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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED June 30, 2000
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: 0-27794
SEGUE SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4188982
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
201 Spring Street Lexington, MA 02421
(Address of principal executive offices)
Registrant's telephone number, including area code: (781) 402-1000
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 a 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 of Registrant's Common Stock outstanding as of August 8,
2000 was 9,407,596
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SEGUE SOFTWARE, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
INDEX
PART I. FINANCIAL INFORMATION Page No
-------
Item 1. Financial Statements:
Consolidated Balance Sheets (unaudited)
June 30, 2000 and December 31, 1999 3
Consolidated Statements of Operations (unaudited)
Three and six months ended June 30, 2000 and 1999 4
Consolidated Statements of Cash Flows (unaudited)
Six months ended June 30, 2000 and 1999 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
Exhibits Index 18
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
SEGUE SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,477 $ 7,429
Short-term investments 17,123 13,287
Accounts receivable, net of allowances of $522 and $600 at June 30, 2000
and December 31, 1999, respectively 13,628 12,014
Other current assets 1,940 1,320
-------- --------
Total current assets 34,168 34,050
Property and equipment, net 5,668 5,734
Completed technology, net 496 989
Goodwill, net 3,763 4,516
Other assets 136 277
-------- --------
Total assets $ 44,231 $ 45,566
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - current portion $ 883 $ 883
Accounts payable 1,940 1,896
Accrued compensation and benefits 3,143 2,881
Accrued royalties 297 147
Accrued expenses 1,690 2,007
Deferred revenue 10,751 8,407
-------- --------
Total current liabilities 18,704 16,221
Stockholders' equity:
Preferred stock, par value $.01 per share; 9,000 shares authorized; no
shares issued and outstanding - -
Common stock, par value $.01 per share; 30,000 shares authorized; 9,398
shares and 9,290 shares issued and outstanding at June 30, 2000 and
December 31, 1999, respectively 94 93
Additional paid-in capital 57,143 56,426
Accumulated deficit (31,710) (27,174)
-------- --------
Total stockholders' equity 25,527 29,345
-------- --------
Total liabilities and stockholders' equity $ 44,231 $ 45,566
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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SEGUE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------ ----------------
June 30, June 30,
--------- ---------
2000 1999 2000 1999
------- ------- ------- --------
<S> <C> <C> <C> <C>
Revenue:
Software $ 9,833 $ 7,427 $19,060 $ 12,413
Services 5,189 4,284 10,105 8,269
------- ------- ------- --------
Total revenue 15,022 11,711 29,165 20,682
Cost of revenue:
Cost of software 583 848 1,263 1,515
Cost of services 2,155 2,456 4,561 4,751
------- ------- ------- --------
Total cost of revenue 2,738 3,304 5,824 6,266
Gross margin 12,284 8,407 23,341 14,416
Operating expenses:
Sales and marketing 9,786 7,724 17,689 14,996
Research and development 2,552 2,623 5,069 5,460
General and administrative 2,110 2,057 4,812 3,755
Amortization of goodwill 377 377 753 753
Non-recurring and other charges - 1,476 - 2,499
------- ------- ------- --------
Total operating expenses 14,825 14,257 28,323 27,463
------- ------- ------- --------
Loss from operations (2,541) (5,850) (4,982) (13,047)
Other income, net 274 273 548 547
------- ------- ------- --------
Loss before provision for income taxes (2,267) (5,577) (4,434) (12,500)
Provision for income taxes 51 43 102 73
------- ------- ------- --------
Net loss $(2,318) $(5,620) $(4,536) $(12,573)
======= ======= ======= ========
Net loss per common share-basic
and diluted $ (0.25) $ (0.62) $ (0.49) $ (1.40)
Weighted average common shares
outstanding-basic and diluted 9,387 9,001 9,350 8,975
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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SEGUE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
June 30,
--------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (4,536) $(12,573)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 2,483 2,230
Noncash compensation charges - 123
Changes in operating assets and liabilities:
Accounts receivable (1,613) (1,895)
Other current assets (620) (95)
Other assets - 414
Accounts payable 44 (1,271)
Accrued expenses, royalties, compensation and benefits 95 2,826
Deferred revenue 2,344 1,088
-------- --------
Net cash used in operating activities (1,803) (9,153)
-------- --------
Cash flows from investing activities:
Additions to property and equipment (1,171) (2,779)
Increase in other assets 141 -
Maturity of short-term investments 25,122 17,335
Purchases of short-term investments (28,959) (5,871)
-------- --------
Net cash provided (used) by investing activities (4,867) 8,685
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options and stock purchase plan 718 604
Payments of notes payable - (334)
-------- --------
Net cash provided by financing activities 718 270
-------- --------
Effect of exchange rate changes on cash and cash equivalents - 18
-------- --------
Net decrease in cash and cash equivalents (5,952) (180)
-------- --------
Cash and cash equivalents, beginning of period 7,429 16,096
-------- --------
Cash and cash equivalents, end of period $ 1,477 $ 15,916
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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SEGUE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The financial statements included herein have been prepared by Segue,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. We believe that the disclosures are adequate to make the
information presented not misleading. However, it is suggested that these
financial statements be read in conjunction with Segue's audited financial
statements for the year ended December 31, 1999, included in its 1999 Annual
Report on Form 10-K.
This financial information reflects, in the opinion of management, all
adjustments of a normal recurring nature necessary to present fairly the results
for the interim periods. Results of interim periods may not be indicative of
results for the full year.
2. NET LOSS PER COMMON SHARE
The following table sets forth the computation of basic and diluted loss
per share (in thousands, except per share data):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------- -------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss $(2,318) $(5,620) $(4,536) $(12,573)
Weighted average shares used in
net loss per share--basic and diluted 9,387 9,001 9,350 8,975
Net loss per common share--basic and diluted $ (0.25) $ (0.62) $ (0.49) $ (1.40)
</TABLE>
Options and warrants to purchase 2,803,812 and 2,463,000 shares of common
stock, respectively, were excluded from the calculation of diluted earnings per
share for the three months ended June 30, 2000 and 1999, respectively, because
their inclusion would be anti-dilutive.
