Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[_] 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)
800 El Camino Real, Menlo Park, California 94025
(Address of principal executive offices, including zip code)
(650) 462-4100
(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 February 29, 2000, was
approximately $349,674,946.
The number of shares of Common Stock outstanding as of February 29, 2000 was
35,616,899.
DOCUMENTS INCORPORATED BY REFERENCE
Certain exhibits filed with the Registrant's Registration Statement on Form S-1,
as amended (Commission File No. 333-77855) are incorporated herein by reference
into Part IV of this Report and portions of the Registrant's definitive proxy
statement to be filed pursuant to Regulation 14A no later than 120 days after
the end of the Registrant's fiscal year (December 31, 1999) are incorporated
herein by reference into Part III (Items 10, 11, 12 and 13) of this Report.
BE INCORPORATED
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999
Table of Contents
PART I
Item 1. Business............................................................................................
Item 2. Properties..........................................................................................
Item 3. Legal Proceedings...................................................................................
Item 4. Submission of Matters to a Vote of Security Holders.................................................
PART II
Item 5. Market for Registrants Common Equity and Related Stockholder Matters................................
Item 6. Selected Financial Data.............................................................................
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...............
Item 8. Consolidated Financial Statements and Supplementary Data............................................
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................
PART III
Item 10. Directors and Executive Officers of the Registrant..................................................
Item 11. Executive Compensation..............................................................................
Item 12. Security Ownership of Certain Beneficial Owners and Management......................................
Item 13. Certain Relationships and Related Transactions......................................................
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K......................................
Signatures....................................................................................................
PART I
ITEM 1. BUSINESS
Business of Be Incorporated
The following discussion 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 our 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, "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 below under "Factors Affecting Our
Business, Operating Results and Financial Condition" and our other public
filings with the securities and exchange commission. We undertake no obligation
to update publicly any forward- looking statements, whether as a result of new
information, future events or otherwise.
Overview
We offer software platforms designed for Internet appliances and digital
media applications. Our two software platforms are (i) BeIA, a turnkey
integrated software platform and development tools that enable the creation of
customized Internet appliances, and (ii) BeOS, our desktop operating system
optimized for digital media applications. Our core operating system technology
was developed based on a modular architecture and includes key features such as
pervasive multithreading, protected memory and symmetric multiprocessing. We
have incorporated technology from our core operating system, BeOS, into BeIA,
our software platform designed for a new class of information and entertainment
appliances, often referred to as Internet appliances. An Internet appliance is a
dedicated device designed to specifically access information from the Internet
for a given purpose. An Internet appliance's hardware and software are
seamlessly integrated together to provide users with a transparent and
responsive interface.
An increasing number of companies have announced products or plans for
development of products intended for the Internet appliance market. We believe
the market for Internet appliances is growing and BeIA presents a complete
software platform for Internet appliances and provides us with significant
opportunities in this market. In January 2000, we announced that we would be
shifting our resources to more effectively address this market. We also
announced that we would provide a version of BeOS for personal use at no charge
and would work with third party publishers to distribute a commercial version of
BeOS.
Background
Overview of Operating Systems
Operating systems are computer programs that control the functions of
computing devices such as PCs and Internet appliances and coordinate the
interaction of the computer with applications, peripheral devices, such as
printers, network connections and other computers. Resident in every computer,
operating systems provide the interface by which a user instructs the computer
to perform specific tasks and manage key processes inside the system such as
file storage and maintenance, memory usage and processor activity.
Operating systems have evolved from complex, character-based systems
that required significant technological sophistication to operate into modern,
graphical user interface-based systems such as Microsoft Corporation's Windows
family of operating systems and Apple Computer, Inc.'s MacOS. Improvements in
operating system functionality and ease of use have had far-reaching effects on
the PC industry, yet the underlying purpose of operating systems has changed
little. In general, traditional operating systems are designed to be general-
purpose platforms upon which a wide variety of applications and systems can
function.
Growth of PCs
Once used primarily for business-oriented tasks or by technically
oriented enthusiasts, PCs are now prevalent and are employed in a wide array of
applications that range from industrial manufacturing to home entertainment.
