<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
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: 0-21393
SEACHANGE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-3197974
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
124 Acton Street, Maynard, MA 01754
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (978) 897-0100
- --------------------------------------------------------------------------------
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 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 Common Stock on August 3,
1998 was 13,695,224.
- --------------------------------------------------------------------------------
1
Exhibit Index at Page 13
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SEACHANGE INTERNATIONAL, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet
at June 30, 1998 and December 31, 1997..................... 3
Consolidated Statement of Operations
Three and Six months ended June 30, 1998 and 1997.......... 4
Consolidated Statement of Cash Flows
Six months ended June 30, 1998 and 1997.................... 5
Notes to Consolidated Financial Statements................. 6-7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations........... 8-10
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.......... 11
Item 4. Submission of Matters to a Vote of
Security-Holders................................... 11
Item 5. Other Information.................................. 11
Item 6. Exhibits........................................... 11
SIGNATURES .......................................................... 12
EXHIBIT INDEX........................................................ 13
2
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SEACHANGE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE-RELATED DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------------ ------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,018 $ 2,973
Marketable securities 1,462 9,310
Accounts receivable, net of allowance for doubtful accounts
of $872 at June 30, 1998 and $559 at December 31, 1997 14,396 12,535
Inventories 15,295 13,713
Prepaid expenses 5,165 2,336
Deferred income taxes 1,091 1,091
------------------ ------------------
Total current assets 40,427 41,958
Property and equipment, net 7,196 8,303
Goodwill and intangibles, net, and other assets 1,580 1,689
------------------ ------------------
$ 49,203 $ 51,950
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,730 $ 8,765
Accrued expenses 2,565 2,718
Customer deposits 681 2,049
Deferred revenue 3,896 3,851
Income taxes payable 235 85
------------------ ------------------
Total current liabilities 17,107 17,468
------------------ ------------------
Stockholders' Equity:
Common stock, $.01 par value; 50,000,000 shares authorized; 13,645,804
shares and 13,593,594 shares issued at June 30, 1998
and December 31, 1997, respectively 136 136
Additional paid-in capital 31,598 31,218
Retained earnings 391 3,114
Treasury stock, 9,000 shares of common stock at June 30, 1998
and December 31, 1997 - -
Cumulative translation adjustment (29) 14
------------------ ------------------
Total stockholders' equity 32,096 34,482
------------------ ------------------
$ 49,203 $ 51,950
================== ==================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
3
<PAGE>
SEACHANGE INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------------- ----------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUES:
Systems $ 13,207 $ 20,184 $ 28,014 $ 36,980
Services 3,373 1,668 6,735 2,924
-------------- -------------- -------------- --------------
16,580 21,852 34,749 39,904
-------------- -------------- -------------- --------------
COSTS OF REVENUES:
Systems 8,223 11,079 17,190 20,536
Services 3,108 1,622 6,151 3,008
-------------- -------------- -------------- --------------
11,331 12,701 23,341 23,544
-------------- -------------- -------------- --------------
Gross profit 5,249 9,151 11,408 16,360
-------------- -------------- -------------- --------------
OPERATING EXPENSES:
Research and development 3,900 2,750 7,903 5,166
Selling and marketing 2,081 1,842 3,926 3,110
General and administrative 1,721 866 3,283 1,796
Restructuring of operations - - 676 -
-------------- -------------- -------------- --------------
7,702 5,458 15,788 10,072
-------------- -------------- -------------- --------------
Income (loss) from operations (2,453) 3,693 (4,380) 6,288
Interest income, net 76 187 179 387
-------------- -------------- -------------- --------------
Income (loss) before income taxes (2,377) 3,880 (4,201) 6,675
Provision (benefit) for income taxes (769) 1,475 (1,478) 2,537
-------------- -------------- -------------- --------------
Net income (loss) $ (1,608) $ 2,405 $ (2,723) $ 4,138
