<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 SEPTEMBER 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 0-21985
SEEC, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
PENNSYLVANIA 55-0686906
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
</TABLE>
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 ___
As of October 31, 1998, there were 5,892,166 outstanding shares of Common
Stock, par value $.01 per share, of SEEC, Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
SEEC, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income for the three months
and six months ended
September 30, 1998 and 1997.......................... 2
Condensed Consolidated Balance Sheets as of September
30, 1998 and
March 31, 1998....................................... 3
Condensed Consolidated Statements of Cash Flows for the
six months ended
September 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..................................... 7-13
PART II--OTHER INFORMATION.................................. 14
Item 1. Legal Proceedings................................... 14
Item 2. Changes in Securities............................... 14
Item 3. Defaults Upon Senior Securities..................... 14
Item 4. Submission of Matters to a Vote of Security
Holders................................................... 14
Item 5. Other Information................................... 14
Item 6. Exhibits and Reports on Form 8-K.................... 14
SIGNATURES.................................................. 15
</TABLE>
<PAGE> 3
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SEEC, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
----------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Software license and maintenance fees...... $2,553,280 $1,937,310 $4,160,165 $4,012,137
Professional services--product related..... 985,826 435,247 1,853,925 659,339
Professional services--other............... 34,809 40,348 60,870 118,088
---------- ---------- ---------- ----------
Total revenues.......................... 3,573,915 2,412,905 6,074,960 4,789,564
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Cost of revenues:
Software license and maintenance fees... 247,949 333,398 473,951 614,219
Professional services--product
related............................... 546,782 381,541 1,142,821 584,080
Professional services--other............ 30,410 39,217 60,327 115,760
---------- ---------- ---------- ----------
Total cost of revenues................ 825,141 754,156 1,677,099 1,314,059
General and administrative................. 799,001 419,541 1,351,713 783,516
Sales and marketing........................ 1,451,312 943,212 2,676,290 1,719,315
Research and development................... 351,406 239,638 639,889 443,044
---------- ---------- ---------- ----------
Total operating expenses................ 3,426,860 2,356,547 6,344,991 4,259,934
---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS................ 147,055 56,358 (270,031) 529,630
NET INTEREST INCOME.......................... 426,568 170,689 848,104 346,139
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES................... 573,623 227,047 578,073 875,769
PROVISION FOR INCOME TAXES................... 218,500 -- 220,000 --
---------- ---------- ---------- ----------
NET INCOME................................... $ 355,123 $ 227,047 $ 358,073 $ 875,769
========== ========== ========== ==========
Net income per common share:
Basic................................... $ 0.06 $ 0.05 $ 0.06 $ 0.18
========== ========== ========== ==========
Diluted................................. $ 0.06 $ 0.04 $ 0.06 $ 0.17
========== ========== ========== ==========
Weighted average number of common and common
equivalent shares outstanding:
Basic................................... 6,030,128 5,003,096 6,053,210 5,002,391
========== ========== ========== ==========
Diluted................................. 6,119,211 5,346,200 6,219,235 5,305,370
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 4
SEEC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1998 1998
------------- -----------
(UNAUDITED) (AUDITED*)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $21,176,003 $23,795,965
Short-term investments.................................... 8,300,583 7,032,550
Accounts receivable:
Trade, net............................................. 4,943,525 5,774,495
Affiliate.............................................. -- 189,097
Prepaid expenses and other current assets................. 421,301 545,980
----------- -----------
Total current assets................................... 34,841,412 37,338,087
PROPERTY AND EQUIPMENT, NET................................. 1,305,775 1,291,659
GOODWILL AND OTHER INTANGIBLE ASSETS, NET................... 563,499 625,000
----------- -----------
$36,710,686 $39,254,746
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable:
Trade.................................................. $ 614,227 $ 1,142,253
Affiliate.............................................. -- 230,085
Obligation in connection with acquisition................. -- 1,042,000
Accrued compensation...................................... 496,069 799,072
Deferred maintenance revenue.............................. 1,077,106 867,339
Deferred income taxes..................................... 605,630 372,330
