PEGASYSTEMS INC - FORM 8-K/A - EX-99.3

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8-K/A - FORM 8-K AMENDMENT - PEGASYSTEMS INC	d649106d8ka.htm
EX-99.4 - EX-99.4 - PEGASYSTEMS INC	d649106dex994.htm
EX-99.2 - EX-99.2 - PEGASYSTEMS INC	d649106dex992.htm
EX-23.1 - EX-23.1 - PEGASYSTEMS INC	d649106dex231.htm

Exhibit 99.3

Antenna Software, Inc.

And Subsidiaries

Consolidated Financial Statements as of and

for the Period Ended September 30, 2013

ANTENNA SOFTWARE, INC. AND SUBSIDIARIES

Table of Contents


	Page

Financial Statements (unaudited):
Condensed Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012		2

Condensed Consolidated Statement of Comprehensive Loss for the Nine Months Ended September 30, 2013 and 2012		3

Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2013 and 2012		4

Notes to Consolidated Financial Statements as of and for the Nine Months Ended September 30, 2013 and 2012		5

Antenna Software, Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets


	As of September 30, 2013			As of December 31, 2012
Assets
Current assets:
Cash and cash equivalents	$	1,043,939		$	3,440,968
Accounts receivable, net of allowance of $524,151 and $192,405		4,841,403			4,990,814
Prepaid expenses and other current assets		1,410,649			1,177,457

Total current assets		7,295,991			9,609,239

Property and equipment, net		1,649,828			2,376,533
Intangible assets, net		5,296,497			6,715,960
Goodwill, net		18,519,149			18,519,149
Other assets		638,893			729,082

Total assets	$	33,400,358		$	37,949,963


Liabilities, Convertible Redeemable Preferred Stock and Stockholders’ Deficiency
Current liabilities:
Line of credit - bank	$	2,150,000		$	2,150,000
Current maturities of long-term debt		9,158,996			8,183,476
Accounts payable		1,655,744			1,235,555
Accrued expenses and other current liabilities		3,214,420			3,823,714
Deferred revenue, current		8,368,994			9,225,371

Total current liabilities		24,548,154			24,618,116

Deferred revenue, long term		3,390,718			4,768,555
Other liabilities		225,301			239,235

Total liabilities		28,164,173			29,625,906


Series A-1 convertible redeemable preferred stock		13,003,147			13,003,147
Series B-1 convertible redeemable preferred stock		13,099,993			13,099,993
Series C-1 convertible redeemable preferred stock		25,345,249			24,373,893
Series D-1 convertible redeemable preferred stock		96,107,206			91,512,803

Total convertible redeemable preferred stock		147,555,595			141,989,836

Commitments and contingencies
Stockholders’ deficiency:

Common stock, $0.001 par value, 41,300,000 shares authorized, 2,076,001 and 1,940,801 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively		2,076			1,941
Accumulated deficit		(142,324,634	)		(133,670,868	)
Accumulated other comprehensive income		3,148			3,148

Total stockholders’ deficiency		(142,319,410	)		(133,665,779	)

Total liabilities, convertible redeemable preferred stock and stockholders’ deficiency	$	33,400,358		$	37,949,963

See the accompanying notes to the consolidated unaudited condensed financial statements.

Antenna Software, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statement of Comprehensive Loss


	Period Ended			Period Ended
	September 30,			September 30,
	2013			2012

Revenue:
Service	$	20,145,839		$	24,175,191
License		3,877,909			5,456,743

Total revenue		24,023,748			29,631,934


Cost of revenue:
Service		10,164,743			12,577,080
License		575,383			607,421

Total cost of revenue		10,740,126			13,184,501


Gross profit		13,283,622			16,447,433


Operating expenses:
Product development		3,176,561			6,531,211
Selling and marketing		5,530,527			10,656,924
General and administrative		5,456,230			7,255,479
Amortization of intangible assets		844,136			856,674


Total operating expenses		15,007,454			25,300,288


Operating loss		(1,723,832	)		(8,852,855	)

Interest and other income		291,414			56,902
Interest and other expense		(1,814,288	)		(338,669	)

Net loss before benefit from income taxes		(3,246,706	)		(9,134,622	)

Benefit from income taxes		(31,536	)		(259,133	)

Net loss	$	(3,215,170	)	$	(8,875,489	)

See the accompanying notes to the consolidated unaudited condensed financial statements.

