<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 September 30, 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
or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
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 November 14, 1996:
4,941,730 shares
_______________________________________________________________________________
<PAGE>
EAGLE POINT SOFTWARE CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
INDEX
PART I. FINANCIAL INFORMATION
-----------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Item 1. Financial Statements (Unaudited)
Balance Sheets -
September 30, 1996 and June 30, 1996 3
Statements of Income -
for the three months ended September 30, 1996 and 1995 5
Statements of Cash Flows -
for the three months ended September 30, 1996 and 1995 6
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
--------------------------
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
EAGLE POINT SOFTWARE CORPORATION
BALANCE SHEETS
- --------------------------------------------------------------------------------
SEPTEMBER 30, JUNE 30,
1996 1996
------------- -----------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,509,034 $ 3,106,704
Short-term investments 4,997,265 7,508,561
Accounts receivable (net of
allowances of $192,300 and $251,344,
respectively) 2,495,225 3,857,170
Income tax receivable 90,966
Interest receivable 106,831 255,290
Inventories 565,801 369,172
Prepaid expenses 325,607 150,081
Other assets 30,003 22,933
----------- -----------
Total current assets 13,120,732 15,269,911
INVESTMENTS 2,471,724 2,466,032
PROPERTY & EQUIPMENT (net of
accumulated depreciation of $2,398,487
and $2,178,552, respectively) 7,293,332 5,945,320
SOFTWARE DEVELOPMENT COSTS (net of
accumulated amortization of
$245,334 and $242,753, respectively) 401,808 213,417
GOODWILL (net of accumulated
amortization of $66,191 and
$52,600, respectively) 213,646 203,174
DEFERRED INCOME TAXES 497,945 497,945
----------- -----------
TOTAL ASSETS $23,999,187 $24,595,799
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 254,436 $ 288,523
Accounts payable 515,351 252,768
Accrued expenses 1,018,003 966,754
Income taxes payable 0 3,051
Deferred revenues 902,591 1,540,998
Deferred income taxes 2,590 2,590
----------- -----------
Total current liabilities 2,692,971 3,054,684
LONG-TERM DEBT 450,017 502,187
CEBA FORGIVABLE LOAN 0 110,000
----------- -----------
Total liabilities $ 3,142,988 $ 3,666,871
----------- -----------
</TABLE>
3
<PAGE>
EAGLE POINT SOFTWARE CORPORATION
BALANCE SHEETS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
------------- ----------
1996 1996
STOCKHOLDERS' EQUITY: (Unaudited) (Audited)
<S> <C> <C>
Preferred stock, $.01 par value;
1,000,000 shares authorized; none
issued at September 30, 1996 and June 30, 1996
Common stock, $.01 par value;
20,000,000 shares authorized; 4,941,730 shares
issued and outstanding at
September 30, 1996 and June 30, 1996 49,417 49,417
Additional paid-in capital 17,535,942 17,535,942
Retained earnings 3,270,840 3,343,569
----------- -----------
Total stockholders' equity 20,856,199 20,928,928
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $23,999,187 $24,595,799
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
EAGLE POINT SOFTWARE CORPORATION
STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------
1996 1995
(Unaudited) (Unaudited)
<S> <C> <C>
Net revenues:
Product sales $3,071,748 $3,771,505
Training and support 1,080,687 1,034,713
---------- ----------
Total net revenues 4,152,435 4,806,218
---------- ----------
Cost of revenues:
Product sales 1,076,348 1,099,354
Training and support 171,199 163,044
---------- ----------
Total cost of revenues 1,247,547 1,262,398
---------- ----------
Gross profit 2,904,888 3,543,820
---------- ----------
Operating expenses:
Selling and marketing 1,421,815 1,532,382
Research and development 911,904 837,716
General and administrative 509,248 367,451
Charge for purchased research and
development and other acquisition related costs 475,393
---------- ----------
Total operating expenses 3,318,360 2,737,549
---------- ----------
Operating income (loss) (413,472) 806,271
Other income (expense):
Interest income (expense) 158,700 204,168
Other income, net 119,662 2,337
---------- ----------
