UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000.
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________to______________
Commission file number: 0-26170
Eagle Point Software Corporation
(Exact name of registrant as specified in its charter)
Delaware 42-1204819
(State or other jurisdiction of incorporation or organization) (I.R.S. employer identification number)
4131 Westmark Drive, Dubuque, IA 52002-2627
(address of principal executive offices)
(319) 556-8392
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No____
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest applicable date.
Common Stock, par value $.01 per share, outstanding as of May 10, 2000:
4,846,482 shares.
- --------------------------------------------------------------------------------
Eagle Point Software Corporation
Form 10-Q
For the quarter ended March 31, 2000
Index
PART I. Financial Information
-----------------------------
Page
----
Item 1 Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets -
March 31, 2000 and June 30, 1999 3
Consolidated Statements of Operations -
for the three and nine month periods ended March 31, 2000 and 1999 5
Consolidated Statements of Cash Flows -
for the nine months ended March 31, 2000 and 1999 6
Notes to Consolidated Financial Statements 8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3 Quantitative and Qualitative Disclosure about Market Risk 11
PART II. Other Information
--------------------------
Item 1 Legal Proceedings 11
Item 2 Changes in Securities and Use of Proceeds 11
Item 3 Defaults Upon Senior Securities 11
Item 4 Submission of Matters to a Vote of Security Holders 11
Item 5 Other Information 11
Item 6 Exhibits and Reports on Form 8-K 12
SIGNATURES 13
2
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
EAGLE POINT SOFTWARE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Unaudited)
- --------------------------------------------------------------------------------
March 31, June 30,
------------------------------------------
2000 1999
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,317,657 $ 5,481,640
Short-term investments 4,007,093 11,040,912
Accounts receivable (net of allowances of $231,781 and $218,309, respectively) 2,652,405 1,654,487
Interest receivable 26,875 83,914
Deferred income taxes 242,927 242,927
Inventories 734,651 120,531
Income taxes receivable 37,179 3,942
Prepaid expenses and other assets 182,415 82,671
------------ --------------
Total current assets 18,201,202 18,711,024
PROPERTY & EQUIPMENT, NET 6,447,735 6,555,782
SOFTWARE DEVELOPMENT COSTS (net of accumulated amortization of
$604,441 and $335,941, respectively) 1,086,938 157,967
NON-COMPETE AGREEMENTS (net of accumulated amortization of $345,147
and $276,863, respectively) 79,918 148,202
GOODWILL (net of accumulated amortization of $36,387) 673,444 0
DEFERRED INCOME TAXES 570,505 570,505
------------ --------------
TOTAL ASSETS $ 27,059,742 $ 26,143,480
============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 39,656 71,434
Accounts payable 217,902 112,773
Accrued expenses 1,183,219 1,094,578
Deferred revenues 2,648,708 2,403,456
------------ --------------
Total current liabilities 4,089,485 3,682,241
LONG-TERM DEBT 28,571 64,342
DEFERRED REVENUES 214,280 214,692
------------ --------------
Total liabilities 4,332,336 3,961,275
------------ --------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
EAGLE POINT SOFTWARE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Unaudited)
- --------------------------------------------------------------------------------
March 31, June 30,
------------------ ----------------
2000 1999
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,000,000 shares authorized; none issued at
March 31, 2000 and June 30, 1999
Common stock, $.01 par value; 20,000,000 shares authorized, 4,941,730 shares
issued and outstanding at March 31, 2000 and June 30, 1999 49,417 49,417
Additional paid-in capital 17,624,290 17,624,290
Retained earnings 5,530,769 5,058,091
------------------ ----------------
23,204,476 22,731,798
Treasury stock, at cost; 109,093 shares at March 31, 2000 and 150,276
shares at June 30, 1999 (477,070) (549,593)
-------------------- ----------------
Total stockholders' equity 22,727,406 22,182,205
-------------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 27,059,742 $ 26,143,480
==================== ================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
EAGLE POINT SOFTWARE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
================================================================================
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------------- --------------------------
2000 1999 2000 1999
Net revenues
Product sales
Training and support $ 3,759,042 $ 2,557,806 $ 9,069,762 $ 7,939,578
1,491,860 1,047,262 4,012,110 2,996,967
----------- ----------- ----------- -----------
Total net revenues 5,250,902 3,605,068 13,081,872 10,936,545
----------- ----------- ----------- -----------
Cost of revenues
Product sales 1,439,402 606,551 2,974,712 1,690,845
Training and support 218,736 113,089 418,156 306,425
----------- ----------- ----------- -----------
Total cost of revenues 1,658,138 719,640 3,392,868 1,997,270
----------- ----------- ----------- -----------
Gross Profit 3,592,764 2,885,428 9,689,004 8,939,275
----------- ----------- ----------- -----------
Operating expenses:
Selling and marketing 2,009,490 1,126,686 4,782,997 3,435,116
Research and development 922,314 650,931 2,405,545 2,082,924
General and administrative 834,249 620,447 2,188,794 1,904,079
Acquisition related charges 261,136
------------------------- -------------------------
Total operating expenses 3,766,053 2,398,064 9,638,472 7,422,118
----------- ----------- ----------- -----------
