UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-26387
BE INCORPORATED
(Exact name of Registrant as specified in its charter)
Delaware 94-3123667
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
800 El Camino Real, Menlo Park, CA 94025
(Address of principal executive offices, including zip code)
(650) 462-4100
(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. [X] Yes [ ] No.
The number of shares of Common Stock outstanding as of October 31, 2001 was
36,792,563.
BE INCORPORATED
FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
PAGE
Item 1. Condensed Financial Statements:
Consolidated Balance Sheets at September 30, 2001
and December 31, 2000 2
Consolidated Statements of Operations for the three and nine
month periods ended September 30, 2001 and September 30, 2000 3
Consolidated Statements of Cash Flows for the six months
ended September 30, 2001 and September 30, 2000 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
1
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands; unaudited)
September 30, December 31,
2001 2000
ASSETS
Current assets:
Cash and cash equivalents ......................... $ 2,098 $ 9,463
Short-term investments ............................ -- 4,594
Accounts receivable ............................... 74 26
Prepaid and other current assets .................. 577 549
--------- ---------
Total current assets .......................... 2,749 14,632
Property and equipment, net .......................... 248 391
Other assets, net of accumulated amortization ........ 24 1,048
--------- ---------
Total assets ................................. $ 3,021 $ 16,071
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................. $ 111 $ 362
Accrued expenses .................................. 621 1,502
Technology license obligations, current portion ... 432 454
Deferred revenue .................................. 64 109
--------- ---------
Total current liabilities ..................... 1,228 2,427
Technology license obligations, net of current portion 244 320
--------- ---------
Total liabilities ............................. 1,472 2,747
Stockholders' Equity:
Common stock ...................................... 37 36
Additional paid-in capital ........................ 108,344 108,880
Accumulated other comprehensive income ............ -- 1
Deferred stock compensation ....................... (280) (1,218)
Accumulated deficit ............................... (106,552) (94,375)
--------- ---------
Total stockholders' equity .................... 1,549 13,324
--------- ---------
Total liabilities and stockholders' equity ... $ 3,021 $ 16,071
========= =========
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
2
BE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts; unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
2001 2000 2001 2000
------ ------ ------ -------
Net revenues .................................................... $ 1,135 $ 68 $ 1,950 $ 464
Cost of revenues ................................................ 1,765 216 2,336 770
------ ------ ------ -------
Gross loss ...................................................... (630) (148) (386) (306)
Operating expenses:
Research and development, including amortization of deferred . 1,305 2,247 6,112 6,747
stock compensation of $(93), $159, $59 and $668
Sales and marketing, including amortization of deferred ...... (386) 1,543 1,688 6,123
stock compensation of $(496), $121, $(533) and $547
General and administrative, including amortization of deferred 1,194 1,107 3,790 3,651
stock compensation of $73, $227, $289 and $982
Restructuring charge ......................................... -- -- 450 --
------ ------ ------ -------
Total operating expenses ................................. 2,113 4,897 12,040 16,521
------ ------ ------ -------
Loss from operations ............................................ (2,743) (5,045) (12,426) (16,827)
Interest expense ................................................ (14) (58) (42) (121)
Other income and expenses, net .................................. 33 332 291 1,058
------ ------ ------ -------
Net loss ........................................................ $ (2,724) $ (4,771) $(12,177) $(15,890)
======== ======== ======== ========
Net loss per common share--basic and diluted .................... $ (.07) $ (.13) $ (.33) $ (.45)
======== ======== ======== ========
Shares used in per common share
calculation--basic and diluted ............................... 36,630 35,722 36,430 35,406
======== ======== ======== ========
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
3
BE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands; unaudited)
Nine Months
Ended September 30,
2001 2000
----- -----
Cash flows from operating activities:
Net loss ........................................... $(12,177) $(15,890)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization .................. 729 905
Write-off of impaired licensed technology assets 539
Amortization of discount on
technology license obligations ................ 42 87
Loss on disposal of fixed assets ............... 6
Compensation expense incurred on issuance
of stock ...................................... -- 34
Amortization of deferred stock compensation .... (185) 2,197
Changes in assets and liabilities
Accounts receivable ......................... (48) 137
Prepaid and other current assets ............ (28) (45)
Other assets ................................ -- --
Accounts payable ............................ (251) (733)
Accrued expenses ............................ (881) (519)
Deferred revenue ............................ (45) (19)
------- ------
Net cash used in operating activities ..... (12,299) (13,846)
------- ------
Cash flow provided by investing activities:
Acquisition of property and equipment .............. (72) (121)
Acquisition of licensed technology ................. (175) (501)
Purchases of short-term investments ................ (1,728) (55,813)
Sales of short-term investments .................... 6,322 70,408
------- ------
Net cash provided by investing activities . 4,347 13,973
------- ------
Cash flows provided by financing activities:
Proceeds from issuance of common stock:
pursuant to common stock options ................. 21 2,201
pursuant to common stock warrants ................ 180 455
under Employee Stock Purchase Plan ............... 386 702
Repurchase of common stock ......................... -- (3)
------- ------
Net cash provided by financing activities .... 587 3,355
------- ------
Net increase (decrease) in cash and cash equivalents .. (7,365) 3,482
------- ------
Cash and cash equivalents, beginning of period ........ 9,463 6,500
------- ------
Cash and cash equivalents, end of period .............. $ 2,098 $ 9,982
======== ========
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
4
BE INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Organization and Business
Be Incorporated (the "Company" or "Be") was founded in 1990. Be offers
software solutions designed for Internet appliances and digital media
applications. An Internet appliance is a dedicated device designed
specifically to access information from the Internet for a given purpose.
An Internet appliance's hardware and software are seamlessly integrated
together to provide users with a responsive and easy to use interface. Be's
software solutions are BeIA: the Complete Internet Appliance Solution(TM)
and BeOS, its operating system designed for digital media applications. In
early 2000, Be shifted the primary focus of its business from the marketing
and distribution of BeOS, its desktop operating system, to the development,
marketing and deployment of BeIA, its software solution intended for
Internet appliances. Be shifted its focus as a result of the intense
competition in the market for the BeOS operating system, the anticipated
market for the BeIA product and the limited resources available to Be for
the development and marketing of its products. BeIA gives customers the
ability to create customized Internet appliances that deliver unique
services, information and entertainment to their targeted end users.