Advances in the capabilities of PCs have allowed users to run applications that,
previously, were beyond the reach of the preceding generation of PCs. In order
to deliver and support advanced capabilities of new PCs hardware, developers of
operating system software must continuously add functionality. Recognizing the
inherently complex nature of operating systems, the significant time required to
develop them and the importance of providing support for legacy applications,
operating system developers often elect to add capabilities through an
incremental process rather than effect a fundamental redesign of the software.
This design process has helped contribute to a significant increase in the size
of the operating system and the applications that run on them.
While users have generally benefited from the improvements made in
operating systems, the increasing size of these programs has diminished users'
ability to fully participate in the benefit from the advancement in the
price/performance of PCs. The incremental addition of features has often
created slower, less stable and much larger applications than a newly
architected design could. As a result, users frequently are required to perform
costly upgrades to their systems or to purchase more expensive hardware simply
to run newer versions of operating systems and applications. Similarly, newer
versions of operating systems can create conflicts with legacy devices and
applications, resulting in significant support costs for users and vendors
alike.
While PCs do many things well, they do not necessarily fit all uses of
computing--in their interface design, form factor, location in the home or
office, or input/output options. Consumers find that they want tailor-built
devices for communicating, gathering information and being entertained. Just as
a carpenter owns several different tools rather than a single all-in-one device,
consumers have different devices for listening to music, watching movies,
playing games and talking to friends. We expect that the same trend will hold
true in the Internet space. Users will want to have access to the information
and media on the Internet, but will choose to do so on devices built for
specific uses. For example, a consumer might want to listen to music coming from
their CD collection or streaming from the Internet played on his home stereo
rather than on his PC. The optimal device will need to be able to take
advantage of new audio formats, connect to other points in the home for playback
and enhance the audio signal in new ways. A PC running a general-purpose
operating system is burdened by too many other processes and duties to be an
efficient solution for this use.
Impact of the Internet on PCs and Operating Systems
The widespread growth of the Internet has also impacted PC growth
dramatically. Using PCs in conjunction with dial-up modems, local-area networks
and, increasingly, high-speed broadband access technologies such as cable modems
and Digital Subscriber Lines ("DSL"), the number of individuals on the Internet,
according to market research firm International Data Corporation ("IDC") is
expected to grow from approximately 100 million in 1998 to approximately 319
million worldwide by the end of 2002. Strong growth in the number of Internet
users has translated into strong gains in PC sales since PCs, today, are the
principal Internet access platform. However, the Internet is changing the
economics of both the PC and Internet Service Provider ("ISP") markets
suggesting that PC OEMs, application developers and ISPs will require new
solutions for Internet computing.
The increasing number of Internet users has affected the PC and
operating systems markets in several ways. Many Internet users are interacting
with PCs, and the operating systems that control them, for the first time. These
users often lack sufficient technical skills or experience to configure, operate
and manage the complex nature of an Internet-connected PC and frequently must
seek technical support from hardware and software vendors or their ISPs. Besides
being a time-consuming and an often frustrating experience for the user,
technical support calls are costly to service providers and vendors. Those
support calls add significantly to PC OEMs' and ISPs' cost structures.
Also, many of today's applications that access the Internet capitalize
on the Internet's rich media capabilities and require expensive PCs and
peripherals to overcome the limitations of traditional general-purpose operating
systems. While the overall price of PCs continues to decline, Internet users
often must purchase and support more capable PCs to take full advantage of the
Internet. The cost of PC hardware and software, combined with the high total
cost of ownership, can be a barrier to widespread adoption of the Internet to
levels commensurate with the telephone or television.
As Internet connectivity becomes increasingly essential, a number of
trends are developing among users, PC OEMs and ISPs. These trends include an
increasing prevalence of users with multiple connections to the Internet and an
emphasis of low-cost, purpose-built Internet access devices. PC OEMs and ISPs
are increasingly challenged to deliver a continuously improving user experience
and better functionality, while operating within the constraints of the highly
competitive PC industry. All types of appliances are becoming networked within
the home. Broadband and persistent Internet connection continues to be rapidly
deployed at the consumer level. New types of inexpensive devices that deliver a
rich, trouble-free Internet experience will become increasingly important as
vendors and users alike balance cost, ease-of-use and performance.
