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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, 2000
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)
PENNSYLVANIA 55-0686906
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
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, 2000, there were 6,085,082 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
<TABLE>
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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, 2000 and 1999.............................................................. 2
Condensed Consolidated Balance Sheets as of September 30, 2000 and March 31, 2000............ 3
Condensed Consolidated Statements of Cash Flows for the six-month periods ended
September 30, 2000 and 1999 ............................................................. 4
Notes to Unaudited Consolidated Financial Statements......................................... 5-6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 6-10
Item 3. Quantitative and Qualitative Disclosures about Market Risk............................... 10
PART II--OTHER INFORMATION
Item 1. Legal Proceedings........................................................................ 11
Item 2. Changes in Securities.................................................................... 11
Item 3. Defaults Upon Senior Securities.......................................................... 11
Item 4. Submission of Matters to a Vote of Security Holders...................................... 11
Item 5. Other Information........................................................................ 11
Item 6. Exhibits and Reports on Form 8-K......................................................... 12
SIGNATURES........................................................................................ 13
</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,
------------------------------ ------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Software license and maintenance fees $ 625,346 $ 1,292,500 $ 1,306,570 $ 2,511,933
Professional services 152,900 439,342 546,603 1,223,805
----------- ----------- ----------- -----------
Total revenues 778,246 1,731,842 1,853,173 3,735,738
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Cost of revenues:
Software license and maintenance fees 96,060 122,019 208,979 306,219
Professional services 272,646 405,986 604,803 896,860
----------- ----------- ----------- -----------
Total cost of revenues 368,706 528,005 813,782 1,203,079
General and administrative 659,083 554,580 1,239,055 1,091,137
Sales and marketing 1,278,257 1,285,645 2,463,733 2,798,816
Research and development 399,684 475,751 873,201 858,176
Amortization of goodwill and other intangible assets 140,814 102,249 281,522 138,346
Acquired in-process research and development -- 531,100 -- 531,100
----------- ----------- ----------- -----------
Total operating expenses 2,846,544 3,477,330 5,671,293 6,620,654
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (2,068,298) (1,745,488) (3,818,120) (2,884,916)
NET INTEREST INCOME 365,190 341,262 706,531 717,117
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES (1,703,108) (1,404,226) (3,111,589) (2,167,799)
INCOME TAX BENEFIT -- (165,000) -- (265,000)
----------- ----------- ----------- -----------
NET LOSS $(1,703,108) $(1,239,226) $(3,111,589) $(1,902,799)
=========== =========== =========== ===========
Net loss per common share:
Basic $ (0.28) $ (0.21) $ (0.51) $ (0.32)
=========== =========== =========== ===========
Diluted $ (0.28) $ (0.21) $ (0.51) $ (0.32)
=========== =========== =========== ===========
Weighted average number of common
and common equivalent shares outstanding:
Basic 6,079,706 5,981,027 6,087,552 5,905,325
=========== =========== =========== ===========
Diluted 6,079,706 5,981,027 6,087,552 5,905,325
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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SEEC, INC.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
2000 2000
------------ ------------
(UNAUDITED) (AUDITED *)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 18,063,291 $ 18,404,429
Short-term investments 4,881,975 7,797,247
Accounts receivable - trade, net 866,003 1,018,740
Prepaid expenses and other current assets 318,787 483,486
------------ ------------
Total current assets 24,130,056 27,703,902
PROPERTY AND EQUIPMENT, NET 1,037,403 1,135,299
GOODWILL AND OTHER INTANGIBLE ASSETS, NET 2,826,770 3,106,422
------------ ------------
$ 27,994,229 $ 31,945,623
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 410,409 $ 584,497
Accrued compensation 498,820 717,959
Deferred maintenance revenue 238,852 554,402
Other current liabilities 503,487 444,264
Income taxes payable 2,308 47,583
------------ ------------
Total current liabilities 1,653,876 2,348,705
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred stock--no par value; 10,000,000 shares authorized;
none outstanding
Common stock--$.01 par value; 20,000,000 shares authorized; 6,309,187
shares issued at September 30, 2000 and March 31, 2000,
respectively 63,092 63,092
Additional paid-in capital 34,578,566 34,576,688
Accumulated deficit (7,294,122) (4,130,409)
Less treasury stock, at cost--224,105 and 194,115 shares
at September 30, 2000 and March 31, 2000, respectively (997,399) (864,521)
Accumulated other comprehensive loss (9,784) (47,932)
------------ ------------
Total shareholders' equity 26,340,353 29,596,918
------------ ------------
$ 27,994,229 $ 31,945,623
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</TABLE>
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* Condensed from audited financial statements
The accompanying notes are an integral part of these financial statements.
