<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED March 31, 1999
[_] 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 May 7,
1999 was 9,035,542.
<PAGE>
SEGUE SOFTWARE, INC.
FORM 10-Q/A
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets (unaudited)
March 31, 1999 and December 31, 1998 2
Consolidated Statements of Operations (unaudited)
Three months ended March 31, 1999 and 1998 3
Consolidated Statements of Cash Flows (unaudited)
Three months ended March 31, 1999 and 1998 4
Notes to Consolidated Financial Statements (unaudited) 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
Exhibits Index 24
</TABLE>
1
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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>
March 31, December 31,
1999 1998
---- ----
(restated)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 28,425 $ 16,096
Short-term investments - 17,335
Accounts receivable, net of allowances
of $735 and $608 7,704 8,823
Other current assets 1,339 1,505
-------- --------
Total current assets 37,468 43,759
Property and equipment, net 4,182 3,560
Completed technology, net 1,729 1,976
Goodwill, net 5,646 6,022
Other assets 882 962
-------- --------
Total assets $ 49,907 $ 56,279
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable--current portion $ 2,680 $ 2,983
Accounts payable 2,289 2,464
Accrued compensation and benefits 1,181 1,389
Accrued royalties 207 377
Accrued expenses 1,896 1,346
Deferred revenue 4,655 4,296
-------- --------
Total current liabilities 12,908 12,855
Notes payable 883 883
Stockholders' equity:
Preferred stock, par value $.01 per share;
5,000 shares authorized; no shares issued
and outstanding - -
Common stock, par value $.01 per share;
30,000 shares authorized; 8,994 and 8,912
shares issued and outstanding 90 89
Additional paid-in capital 54,266 53,698
Unearned compensation (3) (20)
Cumulative translation adjustment (58) -
Accumulated deficit (18,179) (11,226)
-------- --------
Total stockholders' equity 36,116 42,541
-------- --------
Total liabilities and stockholders' equity $ 49,907 $ 56,279
======== ========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
2
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SEGUE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
------------------
March 31,
---------
1999 1998
---- ----
(restated)
<S> <C> <C>
Revenue:
Software $ 4,986 $6,309
Services 3,985 2,281
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Total revenue 8,971 8,590
Cost of revenue:
Cost of software 667 840
Cost of services 2,295 754
------- ------
Total cost of revenue 2,962 1,594
Gross margin 6,009 6,996
Operating expenses:
Sales and marketing 7,272 4,526
Research and development 2,837 2,166
General and administrative 1,698 1,074
Amortization of goodwill 376 376
Non-recurring charges 1,023 -
------- ------
Total operating expenses 13,206 8,142
------- ------
Loss from operations (7,197) (1,146)
Other income, net 274 399
------- ------
Loss before provision for income taxes (6,923) (747)
Provision for income taxes 30 26
------- ------
Net loss $(6,953) $ (773)
======= ======
Net loss per common share--
basic and diluted $ (0.78) $(0.09)
Weighted average common shares
outstanding--basic and diluted 8,949 8,267
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
3
<PAGE>
SEGUE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------
1999 1998
---- ----
(restated)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(6,953) $ (773)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,101 1,021
Noncash compensation charges 4 13
Changes in operating assets and liabilities:
Accounts receivable 1,093 (2,402)
Other current assets 162 (22)
Other assets 64 (41)
Accounts payable (172) (26)
Accrued expenses, royalties, compensation
and benefits 187 (53)
Deferred revenue 368 250
------- -------
Net cash used in operating activities (4,146) (2,033)
------- -------
Cash flows from investing activities:
Additions to property and equipment (1,094) (192)
Maturity of short-term investments 17,335 11,385
Purchases of short-term investments - (1,474)
------- -------
Net cash provided by investing activities 16,241 9,719
------- -------
Cash flows from financing activities:
Proceeds from exercise of stock options and
stock purchase plan 582 877
Proceeds from common stock issuance - 995
Return of capital to shareholders - (6)
Proceeds from notes payable issuance - 79
Payments of notes payable (303) (37)
------- -------
Net cash provided by financing activities 279 1,908
------- -------
Effect of exchange rate changes on cash and
cash equivalents (45) -
------- -------
Net increase in cash and cash equivalents 12,329 9,594
Cash and cash equivalents, beginning of period 16,096 23,393
------- -------
Cash and cash equivalents, end of period $28,425 $32,987
======= =======
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
4
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SEGUE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements included herein have been prepared by
the Company, 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. The Company believes 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 the Company's audited
financial statements for the year ended December 31, 1998, included in its 1998
Annual Report on Form 10-K/A.
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.
In December 1998, the Company acquired Eventus Software, Inc. and Black and
White Software, Inc. Both acquisitions were accounted for using the pooling-of-
interest method and, accordingly, the historical consolidated financial
statements of the Company prior to the acquisitions presented herein have been
restated to include their financial position, results of operations and cash
flows.
2. RESTATEMENT RELATED TO ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
The accompanying consolidated financial statements as of and for the
quarter ended March 31, 1999 have been restated to reflect a change in the
original accounting for the amount and allocation of the purchase price related
to the Company's acquisition of SQLBench in December 1997 as described further
in the Company's 1997 Annual Report on Form 10-K/A filed with the Securities and
Exchange Commission on March 27, 2000.
