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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 SEPTEMBER 30, 1999
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 29, 1999, there were 6,074,195 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 Operations for the three- and
six-month periods ended September 30, 1999 and 1998.... 2
Condensed Consolidated Balance Sheets as of September 30,
1999 and March 31, 1999................................ 3
Condensed Consolidated Statements of Cash Flows for the
six-month periods ended September 30, 1999 and 1998.... 4
Notes to Unaudited Consolidated Financial Statements...... 5-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 7-12
PART II--OTHER INFORMATION.................................. 13
Item 1. Legal Proceedings................................... 13
Item 2. Changes in Securities............................... 13
Item 3. Defaults Upon Senior Securities..................... 13
Item 4. Submission of Matters to a Vote of Security
Holders................................................... 13
Item 5. Other Information................................... 13
Item 6. Exhibits and Reports on Form 8-K.................... 13
SIGNATURES.................................................. 14
</TABLE>
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SEEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1999 1998 1999 1998
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Software license and maintenance
fees............................... $ 1,292,500 $2,553,280 $ 2,511,933 $4,160,165
Professional services--product
related............................ 439,342 985,826 1,223,805 1,853,925
Professional services--other.......... -- 34,809 -- 60,870
----------- ---------- ----------- ----------
Total revenues................... 1,731,842 3,573,915 3,735,738 6,074,960
----------- ---------- ----------- ----------
OPERATING EXPENSES:
Cost of revenues:
Software license and maintenance
fees............................. 122,019 247,949 306,219 473,951
Professional services--product
related.......................... 405,986 546,782 896,860 1,142,821
Professional services--other....... -- 30,410 -- 60,327
----------- ---------- ----------- ----------
Total cost of revenues........... 528,005 825,141 1,203,079 1,677,099
General and administrative............ 554,580 767,251 1,091,137 1,287,630
Sales and marketing................... 1,285,645 1,451,312 2,798,816 2,676,290
Research and development.............. 475,751 351,406 858,176 639,889
Amortization of goodwill and other
intangible assets.................. 102,249 31,750 138,346 64,083
Acquired in-process research and
development........................ 531,100 -- 531,100 --
----------- ---------- ----------- ----------
3,477,330 3,426,860 6,620,654 6,344,991
----------- ---------- ----------- ----------
INCOME (LOSS) FROM OPERATIONS........... (1,745,488) 147,055 (2,884,916) (270,031)
NET INTEREST INCOME..................... 341,262 426,568 717,117 848,104
----------- ---------- ----------- ----------
INCOME (LOSS) BEFORE INCOME TAXES....... (1,404,226) 573,623 (2,167,799) 578,073
INCOME TAX PROVISION (BENEFIT).......... (165,000) 218,500 (265,000) 220,000
----------- ---------- ----------- ----------
NET INCOME (LOSS)....................... $(1,239,226) $ 355,123 $(1,902,799) $ 358,073
=========== ========== =========== ==========
Net income (loss) per common share:
Basic.............................. $ (0.21) $ 0.06 $ (0.32) $ 0.06
=========== ========== =========== ==========
Diluted............................ $ (0.21) $ 0.06 $ (0.32) $ 0.06
=========== ========== =========== ==========
Weighted average number of common and
common equivalent shares outstanding:
Basic.............................. 5,981,027 6,030,128 5,905,325 6,053,210
=========== ========== =========== ==========
Diluted............................ 5,981,027 6,119,211 5,905,325 6,219,235
=========== ========== =========== ==========
</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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<CAPTION>
SEPTEMBER 30, MARCH 31,
1999 1999
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(UNAUDITED) (AUDITED *)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $22,398,976 $22,448,176
Short-term investments.................................... 5,021,501 8,452,685
Accounts receivable--trade, net........................... 2,016,106 2,701,438
Prepaid expenses and other current assets................. 355,968 532,910
----------- -----------
Total current assets................................... 29,792,551 34,135,209
PROPERTY AND EQUIPMENT, NET................................. 1,110,838 1,102,520
GOODWILL AND OTHER INTANGIBLE ASSETS, NET................... 3,390,523 770,378
----------- -----------
$34,293,912 $36,008,107
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable--trade................................... $ 393,686 $ 625,984
