<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For 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 1-13738
PSYCHEMEDICS CORPORATION
(exact name of Issuer as specified in its charter)
Delaware 58-1701987
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
1280 Massachusetts Ave., Suite 200, Cambridge, MA 02138
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (617-868-7455)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Number of shares outstanding of only class of Issuer's Common Stock as of August
10, 1998: Common Stock $.005 par value (22,253,698 shares).
1
<PAGE> 2
PSYCHEMEDICS CORPORATION
Part I FINANCIAL INFORMATION PAGE NO.
Item 1 Financial Statements
Condensed Balance Sheets as of June 30, 1998
and December 31, 1997 3
Condensed Statements of Income for the three
month periods ended June 30, 1998 and 1997 4
Condensed Statements of Income for the six
month periods ended June 30, 1998 and 1997 5
Condensed Statements of Cash Flows for the
six month periods ended June 30, 1998 and 1997 6
Notes to Condensed Financial Statements 7-8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-12
Part II OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders 13
Item 6 Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
<PAGE> 3
PSYCHEMEDICS CORPORATION
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE DECEMBER
30, 1998 31, 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 27,583 $ 585,142
Short-term investments 9,689,512 9,446,418
Accounts receivable 4,024,946 3,784,488
Inventories 382,345 500,325
Prepaid expenses and other current assets 1,210,906 895,874
------------ ------------
Total current assets 15,335,292 15,212,247
------------ ------------
PROPERTY AND EQUIPMENT
Equipment and leasehold improvements, at cost 7,441,036 6,241,516
Less-Accumulated depreciation and amortization (3,450,755) (3,021,842)
------------ ------------
3,990,281 3,219,674
------------ ------------
OTHER ASSETS - NET 436,289 423,318
============ ============
$ 19,761,862 $ 18,855,239
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 140,105 $ 196,259
Accrued expenses 986,734 438,063
Deferred revenue 1,624,504 1,488,010
------------ ------------
Total current liabilities 2,751,343 2,122,332
------------ ------------
SHAREHOLDERS' EQUITY
Preferred stock, $.005 par value; authorized 1,000,000
shares; none outstanding
Common stock; $.005 par value; authorized 50,000,000
shares; issued 22,518,345 and 22,382,720
shares in 1998 and 1997, respectively 112,592 111,913
Paid-in capital 23,902,397 23,581,549
Accumulated deficit (5,227,615) (5,537,505)
Less - Treasury stock, at cost; 248,447 and
183,683 shares in 1998 and 1997, respectively (1,345,450) (1,005,439)
Less - Receivable from officer (431,405) (417,611)
------------ ------------
Total shareholders' equity 17,010,519 16,732,907
------------ ------------
$ 19,761,862 $ 18,855,239
============ ============
</TABLE>
See accompanying notes to financial statements and management's discussion and
analysis of financial condition and results of operations.
3
<PAGE> 4
PSYCHEMEDICS CORPORATION
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
REVENUE $ 4,834,720 $ 4,402,203
DIRECT COSTS 1,910,326 1,606,615
----------- -----------
Gross profit 2,924,394 2,795,588
----------- -----------
EXPENSES:
General and administrative 768,892 563,049
Marketing and selling 865,737 1,124,003
Research and development 113,854 110,174
----------- -----------
1,748,483 1,797,226
----------- -----------
OPERATING INCOME 1,175,911 998,362
OTHER INCOME 141,872 131,214
----------- -----------
NET INCOME BEFORE INCOME TAXES 1,317,783 1,129,576
PROVISION FOR INCOME TAXES 535,597 384,056
----------- -----------
NET INCOME $ 782,186 $ 745,520
=========== ===========
BASIC NET INCOME PER SHARE $ 0.04 $ 0.03
=========== ===========
DILUTED NET INCOME PER SHARE $ 0.03 $ 0.03
=========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 22,231,158 21,832,664
=========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING, ASSUMING DILUTION 22,676,094 22,797,637
=========== ===========
</TABLE>
See accompanying notes to financial statements and management's discussion and
analysis of financial condition and results of operations.