============== ============== ============== ==============
Basic earnings (loss) per share $ (0.13) $ 0.24 $ (0.23) $ 0.42
Diluted earnings (loss) per share $ (0.13) $ 0.18 $ (0.23) $ 0.31
Shares used in calculating:
Basic earnings (loss) per share 12,115,901 10,144,142 11,847,910 9,751,398
Diluted earnings (loss) per share 12,115,901 13,407,486 11,847,910 13,410,520
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
4
<PAGE>
SEACHANGE INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1998 1997
------------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (2,723) $ 4,138
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 2,467 1,215
Inventory valuation allowance 890 750
Other 47 (93)
Changes in assets and liabilities:
Accounts receivable (1,861) (12,683)
Inventories (2,472) (3,308)
Prepaid expenses and other assets (2,926) (247)
Accounts payable 922 2,564
Accrued expenses (153) 686
Customer deposits (1,368) (1,556)
Deferred revenue 45 994
Income taxes payable 150 -
------------------- -------------------
Net cash used in operating activities (6,982) (7,540)
------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (1,154) (1,124)
Proceeds from sale and maturity of marketable securities 8,750 -
Purchases of marketable securities (902) -
------------------- -------------------
Net cash provided by (used in) investing activities 6,694 (1,124)
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 333 123
------------------- -------------------
Net cash provided by financing activities 333 123
------------------- -------------------
Net increase (decrease) in cash and cash equivalents 45 (8,541)
Cash and cash equivalents, beginning of period 2,973 23,394
------------------- -------------------
Cash and cash equivalents, end of period $ 3,018 $ 14,853
=================== ===================
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Transfer of items originally classified as fixed assets
to inventories $513 $ -
Transfer of items originally classified as inventories to
fixed assets $ - $ 879
</TABLE>
5
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SEACHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of SeaChange International, Inc. and its wholly owned
subsidiaries. The Company believes that the unaudited consolidated
financial statements reflect all adjustments (consisting of only normal
recurring adjustments), necessary for a fair presentation of the Company's
financial position, results of operations and cash flows at the dates and
for the periods indicated. The results of operations for the three-month
and six-month periods ended June 30, 1998 are not necessarily indicative of
results expected for the full fiscal year or any other future periods. The
unaudited consolidated financial statements should be read in conjunction
with the consolidated financial statements and related notes for the year
ended December 31, 1997, included in the Company's Annual Report on Form
10-K for such fiscal year.
2. EARNINGS PER SHARE
For the three and six months ended June 30, 1998, potential common stock of
331,995 and 273,318, respectively, of common shares issuable upon the
exercise of stock options and 1,424,550 and 1,678,425, respectively, of
unvested restricted common shares are antidilutive because the Company
recorded a net loss for the periods and therefore have been excluded from
the diluted earnings per share computations.
Below is a summary of the shares used in calculating basic and diluted
earnings per share for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------------------------------------------
1998 1997 1998 1997
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average number of shares outstanding 12,115,901 10,144,142 11,847,910 9,751,398
Unvested restricted common shares - 2,752,800 - 3,132,600
Dilutive stock options - 510,544 - 526,522
---------- ---------- ---------- ----------
Shares used in calculating diluted earnings per
share 12,115,901 13,407,486 11,847,910 13,410,520
========== ========== ========== ==========
<CAPTION>
3. INVENTORIES
Inventories consist of the following:
JUNE 30, DECEMBER 31,
1998 1997
--------------------------------------
<S> <C> <C>
Components and assemblies $12,518 $11,932
Finished products 2,777 1,781
------- -------
$15,295 $13,713
======= ========
</TABLE>
6
<PAGE>
RESTRUCTURING OF OPERATIONS
In March 1998, the Company recorded a charge for the restructuring of operations
of $676,000. The charge for the restructuring included $569,000 related to the
termination of 13 employees as part of a planned consolidation of the operations
of SeaChange Asia Pacific Operations Pte. Ltd., formerly IPC Interactive Pte.
Ltd., (SC Asia), a Singapore corporation, which, together with its wholly owned
U.S. subsidiary, GuestServe Networks, Inc., formerly IPC Interactive, Inc.