Unfortunately, the Internet appliance market as a whole has failed to
materialize as anticipated. Consumer response to early Internet appliances
has been unenthusiastic, major manufacturers have either removed their
products from the market or have not undertaken significant development
efforts, and the economic realities of the last four quarters have made
success even more difficult. Despite Be's efforts in the Internet appliance
market, its financial difficulties have continued, and Be has been unable
to generate revenues sufficient to meet operating expenses.
On August 16, 2001, Be entered into an asset purchase agreement with Palm,
Inc., a Delaware corporation headquartered in Santa Clara, California, and
ECA Subsidiary Acquisition Corporation, a wholly-owned subsidiary of Palm.
Under the terms of the asset purchase agreement, Be will sell substantially
all of its intellectual property and other technology assets (the "Asset
Sale"), including those related to its BeOS and BeIA operating systems, to
Palm and will receive an aggregate number of shares of Palm common stock
equal in value to $11,000,000, as determined on the closing date of the
transaction and subject to the approval of Be's stockholders. A special
meeting of Be's stockholders is scheduled to be held on November 12, 2001
whereby stockholders of record shall consider and vote upon (i) the
approval of the asset sale with Palm and (ii) the approval of the
dissolution of Be through adoption of a plan of dissolution.
Under the proposed Asset Sale, Be will sell substantially all of its
intellectual property and other technology assets. As a result, the
remaining technology assets will not be used to generate any future cash
flows. According to SFAS 121, "Accouting for the Impairement of Long-Lives
Assets and for Long Lived Assets to be disposed of", an entity shall
recognize an impairment loss when expected future cash in flows is less
than the carrying amount of the asset. Therefore, Be decided to write-of
the outstanding balance of its technology license assets of $539,000 at
September 30, 2001.
5
2. Basis of Presentation
The condensed consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated.
The condensed consolidated financial statements have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission ("SEC") applicable to interim financial information. Certain
information and footnote disclosures included in financial statements
prepared in accordance with generally accepted accounting principles have
been omitted in these interim statements pursuant to such SEC rules and
regulations. Management recommends that these interim financial statements
be read in conjunction with the audited financial statements of the Company
for the year ended December 31, 2000 and the notes thereto contained in the
Company's Annual Report on Form 10-K. The December 31, 2000 balance sheet
was derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles.
In management's opinion, the condensed consolidated financial statements
include all adjustments necessary to present fairly the financial position
and results of operations for each interim period shown. Interim results
are not necessarily indicative of results to be expected for a full fiscal
year.
If the Asset Sale is not completed, it is likely that Be will file for or
be forced to resort to bankruptcy protection. If the Asset Sale is
completed, Be intends to wind up its business and pay, or provide for the
payment of, all of its outstanding liabilities and obligations in
accordance with applicable law and the plan of dissolution. Until it winds
up its business, Be will continue to experience losses from operations and
negative cash flows and will continue to require working capital to fund
its remaining operations. Be believes that existing cash and cash
equivalents will not be sufficient to meet operating and capital
requirements at its currently anticipated level of operations beyond the
end of fiscal 2001.
The consolidated financial statements do not include any adjustments that
might result from the outcome of these uncertainties.
3. Recent Accounting Pronouncements
In September 1998, the Financial Accounting Standards Board, ("FASB"),
issued Statement of Financial Accounting Standards No. 133, or SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
establishes new standards of accounting and reporting for derivative
instruments and hedging activities. SFAS 133 requires that all derivatives
be recognized at fair value in the statement of financial position, and
that the corresponding gains or losses be reported either in the statement
of operations or as a deferred item depending on the type of hedge
relationship that exists with respect of such derivatives. In July 1999,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 137, or SFAS 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133." SFAS 137 deferred the effective date until fiscal years
beginning after September 30, 2000. In September 2000, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 138, or SFAS 138, "Accounting for Derivative Instruments and
Hedging Activities - An Amendment of FASB Statement 133." SFAS 138 amends
the accounting and reporting standards for certain derivative activities
such as net settlement contracts, foreign currency transactions and
intercompany derivatives. The Company's implementation of SFAS 133 since
January 1, 2001, has not had a material impact on its financial position or
results of operations.
6
In September 2001, the FSAB unanimously approved the issuance of two
statements, Statement of Financial Accounting Standards No. 141, or SFAS
141, "Business Combinations," and Statement of Financial Accounting
Standards No. 142, or SFAS 142, "Goodwill and Other Intangible Assets."
SFAS 141 addresses financial accounting and reporting for business
combinations and amends APB No.16 "Business Combinations." It requires the
purchase method of accounting for business combinations initiated after
September 30, 2001. SFAS 142 addresses financial accounting and reporting
for acquired goodwill and other intangible assets and supersedes APB No.17,
"Intangible Assets." It changes the accounting for goodwill from an
amortization method to an impairment only approach. It is effective for
fiscal year beginning after December 15, 2001. Early adoption of SFAS 142
is permitted for companies with a fiscal year beginning after March 15,
2001. The adoption of these statements is not expected to have a
significant impact on the Company's financial position and results of
operations.
In October 2001, the FASB issued Statement of Financial Accounting
Standards 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of
Long-Lived Assets", which is required to be applied starting with fiscal
years beginning after December 12, 2001. SFAS 144 requires among other
thingsm the application of one acounting model for long-lived assets that
are impaired or to be disposed of by sale. The adoption of SFAS 144 is not
expected to have a significant impact on the Company's financial
statements.
