SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 1999
OR
[ ] TRANSITION REPORT UNDER 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.
Check 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 X 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. 3,054,112 SHARES OF
COMMON STOCK.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE) YES ____ NO X
1
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DIEHL GRAPHSOFT, INC.
FORM 10-QSB
INDEX
Number Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements:
Balance Sheet (unaudited) as of August 31, 1999 3
Statements of Operations (unaudited) for the three
months ended August 31, 1999 and 1998 5
Statements of Cash Flows (unaudited) for the three
months ended August 31, 1999 and 1998 6
Statements of Stockholders' Equity (unaudited) as
of August 31, 1999 and 1998 7
Notes to Financial Statements 8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II OTHER INFORMATION
Item 2 Changes in Securities 13
Item 6 Exhibits and Reports 13
SIGNATURES 14
2
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BALANCE SHEET
AUGUST 31, 1999
(Unaudited)
ASSETS
Current assets:
Cash $ 1,121,405
Marketable securities 8,554,216
Accounts receivable 545,318
Inventory 92,408
OTHER CURRENT ASSETS 245,334
----------
TOTAL CURRENT ASSETS 10,558,681
Fixed assets:
Equipment 902,160
Furnishings and fixtures 128,504
LEASEHOLD IMPROVEMENTS 47,688
----------
1,078,352
ACCUMULATED DEPRECIATION 733,575
NET FIXED ASSETS 344,777
Other assets:
Software development and licensing costs, net
of accumulated amortization of $1,232,943 1,156,532
OTHER 22,336
----------
TOTAL OTHER ASSETS 1,178,868
TOTAL ASSETS $12,082,326
See accompanying notes to financial statements
3
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LIABITLITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 827,671
INCOME TAXES PAYABLE 184,763
----------
TOTAL CURRENT LIABILITIES 1,012,434
Long term liabilities:
DEFERRED INCOME TAXES 420,019
TOTAL LIABILITIES 1,432,453
Stockholders' equity:
Common stock - $.01 par value; 10,000,000
shares authorized, 3,054,112 shares
issued and outstanding 30,541
Additional paid in capital 3,890,528
RETAINED EARNINGS 6,728,804
----------
TOTAL STOCKHOLDERS' EQUITY 10,649,873
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $12,082,326
See accompanying notes to financial statements
4
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DIEHL GRAPHSOFT, INC.
STATEMENT OF OPERATIONS
(Unaudited)
For the three months
ended August 31,
1999 1998
---- ----
Revenues $2,679,548 $1,873,580
Cost of revenues 664,433 490,931
--------- ---------
Gross Profit 2,015,115 1,382,649
--------- ---------
Operating expenses:
General and administrative 524,956 433,264
Selling & marketing 620,204 478,799
Research and development 147,127 124,752
--------- ---------
Total operating expenses 1,292,287 1,036,815
--------- ---------
Income from operations 722,828 345,834
--------- ---------
Other income and expenses:
Interest income 123,768 107,684
Other (5,123) -
--------- -------------
Total other income and expenses 118,645 107,684
--------- ---------
Income before income taxes 841,473 453,518
Provision for income taxes 273,000 134,000
--------- ---------
Net income $ 568,473 $ 319,518
========= =========
Net income per share (basic and diluted) $ .19 $ .10
========= =========
Weighted average number of shares outstanding 3,059,845 3,147,637
========= =========
See accompanying notes to financial statements
5
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DIEHL GRAPHSOFT, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
For the three months
ended August 31,
1999 1998
Operating activities:
Net income $ 568,473 $ 319,518
Adjustments:
Deferred income taxes 17,263 7,975
Amortization of bond premiums and discounts (37,666) (17,454)
Other amortization 5,123 -
Depreciation 38,122 30,785
Other amortization 265,215 214,886
Changes in operating assets and liabilities:
Accounts receivable (174,572) 165,829
Inventory 31,193 (33,175)
Other assets 65,506 (28,130)
Accounts payable and accrued expenses 121,927 (38,671)
Income taxes receivable/payable 237,734 51,025
--------- ---------
Net cash provided by operating activities 1,138,321 672,588
Investing activities:
Purchases of marketable securities - (2,995,538)
Maturities of marketable securities 152,245 2,964,000
Capitalized software and licensing costs (319,886) (241,803)
Purchase of fixed assets (29,887) (34,235)
--------- ---------
Net cash used in investing activities (197,528) (307,574)
--------- ---------
Financing activities:
Redemption of commom stock (64,838) -
--------- --------
Net cash used for financing activities (64,838) -
========= ========
Net increase in cash 875,955 365,012
Cash balance at beginning of period 245,450 376,754
--------- ---------
Cash balance at end of period $1,121,405 $ 741,766
========= =========
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 18,000 $ 75,000
========= =========
See accompanying notes to financial statements
6
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DIEHL GRAPHSOFT, INC.
