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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 September 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 November 8,
2000 was 9,470,982.
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SEGUE SOFTWARE, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No
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<S> <C>
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets (unaudited)
September 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Operations (unaudited)
Three and nine months ended September 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows (unaudited)
Nine months ended September 30, 2000 and 1999 5
Notes to Condensed 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 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
Exhibits Index 17
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEGUE SOFTWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 13,894 $ 7,429
Short-term investments 4,237 13,287
Accounts receivable, net of allowances of $670 and $600 at September 30, 2000
and December 31, 1999, respectively 13,377 12,014
Other current assets 2,170 1,320
--------- --------
Total current assets 33,678 34,050
Property and equipment, net 5,887 5,734
Completed technology, net 249 989
Goodwill, net 3,387 4,516
Other assets 63 277
--------- --------
Total assets $ 43,264 $ 45,566
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 883 $ 883
Accounts payable 1,610 1,896
Accrued compensation and benefits 2,564 2,881
Accrued royalties 297 147
Accrued expenses 1,795 2,007
Deferred revenue 11,606 8,407
--------- --------
Total current liabilities 18,755 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; 9,463
shares and 9,290 shares issued and outstanding at September 30, 2000 and
December 31, 1999, respectively 95 93
Additional paid-in capital 57,573 56,426
Accumulated deficit ( 33,159) (27,174)
--------- --------
Total stockholders' equity 24,509 29,345
--------- --------
Total liabilities and stockholders' equity $ 43,264 $ 45,566
========= ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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SEGUE SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------ -----------------
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Software $ 8,620 $ 8,438 $27,680 $ 20,851
Services 5,516 4,332 15,621 12,601
------- ------- ------- --------
Total revenue 14,136 12,770 43,301 33,452
Cost of revenue:
Cost of software 590 681 1,853 2,194
Cost of services 2,215 2,044 6,776 6,801
------- ------- ------- --------
Total cost of revenue 2,805 2,725 8,629 8,995
Gross margin 11,331 10,045 34,672 24,457
Operating expenses:
Sales and marketing 8,505 6,965 26,194 21,958
Research and development 2,258 2,181 7,327 7,641
General and administrative 1,848 1,954 6,660 5,708
Amortization of goodwill 376 376 1,129 1,129
Non-recurring and other charges - - - 2,499
------- ------- ------- --------
Total operating expenses 12,987 11,476 41,310 38,935
------- ------- ------- --------
Loss from operations (1,656) (1,431) (6,638) (14,478)
Other income, net 256 192 804 738
------- ------- ------- --------
Loss before provision for income taxes (1,400) (1,239) (5,834) (13,740)
Provision for income taxes 49 41 151 114
------- ------- ------- --------
Net loss $(1,449) $(1,280) $(5,985) $(13,854)
======= ======= ======= ========
Net loss per common share-basic
and diluted $ (0.15) $ (0.14) $ (0.64) $ (1.54)
Weighted average common shares
outstanding-basic and diluted 9,428 9,046 9,376 9,016
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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SEGUE SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
September 30,
--------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,985) $(13,854)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 3,784 3,235
Noncash compensation charges - 123
Changes in operating assets and liabilities:
Accounts receivable (1,363) (2,539)
Other current assets (850) (76)
Other assets - 504
Accounts payable (286) (1,068)
Accrued expenses, royalties, compensation and benefits (277) 1,921
Deferred revenue 3,199 2,555
-------- --------
Net cash used in operating activities (1,778) (9,199)
-------- --------
Cash flows from investing activities:
Additions to property and equipment (2,169) (3,694)
Decrease in other assets 214 -
Maturities of short-term investments 42,839 22,835
Purchases of short-term investments (33,789) (21,191)
-------- --------
Net cash provided by (used in) investing activities 7,095 (2,050)
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options and stock purchase plan 1,148 931
Payments of notes payable - (334)
-------- --------
Net cash provided by financing activities 1,148 597
-------- --------
Effect of exchange rate changes on cash and cash equivalents - (18)
-------- --------
Net increase (decrease) in cash and cash equivalents 6,465 (10,670)
-------- --------
Cash and cash equivalents, beginning of period 7,429 16,096
-------- --------
Cash and cash equivalents, end of period $ 13,894 $ 5,426
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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SEGUE SOFTWARE, INC.
