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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission file number 0-21985
SEEC, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 55-0686906
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
PARK WEST ONE, SUITE 200, CLIFF MINE ROAD, PITTSBURGH, PENNSYLVANIA 15275
(Address of Principal Executive Offices) (Zip Code)
(412) 893-0300
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
----- -----
As of February 10, 2003, there were 7,319,992 outstanding shares of
Common Stock, par value $.01 per share, of SEEC, Inc.
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SEEC, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE
NUMBER
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations for the three- and nine-month periods
ended December 31, 2002 and 2001........................................................................ 2
Condensed Consolidated Balance Sheets as of December 31, 2002 and March 31, 2002........................ 3
Condensed Consolidated Statements of Cash Flows for the nine-month periods
ended December 31, 2002 and 2001........................................................................ 4
Notes to Unaudited Consolidated Financial Statements.................................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................ 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk........................................... 16
Item 4. Controls and Procedures.............................................................................. 16
PART II--OTHER INFORMATION
Item 1. Legal Proceedings.................................................................................... 16
Item 2. Changes in Securities................................................................................ 16
Item 3. Defaults Upon Senior Securities...................................................................... 16
Item 4. Submission of Matters to a Vote of Security Holders.................................................. 16
Item 5. Other Information.................................................................................... 16
Item 6. Exhibits and Reports on Form 8-K..................................................................... 16
SIGNATURES.................................................................................................... 17
CERTIFICATIONS................................................................................................ 18
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SEEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
---------------------------- ----------------------------
2002 2001 2002 2001
---------- ----------- ----------- -----------
REVENUES:
Software license and maintenance fees $ 674,239 $ 343,787 $ 1,740,049 $ 1,133,435
Professional services 463,045 228,624 1,136,544 659,457
---------- ----------- ----------- -----------
Total revenues 1,137,284 572,411 2,876,593 1,792,892
---------- ----------- ----------- -----------
OPERATING EXPENSES:
Cost of revenues:
Software license and maintenance fees 71,122 83,804 256,683 284,287
Professional services 386,209 214,062 974,903 707,685
---------- ----------- ----------- -----------
Total cost of revenues 457,331 297,866 1,231,586 991,972
General and administrative 416,150 438,117 1,374,122 1,394,050
Sales and marketing 469,748 1,035,948 1,955,329 3,128,568
Research and development 286,033 400,539 978,261 1,236,321
Amortization of goodwill and other intangible assets 7,369 44,020 22,108 132,058
Restructuring costs - - 344,253 -
---------- ----------- ----------- -----------
Total operating expenses 1,636,631 2,216,490 5,905,659 6,882,969
---------- ----------- ----------- -----------
LOSS FROM OPERATIONS (499,347) (1,644,079) (3,029,066) (5,090,077)
NET INTEREST INCOME 57,459 162,170 216,777 560,013
---------- ----------- ----------- -----------
NET LOSS $ (441,888) $(1,481,909) $(2,812,289) $(4,530,064)
========== =========== =========== ===========
Basic and diluted net loss per common share $ (0.07) $ (0.24) $ (0.46) $ (0.74)
========== =========== =========== ===========
Weighted average number of basic and
diluted common and common equivalent
shares outstanding 6,076,110 6,081,764 6,081,504 6,099,691
========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
SEEC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, MARCH 31,
2002 2002
------------------ --------------------
(UNAUDITED) (AUDITED *)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,045,951 $ 10,473,967
Short-term investments 2,421,346 3,932,412
Accounts receivable - trade, net 989,551 448,404
Prepaid expenses and other current assets 267,628 433,358
------------ ------------
Total current assets 12,724,476 15,288,141
PROPERTY AND EQUIPMENT, NET 598,774 831,120
INTANGIBLE ASSETS, NET 66,600 60,291
------------ ------------
$ 13,389,850 $ 16,179,552
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 231,932 $ 280,481
Accrued compensation 390,369 410,801
Other current liabilities 333,011 244,573
Deferred maintenance revenues 306,361 288,526
Income taxes payable 37,927 40,794
------------ ------------
Total current liabilities 1,299,600 1,265,175
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred stock--no par value; 10,000,000 shares authorized;
none issued
Common stock--$.01 par value; 20,000,000 shares authorized;
6,309,187 shares issued 63,092 63,092
Additional paid-in capital 34,589,206 34,589,206
Accumulated deficit (21,741,271) (18,906,681)
Less treasury stock, at cost--252,130 and 227,043 shares
at December 31 and March 31, 2002, respectively (840,109) (827,605)
Accumulated other comprehensive income (loss) 19,332 (3,635)
------------ ------------
Total shareholders' equity 12,090,250 14,914,377
------------ ------------
$ 13,389,850 $ 16,179,552
============ ============
- ------------
* Condensed from audited financial statements
The accompanying notes are an integral part of these financial statements.
SEEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED DECEMBER 31,
---------------------------------------------
2002 2001
--------------------- ---------------------
CASH FLOWS USED BY OPERATING ACTIVITIES $ (2,868,929) $ (4,448,534)
--------------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net of disposals (12,956) (169,012)
Purchases of short-term investments - (3,247,976)
Sales of short-term investments 1,513,580 3,261,972
Other, net (28,417) (3,827)
--------------------- ---------------------
Net cash provided (used) by investing activities 1,472,207 (158,843)
--------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of treasury stock (36,047) (73,228)
Common stock issued 4,753 33,159
--------------------- ---------------------
Net cash used by financing activities (31,294) (40,069)
--------------------- ---------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,428,016) (4,647,446)
Cash and cash equivalents, beginning of period 10,473,967 16,049,397
--------------------- ---------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,045,951 $ 11,401,951
===================== =====================
The accompanying notes are an integral part of these financial statements.