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SEEC, INC.
Condensed Consolidated Statements Of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
--------------------------------------
2000 1999
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<S> <C> <C>
CASH FLOWS USED BY OPERATING ACTIVITIES $ (2,984,532) $ (1,110,003)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net of disposals (78,512) (53,944)
Purchases of short-term investments (1,906,162) (1,170,813)
Sales of short-term investments 4,813,062 4,500,000
Acquisition of business, net of cash acquired -- (2,257,645)
Other, net (1,870) (28,492)
------------ ------------
Net cash provided by investing activities 2,826,518 989,106
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of treasury stock (338,522) (12,725)
Common stock issued 155,398 84,422
------------ ------------
Net cash provided (used) by financing activities (183,124) 71,697
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (341,138) (49,200)
Cash and cash equivalents, beginning of period 18,404,429 22,448,176
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 18,063,291 $ 22,398,976
============ ============
</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, 2000.
Certain prior period amounts have been reclassified to conform to
current period classifications.
2. REVENUE RECOGNITION
The Company recognizes revenue in accordance with the American
Institute of Certified Public Accountants' Statement of Position ("SOP") 97-2,
"Software Revenue Recognition," and SOP 98-9, "Software Revenue Recognition,
With Respect to Certain Arrangements." SOP 97-2 specifies the criteria that must
be met for recognizing revenues from software sales, and SOP 98-9 requires
recognition of revenue using the "residual method" in a multiple-element
arrangement when fair value does not exist for one or more of the delivered
elements in the arrangement. Under the residual method, the total fair value of
the undelivered elements is deferred and subsequently recognized in accordance
with SOP 97-2.
Revenues are derived from the license of software products, customer
support and maintenance contracts, and services contracts, including consulting
and training services. Revenues from product license fees are recognized when an
order or agreement is in hand, the fee is fixed and determinable, and delivery
of the product has occurred. Customer support and maintenance contract revenues
are recognized ratably over the term of the related agreement, generally twelve
months. The Company provides professional services under time-and-materials and
fixed-price contracts. Revenues from time-and-materials contracts are recognized
as the services are provided. Revenues from fixed-price contracts are recognized
on achievement of specified performance milestones negotiated with customers.
This method, which recognizes revenues on substantially the same basis as the
percentage-of-completion method, is used because management considers milestones
to be the best available measure of progress. Provision for estimated losses on
uncompleted contracts is made in the period in which such losses are
determinable.
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, 2000, the Company had used $1.8
million to repurchase 386,000 shares, of which 162,000 shares were reissued to
cover Employee Stock Purchase Plan transactions, stock option exercises, stock
warrant exercises, and for other corporate purposes. Repurchased shares are
recorded as treasury shares.
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4. 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." 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, 2000 and 1999 because their effect is not dilutive.
5. COMPREHENSIVE INCOME
Comprehensive income (loss) includes all changes in equity during a
period, except those resulting from investments by owners and distributions to
owners. The Company reports comprehensive income (loss) and its components in
its annual Consolidated Statement of Changes in Shareholders' Equity. The
components of the Company's comprehensive income (loss) were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- ----------------------------
2000 1999 2000 1999
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net loss ($1,703,108) ($1,239,226) ($3,111,589) ($1,902,799)
Unrealized gain (loss) on
investments, net of taxes 24,560 (1,030) 38,148 (36,431)
-------------- --------------- -------------- -------------
Total comprehensive loss ($1,678,548) ($1,240,256) ($3,073,441) ($1,939,230)
============== =============== ============== =============
</TABLE>
6. INCOME TAXES
In the three- and six-month periods ended September 30, 2000, 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, resulting in no tax provision or benefit incurred in either
period. In the three- and six-month periods ended September 30, 1999, a
valuation allowance partially offset the deferred tax asset, resulting in a tax
benefit with an effective tax rate of 12% for both periods. As of March 31,
2000, the Company had unused Federal and state net operating loss carryforwards
that may be applied to reduce future taxable income of approximately $3,856,000
and $5,075,000, respectively. The carryforwards expire at various times from
March 31, 2006 to March 31, 2015. 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 SEEC's Annual Report on Form 10-K for the year ended March 31,
2000. The information contained herein is not a comprehensive management
overview and analysis of the financial condition and results of operations of
SEEC, 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 our 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. We assume no obligation to update such
estimates to reflect actual results, changes in assumptions or changes in other
factors affecting such estimates.
