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 November 30, 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: 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
Financial Statements:
Item 1 Balance Sheet (unaudited) as of
November 30, 1996 3
Statements of Operations (unaudited) for
the three months ended November 30, 1995
and 1996 and (unaudited) for the six months
ended November 30, 1995 and 19964
Statements of Cash Flows (unaudited) for
the six months ended November 30, 1995
and 19965
Statements of Stockholder's Equity
(unaudited) as of November 30, 1995 and 19966
Notes to Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of
Operations8
PART II OTHER INFORMATION
Item 1 Legal Proceedings11
Item 2 Changes in Securities 11
Item 3 Defaults Upon Senior Securities11
Item 4 Submission of Matters to a Vote of
Security Holders11
Item 5 Other Information11
Item 6 Exhibits and Reports11
SIGNATURES12
DIEHL GRAPHSOFT, INC.
BALANCE SHEET
NOVEMBER 30, 1996
(Unaudited)
ASSETS
Current assets:
Cash$ 669,071
Marketable securities 6,801,613
Accounts receivable 303,212
Inventory 231,601
Due from officers 13,000
Other current assets 103,215
Total current assets8,121,712
Fixed assets:
Equipment573,950
Furnishings and fixtures97,734
Leasehold improvements 41,038
712,722
Accumulated depreciation 403,458
Net fixed assets 309,264
Other assets:
Unamortized organization expenses 34,027
Software development costs, net of
accumulated amortization of $769,781 752,148
Total other assets 786,175
Total assets$9,217,151
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses$ 430,309
Income taxes payable 196,878
Total current liabilities 627,187
Long term liabilities:
Deferred income taxes 287,908
Total liabilities 915,095
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 earnings4,123,044
Total stockholders' equity8,302,056
Total liabilities and stockholders' equity$9,217,151
See accompanying notes to financial statements
DIEHL GRAPHSOFT, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three month period For the six month period
ended November 30, ended November 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Sales $1,571,332 $1,392,462 $3,297,137$2,255,150
Cost of sales 353,276 330,176 724,606 519,272
Gross profit 1,218,056 1,062,286 2,572,5311,735,878
Operating expenses:
General and administrative 459,299 407,139 877,691682,983
Selling and marketing 453,256 241,522 864,726459,429
Research and development 51,041 64,905 111,332 126,235
Total operating expenses 963,596 713,566 1,853,7491,268,647
Income from operations 254,460 348,720 718,782 467,231
Interest income 95,984 84,597 187,689 154,167
Income before income taxes 350,444 433,317 906,471 621,398
Provision for corporate
income taxes 124,000 168,300 327,050 235,000
Net income $ 226,444 $ 265,017 $ 579,421$ 386,398
Net income per share $ .07 $ .09 $ .18$ .13
Weighted average number of
shares outstanding 3,168,525 3,054,042 3,170,4992,989,202
</TABLE>
See accompanying notes to financial statements
DIEHL GRAPHSOFT, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended November 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 579,421 $ 386,398
Adjustments to reconcile net income to net
cash provided by operating activities:
Deferred income taxes (72,677) 3,311
Amortization of bond premiums and discounts (136,680)(92,638)
Depreciation and amortization 323,679202,325
Changes in operating assets and liabilities:
Accounts receivable 33,179 41,796
Inventory (96,888) (9,236)
Due from officers (8,000) -
Other assets 55,313 32,978
Accounts payable and accrued expenses 156,36878,802
Income taxes receivable/payable 324,677 (258,236)
Net cash provided by operating activities 1,158,392 385,500
Cash flows from investing activities:
Purchases of marketable securities (2,185,008) (410,781)
Maturities of marketable securities 1,739,000105,000
Capitalized software costs (322,824)(321,734)
Purchases of fixed assets (89,642) (60,616)
Organizational expenses (6,125) -
Net cash used in investing activities (864,599) (688,131)
Cash flows from financing activities:
Sale of common stock - 1,671,496
Net cash flow provided by
financing activities - 1,671,496
Net increase in cash 293,793 1,368,865
Cash balance beginning of period 375,278 722,116
Cash balance end of period $ 669,071$2,090,981
Supplemental disclosure of cash flow
information:
Cash paid for income taxes $ 75,050$ 489,925
</TABLE>
See accompanying notes to financial statements
DIEHL GRAPHSOFT, INC.