Under the revised accounting, the value ascribed to the acquired IPR&D was
reduced from $9.1 million to $0.1 million, the value assigned to acquired
completed technology was increased from $1.0 million to $3.0 million, and
goodwill of $7.5 million was recorded. The principal effects of this restatement
on previously reported consolidated financial statements as of and for quarter
ended March 31, 1999 are set forth below (in thousands, except per share data).
The restatement does not affect previously reported net cash flows for any
period.
<TABLE>
<CAPTION>
For the three months
ended March 31, 1999
------------------------
As
Previously As
Reported Restated
---------- --------
<S> <C> <C>
Cost of software $ 504 $ 667
Total cost of revenue 2,799 2,962
Gross margin 6,172 6,009
Amortization of goodwill -- 376
Total operating expenses 12,830 13,206
Loss from operations (6,658) (7,197)
Loss before provision for income taxes (6,384) (6,923)
Net loss (6,414) (6,953)
Net loss per common share--basic and diluted (0.72) (0.78)
</TABLE>
<TABLE>
<CAPTION>
As of March 31, 1999
------------------------
As
Previously As
Reported Restated
---------- --------
<S> <C> <C>
Completed technology, net $ -- $ 1,729
Goodwill, net -- 5,646
Other assets 1,468 882
Total assets 43,118 49,907
Additional paid-in capital 53,758 54,266
Accumulated deficit (24,460) (18,179)
Total stockholders' equity 29,327 36,116
Total liabilities and stockholders' equity 43,118 49,907
</TABLE>
3. 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
March 31,
---------
1999 1998
------- ------
(restated)
<S> <C> <C>
Net loss $(6,953) $ (773)
Weighted average shares used in
net loss per share--basic and diluted 8,949 8,267
Net loss per common share--basic and diluted $ (0.78) $(0.09)
</TABLE>
Options and warrants to purchase 2,415,553 and 2,126,445 shares of common stock
outstanding were excluded from the calculation of diluted earnings per share for
the three months ended March 31, 1999 and 1998, respectively, because their
inclusion would be anti-dilutive.
5
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4. NON-RECURRING CHARGE
During the first quarter of 1999, the Company executed a restructuring plan
to consolidate its marketing, product development and administrative operations
in order to achieve cost efficiencies through the elimination of redundant
functions. The Company realigned its marketing and product development
operations to redirect focus on its strongest product lines and better integrate
the efforts of certain product development teams. As a result, the Company
recognized a non-recurring pre-tax charge of approximately $1.0 million. The
restructuring charge includes 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 March
31, 1999, the Company had made payments of approximately $81,000 related to
these costs and the related restructuring accrual balance was approximately
$940,000.
5. COMMITMENTS
In March 1999, the Company committed to spend approximately $700,000
with a consulting firm for consulting and implementation work related to a
management information system that will be implemented during 1999.
6. PROVISION FOR INCOME TAXES
The Company recorded provisions for foreign and state income taxes of
$30,000 for the first quarter of 1999 and $26,000 for the first quarter of 1998.
There was no tax benefit recorded for losses generated in the U.S. in either
period due to the uncertainty of realizing such benefits.
7. COMPREHENSIVE INCOME (LOSS)
Total comprehensive loss, net of taxes, for the three months ended
March 31, 1999 and 1998, was $7,011,000 and $768,000, respectively, which
consists of the net loss and the net changes in foreign currency translation
adjustment. This calculation is in accordance with the requirements of Statement
of Accounting Standard No. 130, "Reporting Comprehensive Income", and had no
impact on the Company's net loss or stockholders' equity.
8. SUBSEQUENT EVENTS
On April 27, 1999, a putative class action complaint was filed in the United
States District Court for the District of Massachusetts against the Company and
its Chief Executive Officer and its Chief Financial Officer, captioned Nathan
Rice v. Segue Software, Inc., et al., Civil No 99-CV-10891RGS. The class action
complaint alleges that the Company and certain of its officers 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
6
<PAGE>
relate to, among other things, the Company's past and future financial
performance and results. On May 3, 1999, another putative class action complaint
was filed against the Company and its Chief Executive Officer and its Chief
Financial Officer 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. The complaints seek unspecified damages in connection
with purchases by the plaintiff and other putative class members of the
Company's stock during the class period. The Company is currently reviewing the
allegations made in these lawsuits and intends to defend the claims vigorously.
The outcome of these matters is uncertain and, as a result, at this time, the
Company is not able to quantify any related financial exposure. In the event
that any of the claims set forth in the class action complaints are determined
or settled in a manner adverse to the Company, such determination or settlements
could adversely affect the Company's financial position or results of operations
in the period in which the litigation is resolved. No costs have been accrued
for this possible loss contingency.
