<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM 8-K/A
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 19, 1999
________________
BEA SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware
--------
(State or other jurisdiction of incorporation)
0-22369 77-0394711
(Commission File Number) (I.R.S. Employer Identification No.)
2315 North First Street
-----------------------
San Jose, CA 95131
(Address of principal executive offices)
(408) 570-8000
(Registrant's telephone number, including area code)
<PAGE>
INFORMATION TO BE INCLUDED IN REPORT
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On November 19, 1999, pursuant to the Agreement and Plan of Merger, dated
as of November 10, 1999, by and among BEA System, Inc. (the "Registrant"), BEA
Acquisition Corp., a Delaware corporation ("BEAAC") and The Theory Center, Inc.,
a privately held Delaware corporation ("TTC") (the "Agreement"), the Registrant
completed the merger of BEAAC, a wholly-owned subsidiary of the Registrant, with
and into TTC, with TTC being the surviving corporation of the merger and
becoming a wholly-owned subsidiary of the Registrant. The transaction was closed
on November 19, 1999 and is being accounted for as a purchase transaction.
As consideration for the transaction, the Registrant issued 3,635,414
shares (at $.001 par value per share) of the Registrant's common stock in
exchange for all outstanding shares of capital stock of TTC, subject to the
withholding of 10.5% of such shares in escrow in accordance with the terms of
the Agreement. The 3,635,414 shares of the Registrant's common stock issued in
consideration gives effect to the Registrant's 2-for-1 stock split with respect
to the Registrant's common stock effected as of the close of business on
December 19, 1999 for holders of record on November 19, 1999. At the effective
time of the merger, all outstanding options and warrants to purchase shares of
TTC common stock were automatically converted into options and warrants to
purchase the Registrant's common stock based upon the conversion factor set
forth in the Agreement with corresponding adjustment to their respective
exercise prices. Effective upon the merger, each outstanding share of BEAAC's
common stock was automatically converted into one share of TTC common stock.
The Registrant currently intends that the TTC business will continue to be
operated in its current manner. Certain of the assets of TTC were used in the
development and support of TTC's component technology products for e-commerce,
including integration software, application servers, and professional services,
and the Registrant currently intends to use such assets in substantially the
same manner.
The total value of consideration paid for the purchase transaction was
determined based on arm's length negotiations between the Registrant and TTC,
which took into account TTC's financial position, operating history, products,
intellectual property and other factors relating to TTC's business and certain
income tax aspects of the transaction. There are no material relationships
between TTC and either of the Registrant or BEAAC.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
a) Financial statements of business acquired, prepared pursuant to Rule 3.05
of Regulation S-X and provided to the Registrant by The Theory Center,
Inc.
Audited and unaudited financial statements of The Theory Center, Inc.
Page No.
-------
Report of Independent Auditors ................................... 3
Balance Sheets
December 31, 1998 and September 30, 1999 (unaudited) ............ 4
Statements of Operations
March 25, 1998 (inception) to December 31, 1998, March 25,
1998 (inception) to September 30, 1998 and the nine months
ended September 30, 1999 (unaudited)............................. 5
1
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS - (Continued)
Statement of Stockholders' Equity (Deficiency)
March 25, 1998 (inception) to December 31, 1998 and
the nine months ended September 30, 1999 (unaudited) ............. 6
Statements of Cash Flows
March 25, 1998 (inception) to December 31, 1998, March 25,
1998 (inception) to September 30, 1998 and the nine
months ended September 30, 1999 (unaudited) ...................... 7
Notes to Financial Statements ..................................... 8
b) Pro forma financial information required pursuant to Article 11 of
Regulation S-X.
Pro forma condensed combined financial statements of BEA and The Theory
Center, Inc.
Page No.
-------
Pro Forma Condensed Combined Financial Information (unaudited) .... 13
Pro Forma Condensed Combined Balance Sheet
October 31, 1999 (unaudited) ...................................... 14
Pro Forma Condensed Combined Statements of Operations
For the fiscal year ended January 31, 1999 (unaudited) ............ 15
Pro Forma Condensed Combined Statements of Operations
For the nine months ended October 31, 1999 (unaudited) ........... 16
Notes to Pro Forma Condensed Combined Financial Information
(unaudited) ...................................................... 17
2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
The Theory Center, Inc.:
We have audited the balance sheet of The Theory Center, Inc. (the "Company") as
of December 31, 1998 and the related statements of operations, stockholders'
deficiency and cash flows for the period March 25, 1998 (inception) to December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of The Theory Center, Inc. at December 31, 1998
and the results of its operations and its cash flows for the period March 25,
1998 (inception) to December 31, 1998 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's losses from operations raise substantial
doubt about its ability to continue as a going concern. Management's plans
concerning these matters are also described in Note 1. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
October 26, 1999
(November 19, 1999 as to the second paragraph of Note 6)
3
<PAGE>
FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
THE THEORY CENTER, INC.
