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 February 28, 1997
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: 0-24318
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
Item 1 Balance Sheet (unaudited) as of
February 28, 1997 3
Statements of Operations (unaudited) for
the three months ended February 28, 1997
and February 29, 1996 and (unaudited) for
the nine months ended February 28, 1997
and February 29, 1996 4
Statements of Cash Flows (unaudited) for
the nine months ended February 28, 1997
and February 29, 1996 5
Statements of Stockholders' Equity
(unaudited) as of February 28, 1997 and
February 29, 1996 6
Note to Condensed Financial Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8-10
PART II OTHER INFORMATION
Item 1 Legal Proceedings 11
Item 2 Changes in Securities 11
Item 3 Defaults Upon Senior Securities11
Item 4 Submission of Matters to a Vote of
Security Holders 11
Item 5 Other Information 11
Item 6 Exhibits and Reports on Form 8-K11
SIGNATURES 12
DIEHL GRAPHSOFT, INC.
BALANCE SHEET
FEBRUARY 28, 1997
(Unaudited)
ASSETS
Current assets:
Cash $ 438,058
Marketable securities 6,831,385
Accounts receivable 393,335
Inventory 221,386
Due from Officers 13,000
Other current assets 80,711
Total current assets 7,977,875
Fixed assets:
Equipment 594,209
Furnishings and fixtures 99,555
Leasehold improvements 41,038
734,802
Accumulated depreciation 423,014
Net fixed assets 311,788
Other assets:
Unamortized organizational expenses 33,131
Software development and licensing costs,
net of accumulated amortization of $953,112 774,651
Total other assets 807,782
Total assets $9,097,445
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 408,801
Income taxes payable 39,308
Deferred income taxes 19,721
Total current liabilities 467,830
Long term liabilities:
Deferred income taxes 273,657
Total liabilities 741,487
Stockholders' equity:
Common stock - $.01 par value; 10,000,000
shares authorized, 3,140,739 shares
issued and outstanding 31,407
Additional paid in capital 4,147,605
Retained earnings 4,176,946
Total stockholders' equity 8,355,958
Total liabilities and
stockholders' equity $9,097,445
See accompanying note to financial statements.
DIEHL GRAPHSOFT, INC.
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
February 28, February 29, February 28, February 29,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Sales $1,405,611 $1,049,988 $4,702,748
$3,305,138
Cost of sales 369,004 345,072 1,093,610 864,344
Gross profit 1,036,607 704,916 3,609,138 2,440,794
Operating expenses:
General and administrative 445,078 488,948 1,322,769
1,171,931
Selling and marketing 554,516 249,691 1,419,242 709,120
Research and Development 54,239 42,061 165,571 168,296
Total operating expenses 1,053,833 780,700 2,907,582 2,049,347
Income (loss) from operations (17,226) (75,784) 701,556 391,447
Other income and expenses:
Interest income 99,535 90,956 287,224
245,123
Gain (loss) on disposition
of equipment (457) (6,753) (457) (6,753)
Total other income
and expenses 99,078 84,203 286,767 238,370
Income before income taxes 81,852 8,419 988,323 629,817
Provision for income taxes 27,950 - 355,000 235,000
Net Income $ 53,902 $ 8,419 $ 633,323 $
394,817
Net Income per share $ .02 $ .00 $ .20 $ .13
Weighted average number of
shares outstanding 3,160,124 3,159,406 3,167,040 3,039,345
</TABLE>
See accompanying note to financial statements.
DIEHL GRAPHSOFT, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the nine For the nine
months ended months ended
February 28, February 29,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 633,323 $ 394,817
Adjustments to reconcile net income to net
cash provided by operating activities:
Loss on disposition of equipment 457 6,753
Amortization of bond premiums and
discounts (206,787) (154,287)
Deferred income taxes (67,207) (47,745)
Depreciation and amortization 543,777 312,289
Changes in operating assets and liabilities:
Accounts receivable (56,944) 95,048
Inventory (86,673) 36,321
Due from Officers (8,000) -
Other current assets 77,818 (93,610)
Accounts payable and accrued expenses 134,860 179,502
Income taxes receivable/payable 167,107 (332,206)
Net cash provided by operating
activities 1,131,731 396,882
Cash flows from investing activities:
Purchases of marketable securities (3,724,673) (1,770,635)
Maturities of marketable securities 3,319,000 105,000
Capitalized software and licensing costs (528,658) (451,269)
Loan repayment from Officer - 230,000
Purchase of fixed assets (128,495) (88,728)
Organizational expenses (6,125) (18,807)
Net cash used in investing activities (1,068,951) (1,994,439)
Cash flows from financing activities:
Sale of common stock - 1,671,395
Net cash provided by
financing activities - 1,671,395
Net increase in cash 62,780 73,838
Cash balance beginning of period 375,278 722,116
Cash balance end of period $ 438,058 $ 795,954
Supplemental disclosure of cash flow
information:
Cash paid for income taxes $ 255,100 $ 614,951
</TABLE>
See accompanying note to financial statements.
