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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
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Commission file number 0-21985
SEEC, INC.
(Exact name of registrant as specified in its charter)
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PENNSYLVANIA 55-0686906
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
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PARK WEST ONE, SUITE 200, CLIFF MINE ROAD, PITTSBURGH, PENNSYLVANIA 15275
(Address of Principal Executive Offices) (Zip Code)
(412) 893-0300
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or 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
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As of July 31, 1998, there were 6,076,546 outstanding shares of Common
Stock, par value $.01 per share, of SEEC, Inc.
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SEEC, INC.
FORM 10-Q
TABLE OF CONTENTS
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PAGE
NUMBER
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PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income for the three months
ended June 30, 1998 and 1997.......................... 2
Condensed Consolidated Balance Sheets as of June 30,
1998 and March 31, 1998............................... 3
Condensed Consolidated Statements of Cash Flows for the
three months ended June 30, 1998 and 1997............. 4
Notes to Unaudited Consolidated Financial Statements... 5-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 7-11
PART II--OTHER INFORMATION.................................. 12
Item 1. Legal Proceedings................................... 12
Item 2. Changes in Securities............................... 12
Item 3. Defaults Upon Senior Securities..................... 12
Item 4. Submission of Matters to a Vote of Security
Holders................................................... 12
Item 5. Other Information................................... 12
Item 6. Exhibits and Reports on Form 8-K.................... 12
SIGNATURES.................................................. 13
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PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SEEC, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
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THREE MONTHS ENDED
JUNE 30
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1998 1997
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REVENUES:
Software license and maintenance fees..................... $1,606,885 $2,074,827
Professional services--product related.................... 868,099 224,092
Professional services--other.............................. 26,061 77,740
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Total revenues......................................... 2,501,045 2,376,659
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OPERATING EXPENSES:
Cost of revenues:
Software license and maintenance fees.................. 226,002 280,821
Professional services--product related................. 596,039 202,539
Professional services--other........................... 29,917 76,543
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Total cost of revenues............................... 851,958 559,903
General and administrative................................ 552,712 363,975
Sales and marketing....................................... 1,224,978 776,103
Research and development.................................. 288,483 203,406
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Total operating expenses............................... 2,918,131 1,903,387
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INCOME (LOSS) FROM OPERATIONS............................... (417,086) 473,272
---------- ----------
INTEREST INCOME (EXPENSE):
Interest expense.......................................... -- (8,801)
Interest income........................................... 421,536 184,251
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Net interest income.................................... 421,536 175,450
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INCOME BEFORE INCOME TAXES.................................. 4,450 648,722
PROVISION FOR INCOME TAXES.................................. 1,500 --
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NET INCOME.................................................. $ 2,950 $ 648,722
========== ==========
Net income per common share:
Basic.................................................. $ 0.00 $ 0.13
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Diluted................................................ $ 0.00 $ 0.12
========== ==========
Weighted average number of common and common equivalent
shares outstanding:
Basic.................................................. 6,076,546 5,001,679
========== ==========
Diluted................................................ 6,253,239 5,268,735
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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SEEC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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JUNE 30, MARCH 31,
1998 1998
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(UNAUDITED) (AUDITED)*
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $23,068,227 $23,795,965
Short-term investments.................................... 8,629,030 7,032,550
Accounts receivable:
Trade, net.............................................. 3,924,082 5,774,495
Affiliate............................................... 45,767 189,097
Prepaid expenses and other current assets................. 217,572 545,980
----------- -----------
Total current assets.................................... 35,884,678 37,338,087
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET................... 1,344,997 1,291,659
GOODWILL, NET............................................... 592,667 625,000
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$37,822,342 $39,254,746
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable:
Trade................................................... $ 757,361 $ 1,142,253
Affiliate............................................... 66,583 230,085
Obligation in connection with acquisition................. 1,042,000 1,042,000
Accrued compensation...................................... 128,102 799,072
Deferred maintenance revenue.............................. 941,845 867,339
Deferred income taxes..................................... 376,530 372,330
Other current liabilities................................. 474,825 778,131
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Total current liabilities............................... 3,787,246 5,231,210
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SHAREHOLDERS' EQUITY:
Preferred stock--no par value; 10,000,000 shares
authorized;
none outstanding
Common stock--$.01 par value; 20,000,000 shares
authorized;
6,076,546 shares issued and outstanding................. 60,765 60,765
Additional paid-in capital................................ 33,566,408 33,566,408
Retained earnings......................................... 384,997 382,047
Unrealized gains on investments, net of taxes............. 22,926 14,316
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Total shareholders' equity.............................. 34,035,096 34,023,536
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$37,822,342 $39,254,746
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</TABLE>
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* Condensed from audited financial statements
The accompanying notes are an integral part of these financial statements.