(GSN), was acquired in December 1997. The restructuring charge also included a
provision of $60,000 related to the planned vacating of premises at GSN and
$47,000 of compensation expense associated with stock options for certain
terminated employees. At March 31, 1998, all employees terminated in connection
with such restructuring had been notified by the Company. Accrued expenses at
June 30, 1998 include $86,000 as a result of the restructuring charge. During
the quarter ended June 30, 1998 the Company paid $543,000 related to the
restructuring charge.
5. STOCK OPTION REPRICING
On January 23, 1998, the Compensation and Option Committee of the Board of
Directors of the Company (the Committee) determined that, because certain
stock options held by employees of the Company had an exercise price
significantly higher than the fair market value of the Company's common
stock, such stock options were not providing the desired incentive and
retentive effect for employees. Accordingly, the Committee granted those
employees whose options were between $15.00 and $24.63 per share an
opportunity to cancel their existing options for new options on a one for
one basis, with a new five-year vesting schedule beginning on January 23,
1998. Employees whose options were above $24.63 were offered an
opportunity to cancel their existing options for new options on a two for
three basis, with no change in their original vesting schedule. As a
result of this stock option repricing, new options were granted to purchase
212,779 shares of common stock and the average exercise price of such
options was reduced from $22.19 per share to $8.25 per share, the fair
market value of the Company's common stock at the close of the market on
January 22, 1998. With the exception of one executive officer, the
Company's directors and executive officers were not eligible to participate
in this stock option repricing. During the execution of the stock option
repricing plan, the Company's stock price was below $8.25 per share and,
therefore, no compensation charge was recorded as a result of the stock
option repricing.
6. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (the FASB) issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS 130) and Statement of Financial Accounting
Standards No. 131, " Disclosures about Segments of an Enterprise and
Related Information" (SFAS 131). The Company adopted SFAS 130 and 131 on
January 1, 1998. SFAS 130 establishes standards for reporting
comprehensive income and its components in the consolidated financial
statements. There were no material differences between net income and
comprehensive income for the three and six-month periods ended June 30,
1998. SFAS 131 establishes standards for reporting information on
operating segments and will first be applicable to its December 31, 1998
year end financial statements.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(SFAS 133). SFAS 133 will become effective during 1999. To date the
Company has not utilized derivative instruments or hedging activities and,
therefore, the adoption of SFAS 133 will not have an impact on the
Company's reported financial condition or results of operations.
7
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FACTORS THAT MAY AFFECT FUTURE RESULTS
Any statements contained in this Form 10-Q that do not describe historical
facts, including without limitation statements concerning expected revenues,
earnings, product introductions and general market conditions, may constitute
forward-looking statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. Any such forward-looking statements contained
herein are based on current expectations, but are subject to a number of risks
and uncertainties that may cause actual results to differ materially from
expectations. The factors that could cause actual future results to differ
materially from current expectations include the following: the Company's
ability to integrate the operations of acquired subsidiaries; fluctuations in
demand for the Company's products and services; the Company's ability to manage
its growth; the Company's ability to develop, market and introduce new and
enhanced products and services on a timely basis; the rapid technological change
which characterizes the Company's markets; the Company's significant
concentration of customers; the Company's dependence on certain sole source
suppliers and third-party manufacturers; the risks associated with international
sales as the Company expands its markets; and the ability of the Company to
compete successfully in the future. Further information on factors that could
cause actual results to differ from those anticipated is detailed in various
filings made by the Company from time to time with the Securities and Exchange
Commission, including but not limited to, those appearing under the caption
"Certain Risk Factors" in the Company's Annual Report on Form 10-K dated March
31, 1998. Any forward-looking statements should be considered in light of those
factors.
RESULTS OF OPERATIONS
ACQUISITION. On December 10, 1997, the Company acquired all of the
outstanding capital stock of SeaChange Asia Pacific Operations Pte. Ltd.,
formerly IPC Interactive Pte. Ltd. (SC Asia). SC Asia's products together with
the Company's centralized video server platform, provides interactive television
network systems to the hospitality and commercial property markets.
