UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-26387
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)
655 West Evelyn Street, Suite 6, Mountain View, California 94041
(Address of principal executive offices, including zip code)
(650) 965-4842
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.001 PAR VALUE
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 __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ___
The approximate aggregate market value of the common stock held by
non-affiliates of the Registrant, based upon the last sale price of the Common
Stock reported on the Nasdaq National Market, as of April 15, 2002, was
approximately $4,027,000.
The number of shares of Common Stock outstanding as of April 15, 2002 was
38,450,527.
1
BE INCORPORATED
FORM 10-K/A AMENDED ANNUAL REPORT
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2001
Table of Contents
PART II
Item 6. Selected Financial Data............................................ 3
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................ 5
Item 8. Consolidated Financial Statements and Supplementary Data......... 10
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K... 11
Signatures................................................................. 13
2
PART II
ITEM 6. SELECTED FINANCIAL DATA
The tables that follow present portions of our unaudited consolidated
financial statements and are not complete. You should read the following
selected financial information in conjunction with our Unaudited Consolidated
Financial Statements and related Notes and with "Management Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Amended Annual Report. The historical results presented below are not
necessarily indicative of the results to be expected for any future fiscal year.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Year Ended December 31,
-----------------------
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
(in thousands, except per share data)
Consolidated Statement of Operations Data:
Net revenues ............................... $ 86 $ 1,199 $ 2,656 $ 480 $ 2,713
Cost of revenues (1) ....................... 84 2,161 1,436 1,097 2,831
-------- -------- -------- -------- --------
Gross profit (loss) ........................ 2 (962) 1,220 (617) (118)
Operating expenses (2):
Research and development .............. 5,170 8,133 10,429 9,139 6,269
Sales and marketing ................... 4,452 5,617 10,966 7,812 1,681
General and administrative ............ 1,393 2,729 5,120 4,740 2,777
Restructuring expense ................. -- -- -- -- 450
-------- -------- -------- -------- --------
Total operating expenses ......... 11,015 16,479 26,515 21,691 11,177
-------- -------- -------- -------- --------
Loss from operations ....................... (11,013) (17,441) (25,295) (22,308) (11,295)
Other income, net (3) ...................... 580 580 789 1,156 4,953
-------- -------- -------- -------- --------
Net loss ................................... $(10,433) $(16,861) $(24,506) $(21,152) $ (6,342)
======== ======== ======== ======== ========
Net loss attributable to common stockholders $(10,448) $(18,423) $(24,798) $(21,152) $ (6,342)
======== ======== ======== ======== ========
Net loss per common share--basic and
Diluted (4) ............................. $ (4.87) $ (5.80) $ (1.41) $ (0.60) $ (0.17)
======== ======== ======== ======== ========
Shares used in per common share
Calculation--basic and diluted (4) ...... 2,145 3,178 17,589 35,533 36,762
-------- -------- -------- -------- --------
As of December 31,
------------------
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
(in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments $ 899 $ 11,648 $ 29,129 $ 14,057 $ 5,381
Working capital ................................. (3,206) 9,702 26,740 12,205 5,749
Total assets .................................... 1,303 13,634 32,310 16,071 6,836
Mandatory redeemable convertible preferred stock 14,052 38,005 -- -- --
Total stockholders' equity (deficit) ............ $(16,978) $(27,900) $ 28,427 $ 13,324 $ 5,775
(1) Our cost of revenues for the year ended December 31, 1998 includes a $1.2
million expense attributable to the write-off of capitalized costs relating
to the acquisition of technology no longer useful to the development of
BeOS.
3
(2) Operating expenses include the amortization of deferred compensation which
was recorded by us and which represents the difference between the deemed
fair value of our common stock, as determined for accounting purposes and
the exercise price of options at the date of grant. For the purposes of the
financial statements, this expense was disclosed as being applicable to
each line item as follows:
Year Ended December 31,
-----------------------
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
(in thousands)
Analysis of the amortization
of deferred compensation:
Research and development .............. $ 480 $ 1,747 $ 1,927 $ 794 $ (551)
Sales and marketing ................... 273 833 1,692 646 (533)
General and administrative ............ 114 1,301 2,614 1,173 (912)
------- ------- ------- ------- -------
Total amortization of deferred stock
compensation...................... $ 867 $ 3,881 $ 6,233 $ 2,613 $(1,996)
======= ======= ======= ======= =======
(3) On November 13, 2001, we sold substantially all of our intellectual
property and other technology assets to Palm for a total net gain of
approximately $4.9 million.
(4) See Note 2 of Notes to Unaudited Consolidated Financial Statements for an
explanation of the determination of the number of shares used in computing
net loss per common share--basic and diluted.
4
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS REPORT ON FORM 10-K/A 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 ABOVE UNDER "FACTORS AFFECTING OUR
BUSINESS,OPERATING RESULTS AND FINANCIAL CONDITION" AND ELSEWHERE IN THIS REPORT
AS WELL AS THOSE NOTED IN OUR PUBLIC FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION ("SEC"). THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY
FORWARD- LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS OR OTHERWISE. Factors that could cause or contribute to these differences
include, but are not limited to, those discussed in the sections titled "Factors
Affecting our business operating results and financial condition" and
"Business"under item 1 in OUR ANNUAL REPORT ON FORM 10-K FILED WITH THE SEC On
APRIL 1, 2002
Overview
Be was founded in 1990 and prior to the cessation of its business
operations offered software solutions designed for Internet appliances and
digital media applications. On August 16, 2001, we entered into an asset
purchase agreement with Palm, Inc. to sell substantially all of our intellectual
property and other technology assets. This transaction was approved by our
stockholders on November 12, 2001 and was completed on November 13, 2001. On
March 15, 2002, we filed a Certificate of Dissolution with the Secretary of
State of Delaware pursuant to Section 275 of the Delaware General Corporation
Law, closed our transfer books and voluntarily delisted our common stock from
the Nasdaq National Market System.
Prior to 1998, we had no revenues and our operations consisted primarily of
research and development. In December 1998, we shipped the first version of
BeOS, our desktop operating system targeted primarily to end users. Prior
releases of BeOS were targeted primarily to software developers. Throughout 1999
we focused on delivering BeOS as a desktop operating system to end users, but
ultimately determined the barriers to entry and the cost of intense competition
in that market was more than we could overcome. In recognition of this, and to
address shareholder value, in 2000 we shifted our resources to focus primarily
on the market for Internet appliances and the further development, marketing and
deployment of BeIA, our software solution intended for Internet appliances. At
the same time we announced that we would be making available at no charge a
version of BeOS for personal use, and a more fully featured version would be
available for a charge through third party publishers. Our revenues in 2000 were
primarily generated from the sale of BeOS to our licensed third party
publishers, and other resellers and distributors, and direct sales of BeOS to
end users through our BeDepot.com Web site. We also generated revenue by
collecting commission from sales of third party software through our BeDepot.com
Web site.
In 2001, revenues were generated through royalty payments, maintenance and
support fees, professional services and integration fees and by revenue-related
consulting services performed after August 16, 2001 under a funding agreement
with Palm executed in connection with the asset sale. 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. However, revenues from BeIA did not offset the loss of revenues from
sales of BeOS. Upon the completion of the sale of substantially all of our
assets to Palm, we received an aggregate of 4,104,478 shares of Palm common
stock and sold these shares on November 13, 2001 for $10,100,772 in cash, net of
brokerage and transaction fees. As a result of the sale of our assets and the
cessation of our business operations, we do not expect to generate any future
revenues.
Our research and development expenses consisted primarily of compensation
and related costs for research and development personnel. We also included in
research and development expenses the costs relating to licensing of
technologies and amortization of costs of software tools used in the development
of our operating system. Costs incurred in the research and development of new
releases and enhancements are expensed as incurred. These costs included the
cost of licensing technology that is incorporated into a product or an
enhancement that is still in preliminary development, and for which
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. Products and
enhancements have generally reached technological feasibility and were released
for sale at substantially the same time. As we have ceased business operations,
we do not expect to incur any research and development expenses in the future.
5
Our sales and marketing expenses consisted primarily 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. In July 2001, we eliminated our sales and
marketing group. As we have ceased operations, we do not expect to incur any
sales and marketing expenses in the future.
General and administrative expenses consisted primarily of compensation and
related expenses for management, finance, and accounting personnel, professional
services and related fees, occupancy costs and other expenses. We expect our
general and administrative expenses in the future to be minimal as we intend for
only one employee to remain with the Company in order to facilitate the wind up
of the company's operations and to oversee legal proceedings.
In the past, we marketed and sold our products in the United States and
internationally. International sales of products accounted for approximately 0%,
23% and 56% of total revenues in 2001, 2000 and 1999, respectively. We do not
expect to generate any revenues in the near or extended future.
From time to time in the past, we have granted stock options to employees,
consultants and non-employee directors. As of December 31, 2001, we had recorded
deferred compensation related to these options in the total amount of $12.6
million, net of cancellations, representing the difference between the deemed
fair value of our common stock, as determined for accounting purposes, and the
exercise price of options at the date of grant. Of this amount, $11.9 million
had been amortized at December 31, 1999, with $2.6 and $(2.0) million being
amortized in 2000 and 2001, respectively. The negative amount shown for 2001 is
due to the cancellation of options. Future amortization of expense arising out
of options granted through December 31, 2001 is estimated to be $38,000 and
$1,000 for 2002 and 2003 respectively. We amortize the deferred compensation
charge monthly over the vesting period of the underlying option. Due to
cessation of our business operations, we do not expect to grant stock options to
employees, consultants or directors in the future.
Comparison
Certain prior year costs have been reclassified to conform with the current
year presentation.
Operating expenses as shown in Item 6 - Selected Financial Data, include
non-cash charges for stock compensation amortization as follows:
Year Ended December 31,
1999 2000 2001
---- ---- ----
(in thousands)
Amortization of deferred compensation included in:
Research and development.................... $ 1,927 $ 794 $ (551)
Sales and marketing......................... 1,692 646 (533)
General and administrative.................. 2,614 1,173 (912)
------ ---------- -----
Total amortization of deferred stock compensation $ 6,233 $ 2,613 $ (1,996)
======== ======== =========
Excluding the amortization of deferred compensation, operating expenses are
as follows:
Year Ended December 31,
1999 2000 2001
---- ---- ----
(in thousands)
Operating expenses:
Research and development.................... $ 8,502 $ 8,345 $ 6,820
Sales and marketing......................... 9,274 7,166 2,214
General and administrative.................. 2,506 3,567 3,689
Amortization of deferred stock compensation 6,233 2,613 (1,996)
------- ------- -------
Total operating expenses...................... $ 26,515 $ 21,691 $ 10,727
========= ========= ========
6
Comparison of the Year Ended December 31, 2001 to the Year Ended December 31,
2000
Net Revenues. Net revenues increased $2.2 million to $2.7 million for the
year ended December 31, 2001 from $480,000 for the year ended December 31, 2000.