OVERVIEW
SEEC, Inc. (the "Company" or "SEEC") offers an integrated solution for
transforming legacy assets via Web-
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enablement, legacy application integration, and componentization. Most large
organizations have vast amounts of data stored on legacy mainframe systems that
until recently could be accessed only through "green screen" terminals. These
organizations increasingly need to gain or provide access to this data through
the Internet or intranets via more user-friendly methods and interfaces. We
provide enterprise solutions for enhancing and renewing legacy systems and for
migrating or integrating them with newer systems--allowing for disparate systems
within an enterprise to communicate with each other. Our solutions include
flexible methodologies, proven tools, and expert consulting services that have
been utilized extensively by Fortune 1000 companies and similarly-sized
organizations and several leading international information technology ("IT")
service providers. Our products and solutions are used for legacy system
transformation for Web-enablement, application integration and migration, and
componentization.
We derive our revenues from software license and maintenance fees and
professional services fees. Our software is licensed primarily to Fortune 1000
companies, governmental organizations and third-party service providers.
Professional services are provided to customers in conjunction with the license
of software products. Our enterprise solutions and software products and
services are marketed through a broad range of distribution channels, including
direct sales to end users, and to end users in conjunction with our partners.
COMPARISON OF THREE- AND SIX-MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
The following section includes information related to changes in SEEC's
Consolidated Statements of Operations. References to the second quarter of
fiscal 2001 and to the second quarter of fiscal 2000 refer to the three months
ended September 30, 2000 and September 30, 1999, respectively.
REVENUES. Total revenues for the second quarter of fiscal 2001 were
$778,000 compared to $1,732,000 for the second quarter of fiscal 2000, a
decrease of $954,000 or 55%. For the six months ended September 30, 2000, total
revenues were $1,853,000 compared to $3,736,000 for the six months ended
September 30, 1999, a decrease of $1,883,000 or 50%. The decrease resulted from
a decline in the demand for year 2000 solutions, as market demand and our
offerings shifted from year 2000 solutions to Web-enablement and legacy system
transformation solutions (collectively, "e-business" solutions). Revenues from
e-business solutions accounted for substantially all of our revenues in the
quarter and six-month period ended September 30, 2000. The majority of our
revenues were derived from year 2000 products and solutions in the quarter and
six-month period ended September 30, 1999.
Software license and maintenance fees were $625,000 for the second
quarter of fiscal 2001 compared to $1,293,000 for the second quarter of fiscal
2000, a decrease of $668,000 or 52%. For the six months ended September 30,
2000, software license and maintenance fees were $1,307,000 compared to
$2,512,000 for the six months ended September 30, 1999, a decrease of $1,205,000
or 48%. Professional services revenues were $153,000 for the second quarter of
fiscal 2001 compared to $439,000 for the second quarter of fiscal 2000, a
decrease of $286,000 or 65%. For the six months ended September 30, 2000,
professional services revenues were $547,000 compared to $1,224,000 for the six
months ended September 30, 1999, a decrease of $677,000 or 55%. These decreases
were primarily the result of the decline in demand for year 2000 solutions,
which was only partially offset by revenues from e-business products and
services.
COST OF REVENUES. Total cost of revenues was $369,000 for the second
quarter of fiscal 2001 compared to $528,000 for the second quarter of fiscal
2000, a decrease of $159,000 or 30%. For the six months ended September 30,
2000, total cost of revenues was $814,000 compared to $1,203,000 for the six
months ended September 30, 1999, a decrease of $389,000 or 32%. The decrease in
the total cost of revenues was proportionately less than the decrease in
revenues due to the fixed and semi-fixed costs incurred for under-utilized
professional services staff.
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 sales of certain of our software products. Customer
support is primarily telephone or online (Internet) support for customers who
have purchased maintenance in conjunction with software license purchases. Cost
of software license and maintenance fees was $96,000 for the second quarter of
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fiscal 2001 compared to $122,000 for the second quarter of fiscal 2000, a
decrease of $26,000 or 21%. For the six months ended September 30, 2000, cost of
software license and maintenance fees were $209,000 compared to $306,000 for the
six months ended September 30, 1999, a decrease of $97,000 or 32%. Costs in the
six-month period of fiscal 2000 included a charge for third-party software sold,
a cost not incurred in fiscal 2001.