Emergence of the Internet Appliance
Recognizing that cost and ease-of-use are the principal barriers that
PC OEMs and ISPs face to enlarge the base of Internet-connected users,
manufacturers are seeking alternatives to traditional PCs. Also, consumer
electronics manufacturers, seeking additional revenue streams, are increasingly
viewing the Internet as providing them with opportunities to sell new categories
of consumer devices intended to access the services and content available on the
Internet. In addition to being inexpensive to manufacture and support, these new
types of devices must deliver a user experience comparable with other consumer
electronics products, offering significant speed, reliability and stability.
Further, they must support an array of services including broadband access, high
quality video and audio capabilities and expandability. These new classes of
devices have been broadly termed Internet Appliances and typically function in
one or more of the following three categories: communication, information and/or
entertainment.
Industry analysts define Internet appliances as a range of new form of
products that are consumer-focused, low-cost, easy-to-use, and primarily
designed to deliver the interactive benefits of the Internet or an Internet-like
service, like Web browsing and email. The appliances offer direct Internet
connectivity and enable users to work interactively with the Internet. Various
types of Internet appliances include set-top boxes, Internet screen-phones,
Internet gaming consoles, Internet smart handheld devices, and Web and email
terminals. IDC estimates that the number of Internet appliances will increase
from 11 million units at a value of $2.4 billion in 1999, to 89 million units at
a value of $17.8 billion in 2004, a compound annual growth rate of approximately
33% and 39%, respectively.
Key Requirements of Internet Appliances
While Internet appliances will vary in form and function, we believe
that a core set of functionality is necessary for any type of Internet appliance
to succeed. An Internet appliance must provide users with robust and stable
performance at an affordable cost. Internet appliances must be able to access
and deliver many types of content available on the Internet. To lower overall
system costs, device providers are seeking alternatives to traditional PCs that
do not utilize expensive central processing units and operating systems, such as
Windows. Device and service providers often lack the necessary resources or time
to develop their own customized software platforms. These companies desire a
turnkey customizable software platform that meets their needs and shortens their
time to market. We believe the key features desired of an Internet appliance
software platform to be the following:
. Modular, small footprint operating platform;
. Scalable for larger applications, quickly upgradeable and extensible;
. Completely customizable user interfaces to enable creation of
application-specific or custom-branded products;
. Reliability and stability equivalent to other mainstream consumer
appliances;
. Responsiveness and rapid start-up or "boot" times to encourage
frequent use;
. Rich media capabilities such as CD-quality audio and television-
quality video;
. Integrated, full-featured Web browser and support for JavaVM and other
popular plug-ins;
. Built-in support for broadband access technologies like cable modems
and DSL;
. Ability to run on multiple hardware reference designs; and
. Modern development environment allowing rapid adoption of highly
customized final applications and functions .
Limitations of Traditional Operating Systems for the Internet Appliance
Market
Traditional operating systems such as the Windows family of operating
systems, UNIX, Linux and the Macintosh OS are large, general-purpose operating
systems designed to support a wide array of systems and applications.
Accordingly, they require significant processor power, memory and storage to
operate effectively, often too costly for the Internet appliance business model.
The majority of traditional operating systems used today, for example
Windows, are marketed as a distinct product that cannot be modified or
customized to the requirements of the device provider or application.
Alternatively, other operating systems, such as UNIX derivatives and Linux exist
in multiple versions from many vendors. Because of the lack of focus and
incompleteness of such solutions, device providers are forced to do their own
customization, integration and support, adding to the cost and complexity of
system maintenance. Developers and manufacturers of Internet appliances and
service providers often lack the adequate resources or time to deliver devices
based on these operating systems.
