<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, 1997
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 November 14, 1997:
4,805,654 shares
- --------------------------------------------------------------------------------
<PAGE>
Eagle Point Software Corporation
Form 10-Q
For the quarter ended September 30, 1997
Index
<TABLE>
<CAPTION>
PART I. Financial Information
-----------------------------
Page
----
<S> <C>
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets -
September 30, 1997 and June 30, 1997 3
Consolidated Statements of Operations -
for the three months ended September 30, 1997 and 1996 5
Consolidated Statements of Cash Flows -
for the three months ended September 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. Other Information
--------------------------
Item 1. Legal Proceedings 12
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. Consolidated Financial Statements
EAGLE POINT SOFTWARE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
September 30, June 30,
-------------- -----------
1997 1997
ASSETS (Unaudited) (Audited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 2,783,809 $ 8,806,452
Short-term investments 6,498,960 2,488,616
Accounts receivable (net of allowances of $196,778 and $206,385, respectively) 1,143,811 1,800,698
Income tax receivable 251,669 439,146
Interest receivable 32,813
Deferred income taxes 134,694 134,694
Inventories 353,674 509,328
Prepaid expenses and other assets 219,414 97,048
----------- -----------
Total current assets 11,418,844 14,275,982
INVESTMENTS 3,004,402
PROPERTY & EQUIPMENT, NET 7,445,772 7,525,413
SOFTWARE DEVELOPMENT COSTS (net of accumulated amortization of
$79,858 and $119,262, respectively) 62,197 81,780
NON-COMPETE AGREEMENTS (net of accumulated amortization of $101,666
and $131,389 respectively) 202,537 227,595
DEFERRED INCOME TAXES 856,685 856,685
----------- -----------
TOTAL ASSETS $22,990,437 $22,967,455
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 153,640 $ 257,981
Accounts payable 535,338 485,817
Accrued expenses 871,369 1,042,778
Deferred revenues 1,487,307 1,060,780
----------- -----------
Total current liabilities 3,047,654 2,847,356
LONG-TERM DEBT 292,141 319,567
DEFERRED REVENUES 51,671 44,260
----------- -----------
Total liabilities $ 3,391,466 $ 3,211,183
----------- -----------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
EAGLE POINT SOFTWARE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Continued)
=============================================================================================================================
SEPTEMBER 30, JUNE 30,
----------------- -----------------
1997 1997
STOCKHOLDERS' EQUITY: (Unaudited) (Audited)
<S> <C> <C>
Preferred stock, $.01 par value; 1,000,000 shares authorized; none issued
at September 30, 1997 and June 30, 1997
Common stock, $.01 par value; 20,000,000 shares authorized; 4,941,730 shares
issued and outstanding at September 30, 1997 and June 30, 1997 49,417 49,417
Additional paid-in capital 17,535,942 17,535,942
Retained earnings 2,554,740 2,679,788
----------------- -----------------
20,140,099 20,265,147
Treasury stock, at cost; 136,076 shares at September 30, 1997 and 123,000 shares
at June 30, 1997 (541,128) (508,875)
----------------- -----------------
Total stockholders' equity 19,598,971 19,756,272
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $22,990,437 $22,967,455
================= =================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
EAGLE POINT SOFTWARE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
==============================================================================================================================
Three Months Ended
September 30,
------------------------------------------------------
1997 1996
(Unaudited) (Unaudited)
<S> <C> <C>
Net revenues:
Product sales $2,264,986 $3,071,748
Training and support 636,826 1,080,687
---------------------- --------------------
Total net revenues 2,901,812 4,152,435
---------------------- --------------------
Cost of revenues:
Product sales 788,244 1,076,348
Training and support 144,300 171,199
---------------------- --------------------
Total cost of revenues 932,544 1,247,547
---------------------- --------------------
Gross profit 1,969,268 2,904,888
---------------------- --------------------
Operating expenses:
Selling and marketing 987,301 1,421,815
Research and development 846,130 911,904
General and administrative 495,639 509,248
Non-recurring charges - 475,393
---------------------- --------------------
Total Operating Expenses 2,329,070 3,318,360
---------------------- --------------------
Operating loss from continuing operations (359,802) (413,472)
Other income, net:
Interest income, net of expense 147,245 158,700
Other income, net 2,262 119,662
---------------------- --------------------
Loss from continuing operations before income taxes (210,295) (135,110)
Income tax benefit (91,359) (62,381)
---------------------- --------------------
