<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 September 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 22-235686
(State or other jurisdiction of (IRS. Employer Identification
incorporation) No.)
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 November 1, 1997
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RESEARCH ENGINEERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(Unaudited)
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
ASSETS
Current assets:
<S> <C>
Cash and cash equivalents $ 971
Short term investments 2,576
Accounts receivable (net of allowance for
doubtful accounts of $39) 2,138
Deferred income taxes 402
Notes and related party loans receivable 64
Prepaid expenses and other current assets 564
-------
Total current assets 6,715
Property, plant and equipment, net 2,793
Goodwill (net of accumulated amortization of $335) 1,156
Other assets 822
-------
$11,486
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 280
Accrued expenses 356
Income taxes payable 215
Deferred maintenance revenue 818
Current portion of long-term bank debt 188
Other 55
-------
Total current liabilities 1,912
Long-term bank debt 1,883
Deferred income taxes 55
Other 3
-------
Total liabilities 3,853
-------
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 5,704,00 shares 57
Additional paid-in capital 6,794
Retained earnings 679
Unrealized gain on investments 66
Foreign currency translation adjustment 37
-------
Total stockholders' equity 7,633
-------
$11,486
=======
</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 Six Months Six Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues:
Product sales $ 2,646 $ 2,107 $ 5,015 $ 3,841
Maintenance and support 448 348 873 679
---------- ---------- ---------- ----------
Total net revenues 3,094 2,455 5,888 4,520
Cost of revenues 144 187 349 339
---------- ---------- ---------- ----------
Gross profit 2,950 2,268 5,539 4,181
---------- ---------- ---------- ----------
Operating expenses:
Selling, general and administrative 2,340 1,642 4,505 2,850
Research and development 504 313 954 789
---------- ---------- ---------- ----------
Total operating expenses 2,844 1,955 5,459 3,639
---------- ---------- ---------- ----------
Operating income 106 313 80 542
---------- ---------- ---------- ----------
Other (income)/expense:
Interest, net (3) (31) (22) 26
Other (29) (28) (46) (69)
---------- ---------- ---------- ----------
Income before income taxes 138 372 148 585
Income tax expense 25 84 20 157
---------- ---------- ---------- ----------
Net income $ 113 $ 288 $ 128 $ 428
========== ========== ========== ==========
Net income per common and common
equivalent share $ 0.02 $ 0.06 $ 0.02 $ .09
========== ========== ========== ==========
Weighted average number of common
and common equivalent shares
outstanding 5,816,647 5,204,571 5,789,052 4,710,833
========== ========== ========== ==========
</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>
Six Months Six Months
Ended Ended
September 30, September 30,
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 128 $ 428
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization 361 192
Deferred income taxes (86) 127
Changes in operating assets and liabilities:
Accounts receivable - (97)
Notes and related party loans receivable (1) (11)
Prepaid expenses and other current assets (96) (179)
Other assets (563) (141)
Accounts payable, accrued expenses and other
current liabilities (251) (278)
Deferred maintenance revenue 31 29
Income taxes payable (54) 22
Other long-term liabilities (18) (54)
---------- ----------
Net cash (used in) provided by operating activities (549) 38
---------- ----------
Cash flows from investing activities:
Purchase of property, plant and equipment (196) (93)
Purchase of short-term investments (3,019) (3,034)
Sale of short term investments 2,204 -
Proceeds from repayment of related party note receivable - 48
---------- ----------
Net cash used in investing activities (1,011) (3,079)
---------- ----------
Cash flows from financing activities:
Net proceeds from issuance of common stock 9 6,469
Repayment of bank debt (57) (1,740)
Repayment of stockholder loans - (481)
---------- ----------
Net cash (used in) provided by financing activities (48) 4,248
---------- ----------
(Decrease) increase in cash and cash equivalents (1,608) 1,207
Cash and cash equivalents, beginning of period 2,579 528
---------- ----------
Cash and cash equivalents, end of period $ 971 1,735
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
RESEARCH ENGINEERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 and six months ended September 30, 1997 and 1996, the financial
position at September 30, 1997, and the cash flows for the six months ended
September 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 and six months ended September 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 and six months ended September 30,
