<PAGE>
_____________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996
--------------
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: 0-26170
EAGLE POINT SOFTWARE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 42-1204819
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
4131 WESTMARK DRIVE, DUBUQUE, IA 52002-2627
(address of principal executive offices)
(319) 556-8392
(Registrant's telephone number, including area code)
Indicate by check mark 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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest applicable date.
Common Stock, par value $.01 per share, outstanding as of May 14, 1996:
4,941,730 shares
- ----------------
_____________________________________________________________________________
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EAGLE POINT SOFTWARE CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
INDEX
PART I. FINANCIAL INFORMATION
-----------------------------
PAGE
----
Item 1. Financial Statements (Unaudited)
Balance Sheets -
March 31, 1996 and June 30, 1995 3
Statements of Income -
for the three months ended March 31, 1996 and 1995
and the nine months ended March 31, 1996 and 1995 5
Statements of Cash Flows -
for the nine months ended March 31, 1996 and 1995 6
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 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EAGLE POINT SOFTWARE CORPORATION
BALANCE SHEETS
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
------------ -----------
1996 1995
ASSETS (Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $14,088,964 $15,742,926
Accounts receivable (net of 3,809,448 2,465,222
allowances of $131,601 and $192,878,
respectively)
Inventories 556,587 607,622
Prepaid expenses 333,791 319,729
Income taxes recoverable 93,178 0
Other assets 29,547 30,381
----------- -----------
Total current assets 18,911,515 19,165,880
PROPERTY & EQUIPMENT (net of
accumulated depreciation of $1,976,578
and $1,333,401, respectively) 4,747,611 3,655,730
SOFTWARE DEVELOPMENT COSTS (net of
accumulated amortization of
$182,656 and $363,818, respectively) 198,770 282,921
GOODWILL (net of accumulated
amortization of $39,812 and $5,170,
respectively) 215,963 64,430
DEFERRED INCOME TAXES 410,509 410,509
----------- -----------
TOTAL ASSETS $24,484,368 $23,579,470
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 219,336 $ 146,295
Accounts payable 357,278 645,496
Accrued expenses 931,394 1,103,948
Income taxes payable 0 635,211
Deferred revenues 1,697,552 1,291,889
Deferred income taxes 60,979 60,979
----------- -----------
Total current liabilities 3,266,539 3,883,818
LONG-TERM DEBT 581,989 600,326
CEBA FORGIVABLE LOAN 110,000 110,000
----------- -----------
Total liabilities 3,958,528 4,594,144
----------- -----------
</TABLE>
3
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EAGLE POINT SOFTWARE CORPORATION
BALANCE SHEETS (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
----------- -----------
1996 1995
STOCKHOLDERS' EQUITY: (Unaudited) (Audited)
<S> <C> <C>
Preferred stock, $.01 par value; 1,000,000
shares authorized; none issued
Common stock, $.01 par value; 20,000,000
shares authorized; 4,941,730 and 4,912,000
shares issued and outstanding at March 31,
1996 and June 30, 1995, respectively 49,417 49,120
Additional paid-in capital 17,535,942 17,477,138
Retained earnings 2,940,481 1,459,068
----------- -----------
Total stockholders' equity 20,525,840 18,985,326
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $24,484,368 $23,579,470
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
<TABLE>
<CAPTION>
EAGLE POINT SOFTWARE CORPORATION
STATEMENTS OF INCOME
- -----------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
-------------------------- -----------------------------
1996 1995 1996 1995
(Unaudited) (Unaudited) (Unaudited) (Audited)
<S> <C> <C> <C> <C>
Net revenues:
Product sales $3,281,828 $3,720,708 $10,931,164 $ 9,512,092
Training and support 1,223,516 661,548 3,411,788 1,630,230
---------- ---------- ----------- -----------
Total net revenues 4,505,344 4,382,256 14,342,952 11,142,322
---------- ---------- ----------- -----------
Cost of revenues:
Product sales 1,012,196 1,339,232 3,198,747 3,103,308
Training and support 152,311 138,697 495,075 297,549
---------- ---------- ----------- -----------
Total cost of revenues 1,164,507 1,477,929 3,693,822 3,400,857
---------- ---------- ----------- -----------
Gross profit 3,340,837 2,904,327 10,649,130 7,741,465
---------- ---------- ----------- -----------
Operating expenses:
Selling and marketing 1,659,853 1,081,921 4,819,301 2,944,809
Research and development 949,778 598,036 2,623,951 1,412,966
General and administrative 397,755 391,323 1,178,216 1,111,815
Acquisition related charges 2,733 1,038,764 43,075 1,038,764
---------- ---------- ----------- -----------
Total operating expenses 3,010,119 3,110,044 8,664,543 6,508,354
---------- ---------- ----------- -----------
Operating income 330,718 (205,717) 1,984,587 1,233,111
Other income (expense):
