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________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 identification
incorporation or organization) number)
4131 Westmark Drive, Dubuque, Iowa 52002-2627, (319) 556-8392
(Address of principal executive offices, including zip code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ].
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of September 13, 1999 was $12,793,928. This calculation does not
reflect a determination that persons are affiliates for any other purposes.
Number of shares of common stock outstanding as of September 13, 1999:
4,846,476.
Documents Incorporated by Reference:
Part III - Portions of the registrant's definitive proxy statement to be issued
in conjunction with registrant's annual stockholders' meeting to be held on
December 1, 1999 (the "Proxy Statement").
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________________________________________________________________________________
PART I
Item 1. Business
Eagle Point Software Corporation (the "Company" or "Eagle Point") is a
developer and marketer of application software for use by professionals in the
architecture, engineering, and construction ("AEC") industries. The Company's
product line includes software modules that can be used by civil engineers,
surveyors, architects, home builders, structural engineers, landscape architects
and hydrologists to automate various design, analysis, drafting and engineering
functions. The Company focuses on developing and marketing technologically
advanced software application products that are designed to provide AEC
professionals with the functionality associated with high-end proprietary CAD
systems at a price suitable for more economical desktop systems. Most of the
Company's products have been designed for use in conjunction with either
AutoCAD, MicroStation, or IntelliCAD general purpose computer-aided design
("CAD") drafting software tools developed by Autodesk, Inc. ("Autodesk"),
Bentley Systems, Inc. ("Bentley Systems") and Visio Corporation ("Visio"),
respectively. Accordingly, the Company's business and financial results are
linked to the continued market acceptance of AutoCAD, MicroStation and
IntelliCAD. See "Risk Factors - Dependence on Autodesk, Visio and Bentley
Systems."
The Company, originally incorporated in Iowa in 1983, reincorporated
in Delaware in May, 1995. In June, 1995 the Company completed an initial public
offering of its Common Stock, $.01 par value ("Common Stock"). In January, 1995
the Company acquired substantially all of the assets and business and assumed
certain of the liabilities of LANDCADD, Inc. ("LANDCADD"), a Colorado-based
developer of software applications for landscape architecture and irrigation
design (the "LANDCADD Acquisition"). In March, 1995 the Company acquired certain
assets of Facility Mapping Systems, Inc. ("FMS"), a California-based developer
of computer-aided pre-design software applications for planning and managing
parcels of land, streets, sewer systems, water systems, lighting, buildings,
electrical systems, natural gas systems, land use planning, telephone systems,
census information or analysis (the "FMS Acquisition"). In November, 1995 the
Company merged with ECOM Associates, Inc.("ECOM"), a Wisconsin-based developer
of software applications for structural engineers (the "ECOM Merger"). In July,
1996 the Company acquired substantially all of the assets of Computer Integrated
Building Corporation ("CIBC"), a California-based developer of software
applications for home building professionals (the "CIBC Acquisition"). Unless
otherwise indicated, all references herein to the "Company" refer to Eagle Point
Software Corporation and its predecessors.
The AEC Software Market
The Company's software products are principally designed for use by
professionals in the AEC industries. These professionals use AEC-related
software in a variety of applications, including: automated mapping; facilities
management; plant and power design, pre-design planning; asset management; civil
engineering/surveying; architecture and building design; hydrology/hydraulics;
landscape; structural engineering; and construction.
Historically, design and drafting tasks were accomplished manually. In
order to reduce the costs and time necessary to complete projects, however, such
tasks have become increasingly automated. This automation was initially provided
by several large companies that marketed expensive integrated proprietary
hardware and software solutions directly to large users. In recent years,
however, the widespread availability of increasingly powerful and inexpensive
desktop personal computers and workstations, together with the continued
development of open-architecture general purpose CAD software, has resulted in
rapid acceptance of desktop based systems. The demand for these products has
come both from large users, who have generally found such systems to be more
cost effective than proprietary systems, as well as from many smaller and mid-
sized firms and governmental agencies that previously had been unable to justify
the cost of a proprietary system. This trend among users to seek
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lower cost alternatives to proprietary systems has particularly benefited
suppliers of open-architecture CAD-based graphic engines, such as AutoCAD,
MicroStation, and IntelliCAD.
The market for desktop AEC application software is highly fragmented,
with over 100 companies estimated to be offering some form of AEC software
application product. These companies range from a few large firms such as
Autodesk and its subsidiary, Softdesk, Inc. offering a wide selection of
products and having substantial financial and marketing resources, to numerous
small entities offering only a few specialized products and having limited
financial and marketing capabilities.
Market for the Company's Products; Customers
The Company has traditionally targeted the segment of the AEC market
consisting of medium-sized consulting, engineering, architectural and
construction firms of 10 to 50 employees, as well as governmental agencies in
cities and counties with fewer than 100,000 people. The typical selling cycle to
this segment of the market is approximately 90 to 180 days.
The Company, to a lesser extent, has also focused resources on serving
the segments of the AEC market consisting of large organizations, such as
FORTUNE 1000 companies, large engineering and consulting firms and larger
city/state/federal government agencies. The selling cycle to large-sized
organizations is typically longer, ranging from 6 months to 3 years. As large
organizations increasingly focus on lower cost software solutions, the Company
intends to focus more resources and personnel to market products to this market
segment.
Small organizations in the AEC market, which generally consist of
consulting, engineering and architectural firms with fewer than 20 employees,
home builders, colleges and universities, contractors and specific in-house
departments of larger organizations, typically require a limited set of
application software products. Historically, because a large portion of the
Company's products required the use of AutoCAD, MicroStation or IntelliCAD, the
Company did not devote significant marketing efforts on serving this category of
users. However, the Company has to a lessor extent, devoted resources toward
penetrating this market segment as many of the Company's products are now
available for use in a stand-alone environment.
International. The Company distributes its products internationally
primarily through a network of over 70 resellers located in more than 50
countries. Currently, most of the Company's products distributed internationally
are in English The Company believes that the international distribution of its
products will be enhanced by the translation of its products into local
languages and the incorporation of local engineering regulations and
requirements. The Company has translations of various products into Japanese,
Korean, Spanish and German. Additionally, other translations of various products
are currently under way and the Company anticipates that an increasing number of
its products may be translated into foreign languages, contingent upon economic
feasibility, in the future to enhance their appeal to international customers.
At this time the Company does not have any international offices. The Company's
international revenues (excluding Canada) were $474,000 in fiscal 1999 or
approximately 3.3% of the Company's revenues. The Company's international
revenues were adversely impacted by the poor economic conditions of those
regions of the world where the Company's product are most widely distributed,
namely the Asia-Pacific and Latin American regions.
The Company believes that the increased use of general purpose
drafting software worldwide creates opportunities for the Company to increase
the portion of its revenues derived from international markets. The
international portion of the Company's business is subject to a number of
inherent risks, including difficulties in opening and managing foreign offices,
establishing channels of distribution, establishing the credit worthiness of
foreign customers, the collection of outstanding accounts, localizing software
to meet engineering regulations and requirements, translating products into
foreign languages, the lack of control over fluctuations in the value of foreign
currencies, import/export duties and quotas, and unexpected regulatory, economic
or political changes in foreign markets.See
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"Risk Factors -- Foreign Operations."
Products
The Company's products are used for a number of diverse applications
including: Civil Engineering/Surveying; Building Design and Construction;
Hydrology/Hydraulics; Landscape Architecture; and Structural Engineering. Many
of the Company's products are integrated for use with one another and operate on
multiple CAD environments, including stand-alone. This integration enables users
to easily add new modules to their existing Eagle Point system. In addition,
several of the Company's products include a similar graphical user interface,
which makes it easier for users to learn to use additional Eagle Point products.
Suggested list prices for the Company's products range from approximately $95 to
$4,995 per module, although many of the Company's products are sold directly by
the Company at prices less than their suggested list prices.
Historically, to facilitate additional sales of its software
application products, the Company resold AutoCAD and IntelliCAD. The Company was
notified by Autodesk, the manufacturer of AutoCAD, that as of January 31, 1998,
the Company would no longer be allowed to resell AutoCAD. In July, 1999 Visio
announced that by the end of 1999 they were no longer going to offer a
commercial version of IntelliCAD through Visio, but rather create a non-profit
open source consortium and offer the IntelliCAD product and source code free to
end-users through the consortium. The Company may provide its own commercial
version of IntelliCAD via the consortium, however there are no assurances that
the Company will actually provide a commercial version or if it does offer a
commercial version, that it will be accepted by the market. See "Risk Factors --
Dependence on Autodesk, Visio, and Bentley Systems; --Competition" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview".
Civil Engineering/Surveying. Through the integration of the surveying
modules with the civil engineering design modules, users are able to gather
surveying data in the field electronically, download the data to the office,
complete the design and/or analysis, develop detailed construction documents and
upload the final design information to electronic surveying equipment for
construction staking purposes. Typical projects for which the Civil
Engineering/Surveying product series are used include the design/analysis of
road, railroads, airports, sites, subdivisions and landfills.
Building Design and Construction. The Building Design and Construction
product series can be used by architects and home builders to design homes and
buildings. Walls, windows, doors, floors and roofs, along with internal
utilities and fixtures, can be modeled to allow the user to develop several
design variations. Through the use of real time simulation features, the
building owner can then "walk through" the building to help in selecting the
favored design. Once selected, the designer can then complete final construction
documents and automatically estimate the building materials necessary in order
to prepare for the bidding and construction phase of the project. A portion of
the Building Design and Construction product line was acquired by the Company in
1996 in connection with the CIBC Acquisition.
Hydrology/Hydraulics. The Hydrology/Hydraulics product series aids
users in designing and/or analyzing sewer systems, stream flow and surface water
run-off. Three dimensional ground terrain models developed through the Civil
Engineering/Surveying product series are used in conjunction with
Hydrology/Hydraulics products to develop an integrated model of the entire
hydrology or hydraulic project. This integrated model is then used to design new
storm or sanitary sewer networks including pipe sizes, flow line elevations and
hydraulic grade lines. Additionally, stream flows can be analyzed to determine
the flooding impact upstream from newly-constructed bridges or culverts.
Landscape Architecture. The Landscape Architecture product series is
used by
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landscape architects, landscape contractors, nurseries, and government planners
to develop plans for plantings, park layouts, green zones and irrigation
systems, as well as analysis for site visibility, solar potential, slope
stability and other factors to determine development suitability and
environmental constraints. These modules provide the user with a database of
over 2,000 plants from every climactic zone around the world complete with
statistics which allow for complete growth simulation. Once the landscape plan
is modeled, the planner or owner can then "walk around" the newly and/or post-
growth plantings to view the overall aesthetics of the site. The Landscape
Architecture product line was acquired by the Company in 1995 in connection with
the LANDCADD Acquisition.
Structural Engineering. The Structural Engineering products series can
be used by structural engineers, architects and other building professionals.
Modules are designed to work independently or in concert with one another and
are classified under standard structural design disciplines. Both structural
analysis and design calculations may be performed for a variety of materials
including structural steel, reinforced concrete, aluminum, and a variety of
timber based products. A comprehensive 3-D finite element analysis module is
also integrated within the system, along with a series of foundation design
programs. The user inputs the geometry, material and connectivity data into the
system for it to perform the structural analysis and design calculations. The
Structural Engineering product line was acquired by the Company in 1995 in
conjunction with the ECOM Merger.
Sales and Marketing
The Company markets and sells its products in the United States and
Canada primarily through the use of direct response marketing, Internet based
marketing, sales seminars, trade shows and advertising designed to generate
sales leads that can be pursued by the Company's in-house telesales force which
consisted of 58 professionals at June 30, 1999.