SEEC, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of SEEC, Inc. and its wholly-owned subsidiaries
(collectively, the "Company" or "SEEC") , and have been prepared in accordance
with accounting principles generally accepted in the United States of America
("United States") for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act
of 1934. Accordingly, they do not include all of the information and
disclosures required by accounting principles generally accepted in the United
States for complete financial statements. Management believes that all
adjustments, consisting only of normal recurring adjustments, considered
necessary for a fair statement of results have been included in the
consolidated financial statements for the interim periods presented. All
significant intercompany accounts and transactions have been eliminated. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Operating
results for interim periods are not necessarily indicative of results that may
be expected for an entire fiscal year. Accordingly, these interim period
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements contained in the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 2002.
Certain prior period amounts have been reclassified to conform to the
current period presentation.
2. REVENUE RECOGNITION
The Company recognizes revenue in accordance with the American Institute
of Certified Public Accountants' Statement of Position ("SOP") 97-2, "Software
Revenue Recognition," and SOP 98-9, "Software Revenue Recognition, With
Respect to Certain Arrangements." SOP 97-2 specifies the criteria that must be
met for recognizing revenues from software sales, and SOP 98-9 requires
recognition of revenue using the "residual method" in a multiple-element
arrangement when fair value does not exist for one or more of the delivered
elements in the arrangement. Under the residual method, the total fair value
of the undelivered elements is deferred and subsequently recognized in
accordance with SOP 97-2.
Revenues are derived from the license of software products, customer
support and maintenance contracts, and services contracts, including
consulting and training services. Revenues from product license fees are
recognized when an order or agreement is in hand, the fee is fixed and
determinable, delivery of the product has occurred, and collectibility is
probable. Customer support and maintenance contract revenues are recognized
ratably over the term of the related agreement, generally twelve months. The
Company provides professional services under time-and-materials and
fixed-price contracts. Revenues from time-and-materials contracts are
recognized as the services are provided. Revenues from fixed-price contracts
are recognized principally by the percentage-of-completion method, whereby
income is recognized based on the estimated stage of completion of individual
contracts. Provision for estimated losses on uncompleted contracts is made in
the period in which such losses are determinable.
3. STOCK REPURCHASE PROGRAM
In July 1998, the Company announced its plan to begin a stock repurchase
program, utilizing up to $3 million to repurchase shares of the Company's
Common Stock from time to time on the open market, subject to market
conditions and other relevant factors. The Company may use repurchased shares
to cover stock option exercises, Employee Stock Purchase Plan transactions,
and for other corporate purposes. Through December 31, 2002, the Company had
used $1.9 million to repurchase 473,175 shares, of which 221,045 shares were
reissued to cover Employee Stock Purchase Plan transactions, stock option
exercises, and stock warrant exercises. Repurchased shares are recorded as
treasury shares.
5
4. NET LOSS PER SHARE
Net loss per share for all periods presented is computed in accordance
with the provisions of Statement of Financial Accounting Standards No. 128,
"Earnings Per Share." Options and warrants are excluded from the computation
of net loss per share of common stock for the three- and nine-month periods
ended December 31, 2002 and 2001, because their effect is not dilutive.
5. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) includes all changes in equity during a
period, except those resulting from investments by owners and distributions to
owners. The Company reports comprehensive income (loss) and its components in
its annual Consolidated Statement of Changes in Shareholders' Equity. The
components of the Company's comprehensive income (loss) were as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
---------------------------------- -----------------------------------
2002 2001 2002 2001
---------------- ---------------- ----------------- -----------------
Net loss ($441,888) ($1,481,909) ($2,812,289) ($4,530,064)
Unrealized gain (loss) on investments,
net of taxes (7,403) 16,858 22,967 40,782
---------------- ---------------- ----------------- -----------------
Total comprehensive loss ($449,291) ($1,465,051) ($2,789,322) ($4,489,282)
================ ================ ================= =================
6. RESTRUCTURING COSTS
In June 2002, in response to ongoing operating losses and the general
slowdown in the economy, the Company adopted a formal plan to reduce operating
costs. A key component of the plan was a shift from the Company's direct sales
strategy for its Axcess(TM) for Insurance solutions to a strategy whereby the
Company would enter into alliances with strategic partners to continue to
market its Axcess for Insurance solutions. This would allow the Company to
reduce operating costs while focusing its direct sales efforts on the SEEC
Mosaic(TM) Studio product line.
In connection with these actions, during the three months ended June
2002, the Company recorded restructuring costs of $344,253 in accordance with
Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring) and SEC Staff Accounting Bulletin
No. 100, Restructuring and Impairment Charges. Included in the charge was
$63,018 for the abandonment and write-off of excess property and equipment. An
accrued liability was recorded for the remaining $281,235 in charges. Of this
amount, $146,235 was recorded for workforce reduction, consisting of severance
and extended insurance benefits attributable to 10 employees, primarily in the
Company's sales and marketing functions. The remaining $135,000 represents an
accrual for noncancelable lease payments, less management's estimates of
sublease income. These estimates are evaluated by the Company quarterly and
are subject to change based on actual events.
6
All charges associated with the restructuring are included as
restructuring costs under operating expenses in the statement of operations.
Below is a summary of the restructuring costs:
CHARGED TO
OPERATIONS RESTRUCTURING
THREE MONTHS LIABILITIES AT
ENDED TOTAL CASH DECEMBER 31,
JUNE 30, 2002 PAYMENTS 2002
------------------ ----------------- ------------------
Cash Provisions:
Workforce reduction................................. $ 146,235 $(101,235) $ 45,000
Non-cancelable leases............................... 135,000 (33,750) 101,250
------- ------------ ----------
281,235 $(134,985) $ 146,250
============ ==========
Non-cash:
Write-off of excess property and equipment.......... 63,018
-------
$ 344,253
=========
7. INCOME TAXES
In the three- and nine-month periods ended December 31, 2002 and 2001,
the Company calculated a deferred tax asset, which was offset by a valuation
allowance due to the uncertainty of realization of the Company's net operating
loss carryforwards, resulting in no tax provision or benefit accrued in the
periods. As of March 31, 2002, the Company had unused Federal and state net
operating loss carryforwards that may be applied to reduce future taxable
income of approximately $14,399,000 and $8,190,000, respectively. The
carryforwards expire at various times from March 31, 2007 to March 31, 2022.