On May 13, 1999, the Company announced that it would restructure its
product operations and delay the introduction of the Eventus product,
SilkControl, aimed at reducing its costs associated with development efforts
related to that product and enhancing the Company's sales force's ability to
focus on other products. The restructuring allows for the consolidation of four
development labs into three involving a reduction in headcount in development
personnel associated with the Eventus product. The Company intends to focus its
development efforts on the remainder of its Silk product line and LiveQuality
and will continue to evaluate the timing of a possible re-introduction of the
SilkControl product. The Company expects to recognize a one-time pre-tax charge
in the range of $400,000 to $650,000 during the second quarter of 1999 related
to the restructuring. The restructuring charge will include primarily severance
and other employee-related costs.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESTATEMENT RELATED TO ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
The accompanying consolidated financial statements as of and for the
quarter ended March 31, 1999 have been restated to reflect a change in the
original accounting for the amount and allocation of the purchase price related
to the Company's acquisition of SQLBench in December 1997 as described further
in the Company's 1997 Annual Report on Form 10-K/A filed with the Securities and
Exchange Commission on March 27, 2000. Under the revised accounting recorded as
of December 31, 1997, the value ascribed to the acquired IPR&D was reduced from
$9.1 million to $0.1 million, the value assigned to acquired completed
technology was increased from $1.0 million to $3.0 million, and goodwill of $7.5
million was recorded.
The principal effects of this restatement on previously reported results of
operations for the quarter ended March 31, 1999 were an increase in total
operating expenses from $12.8 million to $13.2 million for the impact of
amortization of acquired intangible assets, a corresponding increase in net loss
from $6.4 million to $7.0 million, and an increase in net loss per share from
$0.72 to $0.78.
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
Three Months Ended March 31,
---------------------------
1999 1998
------- ------
(restated)
<S> <C> <C>
Revenue:
Software 55.6% 73.4%
Services 44.4 26.6
------- ------
Total revenue 100.0 100.0
Cost of revenue:
Cost of software 7.4 9.8
Cost of services 25.6 8.8
------- ------
Total cost of revenue 33.0 18.6
Gross margin 67.0 81.4
Operating expenses:
Sales and marketing 81.1 52.7
Research and development 31.6 25.2
General and administrative 18.9 12.5
Amortization of goodwill 4.2 4.4
Non-recurring charges 11.4 -
------- ------
Total operating expenses 147.2 94.8
Loss from operations (80.2) (13.4)
Other income, net 3.0 4.7
------- ------
Loss before provision for income
taxes (77.2) (8.7)
Provision for income taxes 0.3 0.3
------- ------
Net loss (77.5)% (9.0)%
======= ======
</TABLE>
REVENUE
Revenue from Software. Software revenue decreased 21% to $5.0 million
during the first quarter of 1999 from $6.3 million in the first quarter of 1998.
The decrease in software revenue is primarily the result of decreased unit
shipments.
8
<PAGE>
The decrease in software revenue came largely from the direct domestic
channel. International revenue accounted for 10.2% of total software revenue for
the three months ended March 31, 1999, and 12.6% of total software revenue for
the three months ended March 31, 1998.
Revenue from Services. Service revenue increased 75% to $4.0 million
during the first quarter of 1999 from $2.3 million in the first quarter of 1998.
As compared to the three months ended March 31, 1998, training and consulting
revenue increased 169% and maintenance revenue increased 28% for the three
months ended March 31, 1999. The increase in maintenance revenue was driven
largely by incremental software licenses sold over the past 12 months. The
increase in training and consulting revenue is due to the introduction of
product offerings, which consist of a combination of product and consulting
services, which started in the second quarter of 1998.
COST OF REVENUE
Cost of Software. Cost of software decreased 21% to $667,000 during the
first quarter of 1999 from $840,000 in the first quarter of 1998. As a
percentage of software revenue, cost of software in the current quarter
increased to 13.4% from 13.3% in the corresponding prior year period. The
absolute dollar decreases are mainly due to a decrease in product sales and in
royalties payable to third parties.
Cost of Services. Cost of services increased 204% to $2.3 million during
the first quarter of 1999 from $754,000 in the first quarter of 1998. As a
percentage of services revenue, costs in the first quarter of 1999 increased to
57.6% from 33.1% in the corresponding prior year period. The percentage increase
is largely due to the fact that the Company began to use third party consultants
to assist in testing solution implementations in the second quarter of 1998. The
cost of third party consultants is generally higher than the cost of internal
resources. The increases are also due to the pre-opening costs associated with
staffing and training for the Company's Northern Ireland Technical Support
Center, which is anticipated to begin operating in the third quarter of 1999.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses increased 61% to $7.3
million during the first quarter of 1999 from $4.5 million in the first quarter
of 1998. The increase is largely due to increased headcount in the sales and
marketing group, higher commissions as a result of changes in commission plans,
higher costs associated with marketing programs such as advertising and seminars
and travel costs. From March 31, 1998 to March 31, 1999, the Company increased
its headcount in sales and marketing by 59%.
9
<PAGE>
Research and Development. Research and development expenses increased 31%
to $2.8 million during the first quarter of 1999 from $2.2 million in the first
quarter of 1998. The increase is due to increased facility lease costs and
compensation cost for both the Lexington and West Coast development operations
as well as increased staffing and operating expenses for the Company's Austria
facility.
General and Administrative. General and administrative expenses increased
58% to $1.7 million during the first quarter of 1999 from $1.1 million in the
first quarter of 1998. The increase is largely due to increased headcount and
related facility lease cost and other administrative costs. From March 31, 1998
to March 31, 1999, the Company increased its headcount in the general and
administrative groups by 42%.
