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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ......... to ...........
Commission file number 0-26194
SEER TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3556562
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8000 Regency Parkway
Cary, North Carolina
27511
(Address of principal executive offices)
(Zip Code)
(919) 380-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes ....X.... No ........
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at February 6, 1998
Common Stock, $0.01 par value 11,935,773 shares
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1
SEER TECHNOLOGIES, INC.
Index
Page
PART I. Financial Information Number
Item 1. Consolidated Financial Statements:
Consolidated balance sheets as of December 31, 1997
(unaudited)and September 30, 1997 3
Consolidated statements of operations (unaudited)
for the three months ended December 31,
1997 and 1996 4
Consolidated statements of cash flows (unaudited)
for the three months ended December 31, 1997 and 1996 5
Notes to consolidated financial statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. Other Information 15
SIGNATURES 16
2
PART I. Financial Information
Item 1. Financial Statements
SEER TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
( unaudited )
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $6,893 $ 4,268
Trade accounts receivable, less allowance
for doubtful accounts of $1,575 and $1,360
at December 31, 1997 and September 30, 1997,
respectively 24,346 31,383
Prepaid expenses and other current assets 1,752 1,947
Deferred income taxes 1,155 1,152
----------- -----------
Total current assets 34,146 38,750
Trade accounts receivable, net 2,075 2,041
Property and equipment, net 3,944 4,528
Capitalized software costs, net 2,917 3,206
Deferred income taxes, net of valuation
allowance 17,599 17,599
Other assets 397 411
----------- -----------
Total assets $61,078 $66,535
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable, due on demand $29,223 $22,052
Accounts payable 2,827 4,279
Accrued expenses:
Compensation 1,207 1,964
Commissions 821 1,536
Other 5,603 5,241
Deferred revenue 7,538 7,813
Income taxes payable 1,840 1,826
---------- ----------
Total current liabilities 49,059 44,711
Deferred revenue 670 981
Stockholders' equity:
Series A convertible preferred stock,
$.01 par value 21 21
Common stock, $0.01 par value 119 119
Additional paid-in-capital -
preferred stock 12,281 12,281
Additional paid-in-capital -
common stock 58,651 58,486
Cumulative translation adjustments (397) (644)
Accumulated deficit (59,326) (49,420)
---------- -----------
Total stockholders' equity 11,349 20,843
---------- -----------
Total liabilities and stockholders' equity $61,078 $66,535
========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
SEER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1997 1996
-------- --------
<S> <C> <C>
Revenue:
Software products $2,698 $6,146
Maintenance 3,449 3,137
Services 12,209 13,842
-------- --------
Total operating revenue 18,356 23,125
Cost of revenue:
Software products 507 325
Maintenance 2,183 2,109
Services 10,951 10,761
-------- --------
Total cost of revenue 13,641 13,195
Gross profit 4,715 9,930
Operating expenses:
Sales and marketing 6,893 6,904
Research and product
development 3,826 3,398
General and administrative 3,093 6,732
Restructuring charges - 500
-------- --------
Total operating expenses 13,812 17,534
-------- --------
Loss from operations (9,097) (7,604)
Other income (expense):
Interest income 135 154
Interest expense (785) (411)
-------- --------
Other income (expense), net (650) (257)
-------- --------
Loss before provision
for income taxes (9,747) (7,861)
Income tax provision 159 409
-------- --------
Net loss $(9,906) $(8,270)
======== ========
Loss per common share $(0.83) $(0.71)
======== ========
Weighted average common
shares outstanding 11,888 11,624
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
SEER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1997 1996
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (9,906) $ (8,270)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 1,198 1,206
Deferred income taxes (3) 3
Provision for uncollectible accounts 226 3,800
Changes in assets and liabilities:
Trade accounts receivable 7,027 9,062
Prepaid expenses and other assets 208 695
Accounts payable, accrued expenses,
and income taxes payable (2,548) (3,057)
Deferred revenue (586) (2,028)
-------- --------
Net cash provided by (used in)
operating activities (4,384) 1,411
Cash flows from investing activities:
Purchases of property and equipment (126) (338)
Capitalization of software development costs (128) (190)
-------- --------
Net cash used in investing activities (254) (528)
Cash flows from financing activities:
Issuance of common shares 165 256
Repurchase of common shares - (100)
Net borrowings under lines of credit 7,101 343
-------- --------
Net cash provided by financing activities 7,266 499
Effect of exchange rate changes on cash (3) 16
-------- --------
Net increase in cash and
cash equivalents 2,625 1,398
Cash and cash equivalents:
Beginning of period 4,268 377
-------- --------
End of period $ 6,893 $1,775
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
SEER TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Interim Financial Statements
The accompanying unaudited financial statements should be read in conjunction
with the audited financial statements and notes thereto contained in the
Company's Annual Report on Form 10-K for fiscal year 1997. The Company's
fiscal year ends September 30. The results of operations for the interim
periods shown in this report are not necessarily indicative of results to be
expected for other interim periods or for the full fiscal year. In the
opinion of management, the information contained herein reflects all
adjustments necessary for a fair statement of the interim results of
operations. All such adjustments are of a normal, recurring nature.