Certain changes in ownership could result in an annual limitation on the
amount of carryforwards that may be utilized.
8. SUBSEQUENT EVENTS
Asset Purchase -- On January 8, 2003, the Company acquired certain assets
of Asera, Inc. ("Asera"), including the Asera name, intellectual property and
customers. SEEC also hired certain of the former Asera's staff. In return,
SEEC assumed certain liabilities of Asera. On January 6, 2003, Asera
transferred all of its assets to Sherwood Partners, Inc. ("Sherwood") in an
assignment-for-the-benefit-of-creditors transaction. Pursuant to an Asset
Purchase Agreement dated January 8, 2003 between the Company and Sherwood, the
Company acquired the following former Asera assets (the "Asset Purchase"):
(a) All cash and cash equivalents in excess of $650,000;
(b) All accounts receivable, subject to adjustment as more fully
described below;
(c) All equipment, machinery, computer hardware and software, materials,
prototypes, tools, supplies, vehicles, furniture and fixtures;
(d) All raw materials, work-in-process and finished goods inventory;
(e) All intellectual property;
(f) Certain customer lists;
(g) Certain of Asera's contracts; and
(h) All advertising, marketing and promotional materials.
Upon the closing of the Asset Purchase, to the extent that the cash and
cash equivalents of Asera were less than $650,000, Sherwood was entitled to
retain an amount equal to such shortfall of cash proceeds received by it on
behalf of Asera from the collection of accounts receivable. The Company did
not acquire certain of the assets of Asera, including the capital stock or
assets of Asera's wholly-owned subsidiaries in the United Kingdom, Germany and
India, nor did the Company acquire any real property leases to which Asera or
any of its subsidiaries was a party.
As consideration for the Asset Purchase, the Company assumed the
following indebtedness:
7
(a) $1,065,214 of the secured indebtedness of Asera owing to Venture
Lending & Leasing III, Inc., Third Coast Capital, Venture Banking
Group, GATX Ventures, Inc. and Heller Financial Leasing, Inc.;
(b) $506,440 of the secured indebtedness of Asera owing to Comdisco
Ventures, Inc.;
(c) $2,112,525 of the secured indebtedness of Asera owing to KPCB
Holdings, Inc. ("KPCB"), as representative and collateral agent, and
certain other lenders (the "Bridge Lenders"); and
(d) The obligations of Asera arising under certain maintenance and other
contracts.
The assumed indebtedness described in items (a) and (b) above was paid in
full by the Company on January 8, 2003. Additionally, pursuant to a Consent
and Agreement dated January 8, 2003 by and among the Company, Asera and KPCB,
as the representative and collateral agent for and on behalf of the Bridge
Lenders, the Company agreed to convert the assumed indebtedness described in
paragraph (c) into (i) 1,646,129 shares of the Company's common stock
("Conversion Shares") and (ii) the right to receive, in certain circumstances,
an aggregate of $301,782, subject in the case of each of items (i) and (ii) to
the satisfaction of certain specified conditions including, without
limitation, the approval of the Company's shareholders. The Company has agreed
to register the Conversion Shares for resale under the Securities Act of 1933,
as amended (the "Securities Act").
As further consideration for the purchased assets, the Company agreed to
issue to Sherwood for the benefit of unsecured creditors of Asera, a warrant
to purchase an aggregate of 20,000 shares of the Company's common stock. The
issuance of the warrant is subject to the satisfaction of certain specified
conditions including, without limitation, the approval of the Company's
shareholders. The Company has agreed to register the shares upon exercise of
the warrant for resale under the Securities Act.
The Company also agreed to pay from time to time, in its sole discretion,
cash to Sherwood for the purpose of paying certain unsecured creditors of
Asera. Such cumulative payments are not to exceed $500,000.
Prior to the assignment for the benefit of creditors, Asera had developed
and marketed order management and supply chain management solutions and a
software platform for building flexible, composite applications that leverage
existing enterprise software systems including Enterprise Resource Planning
("ERP") and other back-end packages. The Company intends to continue to use
the equipment and other physical property acquired from Sherwood for these or
similar purposes.
Stock Sale and Related Agreements -- Also on January 8, 2003, in a
private-investment-in-public-equity transaction, the Company sold 1,205,354
shares of common stock ("PIPE Shares") to KPCB for a cash consideration of
$1,301,782 (the "PIPE Transaction"). The PIPE Shares were issued in a private
placement transaction, pursuant to Section 4 (2) and Regulation D promulgated
under the Securities Act. In connection with the PIPE Transaction, the Company
agreed that for so long as KPCB owns at least 200,000 PIPE Shares, it will use
its best efforts to cause two designees of KPCB to be appointed to its board
of directors. Effective immediately following the closing of the PIPE
Transaction, a general partner of KPCB was named to the Company's board of
directors as one of these two designees. Pursuant to the PIPE Transaction, the
Company also agreed to cause a registration statement covering the PIPE Shares
to be filed with the SEC.
The Company also entered into a two-year Consulting Agreement with KPCB
on January 8, 2003, pursuant to which KPCB agreed to provide certain
consulting services to the Company in exchange for the issuance of certain
performance warrants to purchase up to 2,500,000 shares of the Company's
common stock, effective upon the satisfaction of certain specified conditions
including, without limitation, the approval of the Company's shareholders. The
Company has agreed to register the shares issuable upon exercise of the
warrants for resale under the Securities Act.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain information contained herein should be considered
"forward-looking information," which is subject to a number of risks,
uncertainties, and assumptions. The preparation of forward-looking information
requires the use of
8
estimates of future revenues, expenses, activity levels and economic and
market conditions, many of which are outside our control. Other factors and
assumptions, including those set forth in SEEC's Annual Report on Form 10-K
for the year ended March 31, 2002, are involved in the preparation of
forward-looking information, and the failure of any such factors and
assumptions to be realized may cause actual results to differ materially from
those discussed. We assume no obligation to update such estimates to reflect
actual results, changes in assumptions or changes in other factors affecting
such estimates.