Net loss ($118,936) ($72,729)
====================== ====================
Weighted average common and common equivalent
shares outstanding 4,826,457 4,941,730
====================== ====================
Loss per common and common
equivalent share ($0.02) ($0.01)
====================== ====================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
5
<PAGE>
EAGLE POINT SOFTWARE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------------------------------------
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited) (Unaudited)
<S> <C> <C>
Net loss ($118,936) ($72,729)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 288,580 233,526
Amortization of software development costs 19,583 43,830
Charge for purchased research and development - 475,393
Loss on issuance of treasury stock 6,112 -
Forgiveness of CEBA Loan - (110,000)
Changes in assets and liabilities, net of assets and
liabilities acquired in connection with the acquisition
of CIBC:
Accounts receivable 656,887 1,361,945
Interest receivable (32,813) 148,459
Income tax receivable 187,477 (90,966)
Inventories 155,654 (196,629)
Prepaid expenses (122,367) (175,526)
Accounts payable 49,521 262,583
Deferred revenues 433,939 (638,407)
Accrued expenses (171,409) 51,249
Other 3,256 (10,121)
------------------ ------------------
Net cash provided by operating activities 1,355,484 1,282,607
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in short-term bills (7,014,746) 2,505,603
Purchases of property and equipment, net (193,251) (1,547,947)
Purchases of software - (200,000)
Payments to acquire companies, net of cash acquired - (551,676)
------------------ ------------------
Net cash provided by (used in) in investing
activities (7,207,997) 205,980
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (131,767) (86,257)
Purchases of treasury stock (118,816) -
Proceeds from issuance of treasury stock 80,453
------------------ ------------------
Net cash used in financing activities (170,130) (86,257)
------------------ ------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (6,022,643) 1,402,330
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 8,806,452 3,106,704
------------------ ------------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 2,783,809 $ 4,509,034
================== ==================
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
EAGLE POINT SOFTWARE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------------------
Three Months Ended
September 30,
-------------------------------------------------
<S> <C> <C>
1997 1996
(Unaudited) (Unaudited)
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid (received) for:
Interest ($65,563) $ 13,526
================= ==================
Income taxes ($280,759) $316,165
================= ==================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
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, 1997 and June 30, 1997, and the results of
operations and cash flows for the three-month period ended September 30, 1997
and 1996.
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, 1997.
2. Deferred Revenues and Revenue Recognition
The Company derives substantially all of its product revenues from the license
of its software products. Revenue is recognized upon shipment of the product,
provided that no significant vendor, post-contract support, or product upgrade
obligations remain outstanding and collection of the resulting receivable is
deemed probable. The Company has no significant vendor and post-contract
support obligations associated with its product sales. Dependent upon the
timing of future product upgrade releases and market conditions, the Company
may extend promotions where product upgrade obligations are associated with the
shipment of software products. Based upon the terms of the promotions extended,
a portion or all of the product revenues may be deferred until the promotional
product upgrade is released and subsequently shipped. The Company recognizes
its service revenues from maintenance and support contracts ratably over the
period of the arrangements. These contracts generally have terms of one year or
less. The Company recognizes its service revenues from training arrangements in
the period in which the training occurs. The Company's product returns
historically have been insignificant.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Information
This quarterly report on Form 10-Q contains forward looking statements,
including without limitation, the results of any litigation brought against the
Company. These forward looking statements involve risks and uncertainties,
which could cause actual results to differ from those projected. These as well
as other risks and uncertainties are detailed from time to time in reports filed
by the Company with the Securities and Exchange Commission, including this
report on Form 10-Q for the quarter ended September 30, 1997 and the Company's
Report on Form 10-K for the year ended June 30, 1997.