STATEMENT OF STOCKHOLDER' EQUITY
(Unaudited)
Additional
Common Common Paid in Retained
SHARES STOCK CAPITAL EARNINGS TOTAL
Balance
May 31, 1998 3,147,637 $31,476 $4,182,812 $5,082,509 $ 9,296,797
Net Income - - - 319,518 319,518
--------- ------ --------- ---------- ----------
Balance
August 31, 1998 3,147,637 $31,476 $4,182,812 $5,402,027 $ 9,616,315
========= ====== ========= ========= =========
Balance
May 31, 1999 3,071,312 $30,713 $3,955,194 $6,160,331 $10,146,238
Redemption of
Common Stock (17,200) (172) (64,666) - (64,838)
Net Income - - - 568,473 568,473
--------- ------ --------- --------- -----------
Balance
August 31, 1999 3,054,112 $30,541 $3,890,528 $6,728,804 $10,649,873
========= ====== ========= ========= ==========
See accompanying notes to financial statements
7
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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-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles or 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, 1999 are not necessarily indicative of the results that may be
expected for the year ended May 31, 2000.
NOTE B - WEIGHTED AVERAGE SHARES OUTSTANDING
Weighted average number of shares outstanding during the periods is
computed as follows:
For the three months
ended August 31,
1999 1998
Average outstanding shares 3,059,845 3,147,637
Dilutive effect of stock
Options and warrants - -
--------- ---------
Weighted average number of
Shares outstanding 3,059,845 3,147,637
========= =========
8
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DIEHL GRAPHSOFT, INC.
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In connection with the Private Securities Litigation Reform Act of 1995 (the
"Litigation Reform Act"), the Company is hereby disclosing certain cautionary
information to be used in connection with written materials (including this
Report on Form 10-QBS) and oral statements made by or on behalf of its employees
and representatives that may contain "forward looking statements" within the
meaning of the Litigation Reform Act. Such statements consist of any statement
other than a recitation of historical fact and can be identified by the use of
forward looking terminology such as "may," "expect," "anticipate," "estimate" or
"continue" or the negative thereof or other variations thereon or comparable
terminology. The listener or reader is cautioned that all forward looking
statements are necessarily speculative and there are numerous risks and
uncertainties, as discussed in this report and in the Company's Form 10-KSB,
filed August 27, 1999, that could cause actual events or results to differ
materially from those referred to in such forward looking statements. The reader
or listener is cautioned that the Company does not have a policy of updating or
revising forward looking statements and thus he or she should not assume that
silence by management over time means that actual events are bearing out as
estimated in such forward looking statements.
Results of Operations for the three months ended August 31, 1999 as compared to
the three months ended August 31, 1998.
REVENUES
Revenues for the three months ended August 31, 1999 rose to $2,679,548 as
compared to $1,873,580 for the three months ended August 31, 1998 representing a
increase of 43%. Revenues include sales to existing customers, or upgrade
revenues, and sales to new customers.