The previous discussion and other sections of this Form 10-Q contain
forward-looking statements that have been made pursuant to the provisions of
the Private Securities Litigation Reform Act of 1995. These forward-looking
statements are based on current expectations, estimates and projections about
our industry, management's beliefs, and certain assumptions made by
management. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates," "may," and similar expressions are intended
to identify forward-looking statements. These statements are not guarantees of
future performance and actual actions or results may differ materially. These
statements are subject to certain risks, uncertainties and assumptions that
are difficult to predict. We undertake no obligation to update publicly any
forward-looking statements as a result of new information, future events or
otherwise, unless required by law. Readers should, however, carefully review
the risk factors included in other reports or documents filed by us from time
to time with the Securities and Exchange Commission.
OVERVIEW
SEEC, Inc. ("SEEC" or the "Company") provides business-to-business (B2B)
software solutions that help insurance, financial services, telecommunications
and other large companies automate key business processes by evolving and
integrating their current applications and systems, saving time and money. The
Company's solutions are built upon SEEC Mosaic(TM) Studio, a suite of legacy
evolution tools and component templates for creating composite applications
that support real-time, collaborative business processes. The SEEC solutions
can be implemented without materially disrupting current operations or
replacing back-end administrative systems, providing a lower cost, shorter
time, and lower risk for development and deployment than traditional
approaches. With our ability to externalize business rules under a flexible
architecture based on XML, Web services and other emerging standards, we
believe that we have one of the leading cost-effective B2B solutions available
in the market today. SEEC's solutions have penetrated over 30 Fortune 2000
companies.
The pervasive growth of the Web as a medium for business and the rapid
development and adoption of B2B technologies like XML and Web services are
driving large enterprises to externalize their traditional business processes
to improve efficiency, maintain their competitiveness, and enable future
growth. SEEC's solutions focus on preserving the competitive advantages
inherent in existing financial, customer service and industrial systems while
allowing companies to utilize the underlying value of these systems in new
Web-centric business processes. SEEC Mosaic Studio supports these efforts by
externalizing the business rules within existing systems and by providing
means for quickly integrating those systems with the Web.
The SEEC Mosaic Studio solutions are used in a wide range of industries,
and SEEC is now extending the SEEC Mosaic technologies to include component
templates that are used to deliver Axcess(TM) industry solutions for insurance
and other sectors. The first of these solutions, Axcess for Insurance, allows
insurance carriers to quickly automate their customer service, policy rating
and other processes. Axcess will reduce the carriers' costs and improve their
relations with customers and the agents and brokers that account for the vast
majority of insurance sales. Axcess, along with SEEC Mosaic Studio, provides a
new alternative to "build vs. buy" for B2B initiatives that offers a faster
return on investment.
In January 2003, SEEC acquired certain of the assets of Asera, Inc. The
Asera products include order management and supply chain management solutions,
and a software platform for building flexible, composite applications that
leverage existing enterprise software systems including Enterprise Resource
Planning ("ERP") and other back-end packages. The addition of the Asera
vertical solutions and technology expands SEEC's target markets to include
companies with significant ERP and other legacy packages, in addition to
custom-built host applications that comprise SEEC's traditional targets.
Asera's development technology also complements SEEC's business rule and
integration technology by adding personalization, localization, globalization,
and other capabilities for developing configurable enterprise applications.
The following discussion excludes any effect of the Asset Purchase or the
transactions related thereto.
9
SEEC was founded in 1988 to develop tools and solutions for reengineering
of legacy COBOL applications. Through 1999, organizations used SEEC's
solutions extensively for year 2000 remediation and testing, legacy system
maintenance, and legacy system reengineering. In fiscal 2001, we introduced
SEEC Mosaic Studio. Our customer base consists primarily of large and
medium-sized organizations including corporations, third-party information
technology ("IT") service providers, higher education institutions, non-profit
entities and governmental agencies. We derive our revenues from software
license and maintenance fees and professional services fees. Professional
services are typically provided to customers in conjunction with the license
of software products. Our enterprise solutions and software products and
services are marketed through a broad range of distribution channels,
including direct sales to end users, and to end users in conjunction with our
partners.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We prepare our financial statements in accordance with accounting
principles generally accepted in the United States of America, which require
us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses and the disclosure of contingent assets and
liabilities. We periodically evaluate these estimates, including those related
to our revenue recognition, allowance for doubtful accounts, and intangible
assets. We base our estimates on historical experience and various other
assumptions that we believe to be reasonable based on the specific
circumstances, the results of which form the basis for making judgments about
the carrying value of certain assets and liabilities that are not readily
apparent from other sources. Actual results could differ from these estimates.
We believe the following critical accounting policies impact the most
significant judgments and estimates used in the preparation of our
consolidated financial statements. Information regarding our other accounting
policies is included in our Annual Report on Form 10-K for the year ended
March 31, 2002.
Revenue Recognition. Our revenue recognition policy is significant
because our revenue is a key component of our results of operations. We follow
detailed guidelines discussed in Note 1 of the Notes to our Consolidated
Financial Statements for the year ended March 31, 2002. We recognize revenue
in accordance with generally accepted accounting principles that have been
prescribed for the software industry. The accounting rules related to revenue
recognition are complex and are affected by interpretations of the rules and
an understanding of industry practices, both of which are subject to change.
Consequently, the revenue recognition accounting rules require management to
make significant judgments.
Revenues are derived from the license of software products, customer
support and maintenance contracts, and services contracts, including
consulting and training services. Revenues from product license fees are
recognized when an order or agreement is in hand, the fee is fixed and
determinable, delivery of the product has occurred, and collectibility is
probable. Customer support and maintenance contract revenues are recognized
ratably over the term of the related agreement, generally twelve months. The
Company provides professional services under time-and-materials and
fixed-price contracts. Revenues from time-and-materials contracts are
recognized as the services are provided. Revenues from fixed-price contracts
are recognized principally by the percentage-of-completion method, whereby
income is recognized based on the estimated stage of completion of individual
contracts. Provision for estimated losses on uncompleted contracts is made in
the period in which such losses are determinable. Fixed-price contracts and
related estimates have not been significant in recent years.