Interest income (expense) 164,210 (44,436) 549,714 (147,601)
Other income, net 5,932 3,513 22,709 27,024
---------- ---------- ----------- -----------
Income before income taxes 500,860 (246,640) 2,557,010 1,112,534
Income tax expense 195,383 (111,281) 883,700 324,655
---------- ---------- ----------- -----------
Net income $ 305,477 $ (135,359) $ 1,673,310 $ 787,879
========== ========== =========== ===========
Weighted average common and common
equivalent shares outstanding 4,970,906 3,412,000 4,971,288 3,935,629
========== ========== =========== ===========
Net income per common and common
equivalent share $0.06 $(0.04) $0.34 $0.20
========== ========== =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
EAGLE POINT SOFTWARE CORPORATION
STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
NINE MONTHS ENDED MARCH 31,
---------------------------
1996 1995
(Unaudited) (Audited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,673,311 $ 787,879
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 528,846 334,187
Amortization of software development costs 248,293 250,900
Acquisition related charges 0 1,038,764
Changes in assets and liabilities:
Accounts receivable (1,335,638) (749,792)
Inventories 51,035 (391,485)
Prepaid expenses (13,211) (152,532)
Accounts payable (299,476) 256,451
Income taxes payable (798,676) (20,894)
Deferred revenues 350,898 479,163
Accrued expenses (206,915) 321,774
Other 71,386 (2,828)
------------ ------------
Net cash provided by (used in)
operating activities 269,853 2,151,587
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (1,616,797) (561,171)
Capitalized software development cost (129,500) (92,705)
Payments to acquire companies, net of
cash acquired 0 (728,473)
------------ ------------
Net cash used in investing
activities (1,746,297) (1,382,349)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in long-term debt (177,518) 229,019
Purchase and retirement of common stock 0 (991,264)
------------ ------------
Net cash used in financing
activities (177,518) (762,245)
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (1,653,962) 6,993
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 15,742,926 622,405
------------ ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $14,088,964 $ 629,398
============ ============
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
EAGLE POINT SOFTWARE CORPORATION
STATEMENTS OF CASH FLOWS (CONTINUED)
- --------------------------------------------------------------------------------
NINE MONTHS ENDED MARCH 31,
---------------------------
1996 1995
(Unaudited) (Audited)
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid (received) for:
Interest $ (549,714) $ 142,700
========== ==========
Income taxes $1,712,415 $ 345,947
========== ==========
Non-cash investing and financing activities:
Debt & non-current liabilities
business acquisitions $ 0 $ 97,887
Debt issued in business acquisitions 186,175 173,580
Common stock issued in business combination (132,797) 296,000
Payments to acquire companies, net of cash acquired:
Fair value of assets acquired $ 0 $1,363,635
Liabilities assumed 0 (165,582)
Long-term debt issued 0 (173,580)
Common stock issued 0 (296,000)
---------- ----------
$ 0 $ 728,473
========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
1. Interim Financial Statements
The accompanying financial statements of Eagle Point Software Corporation (the
"Company") are unaudited. In the opinion of the Company's management, the
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary to state fairly the financial position of the
Company as of March 31, 1996 and June 30, 1995, and the results of operations
and cash flows for the three-month and nine-month periods ended March 31, 1996
and 1995.
Certain notes and other information have been condensed or omitted from the
interim financial statements presented in this quarterly report on Form 10-Q.
Accordingly, these financial statements should be read in conjunction with the
Company's annual report on Form 10-K for the year ended June 30, 1995.
2. Business Combination
In November,1995 the Company merged with ECOM Associates, Inc., a Wisconsin
corporation ("ECOM"), exchanging all the capital stock of ECOM for 29,730 shares
of the Company's common stock. The transaction was accounted for as a pooling
of interests. The pooling did not have a material effect on the financial
statements previously presented and therefore such statements have not been
restated. ECOM, located in Milwaukee, Wisconsin, is a software developer for the
structural engineering marketplace
3. Statement of Financial Accounting Standards
During October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("FAS123"). FAS123 encourages companies to adopt a fair value
method of accounting for employee stock-based compensation and requires fair
value accounting for equity instrument issued to non-employees. FAS123, which
is effective for fiscal years beginning after December 15, 1995, also requires
certain disclosures regarding the fair value of stock-based arrangements.