Note 2. Loss Per Share
During the first quarter of fiscal year 1998, the Company adopted the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share", which specifies the computation, presentation, and
disclosure requirements for earnings per share. All prior period earnings per
share data has been restated, as applicable, to conform with the provisions of
the statement.
Basic loss per share is computed based upon the weighted average number of
common shares outstanding. Diluted loss per share is not presented
for any periods since the inclusion of potentially dilutive securities
would be antidilutive to the basic loss per share calculations. Potentially
dilutive securities outstanding during the first quarters of fiscal years 1998
and 1997 include stock options, nonvested stock, and Series A convertible
preferred stock.
Note 3. Income Taxes
The Company's effective tax rate differs from the statutory rate primarily due
to the fact that an income tax benefit was not recorded for the net loss for
the first quarter of fiscal year 1998. Management believes that it is more
likely than not that the realization of the reported deferred tax assets will
occur in the future based on current earnings forecasts, tax planning
strategies and reversals of book-tax temporary differences. The Company will
continue to assess the realization of deferred tax assets on an ongoing basis.
The income tax provision for the first quarter of fiscal year 1998 is
primarily related to income taxes from profitable foreign operations and
foreign withholding taxes.
Note 4. Use of Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual amounts could differ from these estimates.
6
Note 5. Recent Accounting Pronouncements
In June, 1997, the Financial Accounting Standards Board 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.
7
Item 2. 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. The Company is in the midst of its
transition 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. There can be no assurance
that the Company will be successful in this strategic transition, and the
failure to do so could have a material adverse impact on the Company's
financial condition and results of operations.
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 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.
8
The Company's revenues vary from quarter to quarter, with the largest portion
of revenue typically recognized in the last month of each fiscal quarter and
the third and fourth quarters of each fiscal year. The Company believes that
these patterns are partly attributable to the Company's sales commission
policies, which compensate sales personnel for meeting or exceeding quarterly
and annual quotas, and to the budgeting and purchasing cycles of customers.
Furthermore, as the size of individual sales is generally large, a single
customer may have a significant impact on a quarter. In addition, the
substantial commitment of executive time and financial resources historically
required of a potential customer to make a decision to purchase the Company's
products increases the risk of quarter-to-quarter fluctuations. The Company
typically does not have any material backlog of unfilled software orders, and
product revenue in any quarter is substantially dependent upon orders received
in that quarter. Because the Company's operating expenses are based on
anticipated revenue levels and are relatively fixed over the short term,
variations in the timing of recognition 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.
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.
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) and "-Liquidity and Capital
Resources" for a more detailed description of these and other risks presented
by the Company's operations.
9
Results of Operations
The following table sets forth, for the periods indicated, the Company's
unaudited results of operations expressed as a percentage of revenue:
<TABLE>
<CAPTION>
Three months ended
December 31,
1997 1996
-------- --------
<S> <C> <C>
Revenue:
Software products 14.7 % 26.6 %
Maintenance 18.7 % 13.6 %
Services 66.5 % 59.9 %
-------- --------
Total 100.0 % 100.0 %
Cost of revenue:
Software products 2.8 % 1.4 %
Maintenance 11.9 % 9.1 %
Services 59.7 % 46.5 %
-------- --------
Total 74.4 % 57.0 %
Gross profit 25.6 % 43.0 %
Operating expenses:
Sales and marketing 37.6 % 29.9 %
Research and product development 20.8 % 14.7 %
General and administrative 16.9 % 29.1 %
Restructuring charges - % 2.2 %
-------- --------
Total 75.3 % 75.9 %
Other income (expense), net (3.5)% (1.1)%
-------- --------
Loss before taxes (53.2)% (34.0)%
Income tax provision 0.9 % 1.8 %
-------- --------
Net loss (54.1)% (35.8)%
======== ========
</TABLE>
10
The following table sets forth unaudited data for total revenue by geographic
origin as a percentage of total revenue for the periods indicated:
<TABLE>
<CAPTION>
Three months ended
December 31,
1997 1996
-------- --------
<S> <C> <C>
United States 29.8% 30.5%
Mexico/Canada 2.3% 2.4%
South America 1.6% 5.7%
Europe 58.2% 53.5%
Middle East/Africa 3.7% 2.5%
Asia Pacific 4.4% 5.4%
-------- --------
100.0% 100.0%
======== ========
</TABLE>
9
Revenue and Gross Profit. The Company's total revenue decreased 21% and gross
profit decreased 53% compared to the first quarter of fiscal year 1997. These
decreases were primarily attributable to a decrease in software products and
services revenues, which were somewhat offset by an increase in maintenance
revenue.