Impairment of Goodwill and Intangible Assets. We record intangible assets
when we acquire other companies. The cost of the acquisition is allocated to
the assets and liabilities acquired, including intangible assets, with the
remaining amount being classified as goodwill. We periodically review the
carrying amounts of goodwill and intangible assets for indications of
impairment. If impairment is indicated, we assess the value of the intangible
assets. The value of goodwill and intangible assets has been amortized to
operating expense over time, with in-process research and development recorded
as a one-time charge on the acquisition date. Under current accounting
guidelines that became effective on July 1, 2001, goodwill arising from
transactions occurring after June 30, 2001 and any existing goodwill as of
April 1, 2002 are no longer amortized to expense but rather are periodically
assessed for impairment. As a result of write-downs of goodwill resulting from
impairment evaluations performed in fiscal 2001 and 2002, there was no
goodwill reflected on the balance sheet as of April 1, 2002. We periodically
review the estimated remaining useful
10
lives of our remaining intangible assets. A reduction in our estimate of
remaining useful lives, if any, could result in increased amortization expense
in future periods. See Notes 2 and 3 to the Consolidated Financial Statements
for the year ended March 31, 2002.
Allowance for Doubtful Accounts. We record allowances for estimated
losses resulting from the inability of our customers to make required
payments. We assess the credit worthiness of our customers based on past
collection history and specific risks identified in our outstanding accounts
receivable. If the financial condition of a customer deteriorates such that
its ability to make payments might be impaired, or if payments from a customer
are significantly delayed, additional allowances might be required, resulting
in future bad debt expense not provided in the allowance for doubtful accounts
at December 31, 2002.
Restructuring Costs. In June 2002, SEEC's management formally adopted a
plan to reduce operating costs, including a change in our sales strategy
related to Axcess for Insurance solutions. We have accounted for the related
restructuring costs in accordance with Emerging Issues Task Force Issue No.
94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring) and SEC Staff Accounting Bulletin No. 100, Restructuring and
Impairment Charges. A significant portion of the restructuring costs related
to excess facilities, primarily from noncancelable leases and other costs for
the abandonment or disposal of property and equipment. Estimates related to
noncancelable lease costs and sublease income are based on certain
assumptions, including those regarding the period during which we will be
successful in contracting with a sublessee or sublessees, and sublease rates
which can be achieved. We review these estimates each reporting period, and to
the extent that these assumptions change due to changes in the market, the
ultimate restructuring expenses for these excess facilities could vary.
COMPARISON OF THREE-AND NINE-MONTH PERIODS ENDED DECEMBER 31, 2002 AND 2001
The following section includes information related to changes in SEEC's
Consolidated Statements of Operations. References to the third quarter of
fiscal 2003 and to the third quarter of fiscal 2002 refer to the three months
ended December 31, 2002 and December 31, 2001, respectively.
REVENUES. Total revenues for the third quarter of fiscal 2003 were
$1,137,000 compared to $572,000 for the third quarter of fiscal 2002, an
increase of $565,000 or 99%. For the nine months ended December 31, 2002,
total revenues were $2,877,000 compared to $1,793,000 for the nine months
ended December 31, 2001, an increase of $1,084,000 or 60%.
Software license and maintenance fees were $674,000 for the third quarter
of fiscal 2003 compared to $344,000 for the third quarter of fiscal 2002, an
increase of $330,000 or 96%. For the nine months ended December 31, 2002,
software license and maintenance fees were $1,740,000 compared to $1,133,000
for the nine months ended December 31, 2001, an increase of $607,000 or 54%.
Professional services revenues were $463,000 for the third quarter of fiscal
2003 compared to $229,000 for the third quarter of fiscal 2002, an increase of
$234,000 or 102%. For the nine months ended December 31, 2002, professional
services revenues were $1,137,000 compared to $659,000 for the nine months
ended December 31, 2001, an increase of $478,000 or 73%.
The increases in revenues are attributable to increased demand in all
revenue categories. Sales during the first three quarters of fiscal year 2003
included our first sale of Axcess components. Significant professional
services were delivered in the nine-month period of fiscal 2003, particularly
related to project engagements with two customers in the insurance industry.
COST OF REVENUES. Total cost of revenues was $457,000 for the third
quarter of fiscal 2003 compared to $298,000 for the third quarter of fiscal
2002, an increase of $159,000 or 53%. For the nine months ended December 31,
2002, total cost of revenues was $1,232,000 compared to $992,000 for the nine
months ended December 31, 2001, an increase of $240,000 or 24%. The increases
in total cost of revenues are attributable primarily to an increase in the
salary and benefits costs of personnel providing the professional services.
The increased demand for professional services was primarily addressed by
increased utilization rates of our consultants and by redeploying qualified
personnel from other departments within SEEC, rather than by subcontracting or
hiring new employees.
Cost of software license and maintenance fees includes the costs of
providing customer support services, the cost of third-party software
licensed, and, to a lesser degree, the costs of media, manuals, duplication
and shipping
11
related to sales of certain of our software products. Customer support is
primarily delivered via telephone or online (Internet) to customers who have
purchased maintenance in conjunction with software license purchases. Cost of
software license and maintenance fees was $71,000 for the third quarter of
fiscal 2003 compared to $84,000 for the third quarter of fiscal 2002, a
decrease of $13,000 or 15%. For the nine months ended December 31, 2002, cost
of software license and maintenance fees was $257,000 compared to $284,000 for
the nine months ended December 31, 2001, a decrease of $27,000 or 10%. These
decreases were due primarily to reduced personnel costs.
Professional services costs consist primarily of compensation and related
taxes and benefits for Company personnel responsible for providing consulting
and training services to customers. Professional services costs were $386,000
for the third quarter of fiscal 2003 compared to $214,000 for the third
quarter of fiscal 2002, an increase of $172,000 or 80%. For the nine months
ended December 31, 2002, professional services costs were $975,000 compared to
$708,000 for the nine months ended December 31, 2001, an increase of $267,000
or 38%. The increases in professional services costs are attributable
primarily to an increase in the salary and benefits costs of personnel
providing the professional services. The increased demand for professional
services was met by increased utilization rates of our consultants and by
redeploying qualified personnel from other departments within SEEC.
