10-Q/A 1 j0266601e10vqza.txt FORM 10-Q/A FOR PERIOD ENDED 12-31-2002 =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q/A AMENDMENT NO. 1 TO (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. =============================================================================== RESTATEMENT OF PRIOR FINANCIAL INFORMATION As previously reported, SEEC, Inc. ("SEEC" or the "Company") determined that the financial results for each of the quarters ended June 30, September 30 and December 31, 2002 required restatement. The total impact of the adjustments is a reduction of the Company's revenues by $179,496 and a $179,496 increase in the net loss for the nine months ended December 31, 2002. The adjustments represent a reduction of 6.2% in the Company's previously reported total revenues for the nine months, and an increase of 6.4% in the previously reported net loss for the nine-months. The restatement arises from a correction in accounting for sales of annual software licenses that include maintenance (also known as "post-contract support" or "customer support and upgrades"). The Company's original accounting treatment for these transactions was to apportion the total fees to the transaction components - software license and maintenance. Revenues for the license component were recognized upon delivery of the software to the customer (provided all other criteria for revenue recognition were met), and maintenance revenues were recognized ratably over the twelve-month license period. The allocation of fees was based upon historical Company pricing conventions related to its perpetual software license sales which typically include annually renewable maintenance. The Company determined that the proper accounting treatment for these transactions is to recognize both the software license and maintenance revenues ratably over the twelve-month license term. All of the cash related to these transactions had been collected by March 31, 2003, and the revenues deferred as a result of the restatements are recognizable in periods subsequent to December 31, 2002. The financial results presented in this report reflect the restatement of the Company's financial results. For the three months ended December 31, 2002, the total impact of the adjustment is a reduction of the Company's consolidated revenues by $103,681, or 9.1%, and an increase in the net loss by $103,681, or 23.5%. The net loss per share for the three months ended December 31, 2002 increases from $0.07 to $0.09 with the restatement. For the nine months ended December 31, 2002, the total impact of the adjustment is a reduction of the Company's consolidated revenues by $179,496, or 6.2%, and an increase in the net loss by $179,496, or 6.4%. The net loss per share for the nine months ended December 31, 2002 increases from $0.46 to $0.49 with the restatement. EXPANDED DISCLOSURES In addition to the restatements described above, this report was modified to include expanded disclosures, in response to comments received by the Company from The Securities and Exchange Commission (`SEC") in the course of a periodic SEC review of the Company's recent public filings. Specifically, Notes 2 and 8 were modified, and Note 9 was added, to the Notes to Unaudited Condensed Consolidated Financial Statements. Also, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, was modified to clarify and expand the disclosures. Certain amounts in the historical periods presented have been reclassified to conform to current presentation standards. In order to preserve the nature and character of the disclosures set forth in such items as originally filed, this Amendment No. 1 does not reflect events occurring after the filing of the original Quarterly Report on Form 10-Q on February 13, 2003, or modify or update the disclosures presented in the original Quarterly Report on Form 10-Q, except to reflect the revisions as described above. AMENDED ITEMS The Company hereby amends the following items, financial statements, exhibits or other portions of its Quarterly Report on Form 10-Q for the quarter ended December 31, 2002, as set forth herein: PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. The financial information of the Company is amended to read in its entirety as set forth at pages 2 through 10 herein and is incorporated herein by reference. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information set forth under the caption "Management's Discussion and Analysis" is amended to read in its entirety as set forth at pages 10 through 19 herein and is incorporated herein by reference. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. The list of exhibits set forth in, and incorporated by reference from, the Exhibit Index, is amended to include the following additional exhibits, filed herewith:

SEEC, INC. FORM 10-Q TABLE OF CONTENTS

PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SEEC, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

The accompanying notes are an integral part of these financial statements. 2 SEEC, INC. Condensed Consolidated Balance Sheets

----------------- * Condensed from audited financial statements The accompanying notes are an integral part of these financial statements. 3 SEEC, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