4. Net Loss Per Share
Basic net loss per common share is computed by dividing net loss available
to common stockholders by the weighted average number of vested common
shares outstanding for the period. Diluted net loss per common share is
computed giving effect to all dilutive potential common shares, including
options, warrants and unvested common shares. Options, warrants and
unvested common shares were not included in the computation of diluted net
loss per common share because the effect would be antidilutive. A
reconciliation of the numerator and denominator used in the calculation of
basic and diluted net loss per common share follows (in thousands, except
per share data):
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
-------- -------- ------ -------
(unaudited) (unaudited)
Historical net loss per common share, basic and diluted:
Numerator for net loss, basic and diluted .............. $ (2,724) $ (4,771) $(12,177) $(15,890)
Denominator for basic and diluted loss per common share:
Weighted average common shares
outstanding ........................................ 36,630 35,722 36,430 35,247
======== ======== ====== =======
Net loss per common share basic and diluted ............ $ (.07) $ (.13) $ (.33) $ (.45)
======== ======== ====== =======
Antidilutive securities:
Options to purchase common stock ..................... 5,038 6,857 5,038 6,857
Common stock not yet vested .......................... 90 332 90 332
Warrants ............................................. -- 2,130 -- 2,130
-------- -------- ------ -------
5,128 9,319 5,128 9,319
======== ======== ====== =======
7
5. Comprehensive Income (loss)
Statement of Financial Accounting Standard No. 130, or SFAS 130, "Reporting
Comprehensive Income" establishes rules for reporting and display of
comprehensive income (loss) and its components. The following are the
components of comprehensive income (loss) (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
-------- -------- -------- --------
Net loss ...................................... $ (2,724) $ (4,771) $(12,177) $(15,890)
Unrealized gain (loss) on marketable securities (2) 5 (1) -
-------- -------- -------- --------
Comprehensive loss ............................ $ (2,726) $ (4,766) $(12,178) $(15,890)
======== ======== ======== ========
The components of accumulated other comprehensive income, net of related tax
are as follows (in thousands):
September 30, December 31,
2001 2000
----- -----
Unrealized gain on marketable securities....... $ - $ 1
----- -----
- 1
===== =====
8
6. Restructuring Charge
On April 2, 2001, the Company announced its decision, made at the end of
the first quarter, to restructure its operations to reflect current market
and financial conditions by closing its European office in Paris and
eliminating positions principally in the Company's sales, marketing and
general administration departments in the United States. As a result, the
Company recorded a restructuring charge of $307,000 in the first quarter
for the closing of its European office, which is comprised of $272,000 for
involuntary termination benefits and $35,000 for termination of operating
contracts and professional fees. The Company recorded a restructuring
charge of approximately $143,000 in the second quarter for the involuntary
termination benefits related to the elimination of 22 positions in the U.S.
At September 30, 2001, this restructuring plan was substantially completed
and all amounts had been paid.
On July 31, 2001, the Company announced the elimination of 28 positions. In
addition to the elimination of the sales and marketing departments,
positions in administration and engineering were also affected. The
eliminated positions represent approximately 33% of the Company's existing
workforce. The Company's remaining 57 positions are primarily engaged in
product development. The Company did not incur any associated restructuring
charge.
7. Legal Proceedings
As previously disclosed in the Company's filings with the Securities and
Exchange Commission, in November 2000, the Company's stock transfer agent,
Wells Fargo Bank Minnesota, N.A., received a demand letter from Financial
Square Partners, a Be stockholder, alleging damages resulting from the
transfer agent's failure to timely issue its stock certificates. While Be
was not a party named in such demand letter, Be was named as a party on the
stockholder's draft claim attached to the demand letter. On May 9, 2001,
the claim was in fact filed, naming Be and Wells Fargo Bank Minnesota, N.A.
as defendants, and is currently active in the Superior Court of California.
The stockholder is seeking damages in the amount of approximately $2.4
million. Prior to this filing, the Company had been participating in
communications with the parties in an effort to resolve the matter prior to
a lawsuit being filed.
Be management continues to believe that the allegations as they relate to
Be in the filed claim are without merit and intends to defend Be against
this legal action. However, there can be no assurance this claim will be
resolved without costly litigation, or require Be's participation in the
settlement of such claim, in a manner that is not adverse to its financial
position, results of operations or cash flows. No estimate can be made of
the possible loss or possible range of loss associated with the resolution
of this contingency. If Be were held liable, it is its intent to seek
reimbursement under its D&O insurance policy.
8. Sale of Assets
On August 16, 2001, the Company entered into a definitive agreement with
Palm, Inc. for the sale of substantially all of its intellectual property
and other technology assets for a purchase price of $11 million, to be paid
in common stock of Palm, Inc. Closing of the transaction is subject to the
satisfaction of certain conditions, including obtaining approval of the
stockholders of the Company.
A Special Meeting of stockholders has been scheduled for November 12, 2001
seeking approval of (1) the sale of substantially all of Be's intellectual
property and other technology assets to ECA Subsidiary Acquisition
Corporation, a wholly owned subsidiary of Palm, Inc., and (2) the
subsequent dissolution of Be pursuant to a plan of dissolution.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward Looking Statements
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT HAVE BEEN MADE PURSUANT TO
THE PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH
FORWARD-LOOKING STATEMENTS ARE BASED ON CURRENT EXPECTATIONS, ESTIMATES AND
PROJECTIONS ABOUT THE COMPANY'S BUSINESS, MANAGEMENT'S BELIEFS AND ASSUMPTIONS
MADE BY MANAGEMENT. WORDS SUCH AS "ANTICIPATES," "EXPECTS," "INTENDS," "PLANS,"
"BELIEVES," "SEEKS," "ESTIMATES," "LIKELY" AND VARIATIONS OF SUCH WORDS AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS.
THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE SUBJECT TO
CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS THAT ARE DIFFICULT TO PREDICT;
THEREFORE, ACTUAL RESULTS AND OUTCOMES MAY DIFFER MATERIALLY FROM WHAT IS
EXPRESSED OR FORECASTED IN ANY SUCH FORWARD-LOOKING STATEMENTS. SUCH RISKS AND
UNCERTAINTIES INCLUDE THOSE SET FORTH IN THIS SECTION UNDER "FACTORS AFFECTING
OUR BUSINESS,OPERATING RESULTS AND FINANCIAL CONDITION" AND ELSEWHERE IN THIS
REPORT AS WELL AS THOSE NOTED IN OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 2000 AND OUR OTHER PUBLIC FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY
FORWARD- LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS OR OTHERWISE.
Overview
Be was founded in 1990. Be offers software solutions designed for Internet
appliances and digital media applications.
Be's software solution products consist of (i) BeIA: the Complete Internet
Appliance Solution/TM/, comprised of three components; BeIA Client Platform,
BeIA Management and Administration Platform, and BeIA Integration Services, and
(ii) BeOS, its operating system designed for digital media applications and
which serves as the development platform for BeIA. Prior to 1998, Be had no
revenues and its operations consisted primarily of research and development. In
December 1998, Be shipped the first version of BeOS, its desktop operating
system targeted primarily to end users. Prior releases of BeOS were targeted
primarily to software developers. Having experienced losses and negative cash
flow from operations since inception, in the latter half of 1999 Be began a
review of its BeOS desktop operating system business model and its potential to
create stockholder value. The impetus for the review was market information
obtained from institutional investors and market analysts, and the realization
that the desktop product could only succeed by competing effectively against
Microsoft Corporation, which is a very large, established and entrenched
competitor in a rapidly maturing market. During this same period, many potential
large customers and industry analysts were expressing significant interest in
the Internet appliance version of Be's operating system. At the time, most
market analysts were predicting rapid growth in the nascent Internet appliance
market and indicating it would ultimately have significant upside potential. The
strengths of Be's technology appeared transferable to the needs of this market,
and the market was not yet dominated by any one player. As a result of Be's
business model review, in January 2000 Be announced its intention to shift its
primary focus from the marketing and distribution of BeOS, its desktop operating
system, to the development, marketing and deployment of BeIA, its software
solution intended for Internet appliances.