Results of Operations
Net revenues decreased $1.3 million, or 30.1%, to $2.9 million for the
three months ended September 30, 1997 (the "1997 Period"), from $4.2 million for
the three months ended September 30, 1996 (the "1996 Period"). The Company
experienced a decrease in product sales and training and support sales as a
result of many factors, including a changing competitive environment resulting
from the merger between Autodesk, Inc. and Softdesk, Inc. Autodesk, the company
whose CAD platform the majority of the Company's business is based upon,
controls a significant portion of the AEC market, and Softdesk, Inc. was a major
competitor of Eagle Point. Additionally, Bentley Systems, the developer of the
Microstation CAD platform upon which a portion of the Company's civil
engineering/surveying modules are based, purchased an equity interest in GeoPak,
also a competitor of Eagle Point. In both of these situations, Eagle Point is
now competing with companies with whom it previously did not compete. As further
evidence of the new competitive pressures, Autodesk has notified Eagle Point
that as of January 31, 1998, Eagle Point will no longer be allowed to resell
AutoCAD. These resales accounted for approximately 22%, or $630,000, of the
Company's revenues and 7%, or $135,000, of the Company's gross profit for the
1997 Period. This will have an adverse effect on the Company's revenues and
gross profit and could have an adverse effect on the Company's ability to sell
its own products. Difficulty in the marketplace is further compounded by delays
in upgrades to certain Eagle Point products as a result of a need to focus,
during 1995 and much of 1996, on addressing quality issues surrounding
Autodesk's November, 1994 introduction of its AutoCAD Release 13 product. In
addition, $223,000 of the quarter's software revenues, that were part of a
continuing upgrade promotion, were deferred. The revenues deferred under this
promotion will be recognized upon the future release and subsequent shipment of
the product upgrades.
Gross profit decreased $936,000, or 32.2% to $2.0 million for the 1997
Period from $2.9 million for the 1996 Period as a result of the decrease in net
revenues. Gross profit as a percentage of net revenues decreased to 67.9% in the
1997 Period from 70.0% in the 1996 Period. Gross profit as a percentage of
corresponding net revenues relating to product sales increased slightly to 65.2%
in the 1997 Period from 65.0% in the 1996 Period despite an adverse shift in the
sales mix of product sales. The sales of Eagle Point products decreased to 71.5%
of product sales in the 1997 Period from 80.0% in the 1996 Period. The resales
of AutoCAD increased to 28.4% of product sales in the 1997 Period from 20.0% in
the 1996 Period.
9
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Even with the shift in the sales mix, the gross profit margin from product sales
was aided by increases in gross profit margins on both AutoCAD resales and Eagle
Point products. The increase in the gross profit margin on Eagle Point products
was attributable to a reduction in costs associated with the implementation of
CD ROM technology and electronic documentation. Gross profit as a percentage of
corresponding net revenues relating to training and support decreased to 77.3%
in the 1997 Period from 84.2% in the 1996 Period primarily due to increased cost
of providing training.
Selling and marketing expense decreased $435,000, or 30.6% to $987,000 in
the 1997 Period from $1.4 million in the 1996 Period. As a percentage of net
revenues, selling and marketing expenses decreased slightly to 34.0% in the 1997
Period from 34.2% in the 1996 Period. These decreases are primarily attributable
to lower personnel costs associated with a reduced selling and marketing staff
size.
Research and development expense decreased $66,000, or 7.2% to $846,000 in
the 1997 Period from $912,000 in the 1996 Period. As a percentage of net
revenues, research and development expenses increased to 29.2% in the 1997
Period from 22.0% in the 1996 Period. The decrease in expense was primarily due
to lower personnel costs associated with research and development. The increase
in percentage was primarily attributable to the decrease in net revenues
exceeding the corresponding decrease in expenses.
General and administrative expense decreased $13,000, or 2.7% to $496,000
in the 1997 Period from $509,000 in the 1996 Period. As a percentage of net
revenues, general and administrative expense increased to 17.1% in the 1997
Period from 12.3% in the 1996 Period. The decrease in expense was primarily due
to lower personnel costs associated with a reduced general and administrative
staff. The increase in percentage was primarily attributable to the decrease in
net revenues exceeding the corresponding decrease in expenses.
The operating loss from continuing operations decreased to a net loss of
$360,000 in the 1997 Period from a net loss of $413,000 in the 1996 Period. The
net loss for the 1996 Period included a $475,000 non-recurring charge for
purchased research and development incurred with the acquisition of Computer
Integrated Building Corporation. Excluding this non-recurring charge, the 1996
Period resulted in an operating profit of $62,000. As a percentage of revenues,
the operating loss from continuing operations decreased to a negative 12.4% in
the 1997 Period from a negative 10.0% in the 1996 Period and a positive 1.5% in
the 1996 Period when the non-recurring charges are excluded, as a result of the
factors described above.
