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 April 30,2001
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: 0-21393
SEACHANGE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-3197974
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
124 Acton Street, Maynard, MA 01754
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (978) 897-0100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports); and (2) has been subject to such filing
requirements for the past 90 days.
YES __X___ NO _______
The number of shares outstanding of the registrant's Common Stock on
June 8, 2001 was 22,932,250.
SEACHANGE INTERNATIONAL, INC.
Table of Contents
PART I. FINANCIAL INFORMATION Page
----
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet
at April 30, 2001 and January 31, 2001...................... 3
Consolidated Statement of Operations
Three months ended April 30, 2001 and April 30, 2000........ 4
Consolidated Statement of Cash Flows
Three months ended April 30, 2001 and April 30, 2000........ 5
Notes to Consolidated Financial Statements................... 6-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........ 11-15
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.......................................... 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................... 16
Item 2. Changes in Securities and Use of Proceeds............ 17
Item 6. Exhibits and Reports on Form 8-K..................... 17
SIGNATURES............................................................ 18
EXHIBIT INDEX......................................................... 19
2
SeaChange International, Inc.
Consolidated Balance Sheet
(in thousands, except share-related data)
ITEM I. Financial Statements
April 30, January 31,
2001 2001
--------- ---------
Assets
Current Assets
Cash and cash equivalents ........................ $ 11,716 $ 6,145
Accounts receivable, net of allowance for doubtful
accounts of $579 at April 31, 2001 and
$742 at January 31, 2001 ........................ 26,255 27,112
Inventories ...................................... 21,726 24,907
Prepaid expenses and other current assets ........ 2,961 2,671
Deferred income taxes ............................ 7,001 7,001
-------- --------
Total current assets ............................. 69,659 67,836
Property and equipment, net .......................... 18,295 15,886
Other assets ......................................... 3,365 1,833
Goodwill and intangibles, net ........................ 2,485 2,698
-------- --------
$ 93,804 $ 88,253
======== ========
Liabilities and Stockholders' Equity
Current liabilities
Line of credit ................................... $ 1,500 $ 4,000
Current portion of equipment line of credit
and obligations under capital lease ........... 2,402 2,532
Accounts payable ................................. 14,256 17,332
Accrued expenses ................................. 2,157 1,816
Customer deposits ................................ 3,153 3,946
Deferred revenue ................................. 10,709 8,435
Income taxes payable ............................. 581 956
-------- --------
Total current liabilities ........................ 34,758 39,017
-------- --------
Long-term equipment line of credit and
obligations under capital lease .................. 3,473 3,934
-------- --------
Commitments and contingencies (Note 9)
Stockholders' Equity
Common stock, $.01 par value; 100,000,000
shares authorized; 22,814,791 and
22,037,811 shares issued at April 30, 2001 and
January 31, 2001, respectively ................... 228 221
Additional paid-in capital ........................... 61,852 50,157
Deferred equity discount (Note 10) ................... (1,545) --
Accumulated deficit .................................. (4,723) (4,905)
Accumulated other comprehensive loss ................. (239) (171)
-------- --------
Total stockholders' equity ........................... 55,573 45,302
-------- --------
$ 93,804 $ 88,253
======== ========
The accompanying notes are an integral part of these consolidated financial
statements
3
SeaChange International, Inc.
Consolidated Statement of Operations
(in thousands, except per share data)
Three months ended
------------------
April 30, April 30,
2001 2000
-------- ----------
Revenues
Systems .......................................... $ 23,277 $ 16,836
Services ......................................... 6,879 5,468
-------- --------
30,156 22,304
Cost of revenues
Systems .......................................... 13,476 9,366
Services ......................................... 5,220 4,232
-------- --------
18,696 13,598
-------- --------
Gross profit ....................................... 11,460 8,706
-------- --------
Operating expenses
Research and development ......................... 5,584 4,353
Selling and marketing ............................ 3,606 2,490
General and administrative ....................... 1,838 1,503
-------- --------
11,028 8,346
-------- --------
Income from operations ............................. 432 360
Interest income (expense),net ...................... (164) 25
-------- --------
Income before income taxes ....................... 268 385
Provision for income taxes ......................... 86 122
-------- --------
Income before cumulative effect of change
in accounting principle ............................ 182 263
Cumulative effect of change in accounting principle,
net of tax of $732 ................................. -- (1,100)
-------- --------
Net income (loss) .................................. $ 182 $ (837)
======== ========
Basic and diluted earnings per share before
cumulative effect of change in accounting principle $ 0.01 $ 0.01
Cumulative effect of change in accounting principle -- $ (0.05)
-------- --------
Basic and diluted earnings (loss) per share ........ $ 0.01 $ (0.04)
======== ========
Weighted average common shares outstanding:
Basic .............................................. 22,555 21,390
======== ========
Diluted ............................................ 23,389 21,390
======== ========
The accompanying notes are an integral part of these consolidated financial
statements
4
SEACHANGE INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(unaudited, in thousands)
For the three months ended
--------------------------
April 30, April 30,
2001 2000
--------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ............................................. $ 182 $ (837)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization ............................ 1,439 1,113
Amortization of deferred equity discount ................. 449 --
Changes in assets and liabilities:
Accounts receivable .................................. 857 314
Inventories .......................................... 2,607 (2,501)
Prepaid expenses and other assets .................... (1,890) (498)
Accounts payable ..................................... (3,076) 137
Accrued expenses ..................................... 16 (876)
Customer deposits .................................... (793) (141)
Deferred revenue ..................................... 2,274 2,006
Income taxes payable ................................. (375) (941)
-------- --------
Net cash provided by (used in) operating activities 1,690 (2,224)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment ........................... (3,061) (2,215)
-------- --------
Net cash used in investing activities ............. (3,061) (2,215)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under equipment line of credit ..................... -- 2,000
Repayment of borrowings under revolving line of credit ........ (2,500) --
Repayment of borrowings under equipment line of credit ........ (536) (247)
Repayment of obligations under capital lease .................. (55) (66)
Net proceeds from issuance of common stock .................... 10,033 1,073
-------- --------
Net cash provided by financing activities ......... 6,942 2,760
-------- --------
Net increase (decrease) in cash and cash equivalents.............. 5,571 (1,679)
Cash and cash equivalents, beginning of period.................... 6,145 2,721
-------- --------
Cash and cash equivalents, end of period.......................... $ 11,716 $ 1,042
======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Transfer of items originally classified as fixed assets to
inventories ................................................. $ 73 $ 180
Transfer of items originally classified as inventories to
fixed assets ................................................ $ 647 $ --
The accompanying notes are an integral part of these consolidated financial
statements
5
SEACHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; in thousands, except per share data)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of SeaChange International, Inc. and its subsidiaries. SeaChange
believes that the unaudited consolidated financial statements reflect all
adjustments (consisting of only normal recurring adjustments), necessary for a
fair statement of SeaChange's financial position, results of operations and cash
flows at the dates and for the periods indicated. The results of operations for
the periods presented are not necessarily indicative of results expected for the
full fiscal year or any other future periods. The unaudited consolidated
financial statements should be read in conjunction with the consolidated
financial statements and related notes for the year ended January 31, 2001,
included in SeaChange's Annual Report on Form 10-K for such fiscal year.