3. PROVISION FOR INCOME TAXES
Segue recorded provisions for foreign and state income taxes of $51,000 and
$102,000 for the three and six months ended June 30, 2000 respectively and
$43,000 and $73,000 for the three and six months ended June 30, 1999
respectively. There was no tax benefit recorded for losses generated in the U.S.
in either period due to the uncertainty of realizing such benefits.
4. COMPREHENSIVE LOSS
Effective January 1, 1998, Segue adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
requires the reporting of comprehensive income in addition to net income from
operations. Comprehensive income is a more inclusive reporting methodology that
includes disclosure of certain financial information that historically has not
been recognized in the calculation of net income. To date Segue's comprehensive
income items have consisted exclusively of foreign translation adjustments. For
the second quarters and years to date ended June 30, 2000 and 1999,
comprehensive loss substantially equaled net loss.
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5. SEGMENT REPORTING
Segue believes it has the following four reportable operating segments
based on differences in products and services. Operating segments are defined as
components of the enterprise about which separate financial information is
available that is reviewed regularly by the chief operating decision maker, or
decision-making group, in deciding how to allocate resources and in assessing
their performance.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
Gross Gross
Revenue Margin Revenue Margin
------- ------ ------- -------
2000 1999 2000 1999 2000 1999 2000 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Segments:
eBusiness product licenses $ 9,698 $ 7,197 $18,851 $11,746
Client/server testing product licenses 135 230 209 667
------- ------- ------- -------
Total software $ 9,833 $ 7,427 $ 9,250 $6,579 $19,060 $12,413 $17,797 $10,898
------- ------- ------- ------ ------- ------- ------- -------
Training and consulting $ 2,059 $ 2,151 $ 586 $ 311 $ 4,204 $ 4,191 $ 1,011 $ 629
Maintenance 3,130 2,133 2,448 1,517 5,901 4,078 4,533 2,889
------- ------- ------- ------ ------- ------- ------- -------
Total services $ 5,189 $ 4,284 $ 3,034 $1,828 $10,105 $ 8,269 $ 5,544 $ 3,518
------- ------- ------- ------ ------- ------- ------- -------
Total revenue $15,022 $11,711 $12,284 $8,407 $29,165 $20,682 $23,341 $14,416
======= ======= ======= ====== ======= ======= ======= =======
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly results of
operations expressed as a percentage of total revenue for the periods indicated:
<TABLE>
<CAPTION>
Percentage of Revenue for Percentage of Revenue for
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Software 65.5% 63.4% 65.4% 60.0%
Services 34.5 36.6 34.6 40.0
------ ------ ------ ------
Total revenue 100.0 100.0 100.0 100.0
Cost of revenue:
Cost of software 3.9 7.2 4.4 7.3
Cost of services 14.3 21.0 15.6 23.0
------ ------ ------ ------
Total cost of revenue 18.2 28.2 20.0 30.3
Gross margin 81.8 71.8 80.0 69.7
Operating expenses:
Sales and marketing 65.1 66.0 60.6 72.5
Research and development 17.0 22.4 17.4 26.4
General and administrative 14.1 17.5 16.5 18.1
Amortization of goodwill 2.5 3.2 2.6 3.6
Non-recurring and other charges - 12.6 - 12.1
------ ------ ------ ------
Total operating expenses 98.7 121.7 97.1 132.7
Loss from operations (16.9) (49.9) (17.1) (63.0)
Other income, net 1.8 2.3 1.9 2.6
------ ------ ------ ------
Loss before provision for income
taxes (15.1) (47.6) (15.2) (60.4)
Provision for income taxes 0.3 0.4 0.3 0.4
------ ------ ------ ------
Net loss (15.4)% (48.0)% (15.5)% (60.8)%
====== ====== ====== ======
</TABLE>
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REVENUE
REVENUE FROM SOFTWARE. Software revenue increased 32% to $9.8 million
during the second quarter of 2000 from $7.4 million in the second quarter of
1999. For the six months ended June 30, 2000, software revenue increased 54% to
$19.1 million as compared to $12.4 million for the six months ended June 30,
1999. Our growth in software revenue is attributable primarily to the greater
market recognition of our products in the "e-business" marketplace through our
sales and marketing effort. International revenue accounted for 13% and 11% of
total software revenue for the three and six months ended June 30, 2000,
respectively, as compared to 15% and 13% of total software revenue for the same
period of 1999.
REVENUE FROM SERVICES. Service revenue increased 21% to $5.2 million
during the second quarter of 2000 from $4.3 million in the second quarter of
1999. For the six months ended June 30, 2000, service revenue increased 22% to
$10.1 million as compared to $8.3 million for the six months ended June 30,
1999. As compared to the three and six months ended June 30, 1999, training and
consulting revenue decreased 4% for the second quarter of 2000, however, the
year to date training and consulting revenue remains at the same level as
compared to 1999. As compared to the three and six months ended June 30, 1999,
the recognized maintenance revenue increased 47% and 45%, respectively. The
increase in recognized maintenance revenue was driven largely by incremental
additional software licenses sold over the past 12 months that are being
amortized over the 12 month period.
COST OF REVENUE
COST OF SOFTWARE. Cost of software decreased 31% to $583,000 during the
second quarter of 2000 from $848,000 in the second quarter of 1999. For the six
months ended June 30, 2000, cost of software decreased 17% to $1.3 million as
compared to $1.5 million for the six months ended June 30, 1999. As a percentage
of software revenue, costs of software in the second quarter of 2000 decreased
to 6% from 11% in the corresponding prior-year period, and, for the six months
ended June 30, 2000, decreased to 7% from 12% in the six months ended June 30,
1999. The percentage decrease in cost of software is mainly due to increased
product sales revenue and better cost control.