Professional services costs consist primarily of compensation and
related benefits, and travel and equipment for Company personnel responsible for
providing consulting and training services to customers. Costs of temporary or
subcontracted labor may also be included, if such labor is required to meet the
demands of providing services. Professional services costs were $273,000 for the
second quarter of fiscal 2001 compared to $406,000 for the second quarter of
fiscal 2000, a decrease of $133,000 or 33%. For the six months ended September
30, 2000, professional services costs were $605,000 compared to $897,000 for the
six months ended September 30, 1999, a decrease of $292,000 or 33%. The decrease
in professional services costs was proportionately less than the decrease in
professional services revenue due to the fixed and semi-fixed costs incurred for
under-utilized professional services staff.
GROSS MARGINS. Total gross margin (total revenues less total cost of
revenues) as a percentage of revenues was 53% and 56% for the three- and
six-month periods ended September 30, 2000 compared to 70% and 68% for the
three- and six-month periods ended September 30, 1999, respectively. Gross
margin percentages were 85% and 91% for software license and maintenance fees,
and (78)% and 8% for professional services for the second quarters of fiscal
2001 and 2000, respectively. Gross margin percentages were 84% and 88% for
software license and maintenance fees, and (11)% and 27% for professional
services for the six-month periods ended September 30, 2000 and 1999,
respectively. The gross margin percentages for software license and maintenance
fees are impacted by the proportion of customer support services costs to the
amount of software license and maintenance fees generated in a given period. The
gross margin percentages for professional services 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. The gross margin percentages for the fiscal 2001 periods were
lower than the gross margin percentage for fiscal 2000 periods due to decreased
utilization rates of our billable consultants.
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 $659,000 for the second quarter of fiscal 2001 compared to
$555,000 for the second quarter of fiscal 2000, an increase of $104,000 or 19%.
For the six months ended September 30, 2000, general and administrative expenses
were $1,239,000, compared to $1,091,000 for the six months ended September 30,
1999, an increase of $148,000 or 14%. These increases were primarily due to
increased professional consultant fees, and the general and administrative costs
of Mozart Systems Corporation ("Mozart"), which was acquired in the second
quarter of fiscal 2000. The increases in expenses were partially offset by our
efforts to reduce general expenses, including the closing of our Munich, Germany
office in the third quarter of fiscal 2000.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, incentive compensation and related taxes and benefits of our sales,
sales support, and marketing personnel, plus the costs of travel, advertising,
trade shows, and other promotional activities. Sales and marketing expenses were
$1,278,000 for the second quarter of fiscal 2001 compared to $1,286,000 for the
second quarter of fiscal 2000, a decrease of $8,000 or 1%. For the six months
ended September 30, 2000, sales and marketing expenses were $2,464,000 compared
to $2,799,000 for the six months ended September 30, 1999, a decrease of
$335,000 or 12%. In fiscal 2000, we incurred higher expenses for advertising and
promotion in conjunction with the launch of our e-business solutions.
RESEARCH AND DEVELOPMENT. Total expenditures for research and
development were $400,000 for the second quarter of fiscal 2001, compared to
$476,000 for the second quarter of fiscal 2000, a decrease of $76,000 or 16%.
For the six months ended September 30, 2000, expenditures for research and
development were $873,000 compared to $858,000 for the six months ended
September 30, 1999, an increase of $15,000 or 2%. The decrease between the
quarterly periods resulted from costs incurred in the second quarter of fiscal
2000 related to the development of additional applications of the Company's core
technology, particularly legacy systems reengineering solutions for e-business
applications and Web-enablement. The increase between the six-month
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periods is due primarily to the added research and development personnel and
related expenses in connection with the acquisition of Mozart.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS. Goodwill and
other intangible assets are amortized over their estimated useful lives of five
to seven years. In the second quarter of fiscal 2001, amortization of goodwill
and other intangible assets amounted to $141,000 compared to $102,000 for the
second quarter of fiscal 2000, an increase of $39,000 or 38%. For the six months
ended September 30, 2000, amortization expense was $282,000 compared to $138,000
for the six months ended September 30, 1999, an increase of $144,000 or 104%.
These increases are attributable to amortization of intangible assets added with
the acquisition of Mozart.
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 acquisition of Mozart. 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. We did not acquire any in-process research and development costs in the six
months ended September 30, 2000.