BALANCE SHEETS
December 31, September 30,
1998 1999
----------- -------------
ASSETS (Unaudited)
Current assets:
Cash......................................... $ 29,106 $ 1,014,834
Accounts receivable.......................... - 998,064
Unbilled receivables......................... - 30,512
Prepaid expenses and other assets............ 6,745 30,416
--------- -----------
Total current assets............... 35,851 2,073,826
Property and equipment - net................... 18,473 143,181
--------- -----------
Total assets................................... $ 54,324 $ 2,217,007
========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities:
Accounts payable............................. $ - $ 613,904
Accrued liabilities.......................... 30,722 264,344
Advances from stockholders................... 44,953 40,453
Unearned revenues............................ - 534,416
Current portion of long-term obligations..... 14,788 42,755
--------- -----------
Total current liabilities.......... 90,463 1,495,872
Long-term obligations.......................... 64,494 93,053
--------- -----------
Total liabilities.................. 154,957 1,588,925
--------- -----------
Commitments (Note 3)...........................
Stockholders' equity (deficiency):
Preferred stock: $0.001 par value; 5,000,000
shares authorized; none issued and
outstanding.................................. - -
Common stock: $0.001 par value; 25,000,000
shares authorized; 2,700,000 and 7,620,000
issued and outstanding in 1998 and 1999,
respectively................................ 28,472 2,404,528
Common stock options......................... - 288,000
Deferred compensation........................ - (204,800)
Accumulated deficit.......................... (129,105) (1,859,646)
--------- -----------
Total stockholders' equity (deficiency).. (100,633) 628,082
--------- -----------
Total liabilities and stockholders'
equity (deficiency) ........................ 54,324 $ 2,217,007
========= ===========
See notes to financial statements.
4
<PAGE>
FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
THE THEORY CENTER, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from Period from
March 25, March 25,
1998 1998 Nine Months
(Inception) to (Inception) Ended
December 31, September 30, September 30,
1998 1998 1999
-------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Revenues:
Consulting services........................................ $ - $ - $ 559,027
License revenue............................................ - - 21,589
----------- ------------ -----------
Total revenues........................................ - - 580,616
Costs and expenses:
Cost of revenues........................................... - - 536,810
Research and development................................... 62,811 32,423 496,975
Sales and marketing........................................ - - 554,250
General and administrative................................. 64,106 51,507 355,957
Stock compensation expense................................. - - 371,200
----------- ------------ -----------
Total costs and expenses.............................. 126,917 83,930 2,315,192
----------- ------------ -----------
Loss from operations........................................ (126,917) (83,930) (1,734,576)
Other income (expense):
Interest income............................................ - - 11,159
Interest expense........................................... (2,188) - (7,124)
----------- ------------ -----------
Net loss.................................................... $ (129,105) $ (83,930) $(1,730,541)
=========== ============ ===========
</TABLE>
See notes to financial statements.
5
<PAGE>
FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
THE THEORY CENTER, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Total
Common Stock Common Stockholders'
------------------- Stock Deferred Accumulated Equity
Shares Amount Options Compensation Deficit (Deficiency)
------ ------ ------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
March 1998 (inception) - sale of common
stock........................................ 2,700,000 $ 28,472 $ - $ - $ - $ 28,472
Net loss...................................... (129,105) (129,105)
--------- ---------- -------- ---------- ----------- -----------
Balance, December 31, 1998.................... 2,700,000 28,472 - - (129,105) (100,633)
January 1999, conversion of note payable
to common stock*............................. 900,000 296,306 - (288,000) - 8,306
January 1999, compensatory grant*............. - - 288,000 (288,000) - -
May 1999, sale of common stock for cash
(net of issuance cost of $55,000)*........ 3,000,000 945,000 - - - 945,000
September 1999, sale of common stock for
cash (net of issuance cost of $140,250)*..... 1,020,000 1,134,750 - - - 1,134,750
Amortization of deferred stock
compensation*................................ - - - 371,200 - 371,200
Net loss*..................................... - - - - (1,730,541) (1,730,541)
--------- ---------- -------- ---------- ----------- -----------
Balance, September 30, 1999*.................. 7,620,000 $2,404,528 $288,000 $ (204,800) $(1,859,646) $ 628,082
========= ========== ======== ========== =========== ===========
</TABLE>
* Unaudited
See notes to financial statements.