Software products. For the first quarter of fiscal year 1998, software
products revenue decreased 56% from the same period of fiscal year 1997 while
software gross margin decreased to 81% in the first quarter of fiscal year
1998 from 95% in the period a year ago. There were two principal reasons for
the decrease in software sales related to the Company's distribution channels.
First, the Americas operating division is in the process of restructuring its
direct sales force by replacing a significant number of its current
salespeople with more experienced personnel. This action disrupted many of
the software sales that might have closed during the quarter. Second, delays
in the completion of transactions through the Company's primary indirect
channels in the European region caused revenues in Europe to fall below
expectations. Additionally, potential sales of software products to Asian
prospects were impeded by the downturn in the Asian economy.
Software gross margin decreased in the first quarter of fiscal year 1998 in
comparison to the same period a year ago due to the payment of royalties on
componentware offerings and an increase in the amortization of capitalized
software costs. Amortization of capitalized software costs increased in the
first quarter of fiscal year 1998 due to several new products becoming
generally available in second half of fiscal year 1997.
Maintenance. Maintenance revenue increased 10% for the first quarter of
fiscal year 1998 as compared to the same quarter of fiscal year 1997. The
trend of increasing maintenance revenues is primarily a result of additions to
the installed customer base in prior periods and may be negatively impacted in
future quarters due to significantly lower software products sales in the
first quarter of fiscal year 1998. Maintenance gross margins increased 23%,
or approximately $240,000, in the first quarter of fiscal year 1998 over the
same period of fiscal year 1997. This increase in gross margin was primarily
due to a reduction in commissions paid to IBM for certain levels of services
supplied to European customers. This decrease was made possible by a
favorable renegotiation of the Company's contract with IBM during the second
quarter of fiscal year 1997.
Services. Services revenue for the first quarter of fiscal year 1998
decreased 12% compared to the first quarter of fiscal year 1997, and service
gross margins declined from 22% in the first quarter of fiscal year 1997 to
10% in the first quarter of fiscal year 1998. The decrease in revenue and
services margin in the first quarter of fiscal year 1998 is primarily a result
of a decrease in the utilization of billable personnel. The unfavorable trend
in utilization was caused by unforeseen organizational changes by a
significant customer, which resulted in the cancellation of a contract, and
higher than normal amounts of vacation taken by the consulting staff.
Additionally, the gross margin was adversely affected in the first quarter of
fiscal year 1998 by increased recruiting costs in the highly competitive
European employment market.
11
Operating Expenses. Total operating expenses for the first quarter of fiscal
year 1997 were significantly impacted by the recording of a $3.8 million
reserve of accounts receivable for an account which was determined to be
uncollectible. Excluding this adjustment, total operating expenses remained
relatively unchanged between the first quarter of fiscal year 1998 and the
first quarter of fiscal year 1997 with a difference of less than 1%. In
comparison to the first quarter of fiscal year 1997, sales and marketing and
general and administrative expenses remained relatively constant and research
and development expenditures increased 13% during the first quarter of fiscal
year 1998. Additionally, there were no restructuring charges during the first
quarter of fiscal year 1998.
While expenses for sales and marketing did not change overall, sales expenses
in the first quarter of fiscal year 1998 significantly decreased from the same
period of fiscal year 1997 in direct correlation to an approximately 30%
reduction in headcount due to changes in the sales model and the sales force
implementing this new model. The decreases in sales expenses were offset by
increased expenses in marketing in order to launch a series of strategically-
positioned marketing initiatives to increase visibility and lead generation.
The Company expects that total sales and marketing expenses will increase
during fiscal year 1998 compared to similar periods of fiscal year 1997 as the
Company plans to continue investing in this functional area and its related
programs and activities.
The 13% increase in research and development expenses from the first quarter
of fiscal year 1997 to the same period of fiscal year 1998 is primarily a
result of an approximately 20% increase in average personnel costs. During
the first quarter of fiscal year 1998, the Company determined that a
significant one-time overall increase in salaries was necessary to ensure the
Company's competitiveness in the recruiting and retention of research and
development personnel.
Even though total general and administrative expense did not change
significantly in the first quarter of fiscal year 1998 in comparison to the
first quarter of fiscal year 1997, excluding the above mentioned $3.8 million
reserve of accounts receivable, there was an approximately 20% increase in
headcount which was offset by decreases in professional services and leased
machinery and equipment costs. The increases in headcount were principally
made in the Company's Corporate Information Services department, as the
Company makes investments in its internal information systems.