GROSS MARGINS. Total gross margin (total revenues less total cost of
revenues) as a percentage of revenues was 60% and 57% for the three- and
nine-month periods ended December 31, 2002 compared to 48% and 45% for the
three- and nine-month periods ended December 31, 2001, respectively. Gross
margin percentages were 89% and 76% for software license and maintenance fees,
and 17% and 6% for professional services, for the third quarters of fiscal
2003 and 2002, respectively. Gross margin percentages were 85% and 75% for
software license and maintenance fees, and 14% and (7)% for professional
services, for the nine-month periods ended December 31, 2002 and 2001,
respectively. The gross margin percentages for software license and
maintenance fees are impacted by the proportion of customer support services
costs to the amount of software license and maintenance fees generated in a
given period. These percentages also fluctuate depending on the mix of
software products and the varying royalty expenses, if any, associated with
those products. The gross margin percentages for professional services vary
depending on the utilization rates of billable consultants, the timing and
amount of costs incurred for recruiting and training services consultants, and
the type of services provided. The gross margin percentages for professional
services in the three- and nine-month periods ended December 31, 2002 were
higher than the gross margin percentages in the fiscal 2002 periods due
primarily to an increase in revenues, which in turn improved the utilization
rates of billable consultants between the periods.
GENERAL AND ADMINISTRATIVE. General and administrative expenses include
the costs of general management, finance, legal, accounting, investor
relations, office facilities and other administrative functions. General and
administrative expenses were $416,000 for the third quarter of fiscal 2003
compared to $438,000 for the third quarter of fiscal 2002, a decrease of
$22,000 or 5%. For the nine months ended December 31, 2002, general and
administrative expenses were $1,374,000, compared to $1,394,000 for the nine
months ended December 31, 2001, a decrease of $20,000 or 1%. The decreases in
the fiscal 2003 periods compared to fiscal 2002 are due primarily to reduced
compensation costs. The decrease in the nine-month compensation costs was
partially offset by employee severance costs of $79,000, which were expensed
in the second quarter of fiscal 2003.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, incentive compensation and related taxes and benefits of our sales,
sales support, and marketing personnel, plus the costs of travel, advertising,
trade shows, and other promotional activities. Sales and marketing expenses
were $470,000 for the third quarter of fiscal 2003 compared to $1,036,000 for
the third quarter of fiscal 2002, a decrease of $566,000 or 55%. For the nine
months ended December 31, 2002, sales and marketing expenses were $1,955,000
compared to $3,129,000 for the nine months ended December 31, 2001, a decrease
of $1,174,000 or 38%. Expenses in the prior year periods included higher
levels of spending on recruitment and employment-related expenses, and on
advertising and promotion. Furthermore, the June 2002 restructuring resulted
in an overall reduction in expenses in the second and third quarters of fiscal
2003, compared to the prior-year quarters.
RESEARCH AND DEVELOPMENT. Total expenditures for research and development
were $286,000 for the third quarter of fiscal 2003 compared to $401,000 for
the third quarter of fiscal 2002, a decrease of $115,000 or 29%. For the nine
months ended December 31, 2002, expenditures for research and development were
$978,000 compared to $1,236,000 for the nine months ended December 31, 2001, a
decrease of $258,000 or 21%. These decreases were the result of reductions in
employment-related expenses. A larger proportion of development work was
shifted to
12
India, where personnel costs are lower. Also, some research and development
personnel were temporarily redeployed to billable services during the second
and third quarters of fiscal year 2003 to meet the increased demand for
professional services.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS. Goodwill and other
intangible assets are amortized over their estimated useful lives of five to
seven years. In the third quarter of fiscal 2003, amortization expense was
$7,000 compared to $44,000 for the third quarter of fiscal 2002, a decrease of
$37,000 or 84%. For the nine months ended December 31, 2002, amortization
expense was $22,000 compared to $132,000 for the nine months ended December
31, 2001, a decrease of $110,000 or 83%. The reductions were due to the
write-down of goodwill recorded in the fourth quarter of fiscal 2002, which
reduced the value of assets subject to amortization in subsequent quarters.
RESTRUCTURING AND IMPAIRMENT CHARGES. In June 2002, we adopted a formal
plan to reduce operating costs, including the shift in our direct sales
strategy related to Axcess for Insurance solutions. Our strategy in
implementing the restructuring was to reduce operating costs while focusing
our direct sales efforts on the SEEC Mosaic Studio product line. We intend to
continue to market the Axcess for Insurance solution through alliances with
strategic partners, who, we believe, can offer a broader solution for the
insurance market and can leverage their greater sales and marketing resources
and existing customer relationships. In connection with this plan, during the
first quarter of fiscal 2003, we recorded restructuring costs of $344,253,
consisting of charges for workforce reduction, the write-off of abandoned
excess property and equipment, and an accrual for noncancelable lease
obligations related to unused facilities. See Note 6.
There can be no assurance that our restructuring activities will be
sufficient to allow us to generate improved operating results in future
periods. It is possible that additional changes in our business or in our
industry may necessitate additional restructuring activities in the future,
which may result in expenses that adversely affect reported results of
operations in the period the restructuring plan is adopted and require
incremental cash payments.
NET INTEREST INCOME. Net interest income consists principally of interest
income on cash equivalents and short-term investments, which are comprised
primarily of money market funds and high-grade bonds with average maturities
of less than two years. Net interest income was $57,000 for the third quarter
of fiscal 2003 compared to $162,000 for the third quarter of fiscal 2002, a
decrease of $105,000 or 65%. For the nine months ended December 31, 2002, net
interest income was $217,000 compared to $560,000, a decrease of $343,000 or
61%. These decreases result from lower cash and short-term investments
balances combined with the effect of lower short-term interest rates in the
current year periods as compared to the prior year periods.
