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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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 0-26194
SEER TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3556562
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8000 Regency Parkway
Cary, North Carolina
27511
(Address of principal executive offices)
(Zip Code)
(919) 380-5000
(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 for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes ....X.... No ........
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 6, 1997
Common Stock, $0.01 par value 11,813,332 shares
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1
SEER TECHNOLOGIES, INC.
Index
Page
PART I. Financial Information Number
Item 1. Consolidated Financial Statements:
Consolidated balance sheets as of June 30, 1997
(unaudited)and September 30, 1996 3
Consolidated statements of operations (unaudited)
for the three months and year-to-date periods
ended June 30, 1997 and 1996 4
Consolidated statements of cash flows (unaudited)
for the nine months ended June 30, 1997 and 1996 5
Notes to consolidated financial statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. Other Information 13
SIGNATURES 14
2
PART I. Financial Information
Item 1. Financial Statements
SEER TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,607 $ 377
Trade accounts receivable, less allowance
for doubtful accounts of $4,996 and $9,351
at March 31, 1997 and September 30, 1996,
respectively 32,519 42,938
Prepaid expenses and other current assets 1,710 4,116
Deferred income taxes 4,637 4,621
----------- -----------
Total current assets 41,473 52,052
Trade accounts receivable, net 2,201 3,803
Property and equipment, net 4,913 6,459
Capitalized software costs, net 3,038 3,057
Deferred income taxes 13,368 12,971
Other assets 441 462
----------- -----------
Total assets $65,434 $78,804
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable, due on demand $21,627 $14,379
Accounts payable 4,498 3,487
Accrued expenses:
Compensation 1,400 3,920
Commissions 481 4,401
Other 5,906 8,463
Deferred revenue 8,010 10,853
Income taxes payable 2,572 2,586
---------- ----------
Total current liabilities 44,494 48,089
Deferred revenue 1,112 662
Stockholders' equity:
Series A convertible preferred stock,
$.01 par value 21 21
Common stock, $0.01 par value 117 116
Additional paid-in-capital 70,241 69,825
Cumulative translation adjustments (480) (505)
Accumulated deficit (50,071) (39,404)
---------- -----------
Total stockholders' equity 19,828 30,053
---------- -----------
Total liabilities and stockholders' equity $65,434 $78,804
========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
SEER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Software products $ 9,357 $11,001 $22,775 $26,546
Maintenance 3,692 3,120 10,730 9,152
Services 13,880 12,770 40,662 36,831
-------- -------- -------- --------
Total operating revenue 26,929 26,891 74,167 72,529
Cost of revenue:
Software products 421 534 1,083 1,065
Maintenance 2,228 2,398 6,350 6,353
Services 9,863 10,487 30,505 30,774
-------- -------- -------- --------
Total cost of revenue 12,512 13,419 37,938 38,192
Gross profit 14,417 13,472 36,229 34,337
Operating expenses:
Sales and marketing 7,915 10,563 22,481 33,526
Research and product
development 2,949 3,835 9,554 12,435
General and administrative 2,884 2,538 12,320 7,806
Restructuring charges - 3,000 500 3,000
-------- -------- -------- --------
Total operating expenses 13,748 19,936 44,855 56,767
-------- -------- -------- --------
Income (loss) from operations 669 (6,464) (8,626) (22,430)
Other income (expense):
Interest income 105 125 364 541
Interest expense (643) (280) (1,465) (414)
-------- -------- -------- --------
Other income (expense), net (538) (155) (1,101) 127
-------- -------- -------- --------
Income (loss) before provision
for income taxes 131 (6,619) (9,727) (22,303)
Income tax provision (benefit) 42 (1,459) 890 (6,793)
-------- -------- -------- --------
Net income (loss) $ 89 $(5,160) $(10,617) $(15,510)
======== ======== ======== ========
Primary earnings (loss) per
common and common equivalent
share $ 0.01 $(0.45) $(0.91) $(1.36)
======== ======== ======== ========
Weighted average common and
common equivalent shares
outstanding 14,076 11,454 11,671 11,414
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
SEER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
1997 1996
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(10,617) $(15,510)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 3,554 3,051
Deferred income taxes (413) (8,654)
Provision for uncollectible taxes 4,268 644
Changes in assets and liabilities:
Trade accounts receivable 7,816 (11,741)
Prepaid expenses and other assets 2,056 91
Accounts payable, accrued expenses,