6
<PAGE>
FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
THE THEORY CENTER, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period Period
from from
March 25, March 25,
1998 1998 Nine Months
(Inception) to (Inception) to Ended
December 31, September 30, September 30,
1998 1998 1999
-------------- -------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss..................................................... $ (129,105) $ (83,930) $(1,730,541)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............................... 3,456 2,092 12,732
Stock compensation expense.................................. - - 371,200
Changes in assets and liabilities:
Accounts receivable........................................ - - (998,064)
Unbilled receivables....................................... - - (30,512)
Prepaid expenses and other assets.......................... (6,745) - (23,671)
Accounts payable........................................... - - 613,904
Accrued liabilities........................................ 30,722 19,325 233,622
Unearned revenues.......................................... - - 534,416
------------ ---------- -----------
Net cash used in operating activities.................. (101,672) (62,513) (1,016,914)
------------ ---------- -----------
Cash flows from investing activities -
Purchases of property and equipment.......................... (16,368) (16,368) (52,837)
------------ ---------- -----------
Cash flows from financing activities:
Advances from (to) stockholders.............................. 44,953 35,835 (4,500)
Proceeds from issuance of notes payable
to stockholders............................................. 14,597 14,597 -
Proceeds from borrowings..................................... 60,000 - -
Principal payments on long-term obligations.................. (876) - (19,771)
Proceeds from issuance of common stock....................... 28,472 28,472 2,079,750
------------ ---------- -----------
Net cash provided by financing activities............... 147,146 78,904 2,055,479
------------ ---------- -----------
Net increase in cash.......................................... 29,106 23 985,728
Cash, beginning of period..................................... - - 29,106
------------ ---------- -----------
Cash, end of period........................................... $ 29,106 $ 23 $ 1,014,834
============ ========== ===========
Noncash investing and financing activities:
Conversion of note payable and accrued interest to
common stock................................................ $ - $ - $ 8,306
============ ========== ===========
Equipment acquired under capital leases..................... $ 5,561 $ - $ 84,603
============ ========== ===========
Additional cash flow information -
Interest paid................................................ $ 769 $ - $ 7,416
============ ========== ===========
</TABLE>
See notes to financial statements.
7
<PAGE>
FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
THE THEORY CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
Period from March 25, 1998 (Inception) to December 31, 1998 and
Nine Months Ended September 30, 1999 (Unaudited)
NOTE 1. Organization and Significant Accounting Policies
Organization - The Theory Center, Inc. (the "Company") was incorporated in
Massachusetts on March 25, 1998 to develop and market software component
products and services for use by organizations in quick development of
electronic business applications. In August 1999, the Company reincorporated in
the state of Delaware. The Company operated in the development stage until May
1999.
Basis of Accounting - The financial statements have been prepared on a
going concern basis which contemplates the realization of assets and
satisfaction of liabilities in the ordinary course of business. As shown in the
financial statements, the Company incurred a net loss since inception through
September 30, 1999 of approximately $1,860,000 and the management expects
substantial future losses. These factors, among others, raise substantial doubt
about the Company's ability to continue as a going concern. The Company's
continuation as a going concern is dependent upon its ability to generate
sufficient cash flows to meet its obligations on a timely basis, to obtain
additional financing as may be required and, ultimately, to attain successful
operations. Management intends to increase marketing and sales efforts to sell
the Company's product. Management believes that although it has current sources
of liquidity, additional equity or debt financing will be necessary for the
Company to implement its plans and sustain operations. While management
believes that they will be able to obtain such financing, failure to do so would
significantly impact the Company's ability to sustain its operations. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
Concentration of Credit Risk - Financial instruments that potentially
expose the Company to concentrations of credit risk consists primarily of cash,
the associated risk for which is mitigated by banking with creditworthy
institutions.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Property and Equipment - Property and equipment are stated at cost and are
being depreciated over their estimated useful lives of three to five years using
the straight-line method.
Revenue Recognition - Revenues from consulting contracts are recognized as
services are performed. The Company's license revenue has been recognized on a
percentage of completion method based upon work performed on the project as
certain modifications were made to the product to meet customer specifications.
Billings in excess of revenue are recorded as unearned revenues, while revenue
in excess of billings is recorded as unbilled receivables. License revenue for
products not requiring adaptation is generally recognized upon delivery and when
no significant vendor obligations remain.
Research and Development - Research and development expenses are charged to
operations as incurred. The costs for the development of new software products
are expensed as incurred until technological feasibility has been established;
at which time any additional costs would be capitalized. Because the Company
believes its current process for developing software is essentially completed
concurrently with the establishment of technological feasibility, no costs have
been capitalized to date.
Stock-Based Compensation - The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees.
Income Taxes - For federal and state income tax purposes, the Company has
elected to be treated as an S corporation, whereby the Company's income is
reportable by its shareholders in their individual tax returns. For state
purposes, the Company is responsible for S corporation tax at rates of 3% and
4.5% of Massachusetts-sourced gross receipts in excess of $6 million and
8
<PAGE>
FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
NOTES TO FINANCIAL STATEMENTS - (Continued)
Period from March 25, 1998 (Inception) to December 31, 1998 and
Nine Months Ended September 30, 1999 (Unaudited)
$9 million, respectively. In August 1999, in connection with the Company's
reincorporation in the State of Delaware, the Company converted its tax status
from an S corporation to a General C corporation.
Unaudited Interim Financial Information - The interim financial information
for the period from March 25, 1998 (inception) to September 30, 1998 and for the
nine months ended September 30, 1999 is unaudited and has been prepared on the
same basis as the audited financial statements. In the opinion of management,
such unaudited financial information includes all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of the
interim information.
Comprehensive Loss - For all periods presented, comprehensive loss was
equal to the Company's net loss.
