SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-QSB
(Mark One)
[P] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1996
OR
[ ] 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: 33-47567-NY
DIEHL GRAPHSOFT, INC.
(Exact name of registrant as specified in its charter)
Maryland 52-1407016
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
10270 Old Columbia Road, Columbia, Maryland 21046
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 410-290-5114
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check P whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 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 P
No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or 15(d) of
the Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. Yes ______ No __________
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. 3,140,739
shares of common stock .
DIEHL GRAPHSOFT, INC.
FORM 10-QSB
INDEX
NumberPage
PART I FINANCIAL INFORMATION
Financial Statements:
Item 1 Balance Sheet (unaudited) as of
August 31, 1996 3
Statements of Operations (unaudited) for
the three months ended August 31, 1996
and 19954
Statements of Cash Flows (unaudited) for
the three months ended August 31, 1996
and 19955
Statements of Stockholders' Equity
(unaudited) as of August 31, 1996 and 19956
Notes to Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of
Operations8
PART II OTHER INFORMATION
Item 1 Legal Proceedings10
Item 2 Changes in Securities 10
Item 3 Defaults Upon Senior Securities10
Item 4 Submission of Matters to a Vote of
Security Holders10
Item 5 Other Information10
Item 6 Exhibits and Reports10
SIGNATURES11
DIEHL GRAPHSOFT, INC.
BALANCE SHEET
AUGUST 31, 1996
(Unaudited)
ASSETS
Current assets:
Cash$ 599,598
Marketable securities 6,298,107
Accounts receivable 424,844
Inventory 200,972
Due from officer 5,000
Other current assets 125,998
Total current assets7,654,519
Fixed assets:
Equipment545,949
Furnishings and fixtures79,418
Leasehold improvements 41,038
666,405
Accumulated depreciation 373,109
Net fixed assets 293,296
Other assets:
Unamortized organization expenses 34,922
Software development costs, net of
accumulated amortization of $965,807 746,569
Total other assets 781,491
Total assets$8,729,306
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses$ 210,839
Income taxes payable32,585
Deferred income taxes 114,829
Total current liabilities 358,253
Long term liabilities:
Deferred income taxes 295,441
Total liabilities 653,694
Stockholders' equity:
Common stock - $.01 par value; 10,000,000
shares authorized, 3,140,739 shares
issued and outstanding 31,407
Additional paid in capital4,147,605
Retained earnings3,896,600
Total stockholders' equity8,075,612
Total liabilities and stockholders' equity$8,729,306
See accompanying notes to financial statements
DIEHL GRAPHSOFT, INC.
STATEMENT OF OPERATIONS
(Unaudited)
For the three months
ended August 31,
1996 1995
Sales $1,725,805 $862,688
Cost of sales 371,330189,096
Gross profit 1,354,475 673,592
Operating expenses:
General and administrative 418,392275,844
Selling & marketing 411,470217,907
Research and development 60,291 61,330
Total operating expenses 890,153555,081
Income from operations 464,322 118,511
Interest income 91,705 69,570
Income before income taxes 556,027188,081
Provision for income taxes 203,050 66,700
Net income $ 352,977$121,381
Net income per share $.11 $.04
Weighted average number of shares
outstanding 3,172,4722,895,810
See accompanying notes to financial statements
DIEHL GRAPHSOFT, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
For the three months
ended August 31,
1996 1995
Cash flows from operating activities:
Net income $ 352,977$121,381
Adjustments:
Deferred income taxes 49,685 (166,689)
Amortization of bond premiums and discounts (66,635)(44,771)
Depreciation and amortization 156,539 86,584
Changes in operating assets and liabilities:
Accounts receivable (88,453) 359,066
Inventory (66,259) 38,170
Other assets 27,507 40,227
Accounts payable and accrued expenses (63,102)63,944
Income taxes receivable/payable 153,315 (91,601)
Net cash provided by operating
activities: 455,574406,311
Cash flows from investing activities:
Purchases of marketable securities (1,539,454) (236,862)
Maturities of marketable securities 1,539,000 80,000
Capitalized software costs (181,350) (117,693)
Purchase of fixed assets (43,325)(24,036)
Organizational expenses (6,125) -
Net cash used in investing activities (231,254)(298,591)
Cash flows from financing activities:
Sale of common stock - 54,366
Net cash provided by financing activities - 54,366
Net increase in cash 244,320162,086
Cash balance beginning of period 375,278722,116
Cash balance end of period $ 599,598$884,202
Supplemental disclosure of cash flow
information:
Cash paid for income taxes $ - $191,590
See accompanying notes to financial statements
DIEHL GRAPHSOFT, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
Additional
Common Common Paid in Retained
shares stock Capital Earnings Total
Balance
May 31, 1995 2,893,125 $28,311 $2,479,306 $2,874,625 $5,382,242
Sale of Common
Stock 8,054 81 54,285 - 54,366
Net Income - - - 121,381 121,381
Balance
August 31, 1995 2,901,179 $28,392 $2,533,591 $2,996,006 $5,557,989
Balance
May 31, 1996 3,140,739 $31,407 $4,147,605 $3,543,623 $7,722,635
Net Income - - - 352,977 352,977
Balance
August 31, 1996 3,140,739 $31,407 $4,147,605 $3,896,600 $8,075,612
See accompanying notes to financial statements
DIEHL GRAPHSOFT, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
necessary adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three month period ended August 31, 1996
are not necessarily indicative of the results that may be expected
for the year ended May 31, 1997.