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SEEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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THREE MONTHS ENDED
JUNE 30
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1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 2,950 $ 648,722
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization.......................... 81,851 12,766
Provision for doubtful accounts........................ 13,814 --
Deferred income taxes.................................. 1,500 --
Changes in operating assets and liabilities:
Accounts receivable--trade........................... 1,836,599 (923,862)
Accounts receivable--affiliate....................... 143,330 (145,242)
Prepaid expenses and other current assets............ 328,408 94,330
Accounts payable--trade.............................. (384,892) (117,148)
Accounts payable--affiliate.......................... (163,502) (23,650)
Accrued compensation................................. (670,970) 257,923
Accrued royalties.................................... (224,206) 217,478
Other accrued expenses............................... (47,395) 67,229
Advance royalty...................................... -- (780,552)
Deferred maintenance revenue......................... 74,506 196,944
Other, net........................................... (31,705) 80,250
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Net cash provided (used) by operating activities....... 960,288 (414,812)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements......... (102,856) (62,434)
Purchases of short-term investments....................... (1,585,170) (1,132,117)
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Net cash used by investing activities.................. (1,688,026) (1,194,551)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt............................... -- (240,000)
Proceeds from exercise of stock options................... -- 16,407
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Net cash used by financing activities.................. -- (223,593)
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NET DECREASE IN CASH AND CASH EQUIVALENTS................... (727,738) (1,832,956)
Cash and cash equivalents, beginning of period.............. 23,795,965 3,811,401
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CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $23,068,227 $1,978,445
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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SEEC, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of SEEC, Inc. and its wholly-owned subsidiaries, SEEC Europe Limited
("SEEC Europe"), organized in April 1997, and SEEC Technologies Asia Private
Limited ("SEEC Asia"), organized in March 1998 (collectively, "the Company").
All significant intercompany balances and transactions have been eliminated in
consolidation.
Management believes that all adjustments necessary for a fair statement of
results have been included in the consolidated financial statements for the
interim periods presented. All significant intercompany accounts and
transactions have been eliminated. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Operating results for interim periods are not necessarily indicative of results
which may be expected for an entire fiscal year. Accordingly, these interim
period consolidated financial statements should be read in conjunction with the
consolidated financial statements contained in the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1998.
2. REVENUE RECOGNITION
The Company recognizes revenue in accordance with Statement of Position
97-2, "Software Revenue Recognition." Software license fees are recognized upon
receipt of a noncancelable order from the customer, shipment of the software to
the customer and the completion of any significant remaining obligations under
the license agreement. Revenues from software maintenance are deferred and
recognized on a straight-line basis over the contract support period, which is
typically one year. Revenues from professional services fees are recognized as
the reengineering, consulting, training or other services are provided, or on
achievement of performance milestones, depending on the nature of the services
or contract.
3. EARNINGS PER SHARE
Earnings per share (EPS) for all periods presented is computed in
accordance with the provisions of Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" (SFAS No. 128). The provisions and disclosure
requirements for SFAS No. 128 were required to be adopted for interim and annual
periods ending after December 15, 1997, with restatement of EPS for prior
periods.
The following is a reconciliation of the denominators (the number of
shares) of the basic and diluted EPS computations. The numerator (earnings or
net income) is the same for the basic and the diluted EPS computations for the
periods presented.
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THREE MONTHS ENDED
JUNE 30
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1998 1997
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Basic shares......................................... 6,076,546 5,001,679
Effect of dilutive securities--options and
warrants........................................... 176,693 267,057
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Diluted shares....................................... 6,253,239 5,268,736
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For the three months ended June 30, 1998 and 1997, options and warrants to
purchase 177,850 shares and 2,000 shares, respectively, were excluded from the
computation of diluted EPS, because the exercise prices of the options and
warrants were greater than the average market price of the common shares.
