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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 (I.R.S. employer identification number)
incorporation or organization)
4131 Westmark Drive, Dubuque, IA 52002-2627
(address of principal executive offices)
(319) 556-8392
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest applicable date.
Common Stock, par value $.01 per share, outstanding as of November 10, 2000:
4,858,709 shares.
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Eagle Point Software Corporation
Form 10-Q
For the quarter ended September 30, 2000
Index
PART I. Financial Information
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Page
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Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets -
September 30, 2000 and June 30, 2000 3
Consolidated Statements of Operations -
for the three months, ended September 30, 2000 and 1999 5
Consolidated Statements of Cash Flows -
for the three months ended September 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosure about Market Risk 10
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)
=========================================================================================================================
September 30, June 30,
----------------------------------
2000 2000
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,843,671 $ 3,161,045
Short-term investments 10,995,185 8,995,468
Accounts receivable (net of allowances of $189,099 and $270,429, respectively) 1,824,203 2,577,368
Interest receivable 263,125 93,859
Deferred income taxes 176,626 176,626
Inventories 1,558,084 1,199,873
Income taxes receivable 212,209 180,114
Prepaid expenses and other assets 222,193 120,956
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Total current assets $18,095,296 $16,505,309
INVESTMENTS - 1,996,950
PROPERTY & EQUIPMENT, NET 6,084,530 6,256,045
SOFTWARE DEVELOPMENT COSTS (net of accumulated amortization of
$423,885 and $392,030 respectively) 890,468 1,022,323
NON-COMPETE AGREEMENTS (net of accumulated amortization of $383,077
and $366,904 respectively) 41,988 58,161
GOODWILL (net of accumulated amortization of $90,968 and $63,677, respectively) 741,439 768,730
DEFERRED INCOME TAXES 612,543 612,543
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TOTAL ASSETS $26,466,264 $27,220,061
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 31,857 $ 35,771
Accounts payable 531,153 468,219
Accrued expenses 811,661 1,173,920
Deferred revenues 2,431,080 2,808,802
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Total current liabilities $ 3,805,751 $ 4,486,712
LONG-TERM DEBT 28,571 28,571
DEFERRED REVENUES 146,978 195,181
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Total liabilities $ 3,981,300 $ 4,710,464
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
EAGLE POINT SOFTWARE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Unaudited)
==========================================================================================================================
September 30, June 30,
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2000 2000
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,000,000 shares authorized; none issued at
September 30, 2000 and June 30, 2000
Common stock, $.01 par value; 20,000,000 shares authorized, 4,941,730 shares
issued and outstanding at September 30, 2000 and June 30, 2000 49,417 49,417
Additional paid-in capital 17,624,290 17,624,290
Retained earnings 5,250,313 5,312,961
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22,924,020 22,986,668
Treasury stock, at cost; 86,021 shares at September 30,2000 and 95,224 shares at
June 30, 2000 (439,056) (477,071)
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Total stockholders' equity $22,484,964 $22,509,597
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $26,466,264 $27,220,061
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
EAGLE POINT SOFTWARE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
========================================================================================================================
Three Months Ended
September 30,
----------------------------
2000 1999
Net revenues
Product sales $2,579,184 $2,202,060
Training and support 1,322,037 1,269,065
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Total net revenues 3,901,221 3,471,125
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Cost of revenues
Product sales 1,139,550 598,619
Training and support 98,774 110,099
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Total cost of revenues 1,238,324 708,718
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Gross profit 2,662,897 2,762,407
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Operating expenses:
Selling and marketing 1,304,135 1,203,617
Research and development 932,034 766,173
General and administrative 753,928 632,827
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Total operating expenses 2,990,097 2,602,617
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Operating income (loss) from continuing operations (327,200) 159,790
Other income:
Interest income, net of expense 215,335 202,695
Other income 21,299 21,829
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Income (loss) from continuing operations
before income taxes (90,566) 384,314
Income tax expense (benefit) (27,918) 136,986
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Net income (loss) $ (62,648) $ 247,328
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Weighted average common shares outstanding 4,857,709 4,846,476
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Basic income (loss) per share $ (0.01) $ 0.05