Interest expense decreased $11,000 to $3,000 in the 1997 Period from
$14,000 in the 1996 Period. Interest income decreased $23,000 to $150,000 in the
1997 Period from $173,000 in the 1996 Period. The decrease in interest income
was primarily attributed to a reduced rate of return realized on the Company's
investments. Other income decreased $118,000 to $2,000 in the 1997 Period from
$120,000 in the 1996 Period. Other income for the 1996 Period was impacted by a
$110,000 one-time gain for the forgiveness of debt relating to an economic
development loan the Company received from the State of Iowa.
10
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Liquidity and Capital Resources
The Company's financial position remains strong, with working capital of
$8.4 million and long-term debt of only $292,000. Cash, short-term, and long-
term investments aggregated approximately $12.3 million at September 30, 1997.
The Company also has available a $2.0 million unsecured line of credit from its
principal commercial bank. At September 30, 1997, the Company had no borrowings
outstanding under this line of credit.
In 1997, the Board of Directors authorized, subject to certain business and
market conditions, the purchase of up to 500,000 shares of the Company's common
stock in the open market from time to time or in privately negotiated
transactions. At September 30, 1997 the Company had repurchased as treasury
stock, 157,000 shares at an aggregate cost to the Company of $628,000. On July
1, 1997 the Company re-issued 20,924 shares out of treasury for the purpose of
meeting its obligations under the Eagle Point Software Corporation stock
purchase plan. The Company expects to continue repurchasing stock in fiscal
year 1998.
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 1998.
11
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
An action against the Company has been brought by a group of former employees
asserting improper overtime pay practices under the 1938 Fair Labor Standards
Act. The Company has been working with the Department of Labor regarding these
assertions. The Company and the Department of Labor have reached a settlement
agreement. The Company has taken a $235,000 charge which the Company currently
estimates to be sufficient to cover the settlement negotiated with the
Department of Labor as well as future costs and necessary expenses relating to
the ongoing litigation.
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
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, 1997 BY: /s/ Rodney L. Blum
- ------------------------ ---------------------------------
Rodney L. Blum
Chairman, President and Chief
Executive Officer
Date: November 14, 1997 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
-------------
<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 AND SUBSIDIARY
CONSOLIDATED STATEMENT REGARDING COMPUTATION OF NET EARNINGS PER SHARE
- -------------------------------------------------------------------------------------------------------------------
Three Months Ended
September 30,
--------------------------------------------------
1997 1996
<S> <C> <C>
SHARES USED IN DETERMINING PRIMARY EARNINGS PER SHARE:
Weighted average common shares outstanding 4,826,457 4,941,730
Net effect of stock options based on the treasury stock
method using the average market price during the period 0 0
---------------------- ------------------
Total weighted average common and common equivalent
shares outstanding 4,826,457 4,941,730
====================== ==================
SHARES USED IN DETERMINING FULLY DILUTED EARNINGS PER SHARE:
Weighted average common shares outstanding 4,826,457 4,941,730
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 0
---------------------- ------------------
Total weighted average common and common equivalent
shares outstanding 4,826,457 4,941,730
====================== ==================
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,783,809
<SECURITIES> 6,498,960
<RECEIVABLES> 1,340,589
<ALLOWANCES> 196,778
<INVENTORY> 353,674
<CURRENT-ASSETS> 11,418,844
<PP&E> 10,918,945
<DEPRECIATION> 3,473,173
<TOTAL-ASSETS> 22,990,437
<CURRENT-LIABILITIES> 3,047,654
<BONDS> 445,781
0
0
<COMMON> 49,417
<OTHER-SE> 19,549,554
<TOTAL-LIABILITY-AND-EQUITY> 22,990,437
<SALES> 2,901,812
<TOTAL-REVENUES> 2,901,812
<CGS> 932,544
<TOTAL-COSTS> 932,544
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 131,339
<INTEREST-EXPENSE> 2,729
<INCOME-PRETAX> (210,295)
<INCOME-TAX> (91,359)
<INCOME-CONTINUING> (118,936)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (118,936)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