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. MANAGEMENT'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 and six months ended September 30, 1997, as
compared to the Company's results of operations for the three months and six
months ended September 30, 1996.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 AND
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Net revenues - Net revenues for the quarter ended September 30, 1997 increased
by $639,000 (26%) to $3,094,000, as compared to $2,455,000 for the quarter ended
September 30, 1996. For the six months ended September 30, 1997, revenues
increased by $1,368,000 (30%) to $5,888,000 from $4,520,000 for the six months
ended September 30, 1996. These increases in net revenues were 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 September 30, 1997 increased to 56%, up from 43% for the quarter ended
September 30, 1996. For the six months ended September 30, 1997, international
revenues increased to 57%, up from 45% for the six months ended September 30,
1996. The increase in international revenues for the periods was primarily the
result of increased revenues from the Asian market as the Company's products
continue to gain market acceptance and 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 the three month or the six
month periods ended September 30, 1997 and 1996.
Gross profit - Gross profit increased by $682,000 (30%) to $2,950,000 in the
quarter ended September 30, 1997 as compared to $2,268,000 for the quarter ended
September 30, 1996. Gross profit increased by $1,358,000 (32%) to $5,539,000 for
the six months ended September 30, 1997 as compared to $4,181,000 for the six
months ended September 30, 1996. These increases were primarily due to
increased sales volume.
Selling, general and administrative expense - Selling, general and
administrative expense increased by $698,000 (43%) to $2,340,000 for the quarter
ended September 30, 1997 as compared to $1,642,000 for the quarter ended
September 30, 1996, and increased as a percentage of net revenues to 76% from
67% in the comparable quarter of the prior year. Selling, general and
administrative expense increased by $1,655,000 (58%) to $4,505,000 in the six
months ended September 30, 1997 as compared to $2,850,000 for the six
6
<PAGE>
months ended September 30, 1996, and increased as a percentage of net revenues
to 77% from 63% in the comparable period of the prior year. Selling expenses in
both the three and six month periods increased primarily as a result of higher
commissions being paid associated with higher net revenues in the overseas
markets. General and administrative expenses in both the three and six month
periods increased due to the addition of administrative, customer service and
technical support personnel, combined with increases in professional fees, and
in the six month period, due to a one time charge for severance paid to a former
QSE (Bristol) Limited employee.
Research and development expense - Research and development expense increased by
$191,000 (61%) to $504,000 in the quarter ended September 30, 1997 as compared
to $313,000 for the quarter ended September 30, 1996, and increased as a
percentage of net revenues to 16% from 13% in the comparable quarter of the
prior year. Research and development expense increased by $165,000 (21%) to
$954,000 in the six months ended September 30, 1997 as compared to $789,000 for
the six months ended September 30, 1996, and decreased as a percentage of net
revenues to 16% from 17% in the comparable six months of the prior year. The
increases in research and development expense are primarily due to the
finalization of STAAD/Pro, the Company's next generation structural engineering
product.
Other (income) expense - Net interest (income) expense decreased by $28,000 to
($3,000) in the quarter ended September 30, 1997 as compared to ($31,000) for
the quarter ended September 30, 1996. The Company completed its initial public
offering during the second quarter of fiscal 1997, the proceeds of which were
used to pay off debt and increase investments. Therefore, the Company had a
decrease in interest expense during the second quarter ended September 30, 1996
as well as increased interest income from investing the offering proceeds. Net
interest (income) expense increased by $48,000 to ($22,000) in the six months
ended September 30, 1997 as compared to $26,000 for the six months ended
September 30, 1996. This increase in net interest income is a result of an
increased amount of interest income from investments during the six months ended
September 30, 1997 as compared to the six months ended September 30, 1996, as
well as a decrease in interest expense during the first quarter of fiscal 1998
compared to the first quarter of fiscal 1997.
