<PAGE>

================================================================================

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D. C. 20549


                                   FORM 10-Q

(Mark One)

 X   Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
---
Act of 1934

For the quarterly period ended April 30, 1999

                                      OR

___  Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934


                       Commission File Number:  0-22369



                               BEA SYSTEMS, INC.
            (Exact name of registrant as specified in its charter)



               Delaware                                     77-0394711
     (State or other jurisdiction of                    (I. R. S. Employer
      incorporation or organization)                   Identification No. )


                            2315 North First Street
                          San Jose, California  95131
                   (Address of principal executive offices)


                                (408) 570-8000
             (Registrant's telephone number, including area code)



   Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

             Yes   X                                       No   __
                  ---

   As of May 31, 1999, there were approximately 59,350,000 shares of the
Registrant's Common Stock outstanding and 17,824,000 shares of Registrant's
Class B Common Stock outstanding.

================================================================================
<PAGE>

                               BEA SYSTEMS, INC.

                                     INDEX

<TABLE>
<CAPTION>

PART I.   FINANCIAL INFORMATION                                                                                 Page No.
                                                                                                                --------
<S>                                                                                                             <C>
ITEM 1.   Financial Statements (Unaudited):

          Condensed Consolidated Statements of Operations
            Three months ended April 30, 1999 and 1998.........................................................     3

          Condensed Consolidated Balance Sheets
            April 30, 1999 and  January 31, 1999...............................................................     4

          Condensed Consolidated Statements of Cash Flows
            Three months ended April 30, 1999 and 1998.........................................................     5

          Notes to Condensed Consolidated Financial Statements.................................................     6

ITEM 2.   Management's Discussion and Analysis of Financial Condition and Results of
          Operations...........................................................................................     8


ITEM 3.   Quantitative and Qualitative Disclosure about Market Risks...........................................    23


PART II.  OTHER INFORMATION

ITEM 6.   Exhibits and Reports on Form 8-K.....................................................................    24

Signatures.....................................................................................................    25
</TABLE>

                                       2
<PAGE>

PART I.   FINANCIAL INFORMATION

ITEM I.   FINANCIAL STATEMENTS

                               BEA SYSTEMS, INC.

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                            AND COMPREHENSIVE LOSS
                     (in thousands, except per share data)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                                      Three Months Ended
                                                                                          April 30,
                                                                               ----------------------------------
                                                                                   1999                   1998
                                                                               ------------           -----------
<S>                                                                            <C>                    <C>
 Revenues:
          License fees                                                          $  55,906              $  40,619
          Services                                                                 29,669                 17,910
                                                                               ----------              ---------
                  Total revenues                                                   85,575                 58,529

 Cost of revenues:
          Cost of license fees                                                      1,165                    781
          Cost of services                                                         16,641                 11,464
          Amortization of certain acquired intangible assets                        6,840                  3,182
                                                                               ----------              ---------
                  Total cost of revenues                                           24,646                 15,427
                                                                               ----------              ---------
 Gross profit                                                                      60,929                 43,102

 Operating expenses:
          Sales and marketing                                                      41,790                 27,047
          Research and development                                                 12,044                 10,493
          General and administrative                                                9,107                  5,929
          Acquisition-related charges                                                   -                    491
                                                                               ----------              ---------
                   Total operating expenses                                        62,941                 43,960
                                                                               ----------              ---------
 Loss from operations                                                              (2,012)                  (858)

 Interest income/(expense) and other, net                                            (388)                   332
                                                                               ----------              ---------
 Loss before provision for income taxes                                            (2,400)                  (526)

 Provision for income taxes                                                         1,565                    623
                                                                               ----------              ---------
 Net loss                                                                          (3,965)                (1,149)
 Other comprehensive income/(loss):
         Foreign currency translation adjustments                                    (310)                   101
         Unrealized loss on available-for-sale investments, net of
            income taxes                                                              (22)                   (21)
                                                                               ----------              ---------
 Comprehensive loss                                                             $  (4,297)             $  (1,069)
                                                                               ==========              =========
 Basic and diluted net loss per share                                           $   (0.05)             $   (0.02)
                                                                               ==========              =========
 Shares used in computing basic and diluted net loss per share                     75,750                 67,379
                                                                               ==========              =========
</TABLE>

                            See accompanying notes.

                                       3
<PAGE>

                               BEA SYSTEMS, INC.

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                (in thousands)

<TABLE>
<CAPTION>
                                                                                 April 30, 1999      January 31, 1999
                                                                                ---------------     ------------------
                                                                                  (Unaudited)
<S>                                                                             <C>                 <C>
                            ASSETS

Current assets:
     Cash and cash equivalents                                                    $   249,600           $   232,556
     Short-term investments                                                             3,732                 3,895
     Accounts receivable, net                                                          79,339                77,068
     Other current assets                                                               6,013                 4,279
                                                                                  -----------           -----------
          Total current assets                                                        338,684               317,798

Computer equipment, furniture and leasehold improvements, net                          19,657                17,185
Acquired intangible assets, net                                                        51,072                58,901
Other assets                                                                            8,957                 9,127
                                                                                  -----------           -----------
          Total assets                                                            $   418,370           $   403,011
                                                                                  ===========           ===========


               LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Borrowing under lines of credit                                              $       679           $       679
     Accounts payable                                                                  10,430                 7,615
     Accrued liabilities                                                               50,035                47,747
     Accrued income taxes                                                               5,862                 5,991
     Deferred revenues                                                                 47,192                33,784
     Current portion of notes payable and capital lease obligations                        56                    43
                                                                                  -----------           -----------
          Total current liabilities                                                   114,254                95,859

Notes payable and other long-term obligations                                             397                   112
Convertible subordinated notes                                                        250,000               250,000
Commitments and contingencies

Stockholders' equity:
     Common stock                                                                          77                    77
     Additional paid-in capital                                                       243,885               243,097
     Accumulated deficit                                                             (187,081)             (183,116)
     Notes receivable from shareholders                                                  (544)                 (544)
     Deferred compensation                                                             (1,692)               (1,880)
     Accumulated other comprehensive loss                                                (926)                 (594)
                                                                                  -----------           -----------
          Total stockholders' equity                                                   53,719                57,040
                                                                                  -----------           -----------
          Total liabilities and stockholders' equity                              $   418,370           $   403,011
                                                                                  ===========           ===========
</TABLE>


                            See accompanying notes.

                                       4
<PAGE>

                               BEA SYSTEMS, INC.

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                                         Three Months Ended
                                                                                             April 30,
                                                                                     -------------------------
                                                                                        1999           1998
                                                                                     ----------     ----------
<S>                                                                                  <C>            <C>
Operating activities:
   Net loss                                                                          $   (3,965)    $   (1,149)
   Adjustments to reconcile net loss to net cash provided by
     operating activities:
       Depreciation and amortization                                                      1,865            609
       Amortization of deferred compensation                                                188            197
       Amortization of certain acquired intangible assets and
       acquisition-related charges                                                        7,829          3,383
       Amortization of debt issuance costs                                                  261              -
       Changes in operating assets and liabilities                                       14,279         (2,586)
       Other                                                                               (287)           (30)
                                                                                     ----------     ----------
Net cash provided by operating activities                                                20,170            424
                                                                                     ----------     ----------

Investing activities:
   Purchase of computer equipment, furniture and
     leasehold improvements                                                              (4,337)          (871)
   Payments for business combinations, net of cash acquired                                   -         (1,575)
   Net maturities/(purchases) of available-for-sale short-term investments                  141         (1,010)
                                                                                     ----------     ----------
Net cash used in investing activities                                                    (4,196)        (3,456)
                                                                                     ----------     ----------

Financing activities:
   Net borrowings under lines of credit                                                       -            964
   Net payments on notes payable and capital lease obligations                              (83)        (4,351)
   Proceeds from issuance of common stock and preferred stock, net                          788         12,122
                                                                                     ----------     ----------
Net cash provided by financing activities                                                   705          8,735
                                                                                     ----------     ----------

Net increase in cash and cash equivalents                                                16,679          5,703

Effect of exchange rate changes on cash                                                     365            101

Cash and cash equivalents at beginning of period                                        232,556         90,984
                                                                                     ----------     ----------
Cash and cash equivalents at end of period                                           $  249,600     $   96,788
                                                                                     ==========     ==========
</TABLE>


                            See accompanying notes.

