<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1997.
[_] 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
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SEER TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3556562
(State of incorporation) (I.R.S. Employer
Identification No.)
8000 Regency Parkway, Cary, North Carolina 27511
(Address of principal executive offices, including Zip Code)
(919) 380-5000
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g)
of the Act: Common Stock, $.01 par value
----------------------------
----------------------------
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of December 12, 1997 was approximately $69,900,000. There were
11,897,847 shares of Common Stock outstanding as of December 12, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 1998 Annual Meeting of
Shareholders are incorporated by reference in Part III hereof.
Exhibit Index appears on Page E-1.
<PAGE>
SEER TECHNOLOGIES, INC.
Annual Report on Form 10-K
For the Fiscal Year Ended September 30, 1997
Table of Contents
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<TABLE>
<CAPTION>
Item Page
Number Number
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PART I
<S> <C> <C>
1. Business........................................................................................ 1
2. Properties...................................................................................... 7
3. Legal Proceedings............................................................................... 8
4. Submission of Matters to a Vote of Security Holders............................................. 8
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters........................... 8
6. Selected Financial Data......................................................................... 9
7. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 9
8. Financial Statements and Supplementary Data..................................................... 19
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............ 19
PART III
10. Directors and Executive Officers of the Registrant.............................................. 19
11. Executive Compensation.......................................................................... 19
12. Security Ownership of Certain Beneficial Owners and Management.................................. 20
13. Certain Relationships and Related Transactions.................................................. 20
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................ 20
SIGNATURES.................................................... 24
INDEX TO FINANCIAL STATEMENTS.......................................... F-1
INDEX TO EXHIBITS................................................ E-1
</TABLE>
ii
<PAGE>
PART I
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Item 1. Business.
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GENERAL
Seer Technologies, Inc. (the "Company" or "Seer") is one of the software
industry's earliest pioneers and a long-time leader in component-based software
application development. During fiscal year 1997, the Company announced its new
strategic direction, which when fully implemented will transition the Company
from a distributor of application development tools and middleware to a supplier
of enterprise componentware for selected vertical markets. Enterprise
componentware is a combination of application components--reusable, customizable
partial applications--and the infrastructure technologies that enable their
creation, customization, and assembly.
Seer's componentware offering is a suite of products and services that
enables Global 5000-sized companies to accelerate the development and delivery
of mission-critical enterprise applications needed to efficiently run their
businesses and maintain a crucial competitive edge. Seer's products also help
organizations protect their investment in existing legacy systems by enabling
them to link legacy applications with new applications.
As part of its strategic transition from technology supplier to market-
driven componentware solutions provider, Seer is now also leveraging software
assets it already owns and may acquire in the future from outside sources, such
as customers and alliance partners. Seer's approach is to commercially package
and broker a library of application components for resale along with its
componentware infrastructure technologies.
A key element of Seer's strategy involves forging alliances with suppliers
of complementary products and services to jointly offer best-of-breed solutions
to the marketplace. Seer has relationships in place with several of the
industry's leading vendors and systems integrators.
The Company was incorporated in March 1990 as a joint endeavor between IBM
and CS First Boston Securities Corporation. In June and September 1994, the
investment firm of Welsh, Carson, Anderson and Stowe VI L.P. (WCAS), together
with certain of its affiliates, acquired an approximately 83.9% equity interest
in the Company. The Company completed its initial public offering in July 1995.
In August 1996, the Company sold 2,094,143 shares of Series A Convertible
Preferred Stock (the "Preferred Stock") to certain WCAS affiliates and other
purchasers. The Preferred Stock is convertible into, and votes as a single class
with, the Common Stock. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and Capital Resources." At
September 30, 1997, WCAS and certain of its affiliates held approximately 64% of
the outstanding voting stock of the Company.
Financial Information About Industry Segments
The Company operates in only one business segment, with total revenues in
fiscal year 1997 of approximately $103 million. See the Company's consolidated
financial statements at Item 14.
PRODUCTS AND SERVICES
Seer's LightSpeed suite is a full-featured componentware environment
designed to provide a complete and comprehensive application delivery vehicle to
large IT organizations. The LightSpeed suite addresses IT's most pressing
dilemma: shortening application development and delivery cycles while enabling
competitive differentiation through customizable application components. The
LightSpeed suite delivers both enabling development infrastructure tools and
application content, tied together through Seer's consulting best practices.
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Historically, Seer's product offering focused on application development
tools and middleware. Today, the LightSpeed suite includes a powerful
application development engine with internet-enabling extensions, application
interoperability middleware software, and the first of Seer's line of
components, the Seer Lightspeed Financial Model. As the LightSpeed suite
evolves, it will incorporate growing libraries of enterprise-class application
components for specifically targeted vertical industries.
Seer*HPS
The cornerstone of the infrastructure technologies, Seer*HPS, automatically
generates application software components based on the business rules and
functionality requirements specified by a developer. This greatly speeds the
delivery of even the most complex business applications at a fraction of the
cost of traditional manual programming methods.
Seer*HPS can automatically generate Year 2000-compliant enterprise
applications and applications that correctly process the new European standard
currency. Management believes that Seer*HPS is the only development engine
available today that can scale from the desktop all the way up to the mainframe.
Since this is a critical element requirement for true enterprise-class
applications, it clearly sets Seer's componentware infrastructure apart.
LightSpeed Web
LightSpeed Web, an extension of Seer*HPS, allows applications built in
Seer*HPS to be rapidly developed for the Internet, thereby enabling companies to
take advantage of the enormous commercial opportunities afforded by the World
Wide Web. Because the LightSpeed Web transaction processing environment extends
from a Web server to numerous hardware platforms--including the mainframe--
companies can quickly deploy even complex enterprise applications to users
around the world.
NetEssential
A crucial element of component-based development, NetEssential links
application components in the Seer infrastructure. NetEssential enables
distributed application components to interoperate and be managed efficiently in
today's heterogeneous computing environments. In addition, because it supports
de facto industry standards such as CICS and IBM's MQ Series, NetEssential helps
companies protect their investment in legacy systems by linking them to newly
developed application components.
Application Components
Seer's initial component offerings will focus on applications for the
financial services industry. A subsequent set of offerings will be targeted for
customer relationship management (CRM) applications across vertical markets. As
Seer builds its library of packaged application components over time, it will
have new products to sell to its existing customers as well as to attract new
customers in its targeted vertical markets.
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<PAGE>
The LightSpeed Financial Model, which was first released and sold in the
fourth quarter of fiscal 1997, is the first in Seer's library of components. A
proven reference model for financial institutions worldwide, LightSpeed
Financial Model provides a roadmap to create a unique business model that allows
users to better control their business, access crucial information, manage
ongoing change, and integrate business and technology operations for improved
performance and productivity.
Consulting and Training Services
Seer provides a full spectrum of services to assist customers in deriving
the maximum benefit from its componentware solutions. Over the years, Seer's
worldwide consulting team has gained in-depth experience in successful
component-based development as well as valuable insight into the business
information needs of users in the Company's targeted vertical markets. In
addition, Seer's world-class training organization offers a full curriculum of
courses and labs designed to speed knowledge transfer and help customers take
advantage of Seer's field-tested best-practices methodologies.
SALES AND MARKETING
Sales
The Company's direct sales staff has substantial knowledge of the Company's
products as well as general experience in the software industry. Seer's direct
field sales force is headed by two General Managers, each of whom is assigned a
different geographic responsibility--one for the Americas and the other for
Europe, Middle East, Africa (EMEA) and the Asia Pacific region. Their
respective operations are divided into new sales and existing customer
partnerships. In addition, the Company has created a channel sales force which
focuses on selling the Company's products to or through the Company's channel
partners. The Company's sales strategy has five key aspects: (i) decentralized,
geographically-based management, (ii) direct and indirect sales channels, (iii)
existing account management, (iv) compensation based on achievement of specific
sales objectives, and (v) establishing additional marketing partnerships.
Revenue for each region for fiscal year 1997 is as follows: the Americas--$39.8
million, EMEA--$54.1 million, and Asia Pacific--$9.3 million. The
percentage of the Company's total revenue for fiscal year 1997 for each region
is as follows: the Americas--39%, EMEA--52%, and Asia Pacific--9%.
The Company's products have historically been designed for use primarily in
large-scale, complex computing environments. A customer's decision to use the
Company's products involves a substantial financial commitment, including the
license cost, consulting and training expenses, and deployment service costs as
well as a substantial commitment of personnel resources. Accordingly, a
decision to purchase Seer products typically has been made by a customer's
senior management. As a result, the sales cycle for the Company's products
historically has been relatively lengthy, averaging nine to twelve months. The
Company's sales process follows a "solution selling" methodology based on
identifying and meeting the needs of a business.
The Company's sales strategy will continue to involve a complete evaluation
of the customer's business followed by the identification and sale of products
that will meet the customer's immediate requirements. It also provides
flexibility to scale up or down and add new Seer component products in the
future.
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<PAGE>
Marketing
To establish Seer as a leading global provider of componentware, the
Company is significantly expanding its marketing efforts worldwide. The
Company's newly assembled marketing team has laid out a tactical plan of
programs and product deliverables, carefully integrated with its strategic plan
to enable the Company to continue to meet current and future customer needs,
while expanding its componentware capabilities. For example, the Company is
expanding its channel partners program, which will provide the infrastructure to
support a variety of partners, including platform suppliers, consultants,
systems integrators and component providers, that will together offer end-to-end
solutions for the Company's customers.
The Company's marketing team consists of a Senior Vice President, Worldwide
Marketing, who oversees a Vice President of Corporate Marketing and a Vice
President of Product Marketing. The Product Marketing organization is comprised
of Business Units focused on primary product lines. Each Business Unit is headed
by a Director who manages a series of product managers and marketing specialists
responsible for the functionality and delivery programs for the various product
offerings. The Corporate Marketing organization manages worldwide execution and
delivery of all marketing programs and initiatives as well as external
communications.
To meet the needs of a marketplace that is increasingly demanding best-of-
breed complete solutions, Seer maintains strategic marketing alliances with
vendors such as Hewlett-Packard, IBM, Microsoft and Tandem as well as with major
systems integrators such as PKS and Tata Infotech. Advantages of these
alliances include joint marketing of the participants' products and services,
and loaned or discounted equipment for development, quality assurance, support,
and prototyping activities. Such alliances also keep Seer aware of new market
opportunities and enable the Company to demonstrate and deliver the most
effective and comprehensive solutions in a timely fashion.
A key strategic alliance for the Company, both historically and at present,
is with IBM, one of the Company's original stockholders. Transactions resulting
from the Company's relationship with IBM accounted for approximately 53%, 65%
and 71% of the Company's revenues for fiscal year 1997, 1996 and 1995
respectively, and an even greater portion of the Company's international
revenues for each of those periods. Seer's relationship with IBM exists on both
a formal (in terms of a series of contractual relationships) and an informal
basis.
For example, the Company has entered into a series of cross-industry
marketing agreements with IBM pursuant to which IBM markets the Company's
products on a non-exclusive basis in the United States, Canada, Puerto Rico and
the Asia/Pacific region, excluding Japan. In Europe, IBM acts as a non-exclusive
marketer and distributor of the Company's products to IBM customers. Although
IBM plays a significant role in introducing the Company to new customers in
international markets, the Company's sales force is actively involved in
virtually all sales of the Company's product and provides crucial support for
the selling process.
For additional information, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year Ended September 30, 1997
Compared to the Year Ended September 30,1996--Sales and Marketing Expense."
TARGET MARKETS
In fiscal year 1997, Seer's strategy team conducted extensive market
research, including numerous interviews with customers around the world and
consultations with leading industry analysts. As a result, the team was able to
identify two rapidly emerging, high-potential markets in which Seer's technology
offerings and years of experience make it well equipped to take an early
leadership position--the market for enterprise componentware and the market for
customer relationship management (CRM) systems. The
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<PAGE>
increasing demand for expediting large-scale application deployment has industry
analysts projecting that the market for enterprise componentware will top $2.6
billion by the year 2001 in software alone. At the same time, the CRM market is
estimated to grow to more than $6 billion.
The evolution of these two markets is being driven by two primary factors.
First, Global 5000 organizations are under increasing pressure to reduce the
time and cost of implementing complex business applications. Having to create
all of these unique business applications from scratch is prohibitively
expensive, and most pre-packaged applications do not have the scope or
flexibility to meet their business needs.
Second, widespread industry deregulation is intensifying competitive
pressures in several major international industries. This makes competitive
differentiation a crucial success factor, which in turn makes superior CRM one
of today's most critical application areas for companies in these industries.
CRM applications help companies win and retain customers by improving their
ability to understand and serve their customers as well as by providing a
competitive advantage in enabling tightly targeted marketing. This results in
more effective marketing as well as increased marketshare and profitability.
Seer is positioned to take an early and definitive leadership position in
the convergence of these complementary burgeoning markets for componentware and
CRM. Seer's current product suite provides companies with the enabling
technology infrastructure to speed development and re-engineering of
applications today as well as allow them to take advantage of application
components as they become available in the future to further accelerate the
assembly of enterprise applications. In addition, Seer has access to an
extensive collection of production-proven enterprise application components for
the financial services industry, a majority of which are CRM-oriented. The
Company has begun the process of packaging these components for resale, building
a library that it will augment with application components from its customers
and alliance partners over time.
COMPETITION
The market for enterprise componentware and related consulting services is
young and rapidly evolving. As a fast-growing market, it offers tremendous
potential to early entrants like Seer, which enters the market with a proven set
of the required infrastructure technologies and a pool of skilled consultants
with extensive expertise in component-based application development.
To firmly establish a leadership position in this market, the Company must
continue to enhance its current products and deliver new products and packaged
components in a timely fashion. The Company believes that competition in the
large-scale enterprise componentware market today is based primarily on
functionality, scalability, and resulting application performance. The Company
believes that its products compete favorably in each of these areas.
The rapid growth and long-term potential of the componentware market make
it attractive to new competition. However, at the high end of the market--the
enterprise application component arena --only a few companies possess the
technological capabilities to effectively compete with Seer. In the mainframe-
based systems market segment, the Company's products compete directly with
Sterling Software's COOL:Gen product line (formerly Texas Instrument's Composer
product, acquired by Sterling). In the distributed client/server applications
arena, the Company also encounters Forte's AE (Application Environment) product
and Web SDK in competitive situations. IBM's IFW modeling software is
competitive with Seer's LightSpeed Financial Model. Some of the Company's
competitors have longer operating histories and greater financial, technical,
sales, marketing, and other resources than the Company.
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<PAGE>
CUSTOMERS
The Company seeks to form strong partnering relationships with customers in
order to gain an in-depth understanding of the business and technology
challenges they face. This helps Seer meet both the customer's immediate
production requirements and their long-term strategic needs. Seer maintains a
customer advisory board (CAB) that normally meets twice a year. The CAB's
volunteer members represent the global customer base, acting as a sounding board
for new ideas and initiatives as well as providing feedback regarding the
Company's products and services. In addition, the Company holds annual
international customer conferences to present new information, address customer
concerns, and provide constructive open forums for customer interaction. In
many areas around the world, local customers hold periodic regional user group
meetings that are supported and encouraged by Seer. The Company also receives a
great deal of feedback through its consulting services and technical support
organization regarding the effectiveness of the Company's products in meeting
customer needs.
Today, Seer's products and services are used by thousands of software
developers. Hundreds of enterprise-class applications built with Seer products
are used daily by over a million end users worldwide. Seer's expanding
international customer base includes some of the world's largest corporations
such as Credit Suisse, Fidelity, TeleDanmark, National Bank of Greece, Italia
Telecom, and Sikorsky Aircraft. Industries that are significantly represented
in the Company's customer base include banking and financial services,
insurance, retail, manufacturing, data processing, public utilities, and
transportation.
No one customer accounted for more than 10% of operating revenue for fiscal
years 1997 and 1996. For fiscal year 1995, there were sales to one major
customer that exceeded 10% of operating revenue. Revenues from this customer,
Banca Commerciale Italiana, were $20.5 million or 17% of revenues for fiscal
year 1995.