Accrued compensation...................................... 386,694 399,044
Deferred maintenance revenue.............................. 486,175 703,147
Other current liabilities................................. 424,431 447,132
Income taxes payable...................................... 178,883 195,800
----------- -----------
Total current liabilities.............................. 1,869,869 2,371,107
DEFERRED INCOME TAXES....................................... 49,535 394,960
----------- -----------
Total liabilities...................................... 1,919,404 2,766,067
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock--no par value; 10,000,000 shares
authorized; none outstanding
Common stock--$.01 par value; 20,000,000 shares
authorized; 6,307,048 and 6,084,147 shares issued at
September 30, 1999 and March 31, 1999, respectively.... 63,070 60,842
Additional paid-in capital................................ 34,574,866 33,576,796
Retained earnings (accumulated deficit)................... (1,184,771) 766,569
Less treasury stock, at cost--232,853 and 255,960 shares
at September 30, 1999 and March 31, 1999,
respectively........................................... (1,062,555) (1,182,496)
Accumulated other comprehensive income (loss)............. (16,102) 20,329
----------- -----------
Total shareholders' equity............................. 32,374,508 33,242,040
----------- -----------
$34,293,912 $36,008,107
=========== ===========
</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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SIX MONTHS ENDED
SEPTEMBER 30,
---------------------------
1999 1998
------------ -----------
<S> <C> <C>
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:......... $ (1,110,003) $ 666,073
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net of disposals..... (53,944) (140,313)
Purchases of short-term investments....................... (1,170,813) (1,697,598)
Sales of short-term investments........................... 4,500,000 500,000
Acquisitions of businesses, net of cash acquired.......... (2,257,645) (1,036,000)
Other, net................................................ (28,492) (2,582)
------------ -----------
Net cash provided (used) by investing activities....... 989,106 (2,376,493)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of treasury stock............................... (12,725) (911,135)
Proceeds from issuances of common stock, net.............. 84,422 1,593
------------ -----------
Net cash provided (used) by financing activities....... 71,697 (909,542)
------------ -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (49,200) (2,619,962)
Cash and cash equivalents, beginning of period.............. 22,448,176 23,795,965
------------ -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 22,398,976 $21,176,003
============ ===========
</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., its wholly-owned subsidiaries, and its unincorporated
branch operations (collectively the "Company" or "SEEC"). 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, 1999.
Certain prior period amounts have been reclassified to conform with current
period classifications.
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. The Company may use repurchased shares to cover stock option
exercises, employee stock purchase plan transactions, and for other corporate
purposes. Through September 30, 1999, the Company had repurchased 281,900
shares, of which 49,047 shares were reissued to cover Employee Stock Purchase
Plan transactions and stock option exercises. Repurchased shares are recorded as
treasury shares.
4. ACQUISITION
On August 4, 1999, the Company acquired all of the outstanding shares of
capital stock of Mozart Systems Corporation ("Mozart") pursuant to an Agreement
and Plan of Merger by and between SEEC and Mozart dated July 16, 1999. Mozart is
a leading developer of Web-enablement products for rapid implementation of
e-business applications. SEEC Delaware, Inc. ("SEEC Delaware"), was formed as a
wholly-owned subsidiary of SEEC to effect the transaction. Upon the closing of
the transaction, SEEC Delaware was merged with and into Mozart, and all existing
shares of Mozart capital stock were canceled. Upon the cancellation of the
former Mozart capital stock, each share of SEEC Delaware Common Stock was
converted to one share of Mozart Common Stock. Upon completion of the merger,
Mozart became a wholly-owned subsidiary of SEEC.
The acquisition was accounted for using the purchase method of accounting
and, accordingly, the results of operations of Mozart are included in the
Company's consolidated financial statements from the date of acquisition. The
Company has allocated the purchase price to the assets acquired and the
liabilities assumed based upon their respective fair market values on the date
of acquisition.