and income taxes payable (7,888) 189
Deferred revenue (2,393) 5,324
-------- --------
Net cash used in operating activities (3,617) (26,606)
Cash flows from investing activities:
Purchases of property and equipment (765) (2,762)
Capitalization of software development costs (851) (1,154)
-------- --------
Net cash used in investing activities (1,616) (3,916)
Cash flows from financing activities:
Issuance of common shares 355 418
Repurchase of common shares (100) -
Net borrowings under line of credit 7,248 17,738
-------- --------
Net cash provided by financing activities 7,503 18,156
Effect of exchange rate changes on cash (40) (6)
-------- --------
Net increase (decrease) in cash and
cash equivalents 2,230 (12,372)
Cash and cash equivalents:
Beginning of period 377 13,650
-------- --------
End of period $ 2,607 $1,278
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
SEER TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Interim Financial Statements
The accompanying unaudited financial statements should be read in
conjunction with the audited financial statements and notes thereto contained
in the Company's Annual Report on Form 10-K for fiscal year 1996. The
Company's fiscal year ends September 30. The results of operations for the
interim periods shown in this report are not necessarily indicative of results
to be expected for other interim periods or for the full fiscal year. In the
opinion of management, the information contained herein reflects all
adjustments necessary for a fair statement of the interim results of
operations. All such adjustments are of a normal, recurring nature, except
for a write-down of $3.8 million for a receivable which was determined to be
uncollectible and a $.5 million restructuring charge related primarily to
employee severance benefits and the consolidation of leased facilities, both
of which were recorded in the first quarter of fiscal year 1997.
Certain prior period amounts in the accompanying financial statements
have been reclassified to conform to the current period presentation.
Note 2. Earnings Per Share
Primary earnings per share is computed based upon the outstanding
weighted average number of common shares and common equivalent shares, if
dilutive. Common equivalent shares consist of stock options for the year-to-
date period of fiscal year 1996 and stock options, restricted stock, and
Series A convertible preferred stock for the year-to-date period of fiscal
year 1997. Common equivalent shares are not included in the per share
calculations for fiscal year 1996 or the year-to-date period of fiscal year
1997 since the effect of their inclusion would be antidilutive on the loss per
share calculations. Presentation of fully diluted earnings per share is not
required for any periods presented.
Note 3. Income Taxes
The Company's effective rate differs from the statutory rate for the
year-to-date period of fiscal year 1997 primarily due to the fact that an
income tax benefit was not recorded for the net loss for the first two
quarters of fiscal year 1997. The effective rate for the third quarter of
fiscal year 1997 differs from the statutory rate primarily due to the partial
realization of the income tax benefit not recorded in prior periods.
Management believes that it is more likely than not that the realization of
the reported deferred tax assets will occur in the future based on current
earnings forecasts, tax planning strategies, and reversals of book-tax timing
differences. The Company will continue to assess the realization of deferred
tax assets on an ongoing basis.
Income tax expense for the third quarter and year-to-date period of
fiscal year 1997 is primarily related to income taxes from profitable foreign
operations and foreign withholding taxes.
6
Note 4. Use of Accounting Estimates
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 amounts could differ from these estimates.
Note 5. Credit Facilities
At June 30, 1997, the Company maintained two credit facilities (the
"Revolving Facility" and the "Guaranteed Facility") which provide for combined
borrowings of up to $37.5 million for working capital purposes based on the
Company's eligible accounts receivable, as defined in the loan agreements.
The Revolving Facility allows for borrowings of up to $25 million, bears
interest at the London Interbank Offered Rate ("LIBOR") plus 5.0% and is
collateralized by the Company's accounts receivable, equipment and
intangibles. The Guaranteed Facility allows for borrowings of up to $12.5
million and bears interest at LIBOR plus 1.25% or the higher of .5% plus the
prime rate quoted by the Federal Reserve, depending on the type of advance, as
defined in the loan agreement. The Guaranteed Facility is guaranteed by the
Company's principal stockholder, Welsh, Carson, Anderson, & Stowe VI, L.P.