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Weighted average common and common
equivalent shares outstanding 4,902,392 4,947,116
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Diluted income (loss) per share $ (0.01) $ 0.05
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
EAGLE POINT SOFTWARE CORPORATION AND SUBSIDIARY
STATEMENTS OF CASH FLOWS (Unaudited)
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Three Months Ended
September 30,
--------------------------------
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (62,648) $ 247,327
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 297,738 289,928
Amortization 159,146 64,370
Changes in assets and liabilities:
Accounts receivable 753,165 (192,358)
Interest receivable (169,266) 14,851
Income taxes payable/receivable (32,095) 66,809
Inventories (358,211) 26,215
Prepaid expenses (101,237) (296,949)
Accounts payable 62,934 23,689
Deferred revenues (425,925) 93,933
Accrued expenses (362,259) 20,315
Other (2,767) 23,080
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Net cash provided by (used in) operating activities (241,425) 381,210
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (110,050) (245,099)
Software development costs:
Capitalized software costs (20,605)
Purchase of investments (2,012,575)
Proceeds from maturities of investments 3,020,077
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Net cash provided by (used in) investing activities (110,050) 741,798
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (3,914) (7,625)
Purchases of treasury stock (9,004) -
Proceeds from issuance of treasury stock 47,019 72,371
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Net cash provided by financing activities 34,101 64,746
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NET CHANGE IN CASH AND CASH EQUIVALENTS (317,374) 1,187,754
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,161,045 5,481,640
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CASH AND CASH EQUIVALENTS, END OF PERIOD $2,843,671 $ 6,669,394
========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest $ 59 $ 146
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Income taxes $ 4,177 $ 70,177
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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 September
30, 2000 and June 30, 2000, and the results of operations and cash flows for the
three-month periods ended September 30, 2000 and 1999.
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, 2000.
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 product upgrade obligations remain outstanding and collection
of the resulting receivable is deemed probable. 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 also derives product
revenues from the sale of equipment used in the automated data collection
surveying markets.
The Company recognizes its product support 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.
3. Business Combination
On December 1, 1999, the Company purchased substantially all of the assets of
Surveyors Module International, LLC, ("SMI") a Tennessee limited liability
company. The purchase price was approximately $2,000,000 in cash. Additionally,
the Company is obligated to make contingent cash payments during each of the
next two years equal to (1) 70% of the gross profits attributable to the
acquired business, after making specific adjustments, for adjusted annual gross
profits between $1,650,000 and $2,500,000, plus (2) 85% of the adjusted gross
profits above $2,500,000. SMI, located in Church Hill, Tennessee, is a software
developer for the surveying hand-held data collection marketplace.
7
The result of operations for SMI are included in the Company's consolidated
operating results from December 1, 1999. Pro forma results of operations for the
three month period ended September 30, 2000 and 1999 as if the acquisition had
occurred at the beginning of each period are as follows:
Three months ended
September 30
Consolidated 2000 1999
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Total Revenues $3,901,221 $4,561,444
Net income (loss) $ (62,648) $ 426,797
Earnings per share:
Basic $ (0.01) $ 0.09
Diluted $ (0.01) $ 0.09
4. Subsequent Events
Effective November 15, 2000 Rod Blum will step down as the Company's President
and Chief Executive Officer. Effective October, 2000 the employment of
John Biver, a Vice President of the Company, terminated. Pursuant to the terms
of Mr. Blum's and Mr. Biver's employment agreements, they will receive a
combined total of severance benefits of approximately $995,000, substantially
all of which will be paid in the second and third quarters of fiscal 2001.
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 which may be projected herein. These as well
as other risks and uncertainties are detailed from time to time in reports filed
by the Company with the Securities and Exchange Commission, including this
report on Form 10-Q for the quarter ended September 30, 2000 and the Company's
report on Form 10-K for the year ended June 30, 2000.
Results of Operations
Net revenues increased $430,000 or 12.4% to $3.9 million for the three months
ended September 30, 2000 (the "2000 Period"), from $3.4 million for the three
months ended September 30, 1999 (the "1999 Period"). The Company experienced an
increase in both product sales and in training and support sales in the 2000
Period. The increase in product revenues is primarily attributable to the
Company's SMI acquisition. In addition, the Company recognized $110,000 of
previously deferred software revenues, as the product upgrades, for which the
revenue was initially deferred, were shipped. 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.