Amortization of Goodwill. Amortization of goodwill was $376,000 in each of
the first quarters of 1999 and 1998.
Non-Recurring Charges. During the first quarter of 1999, the Company
executed a restructuring plan to consolidate its marketing, product development
and administrative operations aimed at achieving cost efficiencies through the
elimination of redundant functions. The Company realigned its marketing and
product development operations to redirect focus on its strongest product lines
and better integrate the efforts of certain product development teams. As a
result, the Company recognized a non-recurring pre-tax charge of approximately
$1.0 million. The restructuring charge includes 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 March 31, 1999, the Company had made payments of approximately
$81,000 related to these costs and the related restructuring accrual balance was
approximately $940,000.
OTHER INCOME, NET
Other income, net decreased 31% to $274,000 during the first quarter of
1999 from $399,000 in the first quarter of 1998. This decrease is largely due to
decreased interest income on cash and short-term investments as a result of the
utilization of cash to fund operations.
PROVISION FOR INCOME TAXES
The Company recorded provisions for foreign and state income taxes of
$30,000 for the first quarter of 1999 and $26,000 for the first quarter of 1998.
There was no tax benefit for losses generated in the U. S. in either period due
to the uncertainty of realizing such benefits.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company had cash and cash equivalents totaling
$28.4 million as compared to cash, cash equivalents and short-term investments
of $33.4 million as of December 31, 1998.
10
<PAGE>
In the first three months of 1999, the Company used $4.1 million for
operating activities, resulting from the net loss and decreased accounts
payable, offset by decreased accounts receivable and other current assets and
increased deferred revenue.
The Company generated $16.2 million from investing activities in the first
three months of 1999 mainly as a result of maturities of short-term
investments.
The Company generated funds from financing activities of $279,000 in the
first three months of 1999, related to the exercise of stock options and
issuance of stock pursuant to the employee stock purchase plan, offset by
payments of notes payable.
The Company recognized a non-recurring pre-tax charge of approximately
$1.0 million during the first quarter of 1999 related to a restructuring plan.
The restructuring charge included approximately $830,000 for severance and other
employee-related costs of the terminated staff and approximately $190,000 for
facility-related costs, including the accrual of estimated lease obligations
associated with the closure of excess office facilities. The Company has
utilized available cash, cash equivalents and investments to pay approximately
$81,000 of this amount as of March 31, 1999 and currently expects to pay
approximately $682,000 during the remainder of 1999 and $250,000 during 2000.
The Company announced on May 13, 1999 that it expects to complete another
restructuring plan related to its product operations and the delay of the
Eventus product introduction. Associated with this restructuring plan, the
Company currently expects to incur a non-recurring pre-tax charge of between
$400,000 and $650,000 related primarily to severance and other employee-related
costs. Because the restructuring plan is not sufficiently complete, the Company
cannot yet estimate the extent of the benefits it will realize as a result of
the restructuring plan.
The Company expects to incur approximately $1.4 million in 1999 for a
management information system to be implemented during 1999. This amount
consists of approximately $670,000 in software, hardware and related maintenance
and approximately $700,000 in consulting and implementation. As of March 31,
1999, the Company had incurred approximately $620,000 for this implementation.
The Company expects to open a Technical Support Center in Northern Ireland
during the third quarter of 1999 and to incur infrastructure costs of
approximately $800,000. This expenditure will be partially funded by a grant
awarded by the Northern Ireland Industrial Development Board ("IDB") of
approximately $175,000. As of March 31, 1999, the Company had incurred
minimal cost.
In December 1999, approximately $2.6 million becomes due under the SQLBench
notes.
Additional long-term cash requirements, other than normal operating
expenses, are anticipated for the development of new software products and
enhancements of existing products, the opening of additional international
offices, and the possible acquisition of software products or technologies
complementary to the Company's business.
Assuming there is no significant change in the Company's business, the
Company believes that the existing cash and cash equivalents as well as cash
flows from operations will be sufficient to meet its working capital
requirements for at least the next twelve months.
11
<PAGE>
YEAR 2000 COMPLIANCE
The year 2000 presents potential concerns for business and consumer
computing. The consequences of this issue may include systems failures and
business process interruption. It may also include additional business and
competitive differentiation. If the Company, its significant customers, or
suppliers fail to make necessary modifications and conversions on a timely
basis, the year 2000 issue could have a material adverse effect on the Company's
operations. There are two other related issues which could also lead to
incorrect calculations or failures: i) some systems' programming assigns special
meaning to certain dates, such as 9/9/99, and ii) the year 2000 is a leap year.
To address these year 2000 issues with its internal systems, including
information technology (IT) and non-IT systems, the Company initiated a program
designed to deal with the most critical systems, packaged software applications,
first. Year 2000 compliance testing is complete for the Company's internal
software systems. The internal hardware systems are currently being tested for
year 2000 compliance and will be completed in the second quarter of 1999. In
addition, the Company has began work on various types of contingency planning to
address potential problem areas with internal systems. Although the assessment
is still underway, management currently believes that all material systems will
be compliant by the year 2000 and that the cost to address the issues will not
be more than $100,000 in total. However, this estimate does not include
potential costs related to any customer or other claims or the cost of internal
software and hardware replaced in the normal course of business. The total cost
estimate is based on the current assessment of the projects and is subject to
change as the projects progress. The costs incurred to date related to these
programs are minimal.