Revenues are not directly comparable as they were mainly attributable to
shipments of BeOS in 2000 and to BeIA integration services and revenue-related
consulting services in 2001, the latter being performed under a funding
agreement entered into with Palm on August 16, 2001, in connection with the sale
of substantially all of our assets to Palm.
Cost of Revenues. Cost of revenues increased $1.7 million to $2.8 million
for the year ended December 31, 2001 from $1.1 million for the year ended
December 31, 2000. A majority of such costs resulted from the continued
amortization of technology license agreements. In addition, in the quarter ended
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 decreased $1.5
million, or 18%, to $6.8 million for the year ended December 31, 2001 from $8.3
million for the year ended December 31, 2000. This decrease is mainly due to the
reductions in workforce in April and July 2001 as well as to the termination of
our remaining engineering team after the completion of the sale of our assets to
Palm on November 13, 2001.
Sales and Marketing. Sales and marketing expenses decreased $5.0 million,
or 69%, to $2.2 million for the year ended December 31, 2001 from $7.2 million
for the year ended December 31, 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 were
relatively constant at $3.7 million for the year ended December 30, 2001 as
compared with $3.6 million for the year ended December 31, 2000. Lower payroll
expenses following the reductions in workforce carried out in April and July
2001 were partially offset by higher insurance costs.
Amortization of Deferred Stock Compensation. Amortization of deferred stock
compensation decreased $4.6 million to $(2.0) million for the year ended
December 31, 2001, from $2.6 million for the year ended December 31, 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.
Interest and Other Income (Expense), Net. Net other income increased $3.9
million to $5.0 million for the year ended December 31, 2001, from $1.2 million
for the year ended December 31, 2000. The increase is primarily attributable to
the sale of substantially all of our assets to Palm on November 13, 2001,
partially offset by the decrease in interest income due to the reduced balances
in our investment portfolio used to fund operations.
Comparison of the Year Ended December 31, 2000 to the Year Ended December 31,
1999
Net Revenues. Net revenues decreased $2.2 million to $480,000 for the year
ended December 31, 2000 from $2.7 million for the year ended December 31, 1999.
This decrease was primarily attributable to lower shipments of BeOS, which we
believe resulted from making a version of BeOS available for free download.
Cost of Revenues. Cost of revenues decreased $339,000, or 24%, to $1.1
million for the year ended December 31, 2000 from $1.4 million for the year
ended December 31, 1999. Gross margin was negative as a result of the continuing
amortization of technology license agreements.
Research and Development. Research and development expenses were relatively
constant at $8.3 million for the year ended December 30, 2000 as compared with
$8.5 million for the year ended December 31, 1999. Lower outside consulting
expenses were partially offset by increases in payroll expenses due to
additional headcount.
Sales and Marketing. Sales and marketing expenses decreased $2.1 million,
or 23%, to $7.2 million for the year ended December 31, 2000 from $9.3 million
for the year ended December 31, 1999. This decrease was primarily attributable
to our shift in resources to focus on the Internet appliances market, and
resulting shift in our potential customer base from end users to device and
service providers. Additionally, the Web site technology purchased in 1998 was
now fully amortized.
7
General and Administrative. General and administrative expenses increased
$1.1 million, or 42%, to $3.6 million for the year ended December 31, 2000 from
$2.5 million for the year ended December 31, 1999. This increase was primarily
attributable to the full year expenses associated with the activities of a
public company.
Amortization of Deferred Stock Compensation. Amortization of deferred stock
compensation decreased $3.6 million to $2.6 million for the year ended December
31, 2000, from $6.2 million for the year ended December 31, 1999. 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.
Interest and Other Income (Expense), Net. Net other income increased
$367,000, or 47%, to $1.2 million for the year ended December 31, 2000, from
$789,000 for the year ended December 31, 1999. The increase was primarily
attributable to the increase in interest income due to the increased balances in
our investment portfolio following our initial public offering.
Liquidity and Capital Resources
Since our inception, we traditionally financed our operations primarily
through the sale of our equity securities and through borrowing arrangements. On
November 13, 2001, we sold substantially all of our assets to Palm for
approximately $11.0 million in Palm stock. That same day, we sold 4,104,478
shares of Palm stock for $10,100,772 in cash, net of brokerage and transaction
fees. Cash and cash equivalents and short-term investments decreased
approximately $8.7 million to $5.4 million at December 31, 2001, from $14.1
million at December 31, 2000. This decrease is primarily attributable to the
amounts used to fund operations, net of the proceeds from the sale of our assets
to Palm.
Cash used in operating activities decreased $3.7 million to $13.9 million
for the year ended December 31, 2001 as compared to $17.5 million for the year
ended December 31, 2000. This decrease is primarily attributable to the decrease
in the net operating loss, net of non-cash items, and to the decrease in
payables balances during the year ended December 31, 2001.
Cash provided by investing activities was approximately $9.2 million for
the year ended December 31, 2001 as compared with $17.1million for the year
ended December 31, 2000. This change is primarily attributable to the asset sale
to Palm and to net sales of short-term investments in the year ended December
31, 2001. For a more detailed explanation of the Company's net gain on the asset
sale to Palm, see Note 3 to the Notes to Unaudited Consolidated Financial
Statements on page F-12 of this Amended Annual Report.
Cash provided by financing activities for the year ended December 31, 2001
was approximately $5.7 million as compared with $3.4 million in the year ended
December 31, 2000. This change is primarily attributable to net proceeds from
the sale of substantially all of our assets to Palm in November 2001, net of the
reduced proceeds from the exercise of stock options.
Since November 2001, we have been winding down our operations and have
substantially reduced our working capital requirements. Our working capital
requirements are now minimal and we believe that existing cash and cash
equivalents will be sufficient to meet our remaining operating and capital
requirements for the next twelve months or the period of liquidation if sooner.
As part of the winding down process, we intend to distribute part of our
remaining cash to our shareholders as soon as practicable under Delaware law and
dissolution procedures. After that time, we intend to retain only a nominal
amount of cash to complete the winding down process.
Critical Accounting Policies
Use of estimates
The preparation of unaudited financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates.
Accounting for Long-Lived Assets
The Company reviews its property and equipment for impairment whenever
events or changes in circumstances indicate that the carrying amount of
these assets may not be recoverable. Recoverability is measured by
comparison of its carrying amount to future net cash flows the assets are
expected to generate. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the projected discounted future cash flows
arising from the asset.
8
At each balance sheet date, the unamortized cost of purchased software
is compared to the net realizable value of the related software product.
The amount by which the unamortized cost exceeds the net realizable value
of the software is charged to operations. The net realizable value of the
software product is determined by estimating future gross revenues and
reduced by the estimated future costs of selling the product.
Research and development costs
Costs incurred in the research and development of new software
products are expensed as incurred, including minimum payments made and due
to third parties for technology incorporated into the Company's product,
until technological feasibility is established. Development costs are
capitalized beginning when a product's technological feasibility has been
established and ending when the product is available for general release to
customers. Products and enhancements generally reached technological
feasibility and were released for sale at substantially the same time.
Revenue recognition
In 2001, the Company's revenue was primarily derived from BeIA
integration services and revenue-related consulting services, the latter
being performed under a funding agreement that was entered into on August
16, 2001 in connection with the sale of substantially all of the Company's
assets to Palm. In the second half of 2000, the Company's revenue was
primarily derived from royalties on sales of BeOS by third-party
publishers. In prior periods, revenue was generated from licensing fees on
sales to end-users either by direct-order on the Company's web site or
sales by distributors.
The Company recognized product revenues from orders on the Company's
web site upon shipment, provided a credit card authorization was received,
the fee was fixed and determinable, collection of resulting receivables was
probable and product returns were reasonably estimable. The Company used a
standard shrink wrap license for all of its sales. Under the license, the
Company was obligated to provide limited telephone support to end users who
purchase the Company's product and provided a 5-day money back guarantee.
The Company accrued the costs of providing telephone support upon shipment
of the product based on the historical cost of providing such support to
its customers. In addition, upon shipment of its product, the Company
recorded an allowance for estimated sales returns.
Product revenues for sales to its distributors were recognized upon
sell through to an end user provided a signed contract existed, the fee was
fixed and determinable and collection was probable. The Company recognized
revenue from these distributors upon sale by the distributors to an end
user because the Company did not have sufficient experience with the
distributors to reasonably estimate returns.
Stock-based compensation
The Company accounts for stock based employee compensation
arrangements in accordance with the provisions of Accounting Principles
Board Opinion No. 25, or APB 25, "Accounting for Stock Issued to Employees"
as interpreted by FIN 44, "Accounting for Certain Transactions involving
Stock Compensation, No. 25"and Financial Accounting Standards Board
Interpretation ("FIN") No.28, "Accounting for Stock Appreciation Rights and
Other Variable Stock Option or Award Plans," and complies with the
disclosure provisions of Statement of Financial Accounting Standards No.
123, or SFAS 123, "Accounting for Stock-Based Compensation." Under APB 25,
compensation expense is based on the difference, if any, on the date of
grant, between the estimated fair value of the Company's common stock and
the exercise price. SFAS 123 defines a "fair value" based method of
accounting for an employee stock option or similar equity investment. The
pro forma disclosures of the difference between the compensation expense
included in net loss and the related cost measured by the fair value method
are presented in Note 7. The Company accounts for equity instruments issued
to nonemployees in accordance with the provisions of SFAS 123 and Emerging
Issues Task Force 96-18, "Accounting for Equity Instruments That Are Issued
to Other Than Employees for Acquiring, or in Conjunction with Selling Goods
or Services."
9
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's unaudited financial statements appear on pages F-1
through F-26 of this report (See Item 14).
Selected Quarterly Results of Operations
The following table sets forth certain unaudited statements of
operations data for the eight quarters ended December 31, 2001. This data
has been derived from unaudited financial statements that, in the opinion
of our management, include all adjustments consisting only of normal
recurring adjustments that we consider necessary for a fair presentation of
the information when read in conjunction with our unaudited financial
statements and the attached notes. The operating results for any quarter
are not necessarily indicative of the results for any future period.