Other current liabilities................................. 388,453 778,131
----------- -----------
Total current liabilities.............................. 3,181,485 5,231,210
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock--no par value; 10,000,000 shares
authorized;
none outstanding
Common stock--$.01 par value; 20,000,000 shares
authorized;
6,080,166 and 6,076,546 shares issued at September 30,
1998 and March 31, 1998, respectively................. 60,802 60,765
Additional paid-in capital................................ 33,567,964 33,566,408
Retained earnings......................................... 740,119 382,047
Less treasury stock, at cost--188,000 shares.............. (911,135) --
Unrealized gain on investments, net of taxes.............. 71,451 14,316
----------- -----------
Total shareholders' equity............................. 33,529,201 34,023,536
----------- -----------
$36,710,686 $39,254,746
=========== ===========
</TABLE>
- ------------------
* Condensed from audited financial statements
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 5
SEEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES.......... $ 666,073 $(1,124,373)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements......... (140,313) (178,646)
Expenditures for patents and trademarks................... (2,582) --
Purchases of short-term investments....................... (1,697,598) (1,156,251)
Sales of short-term investments........................... 500,000 --
Acquisition of affiliate.................................. (1,036,000) --
----------- -----------
Net cash used by investing activities.................. (2,376,493) (1,334,897)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt............................... -- (240,000)
Purchases of treasury stock............................... (911,135) --
Proceeds from exercise of stock options................... 1,593 16,408
----------- -----------
Net cash used by financing activities.................. (909,542) (223,592)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (2,619,962) (2,682,862)
Cash and cash equivalents, beginning of period.............. 23,795,965 3,811,401
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $21,176,003 $ 1,128,539
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 6
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; SEEC Technologies Asia Private Limited
("SEEC Asia"), organized in March 1998; and SEEC Germany GmbH ("SEEC Germany"),
organized in August 1998. Also included are the accounts of the unincorporated
branch operations located in Seoul, South Korea. (Collectively the "Company")
Management believes that all adjustments, consisting only of normal
recurring adjustments, considered 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 that 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. STOCK REPURCHASE PROGRAM
In July 1998, the Company announced its plan 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. Through September 30, 1998, the Company had repurchased
188,000 shares, and these shares have been recorded as treasury shares. The
Company may use repurchased shares to cover stock option exercises, employee
stock purchase plan transactions and for other corporate purposes.
4. EMPLOYEE STOCK PURCHASE PLAN
In August 1998, the Company's shareholders approved the adoption of the
SEEC, Inc. 1998 Employee Stock Purchase Plan (the "Plan"). The Plan allows
eligible employees of the Company to purchase shares of the Company's Common
Stock by facilitating those purchases through periodic sales of Company shares,
financed by payroll deductions or by other cash payments. Purchases are made
twice per year at a price equal to the lesser of 85% of the market value of the
Company's Common Stock on either the first day of an offering period or on a
designated purchase date. The maximum number of shares that may be purchased by
a participating employee in a calendar year is equal to the quantity determined
by dividing $25,000 by the market value of a share of Common Stock as of the
first day of an offering period. The aggregate number of shares that may be
issued and sold under the Plan is 300,000 shares of Common Stock, subject to
proportionate adjustment in the event of stock splits and similar events.
5
<PAGE> 7
5. 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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
--------------------- ---------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Basic shares..................................... 6,030,128 5,003,096 6,053,210 5,002,391
Effect of dilutive securities--options and
warrants....................................... 89,083 343,104 166,025 302,979
--------- --------- --------- ---------
Diluted shares................................... 6,119,211 5,346,200 6,219,235 5,305,370
========= ========= ========= =========
</TABLE>
For the three months ended September 30, 1998 and 1997, options and
warrants to purchase 333,175 shares and 7,500 shares, respectively, were
excluded from the computation of diluted EPS. For the six months ended September
30, 1998 and 1997, options and warrants to purchase 80,000 shares and 12,500
shares, respectively, were excluded from the computation of diluted EPS.
Excluded options and warrants have exercise prices greater than the average
market price of the common shares for the periods presented.