The Company has also initiated formal communications with its significant
vendors, mainly of IT packaged applications, to determine the extent to which
the Company is vulnerable to those third parties' failure to remedy their own
year 2000 issues. The Company has received written assurances of year 2000
compliance from all significant vendors. Most of the vendors under existing
contracts with the Company are under no contractual obligation to provide such
information to the Company. The Company is taking steps with respect to new
vendor agreements to ensure that the vendors' products and internal systems are
year 2000 compliant. The Company does not believe it has any mission-critical
suppliers of products or services.
The Company also assesses the capability of its products to handle the year
2000. To assist customers in evaluating their year 2000 issues, the Company has
a description on its website which indicates the capability of Segue's products
to handle the year 2000. All Segue products are year 2000 compliant. However,
the assessment of whether a complete system will operate correctly depends on
the BIOS capability and software design and integration, and for many end-users
this will include BIOS and software provided by companies other than Segue.
12
<PAGE>
The Company anticipates that substantial litigation may be brought against
vendors, including the Company, of all component products of systems that are
unable to properly manage data related to year 2000. The Company's agreements
with customers typically contain provisions designed to limit the Company's
liability for such claims. It is possible, however, that these measures will not
provide protection from liability claims, as a result of existing or future
federal, state or local laws or ordinances or unfavorable judicial decisions.
Any such claims, with or without merit, could result in a material adverse
effect on the Company's business, financial condition and results of operations,
including increased warranty costs, customer satisfaction issues and potential
lawsuits.
Based on currently available information, management does not believe that
the year 2000 matters discussed above related to internal systems or products
sold to customers will have a material adverse impact on the Company's financial
condition or overall trends in results of operations; however, it is uncertain
to what extent the Company may be affected by such matters. In addition, there
can be no assurance that the failure to ensure year 2000 capability by a
supplier or another third party would not have a material adverse effect on the
Company.
IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
Statements made or incorporated in this Form 10-Q/A 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 Company's future performance. The Company's actual results could differ
materially from those set forth in the forward-looking statements. Certain
factors that might cause such a difference are discussed in the Form 10-Q/A
including, without limitation, those discussed below.
The Company'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. The Company'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 the Company'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 expectations of future revenues. If actual revenue levels
are below management's
13
<PAGE>
expectations, results of operations are likely to be adversely affected. In
addition, the Company does not typically experience order backlog. Furthermore,
the Company 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, the Company 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.
The Company 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 $18.2 million as of March 31, 1999. 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 the Eventus and B&W acquisitions,
and a charge of $667,000 related to the write-offs of an NRE fee and guaranteed
royalties, and a net loss of $7.0 million for the first quarter of 1999, which
includes a restructuring charge of $1.0 million. The Company also expects to
incur an additional non-recurring pre-tax charge in the range of $400,000 to
$650,000 during the second quarter of 1999 in connection with a restructuring of
the Company's product operations. While the Company has experienced revenue
growth in recent periods, continued growth at the same rate is not sustainable
and is not necessarily indicative of future operating results. Failure to
sustain or increase profitability may adversely affect the market price of the
Company's Common Stock.
The Company has recently shifted its focus from general software testing to
e-business testing. In 1997, the Company began to develop and acquire technology
to provide automated software testing for Web-enabled software applications,
including its acquisition of SQLBench in December 1997. These developments
allowed the Company to extend its testing capabilities beyond distributed
client/server applications with GUI front ends. Because e-business scenario
testing is more complicated than general software testing, the Company may
experience issues with its product quality. In the second quarter of 1998, Segue
introduced "LiveQuality", an e-business scenario testing solution. In the fourth
quarter of 1998, the Company acquired Eventus Software, Inc. and Black & White
Software, Inc., to acquire certain other technologies which the Company believes
would help expand its then current line of e-business testing products. The
Company's shift from a general software testing company to an e-business testing
company during the past year has resulted in significant changes in (i) Segue's
organizational structure, (ii) management personnel, (iii) product mix, and
(iv) sales approach. If the Company fails to effectively manage these changes,
or make other changes which may be needed in connection with such shift to an e-
business testing company, the Company's business, operating results and
financial condition may be materially adversely affected.
The development of a market for the Company's 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
14
<PAGE>
the extent to which the Company's products will be accepted in that market.
Although the Company believes 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 commercial market for products and services designed for use on the
Internet, Intranet and Extranet has only recently begun to develop. The success
of the Company's products focused on e-commerce and Internet applications will
depend on the growth of the market and on the Company's ability to continue to
enhance its products to work with all of the prevalent technologies driving
Internet applications. There can be no assurance that Segue will be able to
effectively adapt its products to the prevalent technologies being 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.