4
<PAGE> 5
PSYCHEMEDICS CORPORATION
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
REVENUE $ 8,956,623 $ 7,655,947
DIRECT COSTS 3,605,214 2,928,487
----------- -----------
Gross profit 5,351,409 4,727,460
----------- -----------
EXPENSES:
General and administrative 1,376,858 1,095,703
Marketing and selling 1,633,759 1,781,446
Research and development 220,847 219,082
----------- -----------
3,231,464 3,096,231
----------- -----------
OPERATING INCOME 2,119,945 1,631,229
OTHER INCOME 278,256 256,806
----------- -----------
NET INCOME BEFORE INCOME TAXES 2,398,201 1,888,035
PROVISION FOR INCOME TAXES 974,737 505,408
----------- -----------
NET INCOME $ 1,423,464 $ 1,382,627
=========== ===========
BASIC NET INCOME PER SHARE $ 0.06 $ 0.06
=========== ===========
DILUTED NET INCOME PER SHARE $ 0.06 $ 0.06
=========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 22,220,804 21,866,699
=========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING, ASSUMING DILUTION 22,686,146 22,807,787
=========== ===========
</TABLE>
See accompanying notes to financial statements and management's discussion and
analysis of financial condition and results of operations.
5
<PAGE> 6
PSYCHEMEDICS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
ENDED JUNE 30,
------------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,423,464 $ 1,382,627
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 460,453 286,976
Changes in assets and liabilities:
Receivables (252,421) (1,473,679)
Inventories 117,980 (198,595)
Prepaid expenses and other current assets (315,032) (429,682)
Accounts payable (56,154) 273,957
Accrued expenses 548,671 95,813
Deferred revenue 136,494 873,165
----------- -----------
Net cash provided by operating activities 2,063,455 810,582
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net purchases of short-term investments (243,094) (250,896)
Purchases of property and equipment (1,199,520) (887,536)
(Increase) decrease in other assets - net (44,512) 12,592
----------- -----------
Net cash used in investing activities (1,487,126) (1,125,840)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the issuance of common stock 319,696 910,297
Cash dividends paid (1,113,573) (1,312,667)
Acquisition of treasury stock (340,011) -
----------- -----------
Net cash used in financing activities (1,133,888) (402,370)
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (557,559) (717,628)
CASH AND CASH EQUIVALENTS, beginning of period 585,142 1,462,678
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 27,583 $ 745,050
=========== ===========
</TABLE>
See accompanying notes to financial statements and management's discussion and
analysis of financial condition and results of operations.
6
<PAGE> 7
PSYCHEMEDICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
1. Interim Financial Statements
The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and pursuant to the rules and regulations of the Securities and
Exchange Commission for reporting on Form 10-Q. Accordingly, certain information
and footnote disclosure required for complete financial statements are not
included herein. It is recommended that these financial statements be read in
conjunction with the financial statements and related notes of Psychemedics
Corporation (the "Company") as reported in the Company's Annual Report on Form
10-K for the year ended December 31, 1997. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation of financial position, results of operations, and cash
flows at the dates and for the periods presented have been included. The balance
sheet presented as of December 31, 1997 has been derived from the financial
statements that have been audited by the Company's independent public
accountants. The results of operations for the three months and the six months
ended June 30, 1998 may not be indicative of the results that may be expected
for the year ending December 31, 1998, or any other period.
2. Basic and Diluted Net Income Per Share
In March 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
128, Earnings Per Share. This statement established standards for computing and
presenting earnings per share. Net income per share for each period presented
has been retroactively restated to conform to SFAS No. 128.
Basic net income per share was computed by dividing net income by the weighted
average number of common shares outstanding during the period. Diluted net
income per share was computed by dividing net income by the weighted average
number of common and dilutive common equivalent shares outstanding during the
period. Dilutive common equivalent shares outstanding during the period have
been determined in accordance with the treasury-stock method. Common equivalent
shares consist of common stock issuable upon the exercise of outstanding
options.
Basic and diluted weighted average common shares outstanding are as
follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------- ---------------------------
6-30-98 6-30-97 6-30-98 6-30-97
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average common shares 22,231,158 21,832,664 22,220,804 21,866,699
Effect of dilutive common stock
options 444,936 964,973 465,342 941,088
---------- ---------- ---------- ----------
Weighted average common shares
outstanding, assuming dilution 22,676,094 22,797,637 22,686,146 22,807,787
</TABLE>
7
<PAGE> 8
PSYCHEMEDICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the three months ended June 30, 1998 and 1997, options to purchase 558,316
and 50,000 common shares, respectively, were outstanding but not included in the
diluted weighted average common share calculation as the effect would have been
antidilutive. For the six months ended June 30, 1998 and 1997, options to
purchase 542,866 and 50,000 common shares, respectively, were outstanding but
not included in the diluted weighted average common share calculation as the
effect would have been antidilutive.