DIEHL GRAPHSOFT, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Common Paid in Retained
shares stock Capital earnings Total
<S> <C> <C> <C> <C> <C>
Balance -
May 31, 1995 2,893,125 $28,931 $2,478,687 $2,874,625 $5,382,243
Sale of Common stock 247,614 2,476 1,668,918 - 1,671,394
Net Income - - - 394,817 394,817
Balance -
February 29, 1996 3,140,739 $31,407 $4,147,605 $3,269,442 $7,448,454
Balance -
May 31, 1996 3,140,739 $31,407 $4,147,605 $3,543,623 $7,722,635
Net Income - - - 633,323 633,323
Balance -
February 28, 1997 3,140,739 $31,407 $4,147,605 $4,176,946 $8,355,958
</TABLE>
See accompanying note to financial statements.
DIEHL GRAPHSOFT, INC.
NOTE TO CONDENSED 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 instructions to Form 10-Q as set forth in
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 and nine month periods ended
February 28, 1997 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 and nine months ended February
28, 1997 as compared to the three and nine months ended February 29,
1996.
Revenues for the three months ended February 28, 1997 were
$1,405,611 as compared to $1,049,988 for the three months ended February
29, 1996 representing an increase of 33.9%. Revenues for the nine months
ended February 28, 1997 were $4,702,748 as compared to $3,305,138 for the
nine months ended February 29, 1996 representing an increase of 42.3%.
The increase in revenues reflects increased sales of Minicad for Windows
resulting from increased marketing efforts and increased sales through
international distributors following localization of the product into
native languages. Revenues from sales of Minicad on the Macintosh
platform declined in the three months ended February 28, 1997 when
compared with the three months ended February 29, 1996. This decline is
primarily due to the overall decline in hardware sales by Apple Computer
during these periods.
The cost of sales for the three months ended February 28, 1997 was
$369,004 as compared to $345,072 for the three months ended February 29,
1996 representing an increase of 6.9%. The cost of sales for the nine
months ended February 28, 1997 was $1,093,610 as compared to $864,344 for
the nine months ended February 28, 1996 representing an increase of
26.5%. The gross profit percentages for the three months ended February
28, 1997 and February 29, 1996 were 73.7% and 67.1% respectively. The
gross profit percentages for the nine months ended February 28, 1997 and
February 29, 1996 were 76.7% and 73.8% respectively. The increase in
gross profit percentages results primarily from the impact of an
allowance established for obsolete inventory of $44,012 during the three
months ended February 29, 1996.
Research and development expenses rose to $54,239 for the three
months ended February 28, 1997 when compared to $42,061 for the three
months ended February 29, 1996 representing an increase of 28.9%.
Research and development expenses declined to $165,571 for the nine
months ended February 28, 1997 as compared to $168,296 for the nine
months ended February 29, 1996 representing a decrease of 1.6%. The
decrease in the nine months ended February 28, 1997 as compared to the
nine months ended February 28, 1996 is attributable to bonuses issued to
engineers in connection with the successful completion of Minicad 6 as
well as investment into books, periodicals and educational training for
Minicad for Windows in the nine months ended February 29, 1996. The
increase in the three months ended February 28, 1997 as compared to the
three months ended February 29, 1996 is due to an increased commitment to
this area.
Selling and marketing expenses rose to $554,516 for the three months
ended February 28, 1997 as compared to $249,691 for the three months
ended February 29, 1996 representing an increase of 122%. Selling and
marketing expenses doubled to $1,419,242 for the nine months ended
February 28, 1997 as compared to $709,120 for the nine months ended
February 29, 1996. This increase is primarily due to increased
advertising costs incurred in connection with the introduction of Minicad
for Windows in July 1996. The Company expects to continue to advertise
at this level in an effort to reach the broader market that the Windows
market offers.
