-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VkrCPR88j8ASxqyRv+M6EyzOVGAOee8Ky5WjGR4tjKu8FFkCSP/frxgYnZi+crZ9 pB1den73Qx9aA9hXT69hsg== 0000819005-99-000001.txt : 19990114 0000819005-99-000001.hdr.sgml : 19990114 ACCESSION NUMBER: 0000819005-99-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981130 FILED AS OF DATE: 19990113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIEHL GRAPHSOFT INC CENTRAL INDEX KEY: 0000819005 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 521407016 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24318 FILM NUMBER: 99505716 BUSINESS ADDRESS: STREET 1: 10270 OLD COLUMBIA RD STREET 2: STE 100 CITY: COLUMBIA STATE: MD ZIP: 21046 BUSINESS PHONE: 4102905114 10-Q 1 QUARTERLY REPORT FOR DIEHL GRAPHSOFT, INC. 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 November 30, 1998 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. 3,091,737 shares of common stock. Transitional Small Business Disclosure Format (check one) Yes ____ No __x__ 1 DIEHL GRAPHSOFT, INC. FORM 10-QSB INDEX Number Page PART I FINANCIAL INFORMATION Item 1 Financial Statements: Balance Sheet (unaudited) as of November 30, 1998 3 Statements of Operations (unaudited) for the three months ended November 30, 1997 and 1998 and (unaudited) for the six months ended November 30, 1997 and 1998 5 Statements of Cash Flows (unaudited) for the six months ended November 30, 1997 and 1998 6 Statements of Stockholders' Equity (unaudited) as of November 30, 1997 and 1998 7 Notes to Financial Statements 8 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II OTHER INFORMATION Item 2 Changes in Securities 13 Item 4 Submission of Matters to a Vote of Security Holders 13 Item 6 Exhibits and Reports 13 SIGNATURES 14 2 DIEHL GRAPHSOFT, INC. BALANCE SHEET November 30, 1998 (Unaudited) ASSETS Current assets: Cash $ 7,664 Marketable securities 7,894,225 Accounts receivable 301,445 Income taxes receivable 213,439 Inventory 170,642 Other current assets 440,314 ------- Total current assets 9,027,729 ========= Fixed assets: Equipment 838,194 Furnishings and fixtures 119,290 Leasehold improvements 47,688 ------- 1,005,172 Accumulated depreciation 651,024 ------- Net fixed assets 354,148 ------- Other assets: Unamortized organization expenses 23,872 Software development and licensing costs, net of accumulated amortization of $1,186,251 982,500 Other 2,402 ------- Total other assets 1,008,774 --------- Total assets $10,390,651 =========== See accompanying notes to financial statements 3 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 670,660 --------- Total current liabilities 670,660 ------- Long term liabilities: Deferred income taxes 368,693 ------- Total liabilities 1,039,353 --------- Stockholders' equity: Common stock - $.01 par value; 10,000,000 shares authorized, 3,091,737 shares issued and outstanding 30,917 Additional paid in capital 4,025,208 Retained earnings 5,295,173 --------- Total stockholders' equity 9,351,298 --------- Total liabilities and stockholders' equity $10,390,651 =========== See accompanying notes to financial statements 4 DIEHL GRAPHSOFT, INC. STATEMENT OF OPERATIONS (Unaudited) For the three month period For the six month period ended November 30, ended November 30, ------------------ ------------------ 1998 1997 1998 1997 ---- ---- ---- ---- Revenues $1,187,495 $1,638,168 $3,061,075 $3,665,076 Cost of revenues 451,117 497,312 942,048 1,078,657 ------- --------- --------- --------- Gross profit 736,378 1,140,856 2,119,027 2,586,419 ------- --------- --------- --------- Operating expenses: General & administrative 434,986 428,231 868,250 868,772 Selling & marketing 495,636 425,880 974,435 893,070 Research & development 96,630 79,985 221,382 171,742 --------- ------- --------- --------- Total operating expenses 1,027,252 934,096 2,064,067 1,933,584 --------- ------- --------- --------- Income (loss) from operations (290,874) 206,760 54,960 652,835 -------- ------- --------- ------- Other income: Interest income 111,020 91,328 218,704 180,907 Gain on equipment disposition - 900 - 900 -------- ------- -------- ------- Total other income 111,020 92,228 218,704 181,807 -------- ------- ------- ------- Income (loss) before income taxes (179,854) 298,988 273,664 834,642 Provision (credit) for income taxes (73,000) 91,000 61,000 281,000 ---------- --------- -------- -------- Net income (loss) $ (106,854) $ 207,988 $ 212,664 $553,642 =========== ========= ======== ======== Net income (loss) per share $ (.03) $ .07 $ .07 $ .18 ========== ========= ========= ========= Weighted average number of shares outstanding 3,113,270 3,143,122 3,130,454 3,142,264 ========= ========= ========= ========= See accompanying notes to financial statements 5 DIEHL GRAPHSOFT, INC. STATEMENT OF CASH FLOWS (Unaudited) For the three months ended November 30, 1998 1997 Cash flows from operating activities: Net income $ 212,664 $ 553,642 Adjustments to reconcile net income to net Cash provided by operating activities: Deferred income taxes 30,692 21,204 Amortization of bond premiums and discounts (35,887) (80,422) Depreciation and amortization 511,404 477,565 