Income (loss) before income taxes (135,110) 1,012,776
Income tax expense (benefit) (62,381) 330,636
---------- ----------
Net income (loss) ($72,729) $ 682,140
========== ==========
Weighted average common and common equivalent
shares outstanding 4,941,730 4,968,544
========== ==========
Net income (loss) per common and common
equivalent share ($0.01) $0.14
========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
EAGLE POINT SOFTWARE CORPORATION
STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1996 1995
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ (72,729) $ 682,140
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 233,526 165,059
Amortization of software
development costs 43,830 79,997
Charge for purchased research and
development 475,393
Forgiveness of CEBA Loan (110,000)
Changes in assets and liabilities:
Accounts receivable 1,361,945 (440,844)
Interest receivable 148,459
Income tax receivable (90,966)
Inventories (196,629) 36,733
Prepaid expenses (175,526) (256,021)
Accounts payable 262,583 (203,395)
Income taxes payable (3,051) (280,765)
Deferred revenues (638,407) 10,728
Accrued expenses 51,249 (359,684)
Other (7,070) (883)
---------- -----------
Net cash provided by (used
in) operating activities 1,282,607 (566,935)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in short-term bills 2,505,603
Purchases of property and equipment, net (1,547,947) (241,468)
Purchases of software (200,000)
Payments to acquire companies, net of
cash acquired (551,676)
---------- -----------
Net cash provided by (used
in) investing activities 205,980 (241,468)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (86,257) (3,064)
---------- -----------
Net cash provided by (used
in) financing activities (86,257) (3,064)
---------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 1,402,330 (811,467)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 3,106,704 15,742,926
---------- -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $4,509,034 $14,931,459
========== ===========
</TABLE>
6
<PAGE>
EAGLE POINT SOFTWARE CORPORATION
STATEMENTS OF CASH FLOWS (CONTINUED)
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------
1996 1995
(Unaudited) (Unaudited)
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid (received) for:
Interest expense $ 13,526 $ 5,295
========== ==========
Income taxes $316,165 $617,248
========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 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 September 30, 1996 and June 30, 1996, and the results of
operations and cash flows for the three-month period ended September 30, 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, 1996.
2. INCOME TAXES
Income taxes differ from statutory rates principally due to research and
development tax credits. The research and development tax credits expired and
were not available for the period July 1, 1995 to June 30, 1996. Effective July
1, 1996 through June 30, 1997, the federal government has reinstated the
research and development tax credits. No assurance can be given that this tax
credit will continue beyond June 30, 1997.
3. BUSINESS COMBINATION
On July 29, 1996, the Company purchased substantially all of the assets of
Computer Integrated Building Corporation, a California Corporation ("CIBC"). The
purchase price was $551,676 cash. Additionally, the Company is obligated to make
a contingent cash payment equal to (1) 75% of the revenues between $550,000 and
$743,400 received by the Company in connection with the sale of CIBC's products
during the 12 month period ending July 29, 1997, plus (2) 50% of such revenues
exceeding $743,400 during the 12 month period ending July 29, 1997. As part of
the acquisition, a three year non-compete agreement was entered into between the
Company and the former owners of CIBC. CIBC, located in Sebastopol, California,
is a software developer for the home builder marketplace.
4. 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
<PAGE>
5. CEBA FORGIVABLE LOAN
The Company entered into an agreement with the Iowa Department of Economic
Development, and the City of Dubuque, Iowa for the purpose of securing a
forgivable loan in support of economic development. The proceeds from the loan
were designated to purchase machinery, equipment, and furniture and fixtures.