INCOME TAXES. In fiscal 2003 and 2002, the Company calculated a net
deferred tax asset, which was fully offset by a valuation allowance due to the
uncertainty of realization of our net operating loss carryforwards. As a
result, no provision for income taxes was recorded. At March 31, 2002, SEEC
had unused Federal and state net operating loss carryforwards that may be
applied to reduce future taxable income of approximately $14,399,000 and
$8,190,000, respectively. The carryforwards expire at various times from March
31, 2007 to March 31, 2022. Certain changes in SEEC's ownership could result
in an annual limitation on the amount of carryforwards that may be utilized.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2002, we had cash, cash equivalents, and short-term
investments of $11,467,000 and working capital of $11,425,000. Excess cash has
been invested, and we expect that it will continue to be invested, in
interest-bearing investment grade securities and money market funds. We used
$2,869,000 for operating activities in the nine months ended December 31,
2002, compared to $4,449,000 used for operating activities in the nine months
ended December 31, 2001. Our primary investing activities in the nine months
ended December 31, 2002 consisted of net sales of short-term investments of
$1,514,000, compared to net sales of short-term investments of $14,000 in the
nine months ended December 31, 2001. We used $36,000 for stock repurchases in
the nine months ended December 31, 2002, compared to $73,000 used for stock
repurchases in the nine months ended December 31, 2001. Proceeds from common
stock issued totaled $5,000 and $33,000 in the nine months ended December 31,
2002 and 2001, respectively.
13
In connection with the equity investment transaction by KPCB Holdings,
Inc. described in Note 8 above, in January 2003 we received $1,302,000 in cash
for the sale of common stock. Additionally, in connection with the Asset
Purchase described in Note 8, we assumed $3,684,000 of secured debt, of which
$1,572,000 was repaid at the closing of the transaction. Of the remaining
$2,112,000 of assumed indebtedness, $302,000 is scheduled to be repaid in cash
and, subject to shareholder approval, the balance is to be converted into
shares of common stock.
Our cash balances may be used to develop or expand domestic and
international sales and marketing efforts, to establish additional facilities,
to hire additional personnel, to increase research and development, for
capital expenditures, and for working capital and other general corporate
purposes. We may also utilize cash to develop or acquire other businesses,
products or technologies complementary to our current business. The amounts
actually expended for each such purpose may vary significantly and are subject
to change at our discretion, depending upon certain factors, including
economic or industry conditions, changes in the competitive environment and
strategic opportunities that may arise. We believe that cash flows from
operations and the current cash balances will be sufficient to meet our
liquidity needs for the foreseeable future. However, if events occur or
circumstances change such that we fail to meet our operating plan as expected,
we may require additional funds to support our working capital requirements or
for other purposes. We may then seek to raise additional funds through public
or private equity or debt financing, or from other sources. If additional
financing is needed, we cannot be assured that such financing will be
available to us on commercially reasonable terms, or at all.
SEASONALITY
We do not believe that our operations are affected by seasonal factors.
Our cash flows may at times fluctuate due to the timing of cash receipts from
large individual sales.
FOREIGN CURRENCY
The overall effects of foreign currency exchange rates on our business
during the periods discussed have not been material. Movements in foreign
currency exchange rates create a degree of risk to our operations if those
movements affect the dollar value of costs incurred in foreign currencies. The
majority of our billings to date have been denominated in U.S. dollars.
Changing currency exchange rates may affect our competitive position if such
changes impact the profitability and business and/or pricing strategies of
non-U.S. based competitors.
The functional currency of our foreign subsidiaries is the U.S. dollar.
Monetary assets and liabilities of these subsidiaries and branches are
remeasured at the current exchange rate at the balance sheet date, and
non-monetary items are translated at historical rates. Revenues and expenses
are translated using the average exchange rate during the period.
RECENT ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS
No. 141 requires the use of the purchase method of accounting and prohibits
the use of the pooling-of-interests method of accounting for business
combinations initiated after June 30, 2001. Our previous business combinations
were accounted for using the purchase method. SFAS No. 141 also requires that
acquired intangible assets be recognized apart from goodwill if the acquired
intangible assets meet certain criteria. In accordance with the guidelines in
SFAS No. 142, goodwill and other intangible assets with indefinite useful
lives will be tested for impairment annually, or more frequently if impairment
indicators arise. Separable intangible assets that are not deemed to have an
indefinite life will continue to be amortized over their useful lives. SFAS
No. 142 must be applied to all goodwill and other intangible assets recognized
at December 15, 2001, regardless of when those assets were initially
recognized. In accordance with the provisions of the statement, we adopted
SFAS 142 on April 1, 2002. Under the new standard, we reassessed the useful
lives of other intangible assets during the first quarter of fiscal 2003. SFAS
No. 142 requires that a transitional goodwill impairment test be completed six
months from the date of adoption. The adoption of the new standards did not
have a material affect on our financial position, results of operations, or
cash flows.
14
In October 2001, the FASB issued SFAS No. 144, "Accounting for Impairment
or Disposal of Long-Lived Assets," which supersedes SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." SFAS No. 144 also supercedes certain provisions of APB Opinion
No. 30, "Reporting the Results of Operations--Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." SFAS No. 144 addresses
financial accounting and reporting for the impairment and disposal of
long-lived assets and significantly changes the criteria required to classify
an asset as held-for-sale. We adopted the standard effective April 1, 2002.
The adoption of SFAS No. 144 did not have a material affect on our financial
position, results of operations, or cash flows.
In November 2001, the FASB's Emerging Issues task Force ("EITF") issued
EITF Topic No. D-103, "Income Statement Characterization of Reimbursements
Received for 'Out-of-Pocket' Expenses Incurred." In January 2002, the EITF
issued Topic No. D-103 as EITF Issue 01-14, "Income Statement Characterization
of Reimbursements Received for 'Out-of-Pocket' Expenses Incurred." Topic No.
D-103 requires companies to characterize reimbursements received for
out-of-pocket expenses as revenue in the statement of operations. The Company
has historically netted reimbursements received for out-of-pocket expenses
against the related expenses in the consolidated statements of operations.