Quarter Ended
March 31, June 30, September December March 31, June 30, September December
30, 31, 30, 31,
2000 2000 2000 2000 2001 2001 2001 2001
------- ------- ------- -------- -------- ------- ------- -------
Net revenues .................. $ 254 $ 142 $ 68 $ 16 $ 100 $ 715 $ 1,135 $ 763
Cost of revenues .............. 293 261 216 327 251 320 1,765 495
------- ------- ------- -------- -------- ------- ------- -------
Gross profit (loss) ........... (39) (119) (148) (311) (151) 395 (630) 268
Operating expenses:
Research and
Development ........... 2,148 1,843 2,088 2,266 2,379 2,276 1,398 767
Sales and marketing ...... 2,171 1,983 1,422 1,590 1,554 557 110 (7)
General and
Administrative ........ 950 839 880 898 1,010 1,370 1,121 188
Restructuring expense .... -- -- -- -- 307 143 -- --
Amortization of deferred
stock compensation .... 1,033 657 507 416 302 29 (516) (1,811)
------- ------- ------- -------- -------- ------- ------- -------
Total operating
expenses ......... 6,302 5,322 4,897 5,170 5,552 4,375 2,113 (863)
------- ------- ------- -------- -------- ------- ------- -------
Loss from operations .......... (6,341) (5,441) (5,045) (5,481) (5,703) (3,980) (2,743) 1,131
Other income (net) ............ 341 322 274 219 146 84 19 4,704
------- ------- ------- -------- -------- ------- ------- -------
Net loss ...................... $(6,000) $(5,119) $(4,771) $ (5,262) $ (5,557) $(3,896) $(2,724) $ 5,835
======= ======= ======= ======== ======== ======= ======= =======
Net loss attributable to common
stockholders ............... $(6,000) $(5,119) $(4,771) $ (5,262) $ (5,557) $(3,896) $(2,724) $ 5,835
======= ======= ======= ======== ======== ======= ======= =======
In January of 2000, we announced we would be shifting our resources to
focus primarily on the market for Internet appliances. We also announced a
version of BeOS would be made available for personal use at no charge. After the
first quarter of 2000, net revenues were primarily generated by royalties
received from third-party publishers. The decrease in net revenues was primarily
attributable to lower shipments of BeOS, which we believe resulted from making a
version of BeOS available for free download. In 2001, revenues were primarily
generated under BeIA integration services and revenue-related consulting
services, the latter being performed under a funding agreement that was entered
into August 16, 2001, in connection with the sale of substantially all of our
assets to Palm.
Amortization of licensed or acquired technology was charged to cost of
revenues and as a result of the continuing amortization of technology license
agreements, gross margins were negative in year 2000. In the quarter ended
September 30, 2001, the remaining book value of these technology agreements of
$539,000 was determined to be impaired and was therefore expensed.
Quarterly fluctuations in research and development expenses related
primarily to costs associated with increased personnel and related costs and the
costs of licensing technology used for development of BeOS. Concurrently with
the sale of substantially all of our assets to Palm in November 13, 2001, our
remaining research and development team was transferred to Palm.
From the first quarter of 2000, sales and marketing expenses began to
decrease following our decision to reallocate capital to focus on the Internet
appliances market and shifting our potential customer base from end users to
OEMs and ODMs. In 2001, sales and marketing expenses decreased further due to 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.
In the quarter ended December 31, 2001, we completed the sale of
substantially all of our intellectual property and other technology assets to
Palm, recognizing a net gain of approximately $4.9 million.
10
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
Our unaudited consolidated financial statements as set forth under Item 8
are filed as part of this Amended Annual Report on Form 10-K/A.
(2) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts is filed on page F-26 of
this Amended Annual Report on Form 10-K/A.
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are omitted
because they are not required under the related instructions or are
inapplicable.
(3) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
2.1*** Asset Purchase Agreement by and among Palm Inc., ECA Subsidiary
Acquisition Corporation and the Company, dated August 16, 2001, as
amended and restated on September 10, 2001
2.2*** Plan of Dissolution of the Company as approved by the stockholders of
the Company on November 12, 2001
3.1* Amended and Restated Certificate of Incorporation
3.2* Bylaws
4.1* Form of Common Stock Certificate
4.2* Form of Warrant to purchase an aggregate of up to 1,046,102 shares of
common stock issued in connection with the Series 1 convertible
preferred stock financing
4.3* Warrant to purchase up to 1,538,462 shares of common stock, dated
December 23, 1998, issued by Be Incorporated to Intel Corporation
4.4* Amended and Restated Investors' Rights Agreement, dated February 4,
1998
9.1*** Form of Stockholder Support Agreement by and among Palm Inc., ECA
Subsidiary Acquisition Corporation and the Company, dated August 16,
2001, as amended and restated on September 10, 2001
10.1* Form of Indemnity Agreement entered into between the Company and its
directors and officers
10.2.1* 1992 Stock Option Plan
10.2.2* Form of 1992 Stock Option Agreement
10.3.1* 1999 Equity Incentive Plan
10.3.2* Form of 1999 Equity Incentive Plan Stock Option Agreement
10.3.3* Form of 1999 Stock Option Grant Notice
10.4.1* Employee Stock Purchase Plan
10.4.2* Form of Employee Stock Purchase Plan Offering
10.5.1* Non-Employee Directors' Stock Option Plan
10.5.2* Form of Nonstatutory Stock Option
10.6.1* Office Lease dated June 24, 1994, by and between Menlo Station
Development and the Company
10.6.2* Amendment to Office Lease, dated April 10, 1997, by and between Menlo
Station Development and the Company
10.7* Employment Agreement, dated June 22, 1998, by and between the Company
and Wesley S. Saia
10.8* Employment Agreement, dated March 12, 1999, by and between the Company
and Roy Graham
10.9* Employment Agreement, dated October 9, 1998, by and between the
Company and Jean R. Calmon
10.10* Stock Purchase Agreement, dated as May 1, 1998, by and among StarCode
Software, Inc., the Stockholders of StarCode Software, Inc., and Be
Incorporated
10.11*+ Software Distribution Agreement, dated November 5, 1998, by and
between the Company and Plat'Home Co. Ltd.
11
10.12** Form of Change in Control Agreement
10.13*** Funding Agreement, dated August 16, 2001, by and between Palm Inc. and
the Company
10.14*** Form of Non-Competition Agreement, effective November 13, 2001, by and
between Palm, Inc. and certain stockholders or optionholders of the
Company 21.1* List of Subsidiaries
* Incorporated by reference from the Registrant's Registration Statement
on Form S-1, as amended (File No. 333-77855)
** Incorporated by reference from the Registrant's Annual Report on Form
10-K, filed with the SEC on March 30, 2000
*** Incorporated by reference from the Registrant's Definitive Proxy
Statement, filed with the SEC on October 9, 2001
+ Confidential Treatment has been granted with respect to certain
portions of this agreement
(b) Reports on Form 8-K
Current Report on Form 8-K, filed November 28, 2001, announcing that
Be completed Palm's acquisition of substantially all of the
intellectual property and other technology assets of Be pursuant to
the terms of an Amended and Restated Asset Purchase Agreement, dated
September 10, 2001, entered into between Be, Palm and ECA Subsidiary
Acquisition Corporation, a Delaware corporation and wholly-owned
subsidiary of Palm.
Current Report on Form 8-K, filed March 6, 2002, announcing that (i)
on February 19, 2002 Be had filed suit against Microsoft Corporation
for the destruction of Be's business resulting from the
anticompetitive business practices of Microsoft and (ii) on March 4,
2002, the Company planned to file a certificate of dissolution with
the Delaware Secretary of State on March 15, 2002 in accordance with
the Plan of Dissolution approved by stockholders on November 12, 2001.
Current Report on Form 8-K, filed March 28, 2002, announcing that on
March 15, 2002, Be had filed a certificate of dissolution with the
Delaware Secretary of State and voluntarily delisted from the Nasdaq
National Market.
(c) See Item 14 (a)(3) above.
(d) See Item 14 (a)(2) above.
12
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amended Annual Report
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Mountain View, State of California, on May 7, 2002.
BE INCORPORATED
By: /S/ DANIEL S. JOHNSTON
-----------------------------------------
Name: Daniel S. Johnston
Title: President and General Counsel
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Amended Annual Report has been signed by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
Signature Title(s) Date
/s/ DANIEL S. JOHNSTON President and General Counsel May 7 , 2002
-----------------------------
Daniel S. Johnston
* Director May 7, 2002
-----------------------------
P.C. Berndt
* Director May 7, 2002
-----------------------------
Andrei M. Manoliu
* Director May 7, 2002
-----------------------------
Barry M. Weinman
* By /S/ DANIEL S. JOHNSTON
Daniel S. Johnston
--------------------------------
Attorney-in-fact
13
1. Index to Unaudited Consolidated Financial Statements
The following unaudited financial statements are filed as part of this
Amended Annual Report:
Unaudited Consolidated Balance Sheets............................. F-2
Unaudited Consolidated Statements of Operations................... F-3
Unaudited Consolidated Statements of
Stockholders' Equity (Deficit)................................ F-4
Unaudited Consolidated Statements of Cash Flows................... F-5
Notes to Unaudited Consolidated Financial Statements.............. F-6
2. Index to Financial Statement Schedules
The following financial statement schedule is filed as part of this
report and should be read in conjunction with the Unaudited
Consolidated Financial Statements:
Schedule
II Valuation and Qualifying Accounts................. F-26
F-1
BE INCORPORATED
Consolidated Balance Sheets - Unaudited
(in thousands, except share and per share amounts)
December 31,
2001 2000
----- ----
Assets
Current assets:
Cash and cash equivalents .................................................... $ 5,381 $ 9,463
Short-term investments ....................................................... -- 4,594
Accounts receivable .......................................................... 66 26
Prepaid and other current assets ............................................. 1,363 549
Total current assets ..................................................... 6,810 14,632
Property and equipment, net ......................................................... 2 391
Other assets, net of accumulated amortization ....................................... 24 1,048
Total assets ............................................................. $ 6,836 $16,071
======= =====
Liabilities and stockholders' equity Current liabilities:
Accounts payable ............................................................. $ 96 $ 362
Accrued expenses ............................................................. 94 1,502
Technology license obligations, current portion .............................. 815 454
Deferred revenue ............................................................. 56 109
Total current liabilities ................................................ 1,061 2,427
Technology license obligations, net of current portion .............................. -- 320
Total liabilities ........................................................ 1,061 2,747
Commitments and Contingencies (Note 6)
Stockholders' Equity:
Preferred stock, $.001 par value:
Shares authorized: 2,000,000 in 2000 and 1999
Shares issued and outstanding: none
Common stock, $.001 par value:
Shares authorized: 78,000,000 shares in 2001 and 2000
Shares issued and outstanding: 38,486,007 in 2001 and 36,202,899 in 2000 38 36
Additional paid-in capital...................................................... 106,493 108,880
Deferred stock compensation.................................................... (39) (1,218)
Accumulated deficit............................................................ (100,717) (94,375)
Accumulated other comprehensive income (loss).................................. - 1
Total stockholders' equity........................................... 5,775 13,324
Total liabilities and stockholders' equity......................... $ 6,836 $ 16,071
======= ========
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
F-2
BE INCORPORATED
Consolidated Statements of Operations - Unaudited
(in thousands, except per share amounts)
Year Ended December 31,
2001 2000 1999
-------- -------- --------
Net revenues ...................................................... $ 2,713 $ 480 $ 2,656
Cost of revenues .................................................. 2,831 1,097 1,436
Gross profit (loss) ............................................... (118) (617) 1,220
Operating expenses:
Research and development, including amortization of deferred
stock compensation of $(551) in 2001, $794 in 2000 and .... 6,269 9,139 10,429
$1,927 in 1999
Sales and marketing, including amortization of deferred stock
compensation of $(533) in 2001, $646 in 2000 and $1,692 in
1999 1,681 7,812 10,966
General and administrative, including amortization of deferred
stock compensation of $(912) in 2001, $1,173 in 2000 and
$2,614 in 1999 ............................................ 2,777 4,740 5,120
Restructuring expense ........................................ 450 -- --
-------- -------- --------
Total operating expenses ................................ 11,177 21,691 26,515
-------- -------- --------
Loss from operations .............................................. (11,295) (22,308) (25,295)
Interest expense .................................................. (56) (155) (138)
Net gain on Asset Sale ............................................ 4,883 -- --
Other income and expenses, net .................................... 26 1,311 927
-------- -------- --------
Net loss .......................................................... (6,342) (21,152) (24,506)
-------- -------- --------
Other comprehensive gain(loss)
Unrealized gains(losses) on investments ..................... (1) 18 (17)
Comprehensive loss ................................................ $ (6,343) $(21,134) $(24,523)
======== ======== ========
Net loss .......................................................... $ (6,342) $(21,152) $(24,506)
Accretion of mandatorily
redeemable convertible preferred stock ......................... -- -- (292)
-------- -------- --------
Net loss attributable to common stockholders ...................... $ (6,342) $(21,152) $(24,798)
======== ======== ========
Net loss per common share--basic and diluted ...................... $ (0.17) $ (0.60) $ (1.41)
======== ======== ========
Shares used in per common share
calculation--basic and diluted ................................. 36,762 35,533 17,589
======== ======== ========
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
F-3
BE INCORPORATED
Consolidated Statements of Stockholders' Equity (Deficit) - Unaudited
(in thousands, except share amounts)
Additional Def. Other
Common Stock Paid-in Stock Accumulated Comp.