                                       5
<PAGE>

                               BEA SYSTEMS, INC.
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1.   Basis of Presentation

     The condensed consolidated financial statements included herein are
unaudited and reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial position, results of operations and cash flows for
the interim periods. These condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes
thereto, together with Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the BEA Systems, Inc. ("BEA" or
the "Company") Annual Report on Form 10-K for the fiscal year ended January 31,
1999. The results of operations for the three months ended April 30, 1999 are
not necessarily indicative of the results for the entire fiscal year ending
January 31, 2000.

     The Company acquired Leader Group, Inc. ("Leader Group") on April 30, 1998
and WebLogic, Inc. ("WebLogic") on September 30, 1998 in merger transactions
accounted for as poolings of interests.  The results of operations for the three
months ended April 30, 1998 have been restated to reflect the combined
operations of the Company, Leader Group and WebLogic.

     The consolidated balance sheet at January 31, 1999 has been derived from
the audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. Note 2. Earnings Per Share

     The Company has adopted Statement of Financial Accounting Standard No. 128,
Earnings per Share ("FAS 128"). Under this standard, basic net loss per share is
computed based on the weighted average number of shares of the Company's common
stock. Diluted net loss per share is computed based on the weighted average
number of shares of the Company's common stock and common equivalent shares
(stock options, warrants, convertible notes and preferred stock), if dilutive.

     The following is a reconciliation of the numerators and denominators of the
basic and diluted loss per share computations (in thousands, except per share
data):

<TABLE>
<CAPTION>
                                                     Three months ended
                                                         April  30,
                                                  -------------------------
                                                     1999           1998
                                                  ----------     ----------
<S>                                               <C>            <C>
Basic and diluted loss per share:
Numerator:
  Net loss                                        $   (3,965)    $   (1,149)
                                                  ==========     ==========

Denominator:
  Weighted average shares                             76,853         69,217
  Shares subject to repurchase                        (1,103)        (1,838)
                                                  ----------     ----------
  Weighted average shares, net                        75,750         67,379
                                                  ==========     ==========

  Basic and diluted net loss per share            $    (0.05)    $    (0.02)
                                                  ==========     ==========
</TABLE>

     The computation of basic and diluted net loss per share for the three
months ended April 30, 1999 excludes the impact of the conversion of the 4%
Convertible Subordinated Notes issued in June and July 1998 (See Note 3), which
are convertible into 9,466,111 shares of common stock, as well as approximately
4.5 million stock options, as such impact would be antidilutive for the period
presented.

     For the three months ended April 30, 1998, the net loss per share excludes
the impact of approximately 321,000 stock options, as such would be antidilutive
for the period presented.

                                       6
<PAGE>

Note 3.   Convertible Subordinated Debt Offering

     In June and July, 1998, the Company completed the sale of $250 million of
4% Convertible Subordinated Notes ("Notes") due June 15, 2005 in an offering to
Qualified Institutional Buyers. The Notes are subordinated to all existing and
future senior indebtedness of the Company, and the principal amount of the Notes
is convertible into common stock of the Company at a conversion rate of 37.87
shares per $1,000 principal amount of Notes (equivalent to an approximate
conversion price of $26.41 per share). The Notes are redeemable at the option of
the Company in whole or in part at any time on or after June 5, 2001, in cash
plus accrued interest, if any, through the redemption date, subject to certain
events. Interest is payable semi-annually.

Note 4.   Comprehensive Loss

On February 1, 1998, the Company adopted Statement of Financial Accounting
Standard No. 130, Reporting Comprehensive Income ("FAS 130"). This standard
established new rules for the reporting and display of comprehensive loss and
its components and requires unrealized gains or losses on the Company's
available-for-sale securities and the foreign currency translation adjustments
to be included in other comprehensive loss.

     The components of accumulated other comprehensive loss are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                    Three months             Year ended
                                                                   ended April 30,           January 31,
                                                                  -----------------       -----------------
                                                                         1999                   1999
                                                                  -----------------       -----------------
<S>                                                               <C>                     <C>
Foreign currency translation adjustment                               $    (877)              $    (567)
Unrealized loss on available-for-sale investments, net of tax               (49)                    (27)
                                                                      ---------               ---------
Total accumulated other comprehensive loss                            $    (926)              $    (594)
                                                                      =========               =========
</TABLE>

Note 5.   Industry and Geographic Segment Information

     Information regarding the Company's operations by geographic areas at April
30, 1999 and 1998 and for the three months then ended is as follows (in
thousands):

<TABLE>
<CAPTION>
                                                               Three months ended
                                                                   April 30,
                                                            -------------------------
                                                               1999           1998
                                                            ----------     ----------
          <S>                                               <C>            <C>
          Total revenues
            United States                                   $   50,839     $   27,772
            Europe, Middle East and Africa (EMEA)               28,251         23,985
            Asia/Pacific and other                               6,485          6,772
                                                            ----------     ----------
                                                            $   85,575     $   58,529
                                                            ==========     ==========
          Long-lived assets (at April 30):
            United States                                   $   75,313     $   24,716
            Europe, Middle East and Africa                       2,892          2,620
            Asia/Pacific and other                               1,481          1,159
                                                            ----------     ----------
                                                            $   79,686     $   28,495
                                                            ==========     ==========
</TABLE>

     Within EMEA, France represented 11 percent of total revenues for the three
months ended April 30, 1999.

Note 6.   Commitments and Contingencies

     The Company has been named in litigation involving alleged patent and
copyright infringement claims. Based on information currently available, the
ultimate resolution of the pending legal proceeding is not likely to have a
material adverse effect on the Company's financial position.

                                       7
<PAGE>

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

     The following discussion of the financial condition and results of
operations of BEA Systems, Inc. should be read in conjunction with the
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and the Notes thereto
included in the Company's Annual Report on Form 10-K for the year ended January
31, 1999. This quarterly report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, including
statements using terminology such as "may," "will," "expects," "plans,"
"anticipates," "estimates," "potential," or "continue," or the negative thereof
or other comparable terminology regarding beliefs, plans, expectations or
intentions regarding the future. Forward-looking statements include statements
regarding growth in the middleware market, consolidation of companies serving
the middleware market and opportunities for BEA related thereto, future
acquisitions or licensing transactions, building sales capacity and pursuing
partnerships with other companies, future cost and expense levels, expected
timing and amount of amortization expenses related to past acquisitions, the
adequacy of resources to meet future cash requirements, future hiring,
evaluation and resolution of the Year 2000 problem, and expenses associated with
the Year 2000 problem. These forward-looking statements involve risks and
uncertainties and actual results could differ materially from those discussed in
the forward-looking statements. These risks and uncertainties include, but are
not limited to, those described under the headings "Year 2000 Compliance" and
"Factors That May Impact Future Operating Results." All forward-looking
statements and risk factors included in this document are made as of the date
hereof, based on information available to BEA as of the date thereof, and BEA
assumes no obligation to update any forward-looking statement or risk factors.

Overview

     BEA Systems, Inc. ("BEA" or the "Company") is a leading provider of cross-
platform middleware solutions for enterprise applications. BEA's products and
services help enable mission-critical distributed applications to work
seamlessly in client/server, Internet, and legacy environments. BEA provides
transactional, messaging, and distributed object-based software, as well as an
industry-leading Java Web application server, for developing and deploying these
enterprise applications. The newly expanded BEA WebLogic product suite provides
component-based application servers for delivering mission-critical, Web-enabled
applications. In addition to its broad software product line, BEA provides
complete solutions to its customers through its full range of services including
consulting, training, and support and extensive partner network.  BEA's revenues
are derived from fees for software licenses, customer support, education and
consulting services.

     Potential Spending Freeze Related to Year 2000.  Industry sources widely
predict that many large corporations will stop deploying new computer systems in
late 1999 and early 2000, in order to avoid disrupting their computer systems
before the year 2000. Large corporations represent the majority of BEA's
customer base, and a material portion of our license fees come from new computer
system deployments. BEA is monitoring its customer base, especially customers
expected to place orders in late 1999, to determine their plans and have been
informed by some of our customers that they intend to freeze. Many of these
customers have informed BEA that they do not plan to freeze deployments, or do
not plan to freeze projects involving BEA products. As a result, BEA believes
that its business will not be materially affected by the anticipated freeze.
However, BEA is also taking several management steps to reduce our exposure to a
freeze in deployments, such as providing special incentives to our sales force
during this time and focussing on transactions that are not dependent on new
deployments of pending projects. However, if the freeze in deployments is larger
than we anticipate, starts earlier or lasts longer than we anticipate, or
affects our targeted customers to a greater degree than we anticipate, our
revenues in late 1999 or early 2000 could be materially lower than expected. See
"--Factors That May Impact Future Operating Results--Potential Fluctuations in
Quarterly Operating Results."