2. Revenue Recognition
Revenues from sales of systems are recognized upon shipment provided title and
risk of loss has passed to the customer, there is evidence of an arrangement,
fees are fixed or determinable and collection of the related receivable is
probable. Installation, project management and training revenue is deferred and
recognized as these services are performed. Revenue from technical support and
maintenance is deferred and recognized ratably over the period of the related
agreements, generally twelve months. Customers are billed for installation,
project management, training and maintenance at the time of the product sale. If
a portion of the sales price is not due until installation of the system is
complete, that portion of the sales price is deferred until installation is
complete. Revenue from content fees, primarily movies, is recognized based on
the volume of monthly purchases that are made by hotel guests. Revenue from
product development contract services is recognized based on the time and
materials incurred to complete the work. Shipping and handling costs are
included in revenue and cost of revenues.
SeaChange's transactions frequently involve the sales of systems and services
under multiple element arrangements. Systems sales always include one year of
free technical support and maintenance services. Revenue under multiple element
arrangements is allocated to all elements except systems based upon the fair
value of those elements. The amounts allocated to training, project management,
technical support and maintenance and content fees is based upon the price
charged when these elements are sold separately and unaccompanied by the other
elements. The amount allocated to installation revenue is based upon hourly
rates and the estimated time required to complete the service. The amount
allocated to systems is done on a residual method basis. Under this method, the
total arrangement value is allocated first to undelivered elements, based on
their fair values, with the remainder being allocated to systems revenue.
Installation, training and project management services are not essential to the
functionality of systems as these services do not alter the equipment's
capabilities, are available from other vendors and the systems are standard
products.
3. Earnings Per Share
For the three months ended April 30, 2000 common shares of 2,293 issuable upon
the exercise of stock options, are antidilutive because SeaChange recorded a net
loss for the period, and therefore, have been excluded from the diluted earnings
per share computation.
Below is a summary of the shares used in calculating basic and diluted earnings
per share for the periods indicated:
Three months ended
--------------------
April 30, April 30,
2001 2000
--------- ---------
Weighted average shares used in calculating earnings per share-
Basic........................................................... 22,555 21,390
Dilutive common stock equivalents............................... 834 -
------ ------
Weighted average shares used in calculating earnings per share-
Diluted......................................................... 23,389 21,390
====== ======
6
SEACHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; in thousands, except per share data)
4. Inventories
Inventories consist of the following:
April 30, January 31,
2001 2001
--------- -----------
Components and assemblies............. $13,998 $18,695
Finished products..................... 7,728 6,212
------- -------
$21,726 $24,907
======= =======
5. Comprehensive Income (Loss)
SeaChange's comprehensive income (loss) was as follows:
Three months Ended
April 30, April 30,
2001 2000
--------- ---------
Net income (loss).................................... $182 $(837)
Other comprehensive expense, net of tax:
Foreign currency translation adjustment, net of
tax of $(22) and $(14), respectively.......... (46) (31)
---- -----
Other comprehensive expense.......................... (46) (31)
---- -----
Comprehensive income (loss).......................... $136 $(868)
==== =====
6. Deferred Legal Costs
SeaChange defers legal costs associated with defending its existing patents. If
the patent defense is successful, the costs will be capitalized and amortized
over their estimated remaining useful life. If the patent defense is
unsuccessful, the amounts deferred will be charged to operating expense.
Included in other assets at April 30, 2001 is approximately $2.0 million in
deferred legal costs associated with the on-going defense of certain of our
patents.
7. Change in Accounting Principle
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101"). SAB 101 summarizes certain
areas of the Staff's views in applying generally accepted accounting principles
to revenue recognition in financial statements. Historically, for some of
SeaChange's sales transactions, a portion of the sales price, typically 25%,
was not due until installation occurred. Under SAB 101 and the new accounting
method adopted retroactive to February 1, 2000, SeaChange now defers the portion
of the sales price not due until installation is complete. During the fourth
quarter of the twelve months ended January 31, 2001, SeaChange implemented the
SEC's SAB 101 guidelines, retroactive to the beginning of the year. This was
reported as a cumulative effect of a change in accounting principle as of
February 1, 2000. The cumulative effect of the change in accounting principle on
prior years resulted in a charge to income of $1.1 million (net of income taxes
of $732,000), or $0.05 per diluted share, which has been included in income for
the three months ended April 30, 2000. The results for the first three quarters
of twelve months ended January 31, 2001 have been restated to conform with SAB
101.
7
SEACHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; in thousands, except per share data)
8. Segment Information
SeaChange has three reportable segments: broadband systems, broadcast systems
and services. The broadband systems segment provides products to digitally
manage, store and distribute digital video for television operators and
telecommunications companies. The broadcast systems segment provides products
for the storage, archival, on-air playback of advertising and other video
programming for the broadcast television industry. The service segment provides
installation, training, product management, post-contract support services for
all of the above systems and content which is distributed by the broadband
product segment. SeaChange does not measure the assets allocated to the
segments. SeaChange measures results of the segments based on the respective
gross profits. There were no inter-segment sales or transfers during the periods
presented. Long-lived assets are principally located in the United States. The
following summarizes the revenues and cost of revenues by reportable segment:
Three months ended
April 30, April 30,
2001 2000
--------- ---------
Revenues
Broadband.................................... $18,851 $13,878
Broadcast.................................... 4,426 2,958
Services..................................... 6,879 5,468
------- -------
Total........................................ $30,156 $22,304
------- -------
Costs of revenues
Broadband.................................... $10,974 $ 7,486
Broadcast.................................... 2,502 1,880
Services..................................... 5,220 4,232
------- -------
Total........................................ $18,696 $13,598
------- -------
The following summarizes revenues by geographic locations:
Revenues.....................................