RESEARCH AND PRODUCT DEVELOPMENT
The Company believes that the timely development of new products and
enhancements to existing products is essential to maintain its competitive
position. Delays or difficulties associated with new products or product
enhancements could have a material adverse effect on the Company's business,
operating results, and financial condition. The Company conducts research and
development to enhance its existing products and to build new products, both
complementary to the existing product line and in new functional areas. As
evidence of its commitment to new product development, the Company has expensed
$12.3 million, $16.8 million, and $14.5 million for product development for
fiscal years 1997, 1996, and 1995, respectively. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Results of
Operations--Year Ended September 30, 1997 Compared to the Year Ended September
30, 1996--Research and Product Development Expense."
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PATENTS, TRADEMARKS, AND PROPRIETARY RIGHTS
The Company's success is dependent upon maintaining its intellectual
property assets. The Company relies upon combinations of copyright, patent,
trademark and trade secrecy laws, along with contractual provisions, to protect
its intellectual property rights in software, documentation, data models,
methodologies, and related written materials in the international marketplace.
The effectiveness of these various types of protection can be limited, however,
by variations in laws and enforcement procedures from country to country. As a
result, the Company also protects against use of unauthorized copies of its
principal workstation development product through a "data lock" technical
protection system.
Copyright protection is generally available under United States laws and
international treaties for the Company's software and printed materials. Seer
has obtained patents in the United States and Australia with regard to the basic
application development and deployment technology in the Seer*HPS product line,
and has related patents pending in various countries. The Company also has
patents pending with regard to other product technologies. The Company has
registered the trademarks "SEER", "Archetype", "CASIM", "Freeway", "High
Productivity Systems", "NewArc 2000", "Seer*HPS", and "TurboCycler" in the
United States, and has active programs to register the "SEER" mark in other
countries where it does business. The Company also uses the trademarks
"@Seer", "InPrint", "LightSpeed Financial Model", "LightSpeed Web",
"NetEssential", "Seer*Auditor", "Seer*Connections", "Seer*AllianceConnections",
"Seer*ComplementaryConnections", "Seer*ComponentConnections",
"Seer*ConsultingConnections", "Seer*ResellerConnections",
"Seer*TrainingConnections", "Seer*DCF", "Seer*Intelligen", "Seer-*Mediator",
"Seer*Metrix", "SeerTalk", "SmartPak" and "The Seer*Method."
EMPLOYEES
As of September 30, 1997, Seer had a total of 705 employees. Of these
employees, 193 were engaged in software sales, marketing, and technical support;
77 in administration; 126 in research and development; and 309 in consulting and
training. The Company's continued success is dependent on its ability to attract
and retain qualified employees. Although the Company experienced difficulty in
recruiting and retaining consultants and research and development employees
during fiscal 1997 due to the intense competition for personnel in the software
industry, the Company believes it has succeeded in attracting and retaining a
sufficient number of qualified employees in all aspects of its operations.
There can be no assurance, however, that the Company will continue to be
successful in the future. The Company's employees are not represented by a
union or a collective bargaining agreement, and the Company considers its
relations with its employees to be good.
Item 2. Properties.
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The Company's principal executive offices are located in approximately
58,000 square feet of leased space in Cary, North Carolina. As of September 30,
1997, the Company also leased 24 additional offices to provide consulting
services to its clients and to facilitate the distribution of its products. In
the United States, Seer's offices are located in New York, New York; Washington,
D.C.; Atlanta, Georgia; Chicago, Illinois; Dallas, Texas; and San Francisco,
California. The Company also leases office space abroad in Canberra, Melbourne
and Sydney, Australia; Sao Paulo, Brazil; Toronto, Canada; Copenhagen, Denmark;
London, England; Paris, France; Frankfurt, Germany; Rome, Italy; Milan, Italy;
Madrid, Spain; Nieuwegein, The Netherlands; Singapore; Capetown, South Africa:
Seoul, Korea and Stockholm, Sweden. The Company also maintains an office in
Limerick, Ireland on a set fee arrangement.
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Item 3. Legal Proceedings.
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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. In September 1997, the
Company settled its lawsuit against IBM Mexico, and the above two lawsuits were
dismissed. No gain or loss was recorded related to this settlement.
In December 1997, the Company filed a lawsuit against Saadi Abbas and
Cambridge Business Solutions (UK) Limited ("CBS") alleging that Mr. Abbas and
CBS had injured the Company by interfering with the Company's ability to market
and sublicense the LightSpeed Financial Model. The Company obtained a
preliminary injunction against Mr. Abbas and CBS halting their actions until
after the trial of the case which is currently scheduled for late March 1998. At
the present point in the litigation it is impossible to calculate the chances of
success in this litigation. However, the Company intends to vigorously pursue
this matter and does not believe that the results of this litigation will have
a material effect on the financial position or results of operations of the
Company.
From time to time, the Company is a party to routine litigation incidental
to its business. As of the date of this Report, the Company was not engaged in
any legal proceedings that are expected, individually or in the aggregate, to
have a material adverse effect on the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
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None.
PART II
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Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.
- -----------------------------------------------------------------------------
The Common Stock of the Company is traded on the Nasdaq Stock Market under
the symbol SEER. The Company has never declared or paid any cash dividends on
its Common Stock. The Company anticipates that all of its earnings will be
retained for the operation and expansion of the Company's business and does not
anticipate paying any cash dividends in the foreseeable future. The Company's
credit agreements require the Company to obtain approval from its lenders prior
to declaration or payment of any cash dividends on its Common Stock. The chart
below sets forth the high and low stock prices for the quarters of the fiscal
years ended September 30, 1997 and 1996.
<TABLE>
<CAPTION>
Fiscal Year 1997 Fiscal Year 1996
Quarter High Low High Low
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1st $6.50 $3.00 $19.00 $10.75
2nd $7.00 $3.00 $13.50 $4.875
3rd $5.875 $3.875 $10.00 $4.75
4th $8.00 $4.25 $ 8.00 $5.00
</TABLE>
The closing price of the Common Stock on September 30, 1997 was $6.75 per
share. As of December 12, 1997, the Company had 272 registered shareholders of
record.
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Item 6. Selected Financial Data.
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The following selected financial data is derived from the consolidated
financial statements of the Company. The data should be read in conjunction
with the consolidated financial statements, related notes, and other financial
information included herein.
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal Years Ended September 30,
---------------------------------------------------------------
1997 1996 1995 1994 1993
--- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
(in thousands, except per share
amounts)
Total revenue $103,153 $ 91,657 $111,485 $78,278 $ 45,999
Gross profit 51,312 38,537 72,542 44,901 29,378
Income (loss) from operations (7,071) (45,112) 9,254 3,451 1,972
Net income (loss) (9,966) (31,582) 5,152 2,361 980
Net loss per common share (0.85) (2.76) - - -
Weighted average common
shares outstanding 11,707 11,445 - - -
Pro forma net income per
common share - - 0.45 0.21 0.09
Pro forma weighted average
common shares outstanding - - 11,507 10,986 10,919
Balance Sheet Data:
Working capital $(5,961) $ 3,963 $ 34,087 $ 4,777 $ 3,928
Total assets 66,535 78,804 76,444 37,363 25,049
Total debt 22,052 14,379 - 2,700 -
Senior redeemable
preferred stock - - - 13,195 -
Series A preferred stock 12,302 12,302 - - 20,875
Total stockholders' equity
(capital deficiency) 20,843 30,053 48,438 (2,096) (12,934)
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
- -------- ---------------------------------------------------------------
Results of Operations.
---------------------
General
Seer Technologies, Inc. (the "Company" or "Seer") is one of the software
industry's earliest pioneers and a long-time leader in component-based software
application development. During fiscal year 1997, the Company announced its new
strategic direction, which when fully implemented will transition the Company
from a distributor of application development tools and middleware to a supplier
of enterprise componentware for selected vertical markets. Enterprise
componentware is a combination of application components--reusable, customizable
partial applications--and the infrastructure technologies that enable their
creation, customization, and assembly.
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<PAGE>
Seer's componentware offering is a suite of products and services that
enables Global 5000-sized companies to accelerate the development and delivery
of mission-critical enterprise applications needed to efficiently run their
businesses and maintain a crucial competitive edge. Seer's products also help
organizations protect their investment in existing legacy systems by enabling
them to link legacy applications with new applications going into production.
As part of its strategic transition from technology supplier to market-
driven componentware solutions provider, Seer is now also leveraging software
assets it already owns and may acquire in the future from outside sources, such
as customers and alliance partners. Seer's approach is to commercially package
and broker a library of application components for resale along with its
componentware infrastructure technologies.
A key element of Seer's strategy involves forging alliances with suppliers
of complementary products and services to jointly offer best-of-breed solutions
to the marketplace. Seer has relationships in place with several of the
industry's leading vendors and systems integrators.
The Company is aware of the issues associated with the programming code in
existing computer systems as the millennium (year 2000) approaches. The "year
2000" problem is pervasive and complex as virtually every computer operation
will be affected in some way by the rollover of the two digit year value to 00.
The issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail.
The Company is utilizing both internal and external resources to identify,
correct or reprogram, and test the systems for the year 2000 compliance. It is
anticipated that all reprogramming efforts will be completed in time to allow
for adequate testing. To date, confirmations have been received from the
Company's primary processing vendors that the Company's existing systems are
"year 2000" compliant or plans are being developed to address processing of
transactions in the year 2000. Management does not expect that the year 2000
compliance expense will be material to the Company's 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 comprised 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 maintenance 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
-10-
<PAGE>
anticipated revenue levels and are relatively fixed over the short term,
variations in the timing of recognition 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.
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 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) market acceptance of the Company's new strategic direction
(ii) continued market acceptance of the Company's existing technology; (iii)
fluctuations in quarterly operating results and volatility of the price of the
Company's common stock; (iv) competition; (v) the Company's reliance on its
relationship with IBM; (vi) customer concentration; (vii) the potential failure
to meet product delivery dates; (viii) matters relating to international
operations; (ix) intellectual property and proprietary rights; (x) the
inability to attract and retain consultants and development professionals;
(xi) the Company's ability to attract, retain and train qualified sales
professionals and the ability of those sales professionals to perform to quota;
and (xii) the sufficiency of the Company's liquidity and capital resources.
See the Company's Registration Statement on Form S-1 (Registration N. 33-92050)
for a more detailed description of these and other risks presented by the
Company's operations.
-11-
<PAGE>
Results of Operations
The following table sets forth, for the years indicated, the Company's
results of operations expressed as a percentage of revenue.
<TABLE>
<CAPTION>
For the Years Ended September 30,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenue:
Software products 33.2% 31.4% 49.7%
Maintenance 14.2% 14.4% 10.0%
Services 52.6% 54.2% 40.3%
------- ------- -------
Total 100.0% 100.0% 100.0%
Cost of revenue:
Software products 1.5% 1.7% 0.5%
Maintenance 8.2% 10.0% 6.7%
Services 40.6% 46.3% 27.7%
------- ------- -------
Total 50.3% 58.0% 34.9%
Gross profit 49.7% 42.0% 65.1%
Operating expenses:
Sales and marketing 29.8% 48.0% 35.3%
Research and product development 12.1% 18.3% 13.0%
General and administrative 14.3% 21.3% 8.4%
Restructuring charges 0.5% 3.3% -
------- ------- -------
Total 56.7% 90.9% 56.7%
Other income (expense), net (1.6)% (0.2)% (0.4)%
------- ------- -------
Income (loss) before taxes (8.6)% (49.1)% 8.0%
Income tax provision (benefit) 1.2% (14.9)% 3.3%
------- ------- -------
Net income (loss) (9.8)% (34.2)% 4.7%
======== ======== =======
</TABLE>
The following table sets forth data for total revenue by geographic origin as a
percentage of total revenue for the periods indicated:
<TABLE>
<CAPTION>
For the Years Ended September 30,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
United States 31.9% 31.5% 26.9%
Mexico/Canada 2.6% 6.0% 4.3%
South America 3.2% 6.6% 3.0%
Europe 50.4% 47.7% 58.0%
Middle East/Africa 1.4% 3.0% 3.5%
Asia Pacific 10.5% 5.2% 4.3%
------ ------ ------
100.0% 100.0% 100.0%
====== ====== ======
</TABLE>
-12-
<PAGE>
Year Ended September 30, 1997 Compared to the Year Ended September 30, 1996
Revenue. The Company's total revenue increased 13% for fiscal year 1997 as
compared to the previous year. The increase was attributable to increases in all
three categories of revenue -- software products, maintenance, and services.
Revenue in the United States and the Europe, Middle East, and Africa region
remained relatively constant. Revenue in Latin America declined, while revenue
in the Asia Pacific region increased by 5.3 percentage points as a percentage of
the Company's total revenue.
Software products. Software products revenue increased 19% in fiscal year
1997 as compared to fiscal year 1996. This increase is attributed to the
Company's establishment of direction and focus under its new management, which
had a favorable impact on its ability to reach new customers. New customer
contracts totaled twenty-eight in fiscal year 1997 as compared to only twelve in
fiscal year 1996, a 133% increase. The expansion of the channel partners program
also had a favorable impact on software product sales, with 10% of software
being sold to or through a non-IBM channel partner during fiscal year 1997.
Historically, the Company has entered into several marketing and distribution
agreements with IBM throughout the world, comprising 50% and 74% of total
software products revenue for fiscal years 1997 and 1996, respectively.
Maintenance. Maintenance revenue increased 11% in fiscal year 1997 as
compared to 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 three quarters of fiscal year 1997.
Services. Services revenue for the fiscal year 1997 increased 9% as
compared to the previous year. The increase in services revenue 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. During fiscal year 1997, the Company
experienced difficulty in retaining and recruiting consultants due to the
increase in market demand for personnel in the technology industry. Accordingly,
the Company is considering various alternatives, including reevaluating
consultants' compensation packages and developing strategic partnerships with
international systems integrators. The failure to retain and recruit qualified
consulting resources could have an unfavorable impact on the Company's ability
to grow its services revenue in the future.
Gross Profit. Total gross profit for fiscal year 1997 increased 33% from
the previous year. Total gross margin increased to 50% for fiscal year 1997 as
compared to 42% in fiscal year 1996. These increases are due primarily to the
increase in software revenue as a percentage of total revenue in fiscal year
1997, as well as improvements in margins for the services organization.
Software gross margin remained relatively constant, 96% for fiscal year
1997 as compared to 95% for fiscal year 1996. For fiscal year 1997 and 1996,
cost of software is primarily amortization of costs previously capitalized. As
the Company enters the componentware market, the Company anticipates that it
will pay royalties on certain application components, which could decrease
software gross margins in the future.
-13-
<PAGE>
Maintenance gross margin increased to 42% for fiscal year 1997 as compared
to 31% for fiscal year 1996. The increase in maintenance gross margin for
fiscal year 1997 was primarily due to an 11% increase in maintenance revenue
coupled with an 8% decline in maintenance costs. The most significant factor
contributing to the decline in costs is the reduction in commissions paid to
IBM, which supplies certain levels of maintenance services to European
customers. During the second quarter of fiscal year 1997, the contract was
renegotiated with more favorable terms for the Company. The contract
renegotiation has also significantly impacted the Company's accrued expenses and
prepaid assets in the Consolidated Balance Sheets.
Services margin for fiscal year 1997 increased to 23% as compared to 15%
for 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.
Sales and Marketing Expense. Sales and marketing expense for fiscal year
1997 decreased 30% as compared to the previous year. The decrease is 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 to make the sales process more efficient. As compared to fiscal year
1996, average sales headcount has decreased 22%. Additionally, sales expense in
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 fiscal year
1997. The Company anticipates that sales and marketing expense will increase
significantly during fiscal year 1998 as the Company begins its marketing
efforts related to its new strategic direction.
Research and Product Development Expense. Research and product development
expense decreased 26% for fiscal year 1997 compared to fiscal year 1996. The
decrease is primarily a result of a 20% loss in average employee headcount
through attrition. Although unintentional, this attrition is consistent with
the Company's redirection of its research and development organization in light
of Seer's new strategic plan. During fiscal year 1997, the Company has
experienced difficulty in recruiting employees for research and development due
to the increase in market demand for personnel in the technology industry.
Management is currently reevaluating the compensation packages for research and
development employees in an effort to curb attrition. Management believes that
it will be able to recruit and retain adequate resources to develop and release
new products. However, there can be no assurance that the Company will be
successful in attracting and retaining the personnel it requires to develop new
and enhanced products and to conduct its operations successfully.
General and Administrative Expense. General and administrative expense for
both fiscal years 1997 and 1996 was significantly impacted by adjustments for
uncollectible accounts receivable. In fiscal year 1997, the Company recorded a
$3.8 million reserve for an account which was determined to be uncollectible.