6. ACQUISITION
On February 27, 1998, the Company entered into an agreement with ERA
Software Systems Private Limited ("ERA"), whereby ERA transferred its
distribution rights for Company products, plus certain fixed assets and
approximately 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.
7. 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
6
<PAGE> 8
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,
and thus is included in revenue in the six-month period ended September 30,
1997.
8. COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," ("SFAS No. 130") effective April 1, 1998. This
statement establishes standards for the reporting and display of 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 for each period
presented were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------- -------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income......................................... $355,123.. $227,047 $358,073 $875,769
Unrealized gain on investments, net of taxes....... 48,525 29,298 57,135 95,598
-------- -------- -------- --------
Total comprehensive income.................... $403,648 $256,345 $415,208 $971,367
======== ======== ======== ========
</TABLE>
The adoption of SFAS No. 130 had no impact on the Company's net income or
shareholders' equity.
9. INCOME TAXES
No provision for income taxes was recorded for the three months and the six
months ended September 30, 1997 due to the Company's significant net operating
loss carryforward position. The Company's net deferred tax asset was offset by a
valuation allowance of the same amount, since at that time the Company could not
determine 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 and six months ended September 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.
7
<PAGE> 9
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 introduced its core source code analysis
technology and the first PC-based reengineering software product in 1992. 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'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 environments. 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 to a lesser extent, 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.
COMPARISON OF QUARTERS AND SIX MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30,
1997
The following section includes information related to changes in the
Company's consolidated statements of income. References to the second quarter of
fiscal 1999 and the second quarter of fiscal 1998 refer to the three months
ended September 30, 1998 and September 30, 1997, respectively.
REVENUES. Total revenues for the second quarter of fiscal 1999 were
$3,574,000 compared to $2,413,000 for the second quarter of fiscal 1998, an
increase of $1,161,000 or 48%. For the six months ended September 30, 1998,
total revenues were $6,075,000 compared to $4,790,000 for the six months ended
September 30, 1997, an increase of $1,285,000 or 27%. These increases resulted
primarily from the Company's expansion of its domestic and international sales
and marketing infrastructure, including expansion in international markets such
as Latin America, Europe and Korea. Both software license and maintenance fee
revenues and professional services--product related revenues increased between
the fiscal 1999 and 1998 periods presented. Those increases in revenue were
slightly offset by continuing, planned decreases in professional services--other
revenues.
Software license and maintenance fees were $2,553,000 for the second
quarter of fiscal 1999 compared to $1,937,000 for the second quarter of fiscal
1998, an increase of $616,000 or 32%. For the six months ended September 30,
1998, software license and maintenance fees were $4,160,000 compared to
$4,012,000 for the six months ended September 30, 1997, an increase $148,000 or
4%. The increases in software license and
8
<PAGE> 10
maintenance fees were primarily attributable to the Company's expanded sales and
marketing infrastructure and efforts to market its products and solutions
directly to domestic and international end users. The 4% increase in revenues
between the six-month periods is substantially less than the 32% increase
between the quarterly periods. This difference is due primarily to the
recognition of advance royalty revenue of approximately $781,000 from VIASOFT in
the first quarter of fiscal 1998, which is included in revenues for the six
months ended September 30, 1997. See Note 7 to the financial statements.
Professional services--product related revenues were $986,000 for the
second quarter of fiscal 1999 compared to $435,000 for the second quarter of
fiscal 1998, an increase of $551,000 or 127%. For the six months ended September
30, 1998, professional services--product related revenues were $1,854,000
compared to $659,000 for the six months ended September 30, 1997, a increase of
$1,195,000 or 181%. These services revenues comprised 28% and 31% of total
revenues for the second quarter and first six months of fiscal 1999,
respectively, compared to 18% and 14% of total revenues for the second quarter
and first six months of fiscal 1998, respectively. The increases are
attributable to (1) customers' increased demand for on-site assistance with
their year 2000 renovation projects, (2) additional training and consulting
services, typically provided in conjunction with software license sales, and (3)
additional in-house assessment and renovation services performed in the
Company's factory. In fiscal 1999, more so than in fiscal 1998, the Company has
been providing extended term, on-site services to customers on a time and
materials basis. Either Company employees or subcontracted professionals may
provide the on-site services, depending on the nature of the engagements and
customers' requirements. The Company expects that training, consulting and
on-site services will be the primary components of product-related professional
services revenues for the foreseeable future. The Company's in-house factory
services revenues comprised a larger percentage of total revenues in the second
quarter and first six months of fiscal 1999 than in prior periods. These
proportions of in-house factory services revenues to total revenues are not
necessarily representative of the results that can be expected in future periods
from in-house factory services.