The Company may have difficulty managing its growth. The Company has been
experiencing a period of rapid growth, including increases in the number of
orders, customers and employees. The Company's rapid growth has placed, and may
continue to place, strains on its management, operations and systems. To manage
future growth effectively, Segue must expand, improve and effectively utilize
its operational, management, marketing, sales and financial systems as
necessitated by changes in its business. The Company is implementing a
management information system and opening a Technical Support Center in Northern
Ireland in 1999, both of which could be disruptive. Additionally, as part of the
restructuring plan in the first quarter of 1999, the Company significantly
changed the 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, the Company also changed the
structure of its internal organization by adding product divisions which relate
to its e-business testing products. The Company also refocused its sales and
marketing approach to focus on e-commerce applications. There can be no
assurance that the Company will be able to effectively manage such changes and
such changes are likely to be disruptive.
The Company may be subject to risks associated with its recent acquisitions
and future acquisitions. In the fourth quarter of 1998, Segue acquired Eventus
Software, Inc. and Black & White Software, Inc. in two separate transactions.
The Company's product range and customer base have increased in the recent past
due in part to these acquisitions. These acquisitions provided the Company with
technologies which the Company believes would help expand its then current line
of e-business testing products. There can be no assurance that the integration
of any or all of the acquired technologies will be successful or will not result
in unforeseen difficulties which may absorb significant management attention.
15
<PAGE>
In the future, the Company may acquire additional businesses or product
lines. The recently completed acquisitions, or any future acquisition, may not
produce the revenue, earnings or business synergies that it 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. There can be no assurance that the
integration of an acquired company will be successful. The process of
integrating acquired companies into the Company's business may also result in
unforeseen difficulties. Unforeseen operating difficulties may absorb
significant management attention, which the Company might otherwise devote to
its existing business. Also, the process may require significant financial
resources that the Company might otherwise allocate to other activities,
including the ongoing development or expansion of its existing operations.
The integration of the acquisition of Eventus Software, Inc. and Black & White
Software, Inc. will take longer than originally expected.
If the Company pursues a future acquisition, its management could spend a
significant amount of time and effort in identifying and completing the
acquisition. To pay for a future acquisition, the Company might use capital
stock or cash. Alternatively, Segue might borrow money from a bank or other
lender. If the Company uses capital stock as it did with its recent
acquisitions, the Company's stockholders would experience dilution of their
ownership interests. If the Company uses cash or debt financing, its financial
liquidity will be reduced.
The Company has recently changed its sales approach and restructured its
sales teams. As part of the shift in the Company's business to e-business
testing, the Company has recently begun to focus its marketing and sales efforts
with a solution sales approach. The Company's direct sales force focuses on
large enterprise and strategic sales in an effort to provide as many solutions
as a particular client needs. To facilitate the solution sales approach, the
Company restructured its direct sales force into teams of one strategic sales
representative and one technical support engineer resulting in additional hires
and increased cost of the sales organization. The Company has also recently
hired additional sales personnel and worked to integrate sales personnel from
Eventus and Black & White. There can be no assurance that this sales approach
and expansion of the sales organization will result in greater revenues. Because
the Company's sales force focuses on making larger sales, its sales cycle may
increase. Larger purchases will take longer than smaller sales because customers
will generally take more time to decide on whether to make larger purchases. A
longer sales cycle reduces the Company's ability to forecast revenue levels. Any
delay or loss in sales of the Company's products could have a material adverse
effect on its business, operating results and financial condition, and could
cause its operating results to vary significantly from quarter to quarter.
The Company's performance will depend in part on the growth and commercial
acceptance of the Internet. The Company's future success will depend
substantially upon the widespread adoption of the Internet as a primary medium
for commerce and business applications. If the Internet does not become a viable
and substantial commercial medium, the Company's business, operating results and
financial condition will be materially adversely affected. The Internet has
experienced, and is expected to continue to experience, significant user and
traffic growth, which has, at times, caused user
16
<PAGE>
frustration with slow access and download times. The Internet infrastructure may
not be able to support the demands placed on it by continued growth. Moreover,
critical issues concerning the commercial use of the Internet, such as security,
reliability, cost, accessibility and quality of service, remain unresolved and
may negatively affect the growth of Internet use or the attractiveness of
commerce and business communication on the Internet. In addition, the Internet
could lose its viability due to delays in the development or adoption of new
standards and protocols to handle increased activity or due to increased
government regulation and taxation of Internet commerce.
The Company faces significant competition from other software companies.
The market for software quality management tools is new, intensely competitive
and subject to rapid technological change. The Company expects competition to
intensify in the future. The Company currently encounters competition from a
number of public and private companies including Mercury Interactive
Corporation, Rational Software Corporation and Compuware Corporation. Many of
Segue's current and potential competitors have longer operating histories,
greater name recognition, larger installed customer bases, and significantly
greater financial, technical and marketing resources than it does and,
therefore, may be able to respond more quickly than the Company 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 the Company. The Company may also face increased competition from the
recent consolidation of several companies in the automated software quality
market. An increase in competition could result in price reductions and loss of
market share. Such competition and any resulting reduction in profitability
could have a material adverse effect on the Company's business, operating
results and financial condition.
The Company's business could be adversely affected if its products contain
errors. Software products as complex as the Company's products 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 the Company's reputation, or damage to its efforts to build brand awareness,
any of which could have a material adverse effect on the Company's business,
operating results and financial condition.