Shares Amount Capital Comp. Deficit Loss Total
----------- ------ --------- ------- --------- ---- --------
Balance, January 1, 1999 .................... 5,094,757 $ 5 $ 25,302 $(4,490) $ (48,717) -- $(27,900)
Repurchase of common stock .................. (39,640) -- (3) -- -- -- (3)
Exercise of stock options ................... 294,548 -- 65 -- -- -- 65
Exercise of common stock warrants ........... 286,411 1 578 -- -- -- 579
Deferred stock compensation related to
grants of ................................... -- -- 7,457 (7,457) -- -- --
stock options
Cancellation of options ..................... (1,024) 1,024
Amortization of deferred stock compensation . -- -- -- 6,233 -- -- 6,233
Compensation expense on grant of fully vested
options ................................... -- -- 662 -- -- -- 662
Issuance of common stock for cash, net of
issuance costs of $4,034 .................. 6,557,465 6 35,303 -- -- -- 35,309
Conversion of Mandatorily Redeemable
Convertible Preferred Stock ............... 22,498,874 23 38,274 -- -- -- 38,297
Net loss .................................... -- -- -- -- (24,506) -- (24,506)
Accretion of mandatorily redeemable
convertible preferred stock ............... -- -- (292) -- -- -- (292)
Unrealized loss on investments .............. -- -- -- -- -- $(17) (17)
----------- ------ --------- ------- --------- ---- --------
Balance, December 31, 1999 .................. 34,692,415 35 106,322 (4,690) (73,223) (17) 28,427
Repurchase of common stock .................. (22,165) -- (2) -- -- -- (2)
Exercise of stock options ................... 911,110 1 2,225 -- -- -- 2,226
Exercise of common stock warrants ........... 454,625 -- 454 -- -- -- 454
Compensation expense on grant of fully vested
options ................................... -- -- 38 -- -- -- 38
Cancellation of options ..................... -- -- (859) 859 -- -- --
Sale of shares under the ESPP ............... 166,914 -- 702 -- -- -- 702
Amortization of deferred stock compensation . -- -- -- 2,613 -- -- 2,613
Net loss .................................... -- -- -- -- (21,152) -- (21,152)
Unrealized gain on investments .............. -- -- -- -- -- 18 18
----------- ------ --------- ------- --------- ---- --------
Balance, December 31, 2000 .................. 36,202,899 36 108,880 (1,218) (94,375) 1 13,324
Repurchase of common stock .................. (4,498) -- (1) -- -- -- (1)
Exercise of stock options ................... 71,569 -- 22 -- -- -- 22
Exercise of common stock warrants ........... 179,291 -- 179 -- -- -- 179
Stock bonus awards .......................... 1,693,484 1 202 -- -- -- 203
Cancellation of options ..................... -- -- (3,175) 3,175 -- -- --
Sale of shares under the ESPP ............... 343,262 1 386 -- -- -- 387
Amortization of deferred stock compensation . -- -- -- (1,996) -- -- (1,996)
Net loss .................................... -- -- -- -- (6,342) -- (6,342)
Unrealized loss on investments .............. -- -- -- -- -- (1) (1)
----------- ------ --------- ------- --------- ---- --------
Balance, December 31, 2001 .................. 38,486,007 $ 38 $ 106,493 $ (39) $(100,717) $-- $ 5,775
=========== ====== ========= ======= ========= ==== ========
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
F-4
BE INCORPORATED
Consolidated Statements of Cash Flows - Unaudited
(in thousands)
Year Ended December 31,
2001 2000 1999
------- ------- -------
Cash flows from operating activities:
Net loss....................................................................... $ (6,342) $ (21,152) $ (24,506)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.............................................. 791 1,187 966
Gain on Asset Sale to Palm................................................. (4,884) -- --
Loss on disposal of fixed assets........................................... 188 5 69
Write-off of impaired licensed technology assets........................... 914 -- --
Licensed technology used in research and development....................... -- -- 320
Amortization of discount on technology license obligations................. 56 109 134
Compensation expense incurred on issuance of stock......................... -- 38 662
Amortization of deferred stock compensation................................ (1,996) 2,613 6,233
Changes in assets and liabilities:
Accounts receivable.................................................... (40) 141 310
Prepaid and other current assets....................................... (814) 241 (525)
Other accrued.......................................................... -- -- (91)
Accounts payable....................................................... (266) (548) 284
Accrued expenses....................................................... (1,408) (169) 456
Deferred revenue....................................................... (53) 10 (293)
------- ------- -------
Net cash used in operating activities.............................. (13,854) (17,525) (15,981)
------- ------- -------
Cash flow provided by (used in) investing activities:
Acquisition of property and equipment.......................................... (72) (182) (515)
Acquisition of licensed technology............................................. (425) (746) (1,893)
Purchases of short-term investments............................................ (1,727) (64,377) (81,749)
Proceeds from Asset Sale, net.................................................. 5,087 -- --
Sales and maturities of short-term investments................................. 6,322 82,412 67,357
Deposits and other............................................................. -- -- (63)
------- ------- -------
Net cash provided by (used in) investing activities................ 9,185 17,107 (16,863)
------- ------- -------
Cash flows provided by financing activities:
Proceeds from issuance of common stock pursuant to common stock options........ 22 2,226 65
Proceeds from issuance of common stock pursuant to common stock warrants....... 179 455 579
Proceeds from issuance of common stock under the Employee Stock Purchase Plan.. 387 702 --
Proceeds from issuance of common stock in initial public offering, net......... -- -- 35,309
Repurchase of common stock..................................................... (1) (2) (3)
------- ------- -------
Net cash provided by financing activities.......................... 587 3,381 35,950
------- ------- -------
Net increase (decrease) in cash and cash equivalents........................... (4,082) 2,963 3,106
Cash and cash equivalents, beginning of year................................... 9,463 6,500 3,394
Cash and cash equivalents, end of year......................................... $ 5,381 $ 9,463 $ 6,500
======= ======= =======
Supplemental schedule of noncash financing activities:
Conversion of mandatorily redeemable convertible preferred stock to
common stock................................................................. $ -- $ -- $ 38,297
======= ======= ==========
Stock bonus awards............................................................. $ 203 $ -- $ --
======== ======= =======
Accretion of mandatorily redeemable preferred stock............................ $ -- $ -- $ 292
======= ======= ========
Future obligations under noncancelable technology licenses..................... $ -- $ -- $ 809
======= ======= ========
Unearned stock based compensation related to stock option grants, net of
cancellations................................................................ $ (3,175) $ (859) $ 6,433
=========== ========= =========
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
F-5
BE INCORPORATED
Notes to Unaudited Consolidated Financial Statements
NOTE 1--NATURE OF BUSINESS:
Be Incorporated ("Be" or the "Company") was founded in 1990 and offered
software platforms designed for Internet appliances and digital media
applications.
On August 16, 2001, the Board of Directors of the Company unanimously
adopted resolutions approving the sale of substantially all of the Company's
intellectual property and other technology assets (the "Asset Sale") to ECA
Subsidiary Acquisition Corporation, a Delaware corporation and an indirect
wholly-owned subsidiary of Palm, Inc. ("Palm"), pursuant to an Asset Purchase
Agreement dated August 16, 2001. On October 9, 2001, the Company filed a
definitive proxy statement soliciting stockholder approval for the Asset Sale
and the dissolution of the Company pursuant to a plan of dissolution (the "Plan
of Dissolution"). The Plan of Dissolution provides for the orderly liquidation
of Be's remaining assets, the winding-up of Be's business and operations and the
dissolution of the Company. In accordance with the terms of the Plan of
Dissolution, Be will pay, or provide for the payment of, all of its liabilities
and obligations following the approval of the Board to proceed with the
liquidation and dissolution of the company. If there are any remaining assets
after the payment, or the provision for payment, of all of its liabilities and
obligations, Be will then distribute such assets to its stockholders in one or
more distributions.