Limitations of Embedded Operating Systems for the Internet Appliance Market
Embedded operating systems such as QNX, Wind River's VxWorks, Palm OS
and, to some extent, Microsoft's Windows CE, offer lighter weight and more
responsive environments as compared to traditional operating systems. However
because they were built for specific and limited applications, they are not as
scalable for larger applications and lack the modern development environments
and access to key PC technologies that are necessary for highly functional
devices. These operating systems do not offer the full features and benefits of
desktop operating systems, such as full featured Web browsing, that users have
come to desire and expect. Device providers are required to add additional
features or solutions in order to build a software platform that more adequately
addresses their needs. Even with these costly additions and integrations, device
and service providers may not end up with the complete software platform they
need for their appliances.
The Be Solution
We offer software platforms designed for Internet appliances and
digital media applications. To address the emerging needs of device and service
providers, we have developed BeIA, a turnkey integrated software platform and
development tools that enable the creation of customized Internet appliances.
The combination of an efficient customizable operating system with small memory
footprint designed for fast and reliable performance, makes BeIA the ideal
software platform for Internet appliances. For personal computers, we offer
BeOS, an operating system designed to deliver the most satisfying experience on
a personal computer. The key features and benefits of our two products are
further set forth below.
BeIA
Our BeIA software platform is designed to seamlessly interact with the
hardware and other applications to provide the high level of responsiveness and
stability that users typically experience and expect from consumer electronics
devices. The modular nature of BeIA allows developers and manufacturers of
Internet appliances and related hardware and systems, referred to as "device
providers," to incorporate only those features of BeIA required for a particular
device, to deliver specific content and to meet the cost target for each
particular device. Device providers can include PC OEMs, consumer electronic
companies, system integrators, and other device and hardware manufacturers,
known as "ODMs".
Using BeIA, companies providing Internet access and other Internet
related services, referred to as "service providers," and device providers can
develop services and products tailored to specific markets without compromising
the quality, stability and performance of the devices delivered to the user. In
addition, BeIA offers the device and service providers the ability to customize
the device's user interface, so that they can create an experience appropriate
for each device's target customer and use. BeIA maintains system stability,
media quality and processor performance while allowing end users to
simultaneously operate multiple audio, video, image processing and Internet-
based software applications. BeIA offers a full-featured Web browser and
supports popular streaming audio and video standards.
BeOS
BeOS, our desktop operating system product, is designed to optimize
the higher processing and memory requirements of today's digital media
applications on standard PC hardware. It provides professional users and
enthusiasts with a responsive environment to quickly and easily develop
applications and create digital content such as audio, video, animation and
images. It enables users to work with and edit audio, video and image files
millions of gigabytes in size, simultaneously, in real-time. BeOS scales to meet
the needs of the end users and PC OEMs, and easily facilitates the integration
of new technologies. BeOS can take advantage of up to eight processors
automatically.
Strategy
Our principal strategy is to establish BeIA as the premier software
platform for appliances that deliver information and entertainment over the
Internet. We intend to establish relationships with industry leading device
manufacturers and service providers to create Internet appliances based on our
software platform and to further enhance and promote BeIA as the platform of
choice for Internet appliances. The key elements of our strategy in the Internet
appliances market are the following:
Leverage Our Technology and Capabilities. We developed our core
operating system technology over the course of nine years and have developed a
significant body of technical expertise relating to the challenges of handling
Internet applications and digital media. We will continue to leverage this
technology to deliver a stable, responsive software platform containing rich
media capabilities with a small foot print. We will continue to innovate BeIA's
capabilities to include additional modular functionality, a smaller footprint,
and provide portability to new device platforms.
Promote BeIA through relationships with device providers. We intend to
focus our marketing and sales efforts on establishing relationships with
partners, such as OEMs and consumer electronic manufacturers, that are capable
of designing and delivering a large volume of products based on our software
platform. We intend to promote the use and benefits of our software platform by
working closely with ODMs that are creating reference designs for Internet
appliances. Our goal is to ensure that the products designed by these device
manufacturers will run on our software platform and that the products featuring
our software platform are ultimately adopted and marketed by device and service
providers.
