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 FEBRUARY 29, 2000
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.
3,070,705 SHARES OF COMMON STOCK.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE) YES ____ NO __X__
1
<PAGE>
DIEHL GRAPHSOFT, INC.
FORM 10-QSB
INDEX
Number Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements:
Balance Sheet (unaudited) as of
February 29, 2000 3
Statements of Operations (unaudited) for the three months ended
February 29, 2000 and Febrary 28, 1999 and (unaudited) for the nine
months ended February 29, 2000 and Febrary 28, 1999 4
Statements of Cash Flows (unaudited) for the nine months
ended February 29, 2000 and February 28, 1999 5
Statements of Stockholders' Equity (unaudited) as
of February 29, 2000 and February 28, 1999 6
Notes to Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds 12
Item 6 Exhibits and Reports 13
SIGNATURES 14
2
DIEHL GRAPHSOFT, INC.
BALANCE SHEET (Unaudited)
February 29, 2000
ASSETS
Current assets:
Cash $ 1,075,441
Marketable securities 8,419,788
Accounts receivable 458,928
Inventory 74,286
OTHER 237,254
----------
TOTAL CURRENT ASSETS 10,265,697
Fixed assets:
Equipment 968,492
Furnishings and fixtures 133,017
LEASEHOLD IMPROVEMENTS 47,688
----------
1,149,197
ACCUMULATED DEPRECIATION 819,967
NET FIXED ASSETS 329,230
Other assets:
Certificate of deposit 30,502
Deferred transaction costs, net of
accumulated amortization of $24,369 251,119
Software development and licensing costs, net
of accumulated amortization of $1,793,345 1,297,656
OTHER 9,302
----------
TOTAL OTHER ASSETS 1,588,579
TOTAL ASSETS $12,183,506
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 736,211
INCOME TAXES PAYABLE 35,861
----------
TOTAL CURRENT LIABILITIES 772,072
Long term liabilities:
DEFERRED INCOME TAXES 442,239
TOTAL LIABILITIES 1,214,311
Stockholders' equity:
Common stock - $.01 par value; 10,000,000
shares authorized, 3,070,705 shares
issued and outstanding 30,707
Additional paid in capital 3,998,900
RETAINED EARNINGS 6,939,588
----------
TOTAL STOCKHOLDERS' EQUITY 10,969,195
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $12,183,506
See accompanying notes to financial statements
3
DIEHL GRAPHSOFT, INC.
STATEMENT OF OPERATIONS (Unaudited)
For the three For the nine
month period ended month period ended
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
2000 1999 2000 1999
---- ---- ---- --------
Sales $2,013,652 $2,409,580 $6,460,905 $5,470,655
COST OF SALES 598,364 721,422 1,795,853 1,663,470
--------- --------- --------- ----------
GROSS PROFIT 1,415,288 1,688,158 4,665,052 3,807,185
--------- --------- --------- ---------
Operating expenses:
General &
administrative 549,302 525,673 1,574,024 1,393,923
Selling & marketing 691,073 566,197 1,936,217 1,540,632
Research &
DEVELOPMENT 118,412 145,703 383,114 367,085
--------- --------- --------- ----------
Total operating
EXPENSES 1,358,787 1,237,573 3,893,355 3,301,640
--------- --------- --------- ----------
INCOME FROM OPERATIONS 56,501 450,585 771,697 505,545
--------- --------- --------- ----------
Other income and expenses:
Interest income 120,936 114,044 368,683 332,748
OTHER - 12,547 (5,123) 12,547
--------- --------- -------- ---------
TOTAL OTHER INCOME 120,936 126,591 363,560 345,295
--------- --------- -------- ----------
Income before
income taxes 177,437 577,176 1,135,257 850,840
Provision for
INCOME TAXES 53,000 155,000 356,000 216,000
--------- --------- --------- ----------
NET INCOME $ 124,437 $ 422,176 $ 779,257 $ 634,840
========= ========= ========= =========
Net income per
share - basic and
FULLY DILUTED $ .04 $ .14 $ .25 $ .20
========= ========= ========== ==========
Weighted average number of shares outstanding:
BASIC 3,070,705 3,092,179 3,061,844 3,117,695
========= ========= ========= =========
FULLY DILUTED 3,103,140 3,092,179 3,080,310 3,117,695
========= ========= ========= =========
See accompanying notes to financial statements
4
DIEHL GRAPHSOFT, INC.
