SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
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, 1998
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 small business issuer 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)
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 CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: 3,147,637
shares of common stock.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (Check one)
Yes No X
DIEHL GRAPHSOFT, INC.
FORM 10-QSB
INDEX
NumberPage
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheet (unaudited) as of
February 28, 1998 3
Statements of Operations (unaudited) for
the three months ended February 28, 1998
and February 28, 1997 and (unaudited) for
the nine months ended February 28, 1998
and February 28, 1997 4
Statements of Cash Flows (unaudited) for
the nine months ended February 28, 1998
and February 28, 1997 5
Statements of Stockholders' Equity
(unaudited) as of February 28, 1998 and
February 28, 1997 6
Note to Condensed Financial Statements7
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 and Use of Proceeds11
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, 1998
(Unaudited)
ASSETS
Current assets:
Cash $ 543,487
Marketable securities 7,096,889
Accounts receivable 420,599
Income tax receivable 76,059
Inventory 95,383
Other 175,970
Total current assets 8,408,387
Fixed assets:
Equipment 699,084
Furnishings and fixtures 114,707
Leasehold improvements 47,688
861,479
Accumulated depreciation 539,680
Net fixed assets 321,799
Other assets:
Unamortized organizational expenses 29,637
Software development and licensing costs,
net of accumulated amortization of $1,507,845 926,220
Deposits 4,000
Total other assets 959,857
Total assets $9,690,043
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 492,334
Deferred income taxes 11,758
Total current liabilities 504,092
Long term liabilities:
Deferred income taxes 339,168
Total liabilities 843,260
Stockholders' equity:
Common stock - $.01 par value; 10,000,000
shares authorized, 3,147,637 shares
issued and outstanding 31,476
Additional paid in capital 4,182,813
Retained earnings 4,632,494
Total stockholders' equity 8,846,783
Total liabilities and
stockholders' equity $9,690,043
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 28,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Sales $1,412,494 $1,405,611 $5,077,570
$4,702,748
Cost of sales 412,351 369,004 1,425,877 1,093,610
Gross profit 1,000,143 1,036,607 3,651,693 3,609,138
Operating expenses:
General and administrative 431,378 445,078 1,416,837
1,322,769
Selling and marketing 601,299 554,516 1,428,562 1,419,242
Research and Development 81,070 54,239 267,063 165,571
Total operating expenses 1,113,747 1,053,833 3,112,462 2,907,582
Income (loss) from operations (113,604) (17,226) 539,231 701,556
Other income and expenses:
Interest income 82,454 99,535 263,361
287,224
Interest expense (1,099) - (1,099) -
Gain (loss) on disposition
of equipment (2,526) (457) (1,626) (457)
Total other income
and expenses 78,829 99,078 260,636 286,767
Income (loss) before income taxes (34,775) 81,852 799,867 988,323
Provision (credit) for income taxes (24,000) 27,950 257,000 355,000
Net Income (loss) $ (10,775) $ 53,902 $ 542,867 $
633,323
Net Income (loss) per share $ (.00) $ .02 $ .17 $ .20
Weighted average number of
shares outstanding 3,145,137 3,160,124 3,143,222 3,167,040
</TABLE>
See accompanying note to financial statements.
DIEHL GRAPHSOFT, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the nine month period
ended February 28,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 542,867 $ 633,323
Adjustments to reconcile net income to net
cash provided by operating activities:
Loss on disposition of equipment 1,626 457
Amortization of bond premiums and
discounts (104,311) (206,787)
Deferred income taxes 42,463 (67,207)
Depreciation and amortization 716,542 543,777
Changes in operating assets and liabilities:
Accounts receivable (89,464) (56,944)
Inventory 67,445 (86,673)
Other current assets (8,405) 69,818
Deposits (4,000) -
Accounts payable and accrued expenses 247,685 134,860
Income taxes receivable/payable 57,311 167,107
Net cash provided by operating
activities 1,469,759 1,131,731
Cash flows from investing activities:
Purchases of marketable securities (3,793,873) (3,724,673)
Maturities of marketable securities 3,488,000 3,319,000
Capitalized software and licensing costs (746,374) (528,658)
Insurance proceeds from automobile
disposition 33,577 -
Purchase of fixed assets (152,186) (128,495)
Organizational expenses (2,775) (6,125)
Net cash used in investing activities (1,173,631) (1,068,951)
Net increase in cash 296,128 62,780
Cash balance beginning of period 247,359 375,278
Cash balance end of period $ 543,487 $ 438,058
Supplemental disclosure of cash flow
information:
Cash paid for income taxes $ 157,226 $ 255,100
Cash paid for interest expense $ 1,099 $ -
Issuance of common stock 35,277 -
Reduction in accrued expenses (35,277) -
$ - $ -
</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, 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
Balance -
May 31, 1997 3,140,739 $31,407 $4,147,605 $4,089,627 $8,268,639
Issuance of common
stock 6,898 69 35,208 - 35,277
Net income - - - 542,867 542,867
Balance -
February 28, 1998 3,147,637 $31,476 $4,182,813 $4,632,494 $8,846,783
</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, 1998 are not necessarily indicative of the results that may
be expected for the year ended May 31, 1998.