10
At the same time Be shifted its resource focus, it attempted to provide BeOS
with a final opportunity for success in the desktop market. First, Be made a
fully functioning Personal Edition of BeOS available on the Internet for free
download. The intent of the Personal Edition of BeOS was to seed the market and
to create interest in and exposure to Be's technology. Second, Be entered into
publishing relationships with several well-established software publishers to
distribute a royalty-bearing Professional Edition of BeOS. Ultimately, Be did
not have the resources, nor could it reasonably obtain the resources to
adequately pursue both the desktop and Internet appliance markets
simultaneously. Thus, Be decided to allow companies in the business of
publishing and distributing software to market the Professional Edition of BeOS.
Be reasoned that if the publishers were able to generate enough interest and
revenue with the Professional Edition of BeOS, the royalty revenues could be
used to fund further development of the desktop product. However, the publishers
were never able to generate any material revenues from the sale of the
Professional Edition of BeOS.
In contrast, Be was successful in 2000 in rapidly entering the developing
Internet appliance market. Be's efforts culminated in the execution of a
contract with Sony for its eVilla Network Entertainment Center in early 2001.
Unfortunately, the Internet appliance market as a whole has failed to
materialize as anticipated. Consumer response to early Internet appliances has
been unenthusiastic, major manufacturers have either removed their products from
the market or have not undertaken significant development efforts. The economic
realities of the last four quarters have made success even more difficult, and
on August 30, 2001 Sony discontinued the eVilla Network Entertainment Center,
its Internet appliance based on BeIA. Despite Be's efforts in the Internet
appliance market, Be's financial difficulties have continued and it has been
unable to generate revenues sufficient to meet operating expenses. In April and
July of 2001, Be substantially reduced its workforce and announced the
elimination of its sales and marketing departments in order to conserve
resources.
Be has undertaken extensive activities since early 2000 to evaluate and pursue
financing alternatives for the company to allow for its continuation and the
creation of value for Be stockholders. Be has endeavored to obtain additional
equity capital from numerous sources. Private placements with institutions,
funds and private investors, equity lines of credit and private placements with
strategic investors have all been thoroughly investigated. By the end of March
2001, it was clear no adequate source of capital was available on terms
beneficial to Be stockholders. Faced with this reality, Be's board of directors
approved the exploration of strategic and financial alternatives for maximizing
stockholder value. Alternatives considered included, but were not limited to, a
merger or similar business combination, an equity investment by a strategic
investor, or the sale of all or substantially all of the business or assets for
stock or cash in a transaction of the type ultimately entered into with Palm.
Since April 2001, Be has worked with professional financial advisors with the
intent of maximizing the return of value to stockholders under the
circumstances. Be conducted an extensive search for potential interested
parties, directly contacted a number of these parties and discussed with them a
variety of possible transactions. As part of this effort, Be held numerous
discussions and negotiations with third parties, including Palm, in an effort to
obtain financing necessary to the continuation or the potential sale of Be's
business. Except for the proposed transaction with Palm, these discussions have
not resulted in any acceptable offers and during this period, Be's financial
resources have continued to deteriorate.
Be's revenues in fiscal year 2000 were generated from the sale of BeOS to
licensed third party publishers, and other resellers and distributors, and
direct sales of BeOS to end users through the BeDepot.com Web site. Be also
generated revenue by collecting commissions from sales of third party software
through the BeDepot.com Web site.
To date, revenues in fiscal year 2001 have been generated through royalty
payments, maintenance and support fees, and professional services and
integration fees and by revenue-related consulting services performed under the
funding agreement since August 16. These payments and fees were received from
developers and manufacturers of Internet appliances, as well as other systems
and hardware manufacturers incorporating BeIA into their products. The revenues
from BeIA have not offset the loss of revenues from sales of BeOS. As a result
of Be's announcements of the proposed Palm transaction and the elimination of
its sales and marketing departments, Be does not expect to generate any material
revenues in the near or extended future.
Be's research and development expenses consist of compensation and related costs
for research and development personnel. These expenses are currently being
funded by Palm under the terms of the funding agreement entered into by and
between Be and Palm on August 16, 2001. Be also includes in research and
development expenses the costs relating to licensing of technologies and
amortization of costs of software tools used in the development of its products.
Costs incurred in the research and development of new releases and enhancements
are expensed as incurred. These costs include the cost of licensing technology
that is incorporated into a product or an enhancement, which is still in
preliminary development, and technological feasibility has not been established.
Once the product is further developed and technological feasibility has been
established, development costs are capitalized until the product is available
for general release. To date, products and enhancements have generally reached
technological feasibility and have been released for sale at substantially the
same time. Be expects research and development expenses will remain stagnant and
will be limited to compensation and related costs of research and development
personnel, which are currently being funded by Palm, and the costs of technology
license arrangements entered into prior to Be's announcement of the proposed
Palm transaction.
11
Prior to the elimination of its sales and marketing departments in July 2001,
Be's sales and marketing expenses consisted of compensation and related costs
for sales and marketing personnel, marketing programs, public relations,
investor relations, promotional materials, travel, and related expenses for
attending trade shows. After the elimination of the sales and marketing
departments, Be has not incurred, and does not expect to incur in the future,
any material expenses related to sales and marketing functions.
General and administrative expenses consist of compensation and related expenses
for management, finance, and accounting personnel, professional services and
related fees, occupancy costs and other expenses. As a result of the workforce
reductions in April and July 2001 and the continued decline of Be's business,
general and administrative expenses related to day to day operations have been
greatly reduced. However, in the third quarter, general and administrative
expenses increased as a whole due to the costs related to the search for
potential investors and for the payment of professional fees and expenes related
to the the asset sale. Be does not expect general and administrative expenses to
be increased in the future.