The Company's future success will depend on its ability to enhance existing
products and develop new products. To be competitive, the Company must develop
and introduce product enhancements and new products that increase its customers'
ability to test their systems. If the Company fails to develop and introduce new
products and enhancements successfully and on a timely basis, it could have a
material adverse effect on the Company's 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 evolving customer needs. The Company must also
introduce enhancements to existing products as quickly as possible and prior to
the introduction of competing products. The Company has acquired, and
17
<PAGE>
may in the future acquire, technologies to provide it with the tools to
introduce new products or to enhance current products. The success of such
acquisitions will depend in part on the Company's ability to effectively
integrate the technologies.
The Company must hire and retain skilled personnel in a tight labor market.
Qualified personnel are in great demand throughout the software industry. The
Company's success depends in large part upon its 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 in the Company's business, and there can be no
assurance that Segue will be successful in attracting, integrating, motivating
and retaining new sales personnel. The failure of the Company to attract and
retain the highly skilled personnel that are integral to its direct sales,
product development, service and support teams may limit the rate at which the
Company can generate sales and develop new products or product enhancements.
This could have a material adverse effect on the Company's business, operating
results and financial condition.
Class action 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 April 27, 1999, a putative class action complaint was filed in the
United States District Court for the District of Massachusetts against the
Company and its Chief Executive Officer and its Chief Financial Officer,
captioned Nathan Rice v. Segue Software, Inc., et al., Civil No 99-CV-10891RGS.
The class action complaint alleges that the Company and certain of its officers
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, the Company's past and future financial performance and
results. On May 3, 1999, another putative class action complaint was filed
against the Company and its Chief Executive Officer and its Chief Financial
Officer 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. The complaints seek unspecified damages in connection with purchases
by the plaintiff and other putative class members of the Company's stock during
the class period. The Company is currently reviewing the allegations made in
these lawsuits and intends to defend the claims vigorously. The outcome of these
matters is uncertain and, as a result, at this time, the Company is not able to
quantify any related financial exposure. In the event that any of the claims set
forth in the class action complaints are determined or settled in a manner
adverse to the Company, such determination or settlements could adversely affect
the Company's financial position or results of operations in the period in which
the litigation is resolved.
The Company faces many risks associated with international business
activities. The Company derived approximately 16% of its total product sales
from international customers in 1998 and 10.2% in the first quarter of 1999. The
international market for software products is highly competitive and the Company
expects to face substantial
18
<PAGE>
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 that the Company is unable to expand international sales in a timely and
cost-effective manner, the Company's business could be materially adversely
affected.
The Company may be affected by unexpected Year 2000 problems. Many existing
computer systems and software products do not properly recognize dates after
December 31, 1999. This "Year 2000" problem could result in miscalculations,
data corruption, system failures or disruptions of operations. The Company is
subject to potential Year 2000 problems affecting its products, its internal
systems and the systems of its vendors and distributors, any of which could have
a material adverse effect on the Company's business, operating results and
financial condition.
In addition, there can be no assurance that Year 2000 errors or defects
will not be discovered in the Company's internal software systems and, if such
errors or defects are discovered, there can be no assurance that the costs of
making such systems Year 2000 compliant will not be material.
Year 2000 errors or defects in the internal systems maintained by the
Company's vendors or distributors could require Segue to incur significant
unanticipated expenses to remedy any problems or replace affected vendors and
could reduce the Company's revenue from its indirect distribution channel.
The Company may be subject to risks associated with its channel partner
program. Although the Company has not historically sold significant amounts of
its products through indirect channels, the Company intends to continue to
develop channel sales as part of its business strategy. Recently Segue has added
significant resources to expand its channel sales, including dedicating sales
personnel to increase sales through current channel partners and developing
relationships with other potential channel partners. There can be no assurance
that the Company's greater efforts will result in an increase in revenues.
Furthermore, the Company may be subject to certain distinct risks associated
with channel sales. The Company licenses its products to channel partners at a
discount and such partners re-license the products to end-users. The Company's
agreements with its channel partners are non-exclusive and provide the channel
partners with 60-day price protection. Because the Company's channel partners
generally order products after they have received purchase orders, there is no
requirement that the Company repurchase any product. The Company typically
does not grant its channel partners a contractual right to return software
products. When approved by management, however, the Company has accepted returns
of certain software products and has provided an allowance for the specified
products. Segue selects its channel partners based on the partner's financial
viability, product expertise and market focus. In order for the Company's
strategy to broaden market penetration through its channel partner program to be
successful, the Company must increase its unit sales to offset the discount the
19
<PAGE>
Company is providing to its channel partners. There can be no assurance that the
Company will succeed in the development of these channels. Moreover, selling
through indirect channels may limit the Company's contact with the end users of
its products. As a result, the Company's ability to accurately forecast sales,
evaluate customer satisfaction and recognize emerging customer requirements may
be hindered and its ability to develop and maintain customer goodwill may be
limited. Furthermore, the Company's existing or future channel 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 channel partners.
The Company could be subject to product liability claims. In selling its
products, the Company 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 the Company'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 the Company's exposure to product liability claims, may therefore be
unenforceable under the laws of certain jurisdictions. The Company's 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 for substantial damages against the Company, regardless of the Company's
responsibility for such failure. Although the Company maintains 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.
