,875
INTEREST INCOME 1,147 1,351
INTEREST EXPENSE (16,067) (16,456)
------------ ------------
INCOME BEFORE INCOME TAX 23,421 33,770
PROVISION FOR INCOME TAX (9,400) (22,900)
------------ ------------
NET INCOME $ 14,021 $ 10,870
============ ============
BASIC EARNINGS PER SHARE $0.02 $0.01
============ ============
DILUTED EARNINGS PER SHARE $0.02 $0.01
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING FOR BASIC EPS 887,739 899,505
EFFECT OF DILUTIVE SECURITIES -
OPTIONS 16,225 7,536
------------ ------------
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING + DILUTIVE OPTIONS FOR
DILUTIVE EPS 903,964 907,041
============ ============
</TABLE>
See notes to financial statements.
3
<PAGE>
DIAGNON CORPORATION AND SUBSIDIARIES
- ------------------------------------
STATEMENTS OF CONSOLIDATED OPERATIONS FOR THE
- ---------------------------------------------
NINE MONTHS ENDED FEBRUARY 28, 1999 AND FEBRUARY 28, 1998
- ---------------------------------------------------------
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1999 1998
------------ ------------
<S> <C> <C>
REVENUES AND SALES:
Contract revenues $8,027,867 $7,187,676
Product sales 42,975 52,026
------------ ------------
Total Revenues and Sales 8,070,842 7,239,702
------------ ------------
OPERATING EXPENSES:
Contract 6,167,582 5,512,953
Cost of goods sold 36,643 82,751
Research and development 140,956 298,861
General and administrative 1,397,013 1,375,108
------------ ------------
Total Operating Expenses 7,742,194 7,269,673
------------ ------------
OPERATING INCOME / (LOSS) 328,648 (29,971)
INTEREST INCOME 2,788 3,920
INTEREST EXPENSE (41,471) (41,114)
------------ ------------
INCOME / (LOSS) BEFORE INCOME TAX 289,965 (67,165)
(PROVISION) CREDIT FOR INCOME TAX (116,000) 8,000
------------ ------------
NET INCOME / (LOSS) $ 173,965 $ (59,165)
============ ============
BASIC EARNINGS / (LOSS) PER SHARE $ 0.19 $ (0.07)
============ ============
DILUTED EARNINGS / (LOSS) PER SHARE $ 0.19 $ (0.07)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING FOR BASIC EPS 894,714 899,611
EFFECT OF DILUTIVE SECURITIES -
OPTIONS 16,225
------------ ------------
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING + DILUTIVE OPTIONS FOR
DILUTIVE EPS 910,939 899,611
============ ============
</TABLE>
See notes to financial statements.
4
<PAGE>
DIAGNON CORPORATION AND SUBSIDIARIES
- ------------------------------------
STATEMENTS OF CONSOLIDATED CASH FLOWS FOR THE
- ---------------------------------------------
NINE MONTHS ENDED FEBRUARY 28, 1999 AND FEBRUARY 28, 1998
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
February 28, 1999 February 28, 1998
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 173,965 $ (59,165)
-------------- ---------------
Adjustments to reconcile net income (loss) to net cash
(used for) provided by operating activities:
Depreciation and amortization 235,877 217,885
Deferred income taxes 82,400 (26,900)
(Increase) decrease in accounts receivable (791,217) 116,116
Increase in prepaid expenses (37,779) (19,439)
(Increase) decrease in inventories (219,765) 16,398
Decrease in other assets 38,148 54,000
(Decrease) increase in accounts payable and accrued
expenses (85,891) 14,212
(Decrease) increase in income taxes payable (6,376) 1,000
-------------- ---------------
Total Adjustments (784,603) 373,272
-------------- ---------------
NET CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES (610,638) 314,107
-------------- ---------------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Capital expenditures (183,031) (177,734)
-------------- ---------------
NET CASH USED FOR INVESTING ACTIVITIES (183,031) (177,734)
-------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds (payments) under line-of-credit agreement 909,914 (35,796)
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 (113,990) (97,739)
-------------- ---------------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 796,005 (134,046)
-------------- ---------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,336 2,327
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 65,730 62,638
-------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 68,066 $ 64,965
============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 39,543 $ 39,733
================= ===============
Income taxes $ 39,976 $ 12,400
================= ===============
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 third quarter of fiscal year 1999, Diagnon realized net income of
$14,021 totalling net income of $173,965 for the first nine months of fiscal
year 1999.
On February 25, 1999, the Company filed a Form S-8 with the Securities and
Exchange Commission to register 100,000 shares of common stock, par value $.01,
to cover previously issued options granted under the Diagnon Corporation 1988
Stock Option Plan and the Diagnon Corporation 1998 Stock Option Plan as well as
future options to be offered pursuant to the Plans.