NET INTEREST INCOME. Net interest income consists principally of
interest income on cash equivalents and short-term investments, which are
comprised primarily of money market funds and high-grade bonds and bond funds
with average maturities of less than two years. Net interest income was $365,000
for the second quarter of fiscal 2001 compared to $341,000 for the second
quarter of fiscal 2000, an increase of $24,000 or 7%. For the six months ended
September 30, 2000, net interest income was $707,000 compared to $717,000, a
decrease of $10,000 or 1%. The increase between the quarterly periods was due
primarily to the positive impact of higher interest rates earned on cash
equivalents and short-term investments, which was partially offset by the
negative impact of decreased cash balances. Cash balances have been used for the
Mozart acquisition, to fund operations, and for stock repurchases. Net interest
income decreased between the six-month periods because the positive effect of
higher interest rates was offset by decreased cash and investment balances and
by realized losses on sales of investments.
INCOME TAXES. In fiscal 2001 and 2000, the Company calculated a net
deferred tax asset, which was fully offset in fiscal 2001 and partially offset
in fiscal 2000 by a valuation allowance due to the uncertainty of realization of
our net operating loss carryforwards. As a result, no provision for income taxes
was recorded in the quarter or six months ended September 30, 2000. Income tax
benefits of ($165,000) and ($265,000) were recorded for the quarter and six
months ended September 30, 1999, respectively. At March 31, 2000, the Company
had unused Federal and state net operating loss carryforwards that may be
applied to reduce future taxable income of approximately $3,856,000 and
$5,075,000, respectively. The carryforwards expire at various times from March
31, 2006 to March 31, 2015. Certain changes in SEEC's ownership could result in
an annual limitation on the amount of carryforwards that may be utilized.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations primarily through sales of equity
securities and through cash flows from operations. In fiscal 1997 and 1998, we
raised approximately $32.1 million, net of expenses, through public offerings
totaling 3.1 million shares of the Company's Common Stock.
At September 30, 2000, we had cash, cash equivalents, and short-term
investments of $22.9 million and working capital of $22.5 million. Excess cash
has been invested, and we expect that it will continue to be invested, in
interest-bearing investment grade securities and money market funds. Cash has
been used primarily to fund general operations, including ongoing research and
development, to purchase property and equipment, 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. We used $3.0 million
for operating activities in the six months ended September 30, 2000, compared to
$1.1 million used for operating activities in the six months ended September 30,
1999. We used $79,000 and $54,000 to purchase property and equipment, net of
proceeds from disposals, in the six months ended September 30, 2000 and 1999,
respectively. We generated $2.9 million in cash and cash equivalents from sales
of short-term investments, net of purchases, in the six months ended September
30, 2000, compared to $3.3 million generated in the six months ended September
30, 1999. We
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used $339,000 and $13,000 for stock repurchases in the six months ended
September 30, 2000 and 1999, respectively.
Our cash balances may be used to broaden international sales and
marketing efforts, to expand domestic sales and marketing efforts, to establish
additional facilities, to hire additional personnel, to increase research and
development, for capital expenditures and for working capital and other general
corporate purposes. We may also utilize cash to develop or acquire other
businesses, products or technologies complementary to our current business. The
amounts actually expended for each such purpose may vary significantly and are
subject to change at management's discretion, depending upon certain factors,
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 our liquidity needs for the foreseeable future. In the longer term, we may
require additional sources of capital to fund future growth. Such sources of
capital may include additional equity offerings or debt financings.
SEASONALITY
Our operations are not affected by seasonal factors. Our cash flows may
at times fluctuate due to the timing of cash receipts from large individual
sales.
FOREIGN CURRENCY
The overall effects of foreign currency exchange rates on our business
during the periods discussed have not been material. Movements in foreign
currency exchange rates create a degree of risk to our operations if those
movements affect the dollar value of costs incurred in foreign currencies. The
majority of our billings to date have been denominated in U.S. dollars. Changing
currency exchange rates may affect our competitive position if exchange rate
changes impact profitability and business and/or pricing strategies of foreign
competitors. Specific currencies that impact us are the British Pound Sterling,
Indian Rupee, German Deutschmark, Korean Won, and the Singapore Dollar.
The functional currency of our 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk. Our exposure to market rate risk for changes in
interest rates relates primarily to our cash equivalent investments. We have not
used derivative financial instruments. We invest our excess cash in short-term,
floating-rate instruments that carry a degree of interest rate risk. These
instruments may produce less income than expected if interest rates fall.
Conversely, if interest rates rise, the market value of our fixed-income
investments will likely be negatively impacted.
Foreign Currency Risk. Our international business is subject to risks
typical of an international business including, but not limited to, differing
economic conditions, changes in political climate, differing tax structures,
other regulations and restrictions, and foreign exchange rate volatility.