3. Revenue Recognition
Revenues for all product offerings are recognized upon reporting drug test
results to the customer. During the second quarter of 1997, the Company began
offering its personal drug testing service, "PDT-90" through retail drug stores.
At June 30, 1998 and December 31, 1997, the Company had approximately $1,625,000
and $1,488,000, respectively, of deferred revenue related to the PDT-90 service,
principally due to receiving payments prior to the performance of the related
test.
4. New Accounting Pronouncements
Effective January 1, 1998, the Company adopted the provisions of SFAS No.130,
Reporting Comprehensive Income. SFAS No. 130 requires disclosure of all
components of comprehensive income on an annual and interim basis. Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources. The Company's total comprehensive income for the three and six month
periods ended March 31, 1998 and June 30, 1998 was the same as reported net
income.
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position (SOP) 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. SOP 98-1 requires computer
software costs associated with internal use software to be expensed as incurred
until certain capitalization criteria have been met. The Company will adopt SOP
98-1 prospectively beginning January 1, 1999. Adoption of this Statement is not
expected to have a material impact on the Company's financial position or
results of operations.
In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of Start-Up
Activities. SOP 98-5 requires all costs associated with pre-opening,
pre-operating and organization activities to be expensed as incurred. The
Company will adopt SOP 98-5 beginning January 1, 1999. Adoption of this
Statement is not expected to have a material impact on the Company's financial
position or results of operations.
8
<PAGE> 9
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company or statements made by its
employees may contain "forward-looking" information which involves risks and
uncertainties. In particular, statements contained in this report which are not
historical facts (including but not limited to the Company's expectations
regarding revenues, business strategy, anticipated operating results, cash
dividends and anticipated cash requirements) may be "forward looking"
statements. The Company's actual results may differ from those stated in any
"forward looking" statements. Factors that may cause such differences include,
but are not limited to, risks associated with the continued expansion of the
Company's sales and marketing network, development of markets for new products
and services offered by the Company, the economic health of principal customers
of the Company, financial and operational risks associated with possible
expansion of testing facilities used by the Company, government regulation
(including, but not limited to, Food and Drug Administration regulations),
competition and general economic conditions.
OVERVIEW
Psychemedics Corporation was incorporated in 1986. The Company utilizes a
patented hair analysis method involving radioimmunoassay technology to analyze
human hair to detect abused substances. The founder of the Company has granted
to the Company an exclusive license to all his rights in this hair analysis
technology, including his rights to the drug extraction method.
RESULTS OF OPERATIONS
Revenue was $4,834,720 in the second quarter of 1998 as compared to $4,402,203
in the second quarter of 1997, representing an increase of 10%. Revenue for the
six month period ended June 30, 1998 was $8,956,623, an increase of 17% over the
$7,655,947 of revenue reported for the comparable period of 1997. The revenue
increase was due primarily to increases in volume from both new and existing
clients offset by average price decreases of 1% primarily as a result of volume
discounts granted to large customers.
Gross margin was 60% of sales in the second quarter of 1998, as compared to 64%
in the year earlier period. Gross margin was 60% for the six months ended June
30, 1998 as compared to 62% in the year earlier period. The decreases in 1998
can be attributed to the average price decrease of 1% and the fact that although
revenue increased for the three month period and the six month period ended June
30, 1998 when compared to the year earlier periods, the Company had anticipated
that the demand for its services would be greater and had increased its
production capacity accordingly.
9
<PAGE> 10
General and administrative ("G&A") expenses were $768,892 for the three months
ended June 30, 1998 as compared to $563,049 for the three months ended June 30,
1997, representing an increase of 37%. G&A expenses were $1,376,858 for the six
months ended June 30, 1998 as compared to $1,095,703 for the year earlier
period, representing an increase of 26%. As a percentage of revenue, G&A
expenses increased to 16% in the second quarter of 1998 from 13% in the second
quarter of 1997 and increased to 15% for the six months ended June 30, 1998 from
14% for the comparable year earlier period. Approximately half of the increases
were personnel related and consisted primarily of three additions to staff,
costs pertaining to the introduction of a 401(k) retirement plan, and costs
associated with employee turnover in the finance department. The Company's
activities relating to investor relations and greater professional fees also
contributed to the increases.