The Company believes that the use of telesales professionals provides
competitive advantages over those competitors which principally rely upon
resellers. The Company believes that its use of a telesales force allows it to
develop a stronger ongoing relationship with the customer than could be achieved
through the use of resellers and provides the Company a cost-effective channel
of distribution for its products. In addition, the Company's sales professionals
have the ability to offer certain customers trade-in or volume discounts,
extended free trials and other flexible pricing arrangements designed to
introduce the customer to Eagle Point products in the hope of increasing sales
to that customer in the future. The Company believes that it generally has
greater incentive than a reseller to invest in a longer selling cycle by
providing flexible initial pricing. As the Company expands its product offerings
through the addition or acquisition of new modules, the Company's direct
knowledge of its customers' existing software systems and applications needs
provide the Company with valuable information to identify cross-selling
opportunities. The Company believes that such information is not generally
available to software companies which rely on resellers to market their
products. In addition, the Company believes that a significant number of its
product enhancements released in recent years were initially developed as a
result of communications with customers regarding their specific software
requirements.
Initial sales leads are primarily developed through direct mail
marketing, Internet based marketing and trade publication advertising, public
relations and promotional campaigns undertaken by the Company, as well as
through participation by the Company in various trade shows and sales and
training seminars. The Company has also been successful in placing its products
in various colleges, universities and secondary schools at reduced cost as a
means of increasing familiarity with its products among young professionals in
the AEC market. The Company, while maintaining a general database with over
280,000 names, also maintains a registered user data base which facilitates the
Company's ability to communicate periodically with current customers and to
pursue repeat sales and cross-selling opportunities.
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Once sales leads are developed, the Company's telesales professionals
track such leads through an automated lead tracking system. A typical sales
cycle for the Company's products involves numerous communications between the
Company's telesales professionals and the potential customer. Frequently, the
potential customer is furnished a demonstration copy of the Company's product
and certain product literature, and invited to contact current customers to
discuss the product or observe its use. Potential customers may also be invited
to attend product demonstration seminars.
Training, Support and Maintenance
The Company believes that providing its customers with direct and
value-added training, support, and maintenance services helps ensure that
customers obtain the maximum benefits offered by its products. The Company
believes that its training, support, and maintenance programs also enhance the
Company's relationships with customers and help to differentiate the Company
from CAD-based application developers that do not offer direct training, support
and maintenance. Moreover, the Company believes that the demand by users for
various training, support and maintenance services provides the Company with
incremental revenue opportunities.
All purchasers of the Company's software are provided 60 days of
product support without charge. For support after the 60-day period, customers
can elect to obtain ongoing support on a one-year support contract basis, an as-
used fee basis, or a part of a one, two or three year VIP support and
maintenance contract. The Company also conducts training seminars to educate
customers on the functionality of the Company's products. For a fee, customers
may discuss products with and receive technical assistance directly from the
Company's in-house professionals who participated in the development of such
products. The Company believes that such programs help to foster customer
loyalty and allow the Company to develop product enhancements that can be
marketed to other users.
Approximately 28% of the Company's revenues for fiscal 1999 were
attributable to customer training, support, and maintenance services.
Product Development
The Company offers a broad range of products which are designed to
keep pace with technological developments in the marketplace and address the
increasingly sophisticated needs of its customers. A majority of the modules
offered were added to the Company's product line as a result of acquisitions by
the Company of products, businesses or technologies. Most of the Company's
products acquired through acquisitions were integrated into the Company's
product line and further enhanced by the Company's development staff.
The Company releases enhanced versions of its software modules on an
on-going basis, and also typically introduces new product offerings each year.
The Company's software modules share the same technological foundation, all
being written in the computer programming language C or C++. The Company works
closely with its existing and prospective customers to determine their
requirements and to design enhancements and new products to meet their needs.
Each product development project begins with a review of the existing customer
requests, which are derived from a database generated by the Company's various
customer support programs, interviews with certain key customers and competitive
analyses. Product specifications for the development project are then generated,
a development team is assembled, and a detailed development and release schedule
is produced.
Competition
Competition in the AEC market has been intense and continues to
increase. In March of 1997, Autodesk, who was primarily a CAD software provider,
acquired Softdesk, Inc. ("Softdesk"), an application solutions provider and a
principal competitor to the Company. In light of Autodesk's cancellation of the
Company's ability to resell AutoCAD, it appears that Autodesk and Softdesk
together
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have increased competitive pressures and may continue to do so. The Company's
inability to resell AutoCAD will have an adverse effect on the Company's
revenues and gross profit, and may also have an adverse effect on the Company's
ability to sell its own products. In addition, the inability to market itself as
an authorized reseller of AutoCAD may hurt the perception of the Company in the
marketplace. In 1996 Bentley Systems made an equity investment of an undisclosed
amount in GEOPAK Corporation, an application solutions provider and competitor
to the Company. In June of 1998 Visio purchased the architectural software
technology from Ketiv Technologies, Inc., an application solutions provider and
competitor to the Company.
The Company currently faces competition from two basic types of
competitors. The first category includes companies principally offering
integrated proprietary CAD software and application solutions. The primary
competitors within this group are Autodesk, Intergraph Corporation, Bentley
Systems and a number of mid-sized companies serving various foreign markets.
Most of the Company's competitors within this group have significantly greater
financial and marketing resources than the Company.
To a lesser extent, the Company competes with the second category of
competitors which includes companies which offer AEC application software
products, many of which are AutoCAD, MicroStation, or IntelliCAD-based, similar
to products offered by the Company. The primary competitor in this category was
Softdesk, which, as a subsidiary of Autodesk, offers a broad line of software
applications for the AEC market. Research Engineers and GEOPAK, as well as a
number of smaller companies, also serve certain target markets within the AEC
market.
As previously stated, two of the sources of competition for the
Company are Autodesk, the developer of AutoCAD, and Bentley Systems, the
developer of MicroStation. Approximately 41.8% of the Company's net revenues for
fiscal 1999 were related to the sale of the Company's software products designed
for use with AutoCAD. In addition, 5.6% of the Company's net revenues during
such period were derived from the sale of the Company's software products
designed for use with MicroStation.
The Company believes that the principal basis for competition in the
AEC market are product functionality, product reliability, price/performance
characteristics, ease of product use, availability of products on popular
computer platforms, the ability to integrate the product with other
applications, user support, documentation and training, distribution networks,
size of installed client base and corporate reputation. No assurance can be
given that the Company will be able to compete successfully against current and
future sources of competition or that the competitive pressures faced by the
Company will not adversely affect its business, operating results or financial
condition. See "Risk Factors -- Competition."
Proprietary Rights
The Company relies primarily on a combination of contract, copyright,
trademark and trade secret laws, license and confidentiality agreements and
software security measures to protect its proprietary technology. The Company
distributes its products under "shrink-wrap" software license agreements which
grant users licenses to (rather than ownership of) the Company's products and
which contain various provisions intended to protect the Company's ownership and
confidentiality of the underlying technology. The Company's software is
distributed with a locking mechanism which requires an authorization code
generated by the Company's internal systems to enable the software to function.
The Company also requires all of its employees and other parties with access to
its confidential information to execute agreements prohibiting the unauthorized
use or disclosure of the Company's technology. In addition, the Company
periodically reviews its proprietary technology for patentability, although the
Company does not have any current patents. Despite these precautions, the
Company believes that existing laws provide limited protection for the Company's
technology and that it may be possible for a third party to misappropriate the
Company's technology or to
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independently develop similar technology. In addition, effective copyright and
trade secret protection may not be available in every jurisdiction where the
Company distributes products, particularly in foreign countries where the laws
generally offer no protection or less protection than those of the United
States. Moreover, "shrink-wrap" licenses, which are not signed by the end-user,
may be unenforceable in certain jurisdictions. See "Risk Factors -- Limited
Protection of Intellectual Property; Risk of Infringement."
Certain technology used in the Company's products is licensed from
third parties. Royalties are calculated and paid on either a monthly or
quarterly basis on a per copy fee or percentage of revenues basis. Sales of the
various modules of the Company's product offering which depend on licensed
technology accounted for approximately 15% of the Company's net revenues for
fiscal year 1999.
The Company is not engaged in any material disputes with other parties
with respect to the ownership or use of the Company's proprietary technology.
However, there can be no assurance that other parties will not assert technology
infringement claims against the Company in the future. The litigation of such a
claim may involve significant expense and management time. In addition, if any
such claim were successful, the Company could be required to pay monetary
damages and may also be required to either refrain from distributing the
infringing product or obtain a license from the party asserting the claim (which
license may not be available on commercially reasonable terms). As the number of
software products in the industry increases and the functionality of these
products further overlap, the Company believes that software developers may
become increasingly subject to infringement claims.
Employees
As of June 30, 1999, the Company had 184 employees, including 98 in
sales and marketing, 52 in product development and 34 in general and
administrative functions.
Risk Factors
The following risk factors should be considered carefully in addition
to the other information contained in this Annual Report on Form 10-K.
Dependence on Autodesk, Visio and Bentley Systems. In fiscal 1999,
approximately 41.8% of the Company's net revenues were related to the sale of
Eagle Point software products designed for use with AutoCAD. In addition,
approximately 9.4% of the Company's net revenues were related to IntelliCAD,
including 7.9% from the sale of Eagle Point software products designed for use
with IntelliCAD and 1.5% derived from the resale by the Company of IntelliCAD.
In addition, 5.6% of the Company's net revenues in this period were derived from
the sale of Eagle Point software products designed for use with MicroStation.
The Company's business and financial results are linked to the continued market
acceptance of AutoCAD, MicroStation, and IntelliCAD. The timing of major
AutoCAD, MicroStation, or IntelliCAD releases may affect the timing of purchases
of the Company's products. The Company's product development efforts, insofar as
they relate to the compatibility of its products with those of Autodesk, the
developer of AutoCAD, Visio, the developer of IntelliCAD, or Bentley Systems,
the developer of MicroStation, have thus far been facilitated by cooperation
from Autodesk's, Visio's and Bentley Systems' development personnel. However,
there exists no material contractual or other formal relationship obligating
Autodesk, Bentley Systems, or Visio to provide such cooperation.
Historically, to facilitate additional sales of its software
application products, the Company resold AutoCAD and IntelliCAD. The Company was
notified by Autodesk, the manufacturer of AutoCAD, that as of January 31, 1998,
the Company would no longer be allowed to resell AutoCAD. The Company's
inability to resell AutoCAD did have an adverse effect on revenues and gross
profit for fiscal year 1999. In July, 1999 Visio announced that by the end of
1999 they were no longer going to offer a commercial version of IntelliCAD
through Visio, but rather create a non-profit open source
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consortium and offer the IntelliCAD product and source code free to end-users
through the consortium. The Company may provide its own commercial version of
IntelliCAD via the consortium, however there are no assurances that the Company
will actually provide a commercial version or if it does offer a commercial
version, that it will be accepted by the market. The change in commercial
availability of IntelliCAD could have an adverse effect on revenues, gross
profit and the Company's ability to sell its own products. Any further adverse
change in the business results of, or the Company's relationship with, Autodesk,
Visio or Bentley Systems could have a material adverse effect on the Company's
business, operating results or financial condition.
Competition. Competition in the AEC market has been intense and
continues to increase. In March of 1997, Autodesk, who was primarily a CAD
software provider, acquired Softdesk, Inc., an application solutions provider
and a principal competitor to the Company. In light of Autodesk's recent
cancellation of the Company's ability to resell AutoCAD, it appears that
Autodesk and Softdesk together have increased competitive pressures and may
continue to do so. The inability to market itself as an authorized reseller of
AutoCAD may hurt the perception of the Company in the marketplace. In 1996
Bentley Systems made an equity investment in an undisclosed amount in GEOPAK
Corporation, an application solutions provider and competitor to the Company. In
June of 1998, Visio purchased the architectural software technology from Ketiv
Technologies, Inc., an application solution provider and competitor to the
Company.
The Company faces competition from companies offering stand-alone CAD
systems as well as from companies offering AutoCAD-based, MicroStation-based, or
IntelliCAD-based software applications including Autodesk, Bentley Systems, and
Visio. Many of the Company's competitors have and potential competitors may have
significantly greater financial, technological and marketing resources than the
Company. Barriers to entry in the AEC software industry are relatively low and
the risk of new competitors entering the market is high. In addition, the AEC
software industry is experiencing consolidation which has resulted in existing
competitors increasing their market position or breadth of product offerings
through acquisitions. Competitive pressures could force the Company to reduce
its prices, resulting in reduced margins. There can be no assurance that the
Company will be able to compete successfully against current and future sources
of competition or that competitive pressures will not have a material adverse
effect on the Company's business, operating results or financial condition. See
"Business --Competition."
