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, 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. 3,143,887
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, 1997 3
Statements of Operations (unaudited) for
the three months ended November 30, 1996
and 1997 and (unaudited) for the six months
ended November 30, 1996 and 19974
Statements of Cash Flows (unaudited) for
the six months ended November 30, 1996
and 19975
Statements of Stockholder's Equity
(unaudited) as of November 30, 1996 and 19976
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 Information12
Item 6 Exhibits and Reports12
SIGNATURES13
DIEHL GRAPHSOFT, INC.
BALANCE SHEET
NOVEMBER 30, 1997
(Unaudited)
ASSETS
Current assets:
Cash$ 454,768
Marketable securities 7,072,880
Accounts receivable 590,662
Inventory 161,794
Other current assets 180,509
Total current assets8,460,613
Fixed assets:
Equipment747,096
Furnishings and fixtures117,740
Leasehold improvements 47,688
912,524
Accumulated depreciation 540,628
Net fixed assets 371,896
Other assets:
Unamortized organization expenses 28,654
Software development and licensing costs, net of
accumulated amortization of $1,304,562 817,443
Total other assets 846,097
Total assets$9,678,606
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses$ 490,687
Income taxes payable 15,226
Deferred income taxes 21,522
Total current liabilities 527,435
Long term liabilities:
Deferred income taxes 308,145
Total liabilities 835,580
Stockholders' equity:
Common stock - $.01 par value; 10,000,000
shares authorized, 3,143,887 shares
issued and outstanding 31,439
Additional paid in capital4,168,318
Retained earnings4,643,269
Total stockholders' equity8,843,026
Total liabilities and stockholders' equity$9,678,606
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,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues $1,638,168 $1,571,332 $3,665,076$3,297,137
Cost of revenues 450,596 353,276 1,013,526 724,606
Gross profit 1,187,572 1,218,056 2,651,5502,572,531
Operating expenses:
General and administrative 479,831 459,299 985,459877,691
Selling and marketing 412,370 453,256 827,263864,726
Research and development 88,611 51,041 185,993 111,332
Total operating expenses 980,812 963,596 1,998,7151,853,749
Income from operations 206,760 254,460 652,835 718,782
Other income:
Interest income 91,328 95,984 180,907 187,689
Gain on equipment disposition 900 - 900 -
Total other income 92,228 95,984 181,807 187,689
Income before income taxes 298,988 350,444 834,642 906,471
Provision for corporate
income taxes 91,000 124,000 281,000 327,050
Net income $ 207,988 $ 226,444 $ 553,642$ 579,421
Net income per share $ .07 $ .07 $ .18$ .18
Weighted average number of
shares outstanding 3,143,122 3,168,525 3,142,2643,170,499
</TABLE>
See accompanying notes to financial statements
DIEHL GRAPHSOFT, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the six month period
ended November 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 553,642 $ 579,421
Adjustments to reconcile net income to net
cash provided by operating activities:
Deferred income taxes 21,204 (72,677)
Amortization of bond premiums and discounts (80,422)(136,680)
Depreciation and amortization 477,565323,679
Changes in operating assets and liabilities:
Accounts receivable (259,527) 33,179
Inventory 1,034 (96,888)
Other assets (12,944) 47,313
Accounts payable and accrued expenses 231,506156,368
Income taxes receivable/payable 148,596 324,677
Net cash provided by operating activities 1,080,6541,158,392
Cash flows from investing activities:
Purchases of marketable securities (2,130,753) (2,185,008)
Maturities of marketable securities 1,825,0001,739,000
Capitalized software costs (439,939)(322,824)
Purchases of fixed assets (127,553) (89,642)
Organizational expenses - (6,125)
Net cash used in investing activities (873,245) (864,599)
Net increase in cash 207,409 293,793
Cash balance beginning of period 247,359 375,278
Cash balance end of period $ 454,768$ 669,071
Supplemental disclosure of cash flow
information:
Cash paid for income taxes $ 111,200$ 75,050
Issuance of common stock $ 20,745$ -
Reduction in accrued expenses 20,745 -
$ - $ -
</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, 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
Balance May 31, 1997 3,140,739 $31,407 $4,147,605 $4,089,627$8,268,639
Issuance of common stock 3,148 32 20,713 - 20,745
Net income - - - 553,642 553,642
Balance November 30, 1997 3,143,887 $31,439 $4,168,318 $4,643,269$8,843,026
</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) for
a fair presentation have been included. Operating results for the
three and six month periods ended November 30, 1997 are not
necessarily indicative of the results that may be expected for the
year ended May 31, 1998.