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SEEC completed the purchase for an aggregate purchase price of
approximately $3.5 million, of which, approximately $2.2 million was paid in
cash from existing cash balances, and $1.0 million was paid in the form of
222,222 unregistered shares of SEEC Common Stock, with the balance related to
acquisition costs and assumed liabilities.
Based on preliminary valuations, the purchase price was allocated to
current assets acquired of approximately $155,000, equipment of $100,000,
in-process research and development of $531,000, and other intangible assets of
approximately $2.7 million. This preliminary allocation is subject to further
refinement and change. The Company's financial statements for the three- and
six-month periods ended September 30, 1999 include a charge of $531,000 to
write-off the acquired in-process research and development expenses associated
with the Mozart acquisition. The remaining intangible assets acquired are being
amortized over their estimated useful lives of five to seven years.
The value of acquired research and development projects is charged to
expense when, in management's opinion, the projects have not reached
technological feasibility and have no probable alternative future use. The
Company allocated value to in-process research and development based on an
assessment of research and development projects. The values assigned to those
assets were limited to significant research projects for which technological
feasibility has not been established. This allocation represented the estimated
fair value based on the risk-adjusted cash flows of the incomplete projects. The
value of Mozart's in-process research and development projects was determined by
estimating the costs to develop the purchased in-process technology to the stage
of commercial viability, estimating the future cash flows from the sale of the
technology, and discounting the cash flows to their present values.
The nature of the efforts to develop the acquired in-process technology
into commercially viable products principally relate to the completion of all
planning, designing, coding, and testing activities that are necessary to
establish that the products can be produced to meet the Company's design
requirements, including functions, features, and technical and economic
performance requirements.
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". 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 (loss)) 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
---------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Basic shares.......................... 5,981,027 6,030,128 5,905,325 6,053,210
Effect of dilutive securities--options
and warrants........................ -- 89,083 -- 166,025
--------- --------- --------- ---------
Diluted shares........................ 5,981,027 6,119,211 5,905,325 6,219,235
========= ========= ========= =========
</TABLE>
All options and warrants are excluded from the computation of net loss per
share of Common Stock for the three- and six-month periods ended September 30,
1999, because their effect is not dilutive. For the three- and six-month periods
ended September 30, 1998, options and warrants to purchase 333,175 and 80,000
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.
6. COMPREHENSIVE INCOME
Comprehensive income includes all changes in equity during a period, except
those resulting from investments by owners and distributions to owners. The
Company reports comprehensive income and its
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components in its annual consolidated statement of changes in shareholders'
equity (deficit). The components of the Company's comprehensive income (loss)
were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
1999 1998 1999 1998
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Net income (loss).................. $(1,239,226) $355,123 $(1,902,799) $358,073
Unrealized gain (loss) on
investments, net of taxes........ (1,030) 48,525 (36,431) 57,135
----------- -------- ----------- --------
Total comprehensive income
(loss)...................... $(1,240,256) $403,648 $(1,939,230) $415,208
=========== ======== =========== ========
</TABLE>
7. INCOME TAXES
The Company's effective tax rate for the both the three- and six-month
periods ended September 30, 1998 was 38%. In the three- and six-month periods
ended September 30, 1999, the Company calculated a deferred tax asset, which was
offset by a valuation allowance due to the uncertainty of realization of the
Company's net operating loss carryforwards. The valuation allowance resulted in
a decrease in the tax benefit calculated based on the net operating losses
incurred in the first and second quarters of fiscal 2000. As of March 31, 1999,
the Company had unused Federal and state net operating loss carryforwards that
may be applied to reduce future taxable income of approximately $1,025,000 and
$522,000, respectively. The carryforwards expire at various times from March 31,
2000 to March 31, 2013. Certain changes in ownership could result in an annual
limitation on the amount of carryforwards that may be utilized.