COST OF SERVICES. Cost of services decreased 12% to $2.2 million during
the second quarter of 2000 from $2.5 million in the second quarter of 1999. For
the six months ended June 30, 2000, cost of services decreased 4% to $4.6
million from $4.8 million during the same period in 1999. As a percentage of
service revenue, costs in the second quarter of 2000 decreased to 42% from 57%
in the corresponding prior year period. For the six months ended June 30, 2000,
costs of services as a percentage of service revenue increased to 45% from 58%
during the corresponding period in 1999. The percent decreases are largely due
to the fact that the major portion of the cost of service is fixed costs.
Additionally, in 2000 we used fewer third party consultants who typically cost
more than internal personnel.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses increased 27% to $9.8
million during the second quarter of 2000 from $7.7 million in the second
quarter of 2000. For the six months ended June 30, 2000, sales and marketing
expenses increased 18% to $17.7 million as compared to $15.0 million for the six
months ended June 30, 1999. The increases are partly due to increases in
commission expense attributable to the higher revenue level, and the increases
in personnel-related costs reflecting the growth in sales and marketing
including higher salary, travel expenses, training costs for new sales
representatives and higher costs associated with marketing programs.
RESEARCH AND DEVELOPMENT. Research and development expenses decreased 3%
to $2.5 million during the second quarter of 2000 from $2.6 million in the
second quarter of 1999. For the six months ended June 30, 2000, research and
development expenses decreased 7% to $5.1 million as compared to $5.5 million
during the same period in 1999. The decreases are primarily due to a reduction
in headcount and the corresponding decrease in personnel related cost as well as
decreased facility lease cost.
GENERAL AND ADMINISTRATIVE. General and administrative expenses remain
relatively constant at the level of $2.1 million for both second quarters of
2000 and 1999. For the six months ended June 30, 2000, general and
administrative costs increased 28% to $4.8 million as compared to $3.8 million
for the same period in the prior year. The increases are primarily due to the
increased legal and audit related expenses associated with the amendments of our
prior years Form 10-Qs and Form 10-Ks for the restatements from December 1997
through September 1999 related to acquired in-process research and development.
In addition, there was the one time severance charge of approximately $200,000
during the first quarter of 2000 and legal fees associated with our class action
lawsuits.
AMORTIZATION OF GOODWILL. Amortization of goodwill was $377,000 for each
of the second quarters of 2000 and 1999. For each of the six-month periods ended
June 30, 2000 and June 30, 1999, amortization of goodwill was $753,000.
NON-RECURRING AND OTHER CHARGES. During the second quarter of 1999, we
restructured our product development
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operations and delayed the introduction of the Eventus product, SilkControl.
These activities were aimed at reducing our costs associated with the
development of that product and enhancing our sales force's ability to focus on
other products. The restructuring resulted in the consolidation of four
development labs into three and included the termination of 15 employees
associated with the development of the Eventus product. Additionally, during the
second quarter of 1999, we shifted our sales strategy away from creating and
managing a large network of resellers towards building deeper relationships with
a few large system integrators. This revised strategy resulted in the
termination of seven employees who focused sales efforts on these channel
resellers. We also terminated the employment of two senior vice presidents
during the second quarter of 1999, each of whom has subsequently been replaced.
Associated with all the events noted above, we recorded during the second
quarter of 1999 non-recurring and other charges of approximately $1.5 million,
which related exclusively to severance and other employee-related costs,
including a noncash compensation charge of approximately $118,000. As of June
30, 2000, we had paid off the full amount of the restructuring cost.
During the first quarter of 1999, we executed a restructuring plan to
consolidate our marketing, product development and administrative operations in
order to achieve cost efficiencies through the elimination of redundant
functions. We realigned our marketing and product development operations to
redirect focus on our strongest product lines and better integrate the efforts
of certain product development teams. As a result, we recognized a non-
recurring charge of approximately $1.0 million during the first quarter of 1999.
The restructuring charge included approximately $830,000 for severance and other
employee-related costs for the termination of 10 employees and approximately
$190,000 for facility-related costs, including the accrual of estimated lease
obligations associated with the closure of excess office facilities. As of June
30, 2000, we had paid off the full amount of the restructuring cost.
OTHER INCOME, NET
Other income, net increased 0.4% to $274,000 during the second quarter of
2000 from $273,000 in the second quarter of 1999. For the six months ended June
30, 2000, other income, net increased 0.2% to $548,000 from $547,000 during the
first six months of 1999. Other income consists of mostly interest income on
cash equivalents and short-term investments. While the balance invested was
lower in the second quarter of 2000 than in the second quarter of 1999, this was
offset by higher interest rates in 2000.
PROVISION FOR INCOME TAXES
We recorded a provision for foreign and state income taxes of $51,000 and
$102,000 for the three and six months ended June 30, 2000, respectively, and
$43,000 and $73,000 for the three and six months ended June 30, 1999,
respectively. There was no tax benefit recorded for losses generated in the U.
S. in any period due to the uncertainty of realizing such benefits.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, our principal sources of liquidity included cash, cash
equivalents and short-term investments totaling $18.6 million as compared to
$20.7 million as of December 31, 1999.
In the first six months of 2000, we used $1.8 million for operating
activities, resulting from the net loss, increases in accounts receivable and
other current assets, offset by increases in deferred revenue.
We used $4.9 million from investing activities in the first six months of
2000, mainly to fund our foreign subsidiaries and make investments in property
and equipment.
We generated funds from financing activities of $718,000 in the first six
months of 2000 related to the exercise of stock options and the issuance of
stock under the employee stock purchase plan.