NOTE B - COMPUTATION OF EARNINGS (LOSS) PER SHARE
Weighted average number of shares outstanding during the periods is
computed as follows:
For the three months For the nine months
ended February 28, ended February 28,
1998 1997 1998 1997
[S] [C] [C] [C] [C]
Average outstanding
shares 3,145,137 3,140,739 3,143,222 3,140,739
Dilutive effect of
stock options
and warrants - 19,385 - 26,301
Weighted average
number of shares
outstanding 3,145,137 3,160,124 3,143,222 3,167,040
DIEHL GRAPHSOFT, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations for the three and nine months ended February
28, 1998 as compared to the three and nine months ended February 28,
1997.
Revenues for the three months ended February 28, 1998 were
$1,412,494 as compared to $1,405,611 for the three months ended February
28, 1997 representing an increase of 4.9%. Revenues for the nine months
ended February 28, 1998 were $5,077,570 as compared to $4,702,748 for the
nine months ended February 28, 1997 representing an increase of 8.0%.
Revenues from MiniCAD for Windows were $527,956 and $586,508 for the
three months ended February 28, 1998 and 1997, respectively. Revenues
from MiniCAD for Windows were $1,552,402 and $1,193,729 for the nine
months ended February 28, 1998 and 1997, respectively. The increase in
revenues for the nine months ended February 28, 1998 when compared with
the nine months ended February 28, 1997 reflects increased sales of
Minicad for Windows in the first and second quarters of the current
fiscal year when compared with the first and second quarters of the prior
fiscal year when MiniCAD for Windows was first released. Upgrade
revenues from MiniCAD were $300,207 in the three months ended February
28, 1998 when compared with $46,660 for the three months ended February
28, 1997. Upgrade revenues from MiniCAD were $963,563 for the nine
months ended February 28, 1998 when compared with $153,390 for the nine
months ended February 28, 1997. This increase reflects the introduction
of MiniCAD 7 in May 1997. New product sales of MiniCAD for the Macintosh
platform declined in during the nine months ended February 28, 1998 when
compared with the nine months ended February 28, 1997. This decrease
reflects the continuing weakness in the Macintosh market over the past
year.
The cost of revenues for the three months ended February 28, 1998
was $412,351 as compared to $369,004 for the three months ended February
28, 1997 representing an increase of 11.7%. The cost of revenues for the
nine months ended February 28, 1998 was $1,425,877 as compared to
$1,093,610 for the nine months ended February 28, 1997 representing an
increase of 30.4%. The gross profit percentages for the three months
ended February 28, 1998 and 1997 were 70.8% and 73.7% respectively. The
gross profit percentages for the nine months ended February 28, 1998 and
1997 were 71.9% and 76.7% respectively. The decrease in gross profit
percentages in each period over the prior comparable period reflects an
increase in amortization of software development and licensing costs
which rose from $183,331 for the three months ended February 28, 1997 to
$197,658 for the three months ended February 28, 1998. Amortization
charges also rose from $446,279 for the nine months ended February 28,
1997 to $596,830 for the nine months ended February 28, 1998.
Amortization of such costs and expenses, which is not directly a function
of revenue, reflects an increased commitment to development of new
software. The decrease in gross profit percentages also reflects higher
shipments of upgrade versions of MiniCAD during the nine months ended
February 28, 1998 when compared with the nine months ended February 28,
1997. Upgrade versions are sold substantially below the price of a new
version and are as costly to produce as a new product itself.
Research and development expenses rose to $81,070 for the three
months ended February 28, 1998 when compared to $54,239 for the three
months ended February 28, 1997 representing an increase of 49.5%.
Research and development expenses rose to $267,063 for the nine months
ended February 28, 1998 as compared to $165,571 for the nine months ended
February 28, 1997 representing a increase of 61.3%. This increase in the
three and nine month periods ended February 28, 1998 when compared with
the three and nine month periods ended February 28, 1997 reflects an
increase in the number of engineers employed in this area.