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 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 spending approximately $25,000 to $30,000
in this and the next fiscal year replacing its Year 2000 non-compliant
computers. To date the Company has spent approximately $10,000 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.
Not all instances of date failure can be anticipated or controlled. In order to
respond to those instances in which systems could not be prepared in time, or in
cases in which, despite our efforts, failures
6
<PAGE>
occur, we plan to develop contingency plans that enable critical operations to
continue to the maximum extent possible.
Results of Operations
- ---------------------
Three Months Comparison
- -----------------------
For the three months of operations ended February 28, 1999 (the Company's third
quarter), Contract Revenues increased by 4.2% compared to the third quarter of
fiscal year 1998 reflecting increased contract activity, an increase in sales
related to Small Business Innovative Research (SBIR) grants and the funding of a
$11,682 indirect rate variance cost overrun of a contract that expired in fiscal
year 1998 (the contract was administratively closed out on January 29, 1999).
Product Sales decreased to $35,897 compared to $45,373 in fiscal year 1998. Unit
sales for this quarter were relatively the same as the third quarter of fiscal
year 1998, however, in fiscal year 1999, the Company is also selling the lower
price ImmunoGam(TM) and MiniGam(TM) products along with Lyphomune(R) which
resulted in a decrease in sales. Contract Operating Expenses increased 8.4%
compared to the third quarter of fiscal year 1998 primarily due to increased
contract activity, increased SBIR activity and increases in fringe benefits and
overhead expenses, as a percentage of revenues, during this quarter compared to
the prior year. Cost of Goods Sold decreased to $27,253 from $58,329 in the
third 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 and the expensing, from inventory, of 118 units of
Lyphomune(R) used in a sales promotion in the third quarter of fiscal year 1998
compared to 26 complimentary units during this quarter. Research and Development
(R&D) expenses decreased to $54,749 compared to $89,706 in the third 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 increased 2.3% compared to the
third quarter of fiscal year 1998 primarily due to inflationary increases in
several items of expense in this quarter. Total Operating Expenses increased
4.2% due to the above.
Operating Income decreased to $38,341 compared to $48,875 in the prior year.
The decrease is primarily due to Total Operating Expenses increasing at a
greater rate than Total Revenues and Sales.
For this quarter, Diagnon had Interest Expense of $16,067 compared to Interest
Expense of $16,456 in the prior year.
In accordance with SFAS No. 109, "Accounting for Income Taxes", the Company
reported a deferred federal income tax expense of $2,500 for the three months
ended February 28, 1999. The Company provided for state income tax which is
estimated at $6,900. State income tax expense is reimbursable under government
contracting regulations.
Earnings Per Share (EPS) - For the three month comparison, options to purchase
30,502 shares of common stock at prices ranging from $2.625 per share to $3.375
per share were outstanding at February 28, 1999 but were not included in the
computation of diluted EPS because the options' exercise price was equal to or
greater than the market price of the common shares. 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.
7
<PAGE>
Nine Months Comparison
- ----------------------
For the nine months of operations ended February 28, 1999, Contract Revenues
increased by 11.7% compared to the first nine months of fiscal year 1998
reflecting increased contract activity, an increase in sales related to SBIR
grants, and the funding of $46,658 of indirect rate variance cost overruns of
two contracts that expired in fiscal years 1995 and 1998 (the contracts were
administratively closed out on September 30, 1998 and January 29, 1999
respectively). Product Sales decreased to $42,975 compared to $52,026 in fiscal
year 1998. Unit sales for the first nine months of fiscal year 1999 were
relatively the same over the same period of fiscal year 1998, however, in fiscal
year 1999, the Company is also selling the lower priced ImmunoGam(TM) and
MiniGam(TM) products along with Lyphomune(R) which resulted in a decrease in
sales. Contract Operating Expenses increased 11.9% compared to the first nine
months of fiscal year 1998 primarily due to increased contract activity. This
increase is not as large as it could have been because of a $37,300 cost overrun
on two contracts completed during the second quarter of fiscal year 1998. Cost
of Goods Sold decreased to $36,643 compared to $82,751 in the first nine months
of fiscal year 1998. This decrease was primarily due to the expensing, from
inventory, of 265 units of Lyphomune(R) used in a sales promotion in fiscal year
1998 compared to 57 complimentary units during the first nine months of this
fiscal year. Research and Development expenses decreased to $140,956 compared to
$298,861 in the first nine 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 1.6% compared to the first nine months of
fiscal year 1998 primarily due to inflationary increases in several items of
expense in this fiscal year. This increase is not as large as it could have been
because of 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 Slusser Associates (SA) and the $15,000 fee for listing on the
Chicago Stock Exchange (CHX). Total Operating Expenses increased 6.5%, due to
the above.