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,
1999. 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 an update of 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
SEEC develops, markets, and supports software and solutions that rapidly
Web-enable host computer systems and provide for reuse of legacy applications,
business logic, and data in component-based e-business systems. SEEC also
provides enterprise solutions for enhancing legacy systems and for migrating or
integrating them with newer systems. SEEC's solutions include flexible
methodologies, proven tools, and expert consulting services that have saved
significant time and money for over 200 Fortune 1000 companies and other large
organizations, and more than 20 leading international information technology
service providers.
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. 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 or web
environments. The Company's solutions combine SEEC tools with methodologies and
consulting services for developing component-based systems that integrate
mainframe applications and data with enterprise resource planning (ERP),
customer relationship
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management (CRM), and other client/server- or Internet-based applications. SEEC
also offers solutions for reengineering legacy systems to address the transition
to the single currency of the European Monetary Union (the euro), for improving
the efficiency and effectiveness of traditional application maintenance
processes, and for analyzing, renovating, and testing systems for year 2000
compliance.
With the recent acquisition of Mozart Systems Corporation, the Company has
enhanced its position in the e-business market by adding Mozart Web-enablement
solutions that, together with existing and planned SEEC products, will bridge
the gap between legacy systems and newer Web and component architectures.
Mozart's product line includes MozNet(TM), which transforms host-based
applications into secure three- or four-tier Web applications by refacing or
redesigning the interface, improving the look, feel, and usability of the
application for end users. MozNet includes a server-based operating environment,
host interface technology, external data access capabilities, and an integrated
development environment. MozAgent(TM) encapsulates host screens into data
objects that can be integrated in Web applications, separating the complexity of
host access from the user application. It operates as an intelligent application
gateway middleware component moving data between the front-end application and
the host system on the back end. MozNet3270(TM) utilizes screen-scraping
technology for terminal emulation in a browser window. MozWin(TM) is a
client/server graphical user interface (GUI) development toolkit that converts
character-based host front ends to Windows, Windows 95, or Windows NT
interfaces.
The Company derives its revenue from software license and maintenance fees
and to a lesser extent, professional services fees. Professional services
provided in conjunction with software license sales include consulting and
training services. Professional services also include reengineering services,
which the Company provides under time-and-materials and fixed-price contracts.
COMPARISON OF QUARTERS AND SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
The following section includes information related to changes in the
Company's consolidated statements of operations. References to the second
quarter of fiscal 2000 and to the second quarter of fiscal 1999 refer to the
three months ended September 30, 1999 and September 30, 1998, respectively.
REVENUES. Total revenues for the second quarter of fiscal 2000 were
$1,732,000 compared to $3,574,000 for the second quarter of fiscal 1999, a
decrease of $1,842,000 or 52%. For the six months ended September 30, 1999,
total revenues were $3,736,000 compared to $6,075,000 for the six months ended
September 30, 1998, a decrease of $2,339,000 or 39%. These decreases resulted
from a decline in the demand for year 2000 tools and solutions. The majority of
the decreases were in the software license and maintenance fees category.
Software license and maintenance fees were $1,293,000 for the second
quarter of fiscal 2000 compared to $2,553,000 for the second quarter of fiscal
1999, a decrease of $1,260,000 or 49%. For the six months ended September 30,
1999, software license and maintenance fees were $2,512,000 compared to
$4,160,000 for the six months ended September 30, 1998, a decrease of $1,648,000
or 40%. The decreases in software license and maintenance fees are primarily the
result of a decrease in demand for year 2000-related tools and solutions, which
was partially offset by increased sales of e-business products, including
Web-enablement products and the SEEC Reengineering Workbench.
Professional services--product related revenues were $439,000 for the
second quarter of fiscal 2000 compared to $986,000 for the second quarter of
fiscal 1999, a decrease of $547,000 or 56%. For the six months ended September
30, 1999, professional services--product related revenues were $1,224,000
compared to $1,854,000 for the six months ended September 30, 1998, a decrease
of $630,000 or 34%. These decreases correspond to the decline in sales of year
2000-related software licenses. Training and consulting services are typically
performed in conjunction with sales of software licenses. These declines were
partially offset by increases in sales of Independent Verification services and
in services related to e-business solutions.