STATEMENTS 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 $2,478,686 $2,874,625$5,382,242
Sale of Common Stock 247,629 2,476 1,669,020 -1,671,496
Net Income - - - 386,398 386,398
Balance November 30, 1995 3,140,754 $31,407 $4,147,706 $3,261,023$7,440,136
Balance May 31, 1996 3,140,739 $31,407 $4,147,605 $3,543,623$7,722,635
Net Income - - - 579,421 579,421
Balance November 30, 1996 3,140,739 $31,407 $4,147,605 $4,123,044$8,302,056
</TABLE>
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 instructions
to Form 10-QSB 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 six month periods ended
November 30, 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 and six months ended
November 30, 1996 as compared to the three and six months ended
November 30, 1995.
Revenues for the three months ended November 30, 1996 were
$1,571,332 as compared to $1,392,462 for the three months ended
November 30, 1995 representing an increase of 12.8%. Revenues
declined $154,473 for the three month period ended November 30,
1996 or 9.0% as compared to the three month period ended August 31,
1996 of $1,725,805. Revenues for the six month period ended
November 30, 1996 were $3,297,137 as compared to $2,255,150 for the
six months ended November 30, 1995 representing an increase of
46.2%. The increase in revenues for the three and six month period
ended November 30, 1996 as compared to the three and six month
period ended November 30, 1995 is attributable to a continuation of
increased volume both domestically and internationally of Minicad
6 on the Macintosh platform. The increase ia also attributable to
sales from Minicad for Windows which commenced in July 1996 and
accounted for approximately 18% of sales for both the three and six
month period ended November 30, 1996.
The cost of sales for the three months ended November 30, 1996
was $353,276 as compared to $330,176 for the three months ended
November 30, 1995 representing an increase of 7.0%. The cost of
goods sold for the six months ended November 30, 1996 was $724,606
as compared to $519,272 for the six months ended November 30, 1995
representing an increase of 39.5%. The gross profit percentages
for the three months ended November 30, 1996 and 1995 were 77.5%
and 76.3%, respectively. The gross profit percentages for the six
months ended November 30, 1996 and 1995 were 78.0% and 77.0%,
respectively. The increase in gross profit percentages is
attributable to higher shipments of the upgrade version of Minicad
6 to existing customers in the three and six month period ended
November 30, 1995 when compared with the three and six month period
ended November 30, 1996. Upgrade versions of Minicad, which are
sold substantially below the price of a new version, are as costly
to produce and ship as a new product itself. Technical support
salaries decreased by $10,881 from $44,978 for the six month period
ended November 30, 1995 to $34,097 for the six month period ended
November 30, 1996 reflecting a streamlining of technical support
operations during this period.
Research and development expenses declined to $51,041 for the
three month period ended November 30, 1996 as compared to $64,905
for the three month period ended November 30, 1995 representing a
decrease of 21.4%. Research and development expenses declined to
$111,332 for the six month period ended November 30, 1996 as
compared to $126,235 for the six month period ended November 30,
1995 representing a decrease of 11.8%. This decrease in the three
and six month periods ended November 30, 1996 when compared with
the three and six month periods ended November 30, 1995 is
attributable to bonuses issued in fiscal 1995 to engineers in
connection with the successful completion of Minicad 6 as well as
the investment into books, periodicals and educational training for
Minicad for Windows.