     Acquisitions. Since its inception, BEA has acquired several companies and
product lines, and distribution rights to product lines. Through these
acquisitions, BEA has added additional product lines, additional functionality
to its existing products, additional direct distribution capacity and additional
service capacity. These acquisitions have resulted in significant charges to
BEA's operating results in the periods in which the acquisitions were completed
and have added intangible assets to BEA's balance sheet, the value of which is
being amortized and charged to

                                       8
<PAGE>

BEA's operating results over periods ranging from four to ten quarters after
completion of the acquisitions. BEA's management views the middleware market as
growing but that companies serving that market are consolidating, and that this
consolidation presents an opportunity for BEA to further expand its product
lines and functionality, distribution capacity and services offerings and to add
new, related lines of business. BEA anticipates that it will make additional,
perhaps material, acquisitions in the future. The timing of any such acquisition
is impossible to predict and the charges associated with any such acquisition
could materially adversely affect BEA's results of operations beginning in the
periods in which any such acquisition is completed.

     Investment in Distribution Channel. BEA is currently investing in building
its sales capacity by aggressively hiring sales and technical sales support
personnel, as well as aggressively pursuing partnerships with system platform
companies, packaged application software developers, systems integrators and
independent consultants, independent software tool vendors, and distributors.
This investment results in an immediate increase in expenses, especially in
sales and marketing, although the return on such investments, if any, is not
anticipated to occur until future periods.

     BEA eSolutions. In April 1999, BEA announced the formation of a
concentration on developing and marketing a set of solutions for enterprise
application integration and application development, especially in the area of
electronic commerce. BEA's planned investment in this effort may affect BEA's
anticipated overall financial results, particularly services revenues as a
percentage of total revenues, cost of revenues as a percentage of total
revenues, and research and development expense as a percentage of total
revenues. In addition, investment in this project results in an immediate
increase in expenses, especially in research and development, although the
return on such investment, if any, is not anticipated to occur until future
periods. The expenses adversely affect BEA's operating results in the short term
and also in the long term if the anticipated benefits of such investment do not
materialize.

     Change in Sales Cycles. Since mid fiscal 1999, BEA has experienced changes
in sales cycles for its products. In September 1998, BEA completed its merger
with WebLogic, Inc. ("WebLogic"), whose products tend to have a shorter sales
cycle than BEA's enterprise application solutions. During the second half of
fiscal 1999, an increasing number of BEA customers began negotiating licenses to
use BEA's enterprise application solutions products as an architectural platform
for several applications. These architectural commitments are larger in scope
and potential revenue than single project transactions. In some cases, these
architectural commitments have longer sales cycles than BEA's typical
transactions, both because of the customer's decision cycle in adopting an
architectural platform and because of heightened corporate approval requirements
for larger contracts. In some cases, architectural commitment transactions have
a shorter than usual sales cycle, in order for the customer to proceed with
development of the new applications. These contrasting changes in the sales
cycles and product mix may affect BEA's future quarterly revenues, revenue mix
and operating results.

Results of Operations

Revenues

     BEA's revenues are derived from fees for software licenses, customer
support, education and consulting services. Total revenues increased $27.0
million or 46 percent from the quarter ended April 30, 1998 to the quarter ended
April 30, 1999. The increase reflects additional sales to existing customers,
addition of new customer accounts and an increase in service offerings.

     License Revenues.  License revenues increased 38 percent from the first
quarter of fiscal 1999 to the first quarter of fiscal 2000.  The increase in
license revenues was mainly due to continued customer and market acceptance of
the Company's products, and expansion of the Company's direct sales force.
License revenues as a percentage of total revenues represented 65 percent and 69
percent of total revenues in the first quarter of fiscal 2000 and 1999,
respectively.  The decrease was attributable to the increase in service revenues
as a result of the Company's increased focus on its service offerings.

     Service Revenues. Service revenues increased 66 percent in the first
quarter of fiscal 2000 compared with the same quarter in fiscal 1999. Service
revenues as a percentage of total revenues increased to 35 percent in the first
quarter of fiscal 2000 from 31 percent in the first quarter of fiscal 1999. The
increases were primarily due to

                                       9
<PAGE>

increased charges for customer support resulting from increased license sales,
an increase in consulting services offered by the Company, and increased numbers
of service personnel and consultants.

     International Revenues. International revenues accounted for $34.7 million
or 41 percent of total revenue in the quarter ended April 30, 1999 compared with
$30.8 million or 53 percent in the same quarter of the prior fiscal year. The
increase in international revenue dollars was the result of expansion of the
Company's international sales force.

     Revenues from the European, Middle East and Africa region (EMEA) and
Asia/Pacific region (APAC) increased in the first quarter of fiscal 2000 to
$28.3 million and $6.3 million from $24.0 million and $5.9 million,
respectively, in the same quarter of the prior fiscal year.  Revenues from EMEA
represented 33 percent of total revenues in the first quarter of fiscal 2000,
compared with 41 percent in the same quarter of the prior fiscal year.  Revenues
from APAC represented 7 percent of total revenues in the first quarter of fiscal
2000, compared with 10 percent in the same quarter of the prior fiscal year.
These decreases were the direct result of the expansion of the Company's
domestic sales force and increased domestic revenue resulting from the
acquisition of WebLogic.

Cost of Revenues

     Total cost of revenues represented 29 percent and 26 percent of total
revenues in the quarter ended April 30, 1999 and 1998, respectively. The
increase was due to the increase in service revenues as a percentage of total
revenues, which carry a substantially higher cost of revenue than software
licenses. Increased amortization charges related to acquisitions included in
cost of revenues also contributed to the increase.

     Cost of Licenses. Cost of licenses includes expenses related to the
purchase of disks and compact discs, costs associated with transferring the
Company's software to electronic media, the printing of user manuals, packaging
and distribution costs. Cost of licenses represented 2 percent of license
revenues for the first quarter of both fiscal 2000 and 1999.

     Cost of Services.  Cost of services consists primarily of salaries and
benefits for consulting, education and product support personnel.  Cost of
services increased 45 percent in the first quarter of fiscal 2000 compared to
the same quarter of the prior fiscal year.  This increase was the result of the
expansion of customer support centers in Europe and Asia, overall increased
demand for the Company's services, and increased professional services
headcount.  Cost of services represented 56 percent and 64 percent of service
revenues in the quarter ended April 30, 1999 and 1998, respectively.  Cost of
services as a percentage of service revenues decreased primarily as a result of
nonrecurring fixed costs associated with the fiscal 1999 expansion of support
centers in Europe and Asia.  In the future, management expects the cost of
services as a percentage of services revenue to range between 55 percent and 65
percent, as the Company continues to build its support and service organization.

     Amortization of Certain Acquired Intangible Assets.  The amortization of
certain acquired intangible assets, consisting of developed technology,
distribution rights, trademarks and tradenames, totaled $6.8 million and $3.2
million for the first quarter of fiscal years 2000 and 1999, respectively.  The
increase was primarily due to intangible assets resulting from a number of
strategic acquisitions, particularly the fiscal 1999 acquisition of the TOP END
products and the fiscal 1998 acquisition of the MessageQ and ObjectBroker
products.  In the future, amortization expense associated with these intangible
assets recorded through April 30, 1999 is expected to total $6.8 million, $6.7
million and $6.5 million for the second, third and fourth quarter of fiscal
2000, approximately $21.6 million, $1.2 million, and $350,000 for the fiscal
years ending January 31, 2001, 2002 and thereafter, respectively.

Operating Expenses

     Sales and Marketing. Sales and marketing expenses include salaries,
benefits, sales commissions, travel, and facility costs for the Company's sales
and marketing personnel. These expenses also include programs aimed at
increasing revenues, such as advertising, public relations, trade shows and user
conferences. Sales and marketing expenses increased 55 percent in the first
quarter of fiscal 2000 compared with the same quarter of the prior fiscal year.
These expenses represented 49 percent and 46 percent of total revenues for the
quarter ended April 30, 1999 and 1998, respectively. Sales and marketing
expenses increased due to increased commissions on the Company's

                                       10
<PAGE>

increased revenue base, the expansion of the Company's direct sales force and an
increase in marketing personnel and programs. The Company expects to continue to
invest in sales channel expansion and marketing programs to promote the
Company's products. Accordingly, the Company expects sales and marketing
expenses to continue to increase in future periods in absolute dollars.