Our corporate headquarters in Lexington, Massachusetts is currently under a
lease, which expires in October 2007. The annual rental rate is approximately
$2.3 million. Effective July 1, 2000, we entered into an amendment to our
sublease agreement to secure an additional 5,800 rentable square feet within the
headquarters complex. Upon completion of the build-out of this space, we will
occupy a total of 73,300 square feet of office space at the headquarters
location. Segue has the right to terminate the lease on September 30, 2004 for a
fee of approximately $2.3 million.
During the first six months of 2000, we paid approximately $291,000 and
$131,000 related to the 1999 first and second quarter restructuring charges
respectively. In addition, we paid approximately $300,000 of the remaining
balance related to the 1999 implementation of a new management information
system.
We expanded our Northern Ireland technical support center during the first
six months of 2000 by adding fifteen technical support engineers. In addition to
the increased head count, we also paid approximately $40,000 for additional
computer equipment.
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Long-term cash requirements, other than for normal operating expenses, are
anticipated for the development of new software products and enhancements of
existing products, the enhanced presentation of our web site, the possible
opening of additional international offices, and the possible acquisition of
software products or technologies complementary to Segue's business.
Assuming there is no significant change in our business, we believe that
cash, cash equivalents and short-term investments as well as cash flows from
operations will be sufficient to meet our working capital and debt requirements
through the end of 2000. In the event Segue requires additional financing, we
believe we would be able to obtain such financing; however, there can be no
assurance that we would be successful in doing so, or that we could do so on
terms favorable to Segue.
IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
Statements made in this Quarterly Report on Form 10-Q include a number of
forward looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-
looking statements include, without limitation, statements containing the words
"anticipates," "believes," "expects," "intends," "future" and words of similar
import which express management's belief, expectations or intentions regarding
the future performance of Segue. Segue's actual results could differ materially
from those set forth in the forward-looking statements. Certain factors that
might cause such differences are discussed in this Quarterly Report on Form 10-Q
including, without limitation, those discussed below.
Segue's quarterly results may fluctuate. Segue's quarterly revenue and operating
results are difficult to predict and may fluctuate significantly from quarter to
quarter. If Segue's quarterly revenue or operating results fall below the
expectations of investors or public market analysts, the price of its common
stock could fall substantially. Segue's quarterly revenue may fluctuate
significantly for several reasons, including: the timing of introductions of new
products or product enhancements by Segue or its competitors; personnel changes;
the size and timing of individual orders; software bugs or other product quality
problems; competition and pricing; customer order deferrals in anticipation of
new products or product enhancements; demand for Segue's products is difficult
to predict for reasons discussed below; changes in operating expenses; product
mix; and general economic conditions. A substantial portion of Segue's operating
expenses are related to personnel, facilities and marketing programs. The level
of spending for such expenses cannot be adjusted quickly and is based, in
significant part, on Segue's expectations of future revenues. If actual revenue
levels are below management's expectations, results of operations are likely to
be adversely affected. In addition, Segue does not typically experience order
backlog. Furthermore, Segue has often recognized a substantial portion of its
revenues in the last month of a quarter, with these revenues frequently
concentrated in the last weeks or days of a quarter. As a result, product
revenues in any quarter are substantially dependent on orders booked and shipped
in the latter part of that quarter and revenues for any future quarter are not
predictable with any significant degree of accuracy. For these reasons, Segue
believes that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance.
Segue may not be profitable in the future. Since Segue began operations, it has
generally experienced losses. Losses have resulted in an accumulated deficit of
approximately $31.7 million as of June 30, 2000. Segue had net income of
$144,000 in 1996; a net loss of $2.5 million in 1997, which includes a charge of
$117,000 for purchased research and development in process and $718,000 for
severance charges; a net loss of $5.1 million in 1998, which includes a charge
of $1.5 million related to Segue's acquisitions of Eventus Software and Black &
White Software, and a charge of $667,000 related to write-offs of an NRE fee and
guaranteed royalties; a net loss of $15.9 million in 1999, which includes $2.0
million for restructuring costs, $481,000 for severance of senior executives,
and $2.5 million for the amortization goodwill and completed technology related
to the SQLBench acquisition; and a net loss of $4.5 million for the six months
ended June 30, 2000. While we have experienced revenue growth in recent periods,
continued growth at the same rate may not be sustainable and is not necessarily
indicative of future operating results. Failure to sustain or increase
profitability may adversely affect the market price of Segue's common stock.
The development of a market for Segue products is uncertain. The market for
automated software testing products is relatively new and undeveloped. Marketing
and sales techniques in the automated software testing marketplace, as well as
the bases for competition, are not well established. There can be no assurance
as to the extent that a significant market for automated software testing
products will develop or the extent to which Segue products will be accepted in
that market. Although we believe that the current trend toward increased use of
automated software testing will continue, a majority of software testing is
still carried out manually, and there can be no assurance that the automated
software testing market will enjoy continued growth. The success of Segue
products focused on e-commerce and Internet applications will depend on our
ability to stay current and continue to enhance our products to work with all of
the prevalent technologies driving Internet applications. There can be no
assurance that we will be able to effectively adapt our products to the
prevalent technologies used on e-commerce applications or to successfully
compete in the market for Internet-related products and services. As is typical
for new and rapidly evolving industries, demand for recently introduced products
is highly uncertain.
We may have difficulty managing recent changes. Segue has been experiencing a
period of rapid growth, including increases in the number of orders and changes
in customers and personnel. This rapid growth has placed, and may continue to
place, strains on our
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management, product offerings, services, operations and systems. To manage
future growth effectively, we must expand, improve and effectively utilize our
operational, management, marketing, sales and financial systems as necessitated
by changes in our business. We have completed the implementation of a new
management information system and opened a Technical Support Center in Northern
Ireland in 1999, both of which could be disruptive. Additionally, we expanded
our sales force and our Northern Ireland technical support center in the first
six months of 2000. Also, as part of the restructuring plan of the first and
second quarter of 1999, we have significantly changed our sales management team
and consolidated the position of Senior Vice President of Research and
Development with the position of Senior Vice President and General Manager of
the executive management team. In conjunction with these management changes, we
have also changed the structure of our internal organization by adding product
divisions that relate to our eBusiness testing products. We have also refocused
our sales and marketing approach to focus on e-commerce applications. There can
be no assurance that we will be able to effectively manage such changes and such
changes are likely to be disruptive.