Be has historically marketed and sold its products in the United States and
internationally. International sales of products accounted for approximately
23%, 56% and 53% of Be's total revenues in 2000, 1999 and 1998, respectively.
International sales of products accounted for less than 1% of total revenues for
the three and nine month periods ended September 30, 2001 and approximately 30%
and 21% for the three and nine month periods ended September 30, 2000. Because
of Be's shift in focus away from BeOS, in the event that it generates future
revenue, Be expects that a higher percentage of such future total revenues, if
any, will be derived from North America. Be does not currently engage in
currency hedging activities.
From time to time in the past, Be has granted stock options to employees and
non-employee directors. As of September 30, 2001, Be had recorded deferred
compensation related to these options in the total amount of $14.7 million, net
of cancellations, representing the difference between the deemed fair value of
Be's common stock, as determined for accounting purposes, and the exercise price
of options at the date of grant. Of this amount, $5.7 million had been amortized
at December 31, 1998, with $6.2 million, $2.6 million and $(185,000), being
amortized in 1999, 2000 and the nine month period ended September 30, 2001,
respectively. Future amortization of expense arising out of options granted
through September 30, 2001 was estimated to be $106,000 for the remaining three
months of 2001, $170,000 in 2002 and $4,000 in 2003. Be amortizes the deferred
compensation charge monthly over the vesting period of the underlying option.
Comparison
Certain prior year costs have been reclassified to conform with the current year
presentation.
Operating expenses as shown in the Consolidated Statements of Operations,
include non-cash charges for stock compensation amortization as follows:
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2001 2000 2001 2000
---- ---- ---- ----
(in thousands) (in thousands)
Amortization of deferred compensation included in:
Research and development.................... $ (93) $ 159 $ 59 $ 668
Sales and marketing......................... (496) 121 (533) 547
General and administrative.................. 73 227 289 982
---- ---- ----- -----
Total amortization of deferred stock compensation $ (516) $ 507 $ 185 $ 2,197
========= ====== ======= =======
Excluding the amortization of deferred compensation, operating expenses are
as follows:
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2001 2000 2001 2000
---- ---- ---- ----
(in thousands) (in thousands)
Operating expenses:
Research and development.................... $1,398 $2,088 $6,053 $6,079
Sales and marketing......................... 110 1,422 2,221 5,576
General and administrative.................. 1,121 880 3,501 2,669
Amortization of deferred stock compensation (516) 507 (185) 2,197
--- ------- ------- ------
Total operating expenses..................$ 2,113 $4,897 $ 11,590 16,521
======== ======= ======= ========
12
Comparison of the Three Month Period ended September 30, 2001 to the Three Month
Period ended September 30, 2000
Net Revenues. Net revenues increased $1.1 million for the three month period
ended September 30, 2001 from $68,000 for the three month period ended September
30, 2000. Revenues are not directly comparable as they were mainly attributable
to shipments of BeOS in 2000 and to revenue-related consulting services in 2001,
performed under a funding agreement that was entered into August 16, 2001,
contemporaneously with the execution and delivery of the asset purchase
agreement among Be, Palm and ECA Subsidiary Acquisition Corporation.
Cost of Revenues. Cost of revenues increased $1.5 million to $1.8 million for
the three month period ended September 30, 2001 from $216,000 for the three
month period ended September 30, 2000. A majority of such costs continues to
result from the continuing amortization of technology license agreements. In
addition, at September 30, 2001, the remaining book value of these technology
agreements of $539,000 was determined to be impaired and was therefore expensed.
Research and Development. Research and development expenses, exclusive of stock
compensation, decreased $690,000, or 33%, to $1.4 million for the three month
period ended September 30, 2001 from $2.1 million for the three month period
ended September 30, 2000. The decrease results primarily from decreases in
personnel expenses, primarily attributable to the restructuring of operations
implemented on April 2, 2001 and July 31, 2001.
Sales and Marketing. Sales and marketing expenses, exclusive of stock
compensation, decreased $1.3 million, or 92%, to $110,000 for the three month
period ended September 30, 2001 from $1.4 million for the three month period
ended September 30, 2000. This decrease is primarily attributable to the
elimination of our sales and marketing departments on July 31, 2001.
General and Administrative. General and administrative expenses, exclusive of
stock compensation, increased $241,000, or 27%, to $1.1 million for the three
month period ended September 30, 2001 from $880,000 for the three month period
ended September 30, 2000. This increase is primarily attributable to the payment
of fees and expenses related to the search for potential investors and the asset
sale agreement entered into on August 16, 2001, net of reduced personnel
expenses as compared with last year.
Amortization of Deferred Stock Compensation. Amortization of deferred stock
compensation decreased $1.0 million to $(516,000) for the three month period
ended September 30, 2001, from $507,000 for the three month period ended
September 30, 2000. The decrease is attributable to the cancellation of options
and to the use of an amortization methodology, which tends to record higher
compensation in the initial years of the vesting period. These amounts represent
the allocated portion of the difference between the deemed fair value of our
common stock and the exercise price of stock options granted by us to employees
and non-employee directors.
Other Income (Expense), Net. Net other income decreased $255,000, or 93%, to
$19,000 for the three month period ended September 30, 2001 from $274,000 for
the three month period ended September 30, 2000. The decrease is primarily
attributable to the decrease in interest income due to the reduced balances in
our investment portfolio used to fund operations.
Comparison of the Nine Month Period ended September 30, 2001 to the Nine Month
Period Ended September 30, 2000
Net Revenues. Net revenues increased $1.5 million to $2.0 million for the nine
month period ended September 30, 2001 from $464,000 for the nine month period
ended September 30, 2000. Revenues are not directly comparable as they were
mainly attributable to shipments of BeOS in 2000 and to revenue-related
consulting services in 2001, performed under a funding agreement that was
entered into August 16, 2001 with Palm, Inc.
Cost of Revenues. Cost of revenues increased $1.6 million to $2.3 million for
the nine month period ended September 30, 2001 from $770,000 for the nine month
period ended September 30, 2000. A majority of such costs continue to result
from the continuing amortization of technology license agreements. In addition,
at September 30, 2001, the remaining book value of these technology agreements
of $539,000 was determined to be impaired and was therefore expensed.
Research and Development. Research and development expenses, exclusive of stock
compensation, remained unchanged at $6.1 million for the nine month period ended
September 30, 2001 and for the nine month period ended September 30, 2000.
