<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 1996
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITES EXCHANGE ACT
OF 1934
For the transition period from __________ to __________
Commission file number: 0-28560
RESEARCH ENGINEERS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 22-2356861
(State or other jurisdiction of (IRS. Employer Identification No.)
incorporation or organization)
22700 SAVI RANCH PARKWAY
YORBA LINDA, CALIFORNIA 92887
(Address of principal executive offices)
(714) 974-2500
(Issuer's telephone number, including area code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [_] No [X]
The number of shares outstanding of the registrant's only class of Common Stock,
$.01 par value, was 5,506,000 on August 29, 1996.
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RESEARCH ENGINEERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro forma
ASSETS June 30, 1996
June 30, 1996 (Note 5)
----------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 670 4,095
Accounts receivable (net of allowance for doubtful accounts of $33) 905 905
Deferred income taxes 379 379
Notes and related party loans receivable 88 88
Prepaid and other current assets 145 145
----------------- -----------------
Total current assets 2,187 5,612
Property, plant and equipment, net 2,555 2,555
Goodwill (net of accumulated amortization of $44) 470 470
Deferred offering costs 204 204
Other assets 211 211
----------------- -----------------
$ 5,627 9,052
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 444 444
Accrued expenses 661 661
Current portion of notes payable and loans to stockholders 325 16
Income taxes payable 315 315
Deferred maintenance revenue 593 593
Current portion of long-term bank debt 112 84
Other 131 131
----------------- -----------------
Total current liabilities 2,581 2,244
Long-term bank debt 1,839 159
Notes payable and loans to stockholders 228 70
Deferred Income taxes 19 19
Other liabilities 122 122
Stockholders' equity:
Preferred stock, par value $.01. Authorized 5,000,000 shares; - -
issued and outstanding none
Common stock, par value $.01. Authorized 20,000,000 shares; 42 55
issued and outstanding 4,206,000 (5,506,000 pro forma)
Additional paid-in capital 331 5,918
Retained earnings 469 469
Foreign currency translation adjustment (4) (4)
----------------- -----------------
Total stockholders' equity 838 6,438
----------------- -----------------
$ 5,627 9,052
================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
RESEARCH ENGINEERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Three months Three months
ended ended
June 30, 1996 June 30, 1995
--------------- ---------------
<S> <C> <C>
Net revenues: $
Product sales 1,734 1,096
Maintenance and support 331 276
--------------- ---------------
Total net revenues 2,065 1,372
Cost of revenues 152 113
--------------- ---------------
Gross profit 1,913 1,259
Operating expenses:
Selling, general and administrative 1,333 827
Research and development 351 338
--------------- ---------------
Total operating expenses 1,684 1,165
--------------- ---------------
Operating income 229 94
Other (income) expense:
Interest expense, net 57 66
Other (41) (35)
--------------- ---------------
Income before income taxes 213 63
Income tax expense 73 6
--------------- ---------------
Net income $ 140 57
=============== ===============
Pro forma net income data (Note 5):
Income before income taxes as reported $ - 63
Pro forma provision for income tax expense - 21
--------------- ---------------
Pro froma net income $ - 42
=============== ===============
Net income per share $ 0.03
===============
Weighted average common shares outstanding 4,206,000
===============
</TABLE>
See accompanying notes to consolidated financial statements
3
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RESEARCH ENGINEERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three months Three months
ended ended
June 30, 1996 June 30, 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 140 57
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 104 49
Deferred income taxes (91)
Changes in operating assets and liabilities:
Accounts receivable 40 93
Notes and related paty loans receivable - 17
Prepaid expenses and other current assets 18 45
Other assets (98) 2
Accounts payable, accrued expenses and other current liabilities 230 (150)
Deferred maintenance revenue (12) 40
Income taxes payable 100 (22)
Other long-term liabilities (4) 1
-------------- --------------
Net cash provided by operating activities 427 132
-------------- --------------
Cash flows from investing activities:
Purchase of property, plant and equipment, net (37) (64)
-------------- --------------
Cash flows from financing activities:
Proceeds from bank debt 71
Repayment of bank debt (32) (19)
Repayment of stockholder loans (12) (85)
Deferred offering costs (204) -
-------------- --------------
Net cash used by financing activities (248) (33)
-------------- --------------
Increase in cash and cash equivalents 142 35
Cash and cash equivalents, beginning of period 528 433
-------------- --------------
Cash and cash equivalents, end of period $ 670 468
============== ==============
Supplemental cash flow information:
Amounts paid for:
Interest $ 53 41
============== ==============
Income taxes $ - -
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
RESEARCH ENGINEERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Research
Engineers, Inc. (the "Company") and its wholly-owned subsidiaries. These
consolidated financial statements have been prepared by the Company,
without audit, and include all adjustments which are, in the opinion of
management, necessary for a fair presentation of the results of operations
for the three months ended June 30, 1996 and 1995, the financial position
at June 30, 1996, and the cash flows for the three months ended June 30,
1996 and 1995, pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. Results of operations for the
three months ended June 30, 1996 are not necessarily indicative of the
results to be expected for the full year.