The accompanying notes are an integral part of these financial statements. 4 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 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 professional services contracts, including consulting and training services. Software license revenues represent fees earned from granting customers licenses to use our software, and excludes revenues derived from software upgrades, maintenance releases and patches, which are included as part of customer support and maintenance contracts during the term of the contract period. Customer support and maintenance contracts are generally priced as a percentage of the software license fees. The Company recognizes revenues for licensed software in accordance with Statement of Position ("SOP") 97-2, "Software Revenue Recognition" (as amended and interpreted), SOP 98-9, "Software Revenue Recognition, With Respect To Certain Arrangements," and related interpretations and Securities and Exchange Commission Staff Accounting Bulletin ("SAB") 101, and related interpretations and amendments. The Company recognizes revenue upon meeting all of the following criteria: (i) execution of a written agreement signed by us and the customer; (ii) delivery of software has occurred; (iii) the fee for the software is fixed or determinable; (iv) collection is reasonably assured; and (v) vendor specific objective evidence ("VSOE") of fair value exists to allocate the total fee to elements of an arrangement. The Company uses a signed contract or purchase order as evidence of an arrangement for professional services, software licenses and maintenance renewals. Licensed software is delivered to customers on a CD-ROM or electronically. The Company assesses whether fees are fixed or determinable at the time of sale. SEEC's standard payment terms are net 30; however, terms may vary. Payments that are due within twelve months are generally deemed to be fixed or determinable based on the Company's successful collection history on such arrangements, and thereby satisfy the required criteria for revenue recognition. The Company assesses collectibility based on a number of factors, including the customer's past payment history and its current creditworthiness. If it is determined that collection of a fee is not reasonably assured, the Company defers the revenue and recognizes it at the time collection becomes reasonably assured, generally upon receipt of cash payment. VSOE is based on the price generally charged when an element is sold separately, or if not yet sold separately, the price established by authorized management. Customer support and 5 maintenance contract revenues are deferred and recognized ratably over the term of the related agreement, generally twelve months. For arrangements with multiple elements, the Company allocates revenue to each element of a transaction based upon its fair value as determined by VSOE. VSOE of fair value for all elements of an arrangement is based upon the normal pricing and discounting practices for those products and services when sold separately, and for customer support and maintenance contracts, is additionally measured by the renewal rate offered to the customer. The Company defers revenue for any undelivered elements, and recognizes revenue when the product is delivered, or over the period in which the service is performed, in accordance with its revenue recognition policy for such element. In circumstances where VSOE for undelivered elements of a multiple element contract is not determinable, revenue on the contract is deferred until either fair value is determinable or when all elements are delivered, unless the only undelivered element is maintenance, in which case the total arrangement fee is recognized ratably over the remaining maintenance period. In accounting for sales of annual software licenses which include customer support and maintenance, the Company recognizes both the software license and maintenance revenues ratably over the twelve-month license term. If the fair value of a delivered element has not been established, the residual method is used to record revenue if the fair value of all undelivered elements is determinable. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is allocated to the delivered elements and is recognized as revenue. Unless there exists sufficient evidence to the contrary, separate contracts with the same entity or related parties that are entered into at or near the same time are presumed to have been negotiated as a package and are therefore considered as a single arrangement when evaluating the underlying elements. Amounts received in advance of the delivery of products or performances of services are classified as deferred revenues in the consolidated balance sheets. Consulting services are typically provided in support of product license sales to help customers more effectively use the Company's software products, or to deploy and customize the Company's solutions and products at customer locations. Engagements may include end-to-end project services or project management services, delivered either at the customer location or off-site by project consultants. Training includes a variety of courses to help customers apply SEEC's software products and methodologies. Consulting and training services are provided under time-and-materials contracts. Revenues from time-and-materials contracts are recognized as the services are provided. If there is a significant uncertainty about the project completion or receipt of payment for the consulting services, revenue is deferred until the uncertainty is sufficiently resolved. In accordance with Emerging Issues Task Force ("EITF") Topic No. 01-14, "Income Statement Characterization of Reimbursements Received for 'Out-of-Pocket' Expenses Incurred," we characterize reimbursements received for out-of-pocket expenses as revenue and the associated costs as cost of revenues in the statement of operations. All prior year amounts have been reclassified to be consistent with the current year's presentation. The Company's revenue recognition policies described above are the same for indirect sales to service provider partners, resellers or other channel partners as they are for direct sales to end user customers. For indirect sales (such as to resellers) where sales prices may be discounted, revenues are recorded at the discounted amount. No special rights-of-return, price protections or similar rights that might defer revenue recognition are offered under indirect sales arrangements. 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. 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, 6 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:

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. 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:

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 7 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 accounts receivable in excess of $650,000 in the aggregate; (b) All equipment, machinery, computer hardware and software, materials, prototypes, tools, supplies, vehicles, furniture and fixtures; (c) All raw materials, work-in-process and finished goods inventory; (d) All intellectual property; (e) Certain customer lists; (f) Certain of Asera's contracts; and (g) All advertising, marketing and promotional materials. 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: (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. If approved, this warrant is expected to be issued as soon as practicable 8 following shareholder approval, at which time the warrant will be valued and characterized as partial consideration for the Asset Acquisition. This warrant may be exercised at any time from the date it is issued until the second anniversary of its issuance. 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. In determining whether to deliver any cash payments to Sherwood for this purpose, the Company would consider a number of factors including the type and size of the unsecured claim which the unsecured creditor may have against Asera as well as the continuing or prospective business relationship which the unsecured creditor has or may have with the Company. Under no circumstances would the amount to be paid by the Company under this agreement 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 placement transaction, the Company sold 1,205,354 shares of common stock to KPCB for cash consideration of $1,301,782. The shares were issued pursuant to Section 4 (2) and Regulation D promulgated under the Securities Act. In connection with the private placement transaction, the Company agreed that for so long as KPCB owns at least 200,000 of the private placement 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 this transaction, a general partner of KPCB was named to the Company's board of directors as one of these two designees. Pursuant to the private placement transaction, the Company also agreed to cause a registration statement covering the issued 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 (the "Consulting Warrants"), effective upon the satisfaction of certain specified conditions including, without limitation, the approval of the Company's shareholders. The Company has agreed to prepare and file with the SEC a Form S-3 registration statement under the Securities Act, registering the resale by KPCB of the shares issuable upon exercise of the warrants. In accordance with generally accepted accounting principles, the Company's financial statements will not reflect the effects of the Consulting Warrants until shareholder approval is obtained. The first Consulting Warrant is exercisable for up to 1,000,000 shares of Company common stock at an exercise price of $1.10 per share. If approved by the Company's shareholders at the Company's Annual Meeting, the warrant will be issued and will be immediately exercisable as of the eighth day of each calendar month from February 2003 to the date of such approval, for 41,667 shares of common stock at each monthly exercise date. Thereafter, the warrant will become exercisable for an additional 41,667 shares each month through December 2004. On or after January 8, 2005, the warrant will become exercisable for the entire 1,000,000 shares of common stock. In addition, the warrant will automatically become exercisable for the full 1,000,0000, upon certain occurrences. The warrant may be exercised at any time until the fifth anniversary of its date of issuance. If the issuance of the warrant is approved, the Company will value the first Consulting Warrant as a series of twenty-four individual warrants and will initially record as expense the value of the individual warrants as of the date of shareholder approval. Thereafter, additional expense will be recorded as warrants become exercisable each month, through the two-year term of the underlying consulting agreement. The value of the warrants will be determined according to the Black-Scholes pricing model. The second Consulting Warrant will be exercisable for 500,000 shares of common stock at an exercise price of $1.35 per share, subject to shareholder approval, if the Company's aggregate reported revenues for fiscal year ending March 31, 2004 are at least $16,000,000. Otherwise, the warrant is not exercisable. If exercisable, the warrant may be exercised at any time from April 1, 2004 through April 1, 2009. 9 The third Consulting Warrant will be exercisable for 1,000,000 shares of the Company's common stock at an exercise price of $1.80 per share, subject to shareholder approval, if aggregate reported revenues for fiscal year ending March 31, 2004 are at least $20,000,000. If the Company's revenues for that fiscal year are between $16,000,000 and $20,000,000, then the warrant will be exercisable for a pro-rata portion of the full 1,000,000 shares of common stock. If the Company's revenues for that fiscal year are $16,000,000 or less, the warrant will not be exercisable. The warrant, if exercisable, may be exercised at any time from April 1, 2004 through April 1, 2009. The ultimate values of the second and third Consulting Warrants, if issuance is approved by shareholders, will be contingent upon the Company's attaining the prescribed revenue goals for fiscal year 2004. No accounting recognition will be given to these warrants, unless and until the revenue goals are attained. Then, the warrant(s) would be valued according to the Black-Scholes pricing model, and the resulting expense would be recorded in the fourth quarterly period of the year ending March 31, 2004. 9. GOODWILL AMORTIZATION Effective April 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, and accordingly, no longer amortizes goodwill and other intangible assets with indefinite lives. 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. The following pro forma financial information reflects consolidated results adjusted as if SFAS No. 142 had been adopted for the periods ended December 31, 2001:

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 from those discussed. These statements are subject to certain risks, uncertainties and assumptions that are difficult to predict, including those set forth in SEEC's Annual Report on Form 10-K for the year ended March 31, 2002. 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 10 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 (eXtensible Markup Language), Web services and other emerging standards, we believe that we have one of the leading cost-effective B2B solutions available in the market today. Our solutions are used by more than 30 large global 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. SEEC was founded in 1988 to develop tools and solutions for reengineering of legacy COBOL (COmmon Business Oriented Language) 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. 11 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. The Company recognizes 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 professional services contracts, including consulting and training services. Software license revenues represent fees earned from granting customers licenses to use our software, and excludes revenues derived from software upgrades, maintenance releases and patches, which are included as part of customer support and maintenance contracts during the term of the contract period. Customer support and maintenance contracts are generally priced as a percentage of the software license fees. The Company recognizes revenues for licensed software in accordance with Statement of Position ("SOP") 97-2, "Software Revenue Recognition" (as amended and interpreted), SOP 98-9, "Software Revenue Recognition, With Respect To Certain Arrangements," and related interpretations and Securities and Exchange Commission Staff Accounting Bulletin ("SAB") 101, and related interpretations and amendments. The Company recognizes revenue upon meeting all of the following criteria: (i) execution of a written agreement signed by us and the customer; (ii) delivery of software has occurred; (iii) the fee for the software is fixed or determinable; (iv) collection is reasonably assured; and (v) vendor specific objective evidence ("VSOE") of fair value exists to allocate the total fee to elements of an arrangement. The Company uses a signed contract or purchase order as evidence of an arrangement for professional services, software licenses and maintenance renewals. Licensed software is delivered to customers on a CD-ROM or electronically. The Company assesses whether fees are fixed or determinable at the time of sale. SEEC's standard payment terms are net 30; however, terms may vary. Payments that are due within twelve months are generally deemed to be fixed or determinable based on the Company's successful collection history on such arrangements, and thereby satisfy the required criteria for revenue recognition. The Company assesses collectibility based on a number of factors, including the customer's past payment history and its current creditworthiness. If it is determined that collection of a fee is not reasonably assured, the Company defers the revenue and recognizes it at the time collection becomes reasonably assured, generally upon receipt of cash payment. VSOE is based on the price generally charged when an element is sold separately, or if not yet sold separately, the price established by authorized management. Customer support and maintenance contract revenues are deferred and recognized ratably over the term of the related agreement, generally twelve months. For arrangements with multiple elements, the Company allocates revenue to each element of a transaction based upon its fair value as determined by VSOE. VSOE of fair value for all elements of an arrangement is based upon the normal pricing and discounting practices for those products and services when sold separately, and for customer support and maintenance contracts, is additionally measured by the renewal rate offered to the customer. The Company defers revenue for any undelivered elements, and recognizes revenue when the product is delivered, or over the period in which the service is performed, in accordance with its revenue recognition policy for such element. In circumstances where VSOE for undelivered elements of a multiple element contract is not determinable, revenue on the contract is deferred until either fair value is determinable or when all elements are delivered, unless the only undelivered element is maintenance, in which case the total arrangement fee is recognized ratably over the remaining maintenance period. In accounting for sales of annual software licenses which include customer support and maintenance, the Company recognizes both the software license and maintenance revenues ratably over the twelve-month license term. If the fair value of a delivered element has not been established, the residual method is used to record revenue if the fair value of all undelivered elements is determinable. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is allocated to the delivered elements and is recognized as revenue. Unless there exists sufficient evidence to the contrary, separate contracts with the same entity or related parties that are entered into at or near the same time are presumed to have been negotiated as a package and are therefore considered as a single arrangement when evaluating the underlying elements. Amounts received in advance of the delivery of products or performances of services are classified as deferred revenues in the consolidated balance sheets. 12 Consulting services are typically provided in support of product license sales to help customers more effectively use the Company's software products, or to deploy and customize the Company's solutions and products at customer locations. Engagements may include end-to-end project services or project management services, delivered either at the customer location or off-site by project consultants. Training includes a variety of courses to help customers apply SEEC's software products and methodologies. Consulting and training services are provided under time-and-materials contracts. Revenues from time-and-materials contracts are recognized as the services are provided. If there is a significant uncertainty about the project completion or receipt of payment for the consulting services, revenue is deferred until the uncertainty is sufficiently resolved. In accordance with Emerging Issues Task Force ("EITF") Topic No. 01-14, "Income Statement Characterization of Reimbursements Received for 'Out-of-Pocket' Expenses Incurred," we characterize reimbursements received for out-of-pocket expenses as revenue and the associated costs as cost of revenues in the statement of operations. All prior year amounts have been reclassified to be consistent with the current year's presentation. The Company's revenue recognition policies described above are the same for indirect sales to service provider partners, resellers or other channel partners as they are for direct sales to end user customers. For indirect sales (such as to resellers) where sales prices may be discounted, revenues are recorded at the discounted amount. No special rights-of-return, price protections or similar rights that might defer revenue recognition are offered under indirect sales arrangements. 