Sales and Marketing. Sales and marketing expenses, exclusive of stock
compensation, decreased $3.4 million, or 60%, to $2.2 million for the nine month
period ended September 30, 2001 from $5.6 million for the nine month period
ended September 30, 2000. This decrease is primarily attributable to the
restructuring of our operations, implemented early in the second quarter of 2001
and to the elimination of our sales and marketing departments on July 31, 2001.
General and Administrative. General and administrative expenses, exclusive of
stock compensation, increased $832,000, or 31%, to $3.5 million for the nine
month period ended September 30, 2001 from $2.7 million for the nine month
period ended September 30, 2000. This increase is primarily attributable to the
payment of fees, on a retainer basis, to an investment banking firm, hired
during the second quarter of 2001, to assist us in exploring various strategic
and financial alternatives for maximizing shareholder value on a near-term
basis, and to the payment of fees and expenses related to the asset sale
agreement entered into on August 16, 2001.
Amortization of Deferred Stock Compensation. Amortization of deferred stock
compensation decreased $2.4 million to $(185,000) for the nine month period
ended September 30, 2001, from $2.2 million for the nine month period ended
September 30, 2000. The decrease is attributable to the cancellation of options
and to the use of an amortization methodology, which tends to record higher
compensation in the initial years of the vesting period. These amounts represent
the allocated portion of the difference between the deemed fair value of our
common stock and the exercise price of stock options granted by us to employees
and non-employee directors.
Other Income (Expense), Net. Net other income decreased $688,000, or 73%, to
$249,000 for the nine month period ended September 30, 2001 from $937,000 for
the nine month period ended September 30, 2000. The decrease is primarily
attributable to the decrease in interest income due to the reduced balances in
our investment portfolio used to fund operations.
13
Taxes
Since inception, the Company has generated net operating losses which aggregated
approximately $84.6 million as of September 30, 2001. The Company has provided a
full valuation allowance against the losses since it believes that it is more
likely than not that such benefits will not be realized. The amount of available
net operating losses will be reduced in the case of a change in ownership as
defined in the Internal Revenue Code.
Liquidity and Capital Resources
Since our inception, we have financed our operations primarily through the sale
of our equity securities and through borrowing arrangements. Cash and cash
equivalents and short-term investments decreased approximately $12 million to
$2.1 million at September 30, 2001 from $14.1 million at December 31, 2000. This
decrease is primarily attributable to the amounts used to fund operations.
Cash used in operating activities decreased approximately $1.2 million to $12.6
million for the nine month period ended September 30, 2001 as compared to $13.8
million for the nine month period ended September 30, 2000. This decrease is
primarily attributable to lower operating expenses in the nine month period
ended September 30, 2001
Cash provided by investing activities decreased approximately $9.3 million to
$4.7 million for the nine month period ended September 30, 2001 as compared to
$14.0 million for the nine month period ended September 30, 2000. This decrease
is primarily attributable to lower net sales of short-term investments in the
nine month period ended September 30, 2001.
Cash provided by financing activities for the nine month period ended September
30, 2001 was approximately $588,000, which represents a $2.8 million decrease
from the nine month period ended September 30, 2000 of $3.4 million. This
decrease is primarily attributable to the proceeds of $2.1 million received from
the exercise of stock options in the first quarter of 2000.
We require substantial working capital to fund our operations. We expect to
continue to experience losses from operations and negative operating cash flows
for the foreseeable future. We expect to receive gross proceeds of $11 million
upon completion of the asset sale, if and when it occurs.
If the asset sale is not completed, it is likely that Be will file for or be
forced to resort to bankruptcy protection. If the asset sale is completed, Be
intends to wind up its business and pay, or provide for the payment of, all of
its outstanding liabilities and obligations in accordance with applicable law
and the plan of dissolution. Until it winds up its business, Be will continue to
experience losses from operations and negative cash flows and will continue to
require working capital to fund its remaining operations. Be believes that
existing cash and cash equivalents will not be sufficient to meet operating and
capital requirements at its currently anticipated level of operations beyond the
end of fiscal 2001.
FACTORS AFFECTING OUR BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION
The following is a discussion of certain risks, uncertainties and other factors
that currently impact or may impact Be's business, operating results and/or
financial condition. Anyone making an investment decision with respect to Be's
Common Stock or other securities of the Company is cautioned to carefully
consider these factors, along with the "Factors Affecting our Business,
Operating Results and Financial Condition" discussed in the Company's Annual
Report on Form 10-K for the year ended December 31, 2000 and our other public
filings with the Securities and Exchange Commission.
Risks Relating to the Asset Sale
Whether or not the asset sale is completed, Be may not be able to pay, or
provide for the payment of, all of its liabilities and obligations. If the sale
is not completed, it is likely that Be will file for or be forced into
bankruptcy by its creditors and no assets may be available for distribution to
Be stockholders.
If the asset sale is not completed, Be believes that it is likely that it
will file for or be forced to resort to bankruptcy protection. In this event, it
is extremely unlikely that Be would be able to pay, or provide for the payment
of, all of its liabilities and obligations, and, therefore, there would be no
assets available for distribution to Be's stockholders. Even if the parties
complete the asset sale, the proceeds provided by the sale of the Palm stock
received at the closing, together with Be's other assets, may not be sufficient
to pay, or provide for the payment of, all of Be's known and unknown liabilities
and obligations. If the proceeds from the asset sale together with Be's other
assets were insufficient to pay or provide for the payment of Be's liabilities
and other obligations, it is likely that Be could be required to file for or be
forced to resort to bankruptcy protection. Further, if there are insufficient
proceeds from the asset sale to pay or otherwise provide for the liabilities and
obligations of Be, there will be no assets available for distribution to Be's
stockholders.
Even if Be's stockholders approve the asset sale, the asset sale may not be
completed and it is likely that Be could be required to file for or be forced to
resort to bankruptcy protection.
The completion of the asset sale is subject to numerous conditions. Even if
stockholders of Be holding a majority of the outstanding shares of Be common
stock vote to approve the asset sale and the dissolution, Be cannot guarantee
that the asset sale will be completed. If it is not completed, Be would likely
not be able to sell its assets to another buyer on terms as favorable as those
provided in the asset purchase agreement, or at all, which would mean that it is
likely that Be could be required to file for or be forced to resort to
bankruptcy protection.
14
Failure to hire and retain key employees could diminish the benefits of the
asset sale to Palm and could prevent consummation of the asset sale.