NOTES TO CONDENSED 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 Nine months ended
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss $(1,449) $(1,280) $(5,985) $(13,854)
Weighted average shares used in
net loss per share--basic and diluted 9,428 9,046 9,376 9,016
Net loss per common share--basic and diluted $ (0.15) $ (0.14) $ (0.64) $ (1.54)
</TABLE>
Options and warrants to purchase 2,902,000 and 2,810,000 shares of common stock,
respectively, were excluded from the calculation of diluted earnings per share
for the three months and nine months ended September 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 $49,000 and
$151,000 for the three and nine months ended September 30, 2000, respectively
and $41,000 and $114,000 for the three and nine months ended September 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 third quarter and year to date ended September 30, 1999, comprehensive loss
substantially equaled net loss. For the third quarter and year to date ended
September 30, 2000, comprehensive loss was $1,612,000 and $6,278,000,
respectively.
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.
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<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- ------------------------------
Gross Gross
Revenue Margin Revenue Margin
------- ------ ------- ------
2000 1999 2000 1999 2000 1999 2000 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SoftwareSegments Revenue:
eBusiness product licenses $ 8,544 $ 8,172 $27,395 $19,918
Client/server testing product licenses 76 266 285 933
------- ------- ------- -------
Total software revenue $ 8,620 $ 8,438 $ 8,030 $ 7,757 $27,680 $20,851 $25,827 $18,657
------- ------- ------- ------- ------- ------- ------- -------
Service Revenue:
Training and consulting $ 2,076 $ 1,981 $ 660 $ 298 $ 6,280 $ 6,172 $ 1,671 $ 926
Maintenance 3,440 2,351 2,641 1,990 9,341 6,429 7,174 4,874
------- ------- ------- ------- ------- ------- ------- -------
Total services revenue $ 5,516 $ 4,332 $ 3,301 $ 2,288 $15,621 $12,601 $ 8,845 $ 5,800
------- ------- ------- ------- ------- ------- ------- -------
Total revenue $14,136 $12,770 $11,331 $10,045 $43,301 $33,452 $34,672 $24,457
======= ======= ======= ======= ======= ======= ======= =======
</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 September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Software 61.0% 66.1% 63.9% 62.3%
Services 39.0 33.9 36.1 37.7
------ ------ ------ ------
Total revenue 100.0 100.0 100.0 100.0
Cost of revenue:
Cost of software 4.2 5.3 4.3 6.6
Cost of services 15.6 16.0 15.6 20.3
------ ------ ------ ------
Total cost of revenue 19.8 21.3 19.9 26.9
Gross margin 80.2 78.7 80.1 73.1
Operating expenses:
Sales and marketing 60.2 54.5 60.5 65.6
Research and development 16.0 17.1 16.9 22.8
General and administrative 13.1 15.3 15.4 17.1
Amortization of goodwill 2.6 3.0 2.6 3.4
Non-recurring and other charges - - - 7.5
------ ------ ------ ------
Total operating expenses 91.9 89.9 95.4 116.4
Loss from operations (11.7) (11.2) (15.3) (43.3)
Other income, net 1.8 1.5 1.8 2.2
------ ------ ------ ------
Loss before provision for income
taxes (9.9) (9.7) (13.5) (41.1)
Provision for income taxes 0.3 0.3 0.3 0.3
------ ------ ------ ------
Net loss (10.2)% (10.0)% (13.8)% (41.4)%
====== ====== ====== ======
</TABLE>
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REVENUE
REVENUE FROM SOFTWARE. Software revenue increased 2% to $8.6 million during the
third quarter of 2000 from $8.4 million for the same period of 1999. For the
nine months ended September 30, 2000, software revenue increased 33% to $27.7
million as compared to $20.9 million for the nine months ended September 30,
1999. The main factor for the rather flat software revenue growth in the third
quarter as compared to the third quarter in 1999 was our increasing sales focus
away from dotcoms and towards enterprise opportunities in large multinational
companies. However, the increased sales force headcount and marketing
activities are the primary factors for the year to date software revenue
increase as compared to the same period in 1999. International revenue accounted
for 18% and 13% of total software revenue for the three and nine months ended
September 30, 2000, respectively, as compared to 11% and 12% of total software
revenue for the same period of 1999. We have increased our international
operation with the intention to grow European business. During the past 9
months our European sales force has increased approximately 43% as compared to
December 31, 1999.