In fiscal year 1996, the Company recorded allowances of $10.1 million for
certain accounts receivable that were determined to be uncollectible and for the
resolution of a customer dispute. Management believes that there are adequate
provisions for uncollectible accounts in the consolidated financial statements.
General and administrative expense, excluding the nonrecurring charges discussed
above, has remained constant as a percentage of total revenue at 11% for both
fiscal years 1997 and 1996.
Restructuring Charges. During the first quarter of fiscal year 1997, 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. As of September 30, 1997, the Company had paid all
amounts accrued in fiscal years 1997 and 1996 for restructuring. The Company
believes its has no remaining obligations related to the restructuring.
-14-
<PAGE>
Provision for Income Taxes. The Company accounts for income taxes in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Income taxes increased from a benefit of ($13.7) million for
fiscal year 1996 to an expense of $1.2 million for fiscal year 1997. The
effective income tax rate decreased from 30% for fiscal year 1996 to (14.1%) for
fiscal year 1997 primarily due to the effect of foreign taxes and because an
income tax benefit was not recorded for the total net loss incurred in fiscal
year 1997. The Company has net deferred tax assets of $18.8 million as of
September 30, 1997, substantially all of which relate to net operating loss
carryforwards.
Management believes that, based on the available evidence, it is more
likely than not that the Company will not realize the full benefit of the net
operating loss carryforwards, foreign tax credits, research and development tax
credits, and alternative minimum tax credits. The factors that create
sufficient uncertainty include the limitations on carryforward periods, the
foreign source income and foreign tax credits, and the historical level of
annual foreign withholding taxes. As a result, valuation allowances have been
recorded for a portion of the net operating loss deferred tax asset and the full
amount of the foreign tax credits, research and development tax credits, and the
alternative minimum tax credits.
With respect to the net deferred assets, it is the opinion of management
that is more likely than not that the realization of these net deferred tax
assets will occur in the future based on current earnings forecasts, tax
planning strategies, which include the potential sale of a line of business
and/or product assets, and reversals of book-tax temporary differences.
Year Ended September 30, 1996 Compared to the Year Ended September 30, 1995
Revenue. The Company's total revenue decreased 18% for fiscal year 1996 as
compared to the previous year. The decrease was primarily attributable to a
decrease in software products revenue, which was partially offset by increases
in maintenance revenue and services revenue. Total revenue remained relatively
constant in the Asia Pacific region and increased 3% in North and South America.
In the Europe, Middle East, and Africa region, total revenue declined by 30%.
Software products. Software products revenue decreased 48% in fiscal year
1996 as compared to fiscal year 1995. While Seer was able to continue to build
business with existing customers, the lack of direction and focus both
internally and externally had a significant impact on the Company's ability to
reach new customers, resulting in a decline in the sales of new software
licenses. Software products sales to new customers as a percentage of total
software products revenue declined from approximately 60% in fiscal year 1995 to
27% in fiscal year 1996.
Maintenance. Maintenance revenue increased 18% in fiscal year 1996 as
compared to fiscal year 1995. Substantially all of the Company's existing
customers have historically renewed their maintenance contracts; therefore, the
increase for fiscal year 1996 is primarily a result of new customers added
during fiscal year 1995 and the first three quarters of fiscal year 1996.
Services. Services revenue for the fiscal year 1996 increased 11% as
compared to the previous year. The increase in services revenue is due primarily
to services related to license sales made in the third and fourth quarters of
fiscal year 1995, as well as the expanded use of the Seer*HPS family of products
by existing customers for more numerous and complex applications.
Gross Profit. Total gross profit for fiscal year 1996 decreased 47% from
the previous year. Total gross margin decreased to 42% for fiscal year 1996 as
compared to 65% in fiscal year 1995. These decreases are due primarily to the
decrease in software revenue as a percentage of total revenue in fiscal year
1996.
-15-
<PAGE>
Software gross margin decreased to 95% for fiscal year 1996 as compared to
99% for fiscal year 1995. The decline is a result of lower software revenue and
higher software amortization during fiscal year 1996. The $1.0 million increase
in amortization resulted from costs associated with Seer*HPS 5.3, which began to
be amortized when it became generally available in the first quarter of fiscal
year 1996, and Seer*HPS for Windows NT (previously named Seer/7000), which began
to be amortized when it became generally available in the fourth quarter of
fiscal year 1996.
Maintenance gross margins decreased to 31% for fiscal year 1996 as compared
to 33% for fiscal year 1995. The decrease in maintenance gross margins for
fiscal year 1996 was primarily due to a 22% increase in headcount-related
expenses and an 11% increase in fees paid to IBM for maintenance-related
services in Europe. The impact of the expense increases was partially offset by
an 18% increase in maintenance revenue.
Services margins for fiscal year 1996 decreased to 15% as compared to 31%
for fiscal year 1995. The decline in services margin is primarily a result of a
34% increase in the costs associated with headcount, outside contractors and
other consulting obligations while services revenue increased by only 11% for
fiscal year 1996.
Sales and Marketing Expense. Sales and marketing expense for fiscal year
1996 increased 12% as compared to the previous year. The increase is the result
of the expansion of the Company's sales force worldwide prior to the
restructuring discussed below, as well as an increase in certain commissions.
Average sales and marketing headcount increased 10% during fiscal year 1996 as
compared to fiscal year 1995. The 1996 amounts were also impacted by $.9 million
of marketing expenses recorded in conjunction with the sale of software to a
large customer in Europe and an increase of $.2 million in commissions paid to
IBM for sales of the Company's software products in South America made by IBM.
Research and Product Development Expense. Research and product development
expense increased 16% for fiscal year 1996 compared to fiscal year 1995. The
increase is primarily a result of personnel additions to develop and test new
products. Costs associated with headcount and outside contractors that were
expensed increased 13% for the fiscal year 1996 from the fiscal year 1995.
Capitalization of costs related to the development of Seer*HPS for Windows NT
(previously named Seer/7000), partially offset the impact of personnel additions
on the year's research and development expense in comparison to the prior year.
Costs capitalized for software development increased approximately $.7 million
for fiscal year 1996.
General and Administrative Expense. General and administrative expenses for
fiscal year 1996 were most significantly impacted by certain nonrecurring
adjustments. In the fourth quarter of fiscal year 1996, the Company recorded
allowances of $10.1 million for certain accounts receivable whose collection is
considered uncertain and for the resolution of a customer dispute. Excluding
these nonrecurring charges, general and administrative expense increased only 4%
from fiscal year 1995 as a result of increased headcount in the first half of
the fiscal year 1996 prior to the restructuring discussed below.
Restructuring Charges. During the third quarter of fiscal year 1996, the
Company developed and implemented a reorganizational plan. The Company recorded
a restructuring charge of $3.0 million, which consisted of approximately $1.4
million in personnel-related charges and approximately $1.6 million of costs
associated with carrying vacated leased space until the lease expiration date.
As of September 30, 1996, the Company had paid approximately $1.4 million in
cash related to the restructuring.
Provision for Income Taxes. Income taxes decreased from an expense of $3.7
million for fiscal year 1995 to a benefit of ($13.7) million for fiscal year
1996. The effective income tax rate decreased from 41.5% for fiscal year 1995 to
30% for fiscal year 1996. The decrease in the effective rate of 11.5% is
primarily attributed to lower foreign withholding taxes related to foreign
software license agreements and utilization of foreign tax credits.
-16-
<PAGE>
Liquidity and Capital Resources
During fiscal year 1995, net cash used in operating and investing
activities totaled $17.4 million. The Company financed this net cash outflow
through a $25 million revolving credit facility with a commercial bank and an
initial public offering that was completed in July, 1995. In its initial public
offering, the Company issued 3,093,397 shares of common stock, of which the
Company sold 2,953,487 shares while existing shareholders sold the remaining
139,910 shares. The Company received net proceeds from the initial public
offering of $49.4 million. The Company used $15.1 million of the proceeds to
retire all principal and interest outstanding under the Company's revolving
credit facility. The Company also redeemed its outstanding Senior Redeemable
Preferred Stock for an additional $15.1 million and paid $1.2 million of
dividends on preferred stock.
During fiscal year 1996, net cash used in operating and investing
activities totaled $40.5 million. The increase in expenditures from fiscal year
1995 was due primarily to increases in operating expenses to support headcount
growth. See "Results of Operations" above. Net cash used in operating
activities was also unfavorably impacted by an increase in the time of
collection for the Company's accounts receivable during fiscal year 1996, due
partially to extended payment terms granted to certain software customers.
Additionally, the Company recorded allowances of $10.1 million for certain
accounts receivable which were determined to be uncollectible and for the
resolution of a customer dispute. The Company financed the fiscal year 1996 net
cash outflow with the remaining proceeds from its initial public offering, two
credit facilities providing for combined borrowings up to $32.5 million based on
the Company's eligible accounts receivable, and through the issuance of
convertible preferred stock.
During August 1996, the Company sold 2,094,143 shares of Preferred Stock to
WCAS and certain WCAS affiliates, resulting in gross proceeds to the Company of
$12.5 million. The net proceeds from the sale of the Preferred Stock, which
totaled $12.3 million, were used for general corporate purposes. The sale of
the Preferred Stock was made in a private transaction exempt from the
registration requirements of the federal securities laws.
Each share of Preferred Stock may be converted at any time at the option of
the holder into shares of Common Stock at a conversion rate of one common share
for each share of Preferred Stock, subject to adjustment upon the occurrence of
certain events. The Preferred Stock is not entitled to receive dividends in any
fixed amount but will receive dividends on an as converted basis in the event
that a dividend is paid on the Common Stock. The Preferred Stock will rank
senior in right of payment to the Common Stock. In the event of any
liquidation, dissolution or winding up of the Company, holders of Preferred
Stock will be entitled to receive a liquidation preference of $5.969 per share
before payment is made or assets are distributed to holders of the Common Stock.
In addition, the holders of Preferred Stock are entitled to vote together with
the holders of Common Stock on all matters to be voted on by the stockholders of
the Company.
The Company is subject to certain restrictions while shares of Preferred
Stock remain outstanding, including restrictions on the Company's ability to
declare dividends, purchase or redeem any outstanding shares of Common Stock,
create or authorize the creation of additional classes of capital stock of the
Company, increase the authorized amount of Preferred Stock, or create or
authorize the creation of any securities convertible into shares of Preferred
Stock or any other class of capital stock of the Company.
During fiscal year 1997, net cash used in operating and investing
activities was $4.3 million. The Company credits the reduction in cash outflow
from fiscal years 1996 and 1995 to improvements in the timeliness of collections
and reductions in spending. The Company's ratio of days sales outstanding has
improved from 222 days at the end of fiscal year 1996 to 106 days at the end of
fiscal year 1997. The
-17-
<PAGE>
reorganizational plan implemented during the latter half of fiscal year 1996 and
the first quarter of fiscal year 1997 had a very favorable impact on operating
expenses. See the discussion of expense reductions in "Results of Operations"
above. As of September 30, 1997, the Company did not have any material
commitments for capital expenditures.
The Company has financed its net cash outflow in fiscal year 1997 through
credit facilities with commercial banks. At September 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 the higher of LIBOR plus 1.25% or .5% plus the
prime rate quoted by the Federal Reserve. The Guaranteed Facility is guaranteed
by 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 either party.
As of September 30, 1997, the Company had outstanding borrowings of $19.6
million under the Revolving Facility and $2.6 million under the Guaranteed
Facility. The interest rates for the Revolving Facility and the Guaranteed
Facility were 10.7% and 8.5%, respectively, at September 30, 1997.
During fiscal year 1997, the Company incurred approximately $280,000 of
expenses in connection with the renegotiation of its credit facility. The loan
costs are being amortized over the term of the facility. The unamortized loan
costs of $140,000 at September 30, 1997 are included in the Consolidated Balance
Sheet as a deduction from notes payable.
Due to payment terms of certain software contracts, a portion of the
related receivables are classified as non-current assets. As of September 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.
The Company's results of operations are very susceptible to fluctuation due
to foreign exchange rate movements. Beginning in fiscal year 1995, the Company
entered into foreign exchange forward contracts to hedge the exposures that
arise from foreign exchange rate movements between dates that foreign currency
denominated receivables are recorded and the date they are paid. Beginning in
fiscal year 1997, the Company has entered into similar contracts for foreign
currency denominated payables. The Company does not engage in foreign currency
speculation. In order to implement its hedging policy, the Company has a line
of credit of $3.5 million available to enter foreign exchange contracts. The
aggregate notional amount of foreign exchange contracts outstanding cannot
exceed $23.3 million. At September 30, 1997 the aggregate notional amount of
foreign exchange contracts outstanding was $10.3 million.
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 so long as the
Company continues to perform to its operating plan. 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.
-18-
<PAGE>
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.
The American Institute of Certified Public Accountants has issued Statement
of Position ("SOP") 97-2, "Software Revenue Recognition". SOP 97-2 is effective
for transactions entered into in fiscal years beginning after December 15, 1997
and provides guidance on applying generally accepted accounting principles in
recognizing revenue on software transactions. The Company does not expect the
application of the SOP to have a material impact on the Company's financial
condition or results of operations.
Item 8. Financial Statements and Supplementary Data.
- ----------------------------------------------------
The information required by this item appears beginning on page F-1 of this
report. See Items 14(a)(1) and (2).
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure.
- ----------------------------------------------------------------------------
None.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant.
- ------------------------------------------------------------
The information required by this item is incorporated by reference to
information included under the captions "Election of Directors," "Executive
Officers" and "Compliance with Section 16(a) of the Securities Exchange Act of
1934" in the Company's Proxy Statement for the 1998 Annual Meeting of
Stockholders.
Item 11. Executive Compensation.
- --------------------------------
The information required by this item is incorporated by reference to
information included under the captions "Election of Directors - Director
Compensation" and "- Compensation Committee Interlocks and Insider
Participation," "Executive Compensation," "Compensation Committee Report on
Executive Compensation" and "Stock Performance Graph" in the Company's Proxy
Statement for the 1998 Annual Meeting of Stockholders.
-19-
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- ------------------------------------------------------------------------
The information required by this item is incorporated by reference to
information included under the caption "Beneficial Ownership of Common Stock" in
the Company's Proxy Statement for the 1998 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions.
- --------------------------------------------------------
The information required by this item is incorporated by reference to
information included under the caption "Election of Directors - Compensation
Committee Interlocks and Insider Participation" in the Company's Proxy Statement
for the 1998 Annual Meeting of Stockholders.
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
- --------------------------------------------------------------------------
(a) The following documents are filed as part of this Report:
1. Financial Statements:
The following financial statements of the Company and the related
report of independent accountants thereon are set forth
immediately following the Index of Financial Statements which
appears on page F-1 of this report:
Report of Independent Accountants
Consolidated Balance Sheets as of September 30, 1997 and 1996
Consolidated Statements of Operations for each of the three years
in the period ended September 30, 1997
Consolidated Statements of Changes in Stockholders' Equity
(Capital Deficiency) for each of the three years in the period
ended September 30, 1997
Consolidated Statements of Cash Flows for each of the three years
in the period ended September 30, 1997
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable and therefore have been omitted.
3. (a) Exhibits:
The following exhibits are filed as part of this Report.
Parenthetical references indicate incorporation by reference
to documents previously filed by the Company with the
Securities and Exchange Commission (Commission File No. 0 -
26194).