Marketing and selling expenses for the three month period ended June 30, 1998
decreased $258,266 to $865,737, a decrease of 23%. Marketing and selling
expenses were $1,633,759 for the six months ended June 30, 1998 as compared to
$1,781,446 for the year earlier period, representing a decrease of 8%. Total
marketing and selling expenses decreased as a percentage of revenue from 26% in
the second quarter of 1997 to 18% in the second quarter of 1998, and decreased
as a percentage of revenue from 23% for the six months ended June 30, 1997 to
18% for the six months ended June 30, 1998. Although the Company continued to
expand marketing activities related to the corporate market in 1998, total
marketing and selling expenses decreased from 1997 levels because a significant
amount of expenditures made in the second quarter of 1997 to initially penetrate
the retail home testing market were non-recurring.
Other income for the three month and the six month periods ended June 30, 1998
represented primarily interest earned on cash equivalents and short-term
investments. The increase in 1998 was primarily due to higher investment
balances coupled with increased yields on these investments.
Net income before income taxes increased by $188,207 to $1,317,783 and by
$510,166 to $2,398,201 for the three months and six months ended June 30, 1998,
respectively, when compared to the year earlier periods. Net income was $782,186
for the second quarter of 1998 as compared to $745,520 for the second quarter of
1997. Net income for the six months ended June 30, 1998 was $1,423,464 as
compared to $1,382,627 for the year earlier period. The effective tax rate for
the three month and the six month periods ended June 30, 1998 was 41% in 1998
versus 34% and 27% for the three month and the six month periods ended June 30,
1997, respectively. This increase in the effective tax rate reflects the
reduction in net operating loss carryforwards available to offset the provision
for income taxes for financial reporting purposes.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had $9.7 million of cash, cash equivalents and
short-term investments. The Company's operating activities generated net cash of
$2,063,455 in the six months ended June 30, 1998. Investing activities used
$1,487,126 in the six month period while financing activities used a net amount
of $1,133,888 during the period.
10
<PAGE> 11
The Company's source of funds in the first six months of 1998 was derived almost
entirely from cash generated from operations. Operating cash flows increased
$1,252,873 in the first two quarters of 1998, compared to the year earlier
period. Net income increased by $40,837 compared to the 1997 period, and along
with a decrease in inventories and an increase in accrued expenses for the six
months ended June 30, 1998 contributed to cash flow. Increases in receivables,
prepaid expenses and other current assets and a decrease in accounts payable
offset this to a lesser degree. Also, deferred revenue, which represents
deliveries to retail outlets of the Company's retail product PDT-90, increased
by $136,494. The non-cash effect of depreciation and amortization in the 1998
and 1997 periods was $460,453 and $286,976, respectively.
Capital expenditures in the first two quarters of 1998 were $1,199,520. The
expenditures primarily consisted of new equipment, including laboratory and
computer equipment. The Company believes that within the next two years it may
be required to expand its existing laboratory or develop a second laboratory,
the cost of which is currently believed to range from $2 million to $4 million.
During the six month period ended June 30, 1998, the Company distributed
$1,113,573 in cash dividends to its shareholders.
At June 30, 1998, the Company's principal sources of liquidity included an
aggregate of $9.7 million of cash, cash equivalents and short-term investments.
Management currently believes that such funds, together with cash generated from
operations, should be adequate to fund anticipated working capital requirements
and capital expenditures in the near term. Depending upon the Company's results
of operations, its future capital needs and available marketing opportunities,
the Company may use various financing sources to raise additional funds. Such
sources could potentially include joint ventures, issuance of common stock or
debt financing. At June 30, 1998, the Company had no long-term debt.
IMPACT OF YEAR 2000 ISSUE
The Year 2000 issue results from computer programs written using two digits
rather than four to define the applicable year. Any of the Company's computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company is in the process of conducting an assessment of its computer
information systems and is beginning to take the necessary steps to determine
the nature and extent of the work required to make its systems Year 2000
compliant, where necessary. These steps will require the Company to modify,
upgrade or replace some of its internal financial and operational systems. The
Company continues to evaluate the estimated cost of bringing all internal
systems, equipment and operations into Year 2000 compliance, but has not yet
finished determining the total cost of these compliance efforts. While these
efforts will involve additional costs, the Company believes, based upon
currently available information, that these costs will not have a material
adverse effect on its business, financial condition or results of operations.