Antenna Software, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows


	Period Ended			Period Ended
	September 30,			September 30,
	2013			2012
Cash flows from operating activities:
Net loss	$	(3,215,170	)	$	(8,875,489	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		126,959			409,824
Depreciation and amortization		2,406,132			2,374,948
Provision for doubtful accounts		366,917			156,236
Deferred rent		(13,934	)		173,557
Change in operating assets and liabilities
Accounts receivable		(217,506	)		(1,109,104	)
Prepaid expenses and other current assets		(233,192	)		(132,209	)
Accounts payable		420,189			(87,142	)
Accrued expenses and other current liabilities		(127,294	)		(1,709,856	)
Deferred revenue		(2,234,214	)		(447,422	)

Net cash used in operating activities		(2,721,113	)		(9,246,657	)


Cash flows from investing activities:
Purchases of property and equipment		(117,158	)		(1,444,488	)
Decrease in other assets		90,189			55,780

Net cash used in investing activities		(26,969	)		(1,388,708	)


Cash flows from financing activities:
Proceeds from bank credit facilities		950,000			9,420,459
Payments of bank credit facilities		(599,286	)		(2,958,334	)
Proceeds from exercise of common stock options		339			129,425

Net cash provided by financing activities		351,053			6,591,550


Net decrease in cash and cash equivalents		(2,397,029	)		(4,043,815	)

Cash and cash equivalents - beginning of the period		3,440,968			7,784,697


Cash and cash equivalents - end of the period	$	1,043,939		$	3,740,882

See the accompanying notes to the consolidated unaudited condensed financial statements.

Antenna Software, Inc. and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

1.	Basis of Presentation

Antenna Software, Inc. (the “Company”) has prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“U.S.”) for complete financial statements and should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2012.

In the opinion of management, the Company has prepared the accompanying unaudited condensed consolidated financial statements on the same basis as its audited financial statements, and these financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year 2013.

2.	Cash and Cash Equivalents

Cash and cash equivalents include all cash balances and highly liquid investments purchased with remaining maturities of three months or less. The balances at times may exceed federally insured limits.

3.	Accounts Receivable


	As of			As of
	September 30, 2013			December 31 2012
Trade accounts receivable	$	4,289,330		$	3,616,741
Unbilled trade accounts receivable		1,076,224			1,566,478

Total accounts receivable		5,365,554			5,183,219

Allowance for doubtful accounts		(524,151	)		(192,405	)

	$	4,841,403		$	4,990,814

Unbilled trade accounts receivable relate to services earned primarily under time and material arrangements that had not been invoiced as of September 30, 2013 and December 31, 2012, respectively

Antenna Software, Inc. and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

4.	Supplemental Balance Sheet Accounts

Prepaid Expenses and Other Assets


	As of		As of
	September 30, 2013		December 31 2012
Prepaid expenses	$	785,649	$	552,457
Tax receivables		625,000		625,000

	$	1,410,649	$	1,177,457

Property and Equipment


			As of			As of
			September 30,			December 31
	Useful lives		2013			2012
Furniture & fixtures		7 years	$	1,605,547		$	1,609,674
Leasehold improvements		5 years		503,224			501,311
Computer software		3 years		1,154,465			1,130,834
Computer hardware		3 years		3,981,991			3,928,167

				7,245,227			7,169,986
Less: accumulated depreciation				(5,595,399	)		(4,793,453	)

			$	1,649,828		$	2,376,533

Depreciation expense approximated $844,000 and $816,000 for the nine months ended September 30, 2013 and 2012, respectively.

Goodwill and Other Intangible Assets

There were no changes in the carrying amount of goodwill during the first nine months of 2013.

