10-Q 1 d10q.txt FORM 10-Q -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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, 2001 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 0-26170 Eagle Point Software Corporation (Exact name of registrant as specified in its charter) Delaware 42-1204819 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification number) 4131 Westmark Drive, Dubuque, IA 52002-2627 (address of principal executive offices) (319) 556-8392 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest applicable date. Common Stock, par value $.01 per share, outstanding as of November 10, 2001: 4,632,329 shares. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Eagle Point Software Corporation Form 10-Q For the quarter ended September 30, 2001 Index

2 PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements EAGLE POINT SOFTWARE CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Unaudited)

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3 EAGLE POINT SOFTWARE CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Unaudited)

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4 EAGLE POINT SOFTWARE CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5 EAGLE POINT SOFTWARE CORPORATION AND SUBSIDIARY STATEMENTS OF CASH FLOWS (Unaudited)

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2001 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, 2001 and June 30, 2001, and the results of operations and cash flows for the three-month periods ended September 30, 2001 and 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/A for the year ended June 30, 2001. 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. 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. Segment Information The Company's operating results have been aggregated into six reportable segments: the Civil Segement; the Landcadd Segment; the SMI Segment; the Building Design & Construction (BD&C) Segment; the Structural Segment and the Corporate Segment. Performance of the segments is evaluated based on operating income before other income and income taxes. The Civil segment derives revenues from the sales of its products and services to civil engineers and land surveyors for their use in gathering surveying data and utilizing that data in the design and analysis of civil engineering and other land development projects. The Landcadd segment derives revenues from the sale of its products and services to landscape architects, landscape contractors, nurseries, and government planners for their use in designing, analyzing and developing plans for plantings, park layouts, green zones and irrigation systems. The SMI segment derives revenues from the sale of its products and services to land surveyors, civil engineers and construction professionals for their use in gathering data in the field to allow for analysis of legal boundaries, topographic data and to perform construction staking. This segment also resells third party field data collection hardware units along with its own software products. The Building, Design & Construction (BD&C) segment derives its revenues from the sales of its products and services to architects, home builders, and designers of homes and buildings for their use in the design of homes and buildings, the creation of construction documents and estimated building costs. The Structural segment derives its revenues from the sales of its products and services to structural engineers, architects and other building professionals for their use in the structural analysis and design of structures for a variety of construction materials. 7 The Corporate segment includes various sales of miscellaneous products and contract services that are unrelated to the other business segments as well as unallocated costs. Each of the Civil, Landcadd, BD&C, Structural and Corporate segments primarily distribute and sell their products and services directly to end-users. The SMI segment distributes and sells its products and services both through authorized dealers and directly to end-users. Because of integrated facilities and common administrative and marketing support, a substantial number of allocations must be made to determine operating segment data. These allocations are primarily in proportion to the revenue volume of the respective segments. Assets are not allocated to operating segments for internal reporting purposes. Selected financial information for each segment for the three months ended September 30, 2001 and 2000 is presented below.