Increase awareness of BeIA to service providers. We believe service
providers will be a significant factor in driving the development and adoption
of Internet appliances. Service providers looking to augment their services and
retain customers will look to offer Internet appliances specifically geared to
their customer base. We intend to focus our marketing efforts to increase the
service providers' awareness of BeIA and its ability to offer a customizable
user environment that promotes the service provider's brand and services. In
addition, we will encourage partnerships between the service providers and those
device providers utilizing our software platform.
Focus on strategic product development activities. Since the Internet
appliance market is emerging and still somewhat undefined, we believe that our
success will be dependent on monitoring the trends and demands in the Internet
appliances market and working closely with device and service providers to
address these demands and design compelling products that will be adopted by a
large number of users.
In the desktop market, we intend to increase the market acceptance of
BeOS, and the number of third party applications through new distribution
models. We intend to increase our market reach by offering BeOS Personal
Edition, a fully functional version of our desktop operating system for free,
via download from the Web. Additionally, we will work with third party
publishers to market, sell and support BeOS Pro Edition, a commercial version
of BeOS with added functionality. It is our belief that once users and
developers have experienced BeOS, they will fully appreciate its advantages as
an operating system and a platform for Internet appliances. We also believe
this will facilitate wider adoption of BeOS as a modern operating system for
digital media applications. Additionally, an increase in the number of BeOS
users could stimulate third party development of software drivers,
technologies and applications for BeOS.
Products and Technologies
BeIA
We offer BeIA, a turnkey integrated software platform and development
tools that enable the creation of customized Internet appliances. BeIA provides
device and service providers with all necessary client-side software and
services to deliver a complete Internet appliance solution. Standard features
include a full-featured Web browser with support for third party plug-in
applications, a Java virtual machine, a modern development environment, as well
as media and other application and integration services. BeIA incorporates
support for rich media, broadband connectivity and hosted applications, such as
email and personal information management. Incorporating technology from our
core operating system, BeOS, BeIA is designed to deliver stable, highly
responsive performance on a broad range of Internet appliances. The customizable
nature of BeIA allows our customers to create custom-branded environments and
unique user interfaces that can be tailored to specific target audiences without
additional programming. BeIA delivers high levels of system performance without
requiring costly, power-intensive processors. Its code base is small in size and
can be loaded onto inexpensive, low-capacity flash memory, further reducing
system hardware costs. Key features of BeIA include:
. Modular with small footprint. BeIA operates on a wide range of
hardware systems, giving device providers many price and functionality
choices. Device providers can create Internet appliances using only
those pieces necessary for a given device while staying within its
cost considerations. The complete BeIA platform with all features,
including Web browser, plug-ins, Java, user-interface and more,
enables a fully-featured appliance that needs only 8MB of flash memory
storage.
. Stable and responsive environment. BeIA offers users a highly
responsive and stable experience that users typically expect from
consumer electronics devices. It requires no rebooting for
configuration changes and is relatively crash proof. Operating in a
broadband environment, BeIA allows instant availability and response
from the user interface at all times regardless of demands on the
device and it provides responsive, glitch-free playback of all popular
media.
. Scalable. Device providers can easily build more robust solutions and
add new functionality over time or as new technologies are adopted by
the market. BeIA provides support for new protocols like USB and
IEEE1394 to give developers the ability to add new functionality.
Finally, through BeIA's application and server services, user
functionality can be moved from the appliance device itself to a
hosted application-based server environment.
. Easily customizable. Device providers can completely control the user
experience and branding "look and feel" of the device interface. HTML
and Macromedia Flash front-end framework allows designers with
standard web development tools to rapidly complete and modify their
design work. Device and service providers can easily update the
device's look, feel, branding and functionality remotely from a
server. BeIA supports JavaScript which enables further customization
of devices and support for hosted applications. We also provide a
native development environment which runs on standard PC's, providing
quick, inexpensive development and rapid time to market.
. Rapid remote upgradability. BeIA's fast and clean development
environment and modular, real-time operating system enables device
providers to change, update and augment the consumers' appliances
remotely without any customer involvement or hassle. This means that
as new technologies emerge, older appliances do not necessarily need
to be replaced or upgraded by the user. The provider of the device can
carry out changes to the system without any user involvement.