8
Gross profit decreased $100,000 or 3.6% to $2.7 million in the 2000 Period from
$2.8 million in the 1999 Period. Gross profit as a percentage of net revenues
decreased to 68.3% in the 2000 Period from 79.6% in the 1999 Period. Gross
profit as a percentage of corresponding net revenues relating to product sales
decreased to 55.8% in the 2000 Period from 72.8% in the 1999 Period. 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 74.3% of product sales in the 2000 Period from 98.7% in the 1999
Period. Resales of third party products, which have a substantially lower gross
profit margin, increased to 25.7% of product sales in the 2000 Period from 1.3%
in the 1999 Period. This shift in the sales mix is primarily attributable to the
SMI acquisition noted above. Gross profit as a percentage of corresponding net
revenues relating to training and support increased to 92.5% in the 2000 period
from 91.3% in the 1999 Period primarily due to an improvement in the sales mix
toward support and maintenance revenues, which have higher gross profit margins
than training revenues.
Selling and marketing expenses increased $100,000, or 8.4% to $1.3 million in
the 2000 Period from $1.2 million in the 1999 Period. As a percentage of net
revenues, selling and marketing expenses decreased to 33.4% in the 2000 Period
from 34.7% in the 1999 period primarily due to the increase in sales volume. The
increase was primarily attributable to increased personnel costs associated with
an increase in the sales and marketing staff.
Research and development expense increased $166,000, or 21.6% to $932,000 in the
2000 Period from $766,000 in the 1999 Period. As a percentage of net revenues,
research and development costs increased to 23.9% in the 2000 Period from 22.1%
in the 1999 Period. The increase was primarily attributable to increased
personnel costs associated with research and development.
General and administrative expense increased $121,000, or 19.1% to $754,000 in
the 2000 Period from $633,000 in the 1999 Period. As a percentage of net
revenues, general and administrative expenses increased to 19.3% in the 2000
Period from 18.2% in the 1999 Period. The increase was primarily attributable to
increased personnel costs associated with an increase in the number of general
and administrative staff.
Operating income decreased $487,000, or 305% to an operating loss of $327,000 in
the 2000 Period from operating income of 160,000 in the 1999 Period. As a
percentage of net revenues, operating income decreased to -8.4% in the 2000
Period from 4.6% in the 1999 Period as a result of the factors described above.
Interest income increased $12,000 to $215,000 in the 2000 Period from $203,000
in the 1999 Period. Other income remained steady at $21,000 for both the 2000
Period and the 1999 Period. The increase in interest income is primarily
attributable to higher rates of return on the Company's investments.
Liquidity and Capital Resources
The Company's financial position remains strong, with working capital of $14.2
million and long-term debt of only $29,000. Cash plus short-term investments
aggregated approximately $13.8 million at September 30, 2000. The Company also
has available a $2.0 million unsecured
9
line of credit from its principal bank. At September 30, 2000, the Company had
no borrowings outstanding under this line of credit.
Effective November 15, 2000 Rod Blum will step down as the Company's President
and Chief Executive Officer. Effective October, 2000 the employment of
John Biver, a Vice President of the Company, terminated. Pursuant to the terms
of Mr. Blum's and Mr. Biver's employment agreements, they will receive a
combined total of severance benefits of approximately $995,000, substantially
all of which will be paid in the second and third quarters of fiscal 2001.
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 2001. 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.
10
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 and Reports on Form 8-K
(a) Exhibits:
11 Statement Regarding Computation of Net Earnings Per Share
(b) Reports on Form 8-K:
None.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned,
thereunto duly authorized.
EAGLE POINT SOFTWARE CORPORATION
--------------------------------
(Registrant)
Date: November 14, 2000 BY: /s/ Dennis J. George
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Dennis J. George
Vice President, Chief
Financial Officer,
Treasurer and Secretary
(As a duly authorized
officer on behalf of the
Registrant and as
Principal Financial and
Accounting Officer)
13
EXHIBIT INDEX
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Exhibit No. Description
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11 Statement re: computation of net earnings per share