("WCAS"), pursuant to an agreement with the Company. Borrowings under the
Revolving Facility must always exceed borrowings under the Guaranteed
Facility. There are no other financial covenants for either credit facility.
The Revolving Facility is due on demand and will terminate on March 31, 1998.
However, it is automatically renewed for successive additional terms of one
year each, unless terminated by either party. The Guaranteed Facility
terminates on June 30, 1998, unless terminated at an earlier date by the
Company.
As of June 30, 1997, the Company had outstanding borrowings of $12.6
million under the Revolving Facility and $9.0 million under the Guaranteed
Facility. The interest rates for the Revolving Facility and the Guaranteed
Facility were 10.72% and 8.5%, respectively, at June 30, 1997.
Note 6. Recent Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share", which
is required to be adopted for financial statements issued after December 15,
1997. In June, 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", and SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information". Both SFAS No. 130 and SFAS No. 131 are required to be
adopted for fiscal years beginning after December 15, 1997. Upon the
effective date of each of the new statements, the Company will make the
necessary changes to comply with the provisions of each statement and restate
all prior periods presented. The Company does not expect the adoption of
these statements to have a material impact on the Company's financial
condition or results of operations.
7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
General
Seer Technologies, Inc. (the "Company"), designs, develops, markets and
supports software products and related services that enable its customers to
create, distribute and manage large-scale mission-critical information
processing applications that utilize client/server technologies. The
Company's application development tools, related software products and
consulting services reduce the time, cost and risk involved in developing,
deploying and maintaining complex client/server applications and enable
efficient integration of those applications with a customer's existing
systems.
During July, 1997, the Company announced its new strategic direction,
which positions the Company to deliver enterprise componentware for vertical
markets. The Company plans to productize and market libraries of application
components, content-rich vertical industry business models and reusable,
customizable software building blocks for creating enterprise applications.
These new offerings will address core business application needs of Global
5000-sized companies in five major international industries: banking and
financial services, insurance, telecommunications, transportation, and energy.
As part of its new strategy, the Company will also significantly expand its
channel partners program. The channels partner program will provide the
infrastructure to support a variety of partners from platform suppliers to
consultants and systems integrators to component providers that together offer
complete end-to-end solutions for the Company's customers. There can be no
assurance that the Company will be successful in the implementation of its new
strategic plan, and the failure to do so could have a material adverse impact
on the Company's financial condition and results of operations.
The Company has three categories of revenue: software products,
maintenance and services. Software products revenue is comprised primarily of
fees from licensing the Company's proprietary software products and, to a
lesser extent, from product development contracts. Maintenance revenue is
comprised of fees for maintaining, supporting and providing periodic upgrades
of the Company's software products. Services revenue is composed primarily of
fees for consulting and training services.
Consistent with the American Institute of Certified Public Accountants
Statement of Position 91-1, "Software Revenue Recognition," the Company
allocates a portion of the software license fee to initial period maintenance
when the maintenance period is greater than three months. The remainder is
recognized as license fee revenue upon delivery of the software product to,
and acceptance by, the customer. Revenue from the initial period and
subsequently priced maintenance agreements is recognized ratably over the term
of the agreement. Consulting and training services revenue is recognized as
the services are performed.
The Company's revenues vary from quarter to quarter, with the largest
portion of revenue typically recognized in the last month of each fiscal
quarter and the third and fourth quarters of each fiscal year. The Company
believes that these patterns are partly attributable to the Company's sales
commission policies, which compensate sales personnel for meeting or exceeding
quarterly and annual quotas, and to the budgeting and purchasing cycles of
customers. Furthermore, as the size of individual sales is generally large,
a single customer may have a significant impact on a quarter. In addition,
the substantial commitment of executive time and financial resources
historically required of a potential customer to make a decision to purchase
the Company's products increases the risk of quarter-to-quarter fluctuations.