We may be subject to risks associated with our past acquisitions and future
acquisitions. In the fourth quarter of 1998, Segue acquired Eventus Software,
Inc. and Black & White Software, Inc. in two separate transactions. Our product
range and customer base has increased in the recent past due in part to these
acquisitions. These acquisitions provided us with technologies to expand our
current line of eBusiness testing products. There can be no assurance that the
integration of all of the acquired technologies will be successful or will not
result in unforeseen difficulties, which may absorb significant management
attention.
In the future, Segue may acquire additional businesses or product lines. The
past completed acquisitions, or any future acquisition may not produce the
revenue, earnings or business synergies that we had anticipated, and an acquired
product, service or technology might not perform as expected. Prior to
completing an acquisition, however, it is difficult to determine if such
benefits can actually be realized. The process of integrating acquired companies
into our existing business may also result in unforeseen difficulties.
Unforeseen operating difficulties may absorb significant management attention,
which we might otherwise devote to our existing business. Also, the process may
require significant financial resources that we might otherwise allocate to
other activities, including the ongoing development or expansion of our existing
operations. If Segue pursues a future acquisition, our management could spend a
significant amount of time and effort in identifying and completing the
acquisition. To pay for a future acquisition, we might use capital stock or
cash. Alternatively, we might borrow money from a bank or other lender. If we
use capital stock as we did with our past acquisitions, our stockholders would
experience dilution of their ownership interests. If we use cash or debt
financing, our financial liquidity will be reduced.
We may not be able to continue expansion of our sales force. We distribute our
product and services primarily through our direct sales force. Our ability to
continue to increase revenues in future periods will depend in large part on our
ability to expand our direct sales force and provide a high level of technical
consulting, training and customer support. In the past quarter, we hired
additional sales and support personnel to broaden our direct selling and
distribution capabilities. We can not assure that we can build and train our
sales force to satisfactorily meet increased revenue goals.
Segue faces significant competition from other software companies. The market
for software quality management tools is new, intensely competitive and subject
to rapid technological change. We expect competition to intensify in the future.
Segue currently encounters competition from a number of public and private
companies, including Mercury Interactive Corporation, Rational Software
Corporation and Compuware Corporation. Many of our current and potential
competitors have longer operating histories, greater name recognition, larger
installed customer bases, and significantly greater financial, technical and
marketing resources than we do and, therefore, may be able to respond more
quickly to new or changing opportunities, technologies, standards or customer
requirements or may be able to devote greater resources to the promotion and
sale of their products than we can. An increase in competition could result in
price reductions and loss of market share. We may not be able to respond quickly
enough to competitive product offerings to be able to compete successfully in
the future. Such competition and any resulting reduction in profitability could
have a material adverse effect on our business, operating results and financial
condition.
Segue's business could be adversely affected if its products contain errors.
Software products as complex as ours may contain undetected errors or "bugs"
which result in product failures. The occurrence of errors could result in loss
of or delay in revenue, loss of market share, failure to achieve market
acceptance, diversion of development resources, injury to our reputation, or
damage to our efforts to build brand awareness, any of which could have a
material adverse effect on our business, operating results and financial
condition.
Segue's future success will depend on our ability to respond rapidly and
effectively to technological and other changes. The nature of the automated
software testing and eBusiness testing markets in which we compete is
characterized by rapidly changing technology, rapidly evolving customer needs
and desires, changes in industry standards and practices and frequent releases
of new product or enhancements by competitors. To be competitive, Segue must
develop and introduce product enhancements and new products that address the
increasingly sophisticated and varied needs of our existing and potential
customers. Failure to develop and introduce new products and enhancements
successfully and on a timely basis, could have a material adverse effect on our
business, operating results and financial condition. The emerging nature of the
automated software testing and e-commerce testing markets requires that Segue
continually improve the performance, features and reliability of its products,
particularly in response to competitive offerings and
11
<PAGE>
evolving customer needs. We must also introduce enhancements to existing
products as quickly as possible and prior to the introduction of competing
products. The development of technologies that result in new products or
enhancements requires significant expenditures and utilization of resources. We
may not be successful in developing such technologies or may not be able to keep
pace with technological developments. We have acquired, and may in the future
acquire, technologies to provide us with the tools to introduce new products or
to enhance current products. The success of such acquisitions will depend in
part on our ability to effectively integrate the technologies.
Our performance may be affected by market acceptance of our new products. In
July 2000 we launched a new product area, Production Monitoring, with two unique
solutions, eCMonitor VPM and eCMonitor CVM. If these products, or any other
newly developed products or product enchantments fail to be accepted by our
existing and potential customers, our business may be materially adversely
affected.
Certain lawsuits have been filed against Segue which, if determined or settled
in a manner adverse to Segue, could adversely affect Segue's financial
condition. On or about April 27, 1999, a putative class action complaint was
filed in the United States District Court for the District of Massachusetts
against Segue, its Chief Executive Officer and a former Chief Financial Officer
of Segue, captioned Nathan Rice v. Segue Software, Inc., et al., Civil No. 99-
----------------------------------------------------------
CV-10891-RGS. The class action complaint alleged the defendants violated the
------------
federal securities laws by making material misrepresentations and omissions in
certain public disclosures during the period beginning on October 13, 1998
through April 9, 1999, inclusive. The public disclosures relate to, among other
things, Segue's past and future financial performance and results. On or about
May 3, 1999, another similar putative class action complaint was filed against
Segue, its Chief Executive Officer and a former Chief Financial Officer of Segue
in the United States District Court for the District of Massachusetts, captioned
Anthony Moumouris v. Segue Software, Inc., et al., Civil No. 99-CV-10933RGS.