Losses from Operations. Though the Company was profitable for the past
seven fiscal quarters, the Company incurred operating losses for six consecutive
fiscal quarters prior to October 1, 1997 due to adverse market conditions. There
can be no assurances that the Company will be profitable in the future.
Acquisitions. In the past, the Company has pursued acquisitions of
businesses, products and technologies that are complementary to those of the
Company. The Company's management has had limited experience in making
acquisitions. The Company may make additional acquisitions in the future.
Integrating acquired products and businesses requires a significant amount of
management time and skill and may place significant demands on the Company's
operations and financial resources. There can be no assurance that the Company
will be successful in finding potential acquisition candidates. Any failure to
effectively integrate future acquisitions could have a material adverse effect
on the Company's business, operating results or financial condition.
Acquisitions may also give rise to the assumption of contingent liabilities by
the Company .
Variability of Quarterly Operating Results and Seasonality. The
Company has experienced in the past, and may experience in the future,
significant quarter-to-quarter fluctuations in its operating results. Factors
such as the timing of new product introductions and upgrades by the Company, the
Company's competitors, Autodesk, Bentley Systems, or Visio (See "--Dependence on
Autodesk, Visio, and Bentley Systems"), customer acceptance of software
applications, product development expenses, announcements or changes in pricing
policies by competitors, the timing of significant orders,
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the mix of products sold, the mix of domestic versus international revenues, the
existence of product errors or bugs, and the hiring and training of additional
staff could contribute to this variability of quarterly results. In addition,
the Company's operating results may be adversely impacted by the market's
acceptance of new, or changes in existing hardware, software or Internet
technology, including without limitation, Windows95/NT/98, the Internet, CD ROM
Technology, etc. The Company is also becoming aware of certain conditions in the
market place which could have a potential adverse affect. Certain other
companies in the market place have indicated that their results of operations
have been adversely impacted by declining demand from their customers who have
focused their automation spending on Internet initiatives and Y2K preparation.
Economic and other factors affecting the building, construction, architecture,
mapping and engineering industries could also affect demand for the Company's
products in one or more particular quarters. The Company historically has
operated with little or no backlog. A significant portion of the Company's net
revenues in a quarter are derived from orders received late in that quarter,
which makes the Company's financial performance more susceptible to an
unexpected downturn in business and quarterly results difficult to forecast. In
addition, the Company's expense levels are based in part on expectations of
future revenue levels, and a shortfall in revenues could result in a
disproportionate decrease in the Company's net income. As the markets in which
the Company competes mature and new and existing companies compete for
customers, price competition is likely to intensify and such competition could
affect quarterly operating results. In addition, operating results historically
have been seasonally lower during the first and fourth quarters than during the
other quarters of the fiscal year.
Technological Demands of the Marketplace. The software industry is
characterized by rapid technological changes and advances which can result in
relatively short product lifecycles. The Company's future success will depend
upon its ability to enhance its current products and introduce new products that
keep pace with technological developments in the marketplace and address the
increasingly sophisticated needs of its customers. To meet this goal the Company
periodically upgrades certain of its products. There can be no assurance that
the Company will be successful in introducing and marketing product enhancements
or new products, or that such products will be accepted by the market. The
Company's software products, like software products generally, may contain
undetected errors or bugs when introduced, or as new versions are released.
While the Company's current products have not experienced significant post-
release software error bugs to date, there can be no assurance that such
problems will not occur in the future, particularly as the Company expands its
product offerings and its products become more complex and sophisticated. Any
such defective software may result in a loss of or delay in market acceptance of
the Company's products or an increased warranty expenses or product recalls. See
"Business -- Products" and "Business -- Product Development."
Limited Protection of Intellectual Property; Risk of Infringement. The
Company's success is heavily dependent upon its proprietary technology. The
Company does not have any patents on its technology and relies upon copyright,
trademark and trade secret laws, license and confidentiality agreements and
software security measures to establish and protect its proprietary technology.
The Company enters into confidentiality and/or license agreements with its
resellers and potential customers and limits access to and distribution of its
software, documentation and other proprietary information. The Company's
products are, however, generally distributed under "shrink-wrap" licenses that
are not signed by the customer and therefore may be unenforceable in certain
jurisdictions. In addition, effective copyright and trade secret protection may
not be available to the Company, particularly in foreign countries where the
laws generally provide either no protection or less protection than the laws of
the United States. There can be no assurance that the steps taken by the Company
to protect its proprietary technology will be adequate to prevent
misappropriation. The Company has a policy of requiring all of its employees to
sign an agreement which prohibits disclosure of confidential information and a
covenant not to compete with the Company or be employed by competitors of the
Company. There can be no assurance, however, that such restrictive provisions
contained in such agreements would be enforceable by the Company. In addition,
as the number of software applications in the industry increase and
functionality of these applications further overlap, the Company believes that
software developers may become increasingly subject to infringement claims. The
Company is not engaged in any material
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<PAGE>
disputes with other parties with respect to the ownership or use of the
Company's proprietary technology. However, there can be no assurance that other
parties will not assert technology infringement claims against the Company in
the future. Any such claims so asserted, with or without merit, may be time
consuming and expensive to defend. See "Business --Proprietary Rights".
Dependence on Management. The continued success of the Company's
operations will depend largely upon the continued services of its executive
officers, in particular Rodney L. Blum, its Chairman, President and Chief
Executive Officer, John F. Biver, its Vice President, Civil Division, and Dennis
J. George, its Chief Financial Officer. The loss of service of one or more of
these executive officers could adversely affect the Company's business. The
company's future success will also be dependent, in part, upon the Company's
ability to attract and retain additional qualified managers and other personnel.
Competition for qualified personnel in the AEC software industry is intense and
there can be no assurance that the Company will be successful in attracting and
retaining such personnel.
Foreign Operations. Approximately 3.3% of the Company's revenues in
fiscal 1999 were derived from sales to customers located outside of the United
States and Canada. The international portion of the Company's business is
subject to a number of inherent risks, including difficulties in opening and
managing foreign offices, establishing channels of distribution, establishing
the credit worthiness of foreign customers, the collection of outstanding
accounts, localizing software to meet engineering regulations and requirements,
in translating products into foreign languages, the lack of control over
fluctuations in the value of foreign currencies, import/export duties and
quotas, and unexpected regulatory, economic or political changes in foreign
markets. There can be no assurance that these factors will not adversely affect
the Company's international revenues or its overall financial performance.
Reliance on Headquarters. Substantially all of the Company's
administrative, sales, marketing, training, customer service, product
development and product ordering and shipping activities are conducted from a
single facility located in Dubuque, Iowa (the "Dubuque Facility"). A loss with
respect to all or part of this facility or a disruption in the Company's
telecommunications and management information systems would have a material
adverse effect on the Company's results of operations.
Control by Management and Principal Stockholders. The Company's
officers and directors and their affiliates own approximately 54% of the
Company's outstanding Common Stock. As a result, these stockholders, acting
together, will be able to control the outcome of actions requiring stockholder
approval, such as the election of directors, amendments to the Company's charter
and the sale of the Company.
Anti-Takeover Provisions: Possible Issuance of Preferred Stock. The
Company's Certificate of Incorporation and By-Laws contain various provisions,
including, without limitation, certain notice provisions and provisions
authorizing the Company to issue Preferred Stock, that may make it more
difficult for a third party to acquire, or may discourage acquisition bids for,
the Company and could limit the price that certain investors might be willing to
pay in the future for shares of the Company's Common Stock. The ownership by the
Company's officers, directors and their affiliates of substantial shares of
Common Stock could also discourage such bids. In addition, the rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of any holders of Preferred Stock that may be issued in the future
and that may be senior to the rights of the holders of Common Stock.
Item 2. Properties
The following table sets forth a brief description of the properties of the
Company:
Location General Description
- -------- -------------------
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<PAGE>
Eagle Point Software Corporation: Corporate headquarters and
Dubuque, Iowa principal operating facility of
77,000 square feet (the "Dubuque Facility")
(owned)
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Since June 16, 1995, the Common Stock has been traded on The Nasdaq
National Market ("Nasdaq") under the symbol EGPT. The approximate number of
stockholders of record of common stock at September 13, 1999 was 206, some of
which are street name holders and depository trusts representing beneficial
shareholders. The Company has more than 1,000 beneficial holders of common
stock.
The Company has never paid cash dividends on the Common Stock.
The Company has a restrictive debt covenant which precludes any payment of cash
dividend on the Common Stock. In the event the Company would retire the
outstanding debt obligation, the Company intends to retain any earnings for
future growth and therefore does not anticipate paying any cash dividends on the
Common Stock in the foreseeable future.
On September 13, 1999 the closing sales price of the Company's Common
Stock was $5.625. The following table sets forth for the periods indicated the
high and low sales prices per share of the Common Stock as reported by Nasdaq.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
- ------------- ----------------
<S> <C> <C>
September 30, 1997 ................................ $ 4.56 $ 3.13
December 31, 1997 ................................ $ 4.59 $ 3.00
March 31, 1998 ................................ $ 5.75 $ 4.00
June 30, 1998 ................................ $ 8.88 $ 4.25
September 30, 1998 ................................ $10.47 $ 6.50
December 31, 1998 ................................ $10.13 $ 7.00
March 31, 1999 ................................ $ 9.50 $ 6.63
June 30, 1999 ................................ $ 7.38 $ 5.75
</TABLE>
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<PAGE>
Item 6. Selected Financial Data
The statement of operations data presented below for each of the
fiscal years ended June 30, 1999, 1998, and 1997 and the balance sheet data at
June 30, 1999, and 1998 have been derived from the Company's financial
statements, which have been audited by Deloitte & Touche LLP, independent
auditors, whose report thereon is included elsewhere in this Report on Form
10-K. The statement of operations data presented below for each of the fiscal
years ended June 30, 1996 and 1995 and the balance sheet data at June 30, 1997,
1996 and 1995 have also been audited by Deloitte & Touche but are not included
in this Report on Form 10-K.The selected combined financial data presented below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and with the financial statements
and the notes thereto appearing elsewhere in this Report on Form 10-K.
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
--------------------------
1999 1998 1997 1996(1) 1995(2)
------- ------- ------- ------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Income Data(3)(4):
Net revenues:
Product sales $10,460 $10,439 $12,213 $14,580 $ 13,344
Training and support 4,099 3,382 3,592 4,582 2,487
------- ------- ------- ------- --------
Total net revenues 14,559 13,821 15,805 19,162 15,831
------- ------- ------- ------- --------
Cost of revenues
Cost of Product Sales, Training, & Support 2,697 3,792 4,782 5,073 4,834
Charge for revaluation of capitalized software - - 294(5) - -
------- ------- ------- ------- --------
Total cost of revenues 2,697 3,792 5,076 5,073 4,834
------- ------- ------- ------- --------
Gross profit 11,862 10,029 10,729 14,089 10,997
------- ------- ------- ------- --------
Operating expenses:
Selling and marketing 4,735 4,902 5,594 6,421 4,324
Research and product development 2,761 2,769 3,817 3,511 2,129
General and administrative 2,525 2,174 2,476 1,680 1,493
Non-recurring charges - - 866(6) 43 1,039(4)
------- ------- ------- ------- --------
Total operating expenses 10,021 9,845 12,753 11,655 8,985
------- ------- ------- ------- --------
Operating income (loss)
1,841 184 (2,024) 2,434 2,012
------- ------- ------- ------- --------
Interest income (expense), net 765 679 601 711 (166)
Other income (expense), net 7 36 126 31 30
------- ------- ------- ------- --------
Income (loss)
before income taxes 2,613 899 (1,297) 3,176 1,876
Income tax expense (benefit) 844 246 (633) 1,100 559
------- ------- ------- ------- --------
Net income (loss) 1,769 653 $ (664) $ 2,076 $ 1,317
======= ======= ======= ======= ========
Per Share:
Basic Net income (loss) $.37 $ .14 $ (.13) $.42 $ .34(4)
Weighted average number of basic common
shares outstanding (7) 4,827 4,802 4,930 4,957 3,873
Balance Sheet Data(3)(at period end):
Working capital $15,029 $10,609 $11,429 $12,215 $ 15,282
Total assets 26,143 25,421 22,967 24,596 23,579
Total debt 135 320 578 901 857
Stockholders' equity (7) 22,182 20,325 19,756 20,929 18,985
</TABLE>
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<PAGE>
(1) On November 9, 1995, the Company merged with ECOM Associates, Inc. The
Company has accounted for the merger 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.