The Company typically does not have any material backlog of unfilled software
orders, and product revenue in any quarter is substantially dependent upon
orders received in that quarter. Because the Company's operating expenses are
based on anticipated revenue levels and are relatively fixed over the short
term, variations in the timing of recognition of revenue can cause significant
variations in operating results from quarter to quarter. Fluctuations in
operating results may result in volatility in the price of the Company's
common stock.
8
This report contains forward-looking statements relating to such matters
as anticipated financial performance, business prospects, technological
developments, new products, research and development activities and similar
matters. The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements. In order to comply with the terms of
the safe harbor, the Company notes that a variety of factors could cause its
actual results and experience to differ materially from the anticipated
results or other expectations expressed in the Company's forward-looking
statements. The Company's performance, development and results of
operations may be affected by the risks presented by: (i) continued market
acceptance of the Company's technology; (ii) fluctuations in quarterly
operating results and volatility of the price of the Company's common stock;
(iii) competition; (iv) the Company's reliance on its relationship with IBM;
(v) customer concentration; (vi) the potential failure to meet product
delivery dates; (vii) matters relating to international operations; and (viii)
intellectual property and proprietary rights. Other risks are also present.
The Company's Registration Statement on Form S-1 (Registration N. 33-92050)
contains a full description of the risks presented by the Company's
operations.
Results of Operations
The following table sets forth, for the periods indicated, the Company's
unaudited results of operations expressed as a percentage of revenue:
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30, June 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Software products 34.8 % 40.9 % 30.7 % 36.6 %
Maintenance 13.7 % 11.6 % 14.5 % 12.6 %
Services 51.5 % 47.5 % 54.8 % 50.8 %
-------- -------- -------- --------
Total 100.0 % 100.0 % 100.0 % 100.0 %
Cost of revenue:
Software products 1.6 % 2.0 % 1.5 % 1.5 %
Maintenance 8.3 % 8.9 % 8.6 % 8.8 %
Services 36.6 % 39.0 % 41.1 % 42.4 %
-------- -------- -------- --------
Total 46.5 % 49.9 % 51.2 % 52.7 %
Gross profit 53.5 % 50.1 % 48.8 % 47.3 %
Operating expenses:
Sales and marketing 29.4 % 39.3 % 30.3 % 46.2 %
Research and product development 11.0 % 14.3 % 12.9 % 17.1 %
General and administrative 10.7 % 9.4 % 16.6 % 10.8 %
Restructuring charges - 11.2 % 0.7 % 4.1 %
-------- -------- -------- --------
Total 51.1 % 74.2 % 60.5 % 78.2 %
Interest income (expense), net (1.9)% (0.6)% (1.5)% 0.2 %
-------- -------- -------- --------
Income (loss) before taxes 0.4 % (24.7)% (13.2)% (30.7)%
Income tax provision (benefit) 0.2 % (5.4)% 1.2 % (9.4)%
-------- -------- -------- --------
Net income (loss) 0.2 % (19.3)% (14.4)% (21.3)%
======== ======== ======== ========
</TABLE>
9
The following table sets forth unaudited data for total revenue by
country of origin as a percentage of total revenue for the periods indicated:
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30, June 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
United States 31.3% 31.7% 34.5% 29.7%
Mexico/Canada 2.1% 1.0% 2.3% 7.0%
South America 1.8% 15.2% 3.1% 7.8%
Europe 54.4% 46.2% 51.7% 46.5%
Middle East/Africa 0.9% 1.8% 1.6% 3.1%
Asia Pacific 9.5% 4.1% 6.8% 5.9%
-------- -------- -------- --------
100.0% 100.0% 100.0% 100.0%
======== ======== ======== ========
</TABLE>
Revenue. The Company's total revenue remained relatively unchanged
in the third quarter and increased 2% for the year-to-date period of fiscal
year 1997 as compared to the same periods of fiscal year 1996. In the
year-to-date period, software revenue decreased from 37% to 31% of
total revenue, maintenance revenue increased from 13% to 15% of total
revenue, and services revenue increased from 51% to 55% of total revenue
in comparison to the year-to-date period of fiscal year 1996.