Additionally, SC Asia deploys and operates its interactive network television
systems at customer locations and charges fees for providing services and
content, which are primarily movies. The transaction was accounted for under the
purchase method and, accordingly, the results of operations of the Company
include the operating results of SC Asia from the date of acquisition.
REVENUES. The Company's systems revenues consist primarily of sales of its
digital video insertion products, movie system products and broadcast product.
Systems revenues decreased by 35% to $13.2 million for the quarter ended June
30, 1998, from $20.2 million in the comparable quarter in 1997. Systems
revenues decreased by 24% to $28.0 million for the six-month period ended June
30, 1998, from $36.9 million in the comparable period in 1997. The decrease in
systems revenues resulted primarily from a decrease in the volume of digital
video insertion systems sold to U.S. cable operators. The Company expects sales
of its digital ad insertion products to decrease in 1998 compared to the $55.7
million of such revenue for the twelve months ended December 31, 1997, primarily
due to a decrease in spending by U.S. cable operators on these products and
slowness in the development of the international demand for such products. The
Company anticipates future growth, if any, in systems revenues will come from
its movie system and broadcast products. The broadcast product was released
during the quarter ended June 30, 1998.
The Company's service revenues consist of fees for installation, training
and product maintenance, technical support services and content fees. The
Company's services revenues increased by 102% to $3.4 million for the quarter
ended June 30, 1998, from approximately $1.7 million in the comparable quarter
in 1997. The Company's services revenues increased by 130% to $6.7 million in
the six-month period ended June 30, 1998, from approximately $2.9 million in the
comparable period in 1997. The increase in services revenues primarily resulted
from renewals of maintenance and support contracts related to the growing
installed base of systems and additional service revenues in the form of content
fees as a result of the acquisition of SC Asia.
For the quarters and six-month periods ended June 30, 1998 and 1997,
certain customers accounted for more than 10% of the Company's total revenues.
Individual customers accounted for 18% and 13% of total revenues in the quarter
ended June 30, 1998, and 25%, 16%, 15% and 12% of total revenues in the quarter
ended June 30, 1997. Individual customers accounted for 22% and 13% of total
revenues in the six-month period ended June 30, 1998, and 30%, 16% and 15% of
total revenues in the six-month period ended June 30, 1997.
8
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International revenues accounted for approximately 23% and 9% of total
revenues in the quarters ended June 30, 1998 and 1997, respectively. The
increase is primarily attributable sales of the Company's movie and broadcast
products. International revenues accounted for approximately 15% and 10% of
total revenues in the six-month periods ended June 30, 1998 and 1997,
respectively. The Company expects that international sales will increase as a
percentage of the Company's business in the future. As of June 30, 1998,
substantially all sales of the Company's products have been made in United
States dollars. The Company does not expect to change this practice
significantly in the foreseeable future. Therefore, the Company has not
experienced, nor does it expect to experience in the near term, any material
impact from fluctuations in foreign currency exchange rates on its results of
operations or liquidity.
GROSS PROFIT. Systems gross profit as a percentage of systems revenues was
37.7% and 45.1% for the quarters ended June 30, 1998 and 1997, respectively.
Systems gross profit as a percentage of systems revenues was 38.6% and 44.5% for
the six-month periods ended June 30, 1998 and 1997, respectively. The decrease
in systems gross profit in the quarter and six-month period ended June 30, 1998
is primarily attributable to a shift in the mix of systems sales in 1998 to
include a greater percentage of smaller scale digital ad insertion systems which
results in a lower gross profit. The decrease is also attributable to the
Company not achieving expected manufacturing efficiencies as a result of a less
than expected systems sales volume and an increase of $890,000 in the Company's
inventory valuation allowance during the six-month period ending June 30, 1998.
The Company evaluates inventory levels and expected usage on a periodic basis
and provides a valuation allowance for estimated inactive, obsolete and surplus
inventory.