---------------------------------------------------------------------------
These cases were consolidated under the caption In Re Segue Software,
--------------
Inc.Securities Litigation, Civil No. 99-CV-10891-RGS and the plaintiffs filed a
----------------------------------------------------
consolidated amended complaint on September 27, 1999 alleging a putative class
period of July 14, 1998 through April 9, 1999, inclusive. The complaints sought
an unspecified amount of damages. Segue intends to defend the claims vigorously.
On November 8, 1999 each of the defendants filed a motion to dismiss the amended
complaint for failure to state a cause of action. The plaintiffs have opposed
the motions to dismiss on various grounds. The court heard arguments on the
motions on March 15, 2000 and on July 26 2000, the United States District Court
for the District of Massachusetts has granted Segue's Motion to Dismiss the
putative securities class action litigation brought against the above three
defendants. The dismissal was entered "with prejudice." In addition, on April
7, 2000, a complaint for fraud in the inducement and breach of contract in
connection with the December 31, 1998 acquisition by Segue of Black & White
Software, Inc. was filed in the Delaware Chancery Court against Segue, its Chief
Executive Officer and a former Chief Financial Officer by Charles White, Julia
Miller and the Charles White and Julia Miller 1995 Trust, the former
shareholders of Black & White Software, Inc. Segue intends to defend the claim
vigorously. Segue believes the defense of the claim in this action could
involve significant litigation-related expenses. The outcome of this matter is
uncertain and, as a result, at this time Segue is not able to quantify any
related financial exposure. In the event that the Black & White Software, Inc.
complaint is determined or settled in a manner adverse to Segue, then such
determination or settlement could adversely affect Segue's financial position or
results of operations in the period in which the litigation is resolved.
Various other claims, charges and litigation have been asserted or commenced
against Segue arising from or related to contractual or employee relations.
Management does not believe these claims will have a material adverse effect on
the financial position or results of operations of Segue.
Segue must hire and retain skilled personnel in a tight labor market. Qualified
personnel are in great demand throughout the software industry. Our success
depends in large part upon our ability to attract, train, motivate and retain
highly skilled employees, particularly sales and marketing personnel, software
engineers and other senior personnel. There is intense competition for sales
personnel and software engineers in our business, and there can be no assurance
that Segue will be successful in attracting, integrating, motivating and
retaining new sales personnel and software engineers. The failure to attract and
retain the highly skilled personnel that are integral to our direct sales,
product development, service and support teams may limit the rate at which we
can generate sales and develop new products or product enhancements. This could
have a material adverse effect on our business, operating results and financial
condition.
We have completed the shift in our focus from general software testing to
eBusiness testing. In 1997, we began to develop and acquire technology to
provide automated software testing for Web-enabled software applications,
including the acquisition of SQLBench in December 1997. These developments
allowed us to extend our testing capabilities beyond distributed client/server
applications with GUI front ends. In the second quarter of 1998, Segue
introduced "LiveQuality," an eBusiness scenario testing solution. In the fourth
quarter of 1998, we acquired Eventus Software, Inc. and Black & White Software,
Inc. We anticipated that these acquisitions would provide us with other
technologies to expand our current line of eBusiness testing products. Segue
continued to develop and introduce other eBusiness products in 1999, including
our eConfidence Solution packages called eConfidence Functionality, eConfidence
Performance and eConfidence Production. Our shift from a general software
testing company to an eBusiness testing company has resulted in significant
changes in our (i) organizational structure, (ii) management personnel, (iii)
product mix, and (iv) sales approach. These changes have required and will
continue to require significant management attention and have
12
<PAGE>
been and may continue to be disruptive. We are reviewing the changes made in the
past year and may make additional changes to affect our shift. If we fail to
effectively manage these changes, or make other changes that may be needed in
connection with our shift to an eBusiness testing company, business, operating
results and financial condition may be materially adversely affected.
We face many risks associated with international business activities. Segue
derived approximately 11% of its total product sales from international
customers in the first six months of 2000. The international market for software
products is highly competitive and we expect to face substantial competition in
this market from established and emerging companies. Segue faces many risks
associated with international business activities including currency
fluctuations, imposition of government controls, export license requirements,
restrictions on the export of critical technology, political and economic
instability, tailoring of products to local requirements, trade restrictions,
changes in tariffs and taxes, difficulties in staffing and managing
international operations, longer accounts receivable payment cycles and the
burdens of complying with a wide variety of foreign laws and regulations. To the
extent we are unable to expand international sales in a timely and cost-
effective manner, our business could be materially adversely affected.
Our business operations may be affected by unexpected year 2000 problems.
Although to date we have not experienced any material problems attributable to
the year 2000 problem with respect to our software products and internal
systems, it is possible that our current products could contain undetected
errors or defects associated with year 2000 date functions that may result in
material costs or liabilities to us in the future. Moreover, our software
directly and indirectly interacts with a large number of third party hardware
and software systems, each of which may contain or introduce undetected errors
or defects. We are unable to predict to what extent our business may be affected
if our software or the systems that operate in conjunction with our software
experience a material year 2000 related failure. Any year 2000 defect in our
products or the software and hardware systems with which our products operate,
as well as any year 2000 errors caused by older non-current products that were
not upgraded by our customers, could expose us to litigation that could require
us to incur significant costs in defending the litigation or expose us to the
risk of significant damages. The risks of this litigation may be particularly
acute due to the mission-critical applications for which our products are used.
Segue may be subject to risks associated with its business partner program.