Revenues from professional services--other were $35,000 for the second
quarter of fiscal 1999 compared to $40,000 for the second quarter of fiscal
1998, a decrease of $5,000 or 13%. For the six months ended September 30, 1998,
revenues from professional services--other were $61,000 compared to $118,000 for
the six months ended September 30, 1997, a decrease of $57,000 or 48%. The
Company has redirected its programming resources to meet increased demand for
its product-related professional 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
total 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 $825,000
for the second quarter of fiscal 1999 compared to $754,000 for the second
quarter of fiscal 1998, an increase of $71,000 or 9%. For the six months ended
September 30, 1998, total cost of revenues was $1,677,000 compared to $1,314,000
for the six months ended September 30, 1997, an increase of $363,000 or 28%.
These increases were primarily attributable to the additional costs of Company
or subcontracted personnel required to provide consulting, training, on-site or
in-house factory services, and customer support services. The additional
personnel costs are directly related to increased revenues.
The cost of software license and maintenance fees includes royalty
expenses, 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 $248,000 for the second quarter of
fiscal 1999 compared to $333,000 for the second quarter of fiscal 1998, a
decrease of $85,000 or 26%. For the six months ended September 30, 1998, cost of
software license and maintenance fees was $474,000 compared to $614,000 for the
six months ended September 30, 1997, a decrease of $140,000 or 23%. These
decreases were primarily attributable to royalties payable to ICICI included in
the expenses for the second quarter and first six months of fiscal 1998. The
Company's royalty obligation was fulfilled in January 1998, during the fourth
quarter of fiscal 1998. Offsetting the decrease in costs from the elimination of
ICICI royalties, to a limited extent, is the increase in costs for customer
support related to additional maintenance contracts entered into during fiscal
1998.
9
<PAGE> 11
Professional services--product related costs were $547,000 for the second
quarter of fiscal 1999 compared to $382,000 for the second quarter of fiscal
1998, an increase of $165,000 or 43%. For the six months ended September 30,
1998, professional services--product related costs were $1,143,000 compared to
$584,000 for the six months ended September 30, 1997, an increase of $559,000 or
96%. These increases in professional services--product related costs correspond
with the increases in professional services--product related revenues. The
increases were primarily attributable to training and consulting services
related to the acceptance of the Company's Smart Change Factory(R) solution, and
to increased demand for year 2000 services performed on-site and in-house during
fiscal 1999. The Company has expanded its professional services infrastructure
to meet the demand for its products and solutions.
Professional services--other costs were $30,000 for the second quarter of
fiscal 1999 compared to $39,000 for the second quarter of fiscal 1998, a
decrease of $9,000 or 23%. For the six months ended September 30, 1998,
professional services--other costs were $60,000 compared to $116,000, a decrease
of $56,000 or 48%. These decreases correspond 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 77% and 72% for the second
quarter and six months ended September 30, 1998, respectively, compared to 69%
and 73% for the second quarter and six months ended September 30, 1997,
respectively. The increase in the total gross margin percentage between the
respective second quarter periods is primarily attributable to the elimination
of the ICICI royalty obligation and to higher-margin services revenues in the
second quarter of fiscal 1999. These same factors influenced the total gross
margin percentage for the six-month period ended September 30, 1998. However,
the proportionate changes in the components of total revenues between the
respective six-month periods offset the impact of the lower royalty expenses and
higher-margin services. Software license and maintenance fees, which have higher
gross margins than professional services fees, comprised 69% of total revenues
for the first six months of fiscal 1999 compared to 84% for the six months of
fiscal 1998.