Software products. Software products revenue decreased 15% in the third
quarter and 14% in the year-to-date period of fiscal year 1997 as compared
to the same periods of fiscal year 1996. Management is implementing changes
in its business practices which include attempting to better align products
to customer needs and the establishment of long-term "partnerships" between
the Company and its customers. As a result of these and other changes,
software product sales to new customers as a percentage of to
revenue in the near-term, they should lead to enhanced long-term
profitability as greater emphasis is placed on increasing the total number
of partnerships, rather than large individual transactions.
Maintenance. Maintenance revenue increased 18% for the third quarter
and 17% for the year-to-date period of fiscal year 1997 as compared to the
same periods of fiscal year 1996. The increase is primarily a result of
maintenance services associated with software sold to both new and existing
customers during fiscal year 1996 and the first two quarters of fiscal year
1997.
Services. Services revenue increased 9% in the third quarter and 10%
in the year-to-date period of fiscal year 1997 as compared to the same
periods of fiscal year 1996. The increase in the year-to-date period is
primarily related to an increase in customer demand for assistance in
developing applications utilizing the Company's licensed products from
license sales made in both the current and prior fiscal years.
Gross Profit. Total gross profit increased approximately $1 million
for the third quarter and increased approximately $2 million for the
year-to-date period of fiscal year 1997 from the same periods of fiscal
year 1996. Total gross margin increased to 54% for the third quarter of
fiscal year 1997 as compared to 50% for the third quarter of fiscal year
1996. The gross margin increased to 49% for the year-to-date period of
fiscal year 1997 as compared to 47% for the year-to-date period of fiscal
year 1996.
Software gross margin remained relatively constant for the third
quarter and year-to-date period of fiscal year 1997 when compared to
comparable periods of fiscal year 1996.
10
Maintenance gross margins increased from 23% to 40% for the third quarter
and from 31% to 41% in the year-to-date period from fiscal year 1996 to fiscal
year 1997. The increase in maintenance gross margins in the year-to-date
period of fiscal year 1997 is primarily due to a reduction in commissions paid
to IBM which supplies certain levels of maintenance services to European
customers. In prior fiscal years, the fees related to this contract were
based on a percentage of the total software and maintenance revenues in
Europe. During the second quarter of fiscal year 1997, the contract was
renegotiated to a fixed fee arrangement. The contract renegotiation has also
significantly impacted the Company's accrued expenses and prepaid assets in
the Consolidated Balance Sheets.
Services margins increased to 29% in the third quarter and to 25% in the
year-to-date period of fiscal year 1997 as compared to 18% and 16% for the
same periods of fiscal year 1996. The increase in services margin is
primarily a result of better utilization of billable resources, including
employees and third-party contractors, and an increase in billing rates
charged to customers. Services margins will typically decline from the third
quarter to the fourth quarter of the fiscal year due to employee vacations,
particularly in Europe.
Sales and Marketing Expense. In fiscal year 1997 sales and marketing
expense decreased 25% for the third quarter and 33% in the year-to-date period
as compared to the same periods of fiscal year 1996. The decreases are the
result of the reduction of the Company's sales force, primarily in Europe and
the Americas, to reflect progressive changes in the Company's business model,
as well as make the sales process more efficient. As compared to the third
quarter and the year-to-date period of fiscal year 1996, average sales and
marketing headcount has decreased 33% in like periods of fiscal year 1997.
Additionally, sales expense for the year-to-date period of fiscal year 1996
included $2.2 million in commissions to IBM for sales of the Company's
software products made by IBM in Latin America and Europe. No such
commissions were payable for sales in Latin America and Europe in the year-to-
date period of fiscal year 1997.
Research and Product Development Expense. In the third quarter and year-
to-date periods of fiscal year 1997, research and development expense
decreased 23% over the same periods of the prior fiscal year. This decrease
is primarily a result of a 16% decrease in personnel and a reduction in costs
associated with the use of certain computer equipment.