-20-
<PAGE>
3.1 Certificate of Incorporation (Exhibit 3.1 to the Company's
Registration Statement on Form S-1, No. 33-92050), as
amended to include the Certificate of Designation of the
Series A Convertible Preferred Stock (included in Exhibit
4.4)
3.2 Amended and Restated By-Laws of the Company (Exhibit 3.2 to the
Company's Registration Statement on Form S-1, No. 33-92050)
4.1 Specimen Common Stock certificate (Exhibit 4.1 to the Company's
Registration Statement on Form S-1, No. 33-92050)
4.2 See Exhibits 3.1, 3.2, and 4.4 for the provisions of the
Company's Certificate of Incorporation and Bylaws governing the
rights of holders of securities of the Company
4.3 Specimen Preferred Stock Certificate (Exhibit 4.3 to the
Quarterly Report on Form 10-Q for the period ended June 30,
1996, No. 0-26194)
4.4 Certificate of Designation of Series A Convertible Preferred
Stock of the Company (Exhibit 4.4 to the Quarterly Report on
Form 10-Q for the period ended June 30, 1996)
10.6 Form of Employee's Non-Competition, Confidentiality and
Invention Assignment Agreement (Exhibit 10.6 to the Company's
Registration Statement on Form S-1, No. 33-92050)
10.7 Form of Consultant's Non-Competition, Confidentiality and
Invention Assignment (Exhibit 10.7 to the Company's Registration
Statement on Form S-1, No. 33-92050)
10.21 Lease Agreement, dated October 16, 1992, between the Company and
461 Eighth Avenue Associates (New York, NY) (Exhibit 10.21 to
the Company's Registration Statement on Form S-1, No. 33-92050)
10.22 Lease Agreement, dated December 25, 1992, between the Company
and Capital & Counties (London, England) (Exhibit 10.22 to the
Company's Registration Statement on Form S-1, No. 33-92050)
10.29* Form of Stock Option and Restricted Stock Purchase Plan of the
Company (Exhibit 10.29 to the Company's Registration Statement
on Form S-1, No. 33-92050), as amended by the First Amendment
thereto (Exhibit 10.1 to the Company's Report on Form 10-Q for
the Quarterly Period Ended June 30, 1995, No. 0-26194) and the
Second and Third Amendments thereto (Appendices A and B to the
Company's 1997 Proxy Statement filed under cover of Schedule
14A, No. 0-26194)
-21-
<PAGE>
10.30* Form of Stock Option Plan for Non-Employee Directors of the
Company (Exhibit 10.30 to the Company's Registration Statement
on Form S-1, No. 33-92050)
10.31* Form of Incentive Stock Option Agreement (Exhibit 10.31 to the
Company's Registration Statement on Form S-1, No. 33-92050)
10.32 Stock Purchase Agreement dated June 15, 1994 among the Company,
Welsh, Carson, Anderson & Stowe VI, L.P., WCA Management
Corporation, WCAS Information Partners, L.P., CS First Boston
Securities Corporation, and International Business Machines
Corporation (Exhibit 10.32 to the Company's Registration
Statement on Form S-1, No. 33-92050)
10.33 Securities Purchase and Exchange Agreement, dated September 30,
1994, among the Company, WCAS Capital Partners II, L.P., WCA
Management Corporation, WCAS Information Partners, L.P., CS
First Boston Securities Corporation, and International Business
Machines Corporation (Exhibit 10.33 to the Company's
Registration Statement on Form S-1, No. 33-92050)
10.35 Form of Indemnification Agreement (Exhibit 10.35 to the
Company's Registration Statement on Form S-1, No. 33-92050).
10.39 Credit Agreement and related Promissory Note between Seer
Technologies, Inc. and NationsBank, N.A. and related Guaranty
between the Company and WCAS, all dated July 15, 1996 (Exhibit
10.39 to the Quarterly Report on Form 10-Q for the period ended
June 30, 1996, No. 0-26194, as amended by the First Amendment
thereto dated March 27, 1997) (attached as Exhibit 10.48)
10.41 Preferred Stock Purchase Agreement dated August 8, 1996, among
the Company, WCAS and certain WCAS affiliates named therein
(Exhibit 10.41 to the Quarterly Report on Form 10-Q for the
period ended June 30, 1996, No. 0-26194)
10.42 Stock Agreement dated August 8, 1996, between the Company and
WCAS (Exhibit 10.42 to the Quarterly Report on Form 10-Q for the
period ended June 30, 1996, No. 0-26194)
10.43* Employment Agreement, dated August 8, 1996, between the Company
and Thomas A. Wilson (Exhibit 10.43 to the Annual Report on Form
10-K for the year ended September 30, 1996, No. 0-26194)
-22-
<PAGE>
10.45* Employment Agreement, dated September 23, 1996, between the
Company and Steven Dmiszewicki (Exhibit 10.45 to Annual Report
on Form 10-K for the year ended September 30, 1996, No. 0-26194)
10.46 Credit Agreement between Seer Technologies, Inc. and Greyrock
Business Credit, dated March 26, 1997 (Exhibit 10.46 to the
Quarterly Report on Form 10-Q for the period ended March 31,
1997, No. 0-26194)
10.47 Lease Amendment for the Company's Cary Office, dated March 31,
1997, between Seer Technologies, Inc. and Regency Park
Corporation (Cary, NC).(Exhibit 10.47 to the Quarterly Report on
Form 10-Q for the period ended March 31, 1997; No. 0-26194)
10.48 First Amendment to Credit Agreement dated March 27, 1997 between
Seer Technologies, Inc. and NationsBank, N.A.(Exhibit 10.48 to
the Quarterly Report on Form 10-Q for the period ended March 31,
1997, No. 0-26194; Original agreement is exhibit 10.39 to the
Quarterly Report on Form 10-Q for the period ended June 30,
1996, No. 0-26194)
10.49* Employment Agreement, dated December 103, 1996 between the
Company and Michael Reiff (filed herewith)
10.50* Employment Agreement, dated May 9, 1997, between the Company and
Ted Venema (filed herewith)
10.51 Amendment to Master Distribution and License Agreement between
the Company and IBM Ireland Information Services Limited dated
February 14, 1997 (filed herewith)
10.52* Seer Technologies, Inc. Employee Stock Purchase Plan(U.S.)
(Appendix A to the Company's Proxy Statement filed under cover
of Schedule 14A, No. 0-26194)
11.1 Statement regarding Computation of Earnings Per Share (filed
herewith)
21.1 Subsidiaries (filed herewith)
23.1 Consent of Coopers & Lybrand L.L.P. (filed herewith)
27.1 Financial Data Schedule (filed herewith)
* Management contract or compensatory agreement.
(b) Reports on Form 8-K
The Company filed no Reports on Form 8-K during the period covered by this
Report.
-23-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
33
SEER TECHNOLOGIES, INC.
By: /s/ Thomas A. Wilson
-------------------------------------
Thomas A. Wilson
President and Chief Executive Officer
Date: December 29, 1997
-----------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
Date: December 29, 1997 /s/ Robert A. Minicucci
------------------------- --------------------------------------
Robert A. Minicucci
Chairman of the Board
Date: December 29, 1997 /s/ Thomas A. Wilson
------------------------- --------------------------------------
Thomas A. Wilson
President and Chief Executive Officer
Date: December 29, 1997 /s/ Steven Dmiszewicki
------------------------- --------------------------------------
Steven Dmiszewicki
Senior Vice President and
Chief Financial Officer
Date: December 29, 1997 /s/ Bruce K. Anderson
------------------------- --------------------------------------
Bruce K. Anderson
Director
Date: December 29, 1997 /s/ Frank T. Cary
------------------------- --------------------------------------
Frank T. Cary
Director
Date: December 29, 1997 /s/ Anthony J. deNicola
------------------------- --------------------------------------
Anthony J. deNicola
Director
Date: December 29, 1997 /s/ George L. McTavish
------------------------- --------------------------------------
George L. McTavish
Director
</TABLE>
-24-
<PAGE>
SEER TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
-----------------------------
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Report of Independent Accountants........................................ F-2
Financial Statements
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Operations.................................... F-4
Consolidated Statements of Changes in Stockholders' Equity (Capital
Deficiency)............................................................. F-5
Consolidated Statements of Cash Flows.................................... F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
_________________
To the Stockholders of Seer
Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Seer
Technologies, Inc. as of September 30, 1997 and 1996, and the related
consolidated statements of operations, changes in stockholders' equity (capital
deficiency), and cash flows for each of the three years in the period ended
September 30, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Seer
Technologies, Inc. as of September 30, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended September 30, 1997 in conformity with generally accepted accounting
principles.
/s/ COOPERS & LYBRAND L.L.P.
Washington, D.C.
October 24, 1997
F-2
<PAGE>
SEER TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
September 30, September 30,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,268 $ 377
Trade accounts receivable, less allowance for doubtful accounts 31,383 42,938
Prepaid expenses and other current assets 1,947 4,116
Deferred income taxes 1,152 4,621
--------- ---------
Total current assets 38,750 52,052
Trade accounts receivable, net 2,041 3,803
Property and equipment, net 4,528 6,459
Capitalized software costs, net 3,206 3,057
Deferred income taxes, net of valuation allowance 17,599 12,971
Other assets 411 462
--------- ---------
Total assets $ 66,535 $ 78,804
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable, due on demand $ 22,052 $ 14,379
Accounts payable 4,279 3,487
Accrued expenses:
Compensation 1,964 3,920
Commissions 1,536 4,401
Other 5,241 8,463
Deferred revenue 7,813 10,853
Income taxes payable 1,826 2,586
--------- ---------
Total current liabilities 44,711 48,089
Deferred revenue 981 662
Commitments and contingencies (Notes 16 and 17)
Stockholders' equity:
Series A convertible preferred stock, $0.01 par value, 10,000,000
shares authorized in 1997 and 1996, respectively; 2,094,143 shares
issued and outstanding at September 30, 1997 and 1996; $5.969
per share liquidation preference (aggregate liquidation value of
$12,500,000) 21 21
Common stock, $0.01 par value, 30,000,000 shares authorized
in 1997 and 1996, respectively; 11,865,167 and 11,612,107
shares issued and outstanding at September 30, 1997 and 1996,
respectively 119 116
Additional paid-in-capital - preferred 12,281 12,281
Additional paid-in-capital - common 58,486 57,544
Cumulative translation adjustments (644) (505)
Accumulated deficit (49,420) (39,404)
--------- ---------
Total stockholders' equity 20,843 30,053
--------- ---------
Total liabilities and stockholders' equity $ 66,535 $ 78,804
========= =========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-3
<PAGE>
SEER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Years Ended
September 30,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating revenue:
Software products $ 34,244 $ 28,795 $ 55,419
Maintenance 14,598 13,182 11,142
Services 54,311 49,680 44,924
---------- ---------- ----------
Total operating revenue 103,153 91,657 111,485
Cost of revenue:
Software products 1,545 1,562 568
Maintenance 8,436 9,157 7,471
Services 41,860 42,401 30,904
---------- ---------- ----------
Total cost of revenue 51,841 53,120 38,943
Gross profit 51,312 38,537 72,542
Operating expenses:
Sales and marketing 30,693 43,982 39,405
Research and product development 12,485 16,789 14,523
General and administrative 14,705 19,878 9,360
Restructuring charges 500 3,000 -
---------- ---------- ----------
Total operating expenses 58,383 83,649 63,288
---------- ---------- ----------
Income (loss) from operations (7,071) (45,112) 9,254
Other income (expense):
Interest income 514 648 254
Interest expense (2,181) (802) (701)
---------- ---------- ----------
Other income (expense), net (1,667) (154) (447)
---------- ---------- ----------
Income (loss) before provision for income taxes (8,738) (45,266) 8,807
Income tax provision (benefit) 1,228 (13,684) 3,655
---------- ---------- ----------
Net income (loss) $ (9,966) $ (31,582) $ 5,152
=========== =========== ==========
Primary earnings (loss) per common and
common equivalent share $ (0.85) $ (2.76) $ 0.45
=========== ============ ==========
Weighted average common and common
equivalent shares outstanding 11,707 11,445 11,507
=========== ============ =========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-4
<PAGE>
SEER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Series A Series B Series C
Preferred Stock Preferred Stock Preferred Stock Common Stock
--------------- --------------- --------------- ------------
Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1994 $ $ -- 2,384,615 $ 24 98,816 $ 1 1,591,973 $ 16
Issuance of common shares 2,970,987 30
Repurchase of common shares (2,486)
Accretion of Senior redeemable
preferred stock to mandatory
redemption amount
Senior redeemable preferred stock
dividends earned
Conversion of Series B preferred
stock to common shares (2,384,615) (24) (98,816) (1) 6,593,842 66
Conversion of Series C preferred
stock to common shares 197,632 2
Cumulative translation adjustment
Net income
--------- ------- --------- ------ -------- ------ ------------ ------
Balance at September 30, 1995 11,351,948 114
Issuance of convertible preferred
shares 2,094,143 21
Issuance of common shares 260,159 2
Cumulative translation adjustment
Net loss
--------- ------- --------- ------ -------- ------ ---------- ------
Balance at September 30, 1996 2,094,143 21 11,612,107 116
Issuance of common shares 263,060 3
Repurchase of common shares (10,000)
Cumulative translation adjustment
Net loss
--------- ------- --------- ------ -------- ------ ---------- ------
Balance at September 30, 1997 2,094,143 21 11,865,167 119
========= ======= ========= ====== ======== ====== ========== ===
<CAPTION>
Total
Additional Additional Stockholders'
Paid-in Paid-in Cumulative Equity/
Capital- Capital- Translation Accumulated (Capital
Preferred Common Adjustments Deficit Deficiency)
--------- ----------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1994 $ -- $ 10,969 $ (132) $ (12,974) $ (2,096)
Issuance of common shares 48,767 48,797
Repurchase of common shares (22) (22)
Accretion of Senior redeemable
preferred stock to mandatory
redemption amount (1,940) (1,940)
Senior redeemable preferred stock
dividends earned (1,190) (1,190)
Conversion of Series B preferred
stock to common shares (42) (1)
Conversion of Series C preferred
stock to common shares (1) 1
Cumulative translation adjustment (263) (263)
Net income 5,152 5,152
------- ------- ------ -------- -------
Balance at September 30, 1995 56,541 (395) (7,822) 48,438
Issuance of convertible preferred
shares 12,281 12,302
Issuance of common shares 1,003 1,005
Cumulative translation adjustment (110) (110)
Net loss (31,582) (31,582)
------- ------- ------ -------- -------
Balance at September 30, 1996 12,281 57,544 (505) (39,404) 30,053
Issuance of common shares 992 995
Repurchase of common shares (50) (50) (100)
Cumulative translation adjustment (139) (139)
Net loss (9,966) (9,966)
------- ------- ------ -------- -------
Balance at September 30, 1997 $12,281 $58,486 $(644) $(49,420) $20,843
======= ======= ====== ======== =======
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-5
<PAGE>
SEER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Years Ended
September 30,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (9,966) $ (31,582) $ 5,152
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 4,664 4,475 2,740
Deferred income taxes (1,159) (16,577) 145
Provision for uncollectible accounts 4,338 10,158 773
Other 86 - -
Changes in assets and liabilities:
Trade accounts receivable 8,863 (9,043) (23,771)
Prepaid expenses and other assets 1,882 28 (2,389)
Accounts payable, accrued expenses,
and income taxes payable (7,899) 2,444 5,635
Deferred revenue (2,721) 3,922 (492)
----------- ----------- ----------
Net cash used in operating activities (1,912) (36,175) (12,207)
Cash flows from investing activities:
Purchases of property and equipment (1,031) (2,768) (4,239)
Capitalization of software development costs (1,373) (1,600) (929)
----------- ----------- ----------
Net cash used in investing activities (2,404) (4,368) (5,168)
Cash flows from financing activities:
Issuance of common shares 797 602 48,797
Repurchase of common shares (100) - (22)
Issuance of preferred shares - 12,500 -
Preferred stock issuance costs - (198) -
Preferred stock dividend - - (1,190)
Redemption of Senior Redeemable Preferred Stock - - (15,135)
Debt issuance costs (280) - -
Net borrowings under lines of credit 7,813 14,379 (2,700)
----------- ----------- ----------
Net cash provided by financing activities 8,230 27,283 29,750
Effect of exchange rate changes on cash (23) (13) (3)
----------- ----------- ----------
Net increase (decrease) in cash and cash equivalents 3,891 (13,273) 12,372
Cash and cash equivalents:
Beginning of period 377 13,650 1,278
----------- ----------- ----------
End of period $ 4,268 $ 377 $ 13,650
=========== =========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income Taxes $ 2,400 $ 1,596 $ 1,549
=========== =========== ==========
Interest $ 2,040 $ 846 $ 701
=========== =========== ==========
</TABLE>
During fiscal year 1996, the Company issued 75,000 shares of its common
stock to Welsch, Carson, Anderson, & Stowe IV ("WCAS") in exchange for
WCAS's guaranty of up to $12,500 of the Company's line of credit. The
market value of the common stock on the date of issuance, approximately
$403, was capitalized and is being amortized over the life of the guaranty.
Approximately $67 of the guaranty-related cost was amortized during fiscal
year ended September 30, 1996. The remainder of the guaranty was amortized
during fiscal 1997.
The accompanying notes are an integral part of the consolidated
financial statements.