United States................................ $26,198 $18,984
Canada and South America..................... 260 1,588
Europe....................................... 2,164 1,502
Asian Pacific and rest of world.............. 1,534 230
------- -------
Total........................................ $30,156 22,304
------- -------
For the three months ended April 30, 2001 and 2000, certain customers each
accounted for more than 10% of SeaChange's revenue. Individual customers each
accounted for 21% and 20% of revenues in the three months ended April 30, 2001,
as compared to 15% and 13% of revenues in the three months ended April 30, 2000.
Three months ended
April 30, April 30,
2001 2000
--------- ---------
Customer A.................... 21% 15%
Customer B.................... 20% 13%
8
SEACHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; in thousands, except per share data)
9. Legal Proceedings
On March 17, 2000, Beam Laser Systems, Inc. and Frank L. Beam instituted a claim
(Civil Action No. 2:00-CV-195) in the federal courts in the Eastern District of
Virginia against one of SeaChange's customers, Cox Communications, Inc. This
claim was later amended by Beam Laser on June 16, 2000 to also include two
related companies of Cox Communications: CableRep, Inc. and CoxCom, Inc. Beam
Laser has asserted that the ad insertion technology, which includes the
SeaChange spot ad insertion system, used by Cox Communications, CableRep and
CoxCom infringes two of the patents held by Beam Laser (Patents No. 4,814,883
and 5,200,825). Beam Laser is seeking both an injunction and monetary damages
from the defendants in that case. The defendants have made a counterclaim
against Beam Laser seeking a declaration of non-infringement, invalidity and
unenforceability of the two patents held by Beam Laser that are at question. On
May 19, 2000, SeaChange filed a motion seeking to intervene in the action
between Cox Communications and Beam Laser, and to transfer the case to the
District Court of Massachusetts. On June 23, 2000, the court granted
SeaChange's intervention motion and deferred ruling on the issue of transfer.
Also on June 23, 2000, SeaChange filed an intervenor complaint in the Virginia
action seeking, among other things, a declaratory judgment of non-infringement,
invalidity and unenforceability regarding the two patents of Beam Laser that are
at question. In addition, SeaChange has agreed to indemnify Cox Communications
for claims brought against the customer that are related to its use of SeaChange
products. On October 23, 2000, the court denied SeaChange's motion to transfer.
On November 29, 2000, Beam Laser filed a motion to amend its pleading to add
claims against SeaChange seeking equitable relief, a finding of willful or
contributory infringement, and attorneys' fees. On January 26, 2001, the
magistrate denied Beam Laser's motion to amend. Beam Laser has filed an
objection to this denial, and on March 16, 2001, the court allowed Beam Laser's
motion to amend the complaint, to add charges of infringement against SeaChange,
but not allowing any claims for damages or willful infringement. In addition, on
April 20, 2001, the court denied a motion for summary judgement of laches,
stating it will schedule an evidentiary hearing. On June 1, 2001, the court
granted SeaChange's motion for summary judgment of non-infringement disposing
of all claims asserted against SeaChange. Also, on June 1, 2001, the court
granted SeaChange's customer's motion for summary judgment of non-infringement
of one of the customer's facilities. SeaChange's and the other Cox companies'
additional motions for summary judgment are still pending, as are the
counterclaims against Beam Laser. The court has set a date of July 16, 2001 for
trial on all remaining claims.
On June 13, 2000, SeaChange filed in the United States District Court for the
District of Delaware a lawsuit against one of its competitors, nCube Corp.,
whereby SeaChange alleged that nCube's MediaCube-4 product infringed a patent
held by SeaChange (Patent No. 5,862,312). In instituting the claim, SeaChange
sought both a permanent injunction and damages in an unspecified amount. nCube
made a counterclaim against SeaChange that the patent held by SeaChange was
invalid and that nCube's MediaCube-4 product did not infringe the SeaChange
patent. On September 6, 2000, nCube conceded, based on the District Court's
prior claim construction ruling, that its MediaCube-4 product infringed the
SeaChange patent. On September 25, 2000 the court upheld the validity of the
SeaChange patent. nCube has filed motions challenging both the jury's verdict
and the District Court's claim construction ruling. The District Court has yet
to rule on nCube's motions. At this time SeaChange is awaiting the court's
decision regarding a permanent injunction. Damages will be determined in future
proceedings.
On January 8, 2001, nCube Corp. filed a complaint against SeaChange in the
United States District Court for the District of Delaware alleging that
SeaChange's use of its Media Cluster, Media Express and Media Server technology
each infringe a patent held by nCube (Patent No. 5,805,804). In instituting the
claim, nCube has sought both an injunction and monetary damages in an
unspecified amount. SeaChange responded on January 26, 2001, denying that claim
of infringement. SeaChange also asserted a counterclaim seeking a declaration
from the District court that U.S. Patent No. 5,805,804 is invalid and not
infringed.
On June 14, 1999, SeaChange filed a defamation complaint against Jeffrey
Putterman, Lathrop Investment Management, Inc. and Concurrent Computer
Corporation in the Circuit Court of Pulaski County, Arkansas alleging that the
defendants conspired to injure SeaChange's business and reputation in the
marketplace. The complaint further alleges that Mr. Putterman and Lathrop
Investment Management, Inc. defamed SeaChange through false postings on an
Internet message board. The complaint seeks unspecified amounts of compensatory
and punitive damages. On June 14, 2000, Concurrent filed a counterclaim under
seal against SeaChange seeking unspecified damages. These motions are currently
pending and no trial date has been set.
9
SEACHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; in thousands, except per share data)
SeaChange cannot be certain of the outcome of the foregoing litigation, but does
plan to oppose allegations against the Company and assert its claims against
other parties vigorously. In addition, as these claims are in the early stages
of discovery and certain claims for damages are as yet unspecified, SeaChange is
unable to estimate the impact to its business, financial condition, and results
of operations or cash flows.
10. Comcast Equity Investment and Video-on-Demand Purchase Agreements
On December 1, 2000, SeaChange and Comcast Cable Communications, Inc. entered
into a video-on-demand purchase agreement for SeaChange's interactive
television video servers and related services. Under the terms of the video-on-
demand purchase agreement, Comcast has committed to purchase SeaChange's
equipment capable of serving a minimum of one million cable subscribers by
approximately December 2002. In addition, Comcast may earn up to an additional
450,000 incentive common stock purchase warrants through December 2003 based on
the number of cable subscribers in excess of one million who are served by
SeaChange's equipment which has been purchased by Comcast. In connection with
the execution of this commercial agreement, SeaChange entered into a common
stock and warrant purchase agreement, dated as of December 1, 2000, with Comcast
SC Investment, Inc., whereby Comcast SC agreed to purchase, subject to certain
closing conditions including registration of the shares purchased thereby,
466,255 shares of SeaChange's common stock for approximately $10 million and
Comcast SC would receive a warrant to purchase 100,000 shares, exercisable at
$21.445 per share, of SeaChange's common stock. This stock and warrant the
video-on-demand purchase agreement have not been modified.