It is a condition to closing the asset sale that seven out of eight employees
of Be designated as "key employees" and 33 out of 42 other designated employees
of Be enter into "at will" employment arrangements with Palm as of the closing
date of the asset sale. Therefore, failure by Palm to effectively recruit these
employees could prevent consummation of the asset sale. Furthermore, the
successful integration of the Be assets into Palm's current business operations
will depend in part on the hiring and retention of personnel critical to the
business and operations of Palm and the Be operating systems business. The Be
employees to be hired by Palm in connection with the asset sale have technical
and engineering expertise that is in high demand and short supply. Palm may be
unable to retain technical and engineering personnel that are critical to the
successful integration of the Be assets, which may result in loss of key
information, expertise or know-how and unanticipated additional recruiting and
training costs and otherwise diminishing anticipated benefits of the asset sale
for Palm and its stockholders.
The proceeds from the sale of the Palm common stock received in the asset sale
are uncertain.
If the transactions contemplated by the asset purchase agreement are
completed, Be intends to sell the Palm shares received in the transaction for
cash promptly following the closing. Although the Palm shares issued to Be will
have a value of $11,000,000 (subject to adjustment under certain circumstances),
based on the opening price of Palm common stock as quoted on the Nasdaq National
Market on the closing date of the transaction, the actual proceeds realized by
Be from the sale of the shares is likely to be less than $11,000,000 after
payment of commissions and expenses. Furthermore, Be may not be able to promptly
resell the shares as a result of market conditions, securities laws restrictions
or other factors. Accordingly, Be will bear market risk with respect to a
decline in the trading price of Palm's stock between closing and the time Be is
able to sell the shares.
Failure to complete the asset sale could cause Be's stock price to decline.
If the asset sale is not completed, Be's stock price may decline due to any
or all of the following potential consequences:
- - Be may not be able to dispose of its assets for values equaling or
exceeding those currently estimated by Be; in particular, the assets that
are the subject of the asset sale will likely be substantially diminished
in value;
- - Be may file for or be forced into bankruptcy;
- - Be's costs related to the asset sale, such as legal, accounting and
financial advisor fees, must be paid even if the asset sale is not
completed; and
- - Be may have difficulty retaining its key remaining personnel.
In addition, if the asset sale is not completed, Be's stock price may decline
to the extent that the current market price of Be common stock reflects a market
assumption that the asset sale will be completed.
Following the completion of the asset sale, Be may no longer have access to
certain intellectual property assets or the human resources, including the
services of certain key employees, necessary to fulfill its obligations under
existing agreements with third parties.
Upon the completion of the asset sale, Be will have sold its rights, title
and interest in substantially all of its intellectual property and other
technology assets, including those related to the BeOS and BeIA operating
systems, to Palm. Because of this, Be may no longer be able to comply with its
existing contractual obligations or commitments under certain license
agreements, distribution agreements and service contracts with third parties
that are not to be transferred to Palm in the asset sale. In addition, under the
terms of the asset purchase agreement, at least 33 designated employees and
seven key employees shall have entered into "at-will" employment arrangements
with Palm at the closing of the transaction. As a result of this, after the
closing of the asset sale, Be will have no more than seven employees. The loss
of the services of any of Be's executive officers or other key employees, and
the loss of a significant portion of Be's current workforce to Palm could
prevent Be from effectively continuing its operations and fulfilling its
contractual obligations with third parties under existing agreements before the
dissolution of Be.
Risks Relating to the Dissolution of Be
Be cannot determine at this time whether any distributions will be made to its
stockholders or the amount of any such distributions to its stockholders,
because there are a variety of factors, some of which are outside of Be's
control, that could affect the ability of Be to make distributions to its
stockholders.
15
Be cannot determine at this time the amount of or whether there will be any
distributions to its stockholders because that determination depends on a
variety of factors, including, but not limited to, the likelihood of closing the
asset sale, the net proceeds from the sale of the Palm shares received in the
asset sale, the value of Be's other assets, the amount of Be's unknown debts and
liabilities to be paid in the future, the resolution of pending litigation and
other contingent liabilities, general business and economic conditions and other
matters. The amount of proceeds from the asset sale and the amount to be
distributed to Be stockholders, if any, are subject to various significant
uncertainties, many of which are beyond Be's control. Examples of uncertainties
that could reduce the value of or eliminate distributions to Be stockholders
include the following:
- - Changes in the anticipated net proceeds from the sale of the Palm shares
received in the asset sale, the amount of Be's liabilities and obligations
and the estimate of the costs and expenses of the asset sale and Be's
dissolution, including any resulting tax liabilities.
- - If liabilities of Be that are unknown or contingent later arise or become
fixed in amount and must be satisfied or reserved for as part of the
dissolution.
- - Delays in completing the asset sale or the dissolution of Be that could
result in additional expenses and result in reductions in distributions to
Be stockholders.
- - A decline in the value of Palm common stock between the time Be receives
the shares of Palm stock as consideration for the asset sale and the time
Be is reasonably able to dispose of such shares.
For the foregoing reasons, there can be no assurance that there will be any
distributions to Be stockholders, or as to the amount of such distributions,
even if the asset sale is completed.
Be's board of directors may abandon or delay implementation of the plan of
dissolution even if it is approved by Be's stockholders.
Be's board of directors has adopted a plan of dissolution for the dissolution
and winding-up of Be following the completion of the asset sale. Even if the
plan of dissolution is approved and adopted by Be's stockholders, Be's board of
directors has reserved the right, in its discretion, to abandon or delay
implementation of the plan of dissolution for various reasons, including in
order to permit Be to pursue (or more easily pursue) any retained claims or
causes of action.
Be's stockholders may be liable to creditors of Be for an amount up to the
amount received from Be if Be's reserves for payments to creditors are
inadequate.