2. 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 amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
3. INITIAL PUBLIC OFFERING
On July 26, 1996, the Company completed an initial public offering of
1,300,000 shares of its common stock at $5.00 per share. The net proceeds
of the offering, after deducting underwriter's commissions and offering
costs, were approximately $5,600,000. Proceeds to the Company were used to
repay approximately $2,175,000 of indebtedness to stockholders and banks.
The remaining proceeds are anticipated to be used to further repay
indebtedness, to fund research and development activities, to augment the
Company's sales, marketing and customer support activities and to acquire
related businesses, products and technologies.
At June 30, 1996 $204,000 in costs had been incurred in connection with
such offering. These amounts were included in deferred offering costs at
June 30, 1996 and were offset against proceeds on July 26, 1996.
4. INCOME PER SHARE
Income per share is based upon net income for the quarter ended June 30,
1996. Income per share has been determined, in accordance with the treasury
stock method, by dividing net income by the weighted average number of
common and dilutive common equivalent shares outstanding during the period.
5
<PAGE>
RESEARCH ENGINEERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 (Continued)
(Unaudited)
5. PRO FORMA DATA
The pro forma balance sheet as of June 30, 1996 has been presented to
reflect the sale by the Company of 1,300,000 shares of common stock at the
initial public offering price of $5.00 per share net of approximate
offering costs of $900,000 and the repayment of $2,175,000 of indebtedness
to stockholders and banks (Note 3).
Prior to October 1995, the Company operated as an S corporation for Federal
tax purposes. Therefore, the tax expense was related to state and foreign
taxes only. In October 1995, the Company converted to a C corporation. The
pro forma net income data for the quarter ended June 30, 1995 has been
presented to reflect the Company's provision for income tax expense as if
the Company had been a C corporation at such date.
6
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ITEM 2. MANAGMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
Research Engineers, Inc. (the "Company") is a leading provider of technically
sophisticated stand-alone and network-based engineering software products that
provide fully-integrated easy-to-use design automation and analysis solutions
for use by engineering analysis and design professional worldwide. The
Company's comprehensive line of Windows-based engineering software products
includes STAAD-III, the Company's structural analysis and design software, as
well as mechanical, civil and process/piping engineering products. The
Company's software products assist engineers in performing a myriad of mission-
critical engineering tasks, including analysis and design of industrial,
commercial, transportation and utility structures, pipelines, machinery and
automotive and aerospace products and survey, contour and digital terrain
modeling.
The following discussion and analysis addresses the results of the Company's
operations for the three months ended June 30, 1996, as compared to the
Company's results of operations for the three months ended June 30, 1995. On
July 26, 1996, the Company consummated an initial public offering (the IPO) of
1,300,000 shares of its common stock, resulting in gross proceeds (net of
discounts and commissions) of approximately $5,600,000. Since the closing of
the IPO was after the period covered in this report, the Company's results and
the following discussion do not reflect the IPO unless noted otherwise.
