<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 8-K/A
AMENDMENT NO. 1
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 8, 2000
STARBASE CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 0-25612 33-0567363
- ---------------------------- ----------- -------------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File No.) Identification No.)
4 Hutton Centre Drive, Suite 800 Santa Ana, CA 92707-8713
- ---------------------------------------------- -------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (714) 445-4400
Not Applicable
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE> 2
This Amendment No. 1 to the Current Report on Form 8-K for StarBase
Corporation ("StarBase") is being filed to provide the financial statements and
Pro Forma financial information required by Item 7.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
The following financial statements and pro forma information are filed
as part of this report.
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
(a) Financial Statement of Business Acquired. Premia Corporation
Independent Auditors' Report (KPMG LLP) (Exhibit 99.2) 1
Balance Sheets as of December 31, 1999 and 1998 (Exhibit 99.2) 2
Statements of Income for the years ended December 31, 1999 and 1998
(Exhibit 99.2) 3
Statements of Stockholders' Equity for the years ended December 31, 1999
and 1998 (Exhibit 99.2) 4
Statements of Cash Flows for the years ended December 31, 1999 and 1998
(Exhibit 99.2) 5
Notes to Financial Statements (Exhibit 99.2) 6
(b) Pro Forma Financial Information. StarBase Corporation, ObjectShare, Inc.,
and Premia Corporation (on a consolidated basis)
Unaudited Pro Forma Information (Exhibit 99.3) 13
Unaudited Pro Forma Balance Sheet as of December 31, 1999 (Exhibit 99.3) 14
Unaudited Pro Forma Statement of Operations for the nine months ended
December 31, 1999 (Exhibit 99.3) 15
Unaudited Pro Forma Statement of Operations for the year ended March 31, 1999
(Exhibit 99.3) 16
Notes to the Unaudited Pro Forma Financial Statements (Exhibit 99.3) 17
</TABLE>
2
<PAGE> 3
(c) Exhibits.
*2.1 Stock Purchase Agreement, dated as of March 8, 2000, among
StarBase, Premia and each of stockholders of Premia
23.1 Consent of KPMG LLP
*99.1 Press Release dated March 9, 2000
99.2 Financial Statements of Business Acquired
99.3 Pro Forma Financial Information
- -------------------
* Incorporated by reference to the same Exhibit number of the Company's Current
Report on Form 8-K dated March 8, 2000.
3
<PAGE> 4
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Dated: April 7, 2000
STARBASE CORPORATION
By: /s/ DOUGLAS S. NORMAN
-----------------------------------
Douglas S. Norman
Chief Financial Officer
4
<PAGE> 5
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
*2.1 Stock Purchase Agreement, dated as of March 8, 2000, among
StarBase, Premia and each of stockholders of Premia
23.1 Consent of KPMG LLP
*99.1 Press Release dated March 9, 2000
99.2 Financial Statements of Business Acquired
99.3 Pro Forma Financial Information
----------------
* Incorporated by reference to the same Exhibit number of the Company's
Current Report on Form 8-K dated March 8, 2000.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Premia Corporation:
We consent to the incorporation by reference in the Registration Statements
(Nos. 333-72833, 333-80615, 333-89669 and 333-89687) on Forms S-3, Registration
Statement (333-30260) on Form S-4, Registration Statement (333-92597) on Form
S-8, Registration Statement (33-68228) on Form SB-2 of StarBase Corporation and
to the inclusion of our Independent Auditors' Report dated February 18, 2000,
with respect to the balance sheets of Premia Corporation as of December 31, 1999
and 1998, and the related statements of income, stockholders' equity, and cash
flows for the years then ended, which report appears in the 8-K/A of StarBase
Corporation filed on or about April 6, 2000.