DIEHL GRAPHSOFT, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations for the three and six months ended
November 30, 1997 as compared to the three and six months ended
November 30, 1996.
Revenues for the three months ended November 30, 1997 were
$1,638,168 as compared to $1,571,332 for the three months ended
November 30, 1996 representing an increase of 4.3%. Revenues for
the six month period ended November 30, 1997 were $3,665,076 as
compared to $3,297,137 for the six months ended November 30, 1996
representing an increase of 11.2%. The increase in revenues for
the three months ended November 30, 1997 as compared to the three
months ended November 30, 1996 is due to an increase in sales of
MiniCAD for the Windows platform which rose from $281,755 for the
three months ended November 30, 1996 to $545,477 for the three
months ended November 30, 1997. This increase is attributable to
the continued marketing efforts in the Windows market since the
introduction of MiniCAD for Windows in July 1996. Sales of
MiniCAD for the Macintosh platform provided most of the remaining
sales variance. International sales contributed to this decline
with foreign distributors converting the latest version of MiniCAD
into native languages during the quarter. The increase in revenues
for the six months ended November 30, 1997 as compared to the six
months ended November 30, 1996 is due principally to upgrade sales
of MiniCAD which rose from $106,030 for the six months ended
November 30, 1996 to $663,356 for the six months ended November 30,
1997. The surge is upgrade sales relates to the release of MiniCAD
7 in May 1997.
The cost of revenues for the three months ended November 30,
1997 was $450,596 as compared to $353,276 for the three months
ended November 30, 1996 representing an increase of 27.5%. The
cost of revenues for the six months ended November 30, 1997 was
$1,013,526 as compared to $724,606 for the six months ended
November 30, 1996 representing an increase of 39.9%. The gross
profit percentages for the three months ended November 30, 1997 and
1996 were 72.5% and 77.5%, respectively. The gross profit
percentages for the six months ended November 30, 1997 and 1996
were 72.5% and 78.0%, respectively. The decrease in gross profit
percentages in the three and six months ended November 30, 1997 as
compared with the three and six months ended November 30, 1996 is
due to an increase in amortization of software development costs.
Amortization of software development to cost of revenues, which
such costs are not directly a function of revenues, rose to
$200,192 for the three months ended November 30, 1997 as compared
to $135,895 for the three months ended November 30, 1996.
Amortization expenses rose to $399,172 for the six months ended
November 30, 1997 as compared with $262,948 for the six months
ended November 30, 1996. This increase is attributable to an
increased commitment to development of new software. The decrease
in gross profit percentages in the six month period ended November
30, 1997 as compared with the six month period ended November 30,
1996 is also attributable to higher shipments of the upgrade
version of MiniCAD 7 to existing customers. 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.
Research and development expenses increased to $88,611 for the
three month period ended November 30, 1997 as compared to $51,041
for the three month period ended November 30, 1996 representing a
increase of 73.6%. Research and development expenses increased to
$185,993 for the six month period ended November 30, 1997 as
compared to $111,332 for the six month period ended November 30,
1996 representing a increase of 67.1%. This increase in the three
and six month periods ended November 30, 1997 when compared with
the three and six month periods ended November 30, 1996 is
principally attributable to an increase in the number of employed
engineers in this area.
Selling and marketing expenses declined to $412,370 for the
three month period ended November 30, 1997 as compared to $453,256
for the three month period ended November 30, 1996 representing a
decrease of 9.0%. Selling and marketing expenses declined to
$827,263 for the six month period ended November 30, 1997 as
compared to $864,726 for the six month period ended November 30,
1996 representing an decrease of 4.3%. Advertising expenses
declined to $255,731 for the three months ended November 30, 1997
as compared to $353,705 for the three months ended November 30,
1996. Advertising expenses declined to $508,390 for the six months
ended November 30, 1997 as compared to $673,251 for the six months
ended November 30, 1996. This decrease results from a redesign of
the advertising campaign to more industry specific publications and
away from general computer publications. Industry specific
publications generally cost less per publication to advertise and
are believed to be as effective in reaching the target market.