. Integrated full-featured browser; Media Savvy, Supports all popular
formats. BeIA's full-featured browser allows Internet appliances to
load and render the vast majority of Web content in the form intended,
enabling users to shop, search, and interact with content from the
Internet with little limitation. BeIA delivers an immersive, media-
rich experience that allows inexpensive devices to take full advantage
of upcoming streaming media portals, as well as the ability to combine
Internet access with existing media services such as cable TV and FM
radio. BeIA includes RealNetworks' RealPlayer G2 for audio and video
streaming, Macromedia's Flash and Sun's Java Virtual Machine. BeIA
supports QuickTime, AVI, WAV, MPEG, MP3 and other formats that enable
exciting additions to regular Web content.
BeOS
We also offer BeOS, an operating system designed for digital media
applications. BeOS maximizes the performance of digital media applications that
run on a wide range of desktop PCs and high-performance multiprocessor
workstations. BeOS offers several advantages over traditional operating systems.
It allows users to simultaneously operate multiple audio, video, image
processing and Internet-based software applications while maintaining system
stability, media quality and processor performance. BeOS provides professional
users with a high performance environment to quickly and easily develop
applications and create content. It is designed to facilitate the integration of
new technologies. The combination of an efficient, new operating system design
for fast performance and rich digital media applications make BeOS an ideal
solution for both processor-intensive applications and lower-cost PC platforms.
Key elements of BeOS include:
. Optimized Design for Digital Media Applications. BeOS is designed
specifically to enable high-performance audio and video applications
on a wide range of personal computing devices. BeOS is optimized for
media manipulation and playback and employs features that provide a
stable, accessible environment for the use and development of digital
media applications and content. BeOS also employs an advanced, 64-bit
file system to meet the file size and bandwidth requirements of
digital video applications.
. Support for Simultaneous Use of Multiple, Processor-Intensive
Applications. BeOS allows software applications to be partitioned into
multiple compact execution units called "threads" and allows these
threads to be automatically executed as required by the application
and system load. BeOS is able to distribute these threads among one or
more processors, giving priority to media tasks performed on the
system. This, together with the other features of BeOS, allows
simultaneous use of multiple, processor-intensive applications,
editing and playback of uncompressed, high-
resolution video and audio files, and increased efficiency and
performance of all applications running on the system. In addition
BeOS delivers optimized performance on hardware with one to eight
processors.
. System Performance and Stability. BeOS is designed to reduce operating
system overhead to a minimum. It makes extensive use of shared code,
resulting in the creation of smaller, faster applications. A key
element of BeOS' performance and stability is its journaled file
system. This file system provides added levels of protection against
corrupted files and reduces start-up time. BeOS' journaled file system
differentiates it from the leading desktop operating systems.
Furthermore, BeOS provides fully protected memory, which increases
operating system stability and helps prevent a crashing application
from affecting other applications running on the system or causing a
full system crash that requires a reboot.
. Modular, Flexible Architecture. BeOS is based on a modular design that
allows new software features, such as drivers, audio and video
compression and depression algorithms, known as "codecs," and
additional file system support to be used immediately after
downloading these features onto the system. Using BeOS, manufacturers
and users can update and reconfigure their systems through the
Internet or other networks without the need to "re-boot" the system.
This modular approach also allows OEMs to incorporate only those
elements of BeOS needed for a particular application or device,
facilitating the creation of new user functionality and allowing OEMs
to address specific price points and markets.
. Modern, Object-Oriented Development Environment for Media
Applications. BeOS uses a modern C++ based architecture that enables
programmers to quickly create stable, robust, high-performance media
applications. BeOS development kits allow anyone to write hardware
drivers, media add-ons and custom applications on standard PCs. Device
builders can develop complete solutions for many types of applications
using the services found in BeOS.
Marketing, Sales and Customers
Our sales and marketing group is dedicated to defining the most compelling
software platform solutions, establishing relationships with industry leading
device and service providers to create Internet appliances based on our software
platform and to further enhance and promote BeIA as the platform of choice for
Internet appliances.