KPMG LLP
Portland, Oregon
April 5, 2000
<PAGE> 1
EXHIBIT 99.2
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Premia Corporation:
We have audited the accompanying balance sheets of Premia Corporation as of
December 31, 1999 and 1998, and the related statements of income, stockholders'
equity, and cash flows for the years then ended. 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 audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Premia Corporation as of
December 31, 1999 and 1998, and the results of its operations, and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
KPMG LLP
Portland, Oregon
February 18, 2000
1
<PAGE> 2
PREMIA CORPORATION
BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 566,516 $ 509,410
Trade accounts receivable 899,912 617,766
Inventories 48,667 45,986
Prepaid and other current assets 57,748 230
---------- ----------
Total current assets 1,572,843 1,173,392
Investment securities available for sale 894,674 739,174
Fixed assets, net 399,209 425,708
Other assets 14,000 14,000
---------- ----------
Total assets $2,880,726 $2,352,274
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 68,748 $ 44,790
Accrued payroll and related liabilities 460,007 349,552
Dividends payable -- 21,496
Unearned revenue 818,392 595,212
Other current liabilities 17,820 --
---------- ----------
Total current liabilities 1,364,967 1,011,050
Stockholders' equity:
Common stock, no par value. Authorized 5,000,000
shares; issued and outstanding 1,002,000 shares
at December 31, 1999 and 1998 100,108 100,108
Accumulated other comprehensive income 223,655 118,457
Retained earnings 1,191,996 1,122,659
---------- ----------
Total stockholders' equity 1,515,759 1,341,224
---------- ----------
Total liabilities and stockholders' equity $2,880,726 $2,352,274
========== ==========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 3
PREMIA CORPORATION
STATEMENTS OF INCOME
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---------- -----------
<S> <C> <C>
Sales, net $5,307,333 $ 5,290,993
Cost of sales 391,376 635,516
---------- -----------
Gross margin 4,915,957 4,655,477
---------- -----------
Operating expenses:
Sales and marketing 2,137,142 1,983,389
Product development 670,169 444,427
General and administrative 2,051,651 2,036,115
---------- -----------
Total operating expenses 4,858,962 4,463,931
---------- -----------
Income from operations 56,995 191,546
---------- -----------
Other income (expense):
Interest income 22,128 29,467
Dividend and investment income 50,181 75,070
Gain on sale of investment -- 5,870
Other income (expense), net 33 (17,081)
---------- -----------
Total other income (expense) 72,342 93,326
---------- -----------
Net income $ 129,337 $ 284,872
========== ===========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 4
PREMIA CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER TOTAL
-------------------- RETAINED COMPREHENSIVE COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT EARNINGS INCOME INCOME EQUITY
--------- -------- ---------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 1,002,000 $100,108 $1,069,283 $ 74,114 $1,243,505
Dividends -- -- (231,496) -- (231,496)
Unrealized gain on available
for sale securities -- -- -- $ 44,343 44,343 44,343
Net income -- -- 284,872 284,872 -- 284,872
--------- -------- ---------- -------- -------- ---------
Comprehensive income $329,215
========
Balance at December 31, 1998 1,002,000 100,108 1,122,659 118,457 1,341,224
Dividends -- -- (60,000) -- (60,000)
Unrealized gain on available
for sale securities -- -- -- 105,198 105,198 105,198
Net income -- -- 129,337 129,337 -- 129,337
--------- -------- ---------- -------- --------- ---------
Comprehensive income $234,535
========
Balance at December 31, 1999 1,002,000 $100,108 $1,191,996 $223,655 $1,515,759
========= ======== ========== ======== ==========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 5
PREMIA CORPORATION
STATEMENTS OF CASH FLOWS
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 129,337 $ 284,872
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 94,144 87,692
Loss on retired assets -- 11,049
Gain on sale of investments -- (5,870)
Change in assets and liabilities:
Accounts receivable (282,146) (169,681)
Inventories (2,681) 1,670
Other current assets (57,518) 296
Accounts payable and accrued payroll and
related liabilities 134,413 (21,400)
Other current liabilities 17,820 --
Unearned revenue 223,180 204,006
--------- ---------
Net cash provided by operating activities 256,549 392,634
--------- ---------
Cash flows from investing activities:
Proceeds from sale of available for sale securities -- 126,999
Purchase of available for sale securities (50,302) (210,115)
Purchases of fixed assets (67,645) (137,769)
--------- ---------
Net cash used in investing activities (117,947) (220,885)
--------- ---------
Cash flows from financing activities:
Dividends paid (81,496) (210,000)
--------- ---------
Net cash used in financing activities (81,496) (210,000)
--------- ---------
Net increase (decrease) in cash
and cash equivalents 57,106 (38,251)
Cash and cash equivalents at beginning of year 509,410 547,661
--------- ---------
Cash and cash equivalents at end of year $ 566,516 $ 509,410
========= =========
Supplemental disclosures of investing activities:
Unrealized gain on available for sale securities $ 105,198 $ 44,343
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
PREMIA CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ORGANIZATION
Premia Corporation (the Company) is an Oregon S Corporation located in
Beaverton, Oregon. The Company is in the business of developing and
publishing software development tools for professional programmers.