New Accounting Pronouncements - In June 1998, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 133, Accounting for Derivative Instruments and Hedging Activities. This
statement requires companies to record derivatives on the balance sheet as
assets or liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. SFAS
No. 133 will be effective for the Company's calendar year ending December 31,
2001. The Company believes that this statement will not have a significant
impact on its financial results.
NOTE 2. Property and Equipment
Property and equipment consist of:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
--------------- ----------------
<S> <C> <C>
Computer and computer software............................................. $21,929 $ 74,498
Furniture and fixtures..................................................... - 84,871
------- --------
Total...................................................................... 21,929 159,369
Accumulated depreciation and amortization.................................. (3,456) (16,188)
------- --------
Property and equipment, net................................................ $18,473 $143,181
======= ========
</TABLE>
9
<PAGE>
FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
NOTES TO FINANCIAL STATEMENTS - (Continued)
Period from March 25, 1998 (Inception) to December 31, 1998 and
Nine Months Ended September 30, 1999 (Unaudited)
Note 3. Long-Term Obligations
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
--------------- ----------------
<S> <C> <C>
Notes payable to founders, at applicable federal mid-term annual
rate (4.52% at December 31, 1998) plus 1.5%, interest due
annually on March 1, principal due on March 23, 2001.................... $ 14,597 $ 6,921
Fleet Bank, at prime (7.75% at December 31, 1998) plus 2.25% due
monthly and fixed monthly principal payments of $517 through
September 2003.......................................................... 29,483 24,828
US Trust Bank, at prime (7.75% at December 31, 1998) plus 2.25%
due monthly and fixed monthly principal payments of $625
through January 2003.................................................... 30,000 25,000
American Express, at 14.9% with monthly payment of $692.33
through July 2002....................................................... - 18,889
Capital lease obligations, at imputed interest rate of 11.25%
with monthly payment of $359 through October 2001....................... 5,202 60,170
-------- --------
Total..................................................................... 79,282 135,808
Less current portion...................................................... (14,788) (42,755)
-------- --------
Long-term obligations..................................................... $ 64,494 $ 93,053
======== ========
</TABLE>
The borrowings from Fleet Bank and US Trust Bank are guaranteed by the
founders of the Company and are secured by the Company's accounts receivable,
inventory, property and equipment, and intangibles. The capital lease agreement
is guaranteed by a founder of the Company.
The net book value of computers and office equipment under capital leases
totaled $5,561 and $64,614 (net of related accumulated depreciation of zero and
$5,549) as of December 31, 1998 and September 30, 1999, respectively.
During the nine months ended September 30, 1999, the Company entered into
several financing and capital lease agreements to acquire computers and office
equipment. Maturities of long-term debt and capitalized leases as of December
31, 1998, including agreements entered into through September 30, 1999, are as
follows:
<TABLE>
<CAPTION>
CAPITAL
DEBT LEASES
------------- --------------
<S> <C> <C>
1999.................................................................. $15,983 $ 19,101
2000.................................................................. 19,777 29,159
2001.................................................................. 27,667 20,893
2002.................................................................. 18,321 9,533
2004.................................................................. 5,280 3,785
------- --------
Total payments............................................................... $87,028 82,471
=======
Less amount representing imputed interest.................................... (12,667)
--------
Present value of capital leases.............................................. $ 69,804
========
</TABLE>
10
<PAGE>
FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
NOTES TO FINANCIAL STATEMENTS - (Continued)
Period from March 25, 1998 (Inception) to December 31, 1998 and
Nine Months Ended September 30, 1999 (Unaudited)
NOTE 4. Stockholders' Equity
Stock Splits
During February 1999, the Company effected a six-for-one stock split
through the form of a stock dividend. In addition, during August 1999, the
Company reincorporated in the State of Delaware and effected a stock exchange of
fifteen shares of common stock for every share of common stock of its
Massachusetts predecessor entity. All share and per share amounts in the
financial statements have been adjusted to give effect to these stock splits.
Restricted Common Stock
Restricted common stock sold to the Company's founders under stock purchase
agreements is subject to repurchase at the Company's option upon termination of
their employment at the original purchase price. This right expires ratably
over two years. During 1998 and the nine months ended September 30, 1999, the
Company sold and issued 2,700,000 and 900,000 shares of common stock to its
founders. At December 31, 1998, 2,160,000 shares were subject to repurchase.
In addition, upon termination, the Company has the right to reacquire any common
stock held by the founder at the fair market value determined as of the date of
reacquisition.
Common Stock Warrants
In connection with its sale of stock, in June 1999, the Company issued to
its financial advisors warrants to purchase 483,540 shares at $0.33 per share.
The warrants are immediately exercisable and expire on the earlier of June 4,
2009 or the acquisition of the Company through sale of assets, merger or
acquisition of majority equity securities.
In connection with another sale of common stock in September 1999, warrants
to purchase up to 510,000 shares of common stock at an exercise price of $1.25
per share were granted to the new stockholders. The warrants expire in five
years. In addition, the Company issued to its financial advisors warrants to
purchase 588,796 shares at $0.33 per share, subject to the same terms and
conditions of the warrants granted in June 1999.