Selling and marketing expenses rose to $453,256 for the three
month period ended November 30, 1996 as compared to $241,522 for
the three month period ended November 30, 1995 representing an
increase of 87.7%. Selling and marketing expenses rose to $864,726
for the six month period ended November 30, 1996 compared to
$459,429 for the six month period ended November 30, 1995
representing an increase of 88.2%. This increase is primarily
attributable 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 rose to $459,299 for the
three month period ended November 30, 1996 as compared to $407,139
for the three month period ended November 30, 1995 representing an
increase of 12.8%. General and administrative expenses rose to
$877,691 for the six month period ended November 30, 1996 as
compared to $682,983 for the six month period ended November 30,
1995 representing an increase of 28.5%. The increase is
principally attributable to an increase in staffing as the company
prepared for the release of the Minicad for Windows. Expenses for
payroll and related benefits rose to $228,972 for the three month
period ended November 30, 1996 as compared to $174,768 for the
three month period ended November 30, 1995. This increase is
partly offset by a reduction in legal fees to $41,271 for the three
month period ended November 30, 1996 compared to 61,205 for the
three month period ended November 30, 1995 resulting from the
settlement of a patent infringement claim against the Company in
June 1996. Expenses for payroll and related benefits rose to
$419,233 for the six month period ended November 30, 1996 as
compared to $324,974 for the six month period ended November 30,
1995. Legal expenses rose to $118,013 for the six month period
ended November 30, 1996 as compared with $79,134 for the six month
period ended November 30, 1995 resulting from legal costs incurred
in connection with the aforementioned patent infringement claim.
Net profit decreased by $38,573 or 14.6% to $226,444 for the
three months ended November 30, 1996 from $265,017 for the three
months ended November 30, 1995. Net profits increased by $193,023
or 50.0% to $579,421 for the six month ended November 30, 1996 from
$386,398 for the six months ended November 30, 1995. The decrease
in net profit for the three month period ended November 30, 1996
when compared to the three month period ended November 30, 1995 is
after giving effect to a provision for income taxes of $124,000 and
$168,300 for the three month period ended November 30, 1996 and
1995 respectively. The effective tax rates were 35.4% and 38.8%
for the three month periods ended November 30, 1996 and 1995
respectively. The increase in net profits for the six month period
ended November 30, 1996 when compared to the six month period ended
November 30, 1995 is after giving effect to a provision for income
taxes of $327,050 and $235,000 for the six month period ended
November 30, 1996 and 1995 respectively. The effective tax rates
were 36.1% and 37.8% for the six month periods ended November 30,
1996. The decrease in effective tax rates is attributable to
increases in tax exempt income associated with investment in
municipal bonds. The overall decrease in profit for the three
month period ended November 30, 1996 when compare with the three
month period ended November 30, 1995 is attributable primarily to
increases in marketing expense at a rate greater than the increase
in revenues as the company increase it efforts to market Minicad 6
for Windows. The overall increase in profit for the six month
period ended November 30, 1996 when compare to the six month period
ended November 30, 1995 is attributable to the increase in sales,
especially in the three month period ended August 31, 1996, which
more than offsets the increase in expenses for the same periods.
Liquidity and Capital Resources
The Company increased its working capital by $651,548 or 9.5%
to $7,494,525 at November 30, 1996 from $6,843,977 at November 30,
1995. Working capital also increased by $497,355 or 7.1% from
$6,997,170 at May 31, 1996 due primarily to cash flows from
operations. 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 earnings 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 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
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
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: January 9, 1997
Richard Diehl, President
Chief Executive Officer
DATE: January 9, 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: January 9, 1997 s/Richard Diehl
Richard Diehl, President
Chief Executive Officer
DATE: January 9, 1997 s/Joseph Schmelzle
Joseph Schmelzle, Treasurer
Chief Financial and Accounting Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<MULTIPLIER>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> NOV-30-1996
<CASH> 669071
<SECURITIES> 6801613
<RECEIVABLES> 303212
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<INVENTORY> 231601
<CURRENT-ASSETS> 8121712
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0
0
<COMMON> 31407
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