Although Segue has not historically sold significant amounts of its products
through indirect channels, we intend to continue to develop system integrator
sales as part of our business strategy. There can be no assurance that our
efforts will result in an increase in revenues. Furthermore, we may be subject
to certain distinct risks associated with system integrator sales. Our current
business partners may not be able to effectively sell or continue to effectively
sell our products or new products. We may not be able recruit additional or
replacement business partners if any of our current business partners terminate
their relationship with us. Segue licenses its products to business partners at
a discount and such partners re-license the products to end-users. Our
agreements with our business partners are non-exclusive and provide the business
partners with 60-day price protection. Because our business partners generally
order products after they have received purchase orders, there is no requirement
that we repurchase any product. We typically do not grant our business partners
a contractual right to return software products. When approved by management,
however, we have accepted returns of certain software products and have provided
an allowance for the specified products. Segue selects its business partners
based on the partner's financial viability, product expertise and market focus.
In order for our strategy to broaden market penetration through our business
partner program to be successful, we must increase our unit sales to offset the
discount we are providing to our business partners. There can be no assurance
that we will succeed in the development of these programs. Moreover, selling
through indirect channels may limit our contact with the end users of our
products. As a result, our ability to accurately forecast sales, evaluate
customer satisfaction and recognize emerging customer requirements may be
hindered and our ability to develop and maintain customer goodwill may be
limited. Furthermore, our existing or future business partners may choose to
devote greater resources to marketing and supporting the products of other
companies. In addition, Segue will need to resolve potential conflicts among its
sales force and business partners.
Segue could be subject to product liability claims. In selling its products,
Segue relies primarily on "shrink wrap" licenses that contain, among other
things, provisions protecting against the unauthorized use, copying and transfer
of the licensed program and limiting Segue's exposure to potential product
liability claims. However, these licenses are not signed by the licensees and
the provisions of these licenses, including the provisions limiting Segue's
exposure to product liability claims, may therefore be unenforceable under the
laws of certain jurisdictions. Segue products may be used on applications that
are critical to the operations of its customers' businesses. Any failure in a
customer's application could result in a claim against Segue for substantial
damages, regardless of our responsibility for such failure. Although we maintain
general liability insurance, including coverage for errors and omissions, there
can be no assurance that such coverage will continue to be available on
reasonable terms or will be available in amounts sufficient to cover one or more
large claims, or that the insurer will not disclaim coverage as to any future
claim.
Segue's success depends on our ability to protect our proprietary technology.
Segue's success depends to a significant degree upon the protection of our
software and other proprietary technology. The unauthorized reproduction or
other misappropriation of our proprietary technology could enable third parties
to benefit from Segue's technology without paying us for it. This could have a
material adverse effect on our business, operating results and financial
condition. Although we have taken steps to protect our proprietary technology,
these efforts may be inadequate. We currently rely on a combination of
trademark, copyright and trade secret laws and contractual provisions to protect
our proprietary rights in our products. Currently, we have three issued patents.
There can be no assurance that these patents would be upheld if challenged.
Moreover, the laws of other countries in which we market our products
13
<PAGE>
may afford little or no effective protection of our intellectual property. There
can be no assurance that our competitors will not independently develop
technologies that are substantially equivalent or superior to our technology. If
we resort to legal proceedings to enforce our intellectual property rights, the
proceedings could be burdensome and expensive and could involve a high degree of
risk. There can be no assurance that third parties will not assert intellectual
property infringement claims against Segue. If we were to discover that any of
Segue products violated third party proprietary rights, there can be no
assurance that we would be able to obtain licenses on commercially reasonable
terms to continue offering the product without substantial reengineering or that
any effort to undertake such reengineering would be successful. Any claim of
infringement could cause Segue to incur substantial costs defending against the
claim, even if the claim is invalid, and could distract management resources
from our business. Furthermore, a party making such a claim could secure a
judgment that requires us to pay substantial damages. A judgment could also
include an injunction or other court order that could prevent us from selling
our products. Any of these events could have a material adverse effect on our
business, operating results and financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about our market risk disclosures involves
forward-looking statements. Actual results could differ materially from those
discussed in the forward-looking statements. We are exposed to market risk
related to changes in interest rates and foreign currency exchange rates. We do
not use derivative financial instruments for speculative or trading purposes.
INTEREST RATE RISK. Segue is exposed to market risk from changes in
interest rates primarily through its investing and borrowing activities. In
addition, our ability to finance future acquisition transactions may be impacted
if we are unable to obtain appropriate financing at acceptable rates. Our
investing strategy to manage interest rate exposure, is to invest in short-term,
highly liquid investments. We maintain a portfolio of highly liquid cash
equivalents and short-term investments (primarily in high-grade corporate
commercial paper). At June 30, 2000, the fair value of our short-term
investments approximated market value.
FOREIGN CURRENCY RISK. Segue faces exposure to movements in foreign
currency exchange rates. These exposures may change over time as business
practices evolve and could have a material adverse effect on our business,
financial condition and results of operations. We do not use derivative
financial instruments or other financial instruments to hedge economic exposures
or for trading. Historically, our primary exposures have been related to the
operations of our foreign subsidiaries. As of June 30, 2000, the net impact of
foreign currency changes was not material. The introduction of the Euro as a
common currency for most members of the European monetary union has taken place
in our fiscal year of 1999. We have not determined the impact, if any, that the
Euro will have on foreign currency and business exposure.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On or about April 27, 1999, a putative class action complaint was filed in
the United States District Court for the District of Massachusetts against
Segue, its Chief Executive Officer and a former Chief Financial Officer of
Segue, captioned Nathan Rice v. Segue Software, Inc., et al., Civil No. 99-CV-
-------------------------------------------------------------
10891-RGS. The class action complaint alleged the defendants violated the
---------
federal securities laws by making material misrepresentations and omissions in
certain public disclosures during the period beginning on October 13, 1998
through April 9, 1999, inclusive. The public disclosures relate to, among other
things, Segue's past and future financial performance and results. On or about
May 3, 1999, another similar putative class action complaint was filed against
Segue, its Chief Executive Officer and a former Chief Financial Officer of Segue
in the United States District Court for the District of Massachusetts, captioned
Anthony Moumouris v. Segue Software, Inc., et al., Civil No. 99-CV-10933RGS.