This quarterly report on Form 10-QSB contains forward-looking statements that
involve risks and uncertainties. The actual future results of Research
Engineers, Inc. could differ materially from those statements. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed in this report, uncertainties regarding market acceptance of new
products and product enhancements, delays in the introduction of new products,
and risks associated with managing the Company's growth, as well as those
factors discussed in the Company's Registration Statement on Form SB-2 and
related Prospectus dated July 25, 1996, and the "Risk Factors" described
therein.
RESULTS OF OPERATIONS: THREE MONTHS ENDED JUNE 30, 1996 AND 1995
Net Revenues - Net revenues for the quarter ended June 30, 1996 increased by
$693,000 (51%) to $2,065,000, as compared to $1,372,000 for the quarter ended
June 30, 1995. This increase in product sales and maintenance and support
revenues was attributable to (i) market acceptance of the new 32-bit Windows 95
and Windows NT versions of the Company's software products, (ii) the Company's
continued growth in overseas markets, and (iii) the Company's strategic
acquisitions of products and technologies that took place during the fiscal year
ended March 31, 1996.
Revenues are derived primarily from sales of the Company's engineering software
products and, to a lesser extent, from sales of software maintenance contracts
relating to its products. Software product revenues are recognized upon
shipment. Product maintenance revenues are amortized over the length of the
maintenance contract which is usually twelve months.
International net revenues as a percentage of total revenues for the quarter
ended June 30, 1996 increased by approximately 15% to 54%, up from 39% for the
quarter ended June 30, 1995. The Company's revenues are primarily denominated
in U.S. Dollars. However, revenues and expenses for the Company's foreign
subsidiaries and sales offices, are usually recorded in the applicable foreign
currency and translated with any applicable foreign exchange adjustments. There
were no foreign exchange gains or losses which were material to the Company's
financial results in either of the quarters ended June 30, 1996 and 1995.
7
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Gross Profit - Gross profit increased by $654,000 (52%) to $1,913,000 in the
first quarter ended June 30, 1996 as compared to $1,259,000 for the quarter
ended June 30, 1995. Gross profit as a percentage of revenues increased to
92.6% for the quarter ended June 30, 1996 as compared to 91.8% for the quarter
ended June 30, 1995. Cost of goods sold are not normally significant as a
percentage of net revenues due to the nature of the Company's products.
Selling, general and administrative expense - Selling, general and
administrative expense increased by $506,000 (61%) to $1,333,000 in the first
quarter ended June 30, 1996 as compared to $827,000 for the quarter ended June
30, 1995, and increased as a percentage of net revenues to 64.6% from 60.3%, in
the comparable quarter of the prior year. Selling expenses increased as a
result of higher commissions associated with higher net revenues, an increased
number of telesales professionals and expanded worldwide sales operations.
General and administrative expenses increased due to the addition of
administrative, customer service and technical support personnel and increased
professional fees.
Research and development expense - Research and development expense, increased
by $13,000 (4%) to $351,000 in the first quarter ended June 30, 1996 as compared
to $338,000 for the quarter ended June 30, 1995, and decreased as a percentage
of net revenues to 16.9% from 24.6%, in the comparable quarter of the prior
year. Research and development expenses, consist primarily of software
developers' wages and from time to time the costs of software development
performed by outside parties. During the quarter ended June 30, 1995 the
Company incurred significantly higher costs for outside development as compared
with the quarter ended June 30, 1996. This combined with the effect of
increased headcount of in-house professionals resulted in the minor fluctuation
within research and development expense.
Other expense - Net interest expense decreased by $9,000 (14%) to $57,000 as
compared to $66,000 for the quarter ended June 30, 1995 as a result of a
decrease in the Company's debt from 1995 levels.