Prior period amounts have been reclassified on the accompanying Consolidated
Statements of Operations to comply with EITF Issue 01-14. The adoption of the
new standard did not have a material affect on our financial position, results
of operations, or cash flows.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements SFAS Nos. 4, 44, and 64, Amendment of FASB Statement No. 13 and
Technical Corrections." SFAS No. 145 rescinds Statement No. 4, "Reporting
Gains and Losses from Extinguishments of Debt," and an amendment of that
Statement, Statement No. 64, "Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements." SFAS No. 145 also rescinds Statement No. 44,
"Accounting for Intangible Assets of Motor Carriers." SFAS no. 145 amends
Statement No. 13, "Accounting for Leases," to eliminate an inconsistency
between the required accounting for sale-leaseback transactions and the
required accounting for certain lease modifications that have economic effects
that are similar to sale-leaseback transactions. SFAS No. 145 also amends
other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions. The provision of SFAS No. 145 related to the rescission of FASB
Statement No. 4 is applicable in fiscal years beginning after May 15, 2002.
The provisions of SFAS No. 145 related to FASB Statement No. 13 is applicable
to transactions occurring after May 15, 2002, with early application
encouraged. The Company does not expect that the adoption of SFAS No. 145
will have significant impact on its consolidated results of operations,
financial position or cash flows.
In June 2002, the FASB issued SFAS No. 146, "'Accounting for Costs
Associated with Exit or Disposal Activities." This statement superseded EITF
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity." Under this statement, a liability or a cost
associated with a disposal or exit activity is recognized at fair value when
the liability is incurred rather than at the date of an entity's commitment to
an exit plan, as required under EITF 94-3. The provision of this statement is
effective for exit or disposal activities that are initiated after December
31, 2002, with early adoption permitted. The Company is currently evaluating
the affect, if any, that the adoption of SFAS No. 146 will have on its
consolidated financial position and results of operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment of FASB
Statement No. 123." SFAS No. 148 amends SFAS No. 123, "Accounting for
Stock-Based Compensation," to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual
and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on
reported results. The Company is required to follow the prescribed format and
provide the additional disclosures required by SFAS No. 148 in its annual
financial statements for the year ending March 31, 2003 and must also provide
the disclosures in its quarterly reports containing condensed financial
statements for interim periods beginning with the quarterly period ending June
30, 2003.
15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk. Our exposure to market rate risk for changes in
interest rates relates to our cash equivalent instruments and short-term
investments. We invest our excess cash in short-term, floating-rate
instruments. Short-term investments consist of fixed-income securities of
government agencies and high quality corporate issuers. The average duration
of the short-term investment portfolio of debt securities is approximately two
years. These securities are generally classified as available-for-sale and,
consequently, are recorded on the balance sheet at fair value with unrealized
gains or losses, net of tax, reported as a separate component of accumulated
other comprehensive income (loss). A sharp rise in interest rates could have a
material adverse impact on the fair value of our fixed-income investments.
Conversely, declines in interest rates could have a material impact on
interest earnings. We do not currently use derivative financial instruments to
hedge these interest rate exposures.
Foreign Currency Risk. We are exposed to foreign currency exchange rate
fluctuations as the financial results of our foreign subsidiaries in India and
the United Kingdom are translated into U.S. dollars. As part of our risk
management strategy, we maintain only nominal foreign currency cash balances,
consisting of working funds necessary to facilitate the short-term operations
of our subsidiaries. We did not hold any material foreign-denominated
financial instruments or contracts, and we have not entered into foreign
currency hedge transactions. The effect of an immediate 10% change in exchange
rates would not have a material impact on our operating results or cash flows.
ITEM 4. CONTROLS AND PROCEDURES
Based on their evaluation as of a date within 90 days of the filing date
of this Quarterly Report on Form 10-Q, the Company's Chief Executive Officer
and Chief Financial Officer have concluded that the Company's disclosure
controls and procedures (as defined in rules 13a-14(c) and 15d-14(c) under the
Securities Exchange Act of 1937 (the "Exchange Act")) are effective to ensure
that information required to be disclosed by the Company in reports that we
file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms.
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS--NOT APPLICABLE
ITEM 2. CHANGES IN SECURITIES--NOT APPLICABLE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES--NOT APPLICABLE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS--NOT APPLICABLE
ITEM 5. OTHER INFORMATION--NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
The Exhibits listed below are filed as part of this Form 10-Q.
EXHIBIT
NO. DESCRIPTION
--------- -----------------------------------------------------------
99.1 Certification of Chief Executive Officer Pursuant To 18
U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of
The Sarbanes-Oxley Act Of 2002.
99.2 Certification of Chief Financial Officer Pursuant To 18
U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of
The Sarbanes-Oxley Act Of 2002.
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the quarter ended December 31,
2002.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEEC, Inc.
-----------------------------------------------
(Registrant)
Date: February 13, 2003
By: /s/ RAVINDRA KOKA
-----------------------------------------------
Ravindra Koka
President, Chief Executive Officer and Director
(Principal Executive Officer)
By: /s/ RICHARD J. GOLDBACH
-----------------------------------------------
Richard J. Goldbach
Treasurer and Chief Financial Officer
(Principal Financial Officer)
17
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ravindra Koka, certify that:
1. I have reviewed this quarterly report on Form 10-Q of SEEC, Inc. for
the period ended December 31, 2002;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly represent in
all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods
presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weakness in internal
controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: February 13, 2003 /s/ RAVINDRA KOKA
----------------------------------
Ravindra Koka
President, Chief Executive Officer and Director
18
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Richard J. Goldbach, certify that:
1. I have reviewed this quarterly report on Form 10-Q of SEEC, Inc. for
the period ended December 31, 2002;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly represent in
all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods
presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weakness in internal
controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: February 13, 2003 /s/ RICHARD J. GOLDBACH
--------------------------------
Richard J. Goldbach
Treasurer and Chief Financial Officer
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