The Company had no revenues from professional services--other in the first
six months of fiscal 2000. Such revenues were $35,000 and $61,000 for the three-
and six-month periods ended September 30, 1998. The Company has chosen to direct
its resources away from contract programming services, which were discontinued
in fiscal 1999. Currently, management has no plans to continue to provide
services of this type.
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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 $528,000
for the second quarter of fiscal 2000 compared to $825,000 for the second
quarter of fiscal 1999, a decrease of $297,000 or 36%. The total cost of
revenues was $1,203,000 for the six months ended September 30, 1999, compared to
$1,677,000 for the six months ended September 30, 1998, a decrease of $474,000
or 28%. Cost of revenues consists primarily of personnel costs of employees or
subcontracted personnel required to provide consulting, training, on-site or
in-house factory services, and customer support services.
Cost of software license and maintenance fees includes the costs of
providing customer support services, royalty expenses, the cost of third-party
software sold, and, to a lesser degree, 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 $122,000 for the second quarter of fiscal 2000
compared to $248,000 for the second quarter of fiscal 1999, a decrease of
$126,000 or 51%. The cost of software license and maintenance fees was $306,000
for the six months ended September 30, 1999 compared to $474,000 for the six
months ended September 30, 1998, a decrease of $168,000 or 35%. The cost of
software license and maintenance fees decreased with the declining demand for
year 2000 products and solutions, which was partially offset by increases in
costs related to sales of e-business products and in the cost of third-party
software sold.
Professional services--product related costs consist primarily of
compensation and related benefits, and travel and equipment for Company
personnel responsible for providing consulting, training, and reengineering
services to customers. Also included are the costs of temporary or subcontracted
labor required to meet the demands of providing services. Professional
services--product related costs were $406,000 for the second quarter of fiscal
2000 compared to $547,000 for the second quarter of fiscal 1999, a decrease of
$141,000 or 26%. For the six months ended September 30, 1999, professional
services--product related were $897,000, compared to $1,143,000 for the six
months ended September 30, 1998, a decrease of $246,000, or 22%. These decreases
in professional services--product related costs were primarily the result of the
decline in demand for year 2000-related services, which was partially offset by
an increase in demand for services related to e-business.
Professional services--other costs consist primarily of compensation and
related benefits for Company personnel engaged in providing contract programming
services for customers. Professional services--other costs were $30,000 for the
second quarter of fiscal 1999, and $60,000 for the six months ended September
30, 1998. The Company discontinued providing contract programming in fiscal
1999.
GROSS MARGINS. The Company's total gross margin (total revenues less total
cost of revenues) as a percentage of revenues was 70% and 68% for the three- and
six-month periods ended September 30, 1999, respectively, compared to 77% and
72% for the three- and six-month periods ended September 30, 1998, respectively.
Gross margin percentages were 91% and 90% for software license and maintenance
fees, and 8% and 45% for professional services--product related for the second
quarters of fiscal 2000 and 1999, respectively. Gross margin percentages were
88% and 89% for software license and maintenance fees, and 27% and 38% for
professional services--product related for the six-month periods ended September
30, 1999 and 1998, respectively. The gross margin percentages were 14% and 2%
for professional services--other for the three- and six-month periods ended
September 30, 1998, respectively. The Company no longer generates professional
services--other revenues.
The gross margin percentages for software license and maintenance fees
fluctuate based on the mix of software products and the varying royalty
expenses, if any, associated with those products. Also, these percentages are
impacted by the proportion of customer support services costs, which are
relatively fixed, to the amount of software license and maintenance fees
generated in a given period. The gross margin percentages for the fiscal 2000
and fiscal 1999 periods are comparable.