Management has decided not to adopt the fair value method of accounting for
employee stock-based compensation.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Net revenues increased by $3.2 million, or 28.7%, to $14.3 million for the
nine months ended March 31, 1996 (the "1996 Period"), from $11.1 million for the
nine months ended March 31, 1995 (the "1995 Period"). The company experienced
growth in both product sales and training and support revenues. The increase in
product sales was attributable primarily to increased sales and marketing
efforts and to an expansion of the number of modules included in the product
line. At March 31, 1996, the Company's product line included 89 modules,
compared to 62 modules at March 31, 1995. Approximately 2% of the Company's net
revenues in the 1996 Period were attributable to sales of modules added to the
Company's product line in connection with the ECOM merger, which was consummated
in November 1995. Training and support revenues during the 1996 Period were
favorably affected by the Company's larger installed base of customers and an
increased emphasis by the Company on customer training.
Though net revenues were at increased levels, they were adversely impacted,
in part, by a soft market for AutoCAD and AutoCAD related products due to delays
by AutoDesk in the release of its AutoCAD Release 13 C4 product and lower than
anticipated levels of purchases of the new version immediately following it's
release. The C4 version of the software was released in late January 1996, and
is too early to predict the level of the market's acceptance of this version of
the software. However, because a substantial portion of the Company's revenues
are attributable to the sale of software for use with AutoCAD or to the resale
of AutoCAD, the failure of the market to accept such new version could continue
to adversely affect the Company's results of operations. Additionally revenues
were adversely impacted in the 1996 Period by customers who delayed purchases of
the Company's products as they invested in upgrading their hardware and software
from DOS to Windows95 and Windows NT. To a lesser extent, revenues were also
adversely impacted by some governmental agencies delaying purchases of the
Company's products due to the uncertainty regarding the federal budget. There
can be no assurances that any or all of these factors will not continue to
adversely effect the Company's net revenues or results of operations.
Gross profit increased $2.9 million, or 37.6%, to $10.6 million for the 1996
Period from $7.7 million for the 1995 Period as a result of the increase in net
revenues. Gross profit as a percentage of net revenues increased to 74.2% in
the 1996 Period from 69.5% in the 1995 Period. Gross profit as a percentage of
corresponding net revenues relating to product sales increased to 70.7% in the
1996 Period from 67.4% in the 1995 Period primarily due to an increased
percentage of sales of Eagle Point's software products and a reduced percentage
of resales of AutoCAD in the sales mix. Gross profit as a percentage of
corresponding net revenues relating to training and support increased to 85.5%
in the 1996 Period from 81.8% in the 1995 Period.
Selling and marketing expense increased $1.9 million, or 63.7%, to $4.8
million in the 1996 Period from $2.9 million in the 1995 Period. As a
percentage of net revenues, selling and marketing expenses increased to 33.6% in
the 1996 Period from 26.4% in the 1995 Period. The increase was primarily
attributable to expanded direct marketing, advertising and other promotional
activities and higher personnel costs associated with the growth in sales
volume.
9
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Research and development expense increased $1.2 million, or 85.7%, to $2.6
million in the 1996 Period from $1.4 million in the 1995 Period. As a percentage
of net revenues, research and development expenses increased to 18.3% in the
1996 Period from 12.7% in the 1995 Period. The increase is primarily
attributable to higher personnel costs associated with an expanded research and
development staff.
General and administrative expense increased $66,000, or 6.0%, to $1.2
million in the 1996 Period from $1.1 million in the 1995 Period. As a percentage
of net revenues, general and administrative expense decreased to 8.2% in the
1996 Period from 10.0% in the 1995 Period. This is due to economies of scale
gained with certain fixed overhead expenses and higher than normal legal fees in
the 1995 Period relating to the redemption of common stock.