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4. ACQUISITION
On February 27, 1998, the Company entered into an agreement with ERA,
whereby ERA transferred its distribution rights for Company products, plus
certain fixed assets and 30 former ERA employees engaged in Company-related
research and development, sales and administration. With the acquisition, the
Company assumed control of ERA's research and development and distribution
functions. SEEC Asia was formed to effect the acquisition and to subsequently
control and manage the acquired rights, assets and product development projects
previously owned or managed by ERA, as well as to expand the Company's sales and
marketing efforts in the Asian and Pacific Rim regions.
The acquisition was accounted for as a purchase, and accordingly, the
results of operations of the acquired business are included in the Company's
consolidated financial statements since the effective date, the close of
business on February 28, 1998. The aggregate purchase price has been allocated
to the net assets acquired based upon their respective fair market values. The
excess of the purchase price over the fair values of the net assets acquired of
$635,000 was allocated to goodwill and is being amortized on a straight-line
basis over five years. Under terms of the agreement, the Product Purchase
Agreement and the Marketing Agreement between the Company and ERA were
terminated as of February 28, 1998.
At March 31, 1998, the net consideration required to complete the
acquisition was estimated at $1,042,000. The final closing occurred on August
10, 1998, at which time the Company remitted an actual net consideration of
$1,036,000 to ERA. Including the Company's investment in ERA, which was
relinquished to ERA under the terms of the acquisition, the Company's total
purchase price for the acquisition was $1,041,000.
A final appraisal of certain assets included in the acquisition has not
been completed. Pending the results of the appraisal, the allocation among the
various components of the purchase price may change; however, any such
reallocation will not materially affect the overall financial position or
results of operations of the Company.
5. ADVANCE ROYALTY
Effective December 1, 1993, the Company entered into a five-year license
agreement ("the License Agreement") with VIASOFT, Inc. ("VIASOFT") which
generally granted to VIASOFT a worldwide license to use and market certain of
the Company's products on a private label basis. The License Agreement provided,
among other things, for royalties of up to 30% of any license or maintenance
fees related to licensed products and for minimum advance royalty payments
totaling $900,000 during the 18-month exclusivity period, which expired on May
31, 1995. The advance royalty of $900,000 was being recognized as income as
copies of the licensed products were delivered to VIASOFT for resale, and, to a
lesser extent, as royalties on the related maintenance revenues were reported to
the Company by VIASOFT.
The Company gave notice to VIASOFT on December 3, 1996 of its intention to
terminate the License Agreement as a result of VIASOFT's not making additional
minimum royalty payments of at least $1,000,000 during the preceding twelve
months, as required by the License Agreement. The Company received notice from
VIASOFT that it did not intend to extend the Agreement by making such minimum
payments and acknowledging that the Agreement would terminate effective June 4,
1997.
The License Agreement had provided that, upon termination, the Company
would be obligated to deliver to VIASOFT that number of copies of the licensed
products equal to the balance of the advance royalty divided by the applicable
licensed product royalty amounts. At such time as these copies were delivered to
VIASOFT, the Company would recognize as income the balance of the advance
royalty. On June 30, 1997, the Company received formal notice from VIASOFT that
no further copies of the licensed products were to be delivered to VIASOFT, and
that the Company was relieved of such obligation under the terms of the License
Agreement. Accordingly, the $780,522 balance of the advance royalty was
recognized as software license revenue during the first quarter of fiscal 1998.
6. COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," effective April 1, 1998. This statement
establishes standards for the reporting and display of
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comprehensive income and its components. Comprehensive income is defined to
include all changes in equity during a period except those resulting from
investments by owners and distributions to owners. This standard requires that
an enterprise display the components of comprehensive income for each period
presented.