General and administrative expenses declined to $445,078 for the
three months ended February 28, 1997 as compared to $488,948 for the
three months ended February 29, 1996 representing a decrease of 9.0%.
General and administrative expenses rose to $1,322,769 for the nine
months ended February 28, 1997 as compared to $1,171,931 for the nine
months ended February 29, 1996 representing an increase of 12.9%. The
decrease in the three months ended February 28, 1997 is primarily due to
a decrease in legal fees to $18,867 for the three months ended February
28, 1997 from $158,065 for the three months ended February 29, 1996.
Legal fees also decreased to $136,880 for the nine months ended February
28, 1997 from $237,199 for the nine months ended February 29,1996. This
decline results principally from the resolution of a patent infringement
claim in June 1996. Other expenses rose principally due to increased
staffing needed to meet the demands from research and development
operations and sales and marketing operations. These demands rose due to
the development and marketing of Minicad for Windows.
Net income increased by $45,483 or 640% to $53,902 for the three
months ended February 28, 1997 from $8,419 for the three months ended
February 29,1996. Net income increased by $238,506 or 60.4% to $633,323
for the nine months ended February 28, 1997 from $394,817 for the nine
months ended February 29, 1996. The increase in net income is after
giving effect to a provision for income taxes of $27,950 for the three
months ended February 28, 1997. The effective tax rate for the three
months ended February 28, 1997 was 34.1%. No provision for income taxes
was made in the three months ended February 29, 1996 since the net income
was exempt investment income. The increase in net income is after giving
effect to a provision for income taxes of $355,000 and $235,000 for the
nine months ended February 28, 1997 and February 29, 1996 respectively.
The effective tax rates were 35.9% and 37.3% for the nine months ended
February 28, 1997 and February 29, 1996 respectively. The decrease in
effective tax rate for the nine months ended February 28, 1997 is
attributable to an increase in tax exempt investment income from
municipal bonds.
Liquidity and Capital Resources
The Company increased its working capital to $7,510,045 at February
28, 1997 from $6,803,868 at February 29, 1996 representing an increase of
$706,177 or 10.4%. Working capital also increased by $512,875 or 7.3%
from $6,997,170 at May 31, 1996. This increase is principally due to
cash flows from operations during this period. Company marketable
securities continue to be in short to intermediate term government
securities.
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 earnings from operations will be adequate to
satisfy the capital requirements for the next twelve months.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
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 on Form 8-K
Exhibit 11 - Computation of shares outstanding
Exhibit 27 - Financial Data Schedule
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: April 8, 1997
Richard Diehl, President
Chief Executive Officer
DATE: April 8, 1997
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: April 8, 1997 s/Richard Diehl
Richard Diehl, President
Chief Executive Officer
DATE: April 8, 1997 s/Joseph Schmelzle
Joseph Schmelzle, Treasurer
Chief Financial and Accounting Officer
Exhibit 11
<TABLE>
<CAPTION>
Statement of Computation of Shares Outstanding
For the three months ended For the nine months ended
February 28, February 29, February 28, February 29,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Average outstanding
shares 3,140,739 3,140,739 3,140,739 3,020,678
Dilutive effect of
stock options
and warrants 19,385 18,667 26,301 18,667
Weighted average
number of shares
outstanding 3,160,124 3,159,406 3,167,040 3,039,345
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> FEB-28-1997
<CASH> 438058
<SECURITIES> 6831385
<RECEIVABLES> 393335
<ALLOWANCES> 0
<INVENTORY> 221386
<CURRENT-ASSETS> 7977875
<PP&E> 734802
<DEPRECIATION> 423014
<TOTAL-ASSETS> 9097445
<CURRENT-LIABILITIES> 467830
<BONDS> 0
0
0
<COMMON> 31407
<OTHER-SE> 8324551
<TOTAL-LIABILITY-AND-EQUITY> 9097445
<SALES> 1405611
<TOTAL-REVENUES> 1405611
<CGS> 369004
<TOTAL-COSTS> 1053833
<OTHER-EXPENSES> 457
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 81852
<INCOME-TAX> 27950
<INCOME-CONTINUING> 53902
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53902
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