At a special meeting of stockholders held on November 12, 2001, the
stockholders of Be approved the Asset Sale and the Plan of Dissolution. The
Asset Sale was completed on November 13, 2001. Under the terms of the Purchase
Agreement, Be received an aggregate of 4,104,478 shares of Palm common stock
valued at approximately $11,000,000 on the closing date of the transaction. On
March 15, 2002, the Company filed a certificate of dissolution with the Delaware
Secretary of State in accordance with the plan of dissolution approved by
stockholders on November 12, 2001 and as set forth in the Definitive Proxy
Statement filed on October 9, 2001.
Traditionally, the Company's revenues were primarily generated from the
following sources: sale of BeOS to resellers and distributors, and direct sales
of BeOS to end users through our BeDepot.com Web site. In 2000, the Company
shifted its resources to focus primarily on the market for Internet appliances
and the further development and marketing of BeIA, its software platform
intended for Internet appliances. At the same time it announced that it would be
making available at no charge a version of BeOS for personal use, and a more
fully featured version would be available for a charge through third party
publishers. During 2001, revenues were mainly attributable to BeIA integration
services and revenue-related consulting services in 2001, the latter being
performed under a funding agreement that was entered into August 16, 2001 in
connection with the Asset Sale.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of presentation
These unaudited consolidated financial statements were prepared on a going
concern basis and therefore contemplate the realization of assets and the
satisfaction of liabilities in the normal course of business. Following its
March 15, 2002 filing of a certificate of dissolution with the Delaware
Secretary of State, the Company adopted liquidation accounting (see Note 5).
Since November 2001, the Company has been winding down its operations and
has substantially reduced its working capital requirements. The Company's
working capital requirements are now minimal and it believes that existing cash
and cash equivalents will be sufficient to meet operating and capital
requirements for the next twelve months. As part of the winding down process,
the Company intends to distribute part of its remaining cash to its shareholders
as soon as practicable under Delaware law and dissolution procedures. After that
time, the Company intends to retain only a nominal amount of cash to complete
the winding down process.
F-6
BE INCORPORATED
Notes to Unaudited Unaudited Consolidated Financial Statements (continued)
Principles of consolidation
These uanudited consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated.
Foreign currency translation
The functional currency of the Company's foreign subsidiary is the U.S.
Dollar. Nonmonetary assets and liabilities are remeasured into U.S. Dollars at
historical rates, monetary assets and liabilities are remeasured at exchange
rates in effect at the end of the year and income statement accounts are
remeasured at average rates for the period. Remeasurement gains and losses of
the Company's foreign subsidiary are included in the results of operations and
are not significant.
Use of estimates
The preparation of unaudited financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.
Financial instruments
The Company considers all highly liquid investments with an original or
remaining maturities of three months or less at the date of purchase to be cash
equivalents. Cash and cash equivalents are deposited with two major banks in the
United States. Deposits in these banks may exceed the amount of insurance
provided on such deposits. The Company has not experienced any losses on its
deposits of its cash and cash equivalents.
Management has classified all of its short-term investments as available
for sale. Realized gains and losses are calculated using the specific
identification method. Realized gains and losses in 2001, 2000 and 1999 were not
significant. The Company had no short-term investments at December 31, 2001 and
unrealized gains and losses at December 31, 2000 and 1999 are shown in the
Consolidated Statements of Operations and Stockholders' Equity (Deficit) -
Unaudited.
The carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable and accounts payable
approximate fair value due to their short maturities. The fair value of short
term investments is set forth in note 4 of Notes to the Unaudited Consolidated
Financial Statements.
Certain risks and concentrations
Although the Company filed a certificate of dissolution on March 15, 2002
with the State of Delaware, it will continue to exist for three years following
this date or for such longer period as the Delaware Court of Chancery shall
direct for the purpose of prosecuting and defending lawsuits 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 Delaware law, in
the event Be fails to create an adequate contingency reserve for payment of its
expenses and liabilities during this 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). As a result, a
stockholder could be required to return all distributions previously made to
such stockholder and would receive no amounts 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. Although Be intends to exercise caution in setting up its contingency
reserve and making distributions to stockholders, there can be no assurance that
the contingency reserve established by Be will be adequate to cover its expenses
and liabilities.
F-7
BE INCORPORATED
Notes to Unaudited Consolidated Financial Statements (continued)
Property and equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets, generally three years. Upon disposal, the cost of
the asset and related accumulated depreciation are removed from the accounts and
any resulting gain or loss is included in the results of operations.
Depreciation expense for 2001, 2000, and 1999 was $266,000, $347,000 and
$287,000, respectively.
Accounting for Long-Lived Assets
The Company reviews its property and equipment for impairment whenever
events or changes in circumstances indicate that the carrying amount these
assets may not be recoverable. Recoverability is measured by comparison of its
carrying amount to future net cash flows the assets are expected to generate. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
projected discounted future cash flows arising from the asset.
At each balance sheet date, the unamortized cost of purchased software is
compared to the net realizable value of the related software product. The amount
by which the unamortized cost exceeds the net realizable value of the software
is charged to operations. The net realizable value of the software product is
determined by estimating future gross revenues and reduced by the estimated
future costs of selling the product.
Income taxes
The Company accounts for its income taxes in accordance with the liability
method. Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.
Advertising costs
Advertising costs, included in sales and marketing expenses, are expensed
as incurred and were nil, $73,000 and $154,000 in 2001, 2000 and 1999,
respectively.
Research and development costs
Costs incurred in the research and development of new software products are
expensed as incurred, including minimum payments made and due to third parties
for technology incorporated into the Company's product, until technological
feasibility is established. Development costs are capitalized beginning when a
product's technological feasibility has been established and ending when the
product is available for general release to customers. Products and enhancements
generally reached technological feasibility and were released for sale at
substantially the same time.
F-8
BE INCORPORATED
Notes to Unaudited Consolidated Financial Statements (continued)
Revenue recognition
In 2001, the Company's revenue was primarily derived from BeIA integration
services and revenue-related consulting services, the latter being performed
under a funding agreement that was entered into on August 16, 2001 in connection
with the sale of substantially all of the Company's assets to Palm. In the
second half of 2000, the Company's revenue was primarily derived from royalties
on sales of BeOS by third-party publishers. In prior periods, revenue was
generated from licensing fees on sales to end-users either by direct-order on
the Company's web site or sales by distributors.
The Company recognized product revenues from orders on the Company's web
site upon shipment, provided a credit card authorization was received, the fee
was fixed and determinable, collection of resulting receivables was probable and
product returns were reasonably estimable. The Company used a standard shrink
wrap license for all of its sales. Under the license, the Company was obligated
to provide limited telephone support to end users who purchase the Company's
product and provided a 5-day money back guarantee. The Company accrued the costs
of providing telephone support upon shipment of the product based on the
historical cost of providing such support to its customers. In addition, upon
shipment of its product, the Company recorded an allowance for estimated sales
returns.
Product revenues for sales to its distributors were recognized upon sell
through to an end user provided a signed contract existed, the fee was fixed and
determinable and collection was probable. The Company recognized revenue from
these distributors upon sale by the distributors to an end user because the
Company did not have sufficient experience with the distributors to reasonably
estimate returns.
During 1999, under certain circumstances, the Company offered an upgrade to
its product in conjunction with product sales at no additional charge.
Generally, such rights were offered prior to new versions being released and
gave the customers who purchase products between established dates the right to
such an upgrade. Revenue was allocated to an upgrade right based on the price
for upgrades when sold separately. The Company recognized upgrade revenue when
the criteria for product revenue recognition from end users set forth above are
met.
At December 31, 2001, deferred revenue consisted primarily of sales
transaction for which collection was uncertain. At December 31, 2000, deferred
revenue consisted primarily of prepaid royalties for BeIA. At December 31, 1999,
deferred revenue consisted of revenue related to distributor sales not sold
through to end users.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 10, or SAB 101, "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. The Company
adopted SAB 101 in the fourth quarter of 2000. The adoption of SAB 101 did not
have a material impact on the Company's financial position or results of
operations.
Stock-based compensation
The Company accounts for stock based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion No. 25, or
APB 25, "Accounting for Stock Issued to Employees" as interpreted by FIN 44,
"Accounting for Certain Transactions involving Stock Compensation, No. 25"and
Financial Accounting Standards Board Interpretation ("FIN") No.28, "Accounting
for Stock Appreciation Rights and Other Variable Stock Option or Award Plans,"
and complies with the disclosure provisions of Statement of Financial Accounting
Standards No. 123, or SFAS 123, "Accounting for Stock-Based Compensation." Under
APB 25, compensation expense is based on the difference, if any, on the date of
grant, between the estimated fair value of the Company's common stock and the
exercise price. SFAS 123 defines a "fair value" based method of accounting for
an employee stock option or similar equity investment. The pro forma disclosures
of the difference between the compensation expense included in net loss and the
related cost measured by the fair value method are presented in Note 7. The
Company accounts for equity instruments issued to nonemployees in accordance
with the provisions of SFAS 123 and Emerging Issues Task Force 96-18,
"Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling Goods or Services."
F-9
BE INCORPORATED
Notes to Unaudited Consolidated Financial Statements (continued)
Comprehensive income (loss)
Comprehensive income (loss) is defined as the change in equity of a
business enterprise during a period from transactions and other events and
circumstances from non-owner sources. The differences between net loss and
comprehensive loss are shown in the Unaudited Consolidated Statements of
Operations.
Net loss per common 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
preferred stock. Options, warrants and preferred stock were not included in the
computation of diluted net loss per common share in 2001, 2000 and 1999 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):
2001 2000 1999
------ ------ ------
Net loss per common share, basic and diluted:
Net loss ........................................ $ (6,342) $(21,152) $(24,506)
Accretion of mandatorily redeemable convertible
preferred stock .............................. -- -- (292)
------ ------ ------
Numerator for net loss per common
share, basic and diluted ........... (6,342) (21,152) (24,798)
Denominator for basic and diluted loss per common
share:
Weighted average common shares
outstanding ............................. 36,762 35,533 17,589
======== ======== ========
Net loss per common share basic and diluted ..... $ (0.17) $ (0.60) $ (1.41)
======== ======== ========
Antidilutive securities:
Options to purchase common stock ........... 3,207 5,911 6,010
Common stock subject to repurchase ......... 35 222 499
Preferred stock ............................ -- -- --
Warrants ................................... 1,538 2,130 2,585
------ ------ ------
4,780 8,263 9,094
======== ======== ========
F-10
BE INCORPORATED
Notes to Unaudited Consolidated Financial Statements (continued)
Recent accounting pronouncements
In June 2001, the Financial Accounting Standards Board issued FAS No. 141
Business Combinations ( FAS 141 ) and FAS No. 142 Goodwill and Other Intangible
Assets ( FAS 142 ). FAS 141 requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. FAS 141 also
specifies the criteria applicable to intangible assets acquired in a purchase
method business combination to be recognized and reported apart from goodwill.