On February 28, 2001, SeaChange and Comcast SC signed and closed a new common
stock and warrant purchase agreement on terms similar to the prior agreement.
Under the terms of this new agreement, SeaChange sold in a private placement to
Comcast SC for approximately $10,000,000 an aggregate of 756,144 shares of
SeaChange's common stock and a warrant to purchase 100,000 shares of
SeaChange's common stock with an exercise price of $13.225 per share. Under
certain conditions determined upon the effectiveness of the registration of the
shares, the number of common shares purchased and the number of common stock
purchase warrants and related exercise price are subject to adjustment. An
additional number of shares of common stock shall be issued to Comcast SC
without any additional consideration as is equal to the difference between
756,144, the number of shares of common stock issued on February 28, 2001, and
the number of shares obtained by dividing $10,000,000 by the lower of 1) 92% of
the closing market price of SeaChange's common stock on the date of
effectiveness of this registration statement, and 2) the average of the closing
market price of SeaChange's common stock for the five trading days ending on
the effective date of this registration statement, if either of such prices is
lower than $13.225. The warrant agreement contains an adjustment mechanism such
that the warrant is exercisable for an additional 25,000 shares of SeaChange's
common stock if the registration statement has not been declared effective on or
before March 31, 2001 and an additional 333.33 shares of SeaChange's common
stock per day beginning on and including May 1, 2001 for each day up to and
including the day the registration statement is declared effective. The warrant
agreement also provides that the exercise price of the warrant will be reduced
on the effective date of the registration statement to the lower of 1) 92% of
the closing market price of SeaChange's common stock on the effective date of
the registration statement, and 2) the average of the closing market prices of
SeaChange's common stock for the five trading days ending on the date of
effectiveness of the registration statement, if either of such prices is lower
than $13.225, the exercise price as of the closing date.
SeaChange determined the intrinsic value of $586,000 related to the 756,144
shares of common stock purchased on February 28, 2001 and measured the fair
value of $1.1 million related to the 100,000 common stock purchase warrants as
of the closing date and recorded these amounts as contra-equity. On April 30,
2001, SeaChange also recorded an additional contra-equity amount of $325,000 for
the fair value of the additional 25,000 common stock purchase warrants of
SeaChange common stock as the registration statement had not been declared
effective on or before March 31, 2001. Upon effectiveness of the registration
statement, SeaChange will measure the fair value of the additional common shares
issued, if any, and the incremental fair value of the common stock warrants, and
will add those amounts to the amount of contra-equity initially recorded at the
closing date. The contra-equity amount is being amortized as an offset to gross
revenue in proportion to the revenue recognized from the sale of equipment with
respect to the first one million subscribers Comcast has committed to under the
video-on-demand purchase agreement. During the three months ended April 30,
2001, SeaChange amortized $449,000 of the deferred equity discount. The fair
value of the additional incentive common stock purchase warrants will also be
recorded as an offset to gross revenue as the warrants are earned by Comcast, if
any.
10
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Factors That May Affect Future Results
Any statements contained in this Form 10-Q that do not describe historical
facts, including without limitation statements concerning expected revenues,
earnings, product introductions and general market conditions, may constitute
forward-looking statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. Any such forward-looking statements contained
herein are based on current expectations, but are subject to a number of risks
and uncertainties that may cause actual results to differ materially from
expectations. The factors that could cause actual future results to differ
materially from current expectations include the following: SeaChange's ability
to integrate the operations of acquired subsidiaries; fluctuations in demand for
SeaChange's products and services; SeaChange's ability to manage its growth;
SeaChange's ability to develop, market and introduce new and enhanced products
and services on a timely basis; the rapid technological change which
characterizes SeaChange's markets; SeaChange's significant concentration of
customers; SeaChange's dependence on certain sole source suppliers and third-
party manufacturers; the risks associated with international sales as SeaChange
expands its markets; and the ability of SeaChange to compete successfully in the
future. Further information on factors that could cause actual results to differ
from those anticipated is detailed in various filings made by SeaChange from
time to time with the Securities and Exchange Commission, including but not
limited to, those appearing under the caption "Certain Risks Affecting Our
Business" in SeaChange's Annual Report on Form 10-K for the year ended January
31, 2001. Any forward-looking statements should be considered in light of those
factors.
Overview
SeaChange develops, manufactures and sells systems that automate the management
and distribution of both short-form video streams, such as advertisements, and
long-form video streams, such as movies or other feature presentations, each of
which requires precise, accurate and continuous execution, and the related
services and movie content to television operators, telecommunications companies
and broadcast television companies. Revenues from sales of systems are
recognized upon shipment provided title and risk of loss has passed to the
customer, there is evidence of an arrangement, fees are fixed or determinable
and collection of the related receivable is probable. Installation, project
management and training revenue is deferred and recognized as these services are
performed. Revenue from technical support and maintenance is deferred and
recognized ratably over the period of the related agreements, generally twelve
months. Customers are billed for installation, project management, training and
maintenance at the time of the product sale. If a portion of the sales price is
not due until installation of the system is complete, that portion of the sales
price is deferred until installation is complete. Revenue from content fees,
primarily movies, is recognized based on the volume of monthly purchases that
are made by hotel guests. Revenue from product development contract services is
recognized based on the time and materials incurred to complete the work.
Shipping and handling costs are included in revenue and cost of revenues.
SeaChange's transactions frequently involve the sales of systems and services
under multiple element arrangements. Systems sales always include one year of
free technical support and maintenance services. Revenue under multiple element
arrangements is allocated to all elements except systems based upon the fair
value of those elements. The amounts allocated to training, project management,
technical support and maintenance and content fees is based upon the price
charged when these elements are sold separately and unaccompanied by the other
elements. The amount allocated to installation revenue is based upon hourly
rates and the estimated time required to complete the service. The amount
allocated to systems is done on a residual method basis. Under this method, the
total arrangement value is allocated first to undelivered elements, based on
their fair values, with the remainder being allocated to systems revenue.
Installation, training and project management services are not essential to the
functionality of systems as these services do not alter the equipment's
capabilities, are available from other vendors and the systems are standard
products.