Operating income (loss) from continuing
operations (173,289) 487,364 50,532 1,517,157
Other income (expense):
Interest income, net of expense 183,432 180,748 579,748 570,665
Other income (expense) 46,567 548 90,365 1,472
----------- ----------- ----------- -----------
Income from continuing operations
before income taxes 56,710 668,660 720,645 2,089,294
Income tax expense 25,747 216,827 247,908 693,025
----------- ----------- ----------- -----------
Net income $ 30,963 $ 451,833 $ 472,737 $ 1,396,269
=========== =========== =========== ===========
Weighted average common shares outstanding
4,846,495 4,832,570 4,846,482 4,824,844
=========== =========== =========== ===========
Basic income per share $ 0.01 $ 0.09 $ 0.10 $ 0.29
=========== =========== =========== ===========
Weighted average common and common
equivalent shares outstanding 4,953,426 4,973,139 4,947,007 4,993,937
=========== =========== =========== ===========
Diluted income per share 0.01 0.09 0.10 0.28
=========== =========== =========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
EAGLE POINT SOFTWARE CORPORATION AND SUBSIDIARY
STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended
March 31,
-----------------------------------
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 472,737 $ 1,396,269
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 984,238 840,965
Amortization of software development costs 268,497 183,253
Charge for purchased research and development 78,600
Changes in assets and liabilities:
Accounts receivable (997,918) 257,649
Interest receivable 57,039 (10,872)
Income taxes payable/receivable (33,237) 82,414
Inventories (334,108) (3,903)
Prepaid expenses (99,745) (64,320)
Accounts payable 105,129 84,627
Deferred revenues 244,840 (853,086)
Accrued expenses 88,641 121,027
Other 94 (79,008)
Net cash provided by operating activities ------------ -----------
834,807 1,955,015
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment
Software development costs (722,151) (425,743)
Capitalized software costs (225,468) (105,401)
Payment to acquire company (2,089,812)
Purchases of investments (2,012,575) (13,075,110)
Proceeds from maturities of investments 9,046,394 10,028,311
------------ -----------
Net cash provided by (used in) investing
activities 3,996,388 (3,577,943)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (67,549) (180,654)
Purchases of treasury stock (245,064)
Proceeds from issuance of treasury stock 72,371 281,860
------------ -----------
Net cash provided by (used in) financing
activities 4,822 (143,858)
------------ -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 4,836,017 (1,766,786)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 5,481,640 4,662,570
------------ -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 10,317,657 $ 2,895,784
============ ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid (received) for:
Interest $ 1,492 $ 9,594
============ ===========
Income taxes $ 321,425 $ 519,008
============ ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
EAGLE POINT SOFTWARE CORPORATION AND SUBSIDIARY
STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended
March 31,
---------------------------
2000 1999
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Payment to acquire company:
Inventories 280,012
Property and equipment 49,369 0
Purchased research and development 78,600 0
Development product technology 972,000 0
Goodwill 709,831 0
----------- ------------
$ 2,089,812 $ 0
=========== ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
1. Interim Financial Statements
The accompanying consolidated financial statements of Eagle Point Software
Corporation and its subsidiary (collectively the "Company" or "Eagle Point") are
unaudited. In the opinion of the Company's management, the financial statements
include all adjustments, consisting only of normal recurring adjustments,
necessary to state fairly the financial position of the Company as of March 31,
2000 and June 30, 1999, and the results of operations and cash flows for the
nine-month period ended March 31, 2000.
Certain notes and other information have been condensed or omitted from the
interim financial statements presented in this quarterly report on Form 10-Q.
Accordingly, these financial statements should be read in conjunction with the
Company's annual report on Form 10-K for the year ended June 30, 1999.
2. Deferred Revenues and Revenue Recognition
The Company derives substantially all of its product revenues from the license
of its software products. Revenue is recognized upon shipment of the product,
provided that no significant vendor, post-contract support, or product upgrade
obligations remain outstanding and collection of the resulting receivable is
deemed probable. The Company has no significant vendor and post-contract support
obligations associated with its product sales. Dependent upon the timing of
future product upgrade releases and market conditions, the Company may extend
promotions where product upgrade obligations are associated with the shipment of
software products. Based upon the terms of the promotions extended, a portion or
all of the product revenues may be deferred until the promotional product
upgrade is released and subsequently shipped. The Company recognizes its service
revenues from maintenance and support contracts ratably over the period of the
arrangements. These contracts generally have terms of one year or less. The
Company recognizes its service revenues from training arrangements in the period
in which the training occurs. The Company's product returns historically have
been insignificant.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Forward Looking Information
This quarterly report on Form 10-Q contains forward-looking statements.