Accordingly, the statement of income data for the fiscal year ended June
30, 1996 includes the results of operations of ECOM from the merger date.
(2) On January 1, 1995, the Company acquired substantially all of the assets
and business and assumed certain of the liabilities of LANDCADD. On March
31, 1995, the Company acquired certain assets of FMS. The Company has
accounted for each acquisition using the purchase method and, accordingly,
the statement of income data for the fiscal year ended June 30, 1995
includes the results of operations of LANDCADD and FMS from each respective
acquisition date.
(3) The data presented has been derived from the Company's financial
statements, which include the accounts of the Company and VisionOne
Partners (the "Partnership"), an entity under common ownership and common
management with the Company. The Partnership was formed solely to build and
own the Dubuque facility for lease to the Company. On June 30, 1995 the
Company purchased the Dubuque facility from the Partnership.
(4) In connection with the LANDCADD and FMS acquisitions, the portion of the
aggregate purchase prices related to research and development that had not
yet reached technological feasibility and had no alternative use as of the
date of acquisition was recorded as a charge for purchased research and
development. Exclusive of this charge for purchased research and
development, operating income from continuing operations, income from
continuing operations and income from continuing operations per share would
have been $3,051,000, $1,992,000 and $.51, respectively, for the fiscal
year ended June 30, 1995.
(5) During fiscal year 1997, the Company incurred a charge of $294,000 related
to the charge for revaluation of certain capitalized software products to
more accurately reflect anticipated future revenues for those products.
(6) In connection with the CIBC Acquisition the portion of the aggregate
purchase price related to the research and development that had not yet
reached technological feasibility and had no alternative use as of the date
of acquisition, was recorded as a charge for purchased research and
development. See Note 2 of the Notes to Financial Statements. During fiscal
year 1997 the Company incurred a charge of $235,000 reflecting claims,
settlements, and contingencies relating issues asserted by former employees
and the U.S. Department of Labor based on the 1938 Fair Labor Standards
Act. The Company made a decision to consolidate operations from certain of
it's remote offices to the home office. During fiscal year 1997, the
Company incurred charges of $156,000 relating office closings and
restructuring due to those closings.
(7) The Board of Directors for the Company authorized in May 1997, subject to
certain business and market conditions, the repurchase 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. The Company had repurchased as
treasury stock 123,000 shares at an aggregate cost to the Company of
$508,875 at June 30, 1997 and 171,200 shares at an aggregate cost to the
Company of $673,000 at June 30, 1998. The authorization to repurchase the
Company's common stock expired on June 15, 1998 and has not been extended
or reinstated.
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<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company was founded in 1983 and during the remainder of the 1980s
focused on developing and marketing a software application product for use by
roadway design professionals. In 1990, the Company, under new management, began
to expand significantly its product line to include complementary software
application products for use by a variety of AEC professionals. The expansion of
its product line was accomplished through both internal development and through
acquisitions.
On January 1, 1995, the Company added 6 modules of landscape
architecture/environmental planning application software as a result of the
LANDCADD Acquisition. On March 31, 1995, the Company added 12 modules of
geographic information systems software to its product line as a result of the
FMS Acquisition. On November 9, 1995, the Company added 25 modules of structural
engineering software as a result of the ECOM Merger. On July 29, 1996, the
Company added 2 modules of Building Designed Construction software as a result
of the CIBC Acquisition. The LANDCADD Acquisition, the FMS Acquisition and the
CIBC Acquisition, were each accounted for under the purchase method, and
accordingly, the results of operations of such businesses are included in the
Company's results from their respective dates of acquisition. For each
acquisition, the aggregate cost over the fair value of acquired net assets has
been assigned principally to purchased research and development and software
development costs based on their estimated fair market values. The portion of
the aggregate purchase prices allocated to research and development that had not
yet reached technological feasibility and had no alternative future use was
charged to expense on the date of purchase. Accordingly, the Company's results
of operations reflect a non-recurring charge for purchased research and
development of approximately $475,000 for fiscal 1997. The ECOM Merger was
accounted for as a pooling of interest, however, it did not have a material
effect on financial statement and therefore such statements have not been
restated.
In 1997 Autodesk, the company whose CAD platform the majority of the
Company's business is based upon bought Softdesk, a major competitor of Eagle
Point. Additionally, in 1996 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. As a result of these situations, Eagle Point began to compete with
companies with whom it previously did not compete. As further evidence of the
increased competitive pressures, during fiscal year 1998, Autodesk notified
Eagle Point that Eagle Point would no longer be allowed to resell AutoCAD.
AutoCAD resales accounted for approximately 15%, or $2.0 million, of the
Company's revenues and 3%, or $326,000, of the Company's gross profit for fiscal
1998. There were no AutoCAD resales in fiscal year 1999. The inability to resell
AutoCAD has had an adverse effect on the Company's revenues and gross profit.
See "Risk Factors -- Competition."
The Company has experienced in the past, and may experience in the
future, significant quarter-to-quarter fluctuations in its operating results.
Factors such as the timing of new product introductions and upgrades by the
Company; the Company's competitors or Autodesk, customer acceptance of software
applications, product development expenses, announcements or changes in pricing
policies by competitors, the timing of significant orders, the mix of products
sold, the mix of domestic versus international revenues, the existence of
product errors or bugs, and the hiring and training of additional staff could
contribute to this variability of quarterly results. Economic and other factors
affecting the building, construction, architecture, mapping and engineering
industries could also affect demand for the Company's products in one or more
particular quarters. A significant portion of the Company's net revenues in a
quarter are derived from orders received in the latter part of that quarter,
which makes the Company's financial performance more susceptible to an
unexpected downturn in business and quarterly results difficult to forecast. In
addition, the Company's expense levels are based in part on expectations of
future revenue levels, and a shortfall in revenues could result in a
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<PAGE>
disproportionate decrease in the Company's net income. As the markets in which
the Company competes mature and new and existing companies compete for
customers, price competition is likely to intensify and such competition could
affect quarterly operating results. See "Risk Factors -- Variability of
Quarterly Operating Results and Seasonality."
Forward Looking Information.
This Annual Report on Form 10-K contains forward looking statements,
including, without limitation, the acceptance by the marketplace of the
Company's products, the Company's attempts to reduce its reliance on AutoCAD,
the ability of the Company to sell more products internationally, the
competitive advantages of the Company's telesales professionals, the effect of
the Company's training and support programs on its customer relationships, the
ability of the Company to keep pace with technological developments, and the
ability of the Company to adequately address the Year 2000 issue. These forward
looking statements involve risks and uncertainties, which could cause actual
results to differ from those projected. The Company may not be correct in its
predictions with respect to the issues addressed in such forward looking
statements.
Fiscal 1999 Compared to Fiscal 1998.
Net revenues increased $0.8 million, or 5.3% to $14.6 million for the
fiscal year ended June 30, 1999 ("the 1999 Period"), from $13.8 million for the
fiscal year ended June 30, 1998 (the "1998 Period"). The Company experienced an
increase in product sales and in training and support revenues. While product
sales increased slightly overall, the portion of product sales attributable to
Eagle Point products (as opposed to the resale of third party products)
increased $2.1 million or 25.9% to $10.2 million in the 1999 period from $8.1
million in the 1998 Period primarily as the result of the release of new
products and product upgrades. This increase in Eagle Point product sales offset
the decrease in the resales of third party products from $2.4 million in the
1998 Period to $0.2 million in the 1999 Period. The decrease of the resales of
third party products was due to the Company no longer being authorized to resale
AutoCAD as of the end of the third quarter in the 1998 Period. $223,000 of the
third party resales during the 1999 Period were represented by resales of
IntelliCAD. In July, 1999 Visio Corporation announced that by the end of
calendar year 1999 they were no longer going to offer a commercial version of
IntelliCAD, but rather create a non-profit open source consortium and will offer
the IntelliCAD product and source code free to end-users. As a result, the
Company does not expect to generate significant revenues from the resale of
IntelliCAD in the future. Training and support revenues were favorably affected
in the 1999 Period by the release of the new products and product upgrades as
well as an increased emphasis by the Company on support and maintenance
programs. $387,000 of the 1999 Period's software revenues that were part of a
continuing upgrade promotion were deferred. Additionally, $1.6 million of
previously deferred software revenues were recognized during the 1999 Period as
the product upgrades, for which the revenue was initially deferred, were
shipped.
Despite the increase in revenues, the Company is becoming aware of
certain conditions in the market place which could have a potential adverse
affect on the Company's business in the future. Certain other companies in the
market place have indicated that their results of operations have been adversely
impacted by declining demand from their customers who have focused their
automation spending on Internet initiatives and Y2K preparedness.
Gross profit increased $1.9 million or 18.3% to $11.9 million in the
1999 Period from $10.0 million in the 1998 Period. Gross profit as a percentage
of net revenues increased to 81.5% in the 1999 Period from 72.6% in the 1998
Period. Gross profit as a percentage of net revenues relating to product sales
increased to 78.5% in the 1999 Period from 69.1% in the 1998 Period. This
increase is attributable to a shift in the mix of product sales. Sales of Eagle
Point products, which have higher gross profit margins than resales of third
party products (i.e. AutoCAD and IntelliCAD), increased to 97.7% of
-16-
<PAGE>
product sales in the 1999 Period from 77.1% in the 1998 Period as the Company no
longer resells AutoCAD. Gross profit as a percentage of corresponding net
revenue relating to training and support increased to 89.1% in the 1999 Period
from 83.1% in the 1998 Period, primarily due to an improvement in the sales mix
toward support and maintenance revenues, which carry higher profit margins than
training revenues.
Selling and marketing expense decreased $0.2 million or 3.4% to $4.7
million in the 1999 Period from $4.9 million in the 1998 Period. As a percentage
of net revenues, selling and marketing expenses decreased to 32.5% in the 1999
Period, from 35.5% in the 1998 Period. The decrease as a percentage of net
revenues is as a result of the growth in sales volume while sales and marketing
expenses decreased due to lower personnel costs.
Research and development expense remained steady at $2.8 million for
both the 1999 Period and the 1998 Period. As a percentage of net revenues,
research and development expenses decreased slightly to 19.0% in the 1999 Period
from 20.0% in the 1998 Period.
General and administrative expense increased $0.3 or 16.1% to $2.5
million in the 1999 Period from $2.2 million in the 1998 period. As a percentage
of net revenues general and administrative expenses increased to 17.3% for the
1999 Period, from 15.7% in the 1998 Period. The increase is due primarily to
higher personnel costs and an increase in the general and administrative staff.
Operating income from continuing operations increased to $1.8 million
in the 1999 Period, from $184,000 in the 1998 Period. As a percentage of net
revenues, operating income from continuing operations was 12.6% in the 1999
Period, as compared to 1.3% in the 1998 Period. The increase in operating income
was due to the factors stated above.
Interest expense increased $6,000 to $12,500 in the 1999 Period from
$6,500 in the 1998 Period. Interest income increased $91,000 to $777,000 in the
1999 Period from $686,000 in the 1998 Period. The increase in interest was
primarily attributed to higher balances of cash, cash equivalents, and
investments.
The Company's effective tax rate for the 1999 Period increased to
32.3% from 27.4% for the 1998 Period. The primary reason for this is due to
lower research and development tax credits as a percentage of overall tax
expense due to higher income levels in the 1999 period compared to the 1998
period.
Fiscal 1998 Compared to Fiscal 1997.