Services gross profit as a percentage of services revenue was 7.9% and 2.8%
for the quarters ended June 30, 1998 and 1997, respectively. Services gross
profit as a percentage of services revenue was 8.7% for the six-month period
ended June 30, 1998. Costs of services revenues exceeded services revenue by
2.9% for the six-month period ended June 30, 1997. Improvements in the services
gross profit in 1998 reflects the increase in the installed base of systems
under service contracts and the gross profit generated from content fees as a
result of the acquisition of SC Asia. The Company expects that it will continue
to experience fluctuations in gross profit as a percentage of services revenues
as a result of the timing of providing product and maintenance support and other
services to the growing installed base of systems and the timing of the costs
associated with the Company building a service organization to support the
installed base of systems and new products.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of compensation of development personnel, depreciation of equipment
and an allocation of related facility expenses. Research and development
expenses increased to approximately $3.9 million, or 24% of total revenues in
the quarter ended June 30, 1998, from approximately $2.8 million, or 13% of
total revenues in the comparable quarter in 1997. Research and development
expenses increased to approximately $7.9 million, or 23% of total revenues in
the six-month period ended June 30, 1998 from approximately $5.2 million, or 13%
of total revenues in the comparable period in 1997. These increases were
primarily attributable to the hiring and contracting of additional development
personnel and the acquisition of SC Asia. All internal software development
costs to date have been expensed by the Company. The Company expects that
research and development expenses will continue to increase in dollar amount as
the Company continues its development of new and existing products.
SELLING AND MARKETING. Selling and marketing expenses consist primarily of
compensation expenses, including sales commissions, travel expenses and certain
promotional expenses. Selling and marketing expenses increased to approximately
$2.1 million, or 13% of total revenues in the quarter ended June 30, 1998, from
approximately $1.8 million, or 8% of total revenues in the comparable quarter in
1997. Selling and marketing expenses increased to approximately $3.9 million,
or 11% of total revenues in the six-month period ended June 30, 1998 from
approximately $3.1 million, or 8% of total revenues in the comparable period in
1997. These increases were primarily attributable to the hiring of additional
selling and marketing personnel, expanded promotional activities, increased
international selling efforts and the acquisition of SC Asia. The Company
expects that selling and marketing expenses will continue to increase in dollar
amount as the Company hires additional personnel and expands selling and
marketing activities for the remainder of 1998.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of compensation of executive, finance, human resource and
administrative personnel, legal and accounting services and an allocation of
related facility expenses. General and administrative expenses increased to
approximately $1.7 million, or 10% of total revenues in the quarter ended June
30, 1998, from approximately $866,000, or 4% of total revenues in the comparable
quarter in 1997. General and administrative expenses increased to approximately
$3.3 million, or 9% of total revenues in the six-month period ended June 30,
1998 from approximately $1.8 million, or 5% of total revenues in the comparable
period in 1997. The increases were primarily attributable to increased staffing
to
9
<PAGE>
support the Company's expanded operations in 1998 and the acquisition of SC
Asia. The Company does not expect that general and administrative expenses will
increase in dollar amount in the foreseeable future as the Company has
centralized the accounting and finance functions of SC Asia, thereby reducing
these related costs for the remainder of 1998.
RESTRUCTURING OF OPERATIONS. In March 1998, the Company recorded a charge
for the restructuring of operations of $676,000. Restructuring of operations
included a provision of $569,000 related to the termination of 13 employees as
part of a planned consolidation of the operations of SC Asia with the Company's
operations, $60,000 related to the planned vacating of the premises at GSN, a
subsidiary of SC Asia, and $47,000 of compensation expense associated with stock
options for certain terminated employees. At March 31, 1998, all the employees
terminated in connection with the restructuring had been notified.
INTEREST INCOME. Interest income was approximately $76,000 and $187,000 in
the quarter ended June 30, 1998 and 1997, respectively. Interest income was
approximately $179,000 and $387,000 in the six-month periods ended June 30, 1998
and 1997, respectively. The decreases in interest income primarily resulted
from a lower invested balance in the period ended June 30, 1998 compared to
the comparable period in 1997.