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 may 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, 2001 and the Company's report on Form 10-K/A for the year ended June 30, 2001. Results of Operations Net revenues decreased $306,000 or 7.9% to $3.59 million for the three months ended September 30, 2001 (the "2001 Period"), from $3.9 million for the three months ended September 30, 2000 (the "2000 Period"). The Company experienced a decrease in product sales and an increase in training and support revenues. Product sales decreased $433,000 or 16.8% to $2.15 million in the 2001 Period from $2.58 million for the 2000 Period. Each 8 of the Company's business segments except one experienced a decrease in product sales primarily attributable to an overall weakened economy resulting in soft market conditions which led to lower demand for the Company's products. In terms of product sales for the 2001 Period versus the 2000 Period, the Civil Segment decreased 25.6%, the SMI Segment decreased 23.4%, the Structural Segment decreased 13.7% and the BD&C Segment decreased 9.9%, while the Landcadd Segment increased 20.8%. In spite of soft market conditions, training and support revenues increased $127,000 or 9.6% to $1.44 million in the 2001 Period from $1.32 million in the 2000 Period. Each of the Company's business segments except one experienced an increase in training and support revenues primarily attributable to new products and product upgrades in the previous and current fiscal years, as well as a continued emphasis by the Company on selling support and maintenance programs to its client base. In terms of training and support revenue for the 2001 Period versus the 2000 Period, the Civil Segment increased by 11.3%, the Landcadd Segment increased by 11.4%, the Structural Segment increased by 9.2% and the SMI Segment increased by 0.6%, while the BD&C Segment decreased by 13.9%. Gross profit increased $56,000 or 2.1% to $2.72 million in the 2001 Period from $2.66 million in the 2000 Period. Gross profit as a percentage of net revenues increased to 75.6% in the 2001 Period from 68.3% in the 2000 Period. Overall gross profit increased while revenues decreased primarily due to a shift in the sales mix with training and support revenues, which carry higher gross margins, representing 40.3% of total revenue for the 2001 Period, an increase from 33.9% of total revenues from the 2000 Period. Gross profit as a percentage of revenues relating to product sales increased to 65.4% in the 2001 Period from 55.8% in the 2000 Period. These increases are also attributable to a shift in the sales mix within this segment. Resales of third party products, which have lower gross profit margins than sales of Eagle Point products, decreased to 16.5% of product sales in the 2001 Period from 25.7% in the 2000 Period due to market conditions described above. Gross profit as a percentage of corresponding net revenue relating to training and support decreased to 90.8% in the 2001 Period from 92.5% in the 2000 Period primarily due to higher training costs in the 2001 Period. Selling and marketing expenses increased $140,000 or 10.4% to $1.44 million from $1.30 million in the 2000 Period. As a percentage of net revenues, selling and marketing expenses increased to 40.1% in the 2001 Period from 33.4% in the 2000 Period. This increase is attributable to an increase in sales and marketing activities by the Company. Research and development expenses decreased $110,000 or 11.8% to $822,000 in the 2001 Period from $932,000 in the 2000 Period. As a percentage of net revenues, research and development costs decreased to 22.9% in the 2001 Period from 23.9% in the 2000 Period. The decrease is primarily attributable to lower personnel costs due to a reduction of approximately seven research and development positions from the 2000 Period. If current research and development staffing levels are maintained through fiscal year 2002, this would result in an approximate annual savings of $167,000 from fiscal year 2001. The reduction of research and development expenditures was discretionary and may or may not be continued throughout fiscal year 2002. General and administrative expenses decreased $73,000 or 9.6% to $681,000 in the 2001 Period from $754,000 in the 2000 Period. As a percentage of net revenues, general and administrative expenses decreased to 18.9% in the 2001 Period from 19.3% in the 2000 Period. The decrease is primarily attributable to reduced overhead and depreciation costs as well as approximately $34,000 in savings from the vacant CEO position. The operating loss improved by $103,000 to an operating loss of $224,000 for the 2001 Period from and operating loss of $327,000 in the 2000 Period, and as percentage of net revenues the operating loss improved to -6.2% in the 2001 Period from -8.4% in the 2000 Period as a result of the factors described above. Interest income decreased $67,000 to $148,000 in the 2001 Period from $215,000 in the 2000 Period primarily due to a significant reduction in interest rates. Other income increased $28,000 to $49,000 in the 2001 Period from $21,000 in the 2000 Period. 9 Liquidity and Capital Resources The Company's financial position remains strong, with working capital of $14.1 million and no long-term debt. Cash plus short-term investments aggregated approximately $13.9 million at September 30, 2001. The Company also has available a $2.0 million unsecured line of credit from its principal bank. At September 30, 2001, the Company had no borrowings outstanding under this line of credit. 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 2002. The Company has experienced only 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 On July 12, 2001, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with JB Acquisitions LLC, an entity formed by John Biver, a former Vice President and current director of the Company, that contemplates the acquisition of all of the outstanding shares of common stock of the Company not owned by Mr. Biver at a price of $6.40 per share. All stockholders of the Company other than Rodney Blum (the Company's former President and Chief Executive Officer and a current director) and Dennis George (the Company's Vice President-Finance and Chief Financial Officer and a current director) would, under the proposal, receive the $6.40 per share consideration, in cash, for all of their shares. Mr. Blum and Mr. George would receive the $6.40 per share consideration, in cash, for all of their shares except, with respect to 78,125 shares and 39,062 shares held by Mr. Blum and Mr. George, respectively, they would each receive a 7 year subordinated promissory note from the surviving corporation in the principal amount of $6.40 per related share acquired. The Merger Agreement also contemplates that an entity formed by Mr. Blum would be required to purchase from the surviving entity in the merger the operating assets of the Company's Building Design and Construction Division and Structural Division for a cash purchase price of approximately $1.1 million. Subject to clearance of the required proxy materials with the Securities and Exchange Commission, it is expected that a special meeting of Eagle Point's stockholders will be called later this year to vote upon the merger. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: The following exhibit is filed herewith.

(b) Reports on Form 8-K: Form 8-K filed on July 16, 2001 relating to the Company entering into a Agreement and Plan of Merger with JB Acquisitions LLC and Talon Acquisition Corp., a wholly owned subsidiary of JB Acquisitions, on July 12, 2001. 11 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) BY: /S/ DENNIS J. GEORGE ----------------------------------- 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) Date: November 14, 2001 12 EXHIBIT INDEX

EAGLE POINT SOFTWARE CORP 10-Q