Changes in operating assets and liabilities: Accounts receivable 141,941 (259,527) Inventory (89,210) 1,034 Other assets (180,750) (12,944) Accounts payable and accrued expenses 115,114 231,506 Income taxes receivable/payable (276,092) 148,596 -------- --------- Net cash provided by operating activities: 429,876 1,080,654 -------- --------- Cash flows from investing activities: Purchases of marketable securities (2,995,538) (2,130,753) Maturities of marketable securities 2,964,000 1,825,000 Capitalized software costs (515,003) (439,939) Purchase of fixed assets (94,262) (127,553) -------- -------- Net cash used in investing activities (640,803) (873,245) -------- -------- Cash flows from financing activities: Redemption of common stock (158,163) - --------- ------- Net used in financing activities (158,163) - --------- ------- Net change in cash (369,090) 207,409 Cash balance beginning of period 376,754 247,359 ------- ------- Cash balance end of period $ 7,664 $ 454,768 ======== ======== Supplemental disclosure of cash flow information: Cash paid for income taxes $ 306,400 $ 111,200 ========= ======== Issuance of common stock $ - $ 20,745 Reduction in accrued expenses - 20,745 --------- ------ $ - $ - ======== ======== See accompanying notes to financial statements 6 DIEHL GRAPHSOFT, INC. STATEMENT OF STOCKHOLDER' EQUITY (Unaudited) Additional Common Common Paid in Retained shares stock Capital Earnings Total 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 ========= ======= ========== ========== ========== Balance May 31, 1998 3,147,637 $31,476 $4,182,812 $5,082,509 $9,296,797 Redemption of Common stock (55,900) (559) (157,604) - (158,163) Net Income - - - 212,664 212,664 --------- ------- -------- --------- -------- Balance November 30, 1998 3,091,737 $30,917 $4,025,208 $5,295,173 $9,351,298 ========= ======= ========== ========== ========== See accompanying notes to financial statements 7 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 six month period ended November 30, 1998 are not necessarily indicative of the results that may be expected for the year ended May 31, 1999. NOTE B - RECLASSIFICATION OF EXPENSES Certain expenses reported in the statement of operations for the three and six month period ended November 30, 1997 have been reclassified to conform with the presentation of expenses reported for the three and six month period ended November 30, 1998. NOTE C - WEIGHTED AVERAGE SHARES OUTSTANDING Weighted average number of shares outstanding during the periods is computed as follows: For the three months For the six months ended November 30, ended November 30, ------------------ ------------------ 1998 1997 1998 1997 ---- ---- ---- ---- Average outstanding shares 3,113,270 3,143,122 3,130,454 3,142,264 Dilutive effect of stock options and warrants - - - - --------- --------- --------- --------- Weighted average number of shares outstanding 3,113,270 3,143,122 3,130,454 3,142,264 ========= ========= ========= ========= 8 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) lost goodwill associated with change in product name of the Company's principal product MiniCAD to VectorWorks, (4) delays pertaining to planned introduction of new products, (5) lack of diversified product portfolio, (6) effect of competitor inroads into the Company's markets, (7) limited barriers to entry, (8) reliance on international markets and foreign currency fluctuations, (9) dependence on distributor channels, (10) fluctuations in quarterly operations associated with the age of Company products in their life cycles and the timing of orders from distributors, (11) intellectual property infringements, and (12) 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 six months ended November 30, 1998 as compared to the three and six months ended November 30, 1997. Revenues for the three months ended November 30, 1998 declined to $1,187,495 as compared to $1,638,168 for the three months ended November 30, 1997 representing a decrease of 27.5%. Revenues for the six month period ended November 30, 1998 declined to $3,061,075 as compared to $3,665,076 for the six month period ended November 30, 1997 representing a decrease of 16.5%. Upgrade sales of MiniCAD declined to $145,944 for the three months ended November 30, 1998 as compared to $172,094 for the three months ended November 30, 1997. Upgrade sales of MiniCAD declined to $492,514 for the six months ended November 30, 1998 as compared to $663,356 for the six months ended November 30, 1997. The decrease in upgrade sales reflects the release of MiniCAD 7 in May 1997 which generated a surge in upgrade sales after its release. The Company did not issue a comparable release in the six months ended November 30, 1998. Sales of MiniCAD for Windows declined to $497,087 for the three months ended November 30, 1998 as compared to $545,478 for the three months ended November 30, 1997. Sales of 9 MiniCad for Windows rose to $1,151,656 for the six months end November 30, 1998 as compared to $1,024,447 for the six months ended November 30, 1997. Domestic sales of MiniCAD for the Macintosh declined $301,858 for the three