Operating Income increased to $328,648 compared to an operating loss of
($29,971) 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, the $46,658 increased funding to cover indirect cost overruns for
two expired contracts as mentioned above 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 completed
during the second quarter of fiscal year 1998).
For the nine months of this fiscal year, Diagnon had interest expense of $41,471
compared to interest expense of $41,114 in the prior year.
In accordance with SFAS No. 109, "Accounting for Income Taxes", the Company
reported a deferred federal income tax expense of $82,400 for the nine months
ended February 28, 1999. The Company provided for state income tax which is
estimated at $33,600. State income tax expense is reimbursable under government
contracting regulations.
Earnings Per Share (EPS) - For the nine month comparison, options to purchase
30,502 shares of common stock at prices ranging from $2.625 per share to $3.375
per share were outstanding at February 28, 1999 but were not included in the
computation of diluted EPS because the options' exercise price was equal to or
greater than the market price of the
8
<PAGE>
common shares. Due to the net loss recorded for the nine month period ended
February 28, 1998, 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 $841,984. Accounts
Receivable increased by $791,217 consisting mainly of 1) an increase of $969,821
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 $174,499
to Unbilled Accounts Receivable primarily due to a $217,266 decrease in prior
year unbilled direct costs that were billed in June 1998, September 1998 and
January 1999 and a decrease of $4,319 in reimbursable indirect rate variances
for the first nine months of fiscal year 1999 offset by a $27,629 accrual of
current period unbilled direct costs to be billed during the fourth quarter of
fiscal year 1999 and a $19,457 contract fee retention accrual to be billed at
the completion of the related contracts, and 3) a $4,105 decrease to Other
Accounts Receivable. Inventories increased $219,765 as the Company continues to
produce Lyphomune(R), ImmunoGam and MiniGam for the upcoming foaling season
(Spring 1999). Prepaid Expenses increased $37,779 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 $52,846 reflecting depreciation
and amortization of $235,877 offset by fixed asset purchases of $183,031 (mainly
nonhuman primate housing units, lab equipment and facility improvements), 2)
Deferred Income Taxes decreased by $82,400 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. Loans to Officers
decreased $35,719.
Liabilities
In the first nine months of operations, Total Liabilities increased $703,657 as
compared to May 31, 1998. This increase is primarily attributable to an
increase to Borrowings Under Line-of-Credit of $909,914 reflecting the increase
in Inventories, the payment of accrued bonuses from the previous fiscal year,
and the increase in Trade Receivables. Accounts Payable increased $51,094.
The above increase is partially offset by 1) a decrease in Accrued Compensation
and Related Costs of $135,245 reflecting the payment of accrued bonuses from
fiscal year 1998 during the first quarter of fiscal year 1999 and a shorter
accrual period this quarter when compared to the prior year end, and 2) payments
totalling $113,990 on capital leases reducing Long-Term Debt.
As of April 12, 1999, approximately 92% of the February 28, 1999 Trade
Receivables balance was collected and the Line-of-Credit balance was reduced to
$285,477.
9
<PAGE>
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.
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, 1999 /s/ John C. Landon
-------------------- --------------------------------
Chairman of the Board,
President and Chief Executive
Officer
DATE April 13, 1999 /s/ Michael P. O'Flaherty
-------------------- --------------------------------
Chief Operating Officer and
Secretary
DATE April 13, 1999 /s/ David A. Newcomer
-------------------- --------------------------------
Chief Financial Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> FEB-28-1999
<EXCHANGE-RATE> 1
<CASH> 68,066
<SECURITIES> 0
<RECEIVABLES> 2,380,097
<ALLOWANCES> 0
<INVENTORY> 264,872
<CURRENT-ASSETS> 2,813,603
<PP&E> 4,003,367
<DEPRECIATION> 2,563,824
<TOTAL-ASSETS> 5,118,854
<CURRENT-LIABILITIES> 1,813,953
<BONDS> 0
0
0
<COMMON> 16,004
<OTHER-SE> 3,280,584
<TOTAL-LIABILITY-AND-EQUITY> 5,118,854
<SALES> 42,975
<TOTAL-REVENUES> 8,027,867
<CGS> 36,643
<TOTAL-COSTS> 7,601,238
<OTHER-EXPENSES> 140,956
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,471
<INCOME-PRETAX> 289,965
<INCOME-TAX> 116,000
<INCOME-CONTINUING> 173,965
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 173,965
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