     Research and Development. Research and development expenses consist
primarily of salaries and benefits for software engineers, contract development
fees, costs of computer equipment used in software development and facilities
expenses. Total expenditures for research and development increased 15 percent
in the first quarter of fiscal 2000 compared with the same quarter in fiscal
1999. Research and development expenses represented 14 percent and 18 percent of
total revenues in the first quarter of fiscal 2000 and 1999, respectively. The
increase in research and development spending in absolute dollars was attributed
to an increase in software development personnel and related expenses. The
decrease in research and development expenses as a percentage of total revenues
was primarily due to the substantial increase in license and service revenues.
The Company expects to continue to commit substantial resources to product
development and engineering in future periods. As a result, the Company expects
research and development expenses to continue to increase in absolute dollars in
future periods. Additionally, management intends to continue recruiting and
hiring experienced software development personnel and to consider the licensing
and acquisition of technologies complementary to the Company's business.

     General and Administrative. General and administrative expenses include
costs for the Company's human resources, finance, information technology,
facilities and general management functions, as well as the amortization of
goodwill associated with various acquisitions. General and administrative
expenses increased 54 percent in the first quarter of fiscal 2000 compared with
the same quarter of fiscal 1999. General and administrative expenses represented
10 percent of total revenues for both quarters ended April 30, 1999 and 1998,
respectively. The increase in general and administrative spending was attributed
to the expansion of the Company's support infrastructure, including information
systems and associated expenses necessary to manage the Company's growth.
Goodwill amortization totaled $989,000 and $201,000 in the first quarter of
fiscal 2000 and 1999, respectively. In the future, amortization of goodwill
recorded prior to April 30, 1999 is expected to total $989,000 for each of the
remaining quarters in fiscal 2000, approximately $3.5 million, $1.4 million and
$20,000 for fiscal years ending January 31, 2001, 2002 and thereafter,
respectively.

     Acquisition related charges.   In fiscal 1999, acquisition related charges
were primarily related to expenses associated with the acquisition of Leader
Group, Inc. ("Leader").

     Interest Expense; Interest Income and Other, Net. Interest expense was $2.5
million in the first quarter of fiscal 2000, compared with $1.1 million in the
same quarter of the prior fiscal year. The increase was due to a higher average
amount of outstanding borrowings, primarily due to the issuance of $250 million
four percent Convertible Subordinated Notes ("Notes"). Interest income and
other, net was $2.1 million and $1.4 million in the first quarter of fiscal 2000
and 1999, respectively. The increase in interest income was due to the
investment of higher average cash, cash equivalents and short-term investment
balances, generated primarily from the Company's debt and equity offerings.

     Provision for Income Taxes.  While the Company has experienced operating
losses to date, the Company has incurred income tax expense of approximately
$1.6 million and $623,000 in the first quarters of fiscal years 2000 and 1999,
respectively.  The income tax expense consists primarily of domestic minimum
taxes, foreign withholding taxes and foreign income tax expense incurred as a
result of local country profits.  The increase in income taxes in the first
quarter of fiscal 2000, relative to the same quarter of the prior fiscal year
was primarily due to an overall increase in foreign corporate income taxes.

     Under Statement of Financial Accounting Standards No.109 Accounting for
Income Taxes ("FAS 109"), deferred tax assets and liabilities are determined
based on the difference between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. FAS 109 provides for the
recognition of deferred tax assets if realization of such assets is more likely
than not. Based upon the available evidence, which includes BEA's historical
operating performance and the reported cumulative net losses from prior years,
the Company has provided a full valuation allowance against its net deferred tax
assets. The Company intends to evaluate the realizability of the deferred tax
assets on a quarterly basis.

                                       11
<PAGE>

Liquidity and Capital Resources

     As of April 30, 1999, total cash, cash equivalents and short-term
investments totaled $253.3 million, up from $236.5 million at January 31, 1999.
The increase in cash, cash equivalents and short-term investments was primarily
due to cash generated from operations.

     Cash generated from operating activities rose to $20.1 million in the first
quarter of fiscal 2000, compared with $424,000 generated in the same quarter of
the prior fiscal year.  The primary source of cash generated from operations was
an increase in deferred revenue and net income adjusted for non-cash
transactions including depreciation and amortization.

     Investing activities consumed $4.2 million in cash during the first quarter
of fiscal 2000, compared with $3.5 million in the same quarter of the prior
fiscal year. Cash used for investing activities in the first quarter of fiscal
2000 was primarily due to purchases of computer equipment, furniture and
leasehold improvements. In the same quarter of the prior fiscal year the primary
use of cash for investing activities was due to the acquisition of certain
assets of Penta Systems Technology, Inc. ("Penta").

     The Company generated $705,000 from financing activities in the first
quarter of fiscal 2000, compared with $8.7 million in the same quarter of the
prior fiscal year. The primary source of cash from financing activities in the
first quarter of fiscal 2000 was the issuance of common stock by BEA and in the
first quarter of fiscal 1999 was the issuance of preferred stock by WebLogic
prior to BEA's acquisition of WebLogic.

     As of April 30, 1999, the Company's outstanding short and long-term debt
obligations were $251.1 million, up from $250.8 million at January 31, 1999.  At
April 30, 1999, the Company's outstanding debt obligations consisted principally
of the $250 million Notes.

     In addition to normal operating expenses, cash requirements are anticipated
for financing anticipated growth, payment of outstanding debt obligations and
the acquisition or licensing of products and technologies complementary to the
Company's business.  The Company believes that its existing cash, cash
equivalents, short-term investments, available lines of credit and cash
generated from operations, if any, will be sufficient to satisfy its currently
anticipated cash requirements through April 30, 2000.  However, the Company
expects to make additional acquisitions and may need to raise additional capital
through future debt or equity financing to the extent necessary to fund any such
acquisitions.  There can be no assurance that additional financing will be
available, at all, or on terms favorable to the Company.

Year 2000 Compliance

     BEA is aware of the issues associated with the programming code in existing
computer systems as the Year 2000 approaches. The "Year 2000 problem" is
pervasive and complex as virtually every computer operation will be affected in
some way by the rollover of the two-digit year value to 00. The issue is whether
computer systems will properly recognize date-sensitive information when the
year changes to 2000. Systems that do not properly recognize such information
could generate erroneous data or cause a system to fail.

State of Readiness

     The Company has been evaluating the Year 2000 readiness of the most current
versions of BEA M3, BEA TUXEDO and its other software products sold by the
Company ("Products"). Internal information technology systems used in our
operations ("IT Systems") and our non-IT Systems, such as security systems,
building equipment, voice mail and other systems are being evaluated for Year
2000 readiness. The Company's evaluation primarily covers: identification of all
Products, IT Systems, and non-IT Systems; assessing business and customer
satisfaction risks associated with such systems, creating action plans to
address known risks, executing and monitoring action plans, and contingency
planning.

     The Company has completed the evaluation of the following products and
believes the current versions of these products are Year 2000 compliant:

                                       12
<PAGE>

     .    BEA WebLogic Enterprise

     .    BEA WebLogic Express

     .    BEA WebLogic Server

     .    BEA TUXEDO

     .    BEA Manager

     .    BEA Builder

     .    BEA Jolt

     .    BEA ObjectBroker

     .    BEA ObjectBroker Desktop Connection

     .    BEA MQ Series Connection

     .    BEA Connect

     .    BEA TOP END

     .    BEA TOP END LU6.2 IBM Connectivity

     Some customers may be using software versions that are not Year 2000
compliant. The Company has been encouraging such customers to upgrade to current
product versions.

     The Company has substantially tested BEA TOP END Security Services and
confirmed its Year 2000 compliance, with exception of its porting to the HP UX
platform, of which testing is expected to be completed in the second quarter of
calendar year 1999.

     With respect to internal IT Systems and non-IT Systems, the Company has
initiated an assessment of its internal IT Systems including third-party
software and hardware technology and its non-IT Systems. The Company expects to
substantially complete the testing in the second quarter of fiscal year ending
January 31, 2000. To the extent that the Company is not able to test the
technology provided by third-party vendors, the Company is seeking assurance
from such vendors that their systems are Year 2000 compliant. The Company has
been informed by substantially all of its business application software
suppliers that their software is, or shortly will be, Year 2000 compliant. The
software from these suppliers, such as PeopleSoft, Clarify and Microsoft, is
used in the Company's financial, sales, customer support and administrative
operations. Further, the Company relies, both domestically and internationally,
upon various vendors, governmental agencies, utility companies,
telecommunications service companies, delivery service companies and other
service providers who are outside of the Company's control. There is no
assurance that such parties will not suffer a Year 2000 business disruption,
which could have a material adverse effect on the Company's financial condition
and results of operations.