SeaChange has experienced fluctuations in its systems revenues from quarter to
quarter due to the timing of receipt of customer orders and the shipment of
those orders. The factors that impact the timing of receipt of customer orders
include among other factors: (1) customer obtaining authorized signatures on
their purchase orders, (2) budgetary approvals within the customer's company
for capital purchases and (3) the ability to process the purchase order within
the customer's organization in a timely manner. Factors that may impact the
shipment of customer orders include: (1) the availability of material to produce
the product, and (2) the time required to produce and test the
11
system before delivery. Because the average sales price of a SeaChange system is
high, the delay in the timing of receipt and shipment of any one customer order
can result in quarterly fluctuations in SeaChange's revenue.
SeaChange's results are significantly influenced by a number of factors,
including SeaChange's pricing, the costs of materials used in SeaChange's
products and the expansion of SeaChange's operations. SeaChange prices its
products and services based upon its costs as well as in consideration of the
prices of competitive products and services in the marketplace. The costs of
SeaChange's products primarily consist of the costs of components and
subassemblies that have generally declined over time. As a result of the growth
of SeaChange's business, operating expenses of SeaChange have increased in the
areas of research and development, selling and marketing, customer service and
support and administration.
Three Months Ended April 30, 2001 Compared to the Three Months Ended April 30,
2000
Revenues
Systems. SeaChange's systems revenues consist of sales within its broadband
segment (primarily digital advertising insertion and interactive television
systems) and its broadcast segment. Systems revenues increased 38% to $23.3
million in the three months ended April 30, 2001 from $16.8 million in the three
months ended April 30, 2000. Revenues from the broadband segment, which
accounted for 63% and 62% of total revenues in the three months ended April 30,
2001 and 2000, respectively, increased to $18.9 million in 2001 as compared to
$13.9 million in 2000. Interactive television system revenues were $11.8 million
for the three months ended April 30, 2001 as compared to $2.3 million in the
prior year primarily due to the initial deployment of residential video-on-
demand systems in the United States for U.S. cable operators. Included in the
interactive television systems revenue was the amortization of $449,000 related
to the deferred equity discount associated with the Comcast equity investment.
Digital advertising system revenues were $7.1 million for the three months ended
April 30, 2001 as compared to $11.6 million in the prior year. The decrease
resulted primarily from the decline in the number of expansion systems purchased
by U.S. cable operators. Broadcast system segment revenues were $4.4 million in
the three months ended April 30, 2001 as compared to $3.0 million in the three
months ended April 30, 2000. The increase in broadcast revenues is primarily
attributable to a shift in the timing of orders by both U.S. and international
broadcasters between quarters this year versus the previous year. We expect
future revenue growth, if any, to come principally from our interactive
television and broadcast system products as cable and telecommunications
companies continue to offer new video-on-demand applications for their customers
and the market for digital video servers within the broadcast industry continues
to expand. As revenues from broadcast and interactive television products
increase, the digital advertising products will become a smaller portion of
total system revenues. However, SeaChange believes that there will be a
continued demand for expansions to existing digital advertising insertion
systems within the U.S. and growth potential for new interactive advertising
systems in the future.
Services. SeaChange's services revenues consist of fees for installation,
training, product maintenance, technical support services and movie content
fees. SeaChange's services revenues increased 26% to $6.9 million in the three
months ended April 30, 2001 from $5.5 million in the three months ended April
30, 2000. This increase in services revenues primarily resulted from the
renewals of technical support and maintenance services, price increases on
certain technical support and maintenance services, the impact of a growing
installed base of systems and a higher level of product development services.
For the three-month periods ended April 30, 2001 and April 30, 2000, a limited
number of our customers each accounted for more than 10% of SeaChange's total
revenues. Single customers accounted for 21% and 20% of total revenues in three
months ended April 30, 2001 and 15% and 13% of total revenues in the three
months ended April 30, 2000. Revenue from these customers was primarily in the
broadband segment. SeaChange believes that revenues from current and future
large customers will continue to represent a significant proportion of total
revenues.
International sales accounted for approximately 13% and 15% of total revenues in
the three-month periods ended April 30, 2001 and April 30, 2000, respectively.
SeaChange expects that international sales will remain a significant portion of
SeaChange's business in the future. As of April 30, 2001, substantially all
sales of SeaChange's products were made in United States dollars. Therefore,
SeaChange has not experienced, nor does it expect to experience in the near
term, any material impact from fluctuations in foreign currency exchange rates
on its results of operations or liquidity. If this practice changes in the
future, SeaChange will reevaluate its foreign currency exchange rate risk.
12
Gross Profit
Systems. Costs of systems revenues consist primarily of the cost of purchased
components and subassemblies, labor and overhead relating to the final assembly
and testing of complete systems and related expenses. Costs of systems revenues
increased 44% to $13.5 million in the three months ended April 30, 2001 as
compared to $9.4 million in the three months ended April 30, 2000. In the three
months ended April 30, 2001, the increase in costs of systems revenues reflects
higher systems revenue offset in part by improved manufacturing efficiencies and
lower material costs through improved purchasing efficiencies primarily within
the digital advertising insertion products. SeaChange expects cost of systems
revenues for the interactive television products within the broadband segment to
be higher as a percentage of revenues as the products are first deployed and to
decrease as a percentage of revenues as the revenue level increases and
SeaChange improves its manufacturing and material purchasing efficiencies.
Systems gross profit as a percentage of systems revenues was 42% and 44% in the
three months ended April 30, 2001 and April 30, 2000, respectively. The decrease
in systems gross profit in the three months ended April 30, 2001 was primarily
due to the shift within broadband products sales from higher gross profit ad
insertion systems to lower gross profit interactive television systems. Gross
profit for the broadband segment decreased to 42% for the three months ended
April 30, 2001 as compared to 46% for the three months ended April 30, 2000
while gross profit for the broadcast segment increased to 43% for the three
months ended April 30, 2001 compared to 36% for the three months ended April 30,
2000.
Services. Costs of services revenues consist primarily of labor, materials and
overhead relating to the installation, training, product maintenance and
technical support services provided by SeaChange and costs associated with
providing movie content. Costs of services revenues increased 23% to $5.2
million in the three months ended April 30, 2001 from $4.2 million in the three
months ended April 30, 2000 primarily as a result of increased revenues and the
costs associated with SeaChange hiring and training additional service personnel
to provide worldwide support for the growing installed base of broadband and
broadcast systems and costs associated with providing movie content. Services
gross profit as a percentage of services revenue was 24% in the three months
ended April 30, 2001 and 23% in the three months ended April 30, 2000. SeaChange
expects that it will continue to experience fluctuations in gross profit as a
percentage of services revenue as a result of the timing of revenues from
technical support and other services to support the growing installed base of
systems and the timing of costs associated with SeaChange's ongoing investment
required to build a service organization to support the installed base of
systems and new products.