The components of the Company's comprehensive income were as follows:
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THREE MONTHS ENDED
JUNE 30
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1998 1997
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Net income............................................. $ 2,950 $648,722
Unrealized gains on investments, net of taxes.......... 8,610 66,300
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Total comprehensive income............................. $11,560 $715,022
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7. INCOME TAXES
No provision for income taxes was recorded for the three months ended June
30, 1997 due to the Company's significant net operating loss position. The
Company's net deferred tax asset was offset by a valuation allowance of the same
amount, since the Company could not determine at that time that it was more
likely than not that it would be realized.
The Company has since eliminated the valuation allowance and has recorded
an income tax provision for the three months ended June 30, 1998. Future
provisions for taxes will depend upon the mix of foreign and domestic income and
the tax rates in effect for various tax jurisdictions.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Part I, Item 2 of this report should be read in conjunction with Part II,
Item 7 of the Company's Annual Report on Form 10-K for the year ended March 31,
1998. The information contained herein is not a comprehensive management
overview and analysis of the financial condition and results of operations of
the Company, but rather updates disclosures made in the aforementioned filing.
Certain information contained herein should be considered "forward-looking
information," which is subject to a number of risks and uncertainties. The
preparation of forward-looking information requires the use of estimates of
future revenues, expenses, activity levels and economic and market conditions,
many of which are outside the Company's control. Other factors and assumptions
are involved in the preparation of forward-looking information, and the failure
of any such factors and assumptions to be realized may cause actual results to
differ materially from those discussed. The Company assumes no obligation to
update such estimates to reflect actual results, changes in assumptions or
changes in other factors affecting such estimates.
OVERVIEW
Founded in 1988, the Company develops, markets and provides integrated and
comprehensive enterprise solutions that enable large organizations and third
party service providers to efficiently and effectively reengineer legacy system
applications and databases. The Company's enterprise solutions combine a suite
of software products with well-defined, repeatable methodologies designed to
automate various functions and improve the quality, productivity and
effectiveness of the reengineering process, including solutions to address the
year 2000 problem and ongoing testing requirements. Solutions have been
developed or are being developed to address the European Monetary Unit currency
conversion problem and the integration of legacy systems with Internet and
client/server-based applications. The Company introduced its core source code
analysis technology and the first PC-based reengineering software product in
1992.
The Company's software products, including those based on the Company's
core source code analysis technology, automate many of the procedures required
for reengineering mainframe-based legacy software systems, including year 2000
conversion. The Company's products analyze and modify source code, which is
downloaded from the mainframe to a PC-based environment, where it is stored in
application dictionaries for performance of reengineering functions. SEEC has
also developed software products that enable customers to extract business rules
and functions from legacy applications for reuse in object-oriented
client/server environ-
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ments. SEEC believes that its core technology and methodologies are adaptable
for use in developing enterprise solutions for integration of mainframe-based
legacy systems with Internet, Enterprise Resource Planning ("ERP"), and data
warehousing applications. SEEC markets and sells its enterprise solutions and
products primarily to Fortune 1000 companies and similarly-sized business and
governmental organizations. SEEC also licenses its products to third party
service providers.
The Company derives its revenue from software license and maintenance fees
and professional services fees. Product-related services, typically provided to
customers in conjunction with the sale of software licenses, include consulting
and training services. Product-related services also include reengineering
services, which the Company provides under time and materials and fixed-price
contracts. Other professional services consist of programming services provided
on a contract basis.
RESULTS OF OPERATIONS
The following section includes information related to changes in the
Company's consolidated statements of income. References to the first quarter of
fiscal 1999 and the first quarter of fiscal 1998 refer to the three months ended
June 30, 1998 and June 30, 1997, respectively.
REVENUES. Total revenues for the first quarter of fiscal 1999 were $2.5
million compared to $2.4 million for the first quarter of fiscal 1998, an
increase of $100,000 or 4%. The increase resulted primarily from increased
revenue from professional services--product related, substantially offset by a
reduction in software license and maintenance fees, and to a lesser extent, a
planned decrease in professional services--other.
Software license and maintenance fees were $1.6 million for the first
quarter of fiscal 1999 compared to $2.1 million for the first quarter of fiscal
1998, a decrease of $500,000 or 24%. The decrease in software license and
maintenance fees is primarily attributable to the nonrecurring advance royalty
revenue of approximately $781,000 from VIASOFT, which was recognized in the
first quarter of fiscal 1998. See Note 5 to the financial statements.