Stock Option Plan
In 1999, the Company adopted the 1999 Stock Option/Stock Issuance Plan (the
"1999 Plan"), under which incentive and nonqualified options to purchase up to
3,000,000 shares of common stock may be granted to employees, consultants or
advisors. The options generally vest over two to three years, and expire ten
years from the date of grant.
During the nine months ended September 30, 1999, 2,017,330 options at a
weighted-average exercise price of $0.33 per share and with an estimated
weighted-average minimum value of $0.23 per share were granted, while no options
were exercised. No options were granted in 1998. Additional information
regarding options outstanding as of September 30, 1999 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------ ------------------------------------------
WEIGHTED-
AVERAGE WEIGHTED-
REMAINING AVERAGE
EXERCISE NUMBER CONTRACTUAL NUMBER EXERCISE
PRICE OF SHARES LIFE (YEARS) OF SHARES PRICE
- ------------------- ----------------- --------------------- ------------------ ---------------
<S> <C> <C> <C> <C>
$0.01 900,000 9.32 315,000 $0.01
0.33 808,080 9.68 141,922 0.33
1.25 309,250 9.89 - -
--------- -------
$0.01 - $1.25 2,017,330 9.55 456,922 $0.11
========= =======
</TABLE>
11
<PAGE>
FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
NOTES TO FINANCIAL STATEMENTS - (Continued)
Period from March 25, 1998 (Inception) to December 31, 1998 and
Nine Months Ended September 30, 1999 (Unaudited)
Additional Stock Plan Information
As discussed in Note 1, the Company accounts for its employee stock-based
awards using the intrinsic value method in accordance with Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, and its related
interpretations.
In connection with compensatory grants made in the nine months period ended
September 30, 1999, the Company recorded deferred compensation of $576,000 and
amortized $371,200 of this amount as stock compensation expense.
SFAS No. 123, Accounting for Stock-Based Compensation, requires the
disclosure of pro forma net loss as though the Company had adopted the minimum
value method. Under SFAS No. 123, the fair value of stock-based awards to
employees is calculated through the use of option pricing models, even though
such models were developed to estimate the value of freely tradable, fully
transferable options without vesting restrictions, which differ significantly
from the Company's stock option awards. These models also require subjective
assumptions, including estimated stock price volatility and expected time to
exercise, which greatly affect the calculated values. The Company's
calculations were made using the minimum value method with the following
weighted average assumptions: expected life, 2.5 years following vest; average
risk-free interest rate, 6.0%; and no dividends during the expected term. The
Company's calculations are based on a single option valuation approach, and
forfeitures are recognized as they occur. If the computed fair values had been
amortized to expense over the vesting period of the awards, the effect would
have been to increase net loss for the nine months ended September 30,
1999 to $1,745,000.
NOTE 5. Related Party Transactions
From inception through November 1998, the Company's founders advanced
$44,953 to the Company. The advances are due on demand and bear no interest.
Additionally, in 1998 certain founders advanced $14,597 to the Company in
exchange for notes payable at an interest rate equal to the applicable federal
mid-term rate (4.52% at December 31, 1999) all of which were due in March 2001.
One of the notes and accrued interest of $8,306 was fully repaid in January 1999
through the issuance of 10,000 shares of common stock.
NOTE 6. Subsequent Events
On October 19, 1999, the Company signed a full recourse promissory note and
security agreement for up to $5 million, $3 million of which was borrowed at
that date. Any borrowings under this agreement bear interest at the prime rate
plus 2.25% and are due within 120 days following demand. The Company pledged its
accounts receivable, intangibles and all personal property as collateral to the
loan.
On November 19, 1999, the Company was acquired by BEA Systems, Inc. ("BEA")
for 1,817,707 shares of BEA common stock and the assumption of all of the
Company's outstanding warrants and employee stock options.
12
<PAGE>
PRO FORMA FINANCIAL INFORMATION
BEA SYSTEMS, INC. AND THE THEORY CENTER, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information
gives effect to the acquisition of The Theory Center, Inc., ("TTC") by BEA
Systems, Inc. ("BEA") using the purchase method of accounting. The unaudited pro
forma condensed combined balance sheets combines BEA's October 31, 1999 balance
sheet with the TTC September 30, 1999 balance sheet. The pro forma condensed
combined statements of operations for the nine months ended October 31, 1999
combines BEA's statement of operations for the nine months ended October 31,
1999 with the TTC statement of operations for the nine months ended September
30, 1999. The pro forma condensed combined statements of operations for the
fiscal year ended January 31, 1999 combines BEA's statement of operations for
the fiscal year ended January 31, 1999 with the TTC statement of operations for
the period from March 25, 1998 (inception) to December 31, 1998.
The unaudited pro forma condensed combined balance sheets as of October 31,
1999 gives effect to the merger with TTC as if it had occurred on such date, and
reflects the allocation of the purchase price, including in-process research and
development, and liabilities assumed.