Net revenues decreased $2.0 million, or 12.6% to $13.8 million for the
fiscal year ended June 30, 1998 ("the 1998 Period"), from $15.8 million for the
fiscal year ended June 30, 1997 (the "1997 Period"). The Company experienced a
decrease in product sales and training and supports sales, as a result of many
factors, including a changing competitive environment resulting from the merger
between Autodesk and Softdesk and the equity investment in GeoPak by Bentley
Systems. 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 it's AutoCAD Release 13 product. In addition,
$1,633,189 of software revenues that were part of a continuing upgrade
promotion, were deferred and therefore not recognized in the 1998 Period. The
revenues deferred under this promotion will be recognized upon the future
release and subsequent shipment of the product upgrades.
Gross profit decreased $0.8 million, or 9.0% to $10.0 million for the
1998 Period from $10.8 million for the 1997 Period as a result of the decrease
in net revenues. Gross profit as a percentage
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<PAGE>
of net revenues increased to 72.6% in the 1998 Period from 67.9% in the 1997
Period. Gross profit as a percentage of corresponding net revenues relating to
product sales increased to 69.1% in the 1998 Period from 67.9% in the 1997
Period. The sales of Eagle Point products decreased slightly to 77.1% of product
sales in the 1998 Period from 77.4% in the 1997 Period. The resales of AutoCAD
decreased to 19.5% in the 1998 Period from 22.6% in the 1997 Period. Gross
profit margin from product sales was aided by an increase in gross profit
margins on Eagle Point products, which was primarily attributable to a reduction
in costs associated with the implementation of CD ROM technology and electronic
documentation. Gross profit relating to product sales was also adversely
impacted in the 1997 Period due to the $294,000 write-down of capitalized
software to more accurately reflect anticipated future revenues from certain
products. Gross profit as a percentage of corresponding net revenues relating to
training and support increased to 83.1% in the 1998 Period from 76.0% in the
1997 Period, primarily due to an improvement in the sales mix toward support and
maintenance revenues, which carry higher gross profit margins than training
revenues.
Selling and marketing expense decreased $700,000, or 12.4%, to $4.9
million in the 1998 Period from $5.6 million in the 1997 Period. As a percentage
of net revenues, selling and marketing expenses increased slightly to 35.5% in
the 1998 Period from 35.4% in the 1997 Period.
Research and development expense decreased $1.0 million or 27.5% to
$2.8 million in the 1998 Period from $3.8 million in the 1997 Period. As a
percentage of net revenues, research and development expenses decreased to 20.0%
in the 1998 Period from 24.2% in the 1997 Period. The decrease was primarily due
to lower personnel costs associated with research and development as well as
$271,500 in capitalized development costs.
General and administrative expense decreased $300,000, or 12.2%, to
$2.2 million in the 1998 Period from $2.5 million in the 1997 Period. As a
percentage of net revenues general and administrative expense remained steady at
15.7% in the 1998 Period and in the 1997 Period.
The operating income from continuing operations was $184,000 in the
1998 Period compared to a net loss of $2.0 million in the 1997 Period. The net
loss for the 1997 Period included other non-recurring charges of $866,000.
Excluding these other charges, the 1997 Period resulted in an operating loss of
$1.2 million. As a percentage of net revenues, operating income from continuing
operations was 1.3% in the 1998 Period as compared to an operating loss of 12.8%
in the 1997 Period (7.3% in the 1997 Period when the non-recurring charges are
excluded).
Interest expense decreased $26,000 to $6,000 in the 1998 Period from
$32,000 in the 1997 Period. Interest income increased $53,000 to $686,000 in the
1998 Period from $633,000 in the 1997 Period. The increase in interest was
primarily attributed to higher balances of cash, cash equivalents, and
investments. Other income decreased $90,000 to $36,000 in the 1998 Period from
$126,000 in the 1997 Period. Other income for the 1997 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.
The Company's effective tax rate on income from continuing operations
was 27.4% for the 1998 Period compared to the effective tax rate on the loss
from continuing operations of 48.8% in the 1997 Period. The primary reason for
the lower effective tax rate was the Company's utilization of research and
development tax credits.
Liquidity and Capital Resources
The Company's financial position remains strong, with working capital
of $15.0 million and long-term debt of only $64,000. Cash, short-term and long-
term investments aggregated approximately $16.5 million at June 30, 1999. The
Company also has available a $2.0 million unsecured
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<PAGE>
line of credit from it's principal commercial bank. At June 30, 1999, the
Company had no borrowings outstanding under this line of credit.
To date, the Company has not entered into any interest rate, currency
or other market risk hedging instruments
Inflation and Foreign Currency Exchange
Inflation has not had a significant impact on the Company's operating
results to date, nor does the Company expect it to have a significant impact in
fiscal year 2000. The Company has experienced insignificant gains or losses on
foreign currency transactions since substantially all of its international sales
to date have been billed in U.S. dollars. As the Company continues to expand its
international operations it may begin billing in foreign currencies which would
increase the Company's exposure to gains and losses on foreign currency
transactions. The Company may choose to limit such exposure by the purchase of
forward foreign exchange contracts if deemed appropriate at that time.
Impact of the Year 2000 Issue
The Year 2000 ("Y2K") issue is the result of computer programs using a two-
digit format, as opposed to four digits, to indicate the year. Computer systems
based on a two-digit format will be unable to interpret dates beyond the year
1999 which could cause a system failure or other computer errors, leading to
disruptions in operations. The Company believes that it has four general areas
of potential exposure with respect to the Y2K problem: (1) its own software
products; (2) internal informational systems; (3) computer hardware and other
equipment related systems; and (4) external. Based on the Company's analysis
through September 13, 1999, the Company does not believe that the Y2K issue will
materially affect its business or involve material costs to the Company.
The Company's most current version of its software products have been
tested and confirmed to be Y2K compliant. Previous product versions, as well as
products that the Company no longer actively sells, have not been tested for Y2K
compliance. Accordingly, no assurance can be given as to such prior products'
Y2K compliance status. In addition, since many of the Company's products run in
conjunction with 3rd party products such as AutoCAD, Microstation and
IntelliCAD, their Y2K compatibility can be dependent on the Year 2000
compatibility of those 3rd party products. According to public statement made by
the manufacturers of AutoCAD, Microstation and IntelliCAD, recent versions of
these products are Y2K compliant. However, these companies gave no assurances as
to the Y2K compliance of significantly older versions of their respective
products.
In 1998, the Company developed a systematic plan to evaluate its Y2K
exposure with respect to its internal informational systems. In accordance with
this plan, the Company identified systems pursuant to which the Company could
have exposure and performed remediation procedures to correct these systems. All
remediation activities have been completed and preliminary testing of the
internal information systems in a simulated Y2K environment has been completed.
The third type of potential Y2K exposure relates to the Company's computer
hardware and other equipment related systems (such as the Company's
workstations, servers and phone system). The Company has identified and
evaluated such systems' Y2K exposure and remediation procedures have been
completed.
-19-
<PAGE>
The fourth aspect of the Company's Y2K analysis involves evaluating major
vendors' Y2K exposure and their efforts to address such exposure. The Company
has obtained documentation and certification from most vendors regarding their
Y2K compliance. Based upon the vendors who have responded, which includes
substantially all material vendors, it appears that there is no material Y2K
exposure to the Company. However, if the Company determines, after receiving
additional responses to the aforementioned inquiries, that its vendors' Y2K
issues could result in material disruptions to their respective businesses, the
Company may seek alternative suppliers.
Based upon the evaluation, remediation and testing activities described above,
we believe the Company's most recent product versions, internal systems,
computer hardware and other equipment systems will be Y2K compliant. However, as
identified above, our testing can only simulate the Year 2000. Accordingly, the
Company can not guarantee that it will be free from Y2K problems.
Item 8. Financial Statements and Supplementary Data
The response to this item is submitted as a separate section of this Report on
Form 10-K. See Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors of the Registrant
- ---------------------------
The information contained under the headings "Nominees for Directors,"
"Members of Board of Directors Continuing in Office" and "Compliance With
Section 16 of the Exchange Act" in the Proxy Statement (which Proxy Statement
will be filed with the Securities and Exchange Commission on or before October
28, 1999) is incorporated herein by reference.
Executive Officers of the Registrant
- ------------------------------------
Information with respect to executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Rodney L. Blum 44 Chairman of the Board, President and
Chief Executive Officer
Dennis J. George 36 Vice President, Chief Financial Officer,
Treasurer and Secretary; Director
John F. Biver 44 Vice President - Civil Division; Director
Edward T. Graham 36 Vice President - Building Design and Services
Division
Brent A. Straka 31 Vice President - Marketing and Business
Development Division
Randy K. Ambrosy 30 Vice President -International and Landscaping
Divisions
William P. Le May 45 Chief Technology Officer
</TABLE>
Rodney L. Blum has served as Chairman of the Board, President and Chief
Executive Officer of
-20-
<PAGE>
the Company since January 1990. From May 1988 until he joined the Company in
1990, Mr. Blum was Director of Sales and Marketing of D.D.S., a provider of
turn-key computer systems to the auto, large truck and implement dealer markets.
From 1980 until May 1988 he served in various marketing and management positions
at CyCare Systems, Incorporated, a provider of computerized information
processing systems to the healthcare industry.
Dennis J. George has served as Vice President, Chief Financial Officer,
Treasurer, Secretary and a director of the Company since April 1989. During 1988
he was the Financial Budget Analyst for the Ertl Company, a manufacturer of
agricultural model toys. During 1987 he served as Finance Manager for D.D.S.
John F. Biver co-founded the Company in 1983 and has served as Vice
President - Civil Division since January 1990. Mr. Biver has served as a
director of the Company since its inception. Prior to founding the Company, Mr.
Biver was a registered Professional Engineer with the civil engineering firm of
Wright, Kilby, Sejkoara and Associates.
Edward T. Graham has been employed by the Company in various sales
capacities since January 1990. Mr. Graham currently serves as Vice President -
Building Design and Services Division. From May 1989 until he joined the
Company, Mr. Graham was a principal of Prism Marketing, a provider of marketing
systems and services.
Brent A. Straka has been employed by the Company since November 1990 in
various sales, marketing-related, and management positions. Since July, 1996 Mr.
Straka has served as Vice President - Marketing and Business Development. From
June 1989 until he joined the Company, Mr. Straka held various marketing
positions with Land's End, Inc., a mail-order provider of apparel and specialty
products.
Randy K. Ambrosy has been employed by the Company since September 1991 in
various sales and management positions. Since April, 1998 Mr. Ambrosy has served
as Vice President - International and Landscaping Divisions. From June 1990,
until he joined the Company, Mr. Ambrosy was a sales engineer at Sencore
Electronics a manufacturer of electronic test equipment.
William P. Le May has been employed by the Company since October 1992 in
various research and development and management positions. Since December, 1995
Mr. Le May has served as Chief Technology Officer. From March, 1984 until he
joined the Company, Mr. Le May was a product manager at Accugraph Corporation, a
developer of software applications for the civil engineering market.
Item 11. Executive Compensation
Except for information referred to in Item 402(a)(8) of Regulation S-K, the
information contained under the headings "Executive Officer Compensation" and
"Directors Meetings and Committees" in the Proxy Statement (which Proxy
Statement will be filed with the Securities and Exchange Commission on or before
October 28, 1999) is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information contained under the heading "Security Ownership of Directors,
Officers and Principal Stockholders" in the Proxy Statement (which Proxy
Statement will be filed with the Securities and Exchange Commission on or before
October 28, 1999) is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
-21-
<PAGE>
Except for the information relating to Item 11 hereof and except for information
referred to in Item 402(a)(8) of Regulation S-K, the information contained under
the headings "Executive Officer Compensation", "Directors Meetings and
Committees" and "Certain Relationships and Related Transactions" in the Proxy
Statement (which Proxy Statement will be filed with the Securities and Exchange
Commission on or before October 28, 1999) is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements
--------------------
The following financial statements are filed as part of this report:
. Report of Independent Auditors on Financial Statements.
. Financial Statements:
Balance Sheets - June 30, 1999 and June 30, 1998.
Statements of Operations - years ended June 30, 1999, June 30,
1998 and June 30, 1997.
Statements of Stockholders' Equity - years ended June 30, 1999,
June 30, 1998 and June 30, 1997.
Statements of Cash Flows - years ended June 30, 1999, June 30,
1998 and June 30, 1997.