Gross margin percentages were 90% and 83% for software license and
maintenance fees, 45% and 12% for professional services--product related, and
14% and 3% for professional services--other for the second quarter of fiscal
1999 and 1998, respectively. For the six months ended September 30, 1998 and
1997, gross margin percentages were 89% and 85% for software license and
maintenance fees, 38% and 11% for professional services--product related,
respectively, and 2% for professional services--other for both six-month
periods.
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 percentages in the fiscal 1999 periods
reflect the benefits of having a professional staff in place and in a
revenue-producing mode. In the first six months 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 professional services--product related gross margin percentages in the
fiscal 1999 periods were favorably impacted by the increased in-house factory
services revenues, discussed above. These high-margin services, which were
performed at the Company's headquarters, comprised a larger percentage of total
revenues than in the fiscal 1998 periods. Those percentages of total revenues
are not necessarily representative of the results that can be expected in future
periods from in-house factory services. The Company expects that
10
<PAGE> 12
professional services-product related gross margin percentages will average
approximately 25% over the longer term.
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
respective periods.
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 $1,451,000
for the second quarter of fiscal 1999 compared to $943,000 for the second
quarter of fiscal 1998, an increase of $508,000 or 54%. For the six months ended
September 30, 1998, sales and marketing expenses were $2,676,000 compared to
$1,719,000 for the six months ended September 30, 1997, an increase of $957,000
or 56%. These increases were primarily due to the Company's continued efforts to
increase the direct sales and marketing of its products and solutions to
customers. The Company established its United Kingdom subsidiary and sales
office during the first six months of fiscal 1998, and has since added
operations in India, Germany and Korea. The Company continues to recruit and
hire personnel for its domestic and international sales offices, while also
increasing market awareness of the Company's products and solutions through
expanded advertising and other promotional activities.
GENERAL AND ADMINISTRATIVE. General and administrative expenses include the
costs of general management, finance, legal, accounting, investor relations,
office facilities and other administrative functions. General and administrative
expenses were $799,000 for the second quarter of fiscal 1999 compared to
$420,000 for the second quarter of fiscal 1998, an increase of $379,000 or 90%.
For the six months ended September 30, 1998, general and administrative expenses
were $1,352,000 compared to $784,000 for September 30, 1997, an increase of
$568,000 or 72%. These increases were primarily due to the continued investment
in the Company's infrastructure and international expansion to the U.K.,
Germany, India and Korea. The additional payroll, payroll-related costs, rent,
insurance and professional service costs reflect the Company's expansion of
operations and addition of staff.
RESEARCH AND DEVELOPMENT. Total expenditures for research and development
were $351,000 for the second quarter of fiscal 1999 compared to $240,000 for the
second quarter of fiscal 1998, an increase of $111,000 or 46%. For the six
months ended September 30, 1998, research and development expenditures were
$640,000 compared to $443,000 for the six months ended September 30, 1997, an
increase of $197,000 or 44%. These increases were due to additional research and
development personnel costs and related facilities, computing, and benefits
costs, including the additional costs attributable to the acquisition described
in Note 6 to the financial statements. During the second quarter and first six
months 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
SEEC-related research and development function is now owned by SEEC Asia.
Expenditures for research and development will vary depending upon the number of
projects underway at any time, the size of the projects and their stage of
development.
NET INTEREST INCOME. Net interest income includes interest expense and
interest income. Net interest income was $427,000 for the second quarter of
fiscal 1999 compared to $171,000 for the second quarter of fiscal 1999, an
increase of $256,000 or 150%. For the six months ended September 30, 1998, net
interest income was $848,000 compared to $346,000 for the six months ended
September 30, 1997, an increase of $502,000 or 145%. The increase in net
interest income in the fiscal 1999 periods was 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.