Income taxes - Income tax expense increased by $67,000 to $73,000 in the first
quarter ended June 30, 1996 as compared to $6,000 for the quarter ended June 30,
1995. In 1995, the Company operated as an S corporation for Federal tax
purposes. Therefore, the tax expense was related to state and foreign taxes
only. In October 1995, the Company converted to a C corporation. Therefore,
tax expense for the quarter ended June 30, 1996 includes Federal tax expense on
operations subsequent to conversion. The pro forma net income data for the
quarter ended June 30, 1995 has been presented to reflect the Company's
provision for income tax expense as if the Company had been a C corporation at
such date.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations and capital outlays
primarily through capital contributions from its stockholders, bank financing
and loans from stockholders.
The Company's principal sources of liquidity at June 30, 1996, consisted of
$670,000 of cash and $150,000 available under a line of credit with Wells Fargo
Bank, N.A.. The Company had a working capital deficiency of $394,000 at June
30, 1996. Cash provided by operations for the quarter ended June 30, 1996 was
$427,000, and was generated primarily by current earnings for the period
combined with the impact of improved cash collections and cash management. Cash
used in investing activities, which consists of purchases of property and
equipment, was $37,000. Cash used in financing activities was $248,000 and
consisted primarily of expenses incurred in connection with the IPO. Such
expenses are classified as "Deferred offering costs" on the balance sheet for
the quarter ended June 30, 1996 and were offset against proceeds from the IPO on
July 26, 1996.
The Company has a $150,000 line of credit with Wells Fargo Bank, N.A. bearing
interest at prime plus 2% per annum. the line of credit is collateralized by
substantially all of the assets of the Company. The line of credit matures on
March 10, 1997. As of June 30, 1996 there were no amounts of principal or
accrued interest outstanding relating to this line of credit. The Company is
8
<PAGE>
currently negotiating an increase in the amount of this line of credit, however
there can be no assurances that such negotiations will be successful.
The Company consummated its IPO on July 26, 1996. This transaction is reflected
in the pro forma balance sheet. The net proceeds to the Company of $5,600,000
were used to repay approximately $2,175,000 of indebtedness to stockholders and
banks. The remaining proceeds, which are held in a short term highly liquid
money market account, are anticipated to be used to further repay indebtedness,
to fund research and development activities, to augment the Company's sales,
marketing and customer support activities and to acquire related businesses,
products and technologies. Management believes that unused proceeds from the
IPO, cash generated from operations and borrowings available under the Company's
existing line of credit will provide adequate working capital to fund the
Company's operations at currently anticipated levels through June 30, 1997. To
the extent that such amounts are insufficient to finance the Company's working
capital requirements, the Company will be required to raise additional funds
through public or private equity or debt financings. There can be no assurance
that such additional financings will be available, if needed, or, if available,
will be on terms satisfactory to the Company.
9
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
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
ITEM 6. EXHIBITS AND REPORTS ON FROM 8-K
(a) EXHIBITS
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
10
<PAGE>
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: September 3, 1996
RESEARCH ENGINEERS, INC.
By: /s/ AMRIT K. DAS
--------------------------------------
Amrit K. Das
Chairman of the Board, President,
Chief Executive Officer and
Director (principal executive officer)
By: /s/ BRIAN PAUL
--------------------------------------
Brian Paul
Chief Financial Officer, Secretary
and Treasurer (principal financial
and accounting officer)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 670
<SECURITIES> 0
<RECEIVABLES> 905
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,187
<PP&E> 2,555
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,627
<CURRENT-LIABILITIES> 2,581
<BONDS> 0
0
0
<COMMON> 42
<OTHER-SE> 796
<TOTAL-LIABILITY-AND-EQUITY> 5,627
<SALES> 2,065
<TOTAL-REVENUES> 2,065
<CGS> 152
<TOTAL-COSTS> 1,684
<OTHER-EXPENSES> (41)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57
<INCOME-PRETAX> 213
<INCOME-TAX> 73
<INCOME-CONTINUING> 140
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 140
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