The gross margin percentages for professional services--product related
vary depending on the utilization rates for billable consultants, the timing and
amount of costs incurred for recruiting and training services consultants, and
the type of services provided. Relatively highly-automated in-house factory
services such as independent verification, which are billable by line of code
processed, typically require fewer consultant hours to perform than similar
services involving source code remediation or testing. Other types of
reengineering and
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e-business services may be performed at the customers' sites or at the Company's
facilities, typically on a time-and-materials basis. 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 was
negatively impacted in the second quarter of fiscal 2000 by the decrease in year
2000-related services revenues and lower utilization rates of services
consultants for billable engagements. The Company has also incurred costs in
training consultants for providing e-business solutions services, and in
utilizing the consultants for promotional activities. The gross margin
percentages for the second quarter and the first six months of fiscal 1999 were
favorably impacted by a higher proportion of in-house factory services revenues
to total product related services revenues, as compared to the fiscal 2000
periods. In-house factory services, which are performed at the Company's
headquarters, have higher gross margins relative to other services. The Company
expects that professional services--product related gross margin percentages
will average approximately 25% over the longer term.
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 $555,000 for the second quarter of fiscal 2000 compared to
$767,000 for the second quarter of fiscal 1999, a decrease of $212,000 or 28%.
For the six months ended September 30, 1999, general and administrative expenses
were $1,091,000, versus $1,288,000 for the six months ended September 30, 1998,
a decrease of $197,000 or 15%. These decreases reflect efforts to reduce general
expenses, and also the absence of non-recurring costs incurred in fiscal 1999,
including certain costs related to the Company's international expansion. During
the first six months of fiscal 1999, the Company invested in infrastructure and
international expansion in the United Kingdom, India, South Korea and Germany.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, incentive compensation and related taxes and 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
$1,286,000 for the second quarter of fiscal 2000 compared to $1,451,000 for the
second quarter of fiscal 1999, a decrease of $165,000 or 11%. For the six months
ended September 30, 1999, sales and marketing expenses were $2,799,000 compared
to $2,676,000 for the six months ended September 30, 1998, an increase of
$123,000 or 5%. The decrease for the second quarter periods is primarily due to
reduced incentive compensation expense, partially offset by increases in
marketing efforts targeted at the e-business market. The increase for the
six-month periods was due primarily to the Company's investments in advertising
and promotional materials in conjunction with the launch of its e-business
solutions.
RESEARCH AND DEVELOPMENT. Total expenditures for research and development
were $476,000 for the second quarter of fiscal 2000, compared to $351,000 for
the second quarter of fiscal 1999, an increase of $125,000 or 36%. For the six
months ended September 30, 1999, expenditures for research and development were
$858,000 compared to $640,000 for the six months ended September 30, 1998, an
increase of $218,000 or 34%. These increases were due to costs of development of
additional applications of the Company's core technology, particularly legacy
systems reengineering solutions for e-business applications and Web enablement.
The Company also added research and development personnel and related expenses
in connection with the acquisition of Mozart. 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.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS. Goodwill and other
intangible assets are amortized over their estimated useful lives of five to
seven years. For the second quarter of fiscal 2000, amortization of goodwill and
other intangible assets amounted to $102,000 compared to $32,000 for the second
quarter of fiscal 1999, an increase of $70,000 or 219%. For the six months ended
September 30, 1999, amortization expense was $138,000 compared to $64,000 for
the six months ended September 30, 1998, an increase of $74,000 or 116%. The
increases were due to amortization of intangible assets acquired in the Mozart
purchase as described in Note 4 to the Unaudited Consolidated Financial
Statements. The acquisition was completed in August 1999, and amortization of
the intangible assets acquired began on the acquisition date.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT. The Company recorded a
one-time charge of $531,000 in the second quarter of fiscal 2000 in connection
with the Mozart acquisition as described in Note 4 to the
10
<PAGE> 12
Unaudited Consolidated Financial Statements. The value of acquired research and
development projects is charged to expense when, in management's opinion, the
projects have not reached technological feasibility and have no probable
alternative future use. SEEC did not acquire any in-process research and
development costs in the six months ended September 30, 1998.