(b) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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 periods. Actual results could differ from those
estimates.
(c) CASH AND CASH EQUIVALENTS
The Company considers all liquid investments with original maturities of
three months or less to be cash equivalents.
(d) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
(e) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated
depreciation. Property and equipment are depreciated using the
straight-line method over the estimated useful lives of the assets as
follows: office equipment over seven years; computer hardware and
software over five years; furniture and equipment over five years; and
leasehold improvements over the remaining life of the lease or the
useful life, whichever is shorter. Maintenance and repairs are expensed
as incurred.
6
<PAGE> 7
PREMIA CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
(f) REVENUE RECOGNITION
Effective January 1, 1998, the Company adopted Statement of Position
(SOP) 97-2, Software Revenue Recognition, as amended by SOP 98-4 and SOP
98-9. SOP 97-2, as amended, generally requires revenue earned on
software arrangements involving multiple elements to be allocated to
each element based on the relative fair value of the elements.
To date, the Company has derived its revenue from software product, net
of estimated sales returns and allowances and maintenance. The Company
sells its product primarily through its sales team.
Revenue recognized from multiple-element software arrangements are
allocated to each element of the arrangement based on the fair values of
the elements, such as software products, maintenance and support,
hosting services and consulting services. The determination of fair
value is based on objective evidence which is specific to the Company.
Revenue from software product is recognized when persuasive evidence of
an agreement exists, delivery of the product has occurred, no
significant obligations with regard to implementation remain, the fee is
fixed or determinable and collectibility is probable.
Unearned revenue includes amounts billed to customers for which revenues
have not been recognized which generally results from deferred
maintenance fees. Unearned maintenance revenues are recognized ratably
over the contractual period.
(g) WARRANTY
The Company warrants its products against defects. Warranty obligations,
which are insignificant, are charged to operations in the period in
which the cost is incurred.
(h) RESEARCH AND DEVELOPMENT
Expenditures for research and development are expensed as incurred.
(i) CAPITALIZED SOFTWARE
Under Statement of Financial Accounting Standards No. 86, Accounting for
the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed,software development costs are to be capitalized beginning when
a product's technological feasibility has been established and ending
when a product is made available for general release to customers. The
establishment of technological feasibility of the Company's products has
occurred shortly before general release and, accordingly, no costs have
been capitalized.
7
<PAGE> 8
PREMIA CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
(j) ADVERTISING EXPENSE
The Company generally expenses the production and insertion costs of
print advertising as incurred. Advertising expenses, which are included
in sales and marketing expense in the accompanying financial statements,
were $688,647 and $560,681 in 1999 and 1998, respectively.
(k) INVESTMENT SECURITIES
Investment securities are classified as available for sale. Securities
available for sale are stated at estimated market value. Realized gains
or losses on sales of investment securities available for sale, if any,
are determined based on the specific identification method. The net
unrealized gain or loss on securities available for sale are included as
a component of accumulated other comprehensive income.
(l) INCOME TAXES
The Company has elected to be taxed under the provisions of Subchapter S
of the Internal Revenue Code. Under those provisions, the Company does
not pay federal or state corporate income taxes on its taxable income.
Instead, the stockholders are individually responsible for federal and
state income taxes. Accordingly, no provision for income taxes have been
made in the accompanying financial statements.
(m) STOCK-BASED EMPLOYEE COMPENSATION
The Company adopted Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, (SFAS No. 123) which permits
entities to recognize as expense over the vesting period the fair value
of all stock-based awards on the date of grant. Alternatively, SFAS No.