PROVISION FOR INCOME TAXES. The Company's effective tax rate was a benefit
of 35.2% in the six-month period ended June 30, 1998 and a tax provision of 38%
in the six-month period ended June 30, 1997. The change in the effective tax
rate is attributable to the taxable loss in the six-month period ended June 30,
1998 compared to the taxable income in the six-month period ended June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and marketable securities at June 30, 1998 were
approximately $4.5 million, a $7.8 million decrease from the December 31, 1997
balance of $12.3 million. Working capital was approximately $23.3 million and
$24.5 million at June 30, 1998 and December 31, 1997, respectively.
Net cash used in operating activities was $7.0 million and $7.5 million in
the six-month periods ended June 30, 1998 and 1997, respectively. Net cash used
in operating activities during the six-month period ended June 30, 1998 was the
result of the net loss adjusted for noncash expenses including depreciation and
amortization and the changes in certain assets and liabilities. The significant
changes in assets and liabilities included increases in accounts receivable,
inventories and prepaid expenses and a decrease in customer deposits. These
changes were partially offset by an increase in accounts payable. The increase
in accounts receivable of approximately $1.9 million, or 15%, at June 30, 1998
is primarily attributable to the increased revenues in the quarter ended June
30, 1998 of $16.6 million, compared to revenues of approximately $12.7 million
in the quarter ended December 31, 1997, an increase of $3.8 million, or 30%. The
net increase in inventories of approximately $1.6 million, or 12% is
attributable to lower than anticipated revenues in the quarter. The increase in
prepaid expenses of approximately $2.9 million, or 121% at June 30, 1998, is
attributable to an increase in prepaid income taxes due to the tax benefit
recorded in the six-month period ended June 30, 1998 and prepayments to certain
vendors for inventory. The decrease in customer deposits of approximately $1.4
million, or 67% at June 30, 1998, is the result of the timing, volume and size
of customer orders. The increase in accounts payable of approximately $1.0
million, or 11% at June 30, 1998, is primarily the result of the timing of
purchases and related payments.
Net cash provided by investing activities was approximately $8.8 million in
the six-month period ended June 30, 1998 and the net cash used in investing
activities was $2.1 million in the six-month period ended June 30, 1997.
During the six-month period ended June 30, 1998, investing activities consisted
of the sale and maturity of marketable securities which was partially offset by
the purchase of marketable securities and the purchases of property and
equipment to support the Company's growth. During the six-month period ended
June 30, 1997, investing activities consisted of purchases of property and
equipment to support the Company's growth.
Net cash provided by financing activities was approximately $333,000 and
$123,000 for the six-month periods ended June 30, 1998 and 1997, respectively,
which consisted of proceeds from the issuance of common stock upon the exercise
of employee stock options and employee stock purchase plan.
The Company has a $6.0 million revolving line of credit with a bank which
expires in September 1998. Borrowings under the line of credit are secured by
substantially all of the Company's assets. Loans made under the revolving line
of credit will bear interest at a rate per annum equal to, at the Company's
option, the bank's base rate or LIBOR plus an applicable margin. The loan
agreement relating to the line of credit requires that the Company provide the
bank with certain periodic financial reports and comply with certain financial
ratios. The Company was not in compliance with certain financial ratios as of
June 30, 1998 but has received a waiver from the bank for such noncompliance,
subject to the Company's agreement to negotiate the modification of the loan
agreement prior to any borrowings. As of June 30, 1998, the Company had not
borrowed against the line.
The Company is currently negotiating to renew the revolving line of
credit and establish a lease line facility. The Company believes that existing
funds together with available borrowings under the line of credit and lease line
facility are adequate to satisfy its working capital and capital expenditure
requirements for the foreseeable future.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(b) Use of Proceeds
On November 4, 1996, the Company's Registration Statement on Form S-1 (File
No. 333-12233) became effective. The Company filed an initial report on
Form SR on February 11, 1997, disclosing the sale of securities and the use
of proceeds through December 31, 1996, and Amendment No. 1 to Form SR on
August 11, 1997, disclosing the use of proceeds through June 30, 1997. The
net proceeds from this offering were $24,069,800. As of June 30, 1998, no
information has changed from Amendment No. 1 except for the use of
proceeds. The following describes the use of proceeds from November 4,
1996, the effective date, through June 30, 1998.