F-6
<PAGE>
SEER TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share data)
Note 1. Summary of Operations and Significant Accounting Policies
Operations
Seer Technologies, Inc. (the "Company") is one of the software industry's
earliest pioneers and a long-time leader in component-based software application
development. During fiscal year 1997, the Company announced its new strategic
direction, which when fully implemented will transition the Company from a
distributor of application development tools and middleware to a supplier of
enterprise componentware for selected vertical markets. Enterprise
componentware is a combination of application components--reusable, customizable
partial applications--and the infrastructure technologies that enable their
creation, customization, and assembly.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly owned. All significant
intercompany accounts and transactions are eliminated in consolidation.
Foreign Currency Translation
The assets and liabilities of foreign subsidiaries are translated to U.S.
dollars at the current exchange rate as of the balance sheet date. The
resulting translation adjustment is recorded as a separate component of
stockholders' equity. Statements of operations items are translated at average
rates of exchange during each reporting period. Transaction gains and losses
are included in current operations. Realized and unrealized net losses (gains)
for transactions denominated in foreign currencies were $136, $556, and $264
respectively, for the fiscal years ended September 30, 1997, 1996, and 1995.
Revenue Recognition
Revenue from the non-exclusive licensing of existing software products is
recognized when the software is accepted and delivered or installed by the
customer in accordance with the terms of the contract and only if no significant
vendor obligations remain and collection of the resulting receivables is deemed
probable. For license agreements where maintenance is bundled with the software
license for a time period greater than three months, an appropriate portion of
the license fees is deferred and amortized over the initial maintenance period.
Revenue from recurring maintenance contracts is recognized ratably over the
maintenance contract period, which is typically twelve months. Maintenance
revenue that is not yet earned is included in deferred revenue.
Revenue from consulting and training services is recognized as services are
performed.
Proceeds from product development contracts are recorded as deferred revenue
when collected and the revenue is recognized as the development work is
performed.
The Company typically does not grant to its customers a contractual right to
return software products. Accordingly, no provision for estimated returns is
recorded at the time of sale. When approved by management, however, the Company
will accept returns of certain software products and will provide an allowance
for those specific transactions.
Cost of Revenue
The primary components of the Company's cost of revenue for its software
products are packaging and distribution costs, software amortization and
royalties. The primary components of the Company's cost of revenue for
maintenance are payments under various distribution and marketing agreements
with IBM and customer support. A portion of the costs related to customer
support are deferred and recognized as the service is provided. The primary
component of the Company's cost of revenue for services is compensation expense.
Cash and Cash Equivalents
Cash and cash equivalents include all cash balances and highly liquid
investments with a maturity of three months or less from the date of purchase.
For these instruments, the carrying amount is a reasonable estimate of fair
value. The Company places substantially all cash and cash equivalents with
various financial institutions in both the United States and several foreign
countries. At times, such cash and cash equivalents may be in excess of FDIC
insurance limits.
F-7
<PAGE>
Property and Equipment
Property and equipment is stated at cost and depreciated using the straight-line
method over the estimated useful lives of the related assets as follows:
Leasehold improvements The lesser of the lease term
or estimated useful life
Furniture and fixtures 3 to 5 years
Office equipment 3 years
Computer equipment 4 years
Expenditures for repairs and maintenance are charged to expense as incurred.
The cost and related accumulated depreciation of property and equipment are
removed from the accounts upon retirement or other disposition and any resulting
gain or loss is reflected in operations.
Software Costs
The Company capitalizes certain software costs after technological feasibility
of the product has been established. The establishment of technological
feasibility and the ongoing assessment of recoverability of capitalized software
development costs requires considerable judgment by management with respect to
certain external factors, including, but not limited to, technological
feasibility, anticipated future gross revenue, estimated economic life and
changes in software and hardware technologies.
All capitalized software costs are amortized over related sales on a product-by-
product basis at the greater of the amount computed using (a) the ratio of
current gross revenues for a product to the total of current and anticipated
future gross revenues or (b) the straight-line method over the remaining
estimated economic life of the product. Generally, an original estimated
economic life of three years is assigned to capitalized software costs, once the
product is available for general release to customers. Costs incurred prior to
the establishment of technological feasibility is charged to research and
development expense.
Research and Product Development
Research and product development costs are expensed as incurred.
Forward Exchange Contracts
The Company conducts its business in various foreign currencies. As a result,
it is subject to the transaction exposures that arise from foreign exchange rate
movements between the dates that foreign currency transactions are recorded and
the date they are consummated. The Company enters into foreign exchange forward
contracts to hedge the effect of fluctuating foreign currencies on its results
of operations (see Note 12). Gains and losses associated with exchange rate
fluctuations on forward contracts are recorded currently as income or loss as
they offset corresponding gains and losses on the foreign currency denominated
assets or liabilities being hedged. The gains and losses are computed by
multiplying the foreign currency amounts of the forward contracts by the
difference between the spot rate at the balance sheet date and the spot rate at
the date of inception of the forward contracts. The costs of the forward
contracts are recorded as expense over the lives of the contracts. Cash flows
related to forward exchange contracts are classified in the Consolidated
Statement of Cash Flows in the same categories as the hedged assets or
liabilities.
Income Taxes
The provision for income taxes includes United States federal, state and foreign
income taxes, each currently payable and deferred, as determined in accordance
with the provisions of Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes". This statement requires that all deferred
tax asset and liability balances be determined by application to temporary
differences of the tax rate expected to be in effect when taxes will become
payable or receivable. Temporary differences are differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements that will result in taxable or deductible amounts in future years.
The Company's temporary differences consist primarily of accelerated
depreciation, deferred revenue and capitalized software costs.
Earnings Per Share
Primary earnings per share are based on the weighted average number of common
shares and common share equivalents outstanding during the period. The Series B
and Series C convertible preferred shares issued that were automatically
converted upon the effective date of the public offering have been included as a
common share equivalent for the years ended September 30, 1995. Stock options
issued to employees during the twelve months immediately preceding the initial
filing date of the public offering have been included in the calculation for the
year ended September 30, 1995 as if they were outstanding for 1995, using the
treasury stock method. The per share data for 1995 is presented pro forma,
giving effect to
F-8
<PAGE>
the number of shares whose proceeds would be necessary to pay the redemption
value and accrued dividends on the Senior Redeemable Preferred Stock on the
effective date of the public offering. All common stock equivalents are excluded
from the primary earnings per share calculation for the fiscal years ended
September 30, 1997 and 1996 since their inclusion would be antidilutive.
Presentation of fully diluted earnings per share is not required for fiscal
years 1997, 1996, or 1995.
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.
Reclassifications
Certain prior year amounts in the accompanying financial statements have been
reclassified to conform to the 1997 presentation. Such reclassifications had no
effect on previously reported net income or stockholders' equity.
Note 2. Property and Equipment
Property and equipment consists of the following at September 30:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Computer equipment $ 12,961 $ 12,137
Leasehold improvements 2,122 2,112
Office equipment 1,286 1,257
Furniture and fixtures 2,354 2,529
-------- --------
18,723 18,035
Less accumulated depreciation and amortization (14,195) (11,576)
-------- --------
$ 4,528 $ 6,459
======== ========
</TABLE>
Depreciation and amortization expense was $2,962, $3,137, and $2,419 for the
fiscal years ended September 30, 1997, 1996, and 1995, respectively.
Note 3. Capitalized Software Costs
For the fiscal years ended September 30, 1997, 1996 and 1995, the Company
capitalized $1,372, $1,600, and $929, respectively, of internal costs related to
developing software for sale. During the fiscal years ended September 30, 1997,
1996 and 1995, the Company recognized $1,223, $968, and $309, respectively, of
expense related to the amortization of these costs, which is recorded in cost of
revenue, software products, in the Consolidated Statements of Operations.
Accumulated amortization of capitalized software costs is $2,814 and $1,591 at
September 30, 1997 and 1996, respectively.
Note 4. Accounts Receivable
Trade accounts receivable consists of the following at September 30:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current trade accounts receivable $33,355 $52,693
Less: Allowance for doubtful accounts (1,360) (9,351)
Unamortized discount (612) (404)
------- -------
$31,383 $42,938
======= =======
Noncurrent trade accounts receivable $ 2,414 $ 4,185
Less: Unamortized discount (373) (382)
------- -------
$ 2,041 $ 3,803
======= =======
</TABLE>
All noncurrent receivables were unbilled at September 30, 1997 and 1996.
Approximately $8,942 and $4,830 of current trade receivables were unbilled at
September 30, 1997 and 1996.
F-9
<PAGE>
Discounts on receivables with payment terms in excess of one year were
calculated based on an imputed interest rate of 12%, 10% and 7.4% for fiscal
years ended September 30, 1997, 1996 and 1995, respectively.
The provision for uncollectible amounts was $4,338, $10,158 and $773 for the
years ended September 30, 1997, 1996 and 1995 respectively. Write-offs of
accounts receivable were $12,329, $1,457 and $123 for the years ended September
30, 1997, 1996 and 1995, respectively.
Note 5. Credit Facilities
At September 30, 1997, the Company maintained two credit facilities (the
"Revolving Facility" and the "Guaranteed Facility") which provided 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 the
higher of LIBOR plus 1.25% or .5% plus the prime rate quoted by the Federal
Reserve. 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 September 30, 1997, the Company had outstanding borrowings of $19,567
under the Revolving Facility and $2,625 under the Guaranteed Facility. The
interest rates for the Revolving Facility and the Guaranteed Facility were 10.7%
and 8.5%, respectively, at September 30, 1997.
During fiscal year 1997, the Company incurred approximately $280 in connection
with the renegotiation of its revolving credit facility. The loan costs are
being amortized over the term of the facility. The unamortized loan costs of
$140 at September 30, 1997 are included in the Consolidated Balance Sheet as a
deduction from notes payable.
In connection with the Guaranty Agreement, the Company issued 75,000 shares of
its common stock to WCAS. The market value of the capital stock on the date of
issuance, approximately $403, was capitalized and is being amortized over the
life of the guaranty. Approximately $67 of the guaranty-related cost was
amortized during the fiscal year ended September 30, 1996. The remainder of the
guaranty-related cost was amortized during the fiscal year ended September 30,
1997.
Additionally, the Company has a line of credit of $3,500 available to enter
foreign exchange contracts. The aggregate notional amount of foreign exchange
contracts outstanding from the lender cannot exceed $23,333. At September 30,
1997 the aggregate notional amount of foreign exchange contracts outstanding
from the lender was $10,323.
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 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.
Note 6. Initial Public Offering
In July 1995, the Company completed its initial public offering of 3,093,397
shares of common stock (the "Common Stock"), of which the Company sold 2,953,487
shares and 139,910 shares were sold by selling stockholders. The Company
F-10
<PAGE>
received net proceeds from the initial public offering of $49,441. A series of
transactions occurred in conjunction with the initial public offering:
. Issuance of 6,593,842 shares of Common Stock upon the automatic conversion
and retirement of all outstanding Series B Convertible Preferred Stock
(2.76516 common shares for each Series B share).
. Issuance of 197,632 shares of Common Stock upon the automatic conversion and
retirement of all outstanding Series C Convertible Preferred Stock (2 common
shares for each Series C share).
. Payment of the accrued Senior Redeemable Preferred Stock Dividend of $417;
and accretion and redemption of the Senior Redeemable Preferred Stock at a
cost of $15,135.
. Repayment of $15,103, representing all principal and accrued interest
outstanding under the Company's revolving credit facility agreement with a
commercial bank.
Note 7. Convertible Preferred Stock
During August 1996, the Company sold 2,094,143 shares of its newly authorized
Series A Convertible Preferred Stock (the "Preferred Stock") to WCAS and certain
WCAS affiliates, resulting in gross proceeds to the Company of $12,500. The
proceeds from the sale of the Preferred Stock were used for general corporate
purposes. Approximately $198 of expenses was incurred in connection with the
stock issuance and has been recorded in the Consolidated Statement of
Stockholders' Equity (Capital Deficiency) as an offset to the Preferred Stock
proceeds. The sale of the Preferred Stock was made in a private transaction
exempt from the registration requirements of the federal securities laws.
Each share of Preferred Stock may be converted at any time at the option of the
holder into shares of Common Stock at a conversion rate of one common share for
each share of Preferred Stock, subject to adjustment upon the occurrence of
certain events. The Preferred Stock is not entitled to receive dividends in any
fixed amount but will receive dividends on an as converted basis in the event
that a dividend is paid on the Common Stock. The Preferred Stock will rank
senior in right of payment to the Common Stock. In the event of any
liquidation, dissolution or winding up of the Company, holders of Preferred
Stock will be entitled to receive a liquidation preference of $5.969 per share
before payment is made or assets are distributed to holders of the Common Stock.
In addition, the holders of Preferred Stock are entitled to vote together with
the holders of Common Stock on all matters to be voted on by the stockholders of
the Company.
The Company is subject to certain restrictions while shares of Preferred Stock
remain outstanding, including restrictions on the Company's ability to declare
dividends, purchase or redeem any outstanding shares of its Common Stock, create
or authorize the creation of additional classes of capital stock of the Company,
increase the authorized amount of Preferred Stock, create or authorize the
creation of any securities convertible into shares of Preferred Stock or any
other class of capital stock of the Company.
Note 8. Stock-Based Compensation Plans
The Company has a Stock Option and Restricted Stock Purchase Plan pursuant to
which certain employees and officers of the Company have been or will be granted
nonvested stock or stock options to acquire up to a maximum of 2,900,000 shares
of the Company's common stock. Prior to October 1, 1996, options granted under
this plan vested through September 30, 2004, subject to accelerated vesting at
the end of each fiscal year from 1995 to 1998, based on company performance
objectives, as defined in the plan. During the fiscal year ended September 30,
1996, the Company exchanged all options with exercise prices of $7.50 or more
per share for options with an exercise price of $6.38 per share, which was the
fair market value of the Company's common stock on the date of exchange.
Effective October 1, 1996, the vesting provisions of the plan were amended so
that the nonvested stock and stock options issued after that date vest over a
specified period of time as determined by the Company's compensation committee
when the options are granted. Vesting provisions for options issued prior to
October 1, 1996 were amended so that any options existing at October 1, 1996
vested over a four year period. Option exercise prices are no less than 100% of
the fair market value at the date of grant, and vested options may be exercised
for a period of up to ten years from the date of grant.
The Company also has a Stock Option Plan for Non-Employee Directors, pursuant to
which non-employee directors can be granted options to acquire up to 200,000
shares of the Company's common stock, with a maximum of 10,000 options available
per non-employee director. The options vest in one-third increments on each of
the first through third anniversaries of the grant date.
F-11
<PAGE>
Activity for stock options issued under these plans for the fiscal years ending
September 30, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Plan Option Price Exercise
Activity per Share Price
-------- --------- -----
<S> <C> <C> <C>
Balance at September 30, 1994 -
Granted 2,219,000 $3.25 - $18.00 $3.39
Forfeited (71,350) 3.25 - 18.00 3.66
--------
Balance at September 30, 1995 2,147,650 3.25 - 18.00 3.38
Granted 735,450 5.50 - 18.00 9.91
Exercised (185,159) 3.25 - 10.00 3.26
Forfeited (581,696) 3.25 - 14.50 3.64
---------
Balance at September 30, 1996 2,116,245 3.25 - 18.00 4.74
Granted 808,625 3.25 - 6.50 4.37
Exercised (243,696) 3.25 - 6.38 3.26
Forfeited (907,805) 3.25 - 6.38 3.64
---------
Balance at September 30, 1997 1,773,369 3.25 - 18.00 5.31
=========
</TABLE>
In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123, "Accounting for Stock-Based Compensation". SFAS 123 is effective for
periods beginning after December 15, 1995. SFAS 123 requires that companies
either recognize compensation expense for grants of stock, stock options, and
other equity instruments based on fair value, or provide pro forma disclosure of
net income and earnings per share in the notes to the financial statements. The
Company adopted the disclosure provisions of SFAS 123 in fiscal year 1997 and
has applied Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for its stock option plans. Had compensation cost for the
Company's stock-based compensation plans been determined based on the fair value
at the grant dates as calculated in accordance with SFAS 123, the Company's net
loss and loss per share for the fiscal years September 30, 1997 and 1996 would
have been increased to the pro forma amounts indicated below.
The weighted average grant date fair value of options issued during the years
ended September 30, 1997 and 1996 was equal to $2.72 and $3.87 per share,
respectively. The fair value of options granted during the fiscal years ended
September 30, 1997 and 1996 was equal to $2,159 and $2,813, respectively.