Selling and marketing expenses rose to $601,299 for the three months
ended February 28, 1998 as compared to $554,516 for the three months
ended February 28, 1997 representing an increase of 8.4%. Selling and
marketing expenses rose to $1,428,562 for the nine months ended February
28, 1998 as compared to $1,419,242 for the nine months ended February 28,
1997 representing an increase of .7%. Advertising expenses declined to
$313,692 for the three months ended February 28, 1998 when compared with
$387,912 for the three months ended February 28, 1997. Advertising
expenses declined to $822,082 for the nine months ended February 28, 1998
when compared with $1,061,164 for the nine months ended February 28,
1997. 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. Increases in salary expenses and use of outside
consultants substantially offset the declines in advertising expenses.
This increase is attributable to other marketing efforts primarily in the
areas of trade press and shows and marketing brochures.
General and administrative expenses declined to $431,378 for the
three months ended February 28, 1998 as compared to $445,078 for the
three months ended February 28, 1997 representing a decrease of 3.1%.
General and administrative expenses rose to $1,416,837 for the nine
months ended February 28, 1998 as compared to $1,322,769 for the nine
months ended February 28, 1997 representing an increase of 7.1%. The
decrease in the three months ended February 28, 1998 when compared with
the three months ended February 28, 1997 is due to a decrease in legal
and other professional fees to $22,157 for the three months ended
February 28, 1998 from $53,128 for the three months ended February 28,
1997. This decrease primarily reflects a streamlining of services
rendered in this area. Legal and professional fees also declined to
$116,478 for the nine months ended February 28, 1998 when compared with
$214,149 for the nine months ended February 28, 1997. This decline
reflects a streamlining of these services and a settlement of a patent
infringement claim and trademark dispute during the nine months ended
February 28, 1997. Increases in salary expenses and related benefits
offset this decline to service the growing needs from other departmental
areas.
Net loss for the three months ended February 28, 1998 was $10,775 as
compared to net income for the three months ended February 28, 1997 of
$53,902. Net income decreased by $90,456 or 14.3% to $542,867 for the
nine months ended February 28, 1998 from $633,323 for the nine months
ended February 29, 1997. The net loss for the three months ended
February 28, 1998 gives effect to a credit for income taxes of $24,000.
The tax credit is based on a pretax net loss, which is exclusive of tax
exempt municipal interest income of $44,065 and other adjustments. The
effective tax rate for the three months ended February 28, 1997 was
34.1%. The decrease in net income for the nine months ended February 28,
1998 as compared to the nine months ended February 28, 1997 gives effect
to a provision for income taxes of $257,000 and $355,000, respectively.
The effective tax rates were 32.1% and 35.9% for the nine months ended
February 28, 1998 and 1997, respectively. The decrease in effective tax
rate for the nine months ended February 28, 1998 is attributable to an
increase in tax exempt investment income from municipal bonds.
Liquidity and Capital Resources
The Company increased its working capital to $7,904,295 at February
28, 1998 from $7,510,045 at February 28, 1997 representing an increase of
$394,250 or 5.2%. Working capital also increased by $484,857 or 6.5%
from $7,419,438 at May 31, 1997. This increase is principally due to
cash flows from operations during the 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 its 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 February 28, 1998 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
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: April 9, 1998
Richard Diehl, President
Chief Executive Officer
DATE: April 9, 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: April 9, 1998 s/Richard Diehl
Richard Diehl, President
Chief Executive Officer
DATE: April 9, 1998 s/Joseph Schmelzle
Joseph Schmelzle, Treasurer
Chief Financial and Accounting Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> FEB-28-1998
<CASH> 543487
<SECURITIES> 7096889
<RECEIVABLES> 420599
<ALLOWANCES> 0
<INVENTORY> 95383
<CURRENT-ASSETS> 8408387
<PP&E> 861479
<DEPRECIATION> 539680
<TOTAL-ASSETS> 9690043
<CURRENT-LIABILITIES> 504092
<BONDS> 0
0
0
<COMMON> 31476
<OTHER-SE> 8815307
<TOTAL-LIABILITY-AND-EQUITY> 9690043
<SALES> 1412494
<TOTAL-REVENUES> 1412494
<CGS> 412351
<TOTAL-COSTS> 1113747
<OTHER-EXPENSES> 2526
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1099
<INCOME-PRETAX> (34775)
<INCOME-TAX> (24000)
<INCOME-CONTINUING> (10775)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10775)
<EPS-BASIC> (.00)
<EPS-DILUTED> (.00)
</TABLE>