REVENUE FROM SERVICES. Service revenue increased 27% to $5.5 million during the
third quarter of 2000 from $4.3 million in the third quarter of 1999. For the
nine months ended September 30, 2000, service revenue increased 24% to $15.6
million as compared to $12.6 million for the nine months ended September 30,
1999. As compared to the three and nine months ended September 30, 1999,
training and consulting revenue increased 5% for the third quarter of 2000,
however, the year to date training and consulting revenue increased only 2% as
compared to the same period of 1999. As compared to the three and nine months
ended September 30, 1999, the recognized maintenance revenue increased 46% and
45%, respectively. The increase in recognized maintenance revenue was driven
largely by incremental software licenses sold over the past 12 months that are
being amortized over the contract period, which is predominately a 12 month
period. In addition, as the installed base of license holders has increased,
revenues from the renewal of maintenance contracts has increased.
COST OF REVENUE
COST OF SOFTWARE. Cost of software decreased 13% to $590,000 during the third
quarter of 2000 from $681,000 in the third quarter of 1999. For the nine months
ended September 30, 2000, cost of software decreased 16% to $1.9 million as
compared to $2.2 million for the nine months ended September 30, 1999. As a
percentage of software revenue, costs of software in the third quarter of 2000
decreased to 7% from 8% in the corresponding prior-year period, and, for the
nine months ended September 30, 2000, decreased to 7% from 11% in the nine
months ended September 30, 1999. As many of the costs of software are fixed
such as personnel related costs and amortization of intangible assets and
patents, the decrease in cost of software as a percentage of software revenue is
mainly due to increased revenue from product sales. In addition, we continued
our cost control by scrutinizing expenditures.
COST OF SERVICES. Cost of services increased 8% to $2.2 million during the
third quarter of 2000 from $2.0 million in the third quarter of 1999. For the
nine months ended September 30, 2000, cost of services remained at the same
level as compared to the same period in 1999 at $6.8 million. The third quarter
of 2000, costs of services as a percentage of service revenue decreased to 40%
from 47% in the corresponding prior year period. For the nine months ended
September 30, 2000, costs of services as a percentage of service revenue
decreased to 43% from 54% during the corresponding period in 1999. The
decreases in costs of services as a percentage of service revenue are mainly due
to our cost control strategy of shifting most of our technical support workload
to our Belfast, Northern Ireland technical support center, where overhead costs
are lower. 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 22% to $8.5 million
during the third quarter of 2000 from $7.0 million in the third quarter of 1999.
For the nine months ended September 30, 2000, sales and marketing expenses
increased 19% to $26.2 million as compared to $22.0 million for the nine months
ended September 30, 1999. The increases are partly due to increases in
personnel-related costs including higher headcount of sales and marketing
personnel, commissions on higher levels of sales and higher costs associated
with marketing programs.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 4% to
$2.3 million during the third quarter of 2000 from $2.2 million in the third
quarter of 1999. For the nine months ended September 30, 2000, research and
development expenses decreased 4% to $7.3 million as compared to $7.6 million
during the same period in 1999. Research and development expenses remained
relatively flat mainly due to the management effort for better cost control.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased 5% to
$1.8 million during the third quarter of 2000 from $2.0 million for the same
period in 1999. For the nine months ended September 30, 2000, general and
administrative costs increased 17% to $6.7 million as compared to $5.7 million
for the same period in the prior year. The overall year to date increases are
primarily due to the increased legal expenses incurred in connection with
ongoing litigation, increased 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
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September 1999 related to acquired in-process research and development and
increased personnel related costs such as salaries and consulting. In addition,
there was a severance charge of approximately $200,000 during the first quarter
of 2000. Bad debt expenses have increased approximately $250,000 during the
year.
AMORTIZATION OF GOODWILL. Amortization of goodwill was $376,000 for both the
third quarter of 2000 and 1999. For each of the nine month periods ended
September 30, 2000 and September 30, 1999, amortization of goodwill was $1.1
million.
NON-RECURRING AND OTHER CHARGES. There have been no non-recurring and other
charges in 2000. During the second quarter of 1999, we restructured our product
development 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 33% to $256,000 during the third quarter of 2000
from $192,000 in the third quarter of 1999. For the nine months ended September
30, 2000, other income increased 9% to $804,000 from $738,000 during the same
period of 1999. Other income consists of mostly interest income on cash
equivalents and short-term investments. While the balance invested was lower in
the third quarter of 2000 than in the third quarter of 1999, this was offset by
higher interest rates in 2000. Additionally, interest expense was lower during
the three and nine months ended September 30, 2000 than in the same periods last
year, because $2.6 million in notes payable were paid off in December 1999.