There were no option grants issued below fair market value during fiscal years
1997 or 1996.
The fair value of the Company's stock-based awards to employees was estimated as
of the date of the grant using the Black-Scholes option-pricing model, using the
following weighted-average assumptions:
<TABLE>
<S> <C>
Expected life (in years) 5
Expected volatility 70%
Risk free interest rate 6.14% - 6.40%
Expected dividend yield 0%
</TABLE>
F-12
<PAGE>
For disclosure purposes, the adjusted estimated fair value of the Company's
stock-based awards to employees is amortized over the vesting period. The
Company's adjusted information follows (in thousands, except for per share
information):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net income (loss), as reported $ (9,966) $ (31,582)
Net income (loss), as adjusted (10,591) (31,703)
Pro forma net income (loss) per share as
reported $ (0.85) $ (2.76)
Pro forma net income (loss) per share as
adjusted $ (0.90) $ (2.77)
</TABLE>
During the fiscal year ended September 30, 1997, the Company issued 38,500
shares of nonvested stock to employees. The Company recognized compensation
expense with respect to nonvested stock awards equal to the difference between
the market price and the par value of the stock on the grant date. Compensation
expense recognized during fiscal year 1997 for nonvested stock was $172. All of
the nonvested stock outstanding at September 30, 1997 (23,500 shares) vests
during fiscal year 1998, unless forfeited.
At September 30, 1997 and 1996 options to purchase approximately 284,015 and
184,348 shares of common stock were exercisable, respectively, pursuant to the
plans at prices ranging from $3.25 to $18.00. The following table summarizes
information about stock options outstanding at September 30, 1997:
<TABLE>
<CAPTION>
Remaining
Contractual Life
Number for Options Number
Exercise Price Outstanding Outstanding Exercisable
-------------- ----------- ----------- -----------
<S> <C> <C> <C>
$3.25 433,802 6.35 131,694
$3.75 401,500 9.17 -
$4.00 10,000 9.54 -
$4.75 31,125 9.34 3,333
$5.00 200,000 9.33 -
$5.50 312,000 8.91 75,000
$5.63 22,000 9.79 -
$6.00 20,000 9.95 -
$6.06 17,000 9.92 -
$6.38 200,942 8.56 48,988
$6.50 25,000 9.50 -
$18.00 100,000 8.89 25,000
--------- -------
1,773,369 284,015
========= =======
</TABLE>
Note 9. Employee Benefit Plans
The Company has a 401(k) plan for all U.S. employees. Effective January 1, 1997,
the Company amended the plan to provide a 25% matching contribution for an
employee's contribution up to 4% of an employee's salary. Participants must be
employed at December 31 of each calendar year to be eligible for employer
matching contributions. Prior to this amendment, matching contributions were
made at the discretion of the Board of Directors. For the years ended September
30, 1996 and 1995, the Board of Directors did not authorize any contributions to
the 401(k) plan.
The Company also has employee benefit plans for each of its foreign
subsidiaries, as mandated by each country's laws and regulations. Expense
recognized under these plans for the years-ended September 30, 1997, 1996, and
1995 was $684, $629, and $400, respectively.
During the second quarter of fiscal year 1996, the Company adopted the Seer
Technologies, Inc. Employee Stock Purchase Plan for its U.S. employees. The plan
allows employees to purchase shares of the Company's common stock for 85% of
fair market value. The Company is responsible for the differential in market
value, as well as, all administrative costs of the plan. For fiscal years 1997
and 1996, the Company incurred expenses of $48 and $31, respectively, for the
plan.
F-13
<PAGE>
Note 10. Significant Customers and Concentration of Credit Risk
No one customer accounted for more than 10% of operating revenue for the fiscal
years ended September 30, 1997 and 1996. During the fiscal years ended September
30, 1995, there were sales to one major customer that exceeded 10% of operating
revenue. Revenues from this customer, Banca Commerciale Italiana, were $20,457
or 17% of revenues for the year ended September 30, 1995.
The Company has entered into several marketing and distribution agreements with
IBM throughout the world. Transactions resulting from these agreements are as
follows for the fiscal years ended September 30:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Expenses incurred $ 1,720 $ 4,907 $ 4,375
Revenues generated $55,029 $59,493 $ 79,019
Percentage of revenues 53% 65% 71%
Percentage of outstanding
receivables 46% 70% 70%
</TABLE>
As of September 30, 1997 and 1996, the Company had outstanding trade accounts
receivable primarily from 97 and 128 customers, respectively. It is the policy
of the Company to closely monitor all accounts receivable and to record a
provision for uncollectible accounts when the uncollectible amounts are
estimable. Generally, no collateral is required.
Note 11. Foreign and Domestic Operations and Export Sales
The following table presents a summary of operations by geographic region for
the fiscal years ended September 30:
Revenue
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
United Kingdom $ 24,183 $ 28,512 $ 20,970
Ireland 183 8,207 11,013
The Netherlands 315 3,056 6,223
Italy 6,862 5,805 3,847
Other 17,527 20,414 12,146
-------- -------- --------
Total 49,070 65,994 54,199
Intercompany eliminations (46,653) (54,735) (38,009)
-------- -------- --------
Total foreign revenue 2,417 11,259 16,190
Domestic revenue 100,736 80,398 95,295
-------- -------- --------
Total revenue $103,153 $ 91,657 $111,485
======== ======== ========
</TABLE>
Operating income (loss)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
United Kingdom $ 1,208 $ 1,388 $ 1,238
Ireland 118 253 345
The Netherlands 84 230 428
Italy 509 442 277
Other 557 289 316
------- --------- -------
Total foreign operating income 2,476 2,602 2,604
Domestic operating income (loss) (11,214) (47,868) 6,203
------- --------- -------
Total operating income (loss) $(8,738) $ (45,266) $ 8,807
======= ========= =======
</TABLE>
F-14
<PAGE>
Identifiable Assets
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
United Kingdom $ 5,956 $ 5,894 $ 4,696
Ireland 1,468 1,453 694
The Netherlands 682 1,181 705
Italy 2,703 2,211 1,004
Other 4,659 4,557 3,008
------- ------- -------
Total 15,468 15,296 10,107
Intercompany eliminations (8,102) (376) (3,009)
------- ------- -------
Total foreign identifiable assets 7,366 14,920 7,098
Domestic assets 59,169 63,884 69,346
------- ------- -------
Total assets $66,535 $78,804 $76,444
======= ======= =======
</TABLE>
The Company's foreign operations are reimbursed by the Company for their costs
plus an appropriate mark-up for profit. Operating income consists of revenues
less operating expenses and net interest and does not include income taxes.
Export sales for the fiscal years ended September 30, 1997, 1996, and 1995 were
$70,288, $55,382 and $84,965, respectively.
Note 12. Foreign Currencies and Forward Exchange Contracts
At September 30, 1997, the Company had approximately $1,378 and $15,618 U.S.
dollar equivalent cash and trade receivable balances, respectively, denominated
in foreign currencies. At September 30, 1996, the Company had approximately $789
and $30,843 U.S. dollar equivalent cash and trade receivable balances,
respectively, denominated in foreign currencies.
The more significant trade accounts receivable denominated in foreign currencies
as a percentage of total trade accounts receivable were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Pound Sterling 9.2% 17.3%
Australian Dollar 7.2% 1.1%
Deutsche Mark 2.0% 9.5%
Brazilian Real 4.2% -
Italian Lira 12.4% 20.7%
</TABLE>
Beginning in fiscal year 1995, the Company entered into foreign exchange forward
contracts to hedge the exposures that arise from foreign exchange rate movements
between dates that foreign currency denominated receivables are recorded and the
date they are paid. Beginning in fiscal year 1997, the Company has entered into
similar contracts for foreign currency denominated payables. The Company does
not engage in foreign currency speculation. The forward contracts are generally
60 to 90 day forward window contracts having maturities of less than one year.
The table below summarizes, by currency, the contractual amounts of the
Company's forward contracts for the years ended September 30:
<TABLE>
<CAPTION>
1997
----
Outbound transactions
As of September 30, 1997
-----------------------------------------
Original Contract Contract Fair Unrealized
Currency Contracts Drawdowns Balance Value Gain/(Loss)
-------- --------- --------- -------- ----- -----------
<S> <C> <C> <C> <C> <C>
Australian Dollars $ 389 $ (389) $ - $ - $ -
Pound Sterling 13,264 (7,865) 5,399 5,496 97
Deutsche Mark 3,405 (3,405) - - -
-------- -------- -------- -------- --------
Total $ 17,058 $(11,659) $ 5,399 $ 5,496 $ 97
======== ======== ======== ======== ========
</TABLE>
F-15
<PAGE>
<TABLE>
<CAPTION>
Inbound Transactions
As of September 30, 1997
----------------------------------------------
Original Contract Contract Fair Unrealized
Currency Contracts Drawdowns Balance Value Gain/(Loss)
- -------- --------- --------- -------- ----- -----------
<S> <C> <C> <C> <C> <C>
Australian Dollars $ 2,629 $ (2,629) $ - $ - $ -
Pound Sterling 24,430 (22,882) 1,548 1,570 (22)
Canadian Dollars 926 (628) 298 299 (1)
Danish Krona 4,371 (3,880) 491 494 (3)
Deutsche Mark 9,156 (8,719) 437 458 (21)
Dutch Guilder 865 (865) - - -
Italian Lira 21,058 (19,526) 1,532 1,589 (57)
Norwegian Krone 4,456 (4,182) 274 291 (17)
Spanish Peseta 1,303 (1,156) 147 154 (7)
Swedish Krone 5,826 (5,645) 181 185 (4)
Other 1,005 (989) 16 17 (1)
-------- --------- -------- -------- ---------
Total $ 76,025 $(71,101) $ 4,924 $ 5,057 $ (133)
======== ========= ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
1996
- ----
As of September 30, 1997
----------------------------------------------
Original Contract Contract Fair Unrealized
Currency Contracts Drawdowns Balance Value Gain/(Loss)
- -------- --------- --------- -------- ----- -----------
<S> <C> <C> <C> <C> <C>
Australian Dollars $ 3,116 $ (2,743) $ 373 $ 375 $ (2)
Pound Sterling 14,777 (8,693) 6,084 6,275 (191)
Danish Krona 5,515 (5,287) 228 226 2
Deutsche Mark 7,511 (2,937) 4,574 4,475 99
Dutch Guilder 3,952 (3,952) - - -
Italian Lira 14,803 (4,453) 10,350 10,461 (111)
Norwegian Krone 3,872 (3,594) 278 277 1
Other 2,804 (2,040) 764 771 (7)
-------- --------- -------- -------- ---------
Total $ 56,350 $(33,699) $ 22,651 $ 22,860 $ (209)
======== ========= ======== ======== =========
</TABLE>
Unrealized gains and losses on forward contracts reflect changes in exchange
rates and are recorded directly in income, as they offset corresponding
unrealized gains and losses on the foreign currency denominated assets being
hedged (see Note 1). Forward contract liabilities related to unrealized losses
are recorded as other accrued expenses in the Consolidated Balance Sheet.
The Company is exposed to exchange related losses on forward contracts should a
transaction with a related forward exchange contract not be consummated by the
forward contract expiration date. In such instances, the Company extends or
repurchases the contract at the then prevailing market rates. Net realized
losses on the extension or repurchase of contracts totaled $156 and $88 for the
fiscal years ended September 30, 1997 and 1996, respectively.
Note 13. Restructuring Charges
During the third quarter of the fiscal year ended September 30, 1996, the
Company developed and implemented a reorganizational plan which included, among
other things, a 9% staff reduction (75 employees) and the abandonment of certain
leased facilities. The Company recorded a restructuring charge of $3,000, which
consisted of approximately $1,400 in personnel-related charges and approximately
$1,600 of costs associated with carrying vacated space until the lease
expiration date. In the first quarter of 1997, the Company recorded an
additional restructuring charge of $500 for severance and lease costs related to
its reorganizational plan. To date, the Company has paid approximately $3,500 in
cash related to the restructuring. The Company believes there are no remaining
obligations related to the restructuring at September 30, 1997.
F-16
<PAGE>
Note 14. Income Taxes
The provision for income taxes consists of the following for the years ended
September 30:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal - current $ - $ - $ 240
State and local - current - - 568
-------- -------- --------
- - 808
Foreign taxes and withholdings 2,176 2,501 2,702
-------- -------- --------
Current taxes 2,176 2,501 3,510
-------- -------- --------
Federal - deferred (757) (12,832) 105
State and local - deferred (191) (3,353) 40
-------- -------- --------
Deferred taxes (948) (16,185) 145
-------- -------- --------
Total income tax expense $ 1,228 $(13,684) $ 3,655
======== ======== ========
</TABLE>
Seer Technologies, Inc. and its U.S. subsidiary file a consolidated Federal
income tax return. Foreign subsidiaries file income tax returns in their
respective countries. Foreign tax credit carryforwards of approximately $3,212
exist at September 30, 1997. These carryforwards expire from 1999 to 2002 if not
utilized. Federal alternative minimum tax credit carryforwards of $184, which
have no expiration period, also exist at September 30, 1997. The Company's
federal net operating loss carryovers of approximately $58,000 expire in 2011
and 2012 if not utilized.
Income before provision for income taxes as shown in the Consolidated Statements
of Operations consists of the following for the years ended September 30:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Domestic $(11,214) $(47,868) $ 6,203
Foreign 2,476 2,602 2,604
-------- -------- --------
$ (8,738) $(45,266) $ 8,807
======== ======== ========
</TABLE>
A reconciliation of expected income tax at the statutory Federal rate with the
actual income tax expense (benefit) is as follows for the fiscal years ended
September 30:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Expected income tax expense (benefit) at
statutory rate (34%) $ (2,971) $(15,391) $ 2,995
Increase (decrease) in income tax
expense resulting from:
Federal minimum tax - - 127
Non Deductible Expenses 213 197 238
State income taxes (1,693) (2,915) 374
Effect of foreign operations including
withholding taxes 2,177 2,505 1,104
Other 92 (92) 45
Change in valuation allowance for
deferred tax asset 3,410 2,012 (1,228)
-------- -------- --------
$ 1,228 $(13,684) $ 3,655
======== ======== ========
</TABLE>
F-17
<PAGE>
The components of net deferred tax assets are as follows for the years ended
September 30:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current assets:
Deferred revenue $ 303 $ 119
Accrued Liabilities 504 1,142
Unrealized Foreign Exchange Loss (168) 87
Bad Debt Expense 503 3,559
Other - (286)
-------- --------
Net current deferred tax asset 1,142 4,621
Noncurrent assets:
Depreciation 475 324
Deferred revenue 49 459
Foreign tax credits 3,212 2,268
Minimum tax credits 184 184
Research and development tax credit 2,282 2,282
Net operating loss carryforward 21,446 13,851
-------- --------
Net noncurrent deferred tax asset 27,648 19,368
Valuation Allowance (8,853) (5,234)
Noncurrent liabilities:
Capitalized software costs (1,186) (1,163)
-------- --------
Net deferred tax asset $ 18,751 $ 17,592
======== ========
</TABLE>
Due to the uncertainty related to the realization of the benefits of tax credit
and net operating loss carryforwards in future tax returns, the Company has
placed a valuation allowance against a portion of the otherwise recognizable net
deferred tax asset at September 30, 1997.
Net deferred tax assets as of September 30, 1997 are $18,751. It is the opinion
of management that it is more likely than not that the realization of these
deferred tax assets will occur in the future based on current earnings
forecasts, tax planning strategies, which include the potential sale of a line
of business and/or product assets, and reversals of future book-tax temporary
differences.
Note 15. Recent Accounting Pronouncements
The FASB has issued 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.
The American Institute of Certified Public Accountants has issued Statement of
Position 97-2, "Software Revenue Recognition". SOP 97-2 is effective for
transactions entered into in fiscal years beginning after December 15, 1997 and
provides guidance on applying generally accepted accounting principles in
recognizing revenue on software transactions. The Company does not expect the
application of the SOP to have a material impact on the Company's financial
condition or results of operations.