Costs Associated with Year 2000 Issues

     To date, the Company has not incurred any material costs in connection with
identifying or evaluating Year 2000 compliance issues. Most of its expenses have
related to the opportunity cost of time spent by employees of the Company
evaluating its software, the current versions of its products, and Year 2000
compliance matters. It is possible that the Company may experience additional
costs associated with assisting customers with upgrades, but such costs are not
expected by the management to be material.

Risks of Year 2000 Issues

     Although the Company does not believe that it will incur any material costs
or experience material disruptions in its business associated with preparing its
internal systems for the Year 2000, there can be no assurances that the Company
will not experience serious unanticipated negative consequences and/or material
costs caused by undetected errors or defects in the technology used in its
internal systems. Internal systems are primarily composed of third-party
software and third-party hardware which contain embedded software and the
Company's own software products. Worst case scenarios would include: corruption
of data contained in the Company's internal information systems, hardware
failure, and the failure of services provided by government agencies and other
third

                                       13
<PAGE>

parties (e.g., electricity, phone service, water transport, Internet services,
etc.). See "--Factors That May Impact Future Operating Results -Risks of
Software Defects".

Contingency Plans

     The Company has not fully developed a comprehensive contingency plan to
address situations that may result from the Year 2000. If Year 2000 compliance
issues are discovered, the Company will evaluate the need for contingency plans
relating to such issues.

Factors That May Impact Future Operating Results

     BEA Systems, Inc. operates in a rapidly changing environment that involves
numerous risks and uncertainties.  The following section lists some, but not
all, of these risks and uncertainties which may have a material adverse effect
on the Company's business, financial condition or results of operations.

Limited Operating History; Integration of Acquisitions; No Assurance of
Profitability

     BEA was incorporated in January 1995 and therefore has a limited operating
history. We have generated revenues to date primarily from sales of BEA TUXEDO,
a software product to which we acquired worldwide distribution rights in
February 1996, and from fees for related software products and services. We have
also acquired a number of businesses, technologies and products, most recently
WebLogic, Inc. ("WebLogic"). Our limited operating history and the difficulties
of integrating a number of separate and independent business operations subject
our business to numerous risks. At April 30, 1999, we had an accumulated deficit
of approximately $187.1 million. In addition, in connection with certain
acquisitions completed prior to April 30, 1999, we recorded approximately $234.2
million as intangible assets. Under Generally Accepted Accounting Principles,
these intangible assets are required to be amortized in future periods.
Approximately $183.1 million of these assets have been amortized as of April 30,
1999 and we expect to amortize the remaining approximately $51.1 million in
future periods through our fiscal year ending January 31, 2004. We expect to
amortize $23.0 million of such intangible assets over the remaining quarters of
fiscal year ending January 31, 2000 and $25.1 million in the fiscal year ended
January 31, 2001. If we acquire additional businesses, products and technologies
in the future, we may report additional, potentially significant, expenses
related thereto. If future events cause the impairment of any intangible assets
acquired in our past or future acquisitions, we may have to write off expenses
sooner than we expect. Because of BEA's limited operating history and its
ongoing write offs associated with prior acquisitions, there can be no assurance
that we will be profitable in any future period and recent operating results
should not be considered indicative of future financial performance.

Potential Fluctuations in Quarterly Operating Results

     We expect to experience significant fluctuations in our future quarterly
revenues and operating results as a result of many factors, including:

     .    a widely-predicted freeze in deployment of new computer systems by
          large corporations in the second half of calendar year 1999, related
          to remediation of the Y2K problem

     .    the size and timing of customer orders, introduction or enhancement of
          our products or our competitors' products

     .    general economic conditions which can affect our customers' capital
          investment levels and the length of our sales cycle

     .    the impact and duration of deteriorating economic and political
          conditions in Asia and related declines in Asian currency values

     .    market acceptance of middleware products

     .    the lengthy sales cycle for our products

     .    technological changes in computer systems and environments

     .    the structure, timing and integration of acquisitions of businesses,
          products and technologies

                                       14
<PAGE>

     .    whether we are able to develop, introduce and market new products on a
          timely basis

     .    changes in our competitors' product offerings and pricing policies,
          and customer order deferrals in anticipation of future new products
          and product enhancements from BEA or competitors

     .    whether we are able to expand our sales and marketing programs

     .    the mix of our products and services sold and mix of distribution
          channels

     .    whether we are able to meet our customers' service requirements

     .    costs associated with acquisitions, including the acquisition of the
          TOP END enterprise middleware technology and product family from NCR,
          and the WebLogic acquisition

     .    the terms and timing of financing activities

     .    loss of key personnel

     .    fluctuations in foreign currency exchange rates

     .    interpretations of the recently-introduced accounting pronouncements
          on software revenues recognition.

     Industry sources widely predict that many large corporations will stop
deploying new computer systems in late 1999 and early 2000, in order to avoid
disrupting their computer systems before the year 2000. Large corporations
represent the majority of BEA's customer base, and a material portion of our
license fees come from new computer system deployments. BEA is monitoring its
customer base, especially customers expected to place orders in late 1999, to
determine their plans and have been informed by some of our customers that they
intend to freeze. BEA is also taking several management steps to reduce our
exposure to a freeze in deployments, such as providing special incentives to our
sales force during this time and focusing on transactions that are not dependent
on new deployments of pending projects. However, if the freeze in deployments is
larger than we anticipate, starts earlier or lasts longer than we anticipate, or
affects our targeted customers to a greater degree than we anticipate, our
revenues in late 1999 or early 2000 could be materially lower than expected.
Furthermore, certain of our customers who intend to freeze deployments in late
1999 have informed us that they intend to accelerate their deployments. This
could result in an unusual fluctuation of orders, in which an unusually large
number of orders are received in the middle of 1999, then an unusual decrease in
orders in subsequent quarters. Customer behavior, and consequently our orders,
during this period will be unusually difficult to forecast.

     As a result of all of these factors, we believe that quarterly revenues and
operating results are difficult to forecast and period-to-period comparisons of
our results of operations are not necessarily meaningful and should not be
relied upon as indications of trends or future performance.

     Our revenues are derived principally from large orders as customers deploy
our products throughout their organizations. Increases in the dollar size of
individual license transactions also increase the risk of fluctuation in future
quarterly results. If we cannot generate large customer orders, or customers
delay or cancel such orders in a particular quarter, it will have a material
adverse effect on our revenues and, more significantly on a percentage basis,
our net income or loss in that quarter. Moreover, we typically receive and
fulfill a majority of our orders within the quarter, with the substantial
majority of our orders received in the last month of each fiscal quarter. As a
result, we may not learn of revenues shortfalls until late in a fiscal quarter,
after it is too late to adjust expenses for that quarter. Additionally, our
operating expenses are based in part on our expectations for future revenues and
are relatively fixed in the short term. Any revenue shortfall below our
expectations could have an immediate and significant adverse effect on our
results of operations.

     Similarly, shortfalls in our revenues and earnings from levels expected by
securities analysts, or decreases in revenue or earnings projections by
securities analysts could have an immediate and significant adverse effect on
the trading price of our Common Stock. Moreover, our stock price is subject to
the volatility generally associated with software and technology stocks and may
also be affected by broader market trends unrelated to our performance.

                                       15
<PAGE>

Risks Associated with Past and Future Acquisitions

     From our inception in January 1995, we have made a number of strategic
acquisitions. Integration of acquired companies, divisions and products involves
the assimilation of potentially conflicting operations and products, which
divert the attention of our management team and may have a material adverse
effect on our operating results in future quarters. We acquired Leader Group,
Inc. ("Leader") and a business unit of Penta Systems Technology, Inc. ("Penta")
in the quarter ended April 30, 1998, TOP END in June 1998, the Entersoft Systems
Corporation ("Entersoft") in July 1998, WebLogic, Inc. ("WebLogic") in September
1998 and Component Systems, LLC in May 1999. We intend to make additional
acquisitions in the future, although there can be no assurance that suitable
companies, divisions or products will be available for acquisition. Such
acquisitions entail numerous risks, including the risk we will not successfully
assimilate the acquired operations and products, or retain key employees of the
acquired operations. There are also risks relating to the diversion of our
management's attention, and difficulties and uncertainties in our ability to
maintain the key business relationships the acquired entities have established.
In addition, if we undertake future acquisitions, we may issue dilutive
securities, assume or incur additional debt obligations, incur large one-time
expenses, and acquire intangible assets that would result in significant future
amortization expense. Any of these events could have a material adverse effect
on our business, operating results and financial condition.