Revenues from the Windows version of VectorWorks rose to $807,811 for the three
months ended August 31, 1999 as compared to $654,567 for the three months ended
August 31, 1998. Upgrade revenues from conversion of earlier versions of
VectorWorks for Windows, included in revenues from the Windows version above,
rose to $133,219 for the three months ended August 31, 1999 as compared to
$106,065 for the three months ended August 31, 1998. New customer revenues from
the Windows version of VectorWorks rose to $674,592 for the three months ended
August 31, 1999 as compared to $548,502 for the three months ended August 31,
1998. Increases in sales of the Windows version of VectorWorks were most notable
in foreign sales and reflect the acceptance of the product and increased
recognition in the industry.
Revenues from VectorWorks for the Macintosh version rose to $1,498,339 for the
three months ended August 31, 1999 as compared to $1,169,185 for the three
9
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months ended August 31, 1998. Upgrade revenues from conversion of earlier
versions of VectorWorks for the Macintosh, included in revenues from the
Macintosh version above, declined to $178,183 for the three months ended August
31, 1999 as compared to $240,505 for the three months ended August 31, 1998. New
customer revenues from the Macintosh rose to $1,320,156 for the three months
ended August 31, 1999 as compared to $928,680 for the three months ended August
31, 1998. The market for the Macintosh version has shown strong growth
principally in foreign sales and particularly in Japan where Apple Computer has
maintained strong recognition.
Revenues from RenderWorks, a VectorWorks plug-in introduced in January 1999 were
$302,226 for the three months ended August 31, 1999.
Foreign sales rose to $1,881,054 for the three months ended August 31, 1999 as
compared with $1,249,600 for the three months ended August 31, 1998. Foreign
sales represented 70.2% and 66.7% of total sales during the three months ended
August 31, 1999 and 1998 respectively. Foreign sales to Japan, included with
total foreign sales above, represented 33.2% and 41.2% of total sales for the
three months ended August 31, 1999 and 1998 respectively. Foreign sales to the
European countries represented the substantial remainder of foreign sales during
the periods.
COST OF REVENUES
The cost of revenues for the three months ended August 31, 1999 rose to $664,433
as compared to $490,931 for the three months ended August 31, 1997 representing
a increase of 35%. The gross profit percentages for the three months ended
August 31, 1999 and 1998 were 75.2% and 73.8% respectively. Costs of software
licensing and development, including amortization of capitalized costs and
related payroll costs charged to cost of revenues rose to $370,551 for the three
months ended August 31, 1999 as compared to $245,217 for the three months ended
August 31, 1998. These expenses, which are not a direct function of revenue,
rose due to the increased commitment to software licensing and development.
Profit margins rose even after giving effect to the increase in software
development and licensing costs and reflect an increase in international sales
which transfer substantial costs to the local foreign distributors where
products are translated to native languages.
OPERATING EXPENSES
General and administrative expenses increased to $524,956 for the three
months ended August 31, 1999 from $433,264 for the three months ended August 31,
1998 representing an increase of 21%. Salary expenses and overall fringe benefit
costs, which contributed substantially to this increase, rose to $297,956 for
the three months ended August 31, 1999 as compared with $228,931
10
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for the three months ended August 31, 1998. These increases reflect the
commitment to other areas of operations.
Research and development expenses increased to $147,127 for the three
months ended August 31, 1999 from $124,752 for the three months ended August 31,
1998 representing and increase of 18%. This increase reflects the increased
commitment by the Company to develop new engineering technology.
Selling and marketing expenses increased to $620,204 for the three months ended
August 31, 1999 from $478,799 for the three months ended August 31, 1998
representing an increase of 30%. Salaries and contract fees contributed
principally to this increase and rose to $310,451 for the three months ended
August 31, 1999 from $131,279 for the three months ended August 31, 1998. This
increase reflects the Company's increased commitment to market research on new
products and product features. Advertising expenses partly offset these
increases and declined to $217,074 for the three months ended August 31, 1999
from $248,438 for the three months ended August 31, 1998. This decrease reflects
a streamlining of the advertising campaign principally in industry specific
trade publications.