F-18
<PAGE>
Note 16. Lease Commitments
The Company leases certain facilities and equipment under various operating
leases. Future minimum lease commitments on operating leases that have initial
or remaining non-cancelable lease terms in excess of one year as of September
30, 1997 are as follows:
<TABLE>
<S> <C>
1998 $ 3,110
1999 2,420
2000 1,785
2001 1,463
2002 1,476
Thereafter 2,130
--------
$ 12,384
========
</TABLE>
Rent expense for the fiscal years ended September 30, 1997, 1996 and 1995 was
$3,655, $3,370, and $2,524, respectively.
Note 17. Contingencies
Various lawsuits and claims have been brought against the Company in the normal
course of business. Management is of the opinion that the liability, if any,
resulting from these claims would not have a material effect on the financial
position or results of operations of the Company.
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. In September 1997, the
Company settled its lawsuit against IBM Mexico, and the above two lawsuits were
dismissed. No gain or loss was recorded related to this settlement.
In December 1997, the Company filed a lawsuit against Saadi Abbas and Cambridge
Business Solutions (UK) Limited ("CBS") alleging that Mr. Abbas and CBS had
injured the Company by interfering with the Company's ability to market and
sublicense the LightSpeed Financial Model. The Company obtained a preliminary
injunction against Mr. Abbas and CBS halting their actions until after the trial
of the case which is currently scheduled for late March 1998. At the present
point in the litigation it is impossible to calculate the chances of success in
this litigation. However, the Company intends to vigorously pursue this matter
and does not believe that the results of this litigation will have a material
effect on the financial position or results of operations of the Company.
Note 18. Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
(Unaudited)
First Second Third Fourth
(In thousands, except per share data) Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
1997:
Net revenues $23,125 $24,112 $26,929 $28,987
Gross profit 9,930 11,882 14,417 15,083
Net income (loss) (8,270) (2,436) 89 651
Net income (loss) per share ($.71) ($.21) $.01 $.05
1996:
Net revenues $20,643 $24,995 $26,891 $19,128
Gross profit 9,969 10,908 13,472 4,188
Net loss (5,421) (4,929) (5,160) (16,072)
Net loss per share ($ 0.48) ($0.43) ($0.45) ($2.08)
</TABLE>
Per share amounts for the first and second quarters of fiscal 1996 differ from
amounts previously reported in the Company's Quarterly Reports on Form 10-Q due
to an adjustment of the weighted average number of shares used to compute
primary earnings per share.
During the fourth quarter of fiscal year 1996, the Company recorded allowances
of $10,147 to provide for certain accounts receivable whose collection is
considered uncertain and for the resolution of a customer dispute. These amounts
are included in general and administrative expenses in the Consolidated
Statement of Operations. During the fourth quarter of fiscal year 1997, the
Company settled a lawsuit. See Note 17.
F-19
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit Sequential
Number Description Page No.
<S> <C> <C>
3.1 Certificate of Incorporation (Exhibit 3.1 to the Company's
Registration Statement on Form S-1, No. 33-92050), as amended to
include the Certificate of Designation of the Series A
Convertible Preferred Stock (included in Exhibit 4.4)
3.2 Amended and Restated By-Laws of the Company (Exhibit 3.2 to the
Company's Registration Statement on Form S-1, No. 33-92050)
4.1 Specimen Common Stock certificate (Exhibit 4.1 to the Company's
Registration Statement on Form S-1, No. 33-92050)
4.2 See Exhibits 3.1, 3.2, and 4.4 for the provisions of the
Company's Certificate of Incorporation and Bylaws governing the
rights of holders of securities of the Company
4.3 Specimen Preferred Stock certificate (Exhibit 4.3 to the
Quarterly Report on Form 10-Q for the period ended June 30, 1996,
No. 0-26194)
4.4 Certificate of Designation of Series A Convertible Preferred
Stock of the Company (Exhibit 4.4 to the Quarterly Report on Form
10-Q for the period ended June 30, 1996)
10.6 Form of Employee's Non-Competition, Confidentiality and Invention
Assignment Agreement (Exhibit 10.6 to the Company's Registration
Statement on Form S-1, No. 33-92050)
10.7 Form of Consultant's Non-Competition, Confidentiality and
Invention Assignment (Exhibit 10.7 to the Company's Registration
Statement on Form S-1, No. 33-92050)
10.21 Lease Agreement, dated October 16, 1992, between the Company and
461 Eighth Avenue Associates (New York, NY) (Exhibit 10.21 to the
Company's Registration Statement on Form S-1, No. 33-92050)
10.22 Lease Agreement, dated December 25, 1992, between the Company
and Capital & Counties (London, England) (Exhibit 10.22 to the
Company's Registration Statement on Form S-1, No. 33-92050)
10.29* Form of Stock Option and Restricted Stock Purchase Plan of the
Company (Exhibit 10.29 to the Company's Registration Statement on
Form S-1, No. 33-92050), as amended by the First Amendment
thereto (Exhibit 10.1 to the Company's Report on Form 10-Q for
the Quarterly Period Ended June 30, 1995, No.0-26194) and the
Second and Third Amendments thereto (Appendices A and B to the
Company's 1997 Proxy Statement filed under cover of Schedule 14A,
No. 0-26194)
10.30* Form of Stock Option Plan for Non-Employee Directors of the
Company (Exhibit 10.30 to the Company's Registration Statement on
Form S-1, No. 33-92050)
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page No.
<S> <C> <C>
10.31* Form of Incentive Stock Option Agreement (Exhibit 10.31 to the
Company's Registration Statement on Form S-1, No. 33-92050)
10.32 Stock Purchase Agreement dated June 15, 1994 among the Company,
Welsh, Carson, Anderson & Stowe VI, L.P., WCA Management
Corporation, WCAS Information Partners, L.P., CS First Boston
Securities Corporation, and International Business Machines
Corporation (Exhibit 10.32 to the Company's Registration
Statement on Form S-1, No. 33-92050)
10.33 Securities Purchase and Exchange Agreement, dated September 30,
1994, among the Company, WCAS Capital Partners II, L.P., WCA
Management Corporation, WCAS Information Partners, L.P., CS First
Boston Securities Corporation, and International Business
Machines Corporation (Exhibit 10.33 to the Company's Registration
Statement on Form S-1, No. 33-92050)
10.35 Form of Indemnification Agreement (Exhibit 10.35 to the
Company's Registration Statement on Form S-1, No. 33-92050).
10.39 Credit Agreement and related Promissory Note between Seer
Technologies, Inc. and NationsBank, N.A. and related Guaranty
between the Company and WCAS, all dated July 15, 1996 (Exhibit
10.39 to the Quarterly Report on Form 10-Q for the period ended
June 30, 1996. No. 0-26194, as amended by the First Amendment
thereto dated March 27, 1997)(Attached as Exhibit 10.48)
10.41 Preferred Stock Purchase Agreement dated August 8, 1996, among
the Company, WCAS and certain WCAS affiliates named therein
(Exhibit 10.41 to the Quarterly Report on Form 10-Q for the
period ended June 30, 1996, No. 0-26194)
10.42 Stock Agreement dated August 8, 1996, between the Company and
WCAS (Exhibit 10.42 to the Quarterly Report on Form 10-Q for the
period ended June 30, 1996, No. 0-26194)
10.43* Employment Agreement, dated August 8, 1996, between the Company
and Thomas A. Wilson (Exhibit 10.43 to the Annual Report on Form
10-K for the year ended September 30, 1996, No. 0-26194)
10.45* Employment Agreement, dated September 23, 1996, between the
Company and Steven Dmiszewicki (Exhibit 10.45 to Annual Report on
Form 10-K for the year ended September 30, 1996, No. 0-26194)
10.46 Credit Agreement between Seer Technologies, Inc. and Greyrock
Business Credit, dated March 26, 1997 (Exhibit 10.46 to the
Quarterly Report on Form 10-Q for the period ended March 31,
1997, No. 0-26194)
</TABLE>
E-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page No.
<S> <C> <C>
10.47 Lease Amendment for the Company's Cary Office, dated March 31,
1997, between Seer Technologies, Inc. and Regency Park
Corporation (Cary, NC).(Exhibit 10.47 to the Quarterly Report on
Form 10-Q for the period ended March 31, 1997, No. 0-26194)
10.48 First Amendment to Credit Agreement dated March 27, 1997 between
Seer Technologies, Inc. and NationsBank, N.A.(Exhibit 10.48 to
the Quarterly Report on Form 10-Q for the period ended March 31,
1997; Original agreement is exhibit 10.39 to the Quarterly Report
on Form 10-Q for the period ended June 30, 1996, No. 0-26194)
10.49* Employment Agreement, dated December 13, 1996 between the Company E-4
and Michael Reiff (filed herewith)
10.50* Employment Agreement, dated May 9, 1997, between the Company and E-7
Ted Venema (filed herewith)
10.51 Amendment to Master Distribution and License Agreement between the E-9
Company and IBM Ireland Information Services Limited dated February
14, 1997 (filed herewith)
10.52 Seer Technologies, Inc. Employee Stock Purchase Plan (U.S.)
(Appendix A to the Company's Proxy Statement filed under cover of
Schedule 14A, No. 0-26194)
11.1 Statement regarding Computation of Earnings Per Share (filed E-14
herewith)
21.1 Subsidiaries (filed herewith) E-15
23.1 Consent of Coopers & Lybrand L.L.P. (filed herewith) E-18
27.1 Financial Data Schedule (filed herewith) E-19
</TABLE>
*Management contract or compensatory plan or agreement
E-3
<PAGE>
Exhibit 10.49
December 13, 1996
Mr. Michael A. Reiff
1705 Throwbridge Lane
Plano, Texas 75023
Dear Michael:
I am delighted to extend our offer for you to join Seer Technologies, Inc. The
details of your offer are:
Position: Senior Vice President of Marketing, Worldwide; member of the
Executive Committee
Reporting to: President & Chief Executive Officer, Tom Wilson
Location: Cary, North Carolina
Compensation
- ------------
You will be paid on the 15th and 30th of the month at a rate of $6,666.66 per
pay period ($160,000 annualized).
In addition, you will be eligible to participate in a discretionary bonus
program based upon the company's performance and attainment of your individual
goals. Your bonus potential is anticipated to be approximately 50% of base. For
the fiscal year ending September 30, 1997, your minimum bonus will be $80,000,
so long as you are an employee in good standing on the date bonuses are paid,
typically on December 15th. You have the opportunity to achieve additional bonus
dollars according to the financial performance of the Company.
In the event of your termination, other than for cause, during your first
twenty-four months with Seer, your base salary will be continued for twelve
months.
Offer of Employment
Michael A. Reiff
13 December 96
Page 2 of 4
Benefits
- --------
As a full-time employee, you will be eligible for life, medical and dental
insurance (including family coverage, if you opt for it) effective your first
day of work. Disability insurance becomes available after 90 days.
Supplemental
E-4
<PAGE>
coverage will be arranged should a pre-existing condition prevent participation
in the standard medical plan.
Vacation & Holiday
- ------------------
As a Vice President, you are entitled to four weeks of paid vacation, prorated
in the first year until December 31. In addition, Seer U.S. observes six
standard holidays and provides for four "floating" holidays, also prorated in
the first year, the scheduling of which is arranged between you and your
manager.
Stock
- -----
Upon commencing employment with the company, you will receive options to
purchase 100,000 shares of Seer Technologies, Inc. Stock. The exercise price
will be the fair market value on the day you commence employment. These options
will vest 25% per year over four years. In the event of a change of control of
the company, a minimum of 50% of these options will vest.
Relocation Assistance
- ---------------------
To assist with your relocation to the Cary, North Carolina area, we will provide
you with a furnished apartment through the end of May, 1997; a round-trip ticket
each month between Plano, Texas and Raleigh, North Carolina through May, 1997.
In addition, so long as you move within one year of commencement of your
employment, we will pay for the movement of all reasonable household goods by a
mutually selected vendor; and reimburse you up to $60,000 (grossed-up) for other
receipted expenses associated with your relocation.
Offer of Employment
Michael Reiff
13 Dec 96
Page 3 of 4
Sign-On Bonus
- -------------
Upon commencing full-time employment with us, you will receive a bonus of
$30,000. This amount must be repaid to Seer if you voluntarily resign from the
company before January 1, 1998.
Requirements Prior to Your Start
- --------------------------------
As part of your employment offer, Seer requires that you sign certain non-
competition and assignment of invention agreements, copies of which are
enclosed, before, you begin work. In compliance with the Immigration Reform Act
of 1986, you must show proof of your eligibility for employment in the United
States on your first day of work.
It is a fundamental policy of Seer that it does not hire employees or
consultants in order to obtain access to trade secrets or proprietary
information of any of their former employers. By accepting this job offer, you
represent that (i) you will not violate the terms of any non-competition, non--
disclosure and non-solicitation agreements to which you may be bound by any
prior employer and (ii) you will not use any files or materials in connection
with your employment with Seer that are trade secrets of or proprietary
information to another firm.
E-5
<PAGE>
Offer of Employment
Michael Reiff
13 Dec 96
Page 4 of 4
Statement on Employment at Will
- -------------------------------
I am delighted that you have expressed an interest in joining Seer Technologies.
However, your employment with Seer is terminable at any time by you or us and
this letter does not guarantee employment or constitute an employment agreement
or contract for a year or for any other specified term.
I look forward to receiving your signed acceptance of our offer along with one
signed copy of the "Employee Non-Competition Agreement".
Sincerely,
Seer Technologies, Incorporated
/s/ Irene Y. Wong
Irene Y. Wong
Vice President, Human Resources
Accepted: /s/ Michael Reiff
Start Date: 1/6/97
E-6
<PAGE>
Exhibit 10.50
May 9, 1997
Ted Venema
56 Shadeland Court
Cambridge, Ontario N1T1V2
Dear Ted:
I am delighted to extend our offer for you to join Seer Technologies, Inc. The
details of your offer are:
Position: Senior Vice President, Development
Manager: Reporting to Tom Wilson
President & CEO
Salary
You will be paid on the 15th and 30th of the month at a rate equivalent to
US$6,250.00 per pay period (US$150,000.00 annualized).
In addition, you will be eligible to participate in a discretionary program
based upon the company's performance and attainment of your individual
goals. During your first year of employment your bonus potential will be
50% of base. For the fiscal year ending September 30, 1997, your minimum
bonus will be US$18,750, so long as you are an employee in good standing on
the date bonuses are paid, typically on December 15th. You have the
opportunity to achieve additional bonus dollars according to your
performance and the financial performance of the Company.
Benefits
As a full-time Seer employee, you will be eligible for all standard
Canadian benefits, to include medical, dental, vision, life and long term
disability insurance. Once we receive appropriate work authorization and
you are employed in the US you will be eligible for all standard US
benefits.
Canadian Employment Contract
In addition to the above mentioned documents, you will be required to sign
a Canadian contract for employment which will be forwarded to you prior to
your start.
Vacation & Holiday
As a Vice President, you are entitled to four weeks of paid vacation,
prorated in the first year until December 31. In addition, Seer observes nine
standard Canadian holidays and provides one "floating" personal choice holiday.
Seer US observes six standard holidays and provides for four "floating"
holidays, also prorated in the first year, the scheduling of which is arranged
between you and your manager.
E-7
<PAGE>
Offer of Employment
T. Venema
05/09/97
Page 2
Stock
Upon commencing employment with the company, you will receive options to
purchase 100,000 shares of Seer Technologies, Inc. Stock. The exercise
price will be the fair market value on the day you commence employment.
These options will vest 25% per year over four years.
Relocation
To assist with your relocation to the Cary, North Carolina area, we will
provide you with a furnished apartment through the end of July 1997. In
addition, so long as you move within one year of commencement of your
employment, we will pay for the movement of all reasonable household goods
by a mutually selected vendor; and reimburse you up to $45,000 (grossed-up)
for other receipted expenses associate with your relocation.
It is a fundamental policy of Seer that it does not hire employees or
consultants in order to obtain access to trade secrets or proprietary
information of any of their former employers. By accepting this job offer,
you represent that (i) you will not violate the terms of any non-
competition, non--disclosure and non-solicitation agreements to which you
may be bound by any prior employer and (ii) you will not use any files or
materials in connection with your employment with Seer that are trade
secrets of or proprietary information to another firm.
If there is anything I can do to facilitate your move to Seer, I hope you will
contact me. Please indicate your acceptance of our offer by signing one copy of
this letter and the returning it with your proposed start date, along with your
signed contract to Stephanie Price, Staffing Coordinator @ (919) 380-5017.
Yours sincerely,
Seer Technologies, Inc.