The Company's success depends on its ability to protect its proprietary
technology. The Company's success depends to a significant degree upon the
protection of its software and other proprietary technology. The unauthorized
reproduction or other misappropriation of the Company's proprietary technology
could enable third parties to benefit from the Company's technology without
paying Segue for it. This could have a material adverse effect on the Company's
business, operating results and financial condition. Although the Company has
taken steps to protect its proprietary technology, they may be inadequate. The
Company currently relies on a combination of trademark, copyright and trade
secret laws and contractual provisions to protect its proprietary rights in its
products. The Company presently has no registered copyrights. The Company has a
patent but there can be no assurance that the patent would be upheld if
challenged. Moreover, the laws of other countries in which the Company markets
its products may afford little or no effective protection of the Company's
intellectual property. There can be no assurance that the Company's competitors
will not independently develop technologies that are substantially equivalent or
superior to the Company's technology. If the Company resorts to legal
proceedings to enforce its 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 the Company. If the Company was to discover that any
of its
20
<PAGE>
products violated third party proprietary rights, there can be no assurance that
the Company 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 the Company to incur substantial
costs defending against the claim, even if the claim is invalid, and could
distract management from the Company's business. Furthermore, a party making
such a claim could secure a judgment that requires the Company to pay
substantial damages. A judgment could also include an injunction or other court
order that could prevent the Company from selling its products. Any of these
events could have a material adverse effect on the Company's business, operating
results and financial condition.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 27, 1999, a putative class action complaint was filed in the
United States District Court for the District of Massachusetts against the
Company and its Chief Executive Officer and its Chief Financial Officer,
captioned Nathan Rice v. Segue Software, Inc., et al., Civil No 99-CV-10891RGS.
The class action complaint alleges that the Company and certain of its officers
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, the Company's past and future financial performance and
results. On May 3, 1999, another putative class action complaint was filed
against the Company and its Chief Executive Officer and its Chief Financial
Officer 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. The complaints seek unspecified damages in connection with purchases
by the plaintiff and other putative class members of the Company's stock during
the class period. The Company is currently reviewing the allegations made in
these lawsuits and intends to defend the claims vigorously. The outcome of these
matters is uncertain and, as a result, at this time, the Company is not able to
quantify any related financial exposure. In the event that any of the claims set
forth in the class action complaints are determined or settled in a manner
adverse to the Company, such determination or settlements could adversely affect
the Company's financial position or results of operations in the period in which
the litigation is resolved.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company completed the initial public offering (IPO) of its 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
21
<PAGE>
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 the Company and selling
security holders in the 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.
The Company 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 the Company'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, the Company incurred the following expenses:
<TABLE>
<S> <C>
Underwriting discounts and commissions $3,089,750
Expenses paid to underwriters 10,999
Other direct expenses 847,281
----------
Total expenses $3,898,030
</TABLE>
After deducting the expenses set forth above, the Company received
approximately $39.5 million in net proceeds of the IPO. As of March 31, 1999,
the Company had used $3.7 million for the purchase of property and equipment,
approximately $2.0 million for the repayment of indebtedness including interest
($883,000 and $385,000 for principal and interest, respectively, on the SQL
Bench notes and approximately $395,000 and $303,000 on Eventus and Black and
White debts, respectively), $950,000 for guaranteed royalties, $480,000 for a
non-recurring engineering and initial license fee, approximately $276,000 for
employee severance payments, and approximately $9.7 million for working capital.
The remaining $22.3 million was invested in temporary investments, mainly
consisting of government agency paper and commercial paper.
The expenses of the IPO do not include any payments made to directors,
officers, or persons owning 10 percent or more of the Common Stock of the
Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Restated Financial Data Schedule
(b) Reports on Form 8-K:
For the fiscal quarter ended March 31, 1999, the Company filed a
Current Report on Form 8-K on January 14,1999.
22
<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: March 27, 2000
SEGUE SOFTWARE, INC.
/s/ STEPHEN B. BUTLER
---------------------
Chief Executive Officer
/s/ DOUGLAS ZACCARO
--------------------
Chief Financial Officer
23
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description
- ------- -----------
27.1 Restated Financial Data Schedule
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 28,425
<SECURITIES> 0
<RECEIVABLES> 8,439
<ALLOWANCES> 735
<INVENTORY> 0
<CURRENT-ASSETS> 37,468
<PP&E> 8,033
<DEPRECIATION> 3,851
<TOTAL-ASSETS> 49,907
<CURRENT-LIABILITIES> 12,908
<BONDS> 0
0
0
<COMMON> 90
<OTHER-SE> 36,026
<TOTAL-LIABILITY-AND-EQUITY> 49,907
<SALES> 4,986
<TOTAL-REVENUES> 8,971
<CGS> 667
<TOTAL-COSTS> 2,962
<OTHER-EXPENSES> 13,206
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 85
<INCOME-PRETAX> (6,923)
<INCOME-TAX> 30
<INCOME-CONTINUING> (6,953)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,953)
<EPS-BASIC> (0.78)
<EPS-DILUTED> (0.78)
</TABLE>