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 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, we 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. 13 REVENUES. Total revenues for the third quarter of fiscal 2003 were $1,034,000 compared to $596,000 for the third quarter of fiscal 2002, an increase of $438,000 or 73%. For the nine months ended December 31, 2002, total revenues were $2,697,000 compared to $1,847,000 for the nine months ended December 31, 2001, an increase of $850,000 or 46%. Software license and maintenance fees were $571,000 for the third quarter of fiscal 2003 compared to $344,000 for the third quarter of fiscal 2002, an increase of $227,000 or 66%. For the nine months ended December 31, 2002, software license and maintenance fees were $1,561,000 compared to $1,133,000 for the nine months ended December 31, 2001, an increase of $428,000 or 38%. Professional services revenues were $463,000 for the third quarter of fiscal 2003 compared to $253,000 for the third quarter of fiscal 2002, an increase of $210,000 or 83%. For the nine months ended December 31, 2002, professional services revenues were $1,137,000 compared to $713,000 for the nine months ended December 31, 2001, an increase of $424,000 or 59%. The increases in revenues are attributable to increased direct and indirect sales activity in the Mosaic Studio and Axcess product categories, more the result of the timing of customers' decisions to purchase than a change in demand or in sales efforts. Sales during the first three quarters of fiscal year 2003 included our first sale of Axcess components, which generated 15% and 14% of total revenues for the nine months and three months ended December 31, 2002, respectively. Significant professional services were delivered in the nine-month period of fiscal 2003, particularly related to project engagements (including the Axcess sale) with two customers in the insurance industry. These engagements were responsible for approximately 52% of professional services revenues for the nine months ended December 31, 2002. While we expect to generate additional revenues from these two customers in future quarters, we cannot predict the amount or timing of such revenues. COST OF REVENUES. Total cost of revenues was $457,000 for the third quarter of fiscal 2003 compared to $322,000 for the third quarter of fiscal 2002, an increase of $135,000 or 42%. For the nine months ended December 31, 2002, total cost of revenues was $1,232,000 compared to $1,046,000 for the nine months ended December 31, 2001, an increase of $186,000 or 18%. 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 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 $238,000 for the third quarter of fiscal 2002, an increase of $148,000 or 62%. For the nine months ended December 31, 2002, professional services costs were $975,000 compared to $761,000 for the nine months ended December 31, 2001, an increase of $214,000 or 28%. 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 the research and development department. The compensation and benefits expenses for such redeployed personnel were classified as professional services costs for the time spent providing billable consulting services to customers. GROSS MARGINS. Total gross margin (total revenues less total cost of revenues) as a percentage of revenues was 56% and 54% for the three- and nine-month periods ended December 31, 2002 compared to 46% and 43% for the three- and nine-month periods ended December 31, 2001, respectively. Gross margin percentages were 88% 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 84% and 75% for software license and 14 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, generally related to the November 2001 introduction of our Axcess for Insurance solution. Furthermore, the June 2002 restructuring, which marked a shift in our sales strategy for Axcess, 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 from the United States to 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. Personnel expenses and related costs were recorded as cost of revenues during the redeployment periods. AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS. Intangible assets are amortized over their estimated useful lives of five to seven years. Prior to April 1, 2002, goodwill had been amortized over an estimated useful life of five years. Goodwill amortization was discontinued in fiscal 2003 due to the write-down in the fourth quarter of fiscal 2002 of all remaining goodwill at that time. 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 primarily to the write-down of goodwill recorded in the fourth quarter of fiscal 2002, which had the effect of reducing amortization expense by $36,000 per quarter in fiscal 2003. Goodwill arising from future acquisitions, if any, will be accounted for in accordance with Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," which stipulates that effective April 1, 2002, goodwill is no longer to be amortized. 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 15 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. At the time the restructuring plan was implemented, we expected that its effect would be to reduce quarterly operating expenses by approximately $500,000 by the third quarter of fiscal 2003, compared to average quarterly operating expenses in fiscal 2002. Of the $500,000 in anticipated quarterly savings, 60% was estimated to come from reduced employee costs (salaries, benefits, etc.), 7% from reductions in depreciation and lease costs, and 33% from reductions in other sales and marketing costs. 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 $11,245,000. 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 $468,000 for operating activities in the third quarter of fiscal 2003, compared to $1,158,000 in the third quarter of fiscal 2002. In the nine month periods ended December 31, 2002 and 2001, we used $2,869,000 and $4,449,000, respectively, for operating activities. 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. 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 Asera asset acquisition described in Note 8, we assumed $3,684,000 of secured debt, of which $1,572,000 was repaid coincident with 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 1,646,129 shares of our common stock. If the satisfaction of the conditions to the conversion of the note payable, including shareholder approval of such conversion, does not occur by August 15, 2003, the note (with accrued interest at 8% per annum) will become immediately due and payable on such date. 16 The following summarizes our contractual obligations at December 31, 2002, plus contractual obligations added in connection with the January 8, 2003 Asera asset acquisition, and the effect these contractual obligations are expected to have on our liquidity and cash flows in future periods. Not reflected in the table are the January 8, 2003 payment of $1,572,000 against secured debt assumed in connection with the Asera asset acquisition, or any transaction or other acquisition costs related to the Asera asset acquisition, estimated to be in the range of $1 million.