FAS 142 requires that goodwill and intangible assets with indefinite useful
lives no longer be amortized, but instead be tested for impairment, upon initial
adoption of the standard and then annually. FAS 142 also requires that
intangible assets with definite useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and be reviewed for
impairment.
In August 2001, the FASB issued SFAS No. 143 Accounting for Asset
Retirement Obligations. SFAS No. 143 requires, among other things, retirement
obligations to be recognized when they are incurred and displayed as
liabilities, with a corresponding amount capitalized as part of the related
long-lived asset. The capitalized element must be expensed over its useful life
using a systematic and rational method. The adoption of SFAS No. 143 is not
expected to have a significant impact on the Company's financial position,
results of operations or cash flows.
In October 2001, the FASB issued SFAS No. 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 No. 144 requires, among
other things, the application of one accounting model for long-lived assets that
are impaired or to be disposed of by sale. The adoption of SFAS No. 144 is not
expected to have a significant impact on our financial position, results of
operations or cash flows.
Reclassifications
Certain prior year amounts have been reclassified for consistency with
current year financial statement presentation.
F-11
BE INCORPORATED
Notes to Unaudited Consolidated Financial Statements (continued)
NOTE 3--DISPOSALS:
Asset Sale to Palm
On August 16, 2001, the Board of Directors of the Company unanimously
adopted resolutions approving the sale of substantially all of the Company's
intellectual property and other technology assets to ECA Subsidiary Acquisition
Corporation, a Delaware corporation and an indirect wholly-owned subsidiary of
Palm, Inc., pursuant to an Asset Purchase Agreement dated August 16, 2001. On
October 9, 2001, the Company filed a definitive proxy statement soliciting
stockholder approval for the Asset Sale and the dissolution of the Company
pursuant to a plan of dissolution (the "Plan of Dissolution"). The Plan of
Dissolution provides for the orderly liquidation of Be's remaining assets, the
winding-up of Be's business and operations and the dissolution of the Company.
In accordance with the terms of the Plan of Dissolution, Be will pay, or provide
for the payment of, all of its liabilities and obligations following the
approval of the Board to proceed with the liquidation and dissolution of the
Company. If there are any remaining assets after the payment, or the provision
for payment, of all of its liabilities and obligations, Be will then distribute
such assets to its stockholders in one or more distributions.
At a special meeting of stockholders held on November 12, 2001, the
stockholders of Be approved the Asset Sale and the Plan of Dissolution. The
Asset Sale was completed on November 13, 2001. Under the terms of the Purchase
Agreement, Be received an aggregate of 4,104,478 shares of Palm common stock
valued at approximately $11,000,000 on the closing date of the transaction.
The gain on the asset sale to Palm is as follows (in thousands):
Total gross proceeds.............................................. $11,000
=======
Severance agreements and bonuses.................................. 3,100
Bankers' fees..................................................... 1,250
Broker's fees..................................................... 900
Legal and accounting fees......................................... 534
Non-cash expense related to stock bonuses........................ 202
Other expenses.................................................... 131
---
Net gain on asset sale............................................ $4,883
======
As part of its employee recruiting and retention plan, Be had a policy of
entering into change of control agreements with certain employees considered to
be critical to effectuating a transaction such as the Asset Sale with Palm.
Several senior executive officers and key employees of the Company were parties
to these change of control agreements at the time of the closing of the Asset
Sale. Pursuant to the terms of the agreements, these executive officers and key
employees were paid a lump sum severance payment equal to twelve months base
salary as well as the continuation of certain health insurance benefits. In
addition, in order to further assure the dedication and continued efforts of
Be's executives through the critical transition period up to the closing of the
Asset Sale, the Board of Directors of the Company approved grants of shares of
common stock of Be in the form of stock bonuses to certain employees, including
some executive officers, still employed with Be at the closing of the Asset Sale
or who may be terminated by the Company without cause after July 30, 2001. In
addition to these stock bonuses, the Board approved an aggregate of $867,000 in
incentive cash bonuses to certain designated employees, including certain
executive officers, for continuing to provide services to Be through the
transition period, and to assist the Company in fulfilling a condition to the
closing of the Asset Sale that specified that certain employees of Be, and a
specified percentage of Be's remaining employee workforce, remain employees of
the Company and accept employment with Palm as of the closing. The aggregate
charge against the net gain on the Asset Sale related to severance agreements
and bonuses for certain of the Company's executive officers and key employees
(including non-cash expenses) was approximately $3.3 million. Service fees
related to banker, broker, legal and accounting fees accounted for approximately
$2.7 million in additional charges. Other miscellaneous expenses related to the
transaction accounted for approximately $131,000.
F-12
BE INCORPORATED
Notes to Unaudited Consolidated Financial Statements (continued)
NOTE 4--BALANCE SHEET ACCOUNTS:
December 31,
2001 2000
---- ----
Cost Fair Value Cost Fair Value
-------- -------- -------- --------
Cash and cash equivalents
Cash..................................................... $ 4 $ 4 $ 426 $ 426
Money Market............................................. 5,377 5,377 8 8
Repurchase Agreements.................................... -- -- 6,785 6,785
Corporate Obligations.................................... -- -- 1,250 1,250
Commercial paper......................................... 994 994
$ 5,381 $ 5,381 $ 9,463 $ 9,463
======== ======== ======== ========
December 31,
2001 2000
---- ----
Cost Fair Value Cost Fair Value
-------- -------- -------- --------
Short-term investments
Federal government obligations......................... -- -- -- --
Corporate debt obligations............................. -- -- -- --
Commercial paper......................................... $ 4,593 4,594
--------------- --------------- --------- -----
-- -- $ 4,593 $ 4,594
=============== =============== ========= ========
All short-term investments mature within one year.
F-13
BE INCORPORATED
Notes to Unaudited Consolidated Financial Statements (continued)
December 31,
2001 2000
----- ----
Property and equipment, net
Computer equipment ......................................... $ 21 $ 1,124
Furniture and fixtures ..................................... -- 390
------- -------
21 1,514
Less: accumulated depreciation ............................. (19) (1,123)
------- -------
$ 2 $ 391
======= =======
Accrued expenses
License and royalty liabilities ............................ $ 37 $ 70
Payroll and related ........................................ -- 932
Other ...................................................... 57 500
------- -------
$ 94 $ 1,502
======= =======
Other assets, net
Technology licenses ........................................ $ -- $ 3,520
Deposits ................................................... 24 24
------- -------
24 3,544
Less: accumulated amortization ............................. -- (2,496)
------- -------
$ 24 $ 1,048
======= =======
Beginning in 1998, the Company entered into other technology license
agreements including non cancelable minimum payments. The present value of
payments due under these agreements (see Note 6) was recorded as an asset and
amortized over the lesser of the term of the agreement or three years, if
technological feasibility was established at the date the agreement was signed
or as research and development costs if technological feasibility had not been
established and there was no alternative future use for the licensed technology.
During 2001, 2000 and 1999, costs capitalized under these agreements were nil,
$100,000 and $809,000, respectively.
F-14
BE INCORPORATED
Notes to Unaudited Consolidated Financial Statements (continued)
NOTE 5--DISSOLUTION OF THE COMPANY:
On March 15, 2002, the Company filed a certificate of dissolution with the
Delaware Secretary of State in accordance with the plan of dissolution approved
by stockholders on November 12, 2001 and as set forth in the Definitive Proxy
Statement filed on October 9, 2001. Following such filing, the Company adopted
liquidation accounting. Set forth below is the Company's pro forma balance sheet
as of December 31, 2001, as if the certificate had been filed on that date.
Under liquidation accounting, all assets and liabilities are stated at
realizable value unlike under going concern accounting where assets and
liabilities are stated at historical value.
PRO FORMA STATEMENT OF NET ASSETS IN LIQUIDATION (IN THOUSANDS)
Historical Pro Forma
December 31, Adjustments December 31,
2001 2001
------------ ----------- ------------
Assets
Current assets:
Cash and cash equivalents....................................... $ 5,381 $ - $ 5,381
Accounts receivable............................................. 66 (66) -
Prepaid and other current assets................................ 1,363 (1,363) (a) -
------- ------ -----
Total current assets........................................ 6,810 (1,429) 5,381
Property and equipment, net............................................ 2 - 2
Other assets, net of accumulated amortization.......................... 24 24
------- ------ -----
Total assets................................................ $ 6,836 (1,429) 5,407
======= ======= =====
Liabilities
Current liabilities:
Accounts payable................................................ $ 96 - $ 96
Accrued expenses................................................ 94 300 (b) 394
Technology license obligations, current portion................. 815 - 815
Deferred revenue................................................ 56 (56) -
------- ------ -----
Total current liabilities................................... 1,061 244 1,305
------- ------ -----
Stockholders' Equity:
Common stock, $.001 par value:......................................... 38 (38) -
Additional paid-in capital............................................. 106,493 -
(106,493)
Deferred stock compensation.......................................... (39) 39 -
Accumulated deficit.................................................. (100,717) 100,717 -
------- ------ -----
Total stockholders' equity.................................. 5,775 (5,775) -
------- ------ -----
Total liabilities......................................... $ 6,836 $(5,775) 1,305
------- ------ -----
Net assets in liquidation................................. -- -- $ 4,102
======= ======= =====
(a) This amount is primarily related to liability insurance contracted for in
accordance with the dissolution process and discussed in the Definitive
Proxy Statement filed on October 9, 2001
(b) This amount represents estimated costs to liquidate the company according
to the plan of dissolution and consists primarily of $150,000 in
professional services and $130,000 in salary costs.
F-15
BE INCORPORATED
Notes to Unaudited Consolidated Financial Statements (continued)
NOTE 6--COMMITMENTS AND CONTINGENCIES:
Lease commitments
The Company leased its facilities under non cancelable operating leases
that expired in February 2002. In February 2002, the company entered into a
renewable 6 month lease for a small office with a monthly lease payment of
approximately $1,300 per month. Future annual minimum lease payments as of
December 31, 2001 are as follows (in thousands):
2002.......................................................... $ 200
Thereafter.................................................. -
------
$ 200
------
Total rent expense was $1,262,000, $1,308,000 and $1,168,000 for 2001, 2000
and 1999, respectively.
In addition, the Company has entered into several technology licensing
agreements which include non cancelable payments. These payments have been
recorded at the net present value using a discount rate of 10% per annum. The
future minimum payments under these agreement are as follows:
2002 $ 840
----
840
Less discount...................................................... (25)
---
815
Less current portion............................................... -
-----
$ 815
=====
Contingencies
Stockholder lawsuit
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 named as a
party 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. A settlement conference
occurred in April 2002 and negotiations are ongoing. A trial, if required, is
scheduled for June. Financial Square Partners 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 involved 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.
