<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, 1997
[ ] 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)
22700 SAVI RANCH PARKWAY
YORBA LINDA, CALIFORNIA 92887
(Address of principal executive offices)
(714) 974-2500
(Registrant'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 [X] No [ ]
The number of shares outstanding of the registrant's only class of Common Stock,
$.01 par value, was 5,704,000 on August 1, 1997
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RESEARCH ENGINEERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(Unaudited)
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 670
Short term investments 3,265
Accounts receivable (net of allowance for
doubtful accounts of $39) 2,038
Deferred income taxes 373
Notes and related party loans receivable 64
Prepaid expenses and other current assets 445
-------
Total current assets 6,855
Property, plant and equipment, net 2,750
Goodwill (net of accumulated amortization of $260) 1,231
Other assets 751
-------
$11,587
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 367
Accrued expenses 347
Income taxes payable 246
Deferred maintenance revenue 933
Current portion of long-term bank debt 188
Other 43
-------
Total current liabilities 2,124
-------
Long-term bank debt 1,916
Deferred income taxes 56
Other 12
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; issued and outstanding 5,701,000 shares 57
Additional paid-in capital 6,785
Retained earnings 567
Unrealized gain on investments 19
Foreign currency translation adjustment 51
-------
Total stockholders' equity 7,479
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$11,587
=======
</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 Ended Three Months Ended
June 30, 1997 June 30, 1996
------------------ ------------------
<S> <C> <C>
Net revenues:
Product sales $ 2,369 1,734
Maintenance and support 426 331
--------- ---------
Total net revenues 2,795 2,065
Cost of revenues 205 152
--------- ---------
Gross profit 2,590 1,913
--------- ---------
Operating expenses:
Selling, general and administrative 2,165 1,208
Research and development 450 476
--------- ---------
Total operating expenses 2,615 1,684
--------- ---------
Operating (loss) income (25) 229
--------- ---------
Other (Income)/expense:
Interest, net (19) 57
Other (17) (41)
--------- ---------
Income before income taxes 11 213
Income tax (benefit) expense (5) 73
--------- ---------
Net income $ 16 140
========= =========
Net income per common and common
equivalent share $ .00 .03
========= =========
Weighted average number of common
and common equivalent shares
outstanding 5,756,885 4,206,000
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
RESEARCH ENGINEERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1997 June 30, 1996
----------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 16 140
Adjustments to reconcile net income to net cash provided (used) by operating
activities:
Depreciation and amortization 152 104
Deferred income tax asset (56) (91)
Changes in operating assets and liabilities:
Accounts receivable 100 40
Notes and related party loans receivable (1) -
Prepaid expenses and other current assets 23 18
Other assets (407) (98)
Accounts payable, accrued expenses and other current liabilities (185) 230
Deferred maintenance revenue 146 (12)
Income taxes payable (23) 100
Other long-term liabilities (9) (4)
--------- ----
Net cash (used in) provided by operating activities (244) 427
--------- ----
Cash flows from investing activities:
Purchase of property, plant and equipment (90) (37)
Purchase of short-term investments (2,933) -
Sale of short term investments 1,382 -
--------- ----
Net cash used in investing activities (1,641) (37)
--------- ----
Cash flows from financing activities:
Repayment of bank debt (24) (32)
Repayment of stockholder loans - (12)
Deferred offering costs - (204)
--------- ----
Net cash used in financing activities (24) (248)
--------- ----
(Decrease) increase in cash and cash equivalents (1,909) 142
Cash and cash equivalents, beginning of year 2,579 528
--------- ----
Cash and cash equivalents, end of year $ 670 670
========= ====
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
RESEARCH ENGINEERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(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, 1997 and 1996, the financial position at June 30,
1997, and the cash flows for the three months ended June 30, 1997 and 1996,
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, 1997 are not necessarily indicative of the results to be expected for
the full year ended March 31, 1998.
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. NET EARNINGS PER SHARE
Net earnings per share has been determined, in accordance with the treasury
stock method, by dividing net earnings by the weighted average number of
common and common equivalent shares outstanding during the period.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share ("EPS"),"
which will require the Company to disclose basic EPS and diluted EPS for all
periods for which an income statement is presented, and which will replace
disclosure currently being made for primary EPS and fully-diluted EPS. The
Company is required to adopt this standard in its quarter ended December 31,
1997. The impact of Statement 128 on the calculation of primary EPS and
fully-diluted EPS for the three months ended June 31, 1997 and 1996 is not
material.
4. RECLASSIFICATIONS
Certain prior quarter amounts have been reclassified to conform to the
current quarter presentation.
5
<PAGE>
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 professionals 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, 1997, as compared to the
Company's results of operations for the three months ended June 30, 1996.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
Net revenues - net revenues for the quarter ended June 30, 1997 increased by
$730,000 (35%) to $2,795,000, as compared to $2,065,000 for the quarter ended
June 30, 1996. This increase in net revenues was primarily attributable to the
Company's continued growth in overseas markets.