Other contractual obligations include employment agreements with certain key employees that provide for minimum annual salaries and automatic annual renewals at the end of the initial two-year term. Two executive employment/severance agreements provide for payments upon termination of employment, either under not-for-cause circumstances or if the key employee resigns for good reason (as defined in the agreements). The maximum contingent liability under these agreements was approximately $342,000 at December 31, 2002. In addition, we had outstanding irrevocable letters of credit of approximately $87,000 at December 31, 2002. Our cash requirements for operating expenses are expected to increase substantially following the Asera asset acquisition, due to the addition of employees, leased facilities and other costs. However, we expect that revenues will also increase due to our enhanced product offerings and cross-selling opportunities stemming from the Asera asset acquisition, provided that IT spending increases as general economic conditions improve. We cannot predict with certainty whether changes in revenues and operating expenses resulting from the Asera asset acquisition, or due to other factors, will increase or decrease cash requirements over the short-term or longer-term. We intend to manage the operating expenses to align with expected revenues. If the timing or amount of revenue growth would be less than expected due to market conditions or other factors, at the appropriate time we would initiate actions to reduce operating expenses. Other measures might include raising additional capital. We believe that cash flows from operations and the current cash and cash equivalents and short-term investments will be sufficient to meet anticipated liquidity needs for the Asera asset acquisition transaction costs, for working capital, capital expenditures and debt satisfaction for the next twelve months. However, our assumptions concerning levels of revenues and expenses may prove to be inaccurate. We may be required to finance any unanticipated additional requirements within the next 12 months or beyond through additional equity, debt financings or credit facilities. We may not be able to obtain additional financings or credit facilities, or if these funds are available, they may not be on satisfactory terms. If funding is insufficient at any time in the future, we may be unable to develop or enhance our products or services, take advantage of business opportunities or respond to competitive pressures. If we raise additional funds by issuing equity securities, dilution to existing shareholders will result 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 17 items are remeasured at historical rates. Revenues and expenses are remeasured 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. 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 18 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. 19 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 amendment to the Quarterly Report on Form 10-Q/A, 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.

(b) REPORTS ON FORM 8-K: No reports on Form 8-K were filed during the quarter ended December 31, 2002. 20 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: August 22, 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) 21

SEEC INC 10-Q/A