Antitrust lawsuit
On February 15, 2002, Be engaged Susman Godfrey LLP on a contingency basis
to bring forth claims against Microsoft Corporation for the destruction of Be's
business resulting from anticompetitive business practices. On February 19,
2002, the Company filed a lawsuit in the United States District Court in San
Francisco alleging, among other things, Microsoft harmed Be through a series of
illegal, exclusionary and anticompetitive acts designed to maintain its monopoly
in the Intel-compatible PC operating system market and created exclusive dealing
arrangements with PC OEMs prohibiting the sale of PCs with multiple preinstalled
operating systems.
Be is seeking recovery of an unspecified amount of damages for the benefit
of the Company and its stockholders.
F-16
BE INCORPORATED
Notes to Unaudited Consolidated Financial Statements (continued)
NOTE 7--STOCKHOLDERS' EQUITY:
Initial Public Offering
In July 1999, the Company completed its initial public offering and sold
6,000,000 shares of its common stock at a price of $6.00 per share. The Company
received approximately $32.2 million in cash, net of underwriting discounts,
commissions and other offering expenses. Simultaneously with the closing of the
initial public offering, the Company's mandatorily redeemable convertible
preferred stock outstanding at December 31, 1998 automatically converted into
22,498,874 shares of common stock. In August 1999, the underwriters exercised
their over-allotment option and the Company sold an additional 557,465 shares of
its common stock at a price of $6.00 per share, thereby raising proceeds of
approximately $3.1 million, net of underwriting discounts.
Prior to the Company's voluntary delisting on March 15, 2002, the Company's
shares were traded on the Nasdaq national market system under the symbol "BEOS".
The Company's shares now trade on the over-the-counter market under the symbol
"BEOSZ".
Mandatorily Redeemable Convertible Preferred Stock
On closing of the Company's initial public offering in July 1999, the
Company's mandatorily redeemable preferred stock automatically converted into
22,498,874 shares of common stock (see above).
Changes in the mandatorily redeemable convertible preferred stock during
1999 were as follows (in thousands):
Amount
Balance, January 1, 1999.................................. $ 38,005
Accretion to redemption value........................ 292
Conversion to common stock........................... (38,297)
-------
Balance, December 31, 1999................................. $ --
=======
F-17
BE INCORPORATED
Notes to Unaudited Consolidated Financial Statements (continued)
Warrants
The Company has issued fully exercisable warrants to purchase shares of its
common stock. None of these warrants were exercised prior to 1999. Warrant
activity can be analyzed as follows:
Number Number
Number Number of Warrants Number of Warrants
of Shares of Warrants Outstanding at of Warrants Outstanding at
Issuance Date Expiration Exercise Price Under the Exercised in 1999 December 31,1999 Exercised in 2000 December
Date Per share warrants 31,2000
------------- ----------- -------- --------- ----------------- ---------------- ----------------- --------
April 1996 March 2001 $1.00 1,219,648 173,546 1,046,102 454,625 591,477
December 1998 December 2003 $3.25 1,538,462 -- 1,538,462 -- 1,538,462
May and December
1998 June 17, 2000 $3.58 112,865 112,865 -- -- --
---------- ------- --------------- --------- ----------
2,870,975 286,411 2,584,564 454,625 2,129,939
========= ======= ========= ======= =========
Number Number
of Warrants Number Number of Warrants
Outstanding at of Warrants of Warrants Outstanding at
Issuance Date Expiration Exercise Price December Exercised in Expired in 2001 December 31, 2001
Date Per share 31, 2001 2001
------------- ----------- --------- --------- ------------- --------------- -----------------
April 1996 March 2001 $1.00 591,477 179,291 412,186 --
December 1998 December 2003 $3.25 1,538,462 -- -- 1,538,462
May and December
1998 June 17, 2000 $3.58 -- -- -- --
-------------- -------------- -------------- --------------
2,129,939 179,291 412,186 1,538,462
========= =========== ============= =============
The December 1998 warrants were issued in connection with the issuance of
Series 2 preferred stock in December 1998.
The May and December 1998 warrants were issued for investment banker fees
related to the issuance of the Series 2 preferred stock.
F-18
BE INCORPORATED
Notes to Unaudited Consolidated Financial Statements (continued)
1992 Stock Option Plan
In 1992 the Company adopted a stock option plan (the "1992 Plan") under
which 5,000 shares of the Company's common stock had been reserved for issuance
of stock options to employees, directors, or consultants under terms and
provisions established by the board of directors. In 1997 and 1998, the Company
reserved an additional 5,995,000 shares and 2,000,000 shares, respectively, for
issuance under the 1992 Plan. Options granted under the 1992 Plan are
immediately exercisable; however, shares exercised under the 1992 Plan are
subject to the Company's right of repurchase at the end of the holder's
association with the Company. The Company's right of repurchase generally lapses
as to 20% of the shares one year from the date of grant and (1)/60th each month
thereafter or as to 25% of the shares one year from the date of grant and
(1)/48th each month thereafter. The options expire ten years from the date of
grant.
On March 30, 1999, the board of directors terminated the 1992 Plan.
1999 Equity Incentive Plan
On March 30, 1999 the Company adopted the Equity Incentive Plan (the "1999
Plan") under which a total of up to 8,000,000 shares of common stock were
initially reserved for issuance. This number of shares initially reserved was
reduced by the 1,943,347 shares reserved for issuance under options then
outstanding under the 1992 Plan. If any of these 1,943,347 options are
cancelled, the number of shares reserved under the 1999 Plan will be increased
by the number of such cancellations. In addition, at the end of each year an
additional number of shares will automatically be added to the number of shares
already reserved for issuance under the 1999 Plan. This additional number of
shares will be not more than the lesser of 5% of the number of shares of the
Company's issued and outstanding common stock as of year end or the number equal
to 8% of the number of shares of common stock issued and outstanding at year end
less the number of shares of common stock reserved for issuance under the 1999
Plan but not subject to outstanding awards. The 1999 Plan provides for the grant
of incentive stock options, non-qualified stock options, restricted stock
purchase rights and stock bonuses to employees, consultants and directors.
Incentive stock options may be granted only to employees. The exercise price of
incentive stock options granted under the 1999 Plan must be at least equal to
the fair market value of the Company's common stock on the date of grant. The
exercise price of non-qualified stock options is set by the administrator of the
1999 Plan, but can be no less than 85% of the fair market value. The maximum
term of options granted under the 1999 Plan is ten years. Options granted under
the terms of the 1999 Plan become exercisable as to 25% of the shares awarded
after one year and (1)/48th of the award monthly thereafter.
Due to the cessation of the Company's business operations, the Company no
longer expects to grant stock options under the 1999 Plan.
F-19
BE INCORPORATED
Notes to Unaudited Consolidated Financial Statements (continued)
Activity under the Company's Plans is set forth below (in thousands, except
per share and share numbers):
Options Outstanding
-----------------------------------------------------
Average
Weighted
Available Price per Exercise
for Grant Shares Share Amount Price
--------- ------ --------- ------ --------
Balance, January 1, 1999...................... 351,488 2,204,927 0.10-0.35 $ 645 $ 0.29
Options authorized March................. 5,524,813 -- -- -- --
Options authorized December........... 298,435 -- -- -- --
Options granted.......................... (4,328,000) 4,328,000 0.35-14.38 22,726 5.25
Options exercised........................ -- (294,548) 0.10-5.00 (64) 0.22
Options terminated....................... 928,657 (928,657) 0.10-6.25 (2,875) 3.10
------- -------- ------
Balance, December 31, 1999 ................... 2,775,393 5,309,722 0.10-14.38 20,432 $3.85
Options authorized....................... 1,810,145 -- -- -- --
Options granted.......................... (3,961,500) 3,961,500 1.00-17.88 32,112 8.11
Options exercised........................ -- (911,110) 0.10-12.88 (2,226) 2.44
Options terminated....................... 1,870,409 (1,870,409) 0.10-14.44 (13,662) 7.30
---------- ------------- ------
Balance, December 31, 2000 ................. 2,494,447 6,489,703 0.10-17.88 36,656 $ 5.65
Options authorized....................... 2,108,580 -- -- -- --
Stock bonus awards........................ (1,693,484) -- -- -- --
Options granted.......................... (231,000) 231,000 0.49-1.97 360 1.56
Options exercised........................ -- (71,569) 0.10-1.00 (21) 0.29
Options terminated....................... 3,935,575 (3,935,575) 0.10-17.875 (21,939) 5.57
---------- ------------- ------
Balance, December 31, 2001 ................... 6,614,118 2,713,559 $0.10-$14.75 $15,056 $ 5.55
========= ========= =======
On November 13, 2001, following the closing of the Asset Sale to Palm, the
Company granted 1,693,484 shares to employees under a conditional stock award
program entered into on April 19, 2001.
At December 31, 2001, 2000 and 1999, 2,769,941, 2,339,767 and 2,435,895
outstanding options were exercisable at weighted average exercise prices of
$5.40, $4.52 and $2.01. Of these shares, nil shares, 295,869 shares and 848,685
shares at weighted average exercise prices of nil, $0.33 and $0.33,
respectively, are subject to the Company's right of repurchase upon exercise. In
addition, 35,480, 221,743 and 499,069 shares of the Company's outstanding common
stock is subject to the Company's right of repurchase at weighted average prices
of $0.25, $0.29 and $0.24, respectively.
1999 Non-Employee Directors' Stock Option Plan
On March 30, 1999 the board of directors also adopted the Non-Employee
Directors' Stock Option Plan (the "Directors' Plan"), and have reserved a total
of 1,500,000 shares of common stock for issuance thereunder. The exercise price
of options under the Directors' Plan will be equal to the fair market value of
the common stock on the date of grant. The maximum term of the options granted
under the Directors' Plan is ten years. Each initial grant under the Directors'
Plan will vest at 1/4th of the shares subject to the option one year after the
date of grant and (1)/48th of the shares each month thereafter. The rate of
vesting of each subsequent grant will be (1)/48th of the shares on a monthly
schedule after the date of grant. The board may amend (subject to stockholder
approval as necessary) or terminate the Directors' Plan at any time.
Due to the cessation of the Company's business operations, the Company no
longer expects to grant stock options under this plan.