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, 1997 increased to 59%, up from 46% for the quarter ended June 30,
1996. The increase in international revenues for the quarter was primarily the
result of increased revenues in the Asian market as the Company's products
continue to gain market acceptance and to a lesser extent the result of the
acquisition of QSE (Bristol) Limited in December 1996. The Company's domestic
revenues are denominated in U.S. Dollars, while 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 that were material
to the Company's financial results during either of the three month periods
ended June 30, 1997 and 1996.
Gross profit - Gross profit increased by $677,000 (35%) to $2,590,000 in the
quarter ended June 30, 1997 as compared to $1,913,000 for the quarter ended June
30, 1996. This increase was due to increased sales volume.
Selling, general and administrative expense - Selling, general and
administrative expense increased by $957,000 (79%) to $2,165,000 in the quarter
ended June 30, 1997 as compared to $1,208,000 for the quarter ended June 30,
1996, and increased as a percentage of net revenues to 78% from 59%, in the
comparable quarter of the prior year. Selling expenses increased as a result of
the higher commissions being paid associated with higher net revenues in the
overseas markets. General and administrative expenses increased due to a one
time charge for severance paid to a former QSE (Bristol) Limited employee
combined with the addition of administrative, customer service and technical
support personnel.
Research and development expense - Research and development expense decreased by
$26,000 (5%) to $450,000 in the quarter ended June 30, 1997 as compared to
$476,000 for the quarter ended June 30, 1996, and decreased as a percentage of
net revenues to 16% from 23%, in the comparable quarter of the prior year.
Research and development expenses consist primarily of software developers'
wages and from time
6
<PAGE>
to time the costs of software development performed by outside parties. The
decrease in research and development expense is due to the increased
capitalization of software developed by outside parties on behalf of the
Company, as compared to the quarter ended June 30, 1996.
Other (income) expense - Net interest (income) expense increased by $76,000 to
($19,000) in the quarter ended June 30, 1997 as compared to $57,000 for the
quarter ended June 30, 1996. This decrease in interest expense, net is a result
of the decreased amount of debt at June 30, 1997 as compared to the quarter
ended June 30, 1996 combined with the effect of interest income from
investments.
Income taxes - Income tax (benefit) expense increased by $78,000 to ($5,000) in
the quarter ended June 30, 1997 as compared to $73,000 for the quarter ended
June 30, 1996. This increase is primarily the result of a pretax loss in the
United States for the quarter ended June 30, 1997 and the related tax benefit
for the net operating loss that was recorded.
LIQUIDITY AND CAPITAL RESOURCES
Certain statements contained in this "Liquidity and Capital Resources" are
"forward-looking statements" that involve risks and uncertainties. The actual
future results of the Company 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, including those acquired from QSE (Bristol) Limited,
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 10-KSB/A for the fiscal year ended March 31, 1997
which was filed on July 29, 1997 and the risks described in the "Outlook"
section therein.
The Company currently finances its operations (including capital expenditures)
primarily through cash flows from operations as well as its cash and short-term
investment balances.
The Company's principal sources of liquidity at June 30, 1997, consisted of
$670,000 of cash, $3,265,000 of short-term investments and $500,000 available
under a line of credit with Union Bank of California.
The decrease in total cash and investments during the three months ended June
30, 1997 was primarily attributable to purchases of capital assets and other
assets consisting mainly of purchased technology, combined with decreases in
accounts payable, accrued expenses and other current liabilities offset by an
increase in deferred maintenance revenue and a decrease in accounts receivable.
The Company has a $500,000 line of credit with Union Bank of California, the
line of credit bears interest at the prime rate. This credit line is
collateralized by substantially all of the assets of the Company. The line of
credit expires on November 28, 1997. As of June 30, 1997 there was no principal
or accrued interest outstanding under the line of credit. The Company plans to
negotiate a renewal to the line of credit, however there can be no assurances
that such negotiations will be successful.
The Company believes that its current cash and short-term investment balances
and cash generated from operations and borrowings available under the Company's
line of credit will provide adequate working capital to fund the Company's
operations at currently anticipated levels through June 30, 1998. 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.
7
<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 FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
8
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: August 11, 1997
RESEARCH ENGINEERS, INC.
By: /s/ JYOTI CHATTERJEE
--------------------
Jyoti Chatterjee
Chief Operating Officer and
Executive Vice President
By: /s/ BRIAN PAUL
--------------
Brian Paul
Chief Financial Officer, Secretary
and Treasurer (principal financial
and accounting officer)
9
<PAGE>
EXHIBIT INDEX
-------------
Exhibit 27.1 Financial Data Schedule
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 670
<SECURITIES> 3,265
<RECEIVABLES> 2,038
<ALLOWANCES> 39
<INVENTORY> 0
<CURRENT-ASSETS> 6,855
<PP&E> 4,112
<DEPRECIATION> 1,362
<TOTAL-ASSETS> 11,587
<CURRENT-LIABILITIES> 2,124
<BONDS> 0
0
0
<COMMON> 57
<OTHER-SE> 7,422
<TOTAL-LIABILITY-AND-EQUITY> 11,587
<SALES> 2,795
<TOTAL-REVENUES> 2,795
<CGS> 205
<TOTAL-COSTS> 205
<OTHER-EXPENSES> (17)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (19)
<INCOME-PRETAX> 11
<INCOME-TAX> (5)
<INCOME-CONTINUING> 16
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