However, if these efforts are not completed on time, or if the cost of updating
or replacing the Company's information systems exceeds the Company's current
estimates, the Year 2000 issue could have a material adverse impact on the
Company's business, financial condition or results of operations.
11
<PAGE> 12
The Company also intends to determine the extent to which the Company may be
vulnerable to any failures by its major suppliers, distributors and service
providers to remedy their own Year 2000 issues, and is in the process of
initiating formal communications with these parties. At this time the Company is
unable to estimate the nature or extent of any potential adverse impact
resulting from the failure of third party suppliers, distributors and service
providers to achieve Year 2000 compliance, although the Company does not
currently anticipate that it will experience any material shipment delays from
its major product suppliers or any material sales delays from its major
distributors due to Year 2000 issues. However, there can be no assurance that
these third parties will not experience Year 2000 problems or that any problems
would not have a material effect on the Company's product supply and
distribution channels. Because the cost and timing of Year 2000 compliance by
third parties such as suppliers, distributors and service providers is not
within the Company's control, no assurance can be given with respect to the cost
or timing of such efforts or any potential adverse effects on the Company of any
failure by these third parties to achieve Year 2000 compliance.
12
<PAGE> 13
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of Psychemedics Corporation was held on May
4, 1998 for the purpose of electing a board of directors and approving the
appointment of the Company's auditors. Proxies for the meeting were solicited
pursuant to Section 14(a) of the Securities Exchange Act of 1934 and there was
no solicitation in opposition to management's solicitations. A brief description
of each matter voted upon at the meeting and tabulation by the Company's
transfer agent of the vote cast with respect to each matter is included as
Exhibit 22 to this Form 10-Q.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
22. Submission of Matters to a Vote of Security Holders
27. Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for
which this report is filed.
13
<PAGE> 14
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.
Psychemedics Corporation
Date: August 10, 1998 By: /s/ Raymond C. Kubacki, Jr.
-------------------------------------
Raymond C. Kubacki, Jr.
President and Chief Executive Officer
Date: August 10, 1998 By: /s/ Peter C. Monson
--------------------------------------
Peter C. Monson
Vice President, Treasurer & Controller
(principal financial officer)
14
<PAGE> 1
Exhibit 22
22. Submission of Matters to a Vote of Security Holders
Description and tabulation by the Company's transfer agent of each matter voted
upon at the Annual Meeting of Shareholders of Psychemedics Corporation held on
May 4, 1998.
All of management's nominees for directors, as listed in the proxy statement,
were elected with the following vote:
Election of Directors.
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------
FOR WITHHELD AUTHORITY
--- ------------------
<S> <C> <C>
Werner A Baumgartner, Ph.D. 19,236,158 99,363
Donald F. Flynn 19,243,308 92,213
Raymond C. Kubacki, Jr. 19,233,428 102,093
John J. Melk 19,243,308 92,213
A. Clinton Allen 19,240,578 94,943
Fred J. Weinert 19,240,063 95,458
</TABLE>
Selection of Arthur Andersen LLP as auditors of the Company.
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------
<S> <C>
For 19,238,659
Against 28,066
Abstain 68,796
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 27,583
<SECURITIES> 9,689,512
<RECEIVABLES> 4,024,946
<ALLOWANCES> 0
<INVENTORY> 382,345
<CURRENT-ASSETS> 15,335,292
<PP&E> 7,441,036
<DEPRECIATION> 3,450,755
<TOTAL-ASSETS> 19,761,862
<CURRENT-LIABILITIES> 2,751,343
<BONDS> 0
0
0
<COMMON> 112,592
<OTHER-SE> 16,897,927
<TOTAL-LIABILITY-AND-EQUITY> 19,761,862
<SALES> 8,956,623
<TOTAL-REVENUES> 8,956,623
<CGS> 3,605,214
<TOTAL-COSTS> 3,605,214
<OTHER-EXPENSES> 3,231,461
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,398,201
<INCOME-TAX> 974,737
<INCOME-CONTINUING> 1,423,464
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,423,464
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