DIEHL GRAPHSOFT, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations for the three months ended August 31,
1996 as compared to the three months ended August 31, 1995.
Revenues for the three months ended August 31, 1996 doubled to
$1,725,805 as compared to $862,688 for the three months ended
August 31, 1995. The doubling of revenues for the three months
ended August 31, 1996 is due to a continuation of strong sales both
domestically and internationally of Minicad 6 on the Macintosh
platform since March 1996 in addition to sales of Minicad for
Windows. The Company officially commenced shipment of Minicad for
Windows in July 1996 and generated approximately 19% of total sales
for the quarter from the Windows product.
The cost of sales for the three months ended August 31, 1996
was $371,330 as compared to $189,096 for the three months ended
August 31, 1995 representing a increase of $182,334. The gross
profit percentages for the three months ended August 31, 1996 and
1995 were 78.5% and 78.1% respectively. Amortization of software
development to cost of sales, which is not directly a function of
sales, rose to $127,053 for the three months ended August 31, 1996
from $65,574 for the three months ended August 31, 1995 which is
approximately proportional to the increase in sales for the
quarter. The increase in amortization expense is due an increase
in capitalized costs to software development resulting from an
increased commitment to this area and the effect of reducing the
amortization period from three years to two years for newly
capitalized costs beginning June 1, 1995.
General and administrative expenses increase to $418,392 for
the three months ended August 31, 1996 as compared to $275,844 for
the three months ended August 31, 1995. Legal costs increased to
$68,861 for the three months ended August 31, 1996 from $17,929 for
the three months ended August 31, 1995. This increase is primarily
associated with the defense of a patent infringement claim and a
trademark dispute which have been settled during or shortly after
the end of the quarter. Other increases in costs are attributable
to the overall expansion of the company in preparation for Minicad
for Windows.
Research and development expenses decreased to $60,291 for the
three month period ended August 31, 1996 from $61,330 for the three
month period ended August 31, 1995. This decrease is due to
$24,000 in externally contracted expenses for the Windows platform
during the three months ended August 31, 1995 which concluded with
the successful completion of the project shortly after the end of
the quarter. Internal development costs rose during the three
month period ended August 31, 1996 when compared to the three month
period ended August 31, 1995 due to an increased internal
commitment to this area.
Selling and marketing expenses rose to $411,470 for the three
month period ended August 31, 1996 as compared to $217,907 for the
three month period ended August 31, 1995. This increase is
primarily due to an increased commitment to advertising with the
introduction of Minicad for Windows.
Net Profit increased by $231,596 to $352,977 for the three
months ended August 31, 1996 from $121,381 for the three months
ended August 31, 1995. This increase is after giving effect to a
provision for income taxes of $203,050 for the three month period
ended August 31, 1996 and $66,700 for the three month period ended
August 31, 1995. The effective tax rates were 36.5% and 35.5% for
the three month periods ended August 31, 1996 and 1995,
respectively. The increase in this rate is attributable to
operating income increasing at a greater rate than tax-exempt
investment income. The overall increase in net profit is primarily
a result of sales increasing at a greater rate than operating
expenses during the three month period ended August 31, 1996 when
compared with the three month period ended August 31, 1995.
Liquidity and Capital Resources
The Company increased its working capital by $2,254,554 from
$5,041,712 for the three months ended August 31, 1995 to $7,296,266
for the three months ended August 31, 1996. Working capital also
rose from $6,997,170 at May 31, 1996 to $7,296,266 at August 31,
1996, representing an increase of $299,096. This increase from
August 31, 1995 to August 31, 1996 is primarily the result of
proceeds of $1,671,395 from the exercise of common stock warrants
during the period from August through November 1995. Cash flows
from operations over this period have been invested into equipment
and software development with any excess placed temporarily into
marketable securities. Company marketable securities continue to
be in short to intermediate term government instruments.
The Company's future capital requirements will depend upon
many factors, including the extent, timing and progress of the
Company's development of new software. The Company anticipates
that its existing capital resources and earning from operations
will be adequate to satisfy the capital requirements for the next
twelve months.
The Company will continue to have working capital needs that
will be affected by the progress of the Company's research and
development activities and capital expenditures. However, the
Company expects that the cash generated from future operations and
the proceeds from the initial public offering will satisfy its
operating cash needs for the foreseeable future.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company had been a defendant to a patent infringement
claim which was dismissed through a summary judgement
issued on June 25, 1996 by the U.S. District Court.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DIEHL GRAPHSOFT, INC.
DATE: October 11, 1996
Richard Diehl, President
Chief Executive Officer
DATE: October 11, 1996
Joseph Schmelzle, Treasurer
Chief Financial and Accounting Officer
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DIEHL GRAPHSOFT, INC.
DATE: October 11, 1996 s/Richard Diehl
Richard Diehl, President
Chief Executive Officer
DATE: October 11, 1996 s/Joseph Schmelzle
Joseph Schmelzle, Treasurer
Chief Financial and Accounting Officer