In the first quarter of fiscal year 1997, the Company recorded $.5 million of
restructuring expenses, or 3% of total operating expenses, related primarily
to severance benefits and the consolidation of leased facilities. Similar
charges were not recorded in the first quarter of fiscal year 1998.
Income Taxes. Income taxes decreased from a provision of $.4 million for the
first quarter of fiscal year 1997 to $.2 million for the same period of fiscal
year 1998 due to a decrease in foreign tax expense. No federal income tax
benefit was recorded in either period. Management believes that it is more
likely than not that the realization of the reported deferred tax assets will
occur in the future based on current earnings forecasts, tax planning
strategies and reversals of book-tax temporary differences. The Company will
continue to assess the realization of deferred tax assets on an ongoing basis.
Liquidity and Capital Resources
During the first quarter of fiscal year 1997, cash flow provided by operations
and investing activities was $.9 million, while in the first quarter of fiscal
year 1998 there was a net usage of $4.6 million in net cash. The decline in
cash flow provided by operations and investing activities is primarily due to
a small increase in cash needed to fund operations, a $.4 million increase in
interest, and a $6.7 million decrease in cash received from customers.
Collections in the first quarter of fiscal year 1998 were $26.0 million
compared to collections of $32.7 million in the same period of fiscal year
1997. As of December 31, 1997, the Company did not have any material
commitments for capital expenditures.
12
The Company financed its net cash outflow in the first quarter of fiscal year
1998 through credit facilities with commercial banks. At December 31, 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 Welsh, Carson, Anderson, & Stowe VI
L.P., 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 December 31, 1997, the Company had outstanding borrowings of $20.5
million under the Revolving Facility and $8.8 million under the Guaranteed
Facility. The interest rates for the Revolving Facility and the Guaranteed
Facility were 11% and 8.5%, respectively, at December 31, 1997.
Due to payment terms of certain software contracts, a portion of the related
receivables are classified as non-current assets. As of December 31, 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. The Company enters into foreign exchange
forward contracts to hedge the exposures that arise from foreign exchange rate
movements between dates that foreign currency denominated receivables and
payables are recorded and the date they are paid. 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 December 31, 1997 the
aggregate notional amount of foreign exchange contracts outstanding was $9.7
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 performs to its operating plan. Thereafter, the Company's liquidity
will depend upon the results of future operations, as well as available
sources of financing. Although the Company's results of operations for the
first quarter of fiscal year 1998 fell below expectations for the reasons
described in "-Results of Operations" above, management is implementing
changes in its Americas division sales force, developing and expanding
relationships with its distribution channel partners and improving its global
marketing activities in an effort to improve the Company's long-term prospects
for profitability. In view of the relatively long lead time necessary to
realize profits as a result of these activities, however, management does not
expect a material short-term improvement in the Company's results of
operations as a result of these activities alone. Rather, as is discussed
above, the Company's short-term results of operations are more likely to be
affected by the timing of its recognition of software revenue generated
through its existing distribution channels. Because sales of the Company's
products typically involve a substantial commitment of its potential
customers' time and resources, the Company's ability to influence the timing
of such transactions is often limited. Accordingly, management is unable to
predict with certainty whether the Company will ultimately perform in
accordance with its operating plan. Therefore, there can be no assurance that
the Company will be able to continue to meets its cash requirements through
operations or, if needed, obtain additional financing on acceptable terms,
and the failure to do so may have a materially adverse impact on the Company's
business and operations.
13
Recent Accounting Pronouncements
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.
14
PART II. Other Information
Item 1. Legal Proceedings
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 May
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.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEER TECHNOLOGIES, INC.
/s/ Thomas A. Wilson
Date: February 13, 1998 ..............................................
Thomas A. Wilson
President and Chief Executive Officer
/s/ Steven Dmiszewicki
Date: February 13, 1998 ..............................................
Steven Dmiszewicki
Senior Vice President and Chief
Financial Officer
16
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME FILED AS PART OF
THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 6,893
<SECURITIES> 0
<RECEIVABLES> 25,921
<ALLOWANCES> 1,575
<INVENTORY> 0
<CURRENT-ASSETS> 34,146
<PP&E> 17,283
<DEPRECIATION> 13,339
<TOTAL-ASSETS> 61,078
<CURRENT-LIABILITIES> 49,059
<BONDS> 0
0
21
<COMMON> 119
<OTHER-SE> 11,209
<TOTAL-LIABILITY-AND-EQUITY> 61,078
<SALES> 0
<TOTAL-REVENUES> 18,356
<CGS> 0
<TOTAL-COSTS> 13,641
<OTHER-EXPENSES> 13,586
<LOSS-PROVISION> 226
<INTEREST-EXPENSE> 785
<INCOME-PRETAX> (9,747)
<INCOME-TAX> 159
<INCOME-CONTINUING> (9,906)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,906)
<EPS-PRIMARY> (.83)
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