     Recently, the Financial Accounting Standards Board ("FASB") voted to
eliminate pooling of interests accounting for acquisitions and voted to
eliminate the immediate write-off of acquired in-process research and
development. The effect of these changes would be to increase the portion of the
purchase price for any future acquisitions that must be charged to the Company's
cost of revenues and operating expenses in the periods following any such
acquisitions. As a consequence, the Company's results of operations in periods
following any such acquisitions could be materially decreased. Although these
changes would not directly affect the purchase price for any such acquisitions,
they would have the effect of increasing the reported expenses associated with
any such acquisitions. To that extent, these changes may make it more difficult
for the Company to acquire other companies, product lines or technologies.

Product Concentration

     We currently derive the majority of our license and service revenues from
BEA TUXEDO and from related products and services. Although we expect these
products and services to continue to account for the majority of our revenues in
the immediate future, we believe that BEA WebLogic will become an increasingly
important revenue source. As a result, factors adversely affecting the pricing
of or demand for BEA TUXEDO and BEA WebLogic, such as competition, product
performance or technological change, could have a material adverse effect on our
business and consolidated results of operations and financial condition.

Lengthy Sales Cycle

     Our customers typically use our products to integrate large, sophisticated
applications that are critical to their business, and their purchases are often
part of their implementation of a distributed computing environment. Customers
evaluating our software products face complex decisions regarding alternative
approaches to the integration of enterprise applications, competitive product
offerings, rapidly changing software technologies and limited internal resources
due to other information systems requirements. For these and other reasons, the
sales cycle for our products is lengthy and is subject to delays or cancellation
over which we have little or no control. Recently, we have experienced a
significant increase in the number of million and multi-million dollar license
transactions. In some cases, this has resulted in more extended customer
evaluation and procurement processes, which in turn have lengthened the overall
sales cycle for our products. Moreover, in contrast, during the second half of
fiscal 1999, an increasing number of BEA customers began negotiating licenses to
use BEA's enterprise application solutions as an architectural platform for
several applications. These architectural commitments are larger in scope and
potential revenue than single application transactions. In some cases, these
architectural commitments also have longer sales cycles than BEA's typical
single application transactions, because of both the customer's decision cycle
in adopting an architectural platform and heightened corporate approval
requirements for larger contracts. We believe general economic conditions that
impact customers' capital investment decisions also affect our sales cycles. In
addition, industry sources widely predict that large corporations will stop
deploying new computer systems in late 1999 and early 2000, in order to avoid
disrupting their computer systems before the year 2000. If our customers stop
deploying new computer systems, our revenues could be materially reduced and our
operating results could be materially adversely affected, especially in the
third and fourth quarters of calendar year

                                       16
<PAGE>

1999 (our fiscal year 2000). Any significant change in customer buying decisions
or sales cycles for our products could have a material adverse effect on our
business, results of operations and financial condition.

     Although we use a standard license agreement which meets the revenue
recognition criteria under current generally accepted accounting principles, we
must often negotiate and revise terms and conditions of this standard agreement,
particularly in larger license transactions. Negotiation of mutually acceptable
terms and conditions can extend the sales cycle and, in certain situations, may
require us to defer recognition of revenue on the license. In addition, while we
do not expect the recently issued Statement of Position 97-2, Software Revenues
Recognition, ("SOP 97-2") and SOP 98-4 and SOP 98-9, which amend certain
provisions of SOP 97-2, to have a material impact on our revenues and earnings,
however, detailed implementation guidelines of the new standard have not yet
been issued. Once issued, such detailed guidance could lead to unanticipated
changes in our current revenues recognition practices and such changes could
have an adverse impact on revenues and earnings.

Competition

     The market for middleware, Web application servers and related services is
highly competitive. Our competitors are diverse and offer a variety of solutions
directed at various segments of the middleware and application server
marketplace. These competitors include operating system vendors such as IBM, Sun
Microsystems and database vendors such as Oracle. Microsoft has released a
product that includes certain basic application server functionality and has
announced that it intends to include middleware functionality in future versions
of its Windows 2000 operating system. In addition, there are companies offering
and developing middleware and application integration software products and
related services that directly compete with products we offer, such as New Era
of Networks. Further, software development tool vendors typically emphasize the
broad versatility of their toolsets and, in some cases, offer complementary
middleware software that supports these tools and performs basic middleware
functions. Last, internal development groups within prospective customers'
organizations may develop software and hardware systems that may substitute for
those we offer. A number of our competitors and potential competitors have
longer operating histories, significantly greater financial, technical,
marketing and other resources, greater name recognition and a larger installed
base of customers than us.

     Our principal competitors currently include hardware vendors who bundle
their own middleware software products with their computer systems and database
vendors that advocate client/server networks driven by the database server. IBM
and Sun Microsystems are the primary hardware vendors who offer a line of
middleware and application server solutions for its customers. IBM's sale of
middleware and application server functionality along with its IBM proprietary
hardware and application server systems requires us to compete with IBM in its
installed base, where IBM has certain inherent advantages due to its
significantly greater financial, technical, marketing and other resources,
greater name recognition and the integration of its enterprise middleware
functionality with its proprietary hardware and database systems. We need to
differentiate our products based on functionality, interoperability with non-IBM
systems, performance and reliability, and establish our products as more
effective solutions to customers' needs. Oracle is the primary relational
database vendor offering products that are intended to serve as alternatives to
our enterprise middleware solutions.

     Microsoft has announced that it intends to include certain middleware
functionality in future versions of its Windows 2000 operating system. Microsoft
has also introduced a product that includes certain basic application server
functionality. The bundling of competing functionality in versions of Windows
requires us to compete with Microsoft in the Windows marketplace, where
Microsoft has certain inherent advantages due to its significantly greater
financial, technical, marketing and other resources, its greater name
recognition, its substantial installed base and the integration of its
middleware functionality with Windows. We need to differentiate our products
from Microsoft's based on scalability, functionality, interoperability with non-
Microsoft platforms, performance and reliability, and need to establish our
products as more effective solutions to customers' needs. There can be no
assurance that we will be able to successfully differentiate our products from
those offered by Microsoft, or that Microsoft's entry into the middleware market
will not materially adversely affect our business, operating results and
financial condition.

     In addition, current and potential competitors may make strategic
acquisitions or establish cooperative relationships among themselves or with
third parties, thereby increasing the ability of their products to address the
needs of our current and prospective customers. Accordingly, it is possible that
new competitors or alliances among

                                       17
<PAGE>

current and new competitors may emerge and rapidly gain significant market
share. Such competition could materially adversely affect our ability to sell
additional software licenses and maintenance, consulting and support services on
terms favorable to us. Further, competitive pressures could require us to reduce
the price of our products and related services, which could materially adversely
affect our business, operating results and financial condition. There can be no
assurance that we will be able to compete successfully against current and
future competitors and the failure to do so would have a material adverse effect
upon our business, operating results and financial condition.

Dependence on Proprietary Technology; Risk of Infringement

     Our success depends upon our proprietary technology. We rely on a
combination of patent, copyright, trademark and trade secret rights,
confidentiality procedures and licensing arrangements to establish and protect
our proprietary rights. No assurance can be given that other companies will not
successfully challenge the validity or scope of our patents or that our patents
will provide a competitive advantage to us.

     As part of our confidentiality procedures, we generally enter into non-
disclosure agreements with our employees, distributors and corporate partners
and into license agreements with respect to our software, documentation and
other proprietary information. Despite these precautions, third parties could
copy or otherwise obtain and use our products or technology without
authorization, or develop similar technology independently. In particular, we
have, in the past, provided certain hardware OEMs with access to our source
code, and any unauthorized publication or proliferation of this source code
could materially adversely affect our business, operating results and financial
condition. It is difficult for us to police unauthorized use of our products,
and although we are unable to determine the extent to which piracy of our
software products exists, software piracy is a persistent problem. Effective
protection of intellectual property rights is unavailable or limited in certain
foreign countries. There can be no assurance that the protection of our
proprietary rights will be adequate or that our competitors will not
independently develop similar technology, duplicate our products or design
around any patents or other intellectual property rights we hold.

     We do not believe that any of our products infringe the proprietary rights
of third parties. There can be no assurance, however, that third parties will
not claim the Company's current or future products infringe their rights. Any
such claims, with or without merit, could cause costly litigation that could
absorb significant management time, which could materially adversely effect our
business, operating results and financial condition. Such claims might require
us to enter into royalty or license agreements. If required, the Company may not
be able to obtain such royalty or license agreements, or obtain them on terms
acceptable to us, which could have a material adverse effect upon the Company's
business, operating results and financial condition. In particular, BEA has been
named in a lawsuit by RSA Data Security ("RSA") claiming that BEA has improperly
distributed RSA products and infringed RSA's patents. BEA is investigating this
claim and currently believes that it has rights to distribute RSA's products
under our TUXEDO distribution agreement with Novell, is entitled to
indemnification from Novell for such claim and will not have material liability
for such claim. However, there can be no assurance that such claim will not
result in a material payment by BEA or diversion of BEA management time and
attention.