As the Company has met all the necessary requirements outlined in the agreement
for waiver of the principal and interest as of September 30, 1996, the Company
has recognized the $110,000 principal as other income.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Net revenues decreased by $654,000, or 13.6%, to $4.2 million for the three
months ended September 30, 1996 (the "1996 Period"), from $4.8 million for the
three months ended September 30, 1995 (the "1995 Period"). While the Company
experienced a decrease in product sales, the Company experienced growth in
training and support revenues. The decrease in product sales was primarily
attributable to a soft AutoCAD and AutoCAD-related market as well as the
negative impact from customers delaying purchases of Eagle Point products as
they invest in upgrading their hardware and software as they move from DOS to
Windows. These market conditions have negatively effected the Company's results
of operations over the past four quarters and there can be no assurance that
such conditions will not continue to adversely effect the Company's net revenues
or results of operations. 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.
Gross profit decreased $639,000, or 18.0%, to $2.9 million for the 1996
Period from $3.5 million for the 1995 Period as a result of the decrease in net
revenues. Gross profit as a percentage of net revenues decreased to 70.0% in the
1996 Period from 73.7% in the 1995 Period. Gross profit as a percentage of
corresponding net revenues relating to product sales decreased to 65.0% in the
1996 Period from 70.9% in the 1995 Period primarily due to a reduced percentage
of sales of Eagle Point's software products and an increased percentage of
resales of AutoCAD in the sales mix. The sales of Eagle Point products, which
carry with them a higher gross profit margin, decreased to 80% of product sales
in the 1996 Period from 81.4% in the 1995 Period. The resales of AutoCAD, which
carry with them a lower gross profit margin, increased to 20.0% of product sales
in the 1996 Period from 18.4% in the 1995 Period. Gross profit as a percentage
of corresponding net revenues relating to training and support in the 1996
Period remained the same as in the 1995 Period at 84.2%.
Selling and marketing expense decreased $111,000, or 7.2%, to $1.4 million
in the 1996 Period from $1.5 million in the 1995 Period. As a percentage of net
revenues, selling and marketing expenses increased to 34.2% in the 1996 Period
from 31.9% in the 1995 Period. The decrease in expenses was primarily
attributable to lower personnel costs associated with a reduced selling and
marketing staff size.
Research and development expense increased $74,000, or 8.9%, to $912,000 in
the 1996 Period from $838,000 in the 1995 Period. As a percentage of net
revenues, research and development expenses increased to 22.0% in the 1996
Period from 17.4% 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 $142,000, or 38.6%, to
$509,000 in the 1996 Period from $367,000 in the 1995 Period. As a percentage of
net revenues, general and administrative expense increased to 12.3% in the 1996
Period from 7.6% in the 1995 Period. This increase is due to increased costs
relating to the Company's expansion of the facilities, risk
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
management costs, and higher personnel costs associated with increased general
and administrative staff.
Operating income from continuing operations decreased to a net loss of
$413,000 in the 1996 Period from $806,000 in the 1995 Period. Excluding the
$475,000 charge for purchased research and development incurred in the 1996
Period in connection with the CIBC acquisition, operating income from continuing
operations decreased $744,000 to $62,000 in the 1996 Period from $806,000 in the
1995 Period, and as a percentage of revenues decreased to 1.5% in the 1996
Period from 16.8% in the 1995 Period, as a result of the factors described
above.
Interest expense increased $8,000 to $14,000 in the 1996 Period from $6,000
in the 1995 Period. Interest income decreased $37,000 to $173,000 in the 1996
Period from $210,000 in the 1995 Period. The decrease in interest income was due
to a reduction in the Company's cash and cash investment primarily relating to
the funding of the expansion of the Company's headquarters and principal
operating facilities located in Dubuque, Iowa.
The Company received a non-recurring one-time gain of $110,000 in other
income in the 1996 Period. The gain resulted from the scheduled forgiveness of
debt relating to an economic development loan the Company received from the
State of Iowa (See Note 5 of "Notes to Financial Statements"). None of the
Company's current indebtedness are forgivable loans nor does the company expect
to receive any additional forgivable loans in the future.