STATEMENT OF CASH FLOWS (Unaudited)
For the nine months ended
FEBRUARY 29, FEBRUARY 28,
2000 1999
Cash flows from operating activities:
Net income $ 779,257 $ 634,840
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of bond premiums and discounts (113,238) (55,390)
Deferred income taxes 39,483 29,543
Depreciation and other amortization 953,991 999,663
Other 5,123 (12,547)
Changes in operating assets and liabilities:
Accounts receivable (88,182) (118,022)
Inventory 49,315 (65,246)
Other current assets 73,586 (99,304)
Other assets (50) (50)
Accounts payable and accrued expenses 39,565 233,310
INCOME TAXES RECEIVABLE/PAYABLE 88,835 (153,360)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,827,685 1,393,437
--------- ---------
Cash flows from investing activities:
Purchase of certificate of deposit (30,502) -
Purchases of marketable securities - (2,995,538)
Sale and maturities of marketable securities 357,245 3,683,400
Capitalized software and licensing costs (1,021,412) (964,638)
Purchase of fixed assets (100,732) (125,887)
INVESTMENT IN TRANSACTION COSTS (236,896) -
---------- -----------
Net cash (used in)
INVESTING ACTIVITIES (1,032,297) (402,663)
--------- ---------
Cash flows from financing activities:
Issuance of common stock 99,441 -
REDEMPTION OF COMMON STOCK (64,838) (170,795)
--------- ---------
Net cash provided by (used in)
FINANCING ACTIVITIES 34,603 (170,795)
--------- ---------
Net increase in cash 829,991 819,979
CASH BALANCE BEGINNING OF PERIOD 245,450 376,754
--------- ---------
CASH BALANCE END OF PERIOD $1,075,441 $1,196,733
========= =========
Supplemental disclosure of cash flow information:
CASH PAID FOR INCOME TAXES $ 227,682 $ 339,817
========= =========
Issuance of common stock $ 9,097 $ 7,500
REDUCTION IN ACCRUED EXPENSES (9,097) (7,500)
--------- ---------
$ - $ -
See accompanying notes to
========= ===========
See accompanying note to financial statements
5
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
Issuance of
Common Stock 1,875 19 7,481 - 7,500
Redemption of
Common Stock (60,200) (602) (170,193) - (170,795)
NET INCOME - - - 634,840 634,840
--------- ------ -------- --------- --------
Balance
FEBRUARY 28, 1999 3,089,312 $30,893 $4,020,100 $5,717,349 $ 9,768,342
========= ======= ========== ========== ==========
Balance
May 31, 1999 3,071,314 $30,713 $3,955,194 $6,160,331 $10,146,238
Issuance of
Common Stock 16,591 166 108,372 - 108,538
Redemption of
Common Stock (17,200) (172) (64,666) - (64,838)
NET INCOME - - - 779,257 779,257
--------- -------- ----------- ---------- ----------
Balance
FEBRUARY 29,2000 3,070,705 $30,707 $3,998,900 $6,939,588 $10,969,195
========= ====== ========= ========= ==========
See accompanying notes to financial statements
6
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 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
period ended February 29, 2000 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 For the nine months
ended FEBRUARY 29, FEBRUARY 28 FEBRUARY 29,
FEBRUARY 28,
2000 1999 2000 1999
---- ---- ---- ----
Average outstanding shares 3,070,705 3,092,179 3,061,844 3,117,695
Diluted effect of stock
OPTIONS AND WARRANTS 32,435 - 18,466 -
--------- --------- --------- ---------
Weighted average number of
SHARES OUTSTANDING 3,103,140 3,092,179 3,080,310 3,117,695
========= ========= ========= =========
Note C - DEFERRED TRANSACTION COST
On February 18,2000 the Company signed an agreement and plan of merger
with a wholly owned subsidiary of Nemetschek A.G. The agreement provides for the
conversion of all Company common stock into cash at $9.50 per share upon
satisfaction of all outstanding conditions. In connection with the agreement,
the Company incurred cost totaling $236,896, which is reported on the balance
sheet at February 29, 2000 with deferred transaction costs.
7
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-QSB) 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 that could cause actual events or results to differ materially
from those referred to in such forward looking statements. Included in such
risks are (1) the acceptance of new product introductions, (2) quality of
engineering in new software, (3) delays pertaining to planned introduction of
new products, (4) lack of diversified product portfolio, (5) effect of
competitor inroads into the Company's markets, (6) limited barriers to entry,
(7) reliance on international markets and foreign currency fluctuations, (8)
dependence on distributor channels, (9) fluctuations in quarterly operations
associated with the age of Company products in their life cycles and the timing
of orders from distributors, (10) intellectual property infringements, and (11)
attraction and retention of quality employees, among others. 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 and nine months ended February 29, 2000 as
compared to the three and nine months ended February 28, 1999.