These forward-looking statements involve risks and uncertainties, which could
cause actual results to differ from those projected. These as well as other
risks and uncertainties are detailed from time to time in reports filed by the
Company with the Securities and Exchange Commission, including this report on
Form 10-Q for the quarter ended March 31, 2000 and the Company's report on Form
10-K for the year ended June 30, 1999.
8
Results of Operations
Net revenues increased $1.6 million or 45.7% to $5.2 million for the
three months ended March 31, 2000 (the "2000 Quarter"), from $3.6 million for
the three months ended March 31, 1999 (the "1999 Quarter"). The Company
experienced an increase in product revenues and in training and support revenues
in the 2000 Quarter. The increase in product revenues is attributable to
increased sales and marketing efforts and the Company's SMI acquisition.
Training and support revenues were favorably affected in the 2000 Quarter by the
release of new products in the previous and current fiscal years, as well as an
increased emphasis by the Company on support and maintenance programs. In
addition, $20,000 of the 2000 Quarter's software revenues, that were part of a
continuing upgrade promotion, was deferred. The revenues deferred under this
promotion will be recognized upon the future release and subsequent shipment of
product upgrades. $310,000 of previously deferred software revenues was
recognized during the 1999 Quarter as the product upgrades, for which the
revenue was initially deferred, were shipped.
For the nine months ended March 31, 2000, net revenues increased 19.6%
to $13.1 million from $10.9 million for the comparable period in 1999. Both
components of net revenue, product revenue and training and support revenue,
increased in 2000 compared to the same nine month period in 1999. Product
revenues increased 14.2% to $9.1 million from $7.9 million for the comparable
period in 1999. Training and support revenues increased 33.9% to $4.0 million
from $3.0 million for the comparable period in 1999. The increase in product
revenues is attributable to increased sales and marketing efforts and the
Company's SMI acquisition. Training and support revenues were favorably affected
by the release of new products in the previous and current fiscal years, as well
as an increased emphasis by the Company on support and maintenance programs. In
addition, the Company recognized $292,000 of previously deferred software
revenues in the nine months ended March 31, 2000, and $1.3 million of previously
deferred software revenues in the nine months ended March 31, 1999 as the
product upgrades, for which the revenue was initially deferred, were shipped.
Gross profit increased $700,000 or 24.5% to $3.6 million in the 2000
Quarter from $2.9 million in the 1999 Quarter. For the nine months ended March
31, 2000 gross profit increased $800,000 or 8.4% to $9.7 million from $8.9
million for the comparable period in 1999. Gross profit as a percentage of net
revenues decreased to 68.4% in the 2000 Quarter from 80.0% in the 1999 Quarter,
and decreased to 74.1% for the nine month period ending March 31, 2000 from
81.7% for the comparable period in 1999. Gross profit as a percentage of
corresponding net revenues relating to product sales decreased to 62.0% for the
three months ended March 31, 2000 from 76.3% for the same period in 1999, and to
67.2% for the nine month period ended March 31, 2000 from 78.7% for the
comparable period in 1999. These decreases are due to a shift in the mix of
product sales. Eagle Point products, which have higher gross profit margins than
resales of third party products, decreased to 77.3% of product sales in the 2000
Quarter from 98.2% of product sales in the 1999 Quarter, and to 85.2% of product
sales for the nine month period ending March 31, 2000 from 97.2% of product
sales for the comparable period in 1999. Resales of third party products, which
have a much lower gross profit margin, increased in the 2000 Quarter to 22.7% of
product sales from 1.8% of product sales in the 1999 Quarter, and for the nine
month period ending March 31, 2000 increased to 14.8% of product sales from 2.8%
of product sales for the comparable period in 1999. This increase is primarily
attributable to the SMI acquisition. Gross profit as a percentage of net
revenues relating to training and support decreased to 85.3% in the 2000 Quarter
from 89.2% in the 1999 Quarter. This decrease is attributable to a shift in the
sales mix toward training revenues, which have a lower gross profit margin than
support and maintenance. For the nine month period ending March 31, 2000 gross
profit as a percentage of net revenues relating to training and support was
89.6% as compared to 89.8% for the same nine month period in 1999.