The Company incurred interest expense of $8,000 and $17,000 in the second
quarter and first six months of fiscal 1998, respectively, consisting primarily
of interest on the Company's loan payable to ICICI, and also interest on accrued
but unpaid royalties to ICICI. The ICICI loan was paid in full on June 30, 1997,
and all royalty related obligations to ICICI were fulfilled during fiscal 1998.
11
<PAGE> 13
INCOME TAXES. No provisions for income taxes were recorded for the second
quarter or six months ended September 30, 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 September 30, 1998, the
Company had $29.5 million in cash and short-term investments and $31.7 million
in working capital. Net cash provided by operating activities was $666,000 for
the six months ended September 30, 1998 compared to $1,124,000 used by operating
activities for the six months ended September 30, 1997. The Company used
$140,000 and $179,000 to purchase equipment and leasehold improvements, and
$1,198,000 (net) and $1,156,000 to purchase short-term investments in the six
months ended September 30, 1998 and 1997, respectively. The purchases of
equipment and leasehold improvements are related to the Company's continued
growth and expansion. The Company used $911,000 to repurchase 188,000 shares of
its Common Stock during the six months ended September 30, 1998, as discussed in
Note 3 to the financial statements. As discussed in Note 6 to the financial
statements, $1,036,000 was used in August 1998 to fund an acquisition. Excess
cash has been invested, 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.
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. Specific
currencies that impact the Company are the British Pound Sterling, Indian Rupee,
German Deutschmark and Korean Won.
The functional currency of the Company's subsidiaries and branch operations
is the U.S. dollar. Monetary assets and liabilities of these subsidiaries and
branch 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.
12
<PAGE> 14
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.
13
<PAGE> 15
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
(a) On August 6, 1998, the Company held its 1998 Annual Meeting of Shareholders.
(b) Directors elected at the August 6, 1998 Annual Meeting were Radha R. Basu
and John D. Godfrey. Directors whose terms of office continued after the
meeting were Raj Reddy, Ravindra Koka, Abraham Ostrovsky, Glen F. Chatfield
and Stanley A. Young.
(c) The following matters were voted upon at the Annual Meeting, with the
results indicated:
1. Election of Class II Directors:
<TABLE>
<CAPTION>
AUTHORITY BROKER
VOTED FOR WITHHELD NON-VOTES
--------- --------- ---------
<S> <C> <C> <C>
Radha B. Basu............................... 4,005,831 44,193 0
John D. Godfrey............................. 4,005,831 44,193 0
</TABLE>
2. Proposal to approve the SEEC, Inc. 1998 Employee Stock Purchase Plan:
<TABLE>
<S> <C>
Votes for:.................................................. 3,953,178
Votes against:.............................................. 86,700
Abstentions:................................................ 10,046
</TABLE>
ITEM 5. OTHER INFORMATION
On August 10, 1998, Stanley A. Young resigned from the Board of Directors.
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>
14
<PAGE> 16
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: November 12, 1998
By:
------------------------------------
Ravindra Koka
President, Chief Executive Officer
and Director
By:
------------------------------------
Richard J. Goldbach
Treasurer and Chief Financial
Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEEC, INC.
UNDAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED SEPTEMBER
30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000925524
<NAME> SEEC
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 21,176,003
<SECURITIES> 8,300,583
<RECEIVABLES> 5,100,525
<ALLOWANCES> (157,000)
<INVENTORY> 0
<CURRENT-ASSETS> 34,841,412
<PP&E> 1,569,635
<DEPRECIATION> (263,860)
<TOTAL-ASSETS> 36,710,686
<CURRENT-LIABILITIES> 3,181,485
<BONDS> 0
0
0
<COMMON> 60,802
<OTHER-SE> 33,468,399
<TOTAL-LIABILITY-AND-EQUITY> 36,710,686
<SALES> 3,268,494
<TOTAL-REVENUES> 6,074,960
<CGS> 194,759
<TOTAL-COSTS> 1,677,099
<OTHER-EXPENSES> 4,667,892
<LOSS-PROVISION> 125,814
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 578,073
<INCOME-TAX> 220,000
<INCOME-CONTINUING> 358,073
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 358,073
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