Research and Development. Research and development expenses consist primarily of
compensation of development personnel, depreciation of equipment and an
allocation of related facilities expenses. Research and development expenses
increased 28% to $5.6 million in the three months ended April 30, 2001 as
compared to $4.4 million in the three months ended April 30, 2000. The increase
in the three months ended April 30, 2001 was primarily attributable to the
hiring and contracting of additional development personnel which reflects
SeaChange's continuing investment in new products. SeaChange expects that
research and development expenses will continue to increase in dollar amount as
SeaChange continues its development and support of new and existing products.
Selling and Marketing. Selling and marketing expenses consist primarily of
compensation expenses, including sales commissions, travel expenses and certain
promotional expenses. Selling and marketing expenses increased 45% to $3.6
million in the three months ended April 30, 2001 from $2.5 million in the three
months ended April 30, 2000. The increase was primarily due to the hiring of
additional sales personnel for SeaChange's interactive television and broadcast
products and higher tradeshow and other promotional related costs.
General and Administrative. General and administrative expenses consist
primarily of compensation of executive, finance, human resource and
administrative personnel, legal and accounting services and an allocation of
related facilities expenses. General and administrative expenses increased 22%
to $1.8 million in the three-month period ended April 30, 2001, as compared to
$1.5 million in the three-month period ended April 30, 2000. This increase is
primarily due to the amortization of capitalized patent costs and the increase
in accounts receivable reserves.
Interest income (expense), net. Interest expense, net was $164,000 for the three
months ended April 30, 2001 and interest income, net was $25,000 for the three
months ended April 30, 2000. The increase in interest expense, net in the three
months ended April 30, 2001 primarily resulted from interest expense on
increased borrowings under SeaChange's lines of credit and borrowings under
SeaChange's construction loan.
13
Provision for Income Taxes. SeaChange's effective tax rate was 32% in the three
months ended April 30, 2001. The effective tax rate for the three months ended
April 30, 2001 was favorably impacted by the utilization of research and
development tax credits.
SeaChange had net deferred tax assets of $7.7 million at April 30, 2001 and
January 31, 2001. Although realizability is not assured, based on the weight of
available evidence, SeaChange believes it is more likely than not that all
remaining deferred tax assets will be realized. The amount of the deferred tax
assets considered realizable is subject to change based on future events,
including generating taxable income in future periods. SeaChange will continue
to assess the need for the valuation allowance at each balance sheet date based
on all available evidence. The amount of the deferred tax assets considered
realizable, however, could be reduced in the near term if SeaChange does not
generate sufficient taxable income in future periods.
Cumulative effect change in accounting principle. During the fourth quarter of
the twelve months ended January 31, 2001, SeaChange implemented the SEC's SAB
101 guidelines, retroactive to the beginning of the year. This was reported as a
cumulative effect of a change in accounting principle as of February 1, 2000.
Historically, for some of SeaChange's sales transactions, a portion of the
sales price, typically 25%, was not due until installation occurred. SeaChange
now defers the portion of the sales price not due until installation is
complete. The cumulative effect of the change in accounting principle on prior
years resulted in a charge to income of $1.1 million (net of income taxes of
$732,000) or $0.05 per diluted share which has been included in income for the
three months ended April 30, 2000.
Liquidity and Capital Resources
SeaChange has financed its operations and capital expenditures primarily with
the proceeds of SeaChange's common stock, borrowings and cash flows generated
from operations. Cash and cash equivalents increased $5.6 million from $6.1
million at January 31, 2001 to $11.7 million at April 30, 2001. Working capital
increased from approximately $28.8 million at January 31, 2001 to approximately
$34.9 million at April 30, 2001.
Net cash provided in operating activities was approximately $1.7 million for the
three months ended April 30, 2001. Net cash used by operating activities was
approximately $2.2 million in the three months ended April 30, 2000. The net
cash provided by operating activities in the three months ended April 30, 2001
was the result of the net income adjusted for non-cash expenses including
depreciation and amortization of $1.9 million and the changes in certain
operating assets and liabilities. The significant net changes in assets and
liabilities that provided cash from operations included a decrease in
inventories of $2.6 million, a decrease in accounts receivable of $857,000 and
an increase in deferred revenues of $2.3 million. These items that generated
cash from operations were offset by a decrease in accounts payable of $3.1
million and an increase in prepaids and other assets of $1.9 million. We expect
inventory levels to continue to decline as revenues from both the broadband and
broadcast product segment products increase. We expect that the broadcast
segment and the interactive television products within the broadband segment
will continue to require a significant amount of cash to fund future product
development, to manufacture and deploy customer test and demonstration equipment
and to meet higher revenue levels in both product segments.
Net cash used in investing activities was approximately $3.1 million and $2.2
million for the three months ended April 30, 2001 and April 30, 2000,
respectively. Investment activity consisted primarily of capital expenditures
related to capital equipment required to support the expansion and growth of the
business.
Net cash provided by financing activities was approximately $6.9 million and
approximately $2.8 million for the three months ended April 30, 2001 and April
30, 2000, respectively. In the three months ended April 30, 2001, the cash
provided by financing included $10.0 million in connection with the issuance of
common stock issued on February 28, 2001, from a private placement sale of
common stock and a warrant to Comcast SC Investment, Inc. (See Note 10 to the
Consolidated Financial Statements). During the same period, cash used in
financing activities included approximately $2.5 million in repayments under
SeaChange's revolving line of credit and $591,000 in principal payments under
its equipment line of credit and capital lease obligations.
SeaChange had a $6.0 million revolving line of credit and a $5.0 million
equipment line of credit with a bank. This revolving line of credit expired in
March 2000 and SeaChange's ability to make purchases under the equipment line
of credit expired in March 2000. In July 2000, SeaChange renewed its revolving
line of credit and equipment line of credit with a bank. The revolving line of
credit was extended until March 2001 and borrowings under the facility increased
to $7.5 million. The equipment line of credit was extended to provide SeaChange
additional equipment
14
financing of $4.0 million through March 2001. In addition, SeaChange entered
into a $3.0 million line of credit facility with the Export-Import Bank of the
United States ("EXIM") which allows SeaChange to borrow money based upon
eligible foreign customer account balances. The ability to borrow funds by
SeaChange under this facility also expired in March 2001. SeaChange extended the
revolving line of credit and the EXIM line of credit through June 30, 2001 and
is currently in the process of negotiating the renewal of all its lines of
credit. Borrowings under all the lines of credit are collateralized by
substantially all of SeaChange's assets. Loans made under the revolving line of
credit would generally bear interest at a rate per annum equal to the LIBOR rate
plus 2% (9.05% at April 30, 2001). Loans under the EXIM line of credit bear
interest at a rate per annum equal to the prime rate (9.5% at April 30, 2001).