<TABLE>
<CAPTION>
Direct or Indirect
Use of Proceeds: Payment to Others
------------------
<S> <C>
Purchase and installation of machinery and equipment $ 3,312,000
Working capital $16,166,800
Temporary Investments (specify): Amount
------
Money Market $ 690,000
Municipal Bonds and Notes $ 3,901,000
</TABLE>
None of the above payments were made to affiliates of the Company,
directors, officers or persons owning 10% or more of any class of equity
securities of the Company, other than in the ordinary course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The annual meeting of security-holders of the Company was held on May 21, 1998.
The following persons were elected as directors:
<TABLE>
<CAPTION>
Total Votes Total Votes
Nominee for Nominee Withheld for Nominee
- ------- ----------- -------------------
<S> <C> <C>
Martin R. Hoffmann 11,495,306 17,350
Edward J. McGrath 11,495,306 17,350
</TABLE>
In addition, after the annual meeting, the following persons continued to serve
as directors of the Company: Paul H. Saunders, Carmine Vona and William C.
Styslinger, III.
ITEM 5. OTHER INFORMATION
Proposals of stockholders intended for inclusion in the proxy statement to be
furnished to all stockholders entitled to vote at the next annual meeting of
stockholders of the Company must be received at the Company's principal
executive office not later than December 23, 1998. The deadline for providing
timely notice to the Company of matters that stockholders otherwise desire to
introduce at the next annual meeting of stockholders of the Company is March 8,
1999. In order to curtail any controversy as to the date on which a proposal was
received by the Company, it is suggested that proponents submit their proposals
by Certified Mail, Return Receipt Requested. All notices of proposals by
stockholders should be sent to the attention of Edward J. McGrath.
ITEM 6. EXHIBITS
(a) Exhibits
Exhibit 27: Financial Data Schedule (For SEC Edgar
Filing Only; Intentionally Omitted)
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
SeaChange International, Inc. has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: August 13, 1998
SEACHANGE INTERNATIONAL, INC.
by:
/s/ William C. Styslinger, III
- -----------------------------------------
William C. Styslinger, III
President, Chief Executive Officer,
Chairman of the Board and Director
/s/ Edward J. McGrath
- -----------------------------------------
Edward J. McGrath
Vice President, Engineering,
Chief Technical Officer, Secretary,
Acting Chief Financial Officer and
Treasurer, and Director
(Principal Financial and Accounting Officer)
12
<PAGE>
SEACHANGE INTERNATIONAL, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION PAGE
- -------------- ----------- ----
<S> <C> <C>
27 Financial Data Schedule (For SEC Edgar Filing Only;
Intentionally Omitted)
</TABLE>
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,018
<SECURITIES> 1,462
<RECEIVABLES> 15,268
<ALLOWANCES> (872)
<INVENTORY> 15,295
<CURRENT-ASSETS> 40,427
<PP&E> 13,544
<DEPRECIATION> (6,348)
<TOTAL-ASSETS> 49,203
<CURRENT-LIABILITIES> 17,107
<BONDS> 0
0
0
<COMMON> 162
<OTHER-SE> 31,934<F1>
<TOTAL-LIABILITY-AND-EQUITY> 49,203
<SALES> 13,207
<TOTAL-REVENUES> 16,580
<CGS> 8,223
<TOTAL-COSTS> 11,331
<OTHER-EXPENSES> 8,027
<LOSS-PROVISION> (325)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,377)
<INCOME-TAX> (769)
<INCOME-CONTINUING> (1,608)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,608)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
<FN>
<F1> ADDITIONAL PAID-IN CAPITAL 31,572
RETAINED EARNINGS 391
CUMULATIVE TRANSLATION ADJUSTMENT (29)
--------
31,934
</FN>
</TABLE>