F-20
BE INCORPORATED
Notes to Unaudited Consolidated Financial Statements (continued)
Activity under the 1999 Non-Employee Directors' Stock Option Plan is set
forth below (in thousands, except per share and share numbers):
Options Outstanding
------------------------------------------------------
Average
Weighted
Available Price per Exercise
for Grant Shares Share Amount Price
---------- -------- ---------- -------- ---------
Options authorized............................. 1,500,000 -- $ -- $ -- $ --
Options granted................................ (700,000) 700,000 5.00-5.75 3,575 5.11
--------- ------- -----
Balance, December 31, 1999..................... 800,000 700,000 5.00-5.75 3,575 5.11
Options granted................................ (100,000) 100,000 16.13 1,612 16.13
Options terminated............................. 90,625 (90,625) 5.00 (453) 5.00
------ -------- -----
Balance, December 31, 2000..................... 790,625 709,375 $5.00-16.13 $4,734 $ 6.67
Options terminated............................. 215,625 (215,625) 5.00-5.75 (1,116) 5.17
------- --------- -------
Balance, December 31, 2001..................... 1,006,250 493,750 $5.00-16.13 $3,618 $ 7.33
========= ======= ======
At December 31, 2001, 2000 and 1999, 392,708, 285,416 and nil options
outstanding were exercisable at weighted average exercise prices of $6.39, $5.08
and nil, respectively.
F-21
BE INCORPORATED
Notes to Unaudited Consolidated Financial Statements (continued)
Options Outstanding
The options outstanding and currently exercisable by exercise price at
December 31, 2001 are as follows:
Options Outstanding Options Exercisable
----------------------------------- ----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (years) Price Exercisable Price
--------------- ----------- ------------ ----- ------------ -----
$0.10-0.35.................................... 641,905 6.83 $0.49 596,342 $0.45
$1.00-4.56.................................... 188,667 8.66 4.17 181,583 $4.22
$5.00-5.75.................................... 1,464,676 7.27 5..06 1,329,116 $5.06
$6.00-9.00.................................... 346,079 8.05 7.26 266,129 $7.22
$12.88-17.88.................................. 565,982 8.09 13.51 396,771 $13.32
------- -------
3,207,309 7.49 $5.75 2,769,941 $5.40
========= =========
Deferred stock compensation
In accordance with the requirements of APB 25, the Company has recorded
deferred compensation for the difference between the exercise price of the stock
options granted before its initial public offering and the fair market value of
the Company's stock at the date of grant. This deferred compensation is
amortized to expense over the period during which the Company's right to
repurchase the stock lapses or the options become exercisable, generally four or
five years, using the multiple options method.
At December 31, 2001, the Company had recorded deferred compensation
related to these options in an amount of $12,591,000 (net of cancellations), of
which $(1,996,000), $2,613,000 and $6,233,000 had been amortized to expense
during 2001, 2000 and 1999.
During 1999, options to purchase 4,173,000 shares of the Company's common
stock were granted with exercise prices below the estimated market value at the
date of grant; the weighted average exercise prices were $4.98 per share and the
deemed weighted average market values of the common stock was $6.81 per share,
respectively. During 2000 and 2001, all options were granted with an exercise
price equal to the fair market value of the underlying common stock on the date
of grant.
Value of Options Granted
The fair value of each option grant is estimated on the date of grant using
a type of Black-Scholes option pricing model with the following assumptions used
for grants:
2001 2000 1999
----- ----- ----
Expected volatility........... 163% 142% 0% and 60%
Weighted average risk-free
interest rate.............. 4.50% 6.21% 4.80%
Expected life................. 2 years 2 years 2 years
Expected dividends............ 0% 0% 0%
For the period prior to the Company's Initial Public Offering, volatility
for the purposes of the SFAS No. 123 calculation was 0%.
Based on the above assumptions, the aggregate fair value and weighted
average fair value per share of options granted in 2001, 2000 and 1999 were
$328,000, $29,359,000 and $13,919,000, and $1.42, $7.24 and $2.77, respectively.
F-22
BE INCORPORATED
Notes to Unaudited Consolidated Financial Statements (continued)
Employee Stock Purchase Plan
On May 4, 1999 the Company adopted an Employee Stock Purchase Plan (the
"Purchase Plan"). The Company has reserved a total of 1,500,000 shares of common
stock for issuance under the Purchase Plan. Under the terms of the Purchase
Plan, employees who work at least 20 hours a week and have been employed for at
least five months in a calendar year may contribute, during an offering period,
a specified percentage, not to exceed 15%, of their compensation to purchase
shares of common stock of the Company. Each offering period runs for a period of
24 months and will be divided into consecutive purchase periods of approximately
six months. New offering periods commence every six months on August 1st and
February 1st each year.
The price of the common stock purchased under the Purchase Plan is equal to
85% of the fair market value of the common stock on the first day of the
applicable offering period or the last day of the applicable purchase period
whichever is lower. No person may purchase shares under the Purchase Plan to the
extent that such person would own 5% or more of the total combined value or
voting power of all classes of the capital stock of the Company or to the extent
that such person's rights to purchase stock under stock purchase plans would
accrue at a rate in excess of $25,000 per year.
The first purchases under the Purchase Plan occurred in 2000, during which
166,914 shares were issued under the Purchase Plan at a weighted average
purchase price of $4.21. In 2001, 343,262 shares were issued under the Purchase
Plan at a weighted average purchase price of $1.13. At December 31, 2001,
989,824 shares were reserved for future issuance under the Purchase Plan.
Due to the cessation of the Company's business operations, the Company no
longer expects any shares of stock to be purchased under the Purchase Plan.
Under SFAS No. 123, compensation cost is also recognized for the fair value
of employee's purchase rights under the Employee Stock Purchase Plan, which was
estimated using the following assumptions
2001 2000 1999
----- ----- ----
Expected volatility.................. 163% 142% 60%
Weighted average risk-free
interest rate.................... 4.31% 6.18% 4.80%
Expected life........................ 6 months 6 months 6 months
Expected dividends................... 0% 0% 0%
Based on the above assumptions, the aggregate fair value and weighted
average fair value per share of those purchase rights granted in 2001, 2000 and
1999 was $43,000, $417,000 and $140,000, and $1.19, $3.45 and $1.94,
respectively. .
Pro forma stock compensation
Had compensation cost been determined based on the fair value at the grant
date for the awards made in 1995 and thereafter under the Company's stock option
plans and employee stock purchase plan consistent with the provisions of SFAS
No. 123, the Company's net loss would have been as follows (in thousands, except
per share amounts):
2001 2000 1999
----- ----- ----
Net loss attributable to common stockholders--as reported......................... $(6,342) $(21,152) $(24,798)
Net loss attributable to common stockholders--pro forma........................... $(6,399) $(31,855) $(27,039)
Net loss per common share--basic and diluted as reported.......................... $ (0.17) $ (0.60) $ (1.41)
Net loss per common share--basic and diluted pro forma............................ $ (0.17) $ (0.90) $ (1.54)
Such pro forma disclosures may not be representative of future compensation
cost because options vest over several years and additional grants are made each
year.
F-23
BE INCORPORATED
Notes to Unaudited Consolidated Financial Statements (continued)
NOTE 8--INCOME TAXES:
The components of the net deferred tax asset are as follows (in thousands):
December 31,
2001 2000
----- -----
Net operating loss carryforwards........... $ 30,905 $ 27,492
Tax credit carryforwards................... 1,770 1,770
Property and equipment and intangibles..... 49
Other....................................... - 53
------ -------
32,675 29,364
Less: valuation allowance...................... (32,675) (29,364)
------- -------
Net deferred tax asset.......................... $ -- $ --
======= =======
Due to uncertainty surrounding the realization of the favorable tax
attributes in future tax returns, the Company has placed a valuation allowance
against its net deferred tax assets. The valuation allowance increased $3.3
million in 2001, $9.4 million in 2000 and $7.9 million in 1999.
The principal items accounting for the difference between income taxes
benefit at the U.S. statutory rate and the benefit from income taxes reflected
in the statement of operations are as follows (in thousands):
2001 2000 1999
---- ----- ----
Federal benefit at statutory rate.. $ 2,156 $ 7,192 $ 8,332
Nondeductible expenses............. 679 (890) (2,242)
Net operating losses and benefits.. (2,835) (6,302) (6,090)
------ ------ ------
$ -- $ -- $ --
======= ======= ======
At December 31, 2001, the Company had approximately $81,745,000 of net
operating loss carryforwards and $1,272,000 of research and development credits
to offset future federal income taxes. The Company also had approximately
$47,718,000 of net operating loss carryforwards and $498,000 of research and
development credits to offset future state income taxes. Included in the net
operating loss carryforwards referred to above, there are approximately
$7,181,000 and $3,591,000 of net operating loss carryforwards for federal and
state purposes, respectively, as of December 31, 2001, which relate to stock
option deductions. The tax benefit of these additional losses will be credited
to additional paid in capital if the Company's deferred tax asset is recognized.
These carryforwards expire in the years 2005 through 2021 if not utilized. Due
to changes in ownership, the Company's net operating loss and credit
carryforwards may become subject to certain annual limitations.
F-24
BE INCORPORATED
Notes to Unaudited Consolidated Financial Statements (continued)
NOTE 9--401(k) PROFIT SHARING PLAN:
The Company has a 401(k) Profit Sharing Plan which covers all employees.
Under the Plan, employees are permitted to contribute up to 15% of gross
compensation not to exceed the annual limitation for any plan year ($10,500 in
2001). Discretionary contributions may be made by the Company. No contributions
were made by the Company during 2001, 2000 and 1999.
NOTE 10--GEOGRAPHIC INFORMATION:
Management uses one measurement of profitability for its business. The
Company markets its products and related services to customers in the United
States, Europe and Asia.
All long lived assets are maintained in the United States. Revenue
information by geographic area is as follows (in thousands):
Net Revenues
2001
Americas............................................... $ 2,693
Europe................................................. 10
Asia................................................... 10
------
Total............................................... $ 2,713
=======
2000
Americas............................................... $ 370
Europe................................................. 36
Asia................................................... 74
------
Total............................................... $ 480
======
1999
Americas............................................... $ 1,156
Europe................................................. 755
Asia................................................... 745
------
Total............................................... $ 2,656
=======
F-25
SCHEDULE II
BE INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Additions
Balance at Charged to Balance at
Beginning Costs and Ending
of Period Expenses Deductions of Period
Year Ended December 31, 1999
Allowance for sales returns................................. $ 10 $-- $-- $ 10
Deferred tax asset valuation allowance.................... $12,080 $7,889 $-- $19,969
Year Ended December 31, 2000
Allowance for sales returns................................. $ 10 $-- $-- $ 10
Deferred tax asset valuation allowance.................... $19969 $9,395 $-- $29,364
Year Ended December 31, 2001
Allowance for sales returns................................. $ 10 $-- $10 $--
Deferred tax asset valuation allowance.................... $29,364 $ 3,311 $-- $32,675
F-26