The unaudited pro forma condensed combined statements of operations combine
the historical statements of operations of BEA and TTC as if the merger with TTC
had occurred at the beginning of the earliest period presented. The historical
statements of operations for TTC reflect the nine months ended September 30,
1999 and from March 25, 1998 (inception) to December 31, 1998.
The BEA statement of operations for the period in which the merger with TTC
occurs will include a charge for acquired in-process research and development of
approximately $2.0 million. This amount represents the value determined by
management, using discounted cash flow methodology, to be attributable to the
in-process research and development of TTC based on a preliminary valuation
of such research and development. The charge relates to specific on-going
research and development. Assuming this research continues, BEA projects
substantial future research and development expenditures related to this
technology. The research and development is forecasted to be completed at
various times between 2000 and 2004. If BEA would have allocated less of the
purchase price to in-process research and development, the value would have been
recorded as goodwill on the balance sheet and amortized over the expected
benefit period, resulting in increased amortization expense during that period.
Management of BEA believes that the allocation of the purchase price to in-
process research and development is appropriate given the future potential of
this research and development to contribute to the operations of BEA. If, at a
later date, management of BEA decides to no longer pursue, or indefinitely
postpone, this research and development, or determines that the discounted cash
flows will no longer meet the projections underlying the valuation, it will
disclose that fact to investors in the appropriate Form 10-K or 10-Q, explaining
why it will not pursue the development or why research has been postponed and
when research is expected to resume.
Unaudited pro forma combined financial information is presented for
illustrative purposes only and is not necessarily indicative of the financial
position or results of operations that would have actually been reported had the
merger occurred at the beginning of the periods presented, nor is it necessarily
indicative of future financial position or results of operations. These
unaudited pro forma combined financial statements are based upon the respective
historical financial statements of BEA and TTC and do not incorporate, nor do
they assume, any benefits from cost savings or synergies of operations of the
combined company.
13
<PAGE>
PRO FORMA FINANCIAL INFORMATION
BEA SYSTEMS, INC. AND THE THEORY CENTER, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
BEA TTC
October 31, September 30, Pro forma Pro forma
1999 1999 Adjustments References Combined
---------- ------------ ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 231,311 $ 1,015 - $ 232,326
Short term investments 46,190 - - 46,190
Accounts receivable, net 116,079 1,029 (59) (E) 117,049
Other current assets 21,431 30 - 21,461
--------- --------- ---------- ---------
Total current assets 415,011 2,074 (59) 417,026
Computer equipment, furniture and leasehold improvements, net 25,329 143 25,472
Acquired intangibles assets, net 62,703 - 159,496 (A) 222,199
Other assets 8,782 - - 8,782
========= ========= ========== =========
Total assets $ 511,825 $ 2,217 $ 159,437 $ 673,479
========= ========= ========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Advances from stockholders - 40 - 40
Accounts payable 14,185 614 (59) (E) 14,740
Accrued liabilities 90,075 264 5,237 (B) 95,576
Accrued income taxes 9,571 - - 9,571
Deferred revenues 71,388 534 - 71,922
Current portion of notes payable and capital lease obligations 29 43 - 72
--------- --------- ---------- ---------
Total current liabilities 185,248 1,495 5,178 191,921
Notes payable and other long term obligations 10,440 93 - 10,533
Convertible subordinated notes 250,000 - - 250,000
Commitments and contingencies -
Shareholders' equity:
Common stock 79 2,693 (2,693) (C)
2 (D) 81
Additional paid-in capital 258,067 - 156,886 (D) 414,953
Accumulated deficit (189,004) (1,859) 1,859 (C)
(2,000) (F) (191,004)
Notes receivable from shareholders (544) - - (544)
Deferred compensation (1,332) (205) 205 (C) (1,332)
Accumulated other comprehensive loss (1,129) - - (1,129)
--------- --------- ---------- ---------
Total stockholders' equity 66,137 629 154,259 221,025
--------- --------- ---------- ---------
Total liabilities and stockholders' equity $ 511,825 $ 2,217 $ 159,437 $ 673,479
========= ========= ========== =========
</TABLE>
See accompanying notes to pro forma condensed combined financial
statements (unaudited)
14
<PAGE>
PRO FORMA FINANCIAL INFORMATION
BEA SYSTEMS, INC. AND THE CENTRE, INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATION AND COMPREHENSIVE LOSS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
BEA TTC
Nine Months Ended Nine Months Ended
October 31, 1999 September 30, 1999 Adjustments References Combined
----------------- ------------------ ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