Notes to financial statements - June 30, 1999.
(a)(2) Financial Statement Schedules
-----------------------------
. Schedule II - Allowances - years ended June 30, 1999, June 30,
1998 and June 30, 1997.
(a)(3) Exhibits
--------
The following exhibits are filed herewith or are incorporated by
reference to exhibits previously filed with the Securities and Exchange
Commission.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1* - Certificate of Incorporation of the Company.
3.2****** - Amended and Restated By-laws of the Company.
10.1* -- Loan Agreement between the Company and the City of Dubuque, dated January 20, 1992.
10.2* -- Loan Agreement between the Company and the City of Dubuque, dated July 6, 1993.
</TABLE>
-22-
<PAGE>
<TABLE>
<S> <C>
10.3* -- Loan Agreement between the Company and the City of Dubuque, dated May 16, 1994.
10.4* -- Community Economic Betterment Account Agreement between the Company and the Iowa
Department of Economic Development, dated July 18, 1991.
10.5* -- Community Economic Betterment Account Agreement between the Company and the Iowa
Department of Economic Development, dated July 15, 1993.
10.6* -- Asset Purchase Agreement between the Company and Facility Mapping Systems, Inc., dated
March 31, 1995.
10.7* -- Asset Purchase Agreement between the Company and LANDCADD, Inc., dated January 1, 1995.
10.8**** -- Employment Agreement with Rodney L. Blum.
10.9**** -- Employment Agreement with Dennis J. George.
10.10**** -- Employment Agreement with John F. Biver.
10.11** -- Eagle Point Software Corporation Stock Option Plan.
10.12*** -- Eagle Point Software Corporation, 1995 Employee Stock Purchase Plan.
10.13* -- Purchase Agreement between VisionOne Partnership and the Company, dated as of May 1, 1995.
10.14***** -- Merger Agreement between the Company and ECOM Associates, Inc., dated
November 9, 1995.
10.15***** -- Asset Purchase Agreement between the Company and Computer Integrated Building
Corporation, dated July 29, 1996.
11.1# -- Statement re: computation of per share earnings.
21.1# -- Subsidiaries
23.1# -- Consent of Deloitte & Touche LLP.
23.2# -- Independent Auditors' Report on Schedule
27# -- Financial Data Schedule
</TABLE>
_________________________
* Incorporated by reference from the Company's Registration Statement on
Form S-1 ( File No. 33-91950)
** Incorporated by reference from the Company's Registration Statement on
Form S-8 ( File No. 33-96914)
*** Incorporated by reference from the Company's Registration Statement on
Form S-8 ( File No. 33-96918)
**** Incorporated by reference from the Company's 1995 Annual Report on Form
10-K
***** Incorporated by reference from the Company's 1996 Annual Report on Form
10-K
-23-
<PAGE>
****** Incorporated by reference from the Company's Quarterly Report on Form 10-
Q for the period ended December 31, 1998
# Filed herewith.
. Indicates management contract or compensatory plan or arrangement.
_________________________
(b) Reports on Form 8-K
-------------------
None.
-24-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Eagle Point Software Corporation and Subsidiary
We have audited the accompanying consolidated balance sheets of Eagle Point
Software Corporation and subsidiary as of June 30, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended June 30, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Eagle Point Software Corporation
and subsidiary at June 30, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1999, in conformity with generally accepted accounting principles.
Des Moines, Iowa
July 30, 1999
-25-
<PAGE>
EAGLE POINT SOFTWARE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1999 1998
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,481,640 $ 4,662,570
Short-term investments 11,040,912 8,011,236
Accounts receivable (net of allowances of $218,309 and
$161,545, respectively) 1,654,487 1,600,282
Interest receivable 83,914 87,643
Inventories 120,531 137,071
Prepaid expenses and other assets 82,671 137,474
Income taxes receivable 3,942
Deferred income taxes 242,927 663,475
----------- -----------
Total current assets 18,711,024 15,299,751
INVESTMENTS 2,002,748
PROPERTY & EQUIPMENT, NET 6,555,782 7,048,077
SOFTWARE DEVELOPMENT COSTS (net of accumulated
amortization of $335,941 and $82,675, respectively) 157,967 300,832
NON-COMPETE AGREEMENTS (net of accumulated
amortization of $276,863 and $194,592, respectively) 148,202 155,472
DEFERRED INCOME TAXES 570,505 613,497
----------- -----------
TOTAL ASSETS $26,143,480 $25,420,377
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 71,434 $ 100,172
Accounts payable 112,773 190,297
Accrued expenses 1,094,578 1,095,713
Deferred revenues 2,403,456 3,164,794
Income taxes payable 139,602
----------- -----------
Total current liabilities 3,682,241 4,690,578
LONG-TERM DEBT 64,342 220,029
DEFERRED REVENUES 214,692 184,486
----------- -----------
Total liabilities 3,961,275 5,095,093
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,000,000 shares authorized; none issued
at June 30, 1999 and 1998
Common stock, $.01 par value; 20,000,000 shares authorized;
4,941,730 shares issued and outstanding at June 30, 1999 and 1998 49,417 49,417
Additional paid-in capital 17,624,290 17,535,942
Retained earnings 5,058,091 3,326,457
----------- -----------
22,731,798 20,911,816
Treasury stock, at cost; 108,877 shares at June 30, 1999 and
150,276 shares at June 30, 1998 (549,593) (586,532)
----------- -----------
Total stockholders' equity 22,182,205 20,325,284
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $26,143,480 $25,420,377
=========== ===========
</TABLE>
See notes to consolidated financial statements.
-26-
<PAGE>
EAGLE POINT SOFTWARE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED JUNE 30, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net revenues:
Product sales $ 10,460,011 $ 10,438,778 $ 12,212,660
Training and support 4,099,494 3,382,360 3,592,162
------------ ------------ ------------
Total net revenues 14,559,505 13,821,138 15,804,822
------------ ------------ ------------
Cost of revenues:
Product sales 2,251,624 3,220,424 3,921,305
Training and support 445,363 571,177 860,793
Charge for revaluation of capitalized software 294,233
------------ ------------ ------------
Total cost of revenues 2,696,987 3,791,601 5,076,331
------------ ------------ ------------
Gross profit 11,862,518 10,029,537 10,728,491
------------ ------------ ------------
Operating expenses:
Selling and marketing 4,735,154 4,902,045 5,593,808
Research and development 2,760,577 2,769,364 3,817,284
General and administrative 2,525,251 2,174,181 2,475,287
Non-recurring charges 866,122
------------ ------------ ------------
Total operating expenses 10,020,982 9,845,590 12,752,501
------------ ------------ ------------
Operating income (loss) 1,841,536 183,947 (2,024,010)
Other income (expense):
Interest income 777,116 686,065 632,983
Interest expense (12,537) (6,467) (32,207)
Other income, net 6,786 35,805 126,426
------------ ------------ ------------
Income (loss) before income taxes 2,612,901 899,350 (1,296,808)
Income tax expense (benefit) 843,897 246,613 (633,027)
------------ ------------ ------------
Net income (loss) $ 1,769,004 $ 652,737 $ (663,781)
============ ============ ============
Weighted average common shares outstanding 4,826,785 4,802,375 4,930,119
============ ============ ============
Basic income (loss) per share $ 0.37 $ 0.14 $ (0.13)
============ ============ ============
Weighted average common and common equivalent
shares outstanding 4,984,647 4,861,947 4,930,119
============ ============ ============
Diluted income (loss) per share $ 0.35 $ 0.13 $ (0.13)
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
-27-
<PAGE>
EAGLE POINT SOFTWARE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED JUNE 30, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained Treasury
Stock Capital Earnings Stock Total
<S> <C> <C> <C> <C> <C>
BALANCES AT JULY 1, 1996 $ 49,417 $ 17,535,942 $ 3,343,569 $ 20,928,928
Purchase of 123,000 shares
of treasury stock $ (508,875) (508,875)
Net loss (663,781) (663,781)
-------- ------------ ----------- ---------- ------------
BALANCE AT JUNE 30, 1997 49,417 17,535,942 2,679,788 (508,875) 19,756,272
Purchase of 48,200 shares of
treasury stock (164,178) (164,178)
Issuance of 20,924 shares of
treasury stock under employee
stock purchase plan (6,068) 86,521 80,453
Net income 652,737 652,737
-------- ------------ ----------- ---------- ------------
BALANCE AT JUNE 30, 1998 49,417 17,535,942 3,326,457 (586,532) 20,325,284
Exercise of 17,396 stock options 88,348 (37,370) (54,234) (3,256)
Issuance of 24,003 shares of
treasury stock under employee
stock purchase plan 91,173 91,173
Net income 1,769,004 1,769,004
-------- ------------ ----------- ---------- ------------
BALANCE AT JUNE 30, 1999 $ 49,417 $ 17,624,290 $ 5,058,091 $ (549,593) $ 22,182,205
======== ============ =========== ========== ============
</TABLE>
See notes to consolidated financial statements.
-28-
<PAGE>
EAGLE POINT SOFTWARE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED JUNE 30, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,769,004 $ 652,737 $ (663,781)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 1,106,909 1,079,738 1,025,455
Amortization of software development costs 253,266 87,455 468,939
Charge for purchased research and development 475,393
Forgiveness of CEBA loan (110,000)
Deferred income taxes 463,540 (285,593) (496,024)
Gain on sale of property and equipment (4,697)
Changes in assets and liabilities, net of assets and liabilities
acquired in connection with the acquisitions of CIBC during 1997:
Accounts receivable (54,205) 200,416 2,056,472
Interest receivable 3,729 (87,643) 255,290
Inventories 16,540 372,257 (140,156)
Prepaid expenses and other assets 54,803 (33,155) 71,436
Accounts payable (77,524) (295,520) 233,049
Income taxes payable/receivable (55,196) 578,748 (442,198)
Accrued expenses (1,135) 52,935 76,024
Deferred revenues (731,132) 2,244,240 (435,958)
Other (9,334) 64,852 4,402
----------- ------------ ------------
Net cash provided by operating activities 2,734,568 4,631,467 2,378,343
----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (614,614) (602,402) (2,585,778)
Proceeds from sale of property and equipment 4,697
Software development costs:
Capitalized costs (105,401) (271,507)
Purchases of software (5,000) (35,000) (305,081)
Purchase of investments (9,077,910) (15,040,940)
Proceeds from maturities of investments 8,050,982 7,515,572 7,485,977
Payments to acquire companies, net of cash acquired (75,000) (551,676)
----------- ------------ ------------
Net cash provided by (used in) investing activities (1,822,246) (8,434,277) 4,043,442
----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (184,425) (257,347) (213,162)
Purchase of treasury stock (164,178) (508,875)
Proceeds from issuance of treasury stock for
exercise of stock options 91,173 80,453
----------- ------------ ------------
Net cash used in financing activities (93,252) (341,072) (722,037)
----------- ------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 819,070 (4,143,882) 5,699,748
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 4,662,570 8,806,452 3,106,704
----------- ------------ ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 5,481,640 $ 4,662,570 $ 8,806,452
=========== ============ ============
(Continued)
</TABLE>
-29-
<PAGE>
EAGLE POINT SOFTWARE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED JUNE 30, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
1999 1998 1997
SUPPLEMENTAL CASH FLOW
INFORMATION:
Cash paid for:
Interest $ 5,766 $ 6,375 $ 30,013
========= ======== =========
Income taxes $ 169,387 $416,525 $ 313,728
========= ======== =========
Non-cash investing and financing activities:
Exercise of employee stock options $ 91,604
=========
Long-term debt issued in business
acquisitions $ 79,597
Forgiveness of CEBA loan 110,000
Payments to acquire companies, net of cash
acquired:
Fair value of assets acquired $ 631,273
Long-term debt issued (79,597)
--------
$ 551,676
========
See notes to consolidated financial statements. (Concluded)
-30-
<PAGE>
EAGLE POINT SOFTWARE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JUNE 30, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Operations - Eagle Point Software Corporation and its
subsidiary (the "Company") is engaged in the development, production and sale
of software for the engineering, construction, structural and architectural
markets.