---------------------------------------------------------------------------
These cases were consolidated under the caption In Re Segue Software, Inc.
--------------------
Securities Litigation, Civil No. 99-CV-10891-RGS and the plaintiffs filed a
------------------------------------------------
consolidated amended complaint on September 27, 1999 alleging a putative class
period of July 14, 1998 through April 9, 1999, inclusive. The complaints sought
an unspecified amount of damages. Segue intends to defend the claims vigorously.
On November 8, 1999 each of the defendants filed a motion to dismiss the amended
complaint for failure to state a cause of action. The plaintiffs have opposed
the motions to dismiss on various grounds. The court heard arguments on the
motions on March 15, 2000 and on July 26, 2000, the United States District Court
for the District of Massachusetts has granted Segue's Motion to Dismiss the
putative securities class action litigation brought against the above three
defendants. The dismissal was entered "with prejudice." In addition, on April
7, 2000, a complaint for fraud in the inducement and breach of contract in
connection with the December 31, 1998 acquisition by Segue of Black & White
Software, Inc. was filed in the Delaware Chancery Court against Segue, its Chief
Executive Officer and a former Chief Financial Officer by Charles White, Julia
Miller and the Charles White and Julia Miller 1995 Trust, the former
shareholders of Black & White Software, Inc. Segue intends to defend the claim
vigorously. Segue believes the defense of the claim in this action could
involve significant litigation-related expenses. The outcome of this matter is
uncertain and, as a result, at this time Segue is not able to quantify any
related financial exposure. In the event that the Black & White Software, Inc.
complaint is determined or settled in a manner adverse to Segue, then such
determination or settlement could adversely affect Segue's financial position or
results of operations in the period in which the litigation is resolved.
14
<PAGE>
Various other claims, charges and litigation have been asserted or
commenced against Segue arising from or related to contractual or employee
relations. Management does not believe these claims will have a material adverse
effect on the financial position or results of operations of Segue.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
We completed our initial public offering ("IPO") of Segue common stock in
April 1996. The IPO was made pursuant to a Registration Statement on Form S-1,
filed with the Securities and Exchange Commission pursuant to Rule 462(b) under
the Securities Act of 1933 (Commission File No. 333-1488), which was declared
effective as of March 28, 1996. The IPO commenced on April 2, 1996 and
terminated shortly thereafter after the sale into the public market of all of
the registered shares of common stock.
The 3,162,500 shares of common stock sold by Segue and selling security
holders in our IPO were offered for sale in the United States by a syndicate of
underwriters represented by Alex. Brown & Sons Incorporated; Adams, Harkness &
Hill, Inc. and Soundview Financial Group, Inc.
We registered an aggregate of 2,412,500 shares of common stock (including
412,500 shares issued upon the exercise of the underwriters' overallotment
options) for sale in the IPO at a per share price of $18.00 for an aggregate
offering price of approximately $43.4 million. All of such shares were
registered for Segue's account. Selling security holders registered an aggregate
of 750,000 shares of common stock for sale in the IPO at a per share price of
$18.00 for an aggregate offering price of $13.5 million. All of such
shares were registered for the selling security holders' accounts. As stated
above, all of such shares were sold shortly after the commencement of the
offering.
In connection with the IPO, we incurred the following expenses:
Underwriting discounts and commissions $3,039,750
Expenses paid to underwriters 10,999
Other direct expenses 847,281
----------
Total expenses $3,898,030
----------
After deducting the expenses of $3.9 million, we received approximately
$39.5 million in net proceeds of the IPO.
Through the period ended June 30, 2000, we used approximately $8.4 million
for the purchase of property and equipment, approximately $4.75 million for
repayment of indebtedness including interest ($3.4 million and $645,000, for
principal and interest, respectively, on the SQLBench notes and approximately
$395,000 and $334,000 on Eventus and B&W debt, respectively), $950,000 for
guaranteed royalties, $480,000 for a non-recurring engineering and initial
license fee, approximately $1.6 million for employee severance payments, and
approximately $17.0 million for working capital. The remaining $6.3 million was
invested in temporary investments, mainly consisting of government agency paper
and commercial paper.
No payments from the net offering proceeds of the IPO were made to
directors, officers, or persons owning 10 percent or more of the common stock of
Segue.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The 2000 Annual Meeting of Stockholders of Segue Software, Inc. (the
"Annual Meeting") was held on June 23, 2000.
(b) At the Annual Meeting, the following individuals were elected to Segue's
Board of Directors, constituting all members of Segue's Board of Directors:
Votes For Votes Withheld
--------- --------------
James H. Simons 8,106,830 620,179
Stephen B. Butler 7,880,921 846,088
Leonard E. Baum 8,106,830 620,179
John R. Levine 8,106,830 620,179
Howard L. Morgan 8,106,830 620,179
Jyoti Parkash 7,880,921 846,088
15
<PAGE>
(c) The following additional proposals were considered at the Annual Meeting:
<TABLE>
<CAPTION>
Votes Votes Votes
For Against Withheld
--------- --------- --------
<S> <C> <C> <C>
Approval of the Stock Purchase Plan
Amendment 4,211,900 225,753 70,585
Approval of the 1996 Option Plan
Amendment 2,653,432 1,774,922 79,884
Ratification of the appointment of Grant Thornton LLP
independent public accountants for the fiscal year
ending December 31, 2000 8,636,251 20,109 70,649
</TABLE>
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the second
quarter ended June 30, 2000.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 14, 2000
SEGUE SOFTWARE, INC.
By: /s/ STEPHEN B. BUTLER
-------------------------
Name: Stephen B. Butler
Title: Chief Executive Officer
By: /s/ DOUGLAS ZACCARO
-----------------------
Name: Douglas Zaccaro
Title: Chief Financial Officer
17
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description
--- -----------
27.1 Financial Data Schedule
18