LIQUIDITY AND CAPITAL RESOURCES
Since November 1995, the Company has been in the process of expanding the
Dubuque Facility. The Company estimates the cost of the expansion project
including related data systems, furniture and equipment to be between $3.5
million and $4.0 million. As of September 30, 1996, the Company had expended
$2.7 million toward this expansion project.
On July 29, 1996, the Company completed the CIBC acquisition. The purchase
price was $551,676 cash. Additionally, the Company is obligated to make a
contingent cash payment equal to (1) 75% of the revenues between $550,000 and
$743,400 received by the Company in connection with the sale of CIBC's products
during the 12 month period ending July 29, 1997, plus (2) 50% of such revenues
exceeding $743,400 during the 12 month period ending July 29, 1997.
The Company's financial position remains strong, with working capital of
$10.4 million and long-term debt of only $450,000. Cash, short-term, and long-
term investments aggregated approximately $11.9 million at September 30, 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
On July 29, 1996, the Company purchased substantially all of the assets of
Computer Integrated Building Corporation, a California Corporation ("CIBC"). The
purchase price was $551,676 cash. Additionally, the Company is obligated to make
a contingent cash payment equal to (1) 75% of the revenues between $550,000 and
$743,400 received by the Company in connection with the sale of CIBC's products
during the 12 month period ending July 29, 1997, plus (2) 50% of such revenues
exceeding $743,400 during the 12 month period ending July 29, 1997. As part of
the acquisition, a three year non-compete agreement was entered into between the
Company and the former owners of CIBC. CIBC, located in Sebastopol, California,
is a software developer for the home builder marketplace.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
11 Statement Regarding Computation of Net Earnings Per Share
27 Financial Data Schedule
(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: November 14, 1996 BY: /s/ Rodney L. Blum
- ------------------------ ------------------------------------------
Rodney L. Blum
Chairman, President and Chief
Executive Officer
Date: November 14, 1996 BY: /s/ Dennis J. George
- ------------------------ ------------------------------------------
Dennis J. George
Vice President, Chief Financial
Officer, Treasurer and Secretary
(Principal Financial and Accounting
Officer)
13
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
11 --- Statement re: computation of net earnings per share
27 --- Financial Data Schedule
</TABLE>
14
<PAGE>
EXHIBIT 11
<TABLE>
<CAPTION>
EAGLE POINT SOFTWARE CORPORATION
STATEMENT REGARDING COMPUTATION OF NET EARNINGS PER SHARE
- --------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1996 1995
<S> <C> <C>
SHARES USED IN DETERMINING PRIMARY EARNINGS
PER SHARE:
Weighted average common shares outstanding 4,941,730 4,912,000
Net effect of stock options based on the treasury stock
method using the average market price during the period 0 56,544
--------- ---------
Total weighted average common and common equivalent
shares outstanding 4,941,730 4,968,544
========= =========
SHARES USED IN DETERMINING FULLY DILUTED
EARNINGS PER SHARE:
Weighted average common shares outstanding 4,941,730 4,912,000
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 0 56,544
--------- ---------
Total weighted average common and common equivalent
shares outstanding 4,941,730 4,968,544
========= =========
</TABLE>
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,509,034
<SECURITIES> 4,997,263
<RECEIVABLES> 2,672,783
<ALLOWANCES> 192,300
<INVENTORY> 565,801
<CURRENT-ASSETS> 13,109,346
<PP&E> 9,691,819
<DEPRECIATION> 2,398,487
<TOTAL-ASSETS> 23,999,187
<CURRENT-LIABILITIES> 2,692,971
<BONDS> 704,453
<COMMON> 49,417
0
0
<OTHER-SE> 20,806,782
<TOTAL-LIABILITY-AND-EQUITY> 23,999,187
<SALES> 4,152,435
<TOTAL-REVENUES> 4,152,435
<CGS> 1,102,790
<TOTAL-COSTS> 1,102,790
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 104,868
<INTEREST-EXPENSE> 14,103
<INCOME-PRETAX> (135,111)
<INCOME-TAX> (62,381)
<INCOME-CONTINUING> (72,729)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (72,729)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