Accordingly, our future results could be materially and adversely impacted by
changes in these or other factors. We are exposed to foreign currency exchange
rate fluctuations as the financial results of our foreign subsidiaries are
translated into U.S. dollars in consolidation. As exchange rates vary, these
results, when translated, may vary from expectations and adversely impact
overall profitability. The effect of foreign exchange rate fluctuations on us
has not been material.
10
<PAGE> 12
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 25, 2000, the Company held its 2000 Annual Meeting of
Shareholders.
(b) Directors elected at the August 25, 2000 meeting were Abraham Ostrovsky
and Glen F. Chatfield. Directors whose terms of office continued after
the meeting were Ravindra Koka, Beverly Brown, John D. Godfrey, and
Radha R. Basu.
(c) The following matters were voted upon at the 2000 Annual Meeting of
Shareholders, with the results indicated:
(1) Election of Class I Directors:
<TABLE>
<CAPTION>
AUTHORITY BROKER
VOTED FOR WITHHELD NON-VOTES
--------- --------- ---------
<S> <C> <C> <C>
Abraham Ostrovsky................................... 4,171,759 243,290 0
Glen F. Chatfield................................... 4,171,759 243,290 0
</TABLE>
(2) Proposal to increase the number of shares that can be granted
under the SEEC, Inc. 1997 Stock Option Plan:
<TABLE>
<S> <C>
Votes for................................................... 1,232,172
Votes against............................................... 447,646
Abstentions................................................. 5,325
Broker non-votes............................................ 2,729,906
</TABLE>
ITEM 5. OTHER INFORMATION--NOT APPLICABLE
11
<PAGE> 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
The Exhibits listed below are filed or incorporated by reference as
part of this Form 10-Q.
EXHIBIT
NO. DESCRIPTION
------- --------------------------------------------------------
2.1 (5) Agreement and Plan of Merger dated July 16, 1999 between
the Registrant and Mozart Systems Corporation.
3.1 (1) The Registrant's Amended and Restated Articles of
Incorporation.
3.2 (1) The Registrant's Amended and Restated Bylaws.
10.1 (1) SEEC, Inc. 1994 Stock Option Plan.
10.2 (1) Registration Rights Agreement dated as of August 15,
1996 among the Registrant and certain of its
shareholders.
10.3 (1) Agreement dated July 16, 1996 between the Registrant and
Raj Reddy.
10.4 (2) SEEC, Inc. 1997 Stock Option Plan.
10.5 (4) Asset Purchase Agreement dated August 7, 1998, between
the Registrant and ERA.
10.6 (3) SEEC, Inc. 1998 Employee Stock Purchase Plan.
10.7 (5) Employment Agreement dated August 3, 1999 between Mozart
Systems Corporation and Alan P. Parnass.
10.8 (5) Non-Competition Agreement dated August 3, 1999 between
Mozart Systems Corporation and Alan P. and Kim I.
Parnass.
10.9 (6) Agreement and Release dated March 7, 2000 between the
Registrant and Allen Gart.
10.10 (6) Employment Agreement dated March 10, 2000 between the
Registrant and Ravindra Koka.
10.11 (6) Employment Agreement dated March 10, 2000 between the
Registrant and John D. Godfrey.
10.12 (6) Employment Agreement dated March 10, 2000 between the
Registrant and Richard J. Goldbach.
21.1 (6) Subsidiaries of the Company.
27 Financial Data Schedule.
----------
(1) Incorporated by reference to Exhibits to the Company's Registration
Statement on Form S-1, File No. 333-14027.
(2) Incorporated by reference to Exhibits to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1997, File No. 0-21985.
(3) Incorporated by reference to the Company's Registration Statement on
Form S-8, File No. 333-62149.
(4) Incorporated by reference to Exhibits to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1999, File No. 0-21985.
(5) Incorporated by reference to the Company's Report on Form 8-K dated
August 4, 1999, File No. 0-21985.
(6) Incorporated by reference to Exhibits to the Company's Report on Form
10-K for the fiscal year ended March 31, 2000, File No. 0-21985.
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the quarter ended September 30,
2000.
12
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
SEEC, Inc.
-----------------------------------------------
(Registrant)
Date: November 13, 2000
By: /s/ RAVINDRA KOKA
-----------------------------------------------
Ravindra Koka
President, Chief Executive Officer and Director
By: /s/ RICHARD J. GOLDBACH
-----------------------------------------------
Richard J. Goldbach
Treasurer, Chief Financial Officer,
and Assistant Secretary
</TABLE>
13