NET INTEREST INCOME. Net interest income consists principally of interest
income on cash equivalents and short-term investments, which are invested in
money market funds and high-grade bonds and bond funds with average maturities
of less than two years. Net interest income was $341,000 for the second quarter
of fiscal 2000, compared to $427,000 for the second quarter of fiscal 1999, a
decrease of $86,000 or 20%. For the six months ended September 30, 1999, net
interest income was $717,000 compared to $848,000 for the six months ended
September 30, 1998, a decrease of $131,000 or 15%. The decreases from the fiscal
1999 to the fiscal 2000 periods were due to the use of cash for the Mozart
acquisition and a decrease in the proportion of higher-yielding short-term
investments to cash and cash equivalents.
INCOME TAXES. The provision (benefit) for income taxes was ($165,000) and
($265,000) for the three- and six-month periods ended September 30, 1999,
respectively, compared to $218,500 and $220,000 for the three-and six-month
periods ended September 30, 1998, respectively. In the fiscal 2000 periods, the
Company calculated a net deferred tax asset, which was offset by a valuation
allowance due to the uncertainty of realization of the Company's net operating
loss carryforwards. The valuation allowance resulted in a decrease in the tax
benefits calculated based on the net operating losses incurred in the three- and
six-month periods of fiscal 2000. As of March 31, 1999, the Company had unused
Federal and state net operating loss carryforwards that may be applied to reduce
future taxable income of approximately $1,025,000 and $522,000, respectively.
The carryforwards expire at various times from March 31, 2000 to March 31, 2013.
Certain changes in the Company's ownership could result in an annual limitation
on the amount of carryforwards that may be utilized.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations primarily through sales of equity
securities and cash flows from operations. In fiscal 1997, the Company sold
211,425 shares of Common Stock in a private placement for $747,000, and sold
2,070,000 shares of Common Stock in an initial public offering, the net proceeds
of which were $13.0 million. In fiscal 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.
At September 30, 1999, the Company had cash, cash equivalents, and
short-term investments of $27.4 million and working capital of $27.9 million.
Excess cash has been invested, and the Company expects that it will continue to
be invested, in interest-bearing investment grade securities. The Company's cash
flows have been used primarily for general operating expenses, to purchase
property and equipment, to fund internal research and development, to fund two
acquisitions, and to purchase Company Common Stock under the Stock Repurchase
Program described in Note 3 to the Unaudited Consolidated Financial Statements.
Cash totaling $2.2 million was used in the second quarter of fiscal 2000 to fund
the acquisition of Mozart Systems Corporation, as described in Note 4 to the
Unaudited Consolidated Financial Statements. Cash totaling $1.0 million was used
in fiscal 1999 to fund the acquisition of ERA Software Systems Private Limited.
The Company used $1.1 million for operating activities in the six months ended
September 30, 1999, compared to $666,000 generated by operating activities in
the six months ended September 30, 1998. The Company used $54,000 and $140,000
to purchase property and equipment in the six month periods ended September 30,
1999 and 1998, respectively. The Company generated $3.3 million from sales of
short-term investments, net of purchases, in the six months ended September 30,
1999. The Company used $1.2 million to purchase short-term investments, net of
proceeds from sale of short-term investments, in the six months ended September
30, 1998.
The Company's cash balances may be used to develop international sales and
marketing efforts, expand domestic sales and marketing efforts, establish
additional facilities, hire additional personnel, increase research and
development for enterprise solutions, increase capital expenditures and for
working capital and other general 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 may vary significantly and are subject to change at the Company's
discretion, depending upon certain factors,
11
<PAGE> 13
including economic or industry conditions, changes in the competitive
environment and strategic opportunities that may arise. Management believes that
cash flows from operations and the current cash balances will be sufficient to
meet the Company's liquidity needs for the foreseeable future. In the longer
term, the Company may require additional sources of capital to fund future
growth. Such sources of capital may include additional equity offerings or debt
financings.
SEASONALITY
The Company's operations are not affected by seasonal fluctuations. The
Company's cash flows may at times be affected by timing of cash receipts from
large individual sales.