Loans made under the equipment line of credit bear interest at a rate per annum
equal to the bank's base rate plus 1.0% (10.5% at April 30, 2001). The loan
agreements relating to the lines of credit requires that SeaChange provide the
bank with certain periodic financial reports and comply with certain financial
ratios including the maintenance of total liabilities, excluding deferred
revenue, to net worth ratio of at least .80 to 1.0. At April 30, 2001, SeaChange
was in compliance with the financial covenants of the loan agreements for all
the lines of credit.
In October 2000, SeaChange entered into an agreement with a bank to finance $1.2
million of the construction costs related to the purchase and renovation of a
manufacturing mill in New Hampshire that SeaChange previously purchased in
February 2000. Upon occupancy of the building in November 2000, the loan
converted into two promissory notes whereby SeaChange will pay principal and
interest based upon a fixed interest rate per annum over a five and ten year
period, respectively (8.875%). Borrowings under the loan are secured by the land
and buildings of the renovated mill. The loan agreement requires that SeaChange
provide the bank certain periodic financial reports and comply with certain
financial ratios. At April 30, 2001, SeaChange was in compliance with all
covenants. As of April 30, 2001, borrowings outstanding under the loan were $1.2
million.
It is typical for SeaChange to experience fluctuations in its monthly operating
results primarily due to the timing of receiving customer orders and the related
shipment of these customer orders. As a result of these monthly fluctuations,
SeaChange may experience an increase in its inventories as a result of
procurement of both short and long lead components for anticipated orders for
both its product segments, a decrease in its accounts payable balance primarily
due to the timing of payments for materials purchased for prior month shipments,
a decrease in accounts receivable amounts as a result of customer payments
without corresponding customer shipments and a resulting decrease in cash and
cash equivalents.
SeaChange believes that existing funds together with available borrowings under
the revolving line of credit and equipment line facility are adequate to satisfy
its working capital and capital expenditure requirements for the foreseeable
future.
SeaChange had no material capital expenditure commitments as of April 30, 2001.
Effects of Inflation
Management believes that financial results have not been significantly impacted
by inflation and price changes.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
SeaChange faces exposure to financial market risks, including adverse movements
in foreign currency exchange rates and changes in interest rates. These
exposures may change over time as business practices evolve and could have a
material adverse impact on SeaChange's financial results. SeaChange's primary
exposure has been related to local currency revenue and operating expenses in
Europe and Asia. Historically, SeaChange has not hedged specific currency
exposures as gains and losses on foreign currency transactions have not been
material to date. At April 30, 2001, SeaChange had approximately $7,000,000
outstanding related to variable rate U.S. dollar denominated debt. The carrying
value of these short-term borrowings approximates fair value due to the short
maturities of these instruments. Assuming a hypothetical 10% adverse change in
the interest rate, interest expense on these short-term borrowings would
increase by approximately $59,500.
The carrying amounts reflected in the consolidated balance sheet of cash and
cash equivalents, trade receivables, and trade payables approximates fair value
at April 30, 2001 due to the short maturities of these instruments.
15
SeaChange maintains investment portfolio holdings of various issuers, types, and
maturities. SeaChange's cash and marketable securities include cash equivalents,
which SeaChange considers investments to be purchased with original maturities
of three months or less given the short maturities and investment grade quality
of the portfolio holdings at April 30, 2001, a sharp rise in interest rates
should not have a material adverse impact on the fair value of SeaChange's
investment portfolio. As a result, SeaChange does not currently hedge these
interest rate exposures.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
On March 17, 2000, Beam Laser Systems, Inc. and Frank L. Beam instituted a claim
(Civil Action No. 2:00-CV-195) in the federal courts in the Eastern District of
Virginia against one of SeaChange's customers, Cox Communications, Inc. This
claim was later amended by Beam Laser on June 16, 2000 to also include two
related companies of Cox Communications: CableRep, Inc. and CoxCom, Inc. Beam
Laser has asserted that the ad insertion technology, which includes the
SeaChange spot ad insertion system, used by Cox Communications, CableRep and
CoxCom infringes two of the patents held by Beam Laser (Patents No. 4,814,883
and 5,200,825). Beam Laser is seeking both an injunction and monetary damages
from the defendants in that case. The defendants have made a counterclaim
against Beam Laser seeking a declaration of non-infringement, invalidity and
unenforceability of the two patents held by Beam Laser that are at question. On
May 19, 2000, SeaChange filed a motion seeking to intervene in the action
between Cox Communications and Beam Laser, and to transfer the case to the
District Court of Massachusetts. On June 23, 2000, the court granted
SeaChange's intervention motion and deferred ruling on the issue of transfer.
Also on June 23, 2000, SeaChange filed an intervenor complaint in the Virginia
action seeking, among other things, a declaratory judgment of non-infringement,
invalidity and unenforceability regarding the two patents of Beam Laser that are
at question. In addition, SeaChange has agreed to indemnify Cox Communications
for claims brought against the customer that are related to its use of SeaChange
products. On October 23, 2000, the court denied SeaChange's motion to transfer.
On November 29, 2000, Beam Laser filed a motion to amend its pleading to add
claims against SeaChange seeking equitable relief, a finding of willful or
contributory infringement, and attorneys' fees. On January 26, 2001, the
magistrate denied Beam Laser's motion to amend. Beam Laser has filed an
objection to this denial, and on March 16, 2001, the court allowed Beam Laser's
motion to amend the complaint, to add charges of infringement against SeaChange,
but not allowing any claims for damages or willful infringement. In addition, on
April 20, 2001, the court denied a motion for summary judgement of laches,
stating it will schedule an evidentiary hearing. On June 1, 2001, the court
granted SeaChange's motion for summary judgment of non-infringement disposing
of all claims asserted against SeaChange. Also, on June 1, 2001, the court
granted SeaChange's customer's motion for summary judgment of non-infringement
of one of the customer's facilities. SeaChange's and the other Cox companies'
additional motions for summary judgment are still pending, as are the
counterclaims against Beam Laser. The court has set a date of July 16, 2001 for
trial on all remaining claims.