International Operations

     International revenues accounted for 41 percent and 53 percent of our
consolidated revenues for the three months ended April 30, 1999 and 1998,
respectively. We sell our products and services through a network of branches
and subsidiaries located in 24 countries worldwide. In addition, we also market
through distributors in Europe and the Asia/Pacific region. We believe that our
success depends upon continued expansion of our international operations. Our
international business is subject to a number of risks, including unexpected
changes in regulatory practices and tariffs, greater difficulties in staffing
and managing foreign operations, longer collection cycles, seasonality,
potential changes in tax laws, greater difficulty in protecting intellectual
property and the impact of fluctuating exchange rates between the US dollar and
foreign currencies in markets where BEA does business, in particular the French
franc, the German mark, the British pound, the Japanese yen, the Australian
dollar and the Korean won. General economic and political conditions in these
foreign markets may also impact our international revenues. Since the late
summer of 1997, a number of Pacific Rim countries have experienced economic,
banking and currency difficulties that has led to economic downturns in those
countries. Among other things, the decline in value of Asian currencies,
together with difficulties obtaining credit, has resulted in a decline in the
purchasing power of our Asian customers, which in turn has resulted in the delay
of orders for our products from certain Asian

                                       18
<PAGE>

customers and is likely to result in further delays and, possibly the
cancellation, of such orders. As a result of such delays, our revenues from Asia
for the fiscal year ended April 30, 1999 comprised a lower percentage of total
revenues than we have historically experienced. We anticipate that weak Asian
conditions will continue to adversely impact our financial results. It is
difficult for us to predict the extent of the future impact of these conditions.
There can be no assurances that these factors and other factors will not have a
material adverse effect on our future international revenues and consequently on
our business and consolidated financial condition and results of operations.

Management of Growth

     We are continuing to experience a period of rapid and substantial growth
that has placed, and if such growth continues would continue to place, a strain
on the Company's administrative and operational infrastructure. We have
increased the number of our employees from 120 employees in three offices in the
United States at January 31, 1996 to over 1,200 employees in over 52 offices in
24 countries at April 30, 1999. Our ability to manage our staff and growth
effectively requires us to continue to improve our operational, financial and
management controls, reporting systems and procedures. In this regard, we are
currently updating our management information systems to integrate financial and
other reporting among our multiple domestic and foreign offices. In addition, we
intend to continue to increase our staff worldwide and to continue to improve
the financial reporting and controls for our global operations. There can be no
assurance that we will be able to successfully implement improvements to our
management information and control systems in an efficient or timely manner or
that, during the course of this implementation, we will not discover
deficiencies in existing systems and controls. If we are unable to manage growth
effectively, our business, results of operations and financial condition will be
materially adversely affected.

Dependence on Growth of Market for Middleware and Web Application Servers

     We sell our products and services in the middleware and Web application
server markets. These markets are emerging and are characterized by continuing
technological developments, evolving industry standards and changing customer
requirements. Our success is dependent in large part on acceptance of our
products by large customers with substantial legacy mainframe systems, customers
establishing a presence on the Web for commerce, and developers of web-based
commerce applications. Our future financial performance will depend in large
part on continued growth in the number of companies extending their mainframe-
based, mission-critical applications to an enterprise-wide distributed computing
environment and to the Internet through the use of middleware technology. There
can be no assurance that the markets for middleware technology and Web
application servers and related services will continue to grow. If these markets
fail to grow or grow more slowly than we currently anticipate, or if we
experience increased competition in these markets, our business, results of
operations and financial condition will be adversely affected.

Year 2000 Risks

     There can be no assurances that the Company's current products do not
contain undetected errors or defects associated with year 2000 date functions
that may result in material costs or liabilities to the Company. Moreover, our
software directly and indirectly interacts with a large number of other hardware
and software systems. Some of the Company's customers are running product
versions that are not year 2000 compliant. The Company has been encouraging such
customers to migrate to current product versions. We are unable to predict to
what extent our business may be affected if our software or the systems that
operate in conjunction with our software experience a material year 2000 related
failure. Some commentators have stated that a significant amount of litigation
will arise out of year 2000 compliance issues, and the Company is aware of a
growing number of lawsuits against other software vendors. Because of the
unprecedented nature of such litigation, it is uncertain whether or to what
extent the Company may be affected by it.

     The Company could also experience serious unanticipated negative
consequences and/or material costs caused by undetected errors or defects in the
technology used in its internal systems. Internal systems are primarily composed
of third-party software and third-party hardware which contain embedded software
and the Company's own software products. Worst case scenarios would include:
corruption of data contained in the Company's internal information systems,
hardware failure, and the failure of services provided by government agencies
and other third parties (e.g., electricity, phone service, water transport,
Internet services, etc.).

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     In addition, a widely-predicted freeze in deployment of new computer
systems by large corporations in the second half of fiscal year 2000 related to
remediation of the Y2K problem could result in an unusual fluctuation of orders,
in which an unusually large number of orders are received in the middle of 2000,
followed by an unusual decrease in orders in subsequent quarters.

Dependence on Key Personnel and Need to Hire Additional Personnel

     We believe our future success will depend upon our ability to attract and
retain highly skilled personnel including the Company's founders, Messrs.
William T. Coleman III, Edward W. Scott, Jr., Alfred S. Chuang and key members
of management. Competition for these types of employees is intense, and there
can be no assurance that we will be able to retain our key employees or that we
will be successful in attracting, assimilating and retaining qualified
candidates in the future. As we seek to expand our global organization, the
hiring of qualified sales, technical and support personnel will be difficult due
to the limited number of qualified professionals. Failure to attract, assimilate
and retain key personnel would have a material adverse effect on our business,
results of operations and financial condition.

Expanding Distribution Channels and Reliance on Third Parties

     To date, we have sold our products principally through our direct sales
force, as well as through indirect sales channels, such as system platform
companies, packaged application software developers, systems integrators and
independent consultants, independent software tool vendors and distributors. Our
ability to achieve revenue growth in the future will depend in large part on our
success in expanding our direct sales force and in further establishing and
expanding relationships with distributors, ISVs, OEMs and systems integrators.
In particular, a significant part of our strategy is to embed our technology in
products our ISV customers offer. We intend to seek distribution arrangements
with additional ISVs to embed our middleware and Web application servers
technology in their products. There can be no assurance that we will be able to
successfully expand our direct sales force or other distribution channels,
secure license agreements with additional ISVs on commercially reasonable terms
or at all, or otherwise further develop our relationships with indirect
distribution channels. There also can be no assurance that any such expansion or
additional license agreements would increase our revenues. Although we believe
that our investments in the expansion of our direct sales force and in the
establishment of other distribution channels through third parties ultimately
will improve our operating results, to the extent that such investments are made
and revenues do not correspondingly increase, our business, results of
operations and financial condition will be materially and adversely affected.

     We rely on informal relationships with a number of consulting and systems
integration firms to enhance our sales, support, service and marketing efforts,
particularly with respect to implementation and support of our products as well
as lead generation and assistance in the sale process. We will need to expand
our relationships with third parties in order to support license revenues
growth. Many such firms have similar, and often more established, relationships
with our principal competitors. There can be no assurance that these and other
third parties will provide the level and quality of service required to meet the
needs of our customers, that we will be able to maintain an effective, long term
relationship with these third parties, or that these third parties will continue
to meet the needs of our customers.

Rapid Technology Change; Dependence on New Products and Product Enhancements

     The market for our products is highly fragmented, competitive with
alternative computing architectures, and characterized by continuing
technological development, evolving industry standards and changing customer
requirements. The introduction of products embodying new technologies, the
emergence of new industry standards or changes in customer requirements could
render our existing products obsolete and unmarketable. As a result, our success
depends upon our ability to enhance existing products, respond to changing
customer requirements and develop and introduce in a timely manner new products
that keep pace with technological developments and emerging industry standards.
There can be no assurance that our products will adequately address the changing
needs of the marketplace or that we will be successful in developing and
marketing enhancements to our existing products or products incorporating new
technology on a timely basis. Failure to develop and introduce new products, or
enhancements to existing products, in a timely manner in response to changing
market conditions or

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<PAGE>

customer requirements, will materially and adversely affect the Company's
business, results of operations and financial condition.