General and Administrative Expense. General and administrative expenses
were most significantly impacted for the year-to-date period of fiscal year
1997 by the recording of a $3.8 million reserve of accounts receivable for an
account which was determined to be uncollectible. Excluding this adjustment,
general and administrative expenses for the year-to-date period of fiscal year
1997 increased 9% over the comparable period of fiscal year 1996. This change
was caused by an increase in costs for leased computer equipment in the first
quarter and an increase in costs for professional services in the year-to-
date period of fiscal year 1997.
Restructuring Charges. The Company recorded $.5 million of restructuring
expenses related primarily to severance benefits and the consolidation of
leased facilities during the first quarter of fiscal year 1997.
Income Taxes. Income tax expense increased from a benefit of ($1.5)
million for the third quarter and ($6.8) million for the year-to-date periods
of fiscal year 1996 to an expense of $42,000 and $.9 million for the same
periods of fiscal year 1997, respectively, primarily because an income tax
benefit was not recorded for the total net loss incurred in the year-to-date
period of fiscal year 1997. Management believes that deferred tax assets
reflected in the Consolidated Balance Sheet at June 30, 1997 are sufficient to
offset taxable income for the foreseeable future.
In the opinion of management, it is more likely than not that the
realization of the reported deferred tax assets will occur in the future based
on current earnings forecasts, tax planning strategies, and reversals of book-
tax timing differences. The Company will continue to assess the realization
of existing deferred tax assets on an ongoing basis.
Liquidity and Capital Resources
Cash required to finance the Company's operations and capital expenditure
requirements is provided primarily through operations and borrowings under the
Company's credit facilities. Additionally, in the year-to-date
11
period of fiscal year 1996, the Company was also meeting its cash needs with
cash proceeds from its initial public offering completed in July, 1995.
At June 30, 1997, the Company maintained two credit facilities (the
"Revolving Facility" and the "Guaranteed Facility") which provide for combined
borrowings of up to $37.5 million for working capital purposes based on the
Company's eligible accounts receivable, as defined in the loan agreements.
The Revolving Facility allows for borrowings of up to $25 million, bears
interest at the London Interbank Offered Rate ("LIBOR") plus 5.0% and is
collateralized by the Company's accounts receivable, equipment and
intangibles. The Guaranteed Facility allows for borrowings of up to $12.5
million and bears interest at LIBOR plus 1.25% or the higher of .5% plus the
prime rate quoted by the Federal Reserve, depending on the type of advance, as
defined in the loan agreement. The Guaranteed Facility is guaranteed by the
Company's principal stockholder, Welsh, Carson, Anderson, & Stowe VI, L.P.
("WCAS"), pursuant to an agreement with the Company. Borrowings under the
Revolving Facility must always exceed borrowings under the Guaranteed
Facility. There are no other financial covenants for either credit facility.
The Revolving Facility is due on demand and will terminate on March 31, 1998.
However, it is automatically renewed for successive additional terms of one
year each, unless terminated by either party. The Guaranteed Facility
terminates on June 30, 1998, unless terminated at an earlier date by the
Company.
As of June 30, 1997, the Company had outstanding borrowings of $12.6
million under the Revolving Facility and $9.0 million under the Guaranteed
Facility. The interest rates for the Revolving Facility and the Guaranteed
Facility were 10.72% and 8.5%, respectively, at June 30, 1997.
In addition, the Company had a line of credit as of June 30, 1997 of up
to $3.5 million available to enter into foreign exchange contracts. The
aggregate notional amount of foreign exchange contracts outstanding under this
facility cannot exceed $23.3 million. At June 30, 1997 the aggregate notional
amount of foreign exchange contracts outstanding was $9.3 million.
As a result of improvements in the timeliness of collections and
reductions in spending, the Company reduced its net cash used in operations
from $27 million to $4 million from the year-to-date period of fiscal year
1996 to the same period of fiscal year 1997. As a result of this decrease,
the Company was able to decrease its net borrowings under its lines of credit
by 59% in the year-to-date period of fiscal year 1997 as compared to the
comparable period of fiscal year 1996. Additionally, in the first half of
fiscal year 1996, the Company used approximately $13 million from its July,
1995 initial public offering to finance its operations.