Salary expenses rose to $73,773 for the three months ended November
30, 1997 as compared to $35,568 for the three months ended November
30, 1996. Salary expenses rose to $165,078 for the six months
ended November 30, 1997 as compared to $68,180 for the six months
ended November 30, 1996. This increase reflects an increase in
other marketing efforts such as marketing brochures and trade
shows.
General and administrative expenses rose to $479,831 for the
three month period ended November 30, 1997 as compared to $459,299
for the three month period ended November 30, 1996 representing an
increase of 4.5%. General and administrative expenses rose to
$985,459 for the six month period ended November 30, 1997 as
compared to $877,691 for the six month period ended November 30,
1996 representing an increase of 12.3%. Expenses for payroll and
related benefits rose to $219,734 for the three month period ended
November 30, 1997 as compared to $197,706 for the three month
period ended November 30, 1996. Expenses for payroll and related
benefits rose to $501,598 for the six month period ended November
30, 1996 as compared to $416,441 for the six month period ended
November 30, 1996. This increase is principally attributable to an
increase in staffing required to service other functional areas of
the Company. Other expenses also rose with the overall growth in
business. Legal expenses partly offset this increase and declined
to $48,189 for the six month period ended November 30, 1997 as
compared with $118,013 for the six month period ended November 30,
1996 resulting from the settlement of a patent infringement claim
and trademark dispute during the six month period ended November
30, 1997.
Net profit decreased by $18,456 or 8.2% to $207,988 for the
three months ended November 30, 1997 from $226,444 for the three
months ended November 30, 1996. Net profits decreased by $25,779
or 4.4% to $553,642 for the six month ended November 30, 1997 from
$579,421 for the six months ended November 30, 1996. The decrease
in net profit for the three month period ended November 30, 1997
when compared to the three month period ended November 30, 1996 is
after giving effect to a provision for income taxes of $91,000 and
$124,000 for the three month periods ended November 30, 1997 and
1996, respectively. The effective tax rates were 30.4% and 35.4%
for the three month periods ended November 30, 1997 and 1996
respectively. The decrease in net profits for the six month period
ended November 30, 1997 when compared to the six month period ended
November 30, 1996 is after giving effect to a provision for income
taxes of $281,000 and $327,050 for the six month period ended
November 30, 1997 and 1996 respectively. The effective tax rates
were 33.7% and 36.1% for the six month periods ended November 30,
1997 and 1996, respectively. The decrease in effective tax rates
is attributable to increases in tax exempt income associated with
increasing investment into municipal bonds and a charitable
contribution deduction reported in the three and six month periods
ended November 30, 1997 resulting from donated Minicad 6 software.
Liquidity and Capital Resources
The Company increased its working capital by $438,653 or 5.9%
to $7,933,178 at November 30, 1997 from $7,494,525 at November 30,
1996. Working capital also increased by $513,740 or 6.9% from
$7,419,438 at May 31, 1997 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.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
On February 28, 1995, the Company completed its initial
public offering of common stock and warrants and raised
net proceeds of $4,135,075 including the exercise of
warrants. The effective date of the registration
statement for the initial public offering was November
29, 1994. From February 28, 1995 through November 30,
1997, the net proceeds were allocated to working capital
and were invested temporarily in short term U.S.
Government and municipal obligations.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of shareholders on
November 4, 1997. The following table summarizes the
results of the meeting:
Against/ Absten- Broker
For Withheld tions Non-votes
Election
of Directors
Frederick Unger 2,974,552 4,250 163,939
Richard Hug 2,974,552 4,250 163,939
Richard Diehl Continuing in Office
Joseph Schmelzle Continuing in Office
Adoption of
Amended and
Restated Stock
Option Plan 2,882,977 90,310 5,515 163,939
Ratification of
Appointment of
Independent
Auditors 2,973,652 1,350 3,800 163,939
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 13, 1998
Richard Diehl, President
Chief Executive Officer
DATE: January 13, 1998
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 13, 1998 s/Richard Diehl
Richard Diehl, President
Chief Executive Officer
DATE: January 13, 1998 s/Joseph Schmelzle
Joseph Schmelzle, Treasurer
Chief Financial and Accounting Officer
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