Professional services--product related revenues were $868,000 for the first
quarter of fiscal 1999 compared to $224,000 for the first quarter of fiscal
1998, an increase of $644,000 or 288%. This increase is primarily due to
revenues from additional reengineering contracts, and increased year 2000
consulting and training services performed in the first quarter of fiscal 1999.
Revenues from professional services--other were $26,000 for the first
quarter of fiscal 1999 compared to $78,000 for the first quarter of fiscal 1998,
a decrease of $52,000 or 67%. The Company has redirected its programming
resources to meet increased demand for its year 2000 products and other
services. As a result, revenues from professional services--other have been
steadily decreasing since the second quarter of fiscal 1997 and are not expected
to comprise a significant portion of overall revenues in the future.
COST OF REVENUES. Cost of revenues includes cost of software license and
maintenance fees, cost of professional services--product related, and cost of
professional services--other. The Company's total cost of revenues was $852,000
for the first quarter of fiscal 1999 compared to $560,000 for the first quarter
of fiscal 1998, an increase of $292,000 or 52%. This increase is primarily
attributable to the additional costs of personnel required to provide year 2000
and customer support services. The additional personnel costs are directly
related to increased revenues.
The cost of software license and maintenance fees includes royalties
expense, the costs of providing customer support and the costs of media,
manuals, duplication and shipping related to the sales of the Company's software
products. Customer support is primarily telephone support for customers who have
purchased maintenance in conjunction with software license purchases. Cost of
software license and maintenance fees was $226,000 for the first quarter of
fiscal 1999 compared to $281,000 for the first quarter of fiscal 1998, a
decrease of $55,000 or 20%. This decrease is primarily attributable to royalty
expenses payable to ICICI, which were included in the expenses for the first
quarter of fiscal 1998. The Company's royalty obligation was fulfilled in
January 1998. The Company incurred increased costs for customer support related
to additional maintenance contracts entered into during fiscal 1998.
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Professional services--product related costs were $596,000 for the first
quarter of fiscal 1999 compared to $203,000 for the first quarter of fiscal
1998, an increase of $393,000 or 194%. This increase is primarily attributable
to services related to the acceptance of the Company's Smart Change Factory
solution and increased year 2000 assessment and remediation services performed
in the first quarter of fiscal 1999. The Company has expanded its professional
services infrastructure to meet the demand for its year 2000 products and
solutions.
Professional services--other costs were $30,000 for the first quarter of
fiscal 1999 compared to $77,000 for the first quarter of fiscal 1998, a decrease
of $47,000 or 61%. The decrease corresponds to the continued decline in contract
programming services provided.
GROSS MARGINS. The Company's total gross margin (total revenues less total
cost of revenues) as a percentage of revenues was 66% in the first quarter of
fiscal 1999 compared to 76% in the first quarter of fiscal 1998. The decrease in
total gross margin was primarily attributable to the decrease in software
license and maintenance fees as a percentage of total revenue. Software license
and maintenance fees represented 64% of total revenues for the first quarter of
fiscal 1999 compared to 87% in the first quarter of fiscal 1998. Software
license and maintenance fees have higher gross margins than professional
services fees.
Gross margin percentages were 86% for software license and maintenance fees
for both periods, and 31% and 10% for professional services--product related,
and (15%) and 2% for professional services--other for the first quarter of
fiscal 1999 and 1998, respectively.
The gross margin percentages for software license and maintenance fees
fluctuate depending on the mix of software products and the varying royalty
expenses associated with those products. The gross margin percentages for
software license and maintenance fees and professional services--product related
were favorably impacted by the discontinuation of the royalties payable to
ICICI. The gross margin percentages for professional services--product related
vary depending on the type of services provided and the timing and amount of
costs incurred to build up the professional services infrastructure. Services
that are relatively highly automated, such as year 2000 inventory and impact
assessments, typically require fewer professional hours to perform than services
involving planning, source code remediation or testing. Furthermore, the
Company's pricing for product-related services varies based on the complexity
and scope of the engagement and competitive considerations. The professional
services--product related gross margin percentage in the first quarter of fiscal
1999 reflects the benefits of having a professional staff in place and in a
revenue-producing mode. In the first quarter of fiscal 1998, additional costs
were incurred for recruiting, hiring, training and purchasing equipment for new
professionals. The Company has been building its professional services
infrastructure to meet the continuing demand for year 2000 services. This
divergence of costs and revenues in a particular period is likely to recur,
therefore continuing to have a varying impact on gross margin percentages.