months ended November 30, 1998 as comared with $634,472 for the three months ended November 30, 1997. Domestic sales of MiniCAD for the Macintosh declined to $715,451 for the six months ended November 30, 1998 as compared with $1,526,115 for the six months ended November 30, 1997. The softening sales of MiniCAD for Windows and the decrease in sales of MiniCAD for the Macintosh in the United States reflects the aging of the product in its life cycle. Both upgrade sales and new product sales contributed to this decline. Foreign sales compare better in the three and six month periods ended November 30, 1998 when compared with the three and six month periods ended November 30, 1997 than domestic sales do because foreign product introduction of MiniCAD 7 lagged domestic introduction by six to nine months. Hence, in international markets, the product is not as old in its life cycle. The Company believes part of the decrease in domestic Macintosh sales is also attributable to the continuing uncertainty in the commercial Macintosh market in general. The cost of revenues for the three months ended November 30, 1998 declined to $451,117 as compared to $497,312 for the three months ended November 30, 1997 representing a decrease of 9.3%. The cost of revenues for the six months ended November 30, 1998 declined to $942,048 as compared to $1,078,657 for the six months ended November 30, 1997 representing a decrease of 12.7%. The gross profit percentages for the three months ended November 30, 1998 and 1997 were 62.0% and 69.6% respectively. The gross profit percentages for the six months ended November 30, 1998 and 1997 were 69.2% and 70.6% respectively. The decrease in gross profit percentages for the three and six months ended November 30, 1998 as compared with the three and six months ended November 30, 1997 is due to an increase in amortization of software development and licensing costs. Amortization of software licensing and development included in cost of revenues which are not directly a function of revenue rose to $ 223,432 for the three months ended November 30, 1998 as compared to $208,817 for the three months ended November 30, 1997. Amortization of software licensing and development included in costs of revenues rose to $432,050 for the six months ended November 30, 1998 as compared to $413,422 for the six months ended November 30, 1997. The increase in amortization expenses is attributable to the Company's commitment to development of new engineering technology. Salary expenses charges to cost of sales also did not decline proportionally with revenue in the three and six month periods ended November 30, 1998 as compared with the three and six months periods ended November 30, 1998 since these costs also do not directly function with revenue. These salaries included technical support to customers and documentation of product manuals and other publications. General and administrative expenses increased to $434,986 for the three months ended November 30, 1998 from $428,231 for the three months ended November 30, 1997 representing an increase of 1.6%. General and administrative expenses remained effectively unchanged in the six month period ended November 30, 1998 totaling $868,250 as compared with $868,772 for the six months ended November 30, 1997. Rent expense increased to $54,068 in the three months ended November 30, 1998 as compared to $36,020 for the three months ended November 30, 1997. Rent expense increased to $92,985 for the six months ended November 30, 1998 as compared to $69,807 for the six months ended November 30, 1997. This increase is attributable to an increase in the use of space and cost per square foot for the space. This increase was offset by declines in legal fees which totaled $12,629 in the three months ended November 30, 1998 as compared to $39,078 for the three months ended November 30, 1997. Legal fees totaled $15,307 for the six months ended November 30, 1998 as compared to $48,189 for the six months ended November 30, 1997. This decline reflects the cost to defend an appeal of a court order pertaining to a patent infringement claim in 1997. 10 Research and development expenses increased to $96,630 for the three months ended November 30, 1998 from $79,985 for the three months ended November 30, 1997 representing and increase of 21%. Research and development expenses increased to $221,382 for the six months ended November 30, 1998 as compared to $171,742 for the six months ended November 30, 1997 representing and increase of 29%. This increase reflects the increased commitment by the Company to develop new engineering technology. Selling and marketing expenses increased to $495,636 for the three months ended November 30, 1998 from $425,880 for the three months ended November 30, 1997 representing an increase of 16%. Selling and marketing expenses increased to $974,435 for the six months ended November 30, 1998 as compared to $893,070 for the six months ended November 30, 1997 representing an increase of 9%. Trade show expenses rose from $31,650 for the three months ended November 30, 1997 to $70,241 for the three months ended