Cash and Cash Equivalents - The Company considers all highly liquid
investments with original maturities of three months or less when purchased
to be cash equivalents.
Investments - All of the Company's investments are accounted for as held-to-
maturity and reported at amortized cost.
Inventories - Inventories are stated at the lower of cost (first in, first
out) or market and consist of the following as of June 30:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Manuals and diskettes $ 91,781 $100,159
Finished software products 16,481 23,614
Other supplies 12,269 13,298
-------- --------
$120,531 $137,071
======== ========
</TABLE>
Property and Equipment - Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the following
estimated useful lives:
<TABLE>
<CAPTION>
Estimated
Useful Life
<S> <C>
Buildings and land improvements 20-40 Years
Computer equipment and purchased software 3-5 Years
Furniture and fixtures 7-10 Years
Office equipment 5-7 Years
Vehicles 5 Years
</TABLE>
Non-Compete Agreements - Non-compete agreements are being amortized using the
straight-line method over the five year term of the agreements.
Income Taxes - The Company provides deferred tax assets or liabilities based
on the difference between the financial statement and tax basis of assets and
liabilities, measured using enacted tax rates.
-31-
<PAGE>
Concentrations - The Company held approximately $11.0 million and $10.0
million in various U.S. Treasury Notes as of June 30, 1999 and 1998,
respectively. The Company's temporary cash investments, $1.2 million as of
June 30, 1999 and 1998, were placed in a money market account with William
Blair Mutual Funds, Inc. and $4.1 million and $3.2 million as of June 30,
1999 and 1998, respectively, were placed in a money market repurchase account
at a local bank. These are primarily funds that were received from the
Company's public stock offering in 1995.
Revenues - 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 products 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.
Cost of Revenues - Cost of revenues consists primarily of purchases of third
party products, costs of manuals and other materials, software development
cost amortization, royalties, costs related to the Company's system
production department and personnel and other costs associated with training
and support.
Software Development Costs - Software development costs are stated at the
lower of unamortized cost or net realizable value. The Company capitalizes
software development costs subsequent to the establishment of technological
feasibility and until the product is available for general release. Costs
incurred prior to the establishment of technological feasibility are charged
to research and development expenses. Costs associated with product
enhancements that extend the original product's life are also capitalized
upon technological feasibility. Amortization of product development costs
begins the month of general release and extends on a straight-line basis over
12 to 18 months, which results in amortization expense no less than that
which would result from using the ratio of current gross revenues to total
expected gross revenues. Purchased software development costs are
capitalized and amortized over 18 to 36 months.
Earnings Per Share - Basic EPS excludes dilution and is computed by dividing
net income by the weighted average of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that would occur if
securities or other contracts to issue common stock were exercised or
converted into common stock.
-32-
<PAGE>
A reconciliation of the numerators and denominators used in the basic and
diluted net income (loss) per share amounts follows:
<TABLE>
<CAPTION>
Fiscal Year Ending June 30,
----------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
Numerator:
Numerator for basic and diluted net income
(loss) per share - net income (loss) $1,769,004 $ 652,737 $ (663,781)
========== ========== =============
Denominator:
Denominator for basic net income (loss) per
share - weighted average shares 4,826,785 4,802,375 4,930,119
Net effect of stock options based on the
treasury stock method using the average
market price during the period 157,862 59,572 -
---------- ---------- -------------
Denominator for diluted net income (loss)
per share 4,984,647 4,861,947 4,930,119
========== ========== =============
</TABLE>
Statement of Financial Accounting Standards - In June of 1998, the Financial
Accounting Standards Board issued Statements of Financial Accounting Standard
No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging
Activities which was subsequently amended by Statements of Financial
Accounting Standards No. 137, Accounting for Derivative Instruments and
Hedging Activities - deferral of the effective date of FASB Statement No.
133. SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts. These standards are effective for periods beginning after June
15, 1999. The Company is currently evaluating the standard and the reporting
implications thereof.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Significant estimates include the allowance for
doubtful accounts and allowance for sales returns as well as realization of
intangible assets. Actual results could differ from those estimates.
Fair Value Disclosure - The carrying value of the long-term debt approximates
fair value as interest rates approximate the rate management believes the
Company could refinance the obligations, given the current market conditions.
The carrying value of other financial assets, other than investments which
are discussed in Note 3, and liabilities approximate their fair values
because of the short maturity of those instruments.
2. ACQUISITIONS
Computer Integrated Building Corporation
On July 29, 1996, the Company purchased substantially all assets of Computer
Integrated Building Corporation ("CIBC"), a developer and marketer of
computer software.
-33-
<PAGE>
The purchase price was $550,000 cash. Additionally, the Company was
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 Computer Integrated Building Corporation's products plus (2) 50% of
such revenues exceeding $743,400, during the 12 month period ended July 29,
1997. As of June 30, 1997, the Company recorded a payable of $79,597 which
was paid September 29, 1997. A final payment of $75,000 on March 12, 1999
completed the contingent cash payments due to CIBC. This amount is included
in non-compete agreements in the consolidated balance sheet. As part of the
acquisition, a three year non-compete agreement was entered into between the
Company and former owners.
The CIBC acquisition has been accounted for under the purchase method, and
accordingly, the results of operations of such business are included in the
Company's results from their respective dates of acquisition. For the
acquisition, the aggregate cost over fair value of acquired net assets has
been assigned principally to purchased research and development in process
and software development costs based on its estimated fair market value. The
portion of the purchase price allocated to research and development that had
not yet reached technological feasibility and had no alternative future use
was charged to expense on the date of purchase. Amounts allocated to
software development costs and other intangibles will be amortized on a
straight-line basis over their estimated useful lives not to exceed five
years.
Purchase price allocation was as follows:
<TABLE>
<S> <C>
Property and equipment $ 20,000
Software development costs and other intangibles 129,607
Purchased research and development in process 475,393
--------
$625,000
========
</TABLE>
3. INVESTMENTS
Investments consist of U.S. Treasury Notes. Total investments as of June 30
were as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------------------- --------------------------------------
Carrying Value Fair Value Carrying Value Fair Value
<S> <C> <C> <C> <C>
Short-term investments $11,040,912 $11,023,140 $8,011,236 $7,990,400
Long-term investments - - 2,002,748 2,001,000
</TABLE>
-34-
<PAGE>
4. PROPERTY AND EQUIPMENT, NET
Property and equipment consists of the following as of June 30:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Land $ 637,400 $ 637,400
Buildings and land improvements 4,059,340 4,052,663
Computer equipment and purchased software 5,037,409 4,621,072
Furniture and fixtures 1,369,839 1,349,547
Office equipment 627,240 590,724
Vehicles 76,691 76,691
----------- -----------
11,807,919 11,328,097
Accumulated depreciation (5,252,137) (4,280,020)
----------- -----------
$ 6,555,782 $ 7,048,077
=========== ===========
</TABLE>
5. ACCRUED EXPENSES
Accrued expenses consist of the following as of June 30:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Salaries and commissions $ 374,449 $ 429,650
Other 720,129 666,063
---------- ----------
$1,094,578 $1,095,713
========== ==========
</TABLE>
6. NOTES PAYABLE
At June 30, 1999, the Company had a $2,000,000 unsecured operating line of
credit agreement with a bank which expires December 1, 1999. Borrowings under
the line of credit accrue interest at the prime rate (7.75% at June 30,
1999). At June 30, 1999 there were no borrowings outstanding under the line.
7. LONG-TERM DEBT
As of June 30, 1999 long-term debt consists of $135,776 from three loans with
economic development groups with interest rates ranging from 0% - 5%.
Principal and interest payments are due quarterly or annually with final
maturity dates ranging from October 2000 to November 2001. The amounts are
collateralized by the equipment purchased with the loan proceeds.
Approximately $85,000 of the loans are guaranteed by various stockholders of
the Company. Certain of the Company's loan agreements prohibit the payment of
dividends on the Company's capital stock without prior written consent. At
June 30, 1999, future principal payments on long-term debt for each of the
three years in the period ended June 30, 2002 are $71,434, $35,770 and
$28,572, respectively.
During fiscal 1997, the Company met certain employment obligations outlined
in a forgivable loan agreement with the Iowa Department of Economic
Development ("Department"). The Department granted permanent forgiveness of
the loan. Accordingly, the Company recognized the $110,000 principal as other
income in fiscal 1997.
-35-
<PAGE>
8. INCOME TAXES
Income tax (benefit) expense consists of the following for the years ended
June 30:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Current:
Federal $380,302 $ 524,106 $ (83,844)
State 55 8,100 (53,159)
-------- --------- ---------
Total current 380,357 532,206 (137,003)
-------- --------- ---------
Deferred:
Federal 450,296 (272,584) (485,040)
State 13,244 (13,009) (10,984)
-------- --------- ---------
Total deferred 463,540 (285,593) (496,024)
-------- --------- ---------
Income tax (benefit) expense $843,897 $ 246,613 $(633,027)
======== ========= =========
</TABLE>
The approximate tax effects of temporary differences that give rise to
deferred tax assets (liabilities) were as follows as of June 30:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Product development costs $ (27,324) $ (43,431) $ (7,456)
Depreciation (241,785) (236,886) (200,290)
Purchased research and development 389,921 425,213 460,504
Research and development tax credits - - 169,719
Deferred revenues 246,205 656,719 54,432
Prepaid expenses (27,288) (38,462) (27,526)
Allowance for bad debts 37,594 25,748 42,619
Land acquired from Partnership 79,625 79,625 79,625
Building acquired from Partnership 242,353 246,773 252,765
Other 114,131 161,673 166,987
Iowa new jobs credits 162,000 176,000 178,000
Valuation allowance (162,000) (176,000) (178,000)
--------- ---------- ---------
$ 813,432 $1,276,972 $ 991,379
========= ========== =========
</TABLE>
The State of Iowa offers an income tax credit to corporations who have
entered into certain training agreements under Iowa Law. During the years
ended June 30, 1999 and 1998, the Company's management determined that
approximately $162,000 and $176,000, respectively, of tax credits are
available to the Company since their agreement was entered into (see Note
15). However, the Company incurs minimal Iowa taxes due to a small percentage
of the Company's gross revenues being generated in Iowa. The remaining
credits of $137,000 generated during the period ended June 30, 1995 can be
carried forward to reduce Iowa taxes through 2005. Additional credits of
$25,000 earned but not utilized as of June 30, 1996 can be carried forward to
reduce Iowa taxes through 2006. Management has fully reserved the deferred
tax asset related to the credit carryforward as they believe it is more
likely than not that the benefit of the carryforward will not be fully
realized prior to its expiration.
-36-
<PAGE>
Reconciliations of income tax expense (benefit) with income tax expense
(benefit) computed using statutory federal rates are as follows for the years
ended June 30:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Computed statutory expense (benefit) $914,515 $314,772 $(453,882)
State income taxes, net of federal tax benefit 6,881 (9,106) (42,334)
Change in valuation allowance (14,000) (2,000)
Research and development tax credits (39,165) (62,234) (169,719)
Other (24,334) 5,181 32,908
-------- -------- ---------
Income tax (benefit) expense $843,897 $246,613 $(633,027)
======== ======== =========
</TABLE>
9. SEGMENT INFORMATION
The Company operates in two segments; sale of software and sale of training
and support. The consolidated statement of operations delineates information
on these two segments.
Net revenues consisted of the following for the years ended June 30:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Domestic $13,783,659 $12,406,406 $14,525,719
Export - Canada 301,578 565,299 430,322
Export - other 474,268 849,433 848,781
----------- ----------- -----------
$14,559,505 $13,821,138 $15,804,822
=========== =========== ===========
</TABLE>
10. NON-RECURRING CHARGES
The non-recurring charges included in the accompanying consolidated
statements of operations consist of the following:
<TABLE>
<CAPTION>
1997
<S> <C>
Charge of purchased research and development
and other acquisition related charges $475,393
Charge for claims, settlements and
contingencies 234,794
Restructuring charges 155,935
--------
$866,122
========
</TABLE>
Non-recurring charges for fiscal 1997 include a charge of $475,393 for
purchased research and development in connection with the acquisition of
Computer Integrated Building Corporation. The $234,794 relates to issues
asserted by former employees and the U.S. Department of Labor based on the
1938 Fair Labor Standards Act.
In addition, the Company incurred charges of $155,935 in March of 1997
relating to office closings in California and Colorado and related
restructuring costs. The closing of these offices was due primarily to
management's decision to consolidate product development and support.