REVENUES
Revenues for the three months ended February 29, 2000 were $2,013,652 as
compared to $2,409,580 for the three months ended February 28, 1999 representing
a decrease of 16.4%. Revenues for the nine months ended February 29, 2000 were
$6,460,905 as compared to $5,470,655 for the nine months ended February 28, 1999
representing an increase of 18.1%. The following table sets forth the changes in
the selective components of revenue for the three and nine month periods ended
February 29, 2000 as compared with the three and nine month periods ended
February 28, 1999.
8
For the three month period ended For the nine month period
ended FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
2000 1999 2000 1999
VectorWorks for
Windows
(New product) $602,595 $660,164 $1,904,404 $1,628,128
VectorWorks for
Windows (Upgrades) 103,364 166,926 324,423 350,618
VectorWorks for
the Macintosh
(New product) 699,019 910,252 2,699,993 2,407,867
VectorWorks for
the Macintosh
(Upgrades) 133,490 263,854 435,212 572,676
RenderWorks 109,816 319,472 319,472 608,339
Revenues dropped in the three months ended February 29, 2000 from the three
months ended February 28, 1999. The drop is largely attributable to the aging of
VectorWorks and RenderWorks as products in the marketplace. These declines were
partly offset by the Company's introduction of VectorWorks Architect in December
1999, which carries industry specific solutions for the architectural market,
and generated revenues of $180,849 for the three months ended February 29, 2000.
VectorWorks was introduced in January 1999 and foreign revenues contributed
substantially to the growth for the nine months ended February 29, 2000 when
compared with the nine months ended February 28, 1999. Foreign revenues totaled
$1,149,699 for the three months ended February 29, 2000 as compared to
$1,141,536 for the three months ended February 28, 1999. Foreign revenues
represented 57.1% and 47.4% of total revenues for the three months ended
February 29, 2000 and February 28, 1999 respectively. Foreign revenues totaled
$4,102,812 for the nine months ended February 29, 2000 as compared to $3,028,044
for the nine months ended February 28, 1999. Foreign revenues represented 63.5%
and 55.4% of total revenues for the nine months ended February 29, 2000 and
February 28, 1999 respectively. Foreign revenues from Japan represented 10.3%
and 13.7% of total revenues for the three months ended February 29, 2000 and
February 28, 1999 respectively. Foreign revenues from Japan represented 24.2%
and 23.2% of total revenues for the nine months ended February 29, 2000 and
February 28, 1999 respectively. The decline in revenue from Japan in the three
month periods ended February 29, 2000 and February 28, 1999 when compared with
the nine month periods ended February 29, 2000 and February 28, 1999 is largely
attributable to timing of large orders. Revenues from European countries
represent the substantial remainder of foreign revenues during the periods
presented.
9
COST OF REVENUES
The cost of revenues for the three months ended February 29, 2000 was $598,364
as compared to $721,422 for the three months ended February 28, 1999
representing an decrease of 17.1%. The cost of revenues for the nine months
ended February 29, 2000 was $1,795,853 as compared to $1,663,470 for the nine
months ended February 28, 1999 representing an increase of 8.0%. The gross
profit percentages for the three months ended February 29, 2000 and February 28,
1999 were 70.3% and 70.1% respectively. The gross profit percentages for the
nine months ended February 29, 2000 and February 28, 1999 were 72.2% and 69.6%
respectively. The slight improvement in gross profit percentage during the three
and nine months ended February 29, 2000 as compared to the three and nine months
ended February 28, 1999 is largely due to the reduction in upgrade revenues
which generally have costs equal to those of new products and generate less
revenue per unit. Additionally, increased foreign revenues contributed to this
decrease where much of the production costs are passed to local foreign
distributors. Increased amortization of software development and licensing costs
partly offset the increases in gross profit percentages. These costs rose to
$288,572 for the three months ended February 29, 2000 from $232,242 for the
three months ended February 28, 1999 These costs rose to $823,688 for the nine
months ended February 29, 2000 from $$642,204 for the nine months ended February
28, 1999. These costs rose due to our increased commitment to development of new
technology.
OPERATING EXPENSES
General and Administrative expenses rose to $549,302 for the three months
ended February 29, 2000 from $525,673 for the three months ended February 28,
1999 representing and increase of 4.5%. General and administrative expenses rose
to $1,574,024 for the nine months ended February 29, 2000 from $1,393,923 for
the nine months ended February 28, 1999, representing an increase of 12.9%.
Salary expenses and overall fringe benefit costs declined to $278,610 for the
three months ended February 29, 2000 from $280,348 for the three months ended
February 28, 1999. Salary expenses and overall fringe benefit costs rose to
$827,023 for the nine months ended February 29, 2000 from $727,661 for the nine
months ended February 28, 1999. The decline in the three months ended February
29. 2000 from February 28, 1999 reflects bonuses issued in the three months
ended February 28, 1999 which were not issued in the three months ended February
29, 2000. Expenses rose for the nine months ended February 29, 2000 from the
nine months ended February 28, 1999 with an increased commitment to other areas
of operations.