123 also allows entities to continue to apply provisions of Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, (APB Opinion No. 25) and provide pro forma net income
disclosures as if the fair-value-based method defined in SFAS No. 123
had been applied. The Company has elected to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS
No. 123.
(n) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable
and accounts payable approximate fair value because of the short-term
nature of these instruments.
(o) SEGMENT REPORTING
Based on definitions contained within SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information, the Company has
determined that it operate in one segment.
8
<PAGE> 9
PREMIA CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
(p) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS No. 133 establishes accounting and reporting
standards for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities.
Because the Company does not currently hold any derivative instruments
and does not engage in hedging activities, the Company expects that the
adoption of SFAS No. 133 will not have a material impact on its
financial position, results of operations or cash flows. The Company
will be required to adopt SFAS No. 133 for the year ended December 31,
2001 in accordance with FASB SFAS no. 137, which delayed implementation
of SFAS 133.
(q) RESTATEMENTS
The 1997 and 1998 financial statements have been restated as a result of
changes in the timing of the recognition of revenues and as a result of
a change in the method by which the Company accounts for its investment
securities.
(2) INVESTMENT SECURITIES
The amortized costs, estimated market values, unrealized gains and
unrealized losses of investment securities at December 31, 1999 and 1998 are
summarized as follows:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
1999:
Available for sale:
Mutual funds $671,019 $223,655 $ -- $894,674
-------- -------- ---- --------
Total available for sale $671,019 $223,655 $ -- $894,674
======== ======== ==== ========
1998:
Available for sale:
Mutual funds $620,717 $118,457 $ -- $739,174
-------- -------- ---- --------
Total available for sale $620,717 $118,457 $ -- $739,174
======== ======== ==== ========
</TABLE>
There were no sales of available for sale securities for the year ended
December 31, 1999. Proceeds from sales of available for sale securities for
the year ended December 31, 1998 were $126,999. Gross realized gains on sale
of securities available for sale for the year ended December 31, 1998 were
$5,870 and gross realized losses were $-0-. Realized gains and losses are
determined using the specific identification method.
9
<PAGE> 10
PREMIA CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
(3) FIXED ASSETS
Fixed assets consist of the following at December 31:
1999 1998
-------- ---------
Furniture and equipment $648,341 $586,580
Computer software 9,747 3,863
Auto and truck 43,303 43,303
-------- --------
701,391 633,746
Less accumulated depreciation 302,182 208,038
-------- --------
$399,209 $425,708
======== ========
For the years ended December 31, 1999 and 1998 depreciation expense was
$94,144 and $87,692, respectively.
(4) STOCKHOLDERS' EQUITY
COMMON STOCK
The Company has authorized 5,000,000 shares of no par value common stock.
Each share of common stock has voting rights of one vote per share.
(5) COMMITMENTS AND CONTINGENCIES
(a) LEASES
The Company leases office space and office equipment under a
non-cancelable operating lease which expires at various dates through
December 2005.
Future minimum lease payments under the operating lease are as follows:
Year ending December 31:
2000 $164,790
2001 168,840
2002 42,840
2003 840
2004 840
Thereafter 840
--------
Total minimum lease payments $378,990
========
Rental expense total $191,470 and $192,615 in 1999 and 1998,
respectively.
10
<PAGE> 11
PREMIA CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
(b) ROYALTIES
In 1999, the Company entered into royalty agreements to pay royalties
based on the number of software products sold either separately or
incorporated within the Company's products. There were no royalty
payments under the agreements for the year ended December 31, 1999.
Royalties are paid based upon number of units sold or a minimum royalty
under the agreements, whichever is larger. Either party has the right to
terminate the agreements in the event of material default.
Future minimum royalty payments under agreements, unless terminated, are
as follows:
Year ending December 31:
2000 $ 400,000
2001 550,000
2002 675,000
2003 700,000
2004 725,000
Thereafter --
----------
Total minimum royalty payments $3,050,000
==========
(6) EMPLOYEE STOCK OPTION PLAN
During 1998, the Company established a stock incentive plan for eligible
employees, directors and outside consultants of the Company. The Company has
authorized the issuance of up to an aggregate of 250,000 shares of common
stock under the Plan. Non-qualified and incentive stock options may be
issued under the Plan and are exercisable upon one of the following
qualifying events: (a) corporate transaction resulting in a change of
control of greater than 66.66% of the common stock (b) an initial public
offering in excess of $10 million or (c) ten years after the date of grant.