Risk of Software Defects

     The software products we offer are internally complex and, despite
extensive testing and quality control, may contain errors or defects, especially
when we first introduced them. We may need to issue corrective releases of our
software products to fix these defects or errors. These defects and errors could
also cause damage to our reputation, loss of revenues, product returns or order
cancellations, or lack of market acceptance of our products. Accordingly, these
defects and errors could have a material and adverse effect on our business,
results of operations and financial condition.

     Our license agreements with our customers typically contain provisions
designed to limit our exposure to potential product liability claims. It is
possible, however, that the limitation of liability provisions contained in our
license agreements may not be effective as a result of existing or future
federal, state or local laws or ordinances or unfavorable judicial decisions.
Although we have not experienced any product liability claims to date, sale and
support of our products entails the risk of such claims, which could be
substantial in light of customers' use of such products in mission-critical
applications. If a claimant brings a product liability claim against us, it
could have a material adverse effect on our business, results of operations and
financial condition.

     Our products interoperate with many parts of complicated computer systems,
such as mainframes, servers, personal computers, application software,
databases, operating systems and data transformation software. Failure of any
one of these parts due to the Year 2000 problem could cause all or large parts
of computer systems to fail. In such circumstances, it may be difficult to
determine which part failed, and it is likely that customers will bring a
lawsuit against several suppliers. Even if BEA's software is not at fault, BEA
could suffer material expense and material diversion of management time in
defending any such lawsuits.  See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Year 2000 Compliance".

Control by Management and Current Stockholders

     As of March 31, 1999, BEA's officers and directors and their affiliates, in
the aggregate, had voting control over approximately 58.8 percent of BEA's
voting Common Stock. In particular, Warburg, Pincus Ventures, L.P. ("Warburg")
had effective voting control over approximately 49.0 percent of BEA's voting
Common Stock and beneficially owned approximately 54.7 percent of BEA's Common
Stock (which includes the non-voting Class B Common Stock owned by Warburg). As
a result, these stockholders would be able to control all matters requiring
majority stockholder approval, including the election of directors and approval
of significant corporate transactions. The voting power of Warburg combined with
BEA's officers and directors under certain circumstances could have the effect
of delaying, or preventing a change in control of BEA.

Significant Leverage; Debt Service

     In connection with our sale of 4% Convertible Subordinated Notes in June
and July 1998, we incurred $250 million in long-term indebtedness. Our principal
and interest payment obligations increased substantially because of this
indebtedness. The degree to which we are leveraged could materially and
adversely affect our ability to obtain financing for working capital,
acquisitions or other purposes and could make us more vulnerable to industry
downturns and competitive pressures. These notes are convertible into Common
Stock, which conversion could cause substantial dilution to stockholders and
would increase the number of shares eligible for sale in the market, but would
eliminate the need for the Company to repay the principal amount of such
converted notes. There can be no assurance, however, that any of these notes
will be converted. Our ability to meet our debt service obligations will be
dependent upon our future performance, which will be subject to financial,
business and other factors affecting our operations, many of which are beyond
our control.

     We will require substantial amounts of cash to fund scheduled payments of
interest on these notes, payment of the principal amount of these notes at
maturity, payment of principal and interest on our other indebtedness, future
capital expenditures and any increased working capital requirements. If we
cannot meet our cash requirements out of cash flow from operations, there can be
no assurance that we will be able to obtain alternative financing. If we

                                       21
<PAGE>

cannot obtain such financing, our ability to respond to changing business and
economic conditions, to make future acquisitions, to absorb adverse operating
results or to fund capital expenditures or increased working capital
requirements may be adversely affected. Any failure by us to satisfy our
obligations with respect to these notes at maturity (with respect to payments of
principal) or prior thereto (with respect to payments of interest or required
repurchases) would constitute a default under the indenture entered into in
connection with the issuance of these notes and could cause a default under
agreements governing other indebtedness, if any, of BEA.

Possible Adverse Impact of Recent Accounting Pronouncements

     The American Institute of Certified Public Accountants has issued a series
of recent pronouncements which address revenue recognition in the software
industry, including SOP 97-2, SOP 98-4, and SOP 98-9. These pronouncements
principally focus on concepts versus specific implementation guidance. The
Company believes it is in compliance with these standards, but the software
industry and the accounting profession are currently discussing a wide range of
potential interpretations which may result in the issuance of more
pronouncements or interpretive guidance. As future guidance becomes available or
if the software industry broadly adopts certain practices which are different
than the Company's current revenue recognition practices which could have a
material adverse effect on our business practices, financial condition, or
results of operations.

     The Company has not fully assessed its ability to comply with SOP 98-9
using current business practices. However, the Company believes that SOP 98-9
may require significantly more revenues to be deferred for certain types of
transactions.

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<PAGE>

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Foreign Exchange

     BEA's revenue originating outside the United States was 41 percent and 53
percent of total revenues for the three months ended April 30, 1999 and 1998,
respectively.  For the three months ended April 30, 1999 international revenues
from EMEA and APAC represented 33 percent and 7 percent of total revenues.
Within EMEA, France represented 11 percent of total revenues for the three
months ended April 30, 1999.  International sales are made mostly from the
Company's foreign sales subsidiaries in the local countries and are typically
denominated in the local currency of each country.  These subsidiaries also
incur most of their expenses in the local currency. Accordingly, foreign
subsidiaries use the local currency as their functional currency.

     The Company's international business is subject to risks typical of an
international business, including, but not limited to, differing economic
conditions, changes in political climate, differing tax structures, other
regulations and restrictions, and foreign exchange volatility. Accordingly, the
Company's future results could be materially adversely impacted by changes in
these or other factors.

     The Company's exposure to foreign exchange rate fluctuations arise in part
from intercompany accounts in which certain costs of software development,
support and product marketing incurred in the United States are charged to the
Company's foreign subsidiaries. These intercompany accounts are typically
denominated in the functional currency of the foreign subsidiary in order to
centralize foreign exchange risk with the parent company in the United States.
The Company is also exposed to foreign exchange rate fluctuations as the
financial results of foreign subsidiaries are translated into U.S. dollars in
consolidation. As exchange rates vary, these results, when translated, may vary
from expectations and adversely impact overall financial results.

     The Company has a program to reduce the effect of foreign exchange
transaction gains and losses from recorded foreign currency-denominated assets
and liabilities. This program involves the use of forward foreign exchange
contracts in certain European and Asian currencies, principally U.K., France,
Germany, Finland, Sweden, Japan and Australia. A forward foreign exchange
contract obligates the Company to exchange predetermined amounts of specified
foreign currencies at specified exchange rates on specified dates or to make an
equivalent U.S. dollar payment equal to the value of such exchange. Each month
the Company marks to market the foreign exchange contracts based on the change
in the foreign exchange rates with any resulting gain or losses recorded in the
interest and other expenses.

     The Company does not currently hedge anticipated foreign currency-
denominated revenues and expenses not yet incurred.

Interest Rates

     The Company invests its cash in a variety of financial instruments,
consisting principally of investments in commercial paper, interest-bearing
demand deposit accounts with financial institutions, money market funds and
highly liquid debt securities of corporations, municipalities and the U.S.
Government. These investments are denominated in U.S. dollars. Cash balances in
foreign currencies overseas are operating balances and are only invested in
short-term time deposits of the local operating bank.

     The Company accounts for its investment instruments in accordance with
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities, ("FAS 115"). All of the cash
equivalent, short term and long term investments are treated as "available-for-
sale" under FAS 115. Investments in both fixed rate and floating rate interest
earning instruments carry a degree of interest rate risk. Fixed rate securities
may have their market value adversely impacted due to a rise in interest rates,
while floating rate securities may produce less income than expected if interest
rates fall. Due in part to these factors, the Company's future investment income
may fall short of expectations due to changes in interest rates or the Company
may suffer losses in principal if forced to sell securities which have seen a
decline in market value due to changes in interest rates.

     However, the Company reduces its interest rate risk by investing its cash
in instruments with short maturities. At April 30, 1999 the average maturity of
the Company's cash equivalents and investments was 17 days.

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<PAGE>

PART II.  OTHER INFORMATION

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits

     The following exhibits are filed by attachment to this Form 10-Q:

          Exhibit          Description
          -------          -----------
          27.1             Financial Data Schedule

(b)  Reports on Form 8-K

     No reports on Form 8-K were filed by the Company during the fiscal quarter
ended April 30, 1999.

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<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:  June 14, 1999

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