Other intangible assets consisted of the following:


										Weighted
								Net		Average
	Gross Carrying		Impairment		Accumulated			Carrying		Amortization
	Amount		Charges		Amortization			Amount		Period
Intangible assets as of September 30, 2013:
Customer relationships	$	12,402,071	$	—	$	(8,260,249	)	$	4,141,822	7.5
Developed technology		4,830,000		—		(4,115,325	)		714,675	5
In-process R&D		440,000		—		—			440,000
Trademarks/tradenames		132,000		—		(132,000	)		—	5


Total	$	17,804,071	$	—	$	(12,507,574	)	$	5,296,497

Antenna Software, Inc. and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements


										Weighted
								Net		Average
	Gross Carrying		Impairment		Accumulated			Carrying		Amortization
	Amount		Charges		Amortization			Amount		Period

Intangible assets as of December 31, 2012:
Customer relationships	$	12,402,071	$	—	$	(7,416,170	)	$	4,985,901	7.5
Developed technology		4,830,000		—		(3,539,941	)		1,290,059	5
In-process R&D		440,000		—		—			440,000
Trademarks/tradenames		132,000		—		(132,000	)		—	5


Total	$	17,804,071	$	—	$	(11,088,111	)	$	6,715,960

Amortization of intangible assets approximated $1,420,000 and $1,464,000 for the nine months ended September 30, 2013 and 2012. As of September 30, 2013, the Company expects amortization expense in future periods to be as follows:


Remainder of 2013	$	473,155
2014		1,550,245
2015		1,179,153
2016		1,091,446
2017		519,479
thereafter		43,019

	$	4,856,497

Accrued Expenses and Other Current Liabilities


	As of		As of
	September 30,		December 31,
	2013		2012
Accrued compensation	$	1,156,566	$	1,714,110
Accrued professional costs		242,770		103,909
Accrued other taxes payable		386,733		702,626
Accrued other liabilities		881,350		756,069
Derivative liability		547,000		547,000

	$	3,214,420	$	3,823,714

Debt

Comerica

As of September 30, 2013 and December 31, 2012 approximately $3,334,000 and $3,950,000 was outstanding under the Comerica Loan Agreement.

Antenna Software, Inc. and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

Eastward

As of September 30, 2013 and December 31, 2012, approximately $7,000,000 was outstanding under the Lease Agreement.

Bridge Loan

On August 23, 2013 the Company established a $3,000,000 bridge financing agreement with certain members of the Series D-1 investment group. As of September 30, 2013 the Company had borrowed $950,000 of principal under the agreement. The borrowings bear interest at a rate of 8% per annum and require a fee on the borrowings of 50%, which amounted to approximately $482,000 at September 30, 2013.

As discussed in Note 7, on October 9, 2013, the Company entered into an Agreement and Plan of Merger with Pegasystems Inc. and became a wholly owned subsidiary of Pegasystems Inc. The Comerica loans, Eastward debt and Bridge loan were repaid out of the transaction proceeds.

6.	Stock-Based Compensation and Preferred Stock

Stock-based compensation expense was approximately $127,000 and $410,000 for the periods ended September 30, 2013 and September 30, 2012, respectively.

Accretion of preferred stock was approximately $5,566,000 and $5,682,000 for the periods ended September 30, 2013 and September 30, 2012, respectively.

7.	Subsequent Events

On October 9, 2013, the Company and Pegasystems Inc., entered into an Agreement and Plan of Merger (the “Merger Agreement”). Pursuant to the Merger Agreement, on October 10, 2013 the Company became a wholly owned subsidiary of Pegasystems and the issued and outstanding capital stock of Antenna was cancelled and converted into the right to receive $27,700,000, from which the payment of indebtedness, management bonuses and transaction expenses was made. The consideration was paid to the former stockholders of the Company in accordance with the terms of the Merger Agreement and is subject to customary post-closing adjustment based on net working capital. Of the consideration, 15% will be held in escrow for an 18-month period after the closing to secure the rights of indemnity provided under the terms of the Merger Agreement, with half of the escrow eligible to be released after 12 months.

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