On June 13, 2000, SeaChange filed in the United States District Court for the
District of Delaware a lawsuit against one of its competitors, nCube Corp.,
whereby SeaChange alleged that nCube's MediaCube-4 product infringed a patent
held by SeaChange (Patent No. 5,862,312). In instituting the claim, SeaChange
sought both a permanent injunction and damages in an unspecified amount. nCube
made a counterclaim against SeaChange that the patent held by SeaChange was
invalid and that nCube's MediaCube-4 product did not infringe the SeaChange
patent. On September 6, 2000, nCube conceded, based on the District Court's
prior claim construction ruling, that its MediaCube-4 product infringed the
SeaChange patent. On September 25, 2000 the court upheld the validity of the
SeaChange patent. nCube has filed motions challenging both the jury's verdict
and the District Court's claim construction ruling. The District Court has yet
to rule on nCube's motions. At this time SeaChange is awaiting the court's
decision regarding a permanent injunction. Damages will be determined in future
proceedings.
On January 8, 2001, nCube Corp. filed a complaint against SeaChange in the
United States District Court for the District of Delaware alleging that
SeaChange's use of its Media Cluster, Media Express and Media Server technology
each infringe a patent held by nCube (Patent No. 5,805,804). In instituting the
claim, nCube has sought both an injunction and monetary damages in an
unspecified amount. SeaChange responded on January 26, 2001, denying that claim
of infringement. SeaChange also asserted a counterclaim seeking a declaration
from the District court that U.S. Patent No. 5,805,804 is invalid and not
infringed.
On June 14, 1999, SeaChange filed a defamation complaint against Jeffrey
Putterman, Lathrop Investment Management, Inc. and Concurrent Computer
Corporation in the Circuit Court of Pulaski County, Arkansas alleging that the
defendants
16
conspired to injure SeaChange's business and reputation in the marketplace. The
complaint further alleges that Mr. Putterman and Lathrop Investment Management,
Inc. defamed SeaChange through false postings on an Internet message board. The
complaint seeks unspecified amounts of compensatory and punitive damages. On
June 14, 2000, Concurrent filed a counterclaim under seal against SeaChange
seeking unspecified damages. These motions are currently pending and no trial
date has been set.
SeaChange cannot be certain of the outcome of the foregoing litigation, but does
plan to oppose allegations against the Company and assert its claims against
other parties vigorously. In addition, as these claims are in the early stages
of discovery and certain claims for damages are as yet unspecified, SeaChange is
unable to estimate the impact to its business, financial condition, and results
of operations or cash flows.
ITEM 2. Changes in Securities and Use of Proceeds
On February 28, 2001, SeaChange sold in a private placement to Comcast SC
Investment, Inc. for approximately $10,000,000 an aggregate of 756,144 shares of
SeaChange's common stock and a warrant to purchase 100,000 shares of
SeaChange's common stock with an exercise price of $13.225 per share. The
number of shares purchased under the purchase agreement, the number of shares
for which the warrant is exercisable and the per share exercise price of the
warrant is subject to adjustment, as detailed in Note 10 to the financial
statements included in this report. This sale was exempt from the registration
requirements of the Securities Act, pursuant to Section 4(2) of the Securities
Act and Rule 506 of Regulation D of the rules promulgated by the SEC pursuant to
the Securities Act as SeaChange did not make any general solicitation relating
to the sale of these shares and Comcast SC represented to SeaChange that it was
an accredited investor as such term is defined pursuant to Rule 501 of
Regulation D of the rules promulgated by the SEC pursuant to the Securities Act.
No underwriter was used in connection with this transaction.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Third Loan Modification Agreement, dated as of April 23, 2001, by and
among the Company, Silicon Valley Bank and Silicon Valley Bank, doing
business as Silicon Valley East, amending that certain Loan and
Security Agreement, dated as of November 10, 1998, by and between
Silicon Valley Bank and the Company (filed as Exhibit 10.5 to the
Company's Annual Report on Form 10-K previously filed on March 24,
1999 with the Commission (File No. 000-21393))
10.2 First Loan Modification Agreement, dated as of April 23, 2001, by and
among the Company, Silicon Valley Bank and Silicon Valley Bank, doing
business as Silicon Valley East, amending that certain Export-Import
Bank Loan and Security Agreement, dated as of July 25, 2000, by and
among the Company, Silicon Valley Bank and Silicon Valley Bank, doing
business as Silicon Valley East (filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q previously filed on September
14, 2000 with the Commission (File No. 000-21393))
10.3 Stock Purchase Agreement, dated as of February 28, 2001, by and between
the Company and Comcast SC Investment, Inc. (filed as Exhibit 10.15 to
the Company's Registration Statement on Form S-1 previously filed on
March 1, 2001 with the Commission (File No. 333-56410))
10.4 Amended and Restated Registration Rights Agreement, dated as of
February 28, 2001, by and between the Company and Comcast SC
Investment, Inc. (filed as Exhibit 10.16 to the Company's Registration
Statement on Form S-1 previously filed on March 1, 2001 with the
Commission (File No. 333-56410))
(b) Reports on Form 8-K.
None.
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, SeaChange International, Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dated: June 14, 2001
SEACHANGE INTERNATIONAL, INC.
by: /s/ William L. Fiedler
----------------------
William L. Fiedler
Vice President, Finance and Administration,
Chief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer;
Authorized Officer)
18
SEACHANGE INTERNATIONAL, INC.
EXHIBIT INDEX
10.1 Third Loan Modification Agreement, dated as of April 23, 2001, by and
among the Company, Silicon Valley Bank and Silicon Valley Bank, doing
business as Silicon Valley East, amending that certain Loan and
Security Agreement, dated as of November 10, 1998, by and between
Silicon Valley Bank and the Company (filed as Exhibit 10.5 to the
Company's Annual Report on Form 10-K previously filed on March 24,
1999 with the Commission (File No. 000-21393))
10.2 First Loan Modification Agreement, dated as of April 23, 2001, by and
among the Company, Silicon Valley Bank and Silicon Valley Bank, doing
business as Silicon Valley East, amending that certain Export-Import
Bank Loan and Security Agreement, dated as of July 25, 2000, by and
among the Company, Silicon Valley Bank and Silicon Valley Bank, doing
business as Silicon Valley East (filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q previously filed on September
14, 2000 with the Commission (File No. 000-21393))
10.3 Stock Purchase Agreement, dated as of February 28, 2001, by and between
the Company and Comcast SC Investment, Inc. (filed as Exhibit 10.15 to
the Company's Registration Statement on Form S-1 previously filed on
March 1, 2001 with the Commission (File No. 333-56410))
10.4 Amended and Restated Registration Rights Agreement, dated as of
February 28, 2001, by and between the Company and Comcast SC
Investment, Inc. (filed as Exhibit 10.16 to the Company's Registration
Statement on Form S-1 previously filed on March 1, 2001 with the
Commission (File No. 333-56410))
19