The gross margin percentages for professional services--other fluctuate
based on the prices of the individual service contracts, the payroll and other
costs of professional staff providing the services, and the proportionate
contribution of each contract to the total revenue for this category during the
period. The negative gross margin for the first quarter of fiscal 1999 is due to
the impact of fixed employee benefits costs and reduced revenue.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, incentive compensation and related benefits of the Company's sales,
sales support, and marketing personnel, plus the costs of travel, advertising,
and other promotional activities. Sales and marketing expenses were $1.2 million
for the first quarter of fiscal 1999 compared to $776,000 for the first quarter
of fiscal 1998, an increase of $424,000 or 55%. This increase is primarily due
to the Company's continued efforts to increase the direct sales and marketing of
its products and solutions to customers to address year 2000 and other revenue
opportunities. The Company continues to recruit and hire personnel and is adding
domestic and international sales offices, while also increasing market awareness
of the Company's products and solutions through expanded advertising,
participation in trade shows and conferences, and other promotional activities.
GENERAL AND ADMINISTRATIVE. General and administrative expenses include the
costs of general management, finance, legal, accounting, office facilities,
communications, and other administrative functions. General and administrative
expenses were $553,000 for the first quarter of fiscal 1999 compared to $364,000
for the first quarter of fiscal 1998, an increase of $189,000 or 52%. This
increase is primarily due to additional payroll and
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related costs, rent, insurance and professional service costs, reflective of the
Company's continued expansion of operations and addition of staff.
RESEARCH AND DEVELOPMENT. Total expenditures for research and development
was $288,000 for the first quarter of fiscal 1999 compared to $203,000 for the
first quarter of fiscal 1998, an increase of $85,000 or 42%. This increase is
due to additional research and development personnel costs and related
facilities, computing, and benefits costs. In the first quarter of fiscal 1998,
research and development expenses included fees paid on a work-for-hire basis to
ERA for certain projects performed offshore. ERA's Company related research and
development function is now owned by SEEC Asia (see Note 4 to financial
statements). Expenditures for research and development vary depending upon the
number of projects underway at any time, the size of the projects and their
stage of development.
INTEREST EXPENSE. Interest expense was $9,000 for the first quarter of
fiscal 1998, consisting of interest on the Company's loan payable to ICICI. The
loan was paid in full on June 30, 1997.
INTEREST INCOME. Interest income was $422,000 for the first quarter of
fiscal 1999 compared to $184,000 for the first quarter of fiscal 1998, an
increase of $238,000 or 129%. This increase is due to interest earned on the net
proceeds from the Company's secondary public offering in February 1998. The net
proceeds were invested in money market funds and high-grade bonds and bond funds
with average maturities of less than two years.
INCOME TAXES. No provision for income taxes was recorded for the first
quarter of fiscal 1998 due to the Company's significant net operating loss
carryforwards. The Company had calculated a net deferred tax asset, which was
offset by a valuation allowance. The valuation allowance was reduced and
subsequently eliminated in the third and fourth quarters of fiscal 1998 based on
actual and projected profitable operations. As of March 31, 1998, the Company
had unused Federal and state net operating loss carryforwards that may be
applied to reduce future taxable income of approximately $2,034,000 and
$1,358,000, respectively. The carryforwards expire at various times from March
31, 2000 to March 31, 2013.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations primarily through sales of equity
securities and positive cash flow from operations. As of June 30, 1998, the
Company had $31.7 million in cash and short-term investments and $32.1 million
in working capital. Net cash generated by operating activities was $960,000 for
the quarter ended June 30, 1998 compared to $415,000 used by operating
activities for the quarter ended June 30, 1997. The Company used $103,000 and
$62,000 to purchase equipment and leasehold improvements and $1.6 million and
$1.1 million to purchase short-term investments in the quarters ended June 30,
1998 and 1997, respectively. The purchases of equipment and leasehold
improvements are related to the Company's continued growth and expansion. In
connection with the acquisition discussed in Note 4 to the financial statements
above, approximately $1.0 million was remitted to ERA on August 10, 1998. Excess
cash has been, and the Company contemplates that it will continue to be,
invested in interest-bearing investment grade securities.