OTHER INCOME AND EXPENSES
Other income and expenses increased to $118,645 for the three months ended
August 31, 1999 from $107,684 for the three months ended August 31, 1998
representing an increase of 10%. Interest income rose to $123,768 for the three
months ended August 31, 1998 from $107,684 for the three months ended August 31,
1998. This increase reflects a larger investment base and a partial shift in the
investment portfolio from tax exempt municipal obligations to other corporate
and governmental securities during the past year which generally carry higher
yields than tax exempt municipal obligations.
INCOME TAXES
The provision for income taxes was $273,000 for the three months ended August
31, 1999 as compared to $134,000 for the three months ended August 31, 1998
representing an increase of 104%. The effective tax rate was 32.4% and 29.5% for
the three months ended August 31, 1999 and 1998 respectively. The increase in
effective tax rates reflects the tax benefits received from a charitable
donation of an earlier version of VectorWorks during the three months ended
August 31, 1998.
NET INCOME
Net income increased to $568,473 or $.19 per share for the three months ended
August 31, 1999 as compared with $319,518 or $.10 per share for the three months
ended August 31, 1998 representing a increase in net income of 78%.
11
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LIQUIDITY AND CAPITAL RESOURCES
The Company increased its working capital by $881,184 from $8,665,063 at
August 31, 1998 to $9,546,247 at August 31, 1999. Working capital also rose from
$9,071,332 at May 31, 1999 representing an increase of $474,915. The increase
from August 31, 1998 to August 31, 1999 is primarily due to cash flows from
operations during the period. These cash flows have been invested in part into
equipment and software development. These cash flows have also been used to
repurchase Company stock with remaining excess flows placed in marketable
securities. Marketable securities at August 31, 1999 have maturities of seven
years or less and were held 30% in corporate bonds, 36% in U.S. Treasury bills
and 34% in municipal obligations. The Company held cash and marketable
securities of $3.17 per share at August 31, 1999. During the three months ended
August 31, 1999, the Company repurchased 17,200 share of its common stock at an
average price of $3.77 per share.
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. 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 its current working capital along with the cash generated from future
operations will satisfy its operating cash needs for the foreseeable fuuture.
12
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PART II
OTHER INFORMATION
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 August 31, 1999, the net proceeds were used
for software development, marketing, production and
customer service, administration and working capital in
accordance with the use of proceeds as described in the
Prospectus for the offering.
Item 6. Exhibits and Reports
Exhibit 27 - Financial Data Schedule
The Company has filed no reports on Form 8-K during the three
months ended August 31. 1999.
13
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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 14, 1999 /s/ Richard Diehl
Richard Diehl, President
Chief Executive Officer
By:/s/ Joseph Schmelzle
DATE: October 14, 1999 By: Joseph Schmelzle
Joseph Schmelzle, Treasurer
Chief Financial and Accounting Officer
14
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<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> AUG-31-1999
<CASH> 1,121,405
<SECURITIES> 8,554,216
<RECEIVABLES> 545,318
<ALLOWANCES> 0
<INVENTORY> 92,408
<CURRENT-ASSETS> 10,558,681
<PP&E> 1,078,352
<DEPRECIATION> 733,575
<TOTAL-ASSETS> 12,082,326
<CURRENT-LIABILITIES> 1,012,434
<BONDS> 0
0
0
<COMMON> 30,541
<OTHER-SE> 10,619,332
<TOTAL-LIABILITY-AND-EQUITY> 12,082,326
<SALES> 2,679,548
<TOTAL-REVENUES> 2,679,548
<CGS> 664,433
<TOTAL-COSTS> 1,292,287
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 841,473
<INCOME-TAX> 273,000
<INCOME-CONTINUING> 568,473
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 568,473
<EPS-BASIC> .19
<EPS-DILUTED> .19
</TABLE>