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. The majority 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, Korean Won, and the Singapore Dollar.
The functional currency of the Company's subsidiaries and branch operations
is the U.S. dollar. Monetary assets and liabilities of these subsidiaries and
branches 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 year 2000 problem refers to the inability of many existing computer
systems to completely or accurately process information or logic involving the
year 2000 and beyond. The problem results from the use of two-digit date fields
to perform computations and decision-making functions in many computer systems.
For example, a program using a two-digit date field may misinterpret "00" as the
year 1900 rather than 2000. Date-dependent programs are ubiquitous in computer
systems used in many critical business operations. Unless these programs are
remediated to address the year 2000 problem, many mission-critical programs may
fail or produce erroneous data or results.
The Company has followed a formal program to address any potential year
2000 compliance issues relating to its internal operating systems, products,
distributors, resellers and vendors. The Company has reviewed 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. After reviewing the status of its
distributors, resellers and vendors regarding year 2000 compliance, the Company
believes that the risk of disruption of the Company's operations due to the year
2000 problem is minimal. However, the Company relies upon various third-party
organizations for basic services such as electrical power, telecommunications,
postage and delivery, banking, and other infrastructure services. In a
worst-case scenario, the Company could suffer adverse consequences as a result
of interruption of some or all of these services. These third-party dependencies
are not unique to the Company or to companies in its industry or geographical
location. Disruptions in these infrastructure services would likely have a
negative impact on most business enterprises. The Company is developing
contingency plans to operate during such potential disruptions in infrastructure
services. The Company expects the contingency plans to be completed before
December 31, 1999. Regardless of these efforts, however, there is no assurance
that the Company can avoid material adverse consequences in the event that its
distributors, resellers or vendors experience unexpected breakdowns, or other
unanticipated disruptions occur.
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. To
date, the Company has not incurred significant costs with respect to its year
2000 compliance efforts, and anticipates that total expenses will not exceed
$10,000.
12
<PAGE> 14
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 5, 1999, the Company held its 1999 Annual Meeting of Shareholders.
(b) Directors elected at the August 5, 1999 meeting were Ravindra Koka and
Beverly Brown. Directors whose terms of office continued after the meeting
were John D. Godfrey, Radha R. Basu, Glen F. Chatfield, and Abraham
Ostrovsky.
(c) The following matter was voted upon at the Annual Meeting, with the results
indicated:
Election of Class III Directors:
<TABLE>
<CAPTION>
AUTHORITY BROKER
VOTED FOR WITHHELD NON-VOTES
--------- --------- ---------
<S> <C> <C> <C>
Ravindra Koka............................... 4,590,144 51,179 0
Beverly Brown............................... 4,590,144 51,179 0
</TABLE>
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>
Announcement of the acquisition of Mozart Systems
August 4, 1999 Corporation
</TABLE>
13
<PAGE> 15
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 15, 1999
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
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEEC, INC.
UANUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED SEPTEMBER
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 22,398,976
<SECURITIES> 5,021,501
<RECEIVABLES> 2,234,106
<ALLOWANCES> (218,000)
<INVENTORY> 0
<CURRENT-ASSETS> 29,792,551
<PP&E> 1,629,656
<DEPRECIATION> (518,818)
<TOTAL-ASSETS> 34,293,912
<CURRENT-LIABILITIES> 1,869,869
<BONDS> 0
0
0
<COMMON> 63,070
<OTHER-SE> 32,311,438
<TOTAL-LIABILITY-AND-EQUITY> 34,293,912
<SALES> 1,822,478
<TOTAL-REVENUES> 3,735,738
<CGS> 101,646
<TOTAL-COSTS> 1,203,079
<OTHER-EXPENSES> 5,417,575
<LOSS-PROVISION> 11,286
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,167,799)
<INCOME-TAX> (265,000)
<INCOME-CONTINUING> (1,902,799)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,902,799)
<EPS-BASIC> (.32)
<EPS-DILUTED> (.32)
</TABLE>