Operating income increased $752,000, or 60.9%, to $2.0 million in the 1996
Period from $1.2 million in the 1995 Period and, as a percentage of net
revenues, increased to 13.8% in the 1996 Period from 11.1% in the 1995 Period as
a result of the factors described above. Additionally, in the 1996 Period the
Company experienced merger related charges of $40,000 relating to the ECOM
merger which took place in November 1995 and in the 1995 Period the Company
experienced acquisition related charges of $1.0 million relating to the
acquisitions of LANDCADD, Inc. and Facility Mapping Systems, Inc. which took
place in January 1995 and March 1995, respectively. Excluding merger/acquisition
related charges, operating income decreased $244,000 to $2.0 million in the 1996
period from $2.3 million in the 1995 Period and as a percentage of revenues
decreased to 14.1% in the 1996 Period from 20.4% in the 1995 Period. This
decrease is primarily due to the revenues being adversely impacted by the
factors described above.
Net other income increased $693,000, to $572,000 in the 1996 Period from a
net other expense level of $121,000 in the 1995 Period. The 1996 Period income
position is largely due to interest income earned from investments principally
resulting from the Company's initial public offering of common stock in June
1995. The interest expense position for the 1995 Period is primarily due to debt
relating to the Company's headquarters and principal operating facility located
in Dubuque, Iowa (the "Dubuque Facility".)
The Company's effective tax rate on income from continuing operations was
34.6% for the 1996 Period compared to 29.2% in the 1995 Period. The Company's
effective income tax rates for both periods were below statutory rates,
primarily due to research and development tax credits. However, the increase for
the 1996 Period was due to the expiration of the research and development tax
credits for a portion of the 1996 Period. The research and development tax
credit was expected to be renewed, but due to the current federal budget
uncertainty, there can be no assurances that the research and development credit
will be renewed. Without these credits the Company would experience an effective
income tax rate closer to the statutory rate. Exclusive of the acquisition
related charges, the effective income tax rate would have been 34.6% for the
1996 Period and 32.1% for the 1995 Period.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The Company has begun the expansion of its Dubuque Facility, the cost of
which is estimated to be between $3 million and $4 million, and to date has
expended less than $500,000 on this project. The expansion is expected to be
completed by August 1996.
The Company's financial position remains strong, with working capital of
$15.6 million and long term debt of $692,000. Cash and short-term investments
aggregated approximately $14.1 million at March 31, 1996. The Company also has
available a $2.0 million unsecured line of credit from its principal commercial
bank. The Company believes that existing cash balances, together with funds
generated from operations and borrowings available under its line of credit,
will be sufficient to fund its operations through fiscal 1997.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
11 Statement Regarding Computation of Net Earnings Per Share
(b) Reports on Form 8-K:
None.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned,
thereunto duly authorized.
EAGLE POINT SOFTWARE CORPORATION
--------------------------------
(Registrant)
Date: May 14, 1996 BY: /s/ Rodney L. Blum
- ------------------- -----------------------------------
Rodney L. Blum
Chariman, President and Chief
Executive Officer
Date: May 14, 1996 BY: /s/ Dennis J. George
- ------------------- -----------------------------------
Dennis J. George
Vice President, Chief Financial
Officer, Treasurer and Secretary
(Principal Financial and Accounting
Officer)
13
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EXHIBIT INDEX
-------------
Exhibit No. Description Page No.
- ----------- ----------- --------
11 --- Statement re: computation of net earnings per share
14
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EXHIBIT 11
EAGLE POINT SOFTWARE CORPORATION
STATEMENT REGARDING COMPUTATION OF NET EARNINGS PER SHARE
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31,
---------------------------
1996 1995
<S> <C> <C>
SHARES USED IN DETERMINING PRIMARY
EARNINGS PER SHARE:
Weighted average common shares
outstanding 4,927,568 3,925,538
Weighted average common shares issued
within a one year period prior to the
Company's stock offering, at prices
below the offering price of $13.00
per share 10,091
Net effect of stock options based on
the treasury stock method using the
average market price during the period 43,720
--------- ---------
Total weighted average common and
common equivalent shares
outstanding 4,971,288 3,935,629
========= =========
SHARES USED IN DETERMINING FULLY
DILUTED EARNINGS PER SHARE:
Weighted average common shares
outstanding 4,927,568 3,925,538
Weighted average common shares issued
within a one year period prior to the
Company's stock offering, at prices
below the offering price of $13.00
per share 10,091
Net effect of stock options based on
the treasury stock method using the
average market price or market price
at the end of the period, whichever
is higher 43,720
--------- ---------
Total weighted average common and
common equivalent shares
outstanding 4,971,288 3,935,629
========= =========
</TABLE>
15