PROVISION FOR INCOME TAXES
We recorded a provision for foreign and state income taxes of $49,000 and
$151,000 for the three and nine months ended September 30, 2000, respectively,
and $41,000 and $114,000 for the three and nine months ended September 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 September 30, 2000, our principal sources of liquidity included cash, cash
equivalents and short-term investments totaling $18.1 million as compared to
$20.7 million as of December 31, 1999.
In the first nine 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 and non-cash expenses.
Investing activities provided $7.1 million for the nine-month period through
September 30, 2000. Mainly, this came from net maturities of short-term
investments offset by investments in property and equipment.
We generated funds from financing activities of $1.1 million in the nine month
period ending September 30, 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. On 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
9
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73,300 square feet of office space at the headquarters location. We have the
right to terminate the lease on September 30, 2004 for a fee of approximately
$2.3 million.
For the nine months ending September 30, 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 year of
2000 by adding twenty-six technical support engineers. In addition to the
increased headcount, we also renovated the third floor of Belfast Technical
Support center to accommodate the additional personnel. The estimated total
facility expansion costs were approximately $175,000. Moreover, as of September
30, 2000, we had paid approximately $70,000 for additional computer equipment
located in Northern Ireland.
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
for at least the next twelve months. 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; uncertainty
created by changes in the market, including particularly the dotcom e-commerce
market which may affect the ability of customers to order Segue products or pay
for them; 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; 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.
Demand for Segue product is difficult to predict. 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 $33.2 million as of September 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 $6.0 million for the nine months
ended September 30, 2000. Revenue declined in the third quarter and we have no
assurance that we will resume the revenue growth realized in previous quarters.
Failure to achieve 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
10
<PAGE>
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 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 nine months of 2000. We made some organizational
changes to enable us to close large enterprise contracts more efficiently. The
sales force was reorganized so that new units in Eastern United States, Western
United States and Europe report to our Senior Vice President of sales. A new
unit focused on business solutions and alliances was created and a general
counsel was added to the senior staff to help us effectively negotiate
complicated contracts and streamline the licensing process. There can be no
assurance that we will be able to effectively manage such changes and such
changes may be disruptive.
We are gradually shifting our primary focus away from the dotcom e-commerce
clients to larger enterprise transactions, which entail a more complete business
solution for the client. Our sales force must adapt to this shift in focus, and
we intend to add additional sales resources. We have no assurance that this
change in focus will be successful or that we will be able to add new sales
resources.
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.
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.
11
<PAGE>
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 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. Our performance may also be affected
by our ability to generate incremental revenue from our business partnerships
and strategic alliances. If these products, or any other newly developed
products or product enchantments fail to be accepted by our existing and
potential customers, or if we can not generate incremental revenue from these
partnerships and alliances, 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. 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 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 granted Segue's
Motion to Dismiss the putative securities class action litigation brought
against the above three defendants. The dismissal was entered "with prejudice."
The plaintiffs have filed a notice of appeal and the appeal is pending. Segue
believes the defense of this appeal could involve significant litigation-related
expenses. The outcome of the appeal is uncertain and at this time, Segue is
unable to quantify any related financial exposure. 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.
12
<PAGE>
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 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 13% of its total product sales from international
customers in the first nine 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, there can be no assurance that our business could not be materially
adversely affected by unexpected year 2000 problems.
Segue may be subject to risks associated with its business partner and strategic
alliance program. Although Segue has not historically sold significant amounts
of its products through indirect channels and business partnerships, we intend
to continue to develop these programs as part of our business strategy. There
can be no assurance that our efforts will result in an increase in revenues. 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 (and in the future may accept) 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 and business
partnerships 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 may afford
little or no effective protection of our intellectual property. There can be no
assurance that our competitors will not
13
<PAGE>
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).
As of September 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 September 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. As of September 30, 2000, the impact of Euro has not been
significant to our business.
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. 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 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 granted Segue's
Motion to Dismiss the putative securities class action litigation brought
against the above three defendants. The dismissal was entered "with prejudice."
The plaintiffs have filed a notice of appeal and the appeal is pending. Segue
believes the defense of this appeal could involve significant litigation-related
expenses. The outcome of the appeal is uncertain and at this time, Segue is
unable to quantify any related financial exposure. 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 September 30, 2000, we used approximately $9.3 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 $5.4 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
Not applicable
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 third
quarter ended September 30, 2000.
15
<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: November 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
16
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description
--- -----------
27.1 Financial Data Schedule
17