The options vest over a period of four years. The exercise price for stock
options is determined by the Board of Directors.
The per share weighted average fair value, as determined by applying the
minimum value method to stock options granted under the Plan during 1999 and
1998 was $0.990 and $0.812, respectively, on the date of grant with the
following weighted average assumptions: expected dividend yield of zero,
risk-free interest rate of 5% for 1999 and 6.38% for 1998, and an expected
life of seven years.
11
<PAGE> 12
PREMIA CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
The pro forma effects on net income of applying SFAS No. 123 are as follows:
1999 1998
--------- ---------
Net income, as reported $ 129,337 $ 284,872
Stock based compensation expense (25,881) (70,605)
--------- ---------
Pro forma net income $ 103,456 $ 214,267
========= =========
The following table summarizes stock option activity:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
-------- --------
Options outstanding, October 28, 1998
(date of Plan adoption) -- $ --
Granted 127,300 2.75
-------- -----
Options outstanding, December 31, 1998 127,300 $2.75
Granted 22,500 2.75
Forfeited (9,625) 2.75
-------- -----
Options outstanding, December 31, 1999 140,175 $2.75
======== =====
At December 31, 1999, 109,825 shares were available for grant. Options to
purchase 107,978 shares of common stock at a weighted average exercise price
of $2.75 were exercisable upon a qualifying event as described above. The
remaining average contractual life of the outstanding options was 9 years.
(7) RISK OF TECHNOLOGICAL CHANGE
CONTINGENCIES AND FACTORS THAT COULD AFFECT FUTURE RESULTS
A substantial portion of the Company's revenues each year are generated from
the development and rapid release to market of computer software products
newly introduced during the year. In the extremely competitive industry
environment in which the Company operates, such product generation,
development and marketing processes are uncertain and complex, requiring
accurate prediction of market trends and demand as well as successful
management of various development risks inherent in such products. In light
of this dependency, it is reasonably possible that failure to successfully
manage a significant product introduction could have a severe near-term
impact on the Company's growth and results of operations.
(8) SUBSEQUENT EVENT
In 2000, the Company issued 7,500 stock options to employees at a price of
$2.75. The Company is currently in negotiations to be acquired at a price of
$22 per share. In connection with the grants issued, the Company will
recognize deferred compensation in the first quarter of 2000.
12
<PAGE> 1
EXHIBIT 99.3
STARBASE CORPORATION
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
On November 4, 1999, the Company signed a definitive agreement to acquire all of
the outstanding shares of common stock of ObjectShare, Inc. ("ObjectShare"),
through a wholly owned subsidiary, in exchange for 952,432 shares of StarBase
common stock valued at $8,850,000, transaction costs of $1,435,000 (payable in
100,000 shares of StarBase common stock valued at $929,000 and cash of $560,000)
and the assumption of net liabilities of $370,000. The net liabilities assumed
include a write-down of $279,000 of property to its estimated fair market value
and the assumption of $415,000 of severance liabilities which will be settled by
the issuance of 44,662 shares of common stock. The acquisition will be accounted
for as a purchase.
On March 8, 2000, the Company acquired all of the outstanding capital stock and
stock options of Premia Corporation ("Premia") in exchange for 1,869,159 shares
of StarBase common stock valued at $23,832,000 and estimated cash transaction
costs of $500,000. The acquisition will be accounted for as a purchase.
The following unaudited pro forma balance sheet as of December 31, 1999 assumes
that the acquisitions of ObjectShare and Premia occurred on December 31, 1999.
The unaudited pro forma statement of operations for the nine months ended
December 31, 1999 assumes the acquisitions of ObjectShare and Premia had
occurred on April 1, 1999. The unaudited pro forma statement of operations for
the year ended March 31, 1999 assumes the acquisitions of ObjectShare and Premia
had occurred on April 1, 1998. The pro forma combined results of operations is
presented for information purposes only, is based on historical information, and
does not necessarily reflect the actual results that would have occurred nor is
it necessarily indicative of future results of the combined enterprise.