November 30, 1998. Trade show expenses rose from $53,172 for the six months ended November 30, 1997 to $118,297 for the six months ended November 30, 1998. Salary expenses also rose from $ 67,138 for the three months November 30, 1997 to $115,141 for the three months ended November 30, 1998. Salary expenses rose from $174,236 for the six months ended November 30, 1997 to $236,650 for the six months ended November 30, 1998. This increase reflects an increased commitment to marketing industry specific solutions to customers in a more labor intensive manner than that required for publication advertising. Publication advertising expenses did decline, mostnotably in general computer publications, to offset the increases in these other costs. Interest income rose to $111,020 for the three months ended November 30, 1998 as compared with $91,328 for the three months ended November 30, 1997 representing an increase of 22%. Interest income rose to $218,704 for the six months ended November 30, 1998 as compared to $180,907 for the six months ended November 30, 1997 representing an increase of 21%. This increase reflects a larger investment base and a partial shift in the investment portfolio from U.S. Government obligations to corporate obligations during the three and six months ended November 30, 1998 when compared with the three and six months ended November 30, 1997. These corporate obligations generally carry slightly higher yields than U.S. Government obligations do. The Company reported a net loss of $106,854 for the three months ended November 30, 1998 as compared to a net profit of $207,988 for the three months ended November 30, 1997. These results are after giving effect to a credit for income taxes of $73,000 for the three months ended November 30, 1998 and a provision for income taxes of $91,000 for the three months ended November 30, 1997. The Company reported net income of $212,664 for the six months ended November 30, 1998 and $553,642 for the six months ended November 30, 1997. The effective tax rates for the three months ended November 30, 1998 and 1997 were (40.6% )and 30.5%, respectively. The effective tax rates for the six months ended November 30, 1998 and 1997 were 22.3% and 33.7% respectively. The decrease in effective tax rates reflects the establishment of a foreign sales corporation by the Company in March 1998, which exempts certain profits related to foreign sales from taxation, and the tax benefits from a charitable donation of an earlier version of MiniCAD in September 1997 which will provide tax benefits to the Company throughout the current fiscal year. The declining tax rates are also attributable to increasing investment income relative to overall pretax income in the three and six months ended November 30, 1998 as compared with the three and six months ended November 30, 1997. Certain U.S. Government and municipal interest is in whole or part exempt from taxation. 11 Liquidity and Capital Resources The Company increased its working capital by $423,891 or 5.3% from $7,933,178 at November 30, 1997 to $8,357,069 at November 30, 1998. Working capital remained effectively unchanged from $8,364,614 at May 31, 1998. The increase from November 30, 1997 to November 30, 1998 is primarily due to cash flows from operations during the period. These cash flows have been inpart invested in equipment and software development. The Board of Directors authorized the repurchase of a maximumn of 300,000 shares of Company common stock in September 1998. During the three months ended November 30, 1998 the Company repurchased and retired 55,900 shares at an average price of $2.83 per share. The Company continues to maintain its excess cash in short to intermediate term government and corporate 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 its capital requirements for the next twelve months. 12 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 November 30, 1998, the net proceeds were allocated to working capital and were invested temporarily in short term U.S. Government, corporate and municipal obligations. Item 4. Submission of Matters to a Vote of Security Holders The Company held its annual meeting on November 10 and 24, 1998 Against/ Absten- Broker For Withheld tions Non-votes Election Of Directors Joseph Schmelzle 1,999,940 1,147,697 Frederick Unger Continuing in Office Richard Hug Continuing in Office Richard Diehl Continuing in Office Ratification of Appointment of Independent Auditors 1,999,940 1,147,697 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 November 30, 1998. 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: January 14, 1999 By:/s/Richard Diehl Richard Diehl, President Chief Executive Officer DATE: January 14, 1999 /s/ Joseph Schmelzle Joseph Schmelzle, Treasurer Chief Financial and Accounting Officer 14 EX-27 2 ART. 5 FDS FOR 2ND QUARTER 10-Q
5 1 3-MOS MAY-31-1998 Nov-30-1998 7664 7894225 514884 0 170642 9027729 1005172 651024 10390651 670660 0 0 0 30917 9320381 10390651 1187495 1187495 451117 1027252 0 0 0 (179854) (73000) (106854) 0 0 0 (106854) (.03) (.03)
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