In February 1998, the Company sold 1,030,000 shares of Common Stock in a
secondary public offering, the net proceeds of which were $19.1 million to the
Company. The Company expects that the proceeds of this offering and existing
working capital, together with cash from operations, will be sufficient to meet
its capital and liquidity needs for the foreseeable future. The Company's cash
balances may be used to expand domestic and international sales and marketing
efforts, establish additional facilities, increase research and development for
enterprise solutions, repurchase shares of the Company's common stock, and for
other corporate purposes. The Company may also utilize cash to develop or
acquire other businesses, products or technologies complementary to its current
business. The amounts actually expended for each such purpose are subject to
management's discretion, depending upon various factors, including economic or
industry conditions, changes in the competitive environment and strategic
opportunities that may arise. In the longer term, the Company may require
additional sources of liquidity to fund future growth. Such sources of liquidity
may include additional equity offerings or debt financings.
10
<PAGE> 12
SEASONALITY
The Company's operations are not affected by seasonal fluctuations.
FOREIGN CURRENCY
The overall effects of foreign currency exchange rates on the Company's
business during the periods discussed have not been material. Movements in
foreign currency exchange rates create a degree of risk to the Company's
operations if those movements affect the dollar value of costs incurred in
foreign currencies. Substantially all of the Company's billings to date have
been denominated in U.S. dollars. Changing currency exchange rates may affect
the Company's competitive position if exchange rate changes impact profitability
and business and/or pricing strategies of foreign competitors.
The functional currency of the Company's wholly-owned subsidiaries is the
U.S. dollar. Monetary assets and liabilities of these subsidiaries are
remeasured at the current exchange rate at the balance sheet date, and non-
monetary items are translated at historical rates. Revenues and expenses are
translated using the average exchange rate during the period.
YEAR 2000 CONSIDERATIONS
The Company has established a formal program to address any potential year
2000 compliance issues relating to its internal operating systems, products,
distributors, resellers and vendors. The Company is currently reviewing all of
its major internal operating systems and is continuing to monitor any new
additions to its internal operating systems for year 2000 compliance.
Substantially all of the Company's internally-developed products have been
designed and tested to satisfy the Company's year 2000 specifications. The
Company is currently reviewing the status of its distributors, resellers and
vendors with regards to year 2000 compliance. The cost of the Company's year
2000 compliance program is not expected to have a material effect on the
Company's results of operations or liquidity. However, there can be no assurance
that the Company will not experience material adverse consequences in the event
that the Company's year 2000 compliance program is not successful, or its
distributors, resellers or vendors are unable to resolve their year 2000
compliance issues in a timely manner.
11
<PAGE> 13
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS--NOT APPLICABLE
ITEM 2. CHANGES IN SECURITIES--NOT APPLICABLE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES--NOT APPLICABLE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS--NOT APPLICABLE
ITEM 5. OTHER INFORMATION--NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(27) Financial Data Schedule
(b) Reports on Form 8-K
<TABLE>
<CAPTION>
DATE OF THE REPORT SUBJECT OF THE REPORT
- ------------------ ---------------------
<S> <C>
July 20, 1998 Press release disclosing the Company's plans to begin a
stock repurchase program utilizing up to $3 million to
buy shares of the Company's common stock from time to
time on the open market, subject to market conditions
and other relevant factors.
</TABLE>
12
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEEC, Inc.
--------------------------------------
(Registrant)
Date: August 14, 1998
By: /s/ RAVINDRA KOKA
------------------------------------
Ravindra Koka
President, Chief Executive Officer
and Director
By: /s/ RICHARD J. GOLDBACH
------------------------------------
Richard J. Goldbach
Treasurer and Chief Financial
Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000925524
<NAME> SEEC, INC.
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 23,068,227
<SECURITIES> 8,629,030
<RECEIVABLES> 4,014,849
<ALLOWANCES> (45,000)
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0
0
<COMMON> 60,765
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