13
<PAGE> 2
STARBASE CORPORATION
UNAUDITED PRO FORMA BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
Combined
StarBase ObjectShare Premia Pro Forma
December 31, December 31, December 31, Pro Forma December 31,
1999 1999 1999 Adjustments 1999
------------ ------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 9,240 $ 780 $ 567 $ (1,060)(1) $ 9,527
Restricted cash 39 -- -- -- 39
Marketable securities 22 -- -- -- 22
Accounts receivable, net 4,273 500 900 -- 5,673
Prepaid expense and other assets 345 24 106 -- 475
-------- -------- ------ -------- --------
Total current assets 13,919 1,304 1,573 (1,060) 15,736
Investment securities available
for sale -- -- 895 -- 895
Property and equipment, net 1,061 279 399 (279)(1) 1,460
Developed technology, net 823 -- -- -- 823
Goodwill and other intangibles -- -- -- 33,615 (1) 33,615
Note receivable from officer 98 -- -- -- 98
Long-term restricted cash 39 -- -- -- 39
Other non-current assets 368 59 14 -- 441
-------- -------- ------ -------- --------
Total assets $ 16,308 $ 1,642 $2,881 $ 32,276 $ 53,107
======== ======== ====== ======== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 394 $ 778 $ 69 $ -- $ 1,241
Accrued compensation 712 122 460 -- 1,294
Other accrued liabilities 547 385 18 -- 950
Deferred revenue 2,332 -- 818 -- 3,150
Current portion of long-term
obligations 132 49 -- -- 181
-------- -------- ------ -------- --------
Total current liabilities 4,117 1,334 1,365 -- 6,816
Long-term liabilities:
Long-term obligations, less current
portion 73 74 -- -- 147
Long-term deferred revenue 638 -- -- -- 638
-------- -------- ------ -------- --------
Total long-term liabilities 711 74 -- -- 785
Commitments and contingencies
Stockholders' equity:
Preferred stock 1 -- -- -- 1
Common stock 410 12 100 86 (1) 608
Additional paid-in capital 69,274 50,239 -- (16,411)(1) 103,102
Retained earnings (deficit) (58,106) (50,017) 1,192 48,825 (1) (58,106)
Accumulated other comprehensive
income (loss) (99) -- 224 (224)(1) (99)
-------- -------- ------ -------- --------
Net stockholders' equity 11,480 234 1,516 32,276 45,506
-------- -------- ------ -------- --------
Total liabilities and stockholders'
equity $ 16,308 $ 1,642 $2,881 $ 32,276 $ 53,107
======== ======== ====== ======== ========
</TABLE>
14
<PAGE> 3
STARBASE CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Nine months ended December 31, 1999
---------------------------------------------------------------
Pro Forma Combined
StarBase ObjectShare Premia(2) Adjustments Pro Forma
-------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
License $ 9,491 $ 1,464 $3,458 $ -- $ 14,413
Service 1,848 4,897 900 -- 7,645
-------- ------- ------ ------- --------
Total revenues 11,339 6,361 4,358 -- 22,058
Cost of Revenues:
License 930 543 327 -- 1,800
Service 915 3,040 -- -- 3,955
-------- ------- ------ ------- --------
Total cost of revenues 1,845 3,583 327 -- 5,755
-------- ------- ------ ------- --------
Gross margin 9,494 2,778 4,031 -- 16,303
Operating Expenses:
Research and development 3,075 824 516 -- 4,415
Sales and marketing 5,790 2,794 1,700 -- 10,284
General and administrative 3,312 2,634 1,603 -- 7,549
Goodwill amortization -- -- -- 5,042(3) 5,042
-------- ------- ------ ------- --------
Total operating expenses 12,177 6,252 3,819 5,042 27,290
-------- ------- ------ ------- --------
Operating income (loss) (2,683) (3,474) 212 (5,042) (10,987)
Interest and other income (loss) 88 3,229 59 -- 3,376
Equity in loss of investee (250) -- -- -- (250)
-------- ------- ------ ------- --------
Income (loss) before income taxes (2,845) (245) 271 (5,042) (7,861)
Provision for income taxes 1 -- -- -- 1
-------- ------- ------ ------- --------