/s/ Irene Y. Wong
Irene Y. Wong
Vice President, Human Resources
Accepted: /s/ Ted Venema
Start Date: 5/12/97
E-8
<PAGE>
Exhibit 10.51
Amendment to Master Distribution and License Agreement
------------------------------------------------------
This Amendment is made this 14th day of February 1997
BY AND BETWEEN:
1. IBM Ireland Limited (formerly IBM Ireland Information Services Limited)
whose registered office is at 2 Burlington Road, Dublin 4, Eire ("IISL")
AND
2. Seer Technologies, Inc., whose principal office is at 8000 Regency
Parkway, Suite 300, Cary, N.C. 27511, USA ("Seer")
PREAMBLE:
A. On 6th April 1992, IISL and Seer entered into a Master Distribution and
License Agreement ("MDLA"). The MDLA specifies the terms and conditions
governing the marketing, distribution, training, maintenance and support
of Seer's HPS Software and Additional Software by IISL to third parties
in EMEA.
B. Article 6.2.3 thereof concerns the support and maintenance services
supplied by IISL on behalf of Seer (or on behalf of an Affliated IBM
Company) to third parties in EMEA. Such support and maintenance services
are specified in Attachment 5 of the MDLA.
C. Article 9 sets out, in detail, the provisions concerning the calculation
and payment of fees by Seer to IISL, for the support and maintenance
services referred to in Recital B above.
D. The parties acknowledge that the provisions in Article 9 are both complex
and out of date. Accordingly the parties have agreed to amend these
provisions, together with certain other provisions of the MDLA as
follows:
TERMS AGREED:
1. INTERPRETATION
- ---------------------
1.1 Save as expressly provided below, in interpreting this Amendment all
terms used shall bear the same meaning as defined in the MDLA.
1.2 References in this Amendment to:
1.2.1 "Agreement" shall mean the MDLA and Attachments 1 - 6 thereof;
1.2.2 "Article" shall refer to the corresponding terms and conditions of the
MDLA; and
1.2.3 "Attachment" shall refer to the corresponding attachment to the MDLA.
E-9
<PAGE>
1.2.4 "Services" shall mean, individually and collectively, the Level 1 and
Level 2 support services for HPS Software and Additional Software as
supplied by IISL or Affiliated IBM Company to Customers on Seer's
behalf, and as more particularly described in Article 6.2.3 and
Attachment 5, or any part thereof.
1.2.5 "Customer" shall refer to those customers in EMEA where Seer has, at
its sole option, decided that the Services shall be supplied by IISL or
Affiliated IBM Company, and to no other customer.
2. TERM & TERMINATION (Article 4.1)
- -----------------------------------------
2.1 Article 4.1 is replaced in its entirety with the following:
"This Agreement as amended shall remain in force from 1st January 1997
until 31st December 1999 ("Period"). Thereafter this Agreement as
amended shall remain in force for successive periods of 12 months
("Extension") PROVIDED ALWAYS THAT the charges and payment terms have
been agreed by the parties in writing prior to the expiry of the Period
or any Extension thereof, whichever is appropriate.
"This Agreement may be terminated by either party upon not less than 90
days prior written notice to take effect on 31st December 1999 or at
any time thereafter."
3. PAYMENT (Article 9)
- ----------------------------
3.1 Article 9 is replaced in its entirety with the following:
"All charges payable by Seer and concerning the supply of Services by
IISL to Customers, may be invoiced quarterly in advance on or after the
dates specified in the Payment Schedule below. All such charges are
specified in the Payment Schedule and are fixed. Accordingly the
charges shall apply irrespective of the number or type of Customers
using the Services.
"Payment Schedule:
<TABLE>
<CAPTION>
------------------------------------ ------------------------------------- ------------------------
Period Invoice Payment Date
------------------------------------ -------------------- ---------------- (Note 5 below)
Calendar Quarter Amount (US$) Invoice
Year (Note 1 below) Date
------------ ----------------------- -------------------- ---------------- ------------------------
<S> <C> <C> <C> <C>
1997 1st January 1997 - 367,000 1st February 28th February 1997
31st March 1997 1997
------------ ----------------------- -------------------- ---------------- ------------------------
1st April 1997 - 367,000 1st April 1997 30th April 1997
30th June 1997
------------ ----------------------- -------------------- ---------------- ------------------------
1st July 1997 - 366,000 1st July 1997 31st July 1997
30th September 1997
------------ ----------------------- -------------------- ---------------- ------------------------
1st October 1997 - 900,000 1st October See Note 2 below
31st December 1997 1997
------------ ----------------------- -------------------- ---------------- ------------------------
</TABLE>
E-10
<PAGE>
<TABLE>
<CAPTION>
------------------------------------ ------------------------------------- ---------------------
Period Invoice Payment Date
------------ ----------------------- -------------------- ---------------- (Note 5 below)
Calendar Quarter Amount (US$) Invoice
Year (Note 1 below) Date
------------ ----------------------- -------------------- ---------------- ---------------------
------------ ----------------------- -------------------- ---------------- ---------------------
<S> <C> <C> <C> <C>
1998 1st January 1998 - 400,000 1st January 31st January 1998
31st March 1998 1998
------------ ----------------------- -------------------- ---------------- ---------------------
1st April 1998 - 400,000 1st April 1998 30th April 1998
30th June 1998
------------ ----------------------- -------------------- ---------------- ---------------------
1st July 1998 - 400,000 1st July 1998 31st July 1998
30th September 1998
------------ ----------------------- -------------------- ---------------- ---------------------
1st October 1998 - 900,000 1st October See Note 3 below
31st December 1998 1998
------------ ----------------------- -------------------- ---------------- ---------------------
------------ ----------------------- -------------------- ---------------- ---------------------
1999 1st January 1999 - 400,000 1st January 31st January 1999
31st March 1999 1999
------------ ----------------------- -------------------- ---------------- ---------------------
1st April 1999 - 400,000 1st April 1999 30th April 1999
30th June 1999
------------ ----------------------- -------------------- ---------------- ---------------------
1st July 1999 - 400,000 1st July 1999 31st July 1999
30th September 1999
------------ ----------------------- -------------------- ---------------- ---------------------
1st October 1999- 900,000 1st October See Note 4 below
31st December 1999 1999
------------ ----------------------- -------------------- ---------------- ---------------------
------------ ----------------------- -------------------- ---------------- ---------------------
</TABLE>
Notes:
------
1. Notwithstanding the use of United States Dollars in the above
table, IISL shall invoice Seer in Irish Pounds using the
exchange rate specified in the Wall Street Journal on the last
working day immediately preceding the relevant Invoice Date.
2. Payment of this invoice shall be in three equal instalments
over a five (5) month period following the Invoice Date as
follows:
<TABLE>
<CAPTION>
--------------------- ---------------------------
Amount (US$) * Payment Date
--------------------- ---------------------------
<S> <C>
300,000 31st October 1997
--------------------- ---------------------------
300,000 31st December 1997
--------------------- ---------------------------
300,000 28th February 1998
--------------------- ---------------------------
</TABLE>
* Note 1 above applies.
E-11
<PAGE>
3. Payment of this invoice shall be in three equal instalments over
a five (5) month period following the Invoice Date as follows:
<TABLE>
<CAPTION>
---------------------- ---------------------------
Amount (US$) * Payment Date
---------------------- ---------------------------
<S> <C>
300,000 31st October 1998
---------------------- ---------------------------
300,000 31st December 1998
---------------------- ---------------------------
300,000 28th February 1999
---------------------- ---------------------------
</TABLE>
* Note 1 above applies.
4. Payment of this invoice shall be in three equal instalments over
a five (5) month period following the Invoice Date as follows:
<TABLE>
<CAPTION>
---------------------- ---------------------------
Amount (US$) * Payment Date
---------------------- ---------------------------
<S> <C>
300,000 31st October 1999
---------------------- ---------------------------
300,000 31st December 1999
---------------------- ---------------------------
300,000 28th February 2000
---------------------- ---------------------------
</TABLE>
* Note 1 above applies.
5. IISL reserves the right to apply interest on any arrears in
payment at a simple rate of 1% of the amount unpaid per calendar
month or part thereof.
3.2 Seer shall pay to IISL the sum of Irish(Pounds)494,903, in respect of
Services supplied or due and where IISL has invoiced Seer prior to the
date of this Amendment. This amount shall be paid in three (3) equal
instalments as follows:
<TABLE>
<CAPTION>
------------------------ ---------------------------
Amount (Irish (Pounds)) Payment Date
------------------------ ---------------------------
<S> <C>
164,969 See Note below
------------------------ ---------------------------
164,967 30th April 1997
------------------------ ---------------------------
164,967 31st July 1997
------------------------ ---------------------------
</TABLE>
Note: This instalment shall be paid on 31st January 1997
----
or upon execution of this Amendment, whichever is the later.
IISL acknowledges and represents that no further payments shall be due
in respect of any Services other than those expressly provided for in
this Amendment.
4. Miscellaneous:
- ----------------------
4.1 In Article 16.5 (Notices) references to "Nancy Valmassoi" shall be
deleted. Reference to "Steven Dmiszewicki, Controller" shall be
replaced by "Financial Controller." Reference to "Colman O'Sullivan"
shall be deleted and the address of IISL shall be replaced by "2
Burlington Road, Dublin 4, Ireland."
E-12
<PAGE>
4.2 In Attachment 2 (IBM EMEA Countries) delete:
"Yugoslavia", "Iraq" and "CIS" and replace "Czechoslovakia" with "The
Czech Republic" and "Slovakia"
4.3 Attachment 6 is deleted.
4.4 Both parties acknowledge that an international marketing fund as
contemplated in Article 8.2 of the Agreement is no longer required, and
accordingly Articles 8.2 and 9.6 are hereby deleted.
4.5 This Amendment supersedes and replaces the letter dated 30th December
1996 from Seer to IISL, terminating the MDLA in accordance with Article
4.1. Upon execution of this Amendment this letter shall cease to have
any force or effect.
4.6 Both parties acknowledge that, upon execution of this Amendment, this
Amendment complies in full with the provisions set out in Article
16.10.
4.7 Save as expressly provided above the Agreement shall remain in full
force and effect. In the event of any conflict between the Agreement
and this Amendment, the latter shall prevail.
SIGNED BY:
On behalf of IBM Ireland Limited: On behalf of Seer Technologies, Inc:
BY: /s/ Patrick O'Connor BY: /s/ Dennis McKinnie
NAME: Patrick O'Connor NAME: Dennis McKinnie
TITLE: Managing Director TITLE: V.P. and General Counsel
DATE: 2/14/97 DATE: 2/20/97
E-13
<PAGE>
Exhibit 11.1
SEER TECHNOLOGIES, INC.
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Years Ended September 30,
----------------------------------------------------
(Pro Forma)
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Primary earnings per share:
Average common shares outstanding
(excluding convertible shares) 11,707 11,445 3,989
Common shares from conversion of
Series B Convertible Preferred Stock - - 4,946(1)
Common shares from conversion of
Series C Convertible Preferred Stock - - 148(1)
Shares issued for redemption of
Senior Preferred Stock - - 648(2)
Common stock equivalents - (4) - (4) 1,776(3)
-------------- -------------- --------------
Total common and common
equivalent shares outstanding 11,707 11,445 11,507
============== ============== ==============
Net income (loss) $ (9,966) $ (31,582) $ 5,152
============== ============== ==============
Per share amount ($0.85) ($2.76) $0.45
============== ============== ==============
</TABLE>
Fully diluted earnings per share (5)
(1) Series B and C Convertible Preferred Stock were outstanding for three of
four quarters in 1995:
Series B shares of 6,594 X 75% =4,946 shares
Series C shares of 198 X 75% =148 shares
<TABLE>
<C> <S> <C>
(2) Dividend - Senior Redeemable Preferred Stock 417
Principal - Senior Redeemable Preferred Stock 15,135
-------------
Total redemption value 15,552
Divided by IPO price per share 18.00
-------------
Number of equivalent shares of common
stock 864
Adjustment - outstanding for three of four quarters
in fiscal 1995 0.75
-------------
Number of equivalent shares of common
stock 648
=============
</TABLE>
(3) Common stock equivalents presented assume a market price of $18.00 (the IPO
price) and are calculated using the treasury stock method.
(4) Common stock equivalents are not included since their effect on the
earnings per share calculation is antidilutive.
(5) Presentation of fully diluted earnings per share is not required for any of
the periods presented.
E-14
<PAGE>
EXHIBIT 21.1
SEER TECHNOLOGIES, INC.
List of Subsidiaries
DOMESTIC COMPANIES
Parent Company:
SEER Technologies, Inc.
Date of Incorporation: 03/06/90
State of Incorporation: Delaware
Subsidiary:
SEER Technologies (Worldwide Holdings) Limited
Date of Incorporation: 02/26/92
State of Incorporation: Delaware
FOREIGN SUBSIDIARIES
Argentina:
SEER Technologies de Argentine S.A.
Date of Incorporation: 09/20/96
Australia:
SEER Technologies Australia Pty Limited
Date of Registration: 08/09/93
Barbados:
SEER Technologies FSC, Inc.
Date of Registration: 12/27/95
Benelux:
Seer Technologies Benelux B.V.
Date of Registration: 09/25/92
E-15
<PAGE>
Brazil:
SEER Technologies do Brazil Ltda.
Date of Registration: 12/09/93
Canada:
SEER Technologies Canada, Inc.
Domestic Province: Ontario
Date of Registration: 05/18/94
Denmark:
SEER Technologies Denmark ApS
Date of Registration: 04/01/94
France:
SEER Technologies France S.A.R.L.
Date of Incorporation: 06/09/95
Germany:
SEER Technologies Europe (Deutschland) GmbH
Date of Registration: 11/19/92
Hong Kong:
SEER Technologies Hong Kong Limited
Date of Registration: 12/14/94
Ireland:
SEER Technologies Ireland Limited
Date of Registration: 03/11/95
Italy:
SEER Technologies Italia S.r.L.
Date of Registration: 08/07/92
E-16
<PAGE>
Mexico:
SEER Technologies de Mexico S.A. de C.V.
Date of Registration: 11/08/95
Korea:
SEER Korea Co., Limited
Date of Registration: 07/07/97
Sweden:
SEER Technologies Nordic AB
Date of Registration: 07/09/92
Singapore:
SEER Technologies Singapore Pty Lte.
Date of Incorporation: 02/11/95
Spain:
SEER Technologies Espana, S.L.
Date of Registration: 07/22/93
United Kingdom:
SEER Technologies (U.K.) Limited
Date of Registration: 01/07/92
E-17
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------
We consent to the incorporation by reference in the registration
statement of Seer Technologies, Inc. on Forms S-8 (File Nos. 33-97856 and
33-97858) of our report dated October 24, 1997, on our audits of the
consolidated financial statements of Seer Technologies, Inc., as of September
30, 1997, and for the years ended September 30, 1997, 1996 and 1995, which
report is included in this Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
Washington, D.C.
December 29, 1997
E-18
<TABLE> <S> <C>
<PAGE>
<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 ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> SEP-30-1997 SEP-30-1996
<PERIOD-START> OCT-01-1996 OCT-01-1995
<PERIOD-END> SEP-30-1997 SEP-30-1996
<CASH> 4,268 377
<SECURITIES> 0 0
<RECEIVABLES> 35,769 56,878
<ALLOWANCES> 2,345 10,137
<INVENTORY> 0 0
<CURRENT-ASSETS> 38,750 52,052
<PP&E> 18,723 18,035
<DEPRECIATION> 14,198 11,576
<TOTAL-ASSETS> 66,535 78,804
<CURRENT-LIABILITIES> 44,711 48,089
<BONDS> 0 0
0 0
21 21
<COMMON> 119 116
<OTHER-SE> 20,703 29,916
<TOTAL-LIABILITY-AND-EQUITY> 66,535 78,804
<SALES> 0 0
<TOTAL-REVENUES> 103,153 91,657
<CGS> 0 0
<TOTAL-COSTS> 51,841 53,120
<OTHER-EXPENSES> 54,045 73,491
<LOSS-PROVISION> 4,338 10,158
<INTEREST-EXPENSE> 2,181 802
<INCOME-PRETAX> (8,738) (45,266)
<INCOME-TAX> 1,228 (13,684)
<INCOME-CONTINUING> (9,966) (31,582)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (9,966) (31,582)
<EPS-PRIMARY> (.85) (2.76)
<EPS-DILUTED> (.85) (2.76)
</TABLE>