Income taxes - Income tax expense decreased by $59,000 to $25,000 in the quarter
ended September 30, 1997 as compared to $84,000 for the quarter ended September
30, 1996. Income tax expense decreased by $137,000 to $20,000 in the six months
ended September 30, 1997 as compared to $157,000 for the six months ended
September 30, 1996. This decrease in interest tax expense is primarily the
result of a pretax loss in the United States for the quarter and six months
ended September 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, increased
costs associated with overseas markets, and risks associated with managing the
Company's growth, as well as those factors discussed in the Company's Form
10-KSB/A for the fiscal year ended March 31, 1997 which was filed with the
Securities and Exchange Commission on August 19, 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 September 30, 1997 consisted of
$971,000 of cash, $2,576,000 of short-term investments and $500,000 available
under a line of credit with Union Bank of California.
7
<PAGE>
The decrease in total cash and investments during the six months ended September
30, 1997 was primarily attributable to purchases of capital assets and other
assets consisting mainly of purchased technology, combined with a decrease in
accounts payable offset by an increase in deferred maintenance.
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 September 30, 1997 there was no
principal or accrued interest outstanding under the line of credit. The Company
plans to negotiate a renewal of 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 September 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.
8
<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
(a) The Annual Meeting of Stockholders of the Company was held
on September 25, 1997.
(b) Omitted pursuant to Instruction 3 to Item 4 of Form 10-QSB.
(c)(i) PROPOSAL ONE: Election of five Directors by the holders of
issued and outstanding shares of Common Stock:
<TABLE>
<CAPTION>
For Abstain Against
--------- ----------- ----------
<S> <C> <C> <C>
Amrit K. Das 5,391,619 0 14,758
Jyoti Chatterjee 5,391,619 0 14,758
Dan W. Heil 5,391,619 0 14,758
Bruce E. Cummings 5,391,619 0 14,758
Santanu Das 5,391,619 0 14,758
</TABLE>
(c)(ii) PROPOSAL TWO: Ratification of the approval of the Company's
1997 Stock Option Plan:
<TABLE>
<S> <C>
For: 4,049,203
Against: 58,246
Abstain: 54,968
Broker Non-Voting: 1,243,960
</TABLE>
(c)(iii) PROPOSAL THREE: Ratification of the appointment of KPMG Peat
Marwick LLP as the Company's indepenedent accountants for
the fiscal year beginning April 1, 1997:
<TABLE>
<S> <C>
For: 5,399,269
Against: 4,708
Abstain: 2,400
Broker Non-Voting: 0
</TABLE>
(d) Not applicable.
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
9
<PAGE>
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: November 14, 1997
RESEARCH ENGINEERS, INC.
By: /S/ WAYNE BLAIR
--------------------------------------
Wayne Blair
Chief Financial Officer, Secretary
and Treasurer (principal financial
and accounting officer)
10
<PAGE>
EXHIBIT INDEX
-------------
Exhibit 27.1 Financial Data Schedule
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 971
<SECURITIES> 2,576
<RECEIVABLES> 2,138
<ALLOWANCES> 39
<INVENTORY> 0
<CURRENT-ASSETS> 6,715
<PP&E> 4,219
<DEPRECIATION> 1,426
<TOTAL-ASSETS> 11,486
<CURRENT-LIABILITIES> 1,911
<BONDS> 0
0
0
<COMMON> 57
<OTHER-SE> 7,577
<TOTAL-LIABILITY-AND-EQUITY> 11,486
<SALES> 5,888
<TOTAL-REVENUES> 5,888
<CGS> 349
<TOTAL-COSTS> 349
<OTHER-EXPENSES> (46)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (22)
<INCOME-PRETAX> 148
<INCOME-TAX> 20
<INCOME-CONTINUING> 128
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 128
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