If the plan of dissolution is approved by Be's stockholders, and the board of
directors of Be determines to proceed with the dissolution of Be, a certificate
of dissolution will be filed with the State of Delaware dissolving Be. Pursuant
to the Delaware General Corporation Law, or Delaware law, Be will continue to
exist for three years after the dissolution becomes effective or for such longer
period as the Delaware Court of Chancery shall direct for the purpose of
prosecuting and defending suits against it and enabling Be to close its
business, to dispose of its property, to discharge its liabilities and to
distribute to its stockholders any remaining assets. Under applicable Delaware
law, in the event Be fails to create an adequate contingency reserve for payment
of its expenses and liabilities during this three year period, each Be
stockholder could be held liable for payment to Be's creditors of such
stockholder's pro rata share of amounts owed to creditors in excess of the
contingency reserve. The liability of any stockholder would be limited to the
amounts previously received by such stockholder from Be (and from any
liquidating trust or trusts). Accordingly, in such event a stockholder could be
required to return all distributions previously made to such stockholder. In
such event, a stockholder could receive nothing from Be under the plan of
dissolution. Moreover, in the event a stockholder has paid taxes on amounts
previously received, a repayment of all or a portion of such amount could result
in a stockholder incurring a net tax cost if the stockholder's repayment of an
amount previously distributed does not cause a commensurate reduction in taxes
payable. There can be no assurance that the contingency reserve established by
Be will be adequate to cover any expenses and liabilities. However, Be intends
to exercise caution in making distributions to stockholders in order to minimize
this type of risk.
If Be fails to retain the services of current key personnel, the plan of
dissolution may not succeed.
The success of the plan of dissolution depends in large part upon Be's
ability to retain the services of certain of its current personnel who will not
become employed by Palm at the closing, or to attract qualified replacements for
them. The retention of qualified personnel is particularly difficult under Be's
current circumstances. For this reason and others discussed below, Be has
entered into incentive arrangements with certain executive officers and
employees.
Be expects its stock to be delisted from the Nasdaq National Market in the near
future.
Be expects it will be unable to satisfy the requirements for continued listing
of its common stock on the Nasdaq National Market. In the event the asset sale
is completed, rules of the Nasdaq National Market require that companies listed
on the Nasdaq National Market continue to have an operating business. If Be
completes its plans to conclude business activities following the completion of
the asset dale, it will no longer have an operating business. In addition, as Be
distributes cash to its stockholders, certain other listing criteria may not be
met. Regardless of whether the asset sale is completed, Be is currently not in
compliance with certain of the Nasdaq's listing criteria, including the
maintenance of a minimum amount of net tangible assets. If Nasdaq delists Be's
common stock from the Nasdaq National Market, the ability of stockholders to buy
and sell shares will be materially impaired, and the trading price of Be common
stock may be materially impaired.
16
Be's board members may have a potential conflict of interest in recommending
approval of the asset sale and the plan of dissolution.
Members of the Be board of directors may be deemed to have a potential
conflict of interest in recommending approval of the asset sale and the plan of
dissolution.
If Be's board of directors abandons or delays implementation of the plan of
dissolution after the completion of the asset sale, Be may be the potential
target of a reverse acquisition.
If Be's board of directors decides to delay implementation of the plan of
dissolution following completion of the asset sale, Be will continue to exist as
a public shell company. Public companies that exist as non-operating shell
entities have from time to time been the target of reverse acquisitions by
private companies seeking to bypass the costly and time-intensive registration
process to become publicly traded companies. If Be becomes the target of a
successful reverse acquisition, the new board of directors of Be could
potentially decide to either delay or completely abandon the dissolution, and Be
stockholders may not receive any proceeds that would have otherwise been
distributed in connection with the dissolution.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We considered the provision of Financial Reporting Release No. 48 "Disclosure of
Accounting Policies for Derivative Financial Instruments and Derivative
Commodity Instruments, and Disclosure of Quantitative and Qualitative
Information about Market Risk Inherent in Derivative Financial Instruments,
Other Financial Instruments and Derivative Commodity Instruments." We had no
holdings of derivative financial or commodity instruments at September 30, 2001.
However, we are exposed to financial market risks, including changes in foreign
currency exchange rates and interest rates. Much of our revenue and capital
spending is transacted in U.S. dollars. However, the expenses and capital
spending of our French subsidiary are transacted in French francs. Since the
closing of our French subsidiary was substantially completed at the end of June,
we believe that foreign currency exchange rates should not materially adversely
affect our overall financial position, results of operations or cash flows. We
believe that the fair value of our investment portfolio or related income would
not be significantly impacted by increases or decreases in interest rates due
mainly to the short-term nature of our investment portfolio. However, a sharp
increase in interest rates could have a material adverse effect on the fair
value of our investment portfolio. Conversely, sharp declines in interest rates
could seriously harm interest earnings of our investment portfolio.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously disclosed in the Company's filings with the Securities and
Exchange Commission, in November 2000, our stock transfer agent, Wells Fargo
Bank Minnesota, N.A., received a demand letter from Financial Square Partners, a
Be stockholder, alleging damages resulting from the transfer agent's failure to
timely issue its stock certificates. While Be was not a party named in such
demand letter, Be was named as a party on the stockholder's draft claim attached
to the demand letter. On May 9, 2001, the claim was in fact filed, naming Be and
Wells Fargo Bank Minnesota, N.A. as defendants, and is currently active in the
Superior Court of California. The stockholder is seeking damages in the amount
of approximately $2.4 million. Prior to this filing, the Company had been
participating in communications with the parties in an effort to resolve the
matter prior to a lawsuit being filed.
Be management continues to believe that the allegations as they relate to Be in
the filed claim are without merit and intends to defend Be against this legal
action. However, there can be no assurance this claim will be resolved without
costly litigation, or require Be's participation in the settlement of such
claim, in a manner that is not adverse to our financial position, results of
operations or cash flows. No estimate can be made of the possible loss or
possible range of loss associated with the resolution of this contingency. If Be
were held liable, it is our intent to seek reimbursement under our D&O insurance
policy.
17
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Sales of Registered Securities and Use of Proceeds
None.
Sales of Unregistered Securities
None.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.1* Amended and Restated Certificate of Incorporation
3.2* Bylaws
* Filed with the Company's Registration Statement on Form S-1,
Registration No. 333-77855, declared effective by the Securities
and Exchange Commission on July 20, 2000, incorporated herein by
reference.
(b) Reports on Form 8-K
Current Report on Form 8-K, filed August 24, 2001, announcing
that Be entered. into an Asset Purchase Agreement with Palm,
Inc., a Delaware corporation, and ECA Subsidiary Acquisition
Corporation, a Delaware corporation, and a wholly-owned
subsidiary of Palm.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BE INCORPORATED
By: /s/ JEAN-LOUIS F. GASSEE Date : November 12, 2001
Jean-Louis F. Gassee
President, Chief Executive Officer and Director
By: /s/ P.C. BERNDT Date : November 12, 2001
P.C. Berndt
Chief Financial Officer
19