-37-
<PAGE>
11. EMPLOYEE BENEFITS
Profit Sharing - The Company has a 401(k) profit sharing plan. The plan
allows eligible employees to make contributions up to 15% of their
compensation. Under the plan, the Company may contribute to the plan an
amount of matching contributions which is determined at its discretion. For
the years ended June 30, 1999, 1998 and 1997, the Company's matching
contributions were $19,460, $16,700 and $17,826, respectively.
Employee Stock Purchase Plans - The Company has an employee stock purchase
plan. The Eagle Point Software Corporation Employee Stock Purchase Plan (the
"Purchase Plan") permits eligible employees of the Company to purchase
shares of common stock at below-market prices through payroll deductions.
Shares are purchased at the lesser of 85% of the fair market value of the
common stock on the first trading day in an annual participation period or
85% of the fair market value of the common stock on the last trading day in
such period. Under the Purchase Plan, up to 100,000 shares may be sold.
These shares may be newly issued shares or shares acquired by the Company on
the open market. Unless terminated earlier by the Board of Directors, the
Purchase Plan will terminate when 100,000 shares have been sold. Total
shares sold under the Purchase Plan were 64,070 as of June 30, 1999.
Stock Options - The Company has an employee stock option plan. The Eagle
Point Software Corporation Stock Option Plan (the "Plan") allows for the
issuance of incentive stock options or nonqualified stock options. Under the
Plan, up to an aggregate of 750,000 shares of common stock may be issued
upon the exercise of stock options granted. The Plan also provides that
option prices may not be less than 100% of the fair market value of the
shares on the date of grant. Options granted to employees vest over either 3
or 4 years from the date of the grant and options to non-employee directors
vest on the date of grant. All options expire no later than 10 years from
the date of grant. No stock options may be issued under the Plan after May
1, 2005. The benefit of income tax deductions due to options exercised is
credited to additional paid-in capital.
The Company applies APB Opinion 25 in accounting for its Plan. Accordingly,
no compensation cost has been recognized in the statements of operations for
the Plan for 1999, 1998 or 1997. Had compensation cost been determined on
the basis of fair value pursuant to SFAS No. 123, net earnings and earnings
per share would have been reduced as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net earnings (loss):
As reported $1,769,004 $652,737 $(663,781)
Pro forma 1,630,279 486,083 (801,793)
Basic earnings (loss) per share:
As reported $ 0.37 $ 0.14 $ (0.13)
Pro forma 0.34 0.10 (0.16)
</TABLE>
-38-
<PAGE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997: dividend yield of 0%;
expected volatility of 40%; risk-free interest rate of 5.93% in 1999, 5.50%
in 1998 and 6.30% in 1997; and expected lives of 5 years from grant date. A
summary of the status of the stock option plan as of June 30, 1999, 1998 and
1997, and the changes during the years then ending is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- --------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Fixed Options Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
OUTSTANDING AT 457,701 $ 6.06 288,256 $ 10.00 203,150 $ 14.15
BEGINNING OF YEAR
Granted 154,150 7.72 282,570 3.70 137,506 4.31
Exercised (17,396) 3.54 - - -
Forfeited (68,847) 5.97 (113,125) (10.19) (52,400) (11.15)
-------- --------- --------
OUTSTANDING AT
END OF YEAR 525,608 $ 6.64 457,701 $ 6.06 288,256 $ 10.00
======== ======== ========= ======== ======== ========
Options exercisable at year end 104,518 $ 10.89 47,672 $ 10.90 21,698 $ 10.00
======== ======== ========
Weighted-average grant date
fair value of options granted
during the year $ 3.42 $ 1.61 $ 1.93
</TABLE>
The following table summarizes information about stock options outstanding
at June 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- -------------------------------------------
Weighted Weighted
Exercise Average Average
Price Remaining Exercise
Range Number Contractual Life Number Price
<S> <C> <C> <C> <C>
$3.09 to $6.13 317,608 8.23 years 28,043 $ 3.97
$7.72 to $8.09 123,150 9.29 years 8,000 7.88
$9.94 to $13.00 56,000 6.09 years 53,050 12.83
$17.50 to $20.88 28,850 6.50 years 15,425 18.37
----------------- -----------------
525,608 104,518
================= =================
</TABLE>
12. LEASES
The Company leases certain office space and vehicles under operating leases.
Rent expense for the years ended June 30, 1999, 1998 and 1997, was
approximately $55,000, $76,000 and $158,000, respectively.
At June 30, 1999, future minimum rental payments due under operating leases
for each of the three years in the period ended June 30, 2002 was $37,620,
$30,707 and $4,539, respectively.
* * * * * *
-39-
<PAGE>
SCHEDULE II
EAGLE POINT SOFTWARE CORPORATION AND SUBSIDIARY
ALLOWANCES
FOR THE FISCAL YEARS ENDED JUNE 30, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additions-
Balance, Charged to Deductions-
beginning of Cost and Accounts Balance, End
Description Year Expenses Charged-Off of Year
<S> <C> <C> <C> <C>
June 30, 1999 -- Allowance
for doubtful accounts $ 73,565 $ 85,000 $ 51,154 $107,411
-------- -------- -------- --------
June 30, 1998 -- Allowance
for doubtful accounts $121,768 $ 79,000 $127,203 $ 73,565
-------- -------- -------- --------
June 30, 1997 -- Allowance
for doubtful accounts $126,385 $401,012 $405,629 $121,768
-------- -------- -------- --------
June 30, 1999 -- Allowance
for sales returns $ 87,980 $460,001 $437,083 $110,898
-------- -------- -------- --------
June 30, 1998 -- Allowance
for sales returns $ 84,607 $315,344 $311,981 $ 87,970
-------- -------- -------- --------
June 30, 1997 -- Allowance
for sales returns $124,959 $496,945 $537,287 $ 84,617
-------- -------- -------- --------
</TABLE>
-40-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, this Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Date: September 17, 1999 EAGLE POINT SOFTWARE CORPORATION
/s/ Rodney L. Blum
------------------------------
Rodney L. Blum
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Registration Statement has been signed by the following persons in the
capacities indicated on this 17th day of September, 1998.
Name Capacity
---- --------
/s/ Rodney L. Blum Chairman of the Board,
- --------------------------
Rodney L. Blum President, Chief Executive Officer and
Director (principal executive officer)
/s/ Dennis J. George Vice President, Chief
- --------------------------
Dennis J. George Financial Officer, Secretary, Treasurer and
Director (principal financial and
accounting officer)
/s/ John F. Biver Vice President and Director
- --------------------------
John F. Biver
/s/ James P. Hickey Director
- --------------------------
James P. Hickey
/s/ Thomas O. Miller Director
- --------------------------
Thomas O. Miller
-41-
<PAGE>
Exhibit Index
-------------
Exhibit No. Description
- ----------- -----------
3.1* -- Certificate of Incorporation of the Company.
3.2****** -- Amended and Restated By-laws of the Company.
10.1* -- Loan Agreement between the Company and the City of
Dubuque, dated January 20, 1992.
10.2* -- Loan Agreement between the Company and the City of
Dubuque, dated July 6, 1993.
10.3* -- Loan Agreement between the Company and the City of
Dubuque, dated May 16, 1994.
10.4* -- Community Economic Betterment Account Agreement between
the Company and the Iowa Department of Economic
Development, dated July 18, 1991.
10.5* -- Community Economic Betterment Account Agreement between
the Company and the Iowa Department of Economic
Development, dated July 15, 1993.
10.6* -- Asset Purchase Agreement between the Company and
Facility Mapping Systems, Inc., dated March 31, 1995.
10.7* -- Asset Purchase Agreement between the Company and
LANDCADD, Inc., dated January 1, 1995.
.10.8**** -- Employment Agreement with Rodney L. Blum.
.10.9**** -- Employment Agreement with Dennis J. George.
.10.10**** -- Employment Agreement with John F. Biver.
.10.11** -- Eagle Point Software Corporation Stock Option Plan.
-42-
<PAGE>
Exhibit No. Description
- ----------- -----------
.10.12*** -- Eagle Point Software Corporation Stock Purchase Plan.
10.13* -- Purchase Agreement between VisionOne Partnership and
the Company, dated as of May 1, 1995.
10.14***** -- Merger Agreement between the Company and ECOM
Associates, Inc., dated November 9, 1995.
10.15***** -- Asset Purchase Agreement between the Company and
Computer Integrated Building Corporation, dated July
29, 1996.
11.1# -- Statement re: computation of per share earnings.
21.1# -- Subsidiaries
23.1# -- Consent of Deloitte & Touche LLP.
23.2# -- Independent Auditors' Report on Schedule
27# -- Financial Data Schedule
_________________________
* Incorporated by reference from the Company's Registration Statement on
Form S -1 ( File No. 33-91950)
** Incorporated by reference from the Company's Registration Statement on
Form S-8 ( File No. 33-96914)
*** Incorporated by reference from the Company's Registration Statement on
Form S-8 ( File No. 33-96918)
**** Incorporated by reference from the Company's 1995 Annual Report on Form
10-K
***** Incorporated by reference from the Company's 1996 Annual Report on Form
10-K
****** Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the period ended December 31, 1998
# Filed herewith.
. Indicates management contract or compensatory plan or arrangement.
-43-
<PAGE>
EXHIBIT 11.1
EAGLE POINT SOFTWARE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT REGARDING COMPUTATION OF NET EARNINGS PER SHARE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended
----------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
SHARES USED IN DETERMINING BASIC EARNINGS PER SHARE:
Weighted average common shares outstanding 4,826,785 4,802,375 4,930,119
=============== ============== =================
SHARES USED IN DETERMINING DILUTED EARNINGS PER SHARE:
Weighted average common shares outstanding 4,826,785 4,802,375 4,930,119
Net effect of stock options based on the treasury stock
method using the average market price during the period 157,862 59,572 -
--------------- -------------- -----------------
Total weighted average common and common equivalent
shares outstanding 4,984,647 4,861,947 4,930,119
====================================================
</TABLE>
<PAGE>
EXHIBIT 21.1
EAGLE POINT SOFTWARE CORPORATION
LIST OF SUBSIDIARIES
1. ECOM Associates, Inc. Wisconsin Corporation
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-96914, 33-96916, 33-96918 of Eagle Point Software Corporation on Form S-8 of
our report dated July 30, 1999 appearing in this Annual Report on Form 10-K of
Eagle Point Software Corporation for the year ended June 30, 1999.
Des Moines, Iowa
September 17, 1999
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Eagle Point Software Corporation
Dubuque, Iowa
We have audited the consolidated financial statements of Eagle Point Software
Corporation and Subsidiary (Company) as of June 30, 1999 and 1998, and for each
of the three years in the period ended June 30, 1999, and have issued our report
thereon dated July 30, 1999. Our audits also include the financial statement
schedule of the Company listed in Item 14. This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
Des Moines, Iowa
September 17, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 5,481,641
<SECURITIES> 11,040,912
<RECEIVABLES> 1,687,524
<ALLOWANCES> 185,272
<INVENTORY> 120,531
<CURRENT-ASSETS> 18,711,024
<PP&E> 11,807,919
<DEPRECIATION> 5,252,137
<TOTAL-ASSETS> 26,143,480
<CURRENT-LIABILITIES> 3,682,241
<BONDS> 135,776
0
0
<COMMON> 49,417
<OTHER-SE> 22,132,788
<TOTAL-LIABILITY-AND-EQUITY> 26,143,480
<SALES> 14,559,505
<TOTAL-REVENUES> 14,559,505
<CGS> 2,696,987
<TOTAL-COSTS> 2,696,987
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 107,411
<INTEREST-EXPENSE> 12,536
<INCOME-PRETAX> 2,612,901
<INCOME-TAX> 843,897
<INCOME-CONTINUING> 1,769,004
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,769,004
<EPS-BASIC> .37
<EPS-DILUTED> .35
</TABLE>