Selling and marketing expenses rose to $691,073 for the three months ended
February 29, 2000 from $566,197 for the three months ended February 28, 1999
representing an increase of 22.1%. Selling and marketing expenses rose to
$1,936,217 for the nine months ended February 29, 2000 from $1,540,632 for the
nine months ended February 28, 1999 representing an increase of 25.7%. Salary
and contract fees rose to $244,558 for the three months ended February 29, 2000
from $188,183 for the three months ended February 28, 1999.
10
Salary and contract fees rose to $789,268 for the nine months ended February 29,
2000 from $445,034 for the nine months ended February 28, 1999. The increase
reflects the Company's restructuring in early calendar 1999 to increase market
research for new products and product features. Increases in the three month
period ended February 29, 2000 over the three month period ended February 28,
1999 were more modest than the increases in the nine month period ended February
29, 2000 over the nine month period ended February 28, 1999 because of bonuses
issued in the quarter ended February 28, 1999.
Research and development expenses declined to $118,412 for the three months
ended February 29, 2000 from $145,703 for the three months ended February 28,
1999 representing a decrease of 18.7%. Research and development expenses rose to
$383,114 for the nine months ended February 29, 2000 from $367,085 for the nine
months ended February 28, 1999 representing an increase of 4.4%. The decrease in
the three month period ended February 29, 2000 from the three month period ended
February 28, 1999 and the modest increase in the nine month ended February 29,
2000 from the nine months ended February 28, 1999 reflects bonuses issued in the
three months ended February 28, 1999 to employees. The Company remains committed
to increased engineering and research for new technology.
OTHER INCOME AND EXPENSE
Other income and expenses declined to $120,936 for the three months ended
February 29, 2000 from $126,591 for the three months ended February 28, 1999
representing a decrease of 4.4%. Other income and expenses rose to $363,560 for
the nine months ended February 29, 2000 from $345,295 for nine months ended
February 28, 1999 representing an increase of 5.3%. Other income and expenses
consist principally of interest income during the periods. Declines in interest
rates for invested securities in calendar 1999 substantially offset the
increased investment base in the three and nine months ended February 29, 2000
as compared to the three and nine months ended February 28, 1999
NET INCOME AND INCOME TAXES
Net income declined to $124,437 for the three months ended February 29,
2000 from $422,176 for the three months ended February 28, 1999. Net income rose
to $779,257 for the nine months ended February 29, 2000 from 634,840 for the
nine months ended February 28, 1999. The net income for the three months ended
February 29, 2000 and February 28, 1999 is after giving effect to a provision
for income taxes of $53,000 and $155,000, respectively. The increase in net
income for the nine months ended February 29, 2000 as compared to the nine
months ended February 28, 1999 is after giving effect to a provision for income
taxes of $356,000 and $216,000 respectively. The effective income tax rates for
the three months ended February 29, 2000 and February 28, 1999 were 29.9% and
26.9%, respectively. The effective income tax rates for the nine months ended
February 29, 2000 and February 28, 1999 were 31.4% and 25.4% respectively. The
increase in effective tax rate for the three
11
and nine months ended February 28, 2000 as compared to the three and nine months
ended February 28, 1999 reflects the tax benefits from a charitable donation of
an older version of Company product during the three and nine months ended
February 28, 1999.
Liquidity and Capital Resources
The company increased its working capital by $715,390 or 8.1% from
$8,778,235 at February 28, 1999 to $9,493,625 at February 29, 2000. Working
capital increased by $422,293 or 4.7% from $9,071,332 at May 31, 1999. The
increase in working capital is primarily due to cash flows from operations
during the period. These cash flows have in part been invested into equipment
and software development and in part used to repurchase Company stock. During
the nine months ended February 28, 1999, the Company used cash flows to
repurchase 17,200 shares of Company stock at an average price of $3.77 per
share. The Company continues to maintain its excess cash in marketable
securities with maturities of seven years or less. At February 29, 2000
marketable securities consisted of 30% corporate bonds, 32% municipal
obligations and 38% U.S. Government obligations. At February 29, 2000, the
Company maintained cash and marketable securities of $3.09 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 future.
12
PART II
OTHER INFORMATION
Exhibit 27 - Financial Data Schedule
The Company has filed one report on Form 8-K during the three
months ended February 29, 2000.
13
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 12, 2000 By:/s/Richard Diehl
Richard Diehl, President
Chief Executive Officer
DATE: April 12, 2000 /s/ Joseph Schmelzle
Joseph Schmelzle, Treasurer
Chief Financial and Accounting Officer
14
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<PERIOD-END> Feb-29-2000
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<ALLOWANCES> 0
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