License fees $ 198,715 $ 22 $ - $198,737
Services 116,526 559 (59) (E) 117,026
---------------- --------------- ----------- --------
Total revenues 315,241 581 (59) 315,763
---------------- --------------- ----------- --------
Cost of revenues:
Cost of licenses 3,427 - - 3,427
Cost of services 65,764 537 (59) (E) 66,242
Amortization of certain acquired
intangible assets 21,027 - - 21,027
---------------- --------------- ----------- --------
Total cost of revenues 90,218 537 (59) 90,696
---------------- --------------- ----------- --------
Gross profit 225,023 44 225,067
Operating expenses:
Sales and marketing 146,674 554 - 147,228
Research & development 42,598 497 - 43,095
General & administration 34,320 727 31,742 66,789
---------------- --------------- ----------- --------
Total operating expenses 223,592 1,778 31,742 257,112
---------------- --------------- ----------- --------
Income (loss) from operations 1,431 (1,734) (31,742) (32,045)
Interest income (expense) and other, net (219) 4 (215)
---------------- --------------- ----------- --------
Income (loss) before provision for
income taxes 1,212 (1,730) (31,742) (32,260)
Provision for income taxes 7,100 - - 7,100
---------------- --------------- ----------- --------
Net loss (5,888) (1,730) (31,742) (39,360)
Other comprehensive loss:
Foreign currency translation adjustments (351) - - (351)
Unrealized loss on available-for-sale
investments, net of income taxes (184) - - (184)
---------------- --------------- ----------- -------
Comprehensive loss $ (6,423) $ (1,730) $ (31,742) $(39,895)
================ =============== =========== ========
Basic and diluted net loss per share $ (0.04) $ (0.25)
================ ========
Basic and diluted shares used in EPS 153,460 157,095
================ ========
</TABLE>
See accompanying notes to pro forma condensed combined financial statements
(unaudited)
15
<PAGE>
PRO FORMA FINANCIAL INFORMATION
BEA SYSTEMS, INC. AND THE THEORY CENTER, INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
BEA TTC
Period from
March 25, 1998
Fiscal year ended (Inception) to
January 31, 1999 December 31, 1998 Adjustments References
----------------- ----------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues:
License fees $ 193,511 $ - $ -
Services 95,531 - -
----------------- ----------------- ----------- ----------
Total revenues 289,042 - -
----------------- ----------------- ----------- ----------
Cost of revenues:
Cost of licenses 3,225 - -
Cost of services 57,167 - -
Amortization of certain acquired intangible assets 23,290 - -
----------------- ----------------- ----------- ----------
Total cost of revenues 83,682 - -
----------------- ----------------- ----------- ----------
Gross profit 205,360 - -
Operating expenses:
Sales and marketing 138,926 - -
Research & development 42,584 63
General & administration 27,881 64 35,269
Acquisition related charges 42,244 -
----------------- ----------------- ----------- ----------
Total operating expenses 251,635 127 35,269
----------------- ----------------- ----------- ----------
Loss from operations (46,275) (127) (35,269)
Interest expense and other, net (451) (2) -
----------------- ----------------- ----------- ----------
Loss before provision for income taxes (46,726) (129) (35,269)
Provision for income taxes 4,856 - -
----------------- ----------------- ----------- ----------
Net loss (51,582) (129) (35,269)
Other comprehensive income (loss):
Foreign currency translation adjustments 5 - -
Unrealized gain (loss) on available-for-sale
investments, net of income taxes (8) - -
================ ================ ==========
Comprehensive loss $ (51,585) $ (129) $ (35,269)
================ ================ ==========
Basic and diluted net loss per share $ (0.37)
================
Basic and diluted shares used in EPS 140,494
================
<CAPTION>
Combined
----------------
<S> <C>
Revenues:
License fees $ 193,511
Services 95,531
----------------
Total revenues 289,042
----------------
Cost of revenues:
Cost of licenses 3,225
Cost of services 57,167
Amortization of certain acquired intangible assets 23,290
----------------
Total cost of revenues 83,682
----------------
Gross profit 205,360
Operating expenses:
Sales and marketing 138,926
Research & development 42,647
General & administration 63,214
Acquisition related charges 42,244
----------------
Total operating expenses 287,031
----------------
Loss from operations (81,671)
Interest expense and other, net (453)
----------------
Loss before provision for income taxes (82,124)
Provision for income taxes 4,856
----------------
Net loss (86,980)
Other comprehensive income (loss):
Foreign currency translation adjustments 5
Unrealized gain (loss) on available for sale
investments, net of income taxes (8)
----------------
Comprehensive loss $ (86,983)
================
Basic and diluted net loss per share $ (0.60)
================
Basic and diluted shares used in EPS 144,129
================
</TABLE>
See accompanying notes to pro forma condensed combined financial statements
(unaudited)
16
<PAGE>
PRO FORMA FINANCIAL INFORMATION
BEA SYSTEMS, INC. AND THE THEORY CENTER, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1.