Selling and marketing expense increased $900,000 or 78.4% to $2.0
million in the 2000 Quarter from $1.1 million in the 1999 Quarter. As a
percentage of net revenues, selling and marketing expenses
9
increased to 38.3% in the 2000 Quarter from 31.3% in the 1999 Quarter. For the
nine months ended March 31, 2000 these expenses increased $1.4 million or 39.2%
to 4.8 million from 3.4 million for the comparable period in 1999. These
increases are primarily attributable to higher personnel costs associated with
an increase in the sales and marketing staff.
Research and development expense increased $272,000 or 41.8% to $923,000 in
the 2000 Quarter from $651,000 in the 1999 Quarter. As a percentage of net
revenues, research and development expense decreased to 17.6% in the 2000
Quarter from 18.1% in the 1999 Quarter. For the nine months ended March 31, 2000
these expenses increased $300,000 or 15.5% to $2.4 million from $2.1 million for
the comparable period in 1999. As a percentage of net revenues, research and
development expenses decreased to 18.4% from 19.0% in the nine months ended
March 31, 1999. The increases are primarily attributable to higher personnel
costs associated with an increase in the research and development staff. The
decreases are attributable to the increase in sales volume.
General and administrative expenses increased $214,000 or 34.4% to $834,000
in the 2000 Quarter from $620,000 in the 1999 Quarter. As a percentage of net
revenues, general and administrative expenses decreased to 15.9% in the 2000
Quarter from 17.2% in the 1999 Quarter. For the nine month period ended March
31, 2000 general and administrative expenses increased $300,000 or 14.9% to $2.2
million from $1.9 million for the comparable period in 1999. As a percentage of
net revenues, these expenses decreased to 16.7% from 17.4% in the nine months
ended March 31, 1999. The increases are primarily attributable to higher general
and administrative personnel costs. The decreases are attributable to the
increase in sales volume.
Operating income decreased $660,000 or 135.56% to an operating loss of
$173,000 in the 2000 Quarter from operating income of 487,000 in the 1999
Quarter. Operating income as a percentage of net revenue decreased to -3.3% in
the 2000 Quarter from 13.5% in the 1999 Quarter. For the nine month period ended
March 31, 2000 operating income decreased $1.45 million or 96.7% to $50,000 from
$1.5 million for the comparable period in 1999. As a percentage of net revenues,
operating income also decreased to 0.4% from 13.9% in the nine months ended
March 31, 1999. In the nine month period ended March 31, 2000, the Company
incurred $261,000 of non-recurring charges, which included a $79,000 charge for
purchased research and development in connection with the SMI acquisition and
$182,000 of other acquisition related charges. Excluding these non-recurring
charges, operating income decreased $1.19 million or 79.5% for the nine months
ended March 31, 2000 from $1.5 million for the comparable period in 1999, and as
a percentage of net revenues decreased to 2.4% in the 2000 period from 13.9% in
the 1999 period.
Interest income decreased $6,000 to $184,000 in the 2000 Quarter from
$190,000 in the 1999 Quarter, and $2,000 in the nine month period to $581,000
from $583,000 in the comparable 1999 period. Other income increased $46,000 to
$46,500 in the 2000 Quarter from $500 in the 1999 Quarter, and $88,000 to
$90,000 in the nine month period from $2,000 in the comparable 1999 period.
Interest income decreased due to lower cash balances primarily attributable to
the SMI acquisition. Other income increased as a result of a refund of use taxes
paid in a prior period and due to income received for rents collected for office
space in a portion of the Company's corporate headquarters.
Liquidity and Capital Resources
The Company's financial position remains strong with working capital of
$14.1 million and long-term debt of only $29,000. Cash and short-term
investments aggregated approximately $14.3 million at March 31, 2000. The
Company also has available a $2.0 million unsecured line of credit from it's
principal bank. At March 31, 2000 the Company had no borrowings outstanding
under this line of credit.
10
Item 3. Quantitative and Qualitative Disclosure about Market Risk
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. To date,
the Company has not entered into any interest rate, currency or other market
risk hedging instruments.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None.
11
Item 6. Exhibits
(a) Exhibits:
11 Statement Regarding Computation of Net Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
None
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned,
thereunto duly authorized.
EAGLE POINT SOFTWARE CORPORATION
--------------------------------
(Registrant)
Date: May 15, 2000 BY: /s/ Rodney L. Blum
- ------------------- ---------------------------
Rodney L. Blum
Chairman, President and Chief
Executive Officer
Date: May 15, 2000 BY: /s/ Dennis J. George
- ------------------- ----------------------------
Dennis J. George
Vice President, Chief Financial
Officer, Treasurer and Secretary
(Principal Financial and
Accounting Officer)
13
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
11 Statement re: computation of net earnings per share
27 Financial Data Schedule
14