Net income (loss) (2,846) (245) 271 (5,042) (7,862)
Non-cash dividend and accretion
of beneficial conversion feature 549 -- -- -- 549
-------- ------- ------ ------- --------
Net income (loss) applicable to
common stockholders $ (3,395) $ (245) $ 271 $(5,042) $ (8,411)
======== ======= ====== ======= ========
Per share data:
Basic and diluted net income (loss)
per common share $ (0.11) $ (0.02) $ (0.25)
======== ======= ========
Basic and diluted weighted average
common shares outstanding 30,859 12,451 (9,505)(4) 33,805
======== ======= ======= ========
</TABLE>
15
<PAGE> 4
STARBASE CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Year ended March 31, 1999
---------------------------------------------------------------------
Pro Forma Combined
StarBase ObjectShare Premia(2) Adjustments Pro Forma
-------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
License $ 5,964 $ 5,380 $ 4,014 $ -- $ 15,358
Service 868 10,426 884 -- 12,178
-------- -------- ------- ------- --------
Total revenues 6,832 15,806 4,898 -- 27,536
Cost of Revenues:
License 508 1,737 615 -- 2,860
Service -- 5,705 -- -- 5,705
-------- -------- ------- ------- --------
Total cost of revenues 508 7,442 615 -- 8,565
-------- -------- ------- ------- --------
Gross margin 6,324 8,364 4,283 -- 18,971
Operating Expenses:
Research and development 4,437 3,542 514 -- 8,493
Sales and marketing 7,638 6,719 1,885 -- 16,242
General and administrative 2,963 3,115 1,951 -- 8,029
Goodwill amortization -- -- -- 6,723(3) 6,723
-------- -------- ------- ------- --------
Total operating expenses 15,038 13,376 4,350 6,723 39,487
-------- -------- ------- ------- --------
Operating loss (8,714) (5,012) (67) (6,723) (20,516)
Interest and other income (loss) 32 160 103 -- 295
-------- -------- ------- ------- --------
Income (loss) before income taxes (8,682) (4,852) 36 (6,723) (20,221)
Provision (benefit) for income taxes 1 (13) -- -- (12)
-------- -------- ------- ------- --------
Net income (loss) (8,683) (4,839) 36 (6,723) (20,209)
Non-cash dividend and accretion
of beneficial conversion feature 1,277 -- -- -- 1,277
-------- -------- ------- ------- --------
Net income (loss) applicable to
common stockholders $ (9,960) $ (4,839) $ 36 $(6,723) $(21,486)
======== ======== ======= ======= ========
Per share data:
Basic and diluted net income (loss)
per common share $ (0.49) $ (0.39) $ (0.92)
======== ======== ========
Basic and diluted weighted average
common shares outstanding 20,526 12,308 (9,362)(4) 23,472
======== ======== ======= ========
</TABLE>
16
<PAGE> 5
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(1) To reflect the elimination of ObjectShare's and Premia's equity accounts and
the allocation of purchase price of $10,799,000 for the ObjectShare
acquisition and $24,332,000 for the Premia acquisition, $33,615,000 to
Goodwill and $1,516,000 to Premia's net assets.
Also reflects the write-down of ObjectShare's property and equipment to an
estimated fair market value of zero, estimated cash transaction costs of
$1,060,000 and the issuance of 44,622 shares of StarBase common stock in
settlement of certain ObjectShare severance agreements valued at $415,000.
The allocation may change once the audits of ObjectShare's and Premia's
closing balance sheets are completed and other valuation information is
received.
(2) To reflect the statement of operations data of Premia as if their year-end
was March 31.
(3) To reflect the amortization of goodwill of $33,615,000 over five years on a
straight-line basis.
(4) To adjust for the 1,097,094 and 1,869,159 shares of StarBase common stock
issued in the acquisitions of ObjectShare and Premia, respectively, in the
basic and diluted net loss per share calculation.
17