Due to payment terms of certain software contracts, a portion of the
related receivables are classified as non-current assets. As of June 30,
1997, the Company has evaluated the collectibility of the non-current
receivables based upon the customers' prior payment history and determined
that the receivables are collectible.
As of June 30, 1997, the Company did not have any material commitments
for capital expenditures.
The Company believes that existing cash on hand, cash provided by future
operations, and additional borrowings under its lines of credit will be
sufficient to finance its operations and expected working capital and capital
expenditure requirements for at least the next twelve months. Thereafter, the
Company's liquidity will depend upon the results of future operations, as well
as available sources of financing. There can be no assurance that the Company
will be able to continue to meet its cash requirements through operations or,
if needed, obtain additional financing on acceptable terms, and the failure to
do so may have an adverse impact on the Company's business and operations.
Recent Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share", which
is required to be adopted for financial statements issued after December 15,
1997. In June, 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", and SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information". Both SFAS No. 130 and SFAS No. 131 are required to be
adopted for fiscal years beginning after December 15, 1997. Upon the
effective date of each of the new statements, the Company will make the
necessary changes to comply with the provisions of each statement and restate
all prior periods presented. The Company does not expect the adoption of
these statements to have a material impact on the Company's financial
condition or results of operations.
12
PART II. Other Information
Item 1. Legal Proceedings
In November 1996, the Company filed a lawsuit against IBM de Mexico S.A.
de C.V.("IBM Mexico") seeking to collect amounts due for software and
services purchased by IBM Mexico for its customer Instituto Mexicano Del
Seguro Social. In early January, IBM Mexico served the Company with its
answer and defenses to the lawsuit and a counterclaim against the
Company. IBM Mexico alleges in its counterclaim that the Company failed
to deliver proper services under its contract with IBM Mexico. The
Company has responded to the counterclaim and the suits have now moved
into the evidence gathering stage. It is too early in the cases to
determine the likelihood of success on the suit or the counterclaim. The
Company intends to vigorously pursue its case against IBM Mexico and
vigorously defend against the counterclaim.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Statement Regarding Computation of Earnings per
Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEER TECHNOLOGIES, INC.
/s/ Steven Dmiszewicki
Date: August 14, 1997 ..............................................
Steven Dmiszewicki
Senior Vice President and Chief
Financial Officer
14
Exhibit 11.1
SEER TECHNOLOGIES, INC.
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Primary earnings per share:
Average common shares outstanding 11,702 11,454 11,671 11,414
Common stock equivalents 2,374 (2) - - -
-------- -------- -------- --------
Total common and common
equivalent shares outstanding 14,076 11,454 11,671 11,414
======== ======== ======== ========
Net income (loss) $ 89 $(5,160) $(10,617) $(15,510)
======== ======== ======== ========
Per share amount $0.01 ($0.45) ($0.91) ($1.36)
======== ======== ======== ========
Fully diluted earnings per share (1)
</TABLE>
(1) Presentation of fully diluted earnings per share is not required for
any periods presented.
(2) Common stock equivalents include the Company's preferred stock and
outstanding options and restricted stock, if dilutive.
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME FILED AS PART OF
THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 2,607
<SECURITIES> 0
<RECEIVABLES> 39,716
<ALLOWANCES> 4,996
<INVENTORY> 0
<CURRENT-ASSETS> 41,473
<PP&E> 18,839
<DEPRECIATION> 13,926
<TOTAL-ASSETS> 65,434
<CURRENT-LIABILITIES> 44,494
<BONDS> 0
0
21
<COMMON> 117
<OTHER-SE> 19,690
<TOTAL-LIABILITY-AND-EQUITY> 65,434
<SALES> 0
<TOTAL-REVENUES> 74,167
<CGS> 0
<TOTAL-COSTS> 37,938
<OTHER-EXPENSES> 40,587
<LOSS-PROVISION> 4,268
<INTEREST-EXPENSE> 1,465
<INCOME-PRETAX> (9,727)
<INCOME-TAX> 890
<INCOME-CONTINUING> (10,617)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,617)
<EPS-PRIMARY> (.91)
<EPS-DILUTED> (.91)
</TABLE>