On November 19, 1999, BEA Systems, Inc. ("BEA" or the "Company") completed
its merger with The Theory Center, Inc. ("TTC"). Under the terms of the merger
agreement, each outstanding share of TTC common stock was converted into
0.1979569 shares of BEA common stock. This resulted in the issuance of 3,635,414
shares of BEA common stock, valued at $32.375 per share. In addition, TTC
options were exchanged for options to purchase 1,821,200 shares of BEA common
stock and TTC warrants were exchanged for warrants to purchase 40,000 shares of
BEA common stock. The merger transaction was accounted for as a purchase. The
total cost of the merger is estimated to be approximately $157.2 million,
determined as follows (in thousands):
<TABLE>
<S> <C>
Fair value of BEA shares (calculated using the per share fair value at the date of the $ 117,697
merger agreement)
Value of TTC warrants and options assumed 39,191
BEA transaction costs, consisting primarily of financial advisory, legal and
accounting fees 330
------------
Total purchase price $ 157,218
============
</TABLE>
A preliminary valuation of the purchased assets was performed to assist in
determining the fair value of each identifiable tangible and intangible asset
and in allocating the purchase price among the acquired assets, including the
portion of the purchase price attributed to acquired in-process research and
development projects. Standard valuation procedures and techniques were
utilized in determining the fair value of the acquired core/developed and in-
process technology.
Core technology and in-process technology were identified and valued
through analysis of TTC's and BEA's current development projects, their
respective stage of development, the time and resources needed to complete them,
their expected income-generating ability, their target markets and the
associated risks.
The Cost Approach, which includes an analysis of the cost of reproducing or
replacing the asset, was the methodology utilized in valuing component
technology tools and assembled workforce. The Income Approach, which includes an
analysis of the markets, cash flows and risks associated with achieving such
cash flows, was the methodology utilized in valuing in-process technology,
completed technology, patents and non-compete agreements. Each developmental
project was evaluated to determine if there were any alternative future uses.
This evaluation consisted of a specific review of each project, including the
overall objectives of the project, progress toward such objectives, and
uniqueness of the project. The net after-tax cash flows representing the cash
flows generated by the respective core and in-process technologies were then
discounted to present value. The discount was based upon an analysis of the
weighted average cost of capital for the industry.
The following is a summary of the purchase price allocation (in thousands):
<TABLE>
<CAPTION>
October 31,
1999
-------------
<S> <C>
Tangible assets acquired $ 2,122
In-process research and development 2,000
Intangible assets 159,591
Liabilites assumed (6,495)
------------
Total purchase price $ 157,218
============
</TABLE>
17
<PAGE>
PRO FORMA FINANCIAL INFORMATION
BEA SYSTEMS, INC. AND THE THEORY CENTER, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -
(Continued)
In the pro-forma condensed combined balance sheet, the in-process research
and development has been charged against the combined retained earnings at
October 31, 1999, and because the charge is non-recurring, it has been excluded
from the pro forma condensed combined statements of operations. The intangible
assets will be amortized over their estimated useful lives, ranging from 2 to 4
years.
Note 2.
The pro forma condensed combined balance sheet includes the adjustments
necessary to give effect to the TTC merger as if it had occurred at October 31,
1999 and to reflect the allocation of the acquisition costs to the fair value of
tangible and intangible assets acquired and liabilities assumed as noted above,
including a charge to retained earnings for acquired in-process research and
development and the elimination of TTC's equity accounts.
Adjustments included in the pro forma condensed combined financial
statements are summarized as follows (in thousands, except per share amounts):
(A) Valuation of assembled work force, goodwill and other intangible
assets.
(B) Accrual of transaction-related costs of approximately $330 for BEA
and $4,907 for TTC, principally consisting of finders fees, legal
and accounting services.
(C) Elimination of TTC equity accounts.
(D) Issuance of BEA Common Stock, $0.001 par value, and assumption of
options and warrants to purchase common stock, as discussed in Note
1. The value of BEA common stock is equal to the product of
3,635,414 shares multiplied by approximately $32.375 per share,
while the options and warrants have been assigned a value of
approximately $39,191.
(E) Reflects the elimination of intercompany transactions.
(F) Charge to operations for in-process research and development of
approximately $2,000.
Note 3.
The pro forma condensed combined statements of operations include the
adjustments necessary to give effect to the merger as if it had occurred as of
the beginning of the period presented. Adjustments consist of the amortization
of acquired intangible assets using estimated useful lives ranging from 2 to 4
years and the elimination of intercompany activity.
Note 4.
Pro forma basic and diluted net loss per share amounts for the nine month
period ended October 31, 1999 and the fiscal year ended January 31, 1999 are
based upon the historical weighted-average number of shares of BEA Common Stock
outstanding adjusted to reflect the issuance, as of November 19, 1999, of
approximately 3.6 million shares of BEA common stock, which amount excludes
outstanding shares subject to repurchase in accordance with SFAS No.128. The
impact of outstanding options and warrants, including TTC options and warrants
assumed, is not included in the calculation of basic and diluted net loss per
share as the effect would be antidilutive.
18
<PAGE>
SIGNATURES
Pursuant to the requirement of the Security Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BEA SYSTEMS, INC.
(Registrant)
/s/ STEVE L. BROWN
-------------------------------------------------
Steve L. Brown
Executive Vice President and
Chief Financial Officer
(Principal Financial and Chief Accounting Officer)
Dated: January 18, 2000
19