A key ingredient of a compelling software platform is the identification
of, and the ability to support popular industry standard formats and
technologies. Often this requires establishing strategic technology and
licensing arrangements with technology providers to integrate their technologies
with our products. Some of our key technology partners include:
. Opera Software A/S. Opera supplies a full-featured World Wide Web
consortium (W3C) compliant Web browser. We have entered into an
agreement with Opera to integrate their Web browser with our products,
and to distribute it as a component of both BeIA and BeOS.
. RealNetworks, Inc. We signed a license agreement with RealNetworks, a
leader in streaming media technology on the Internet, to enable its
RealPlayer G2 product to run on our products. RealPlayer G2 allows
BeIA and BeOS users to view streaming video, and audio media and
provides users with access to a rich selection of digital media on the
Web.
. Sun Microsystems, Inc. We have signed a license agreement with Sun
Microsystems for its PersonalJava technology which is integrated into
BeIA and the Java2 Standard platform, intended for integration with
BeOS. Java technologies will allow users of a wide range of Internet
appliances and PCs running on our software platforms to run platform-
independent applications commonly accessed via the Web.
. Intel Corporation. Intel has provided us with assistance in the
development and enhancement of our software platforms. Intel has
provided us with technical specifications and software under a license
to a commonly used communication protocol for peripheral devices,
known as Universal Serial Bus (USB) and to Indeo, a technology that
enables compression and decompression of video data. This allows our
products to be compatible with devices and applications that use these
technologies. Additionally, Intel has assisted us in developing
relationships with current and potential partners.
BeIA
We market and sell BeIA by actively pursuing relationships among four broad
classifications of customers and strategic partners: Original Device
Manufacturers (ODMs), Original Equipment Manufacturers (OEMs), Service Providers
and Integrators.
"ODMs" are companies that typically create reference designs for Internet
appliances using standard computing industry components. Many of these
companies create their own designs while others work from contracts or ideas
that originate from OEMs or service providers. To find a ready-made solution
that meets their target customer needs, OEMs and service providers commonly shop
for devices offered by ODMs. In many cases, an ODM will never actually put its
company name or brand on the device that it manufactures. Since ODMs are the
primary producers of the key components and systems used in the Internet
appliances, it is important that BeIA run on their hardware and system designs.
Similar to ODMs are the reference platform designers, however, these designers
do not typically manufacture devices. Many of the components used by ODMs are
based on designs provided by reference platform designers, so it is similarly
important for BeIA to run on or support their reference platforms. Our
relationship with ODMs and reference platform designers is typically symbiotic
in nature where we share common or parallel business goals. As a result we
often participate in joint sales and marketing activities, but a contractual or
customer relationship is not necessarily formed. Our efforts are targeted to
ensure that the reference platform designs and the resulting ODM product designs
will run on our software platform and that the products featuring our software
platform are ultimately adopted and marketed by OEMs and service providers. The
following are some of our existing relationships with ODMs and reference
platform designers:
. First International Computer, Inc. FIC is one of the leading PC
motherboard and system vendors based in Taiwan, ROC. FIC recently
extended its research and development, and manufacturing to include a
new family of subsystems for Internet appliances and is working
closely with us to offer BeIA as the operating system software
platform for these systems.
. National Semiconductor Corporation. We are working together with
National Semiconductor to develop a series of production-ready
reference platforms for Internet appliances. This platform is based on
National's Geode WebPad hardware running BeIA.
. DT Research, Inc. We are working together with DT Research to ensure
that BeIA is fully integrated with DT Research's family of Internet
appliances that are based on National Semiconductor's Geode WebPad
reference platform.
. Intel Corporation. We are working with Intel to optimize BeIA to
provide a reference platform for manufacturers wishing to build low-
cost, high-performance home audio devices using Intel's Celeron
processor. The platform is intended to enable the creation of audio
appliances that support several audio encoding and playback features.
These features include managing and using a wealth of audio content
like compact discs and audio streamed from the Internet, sending
multiple streams of audio to a variety of locations in the home, and
support for home networking products.
. Proxim, Inc. We recently announced a cooperative technology and
marketing effort to jointly integrate Proxim's HomeRF wireless
networking technology with BeIA. Proxim and Be plan to offer a
seamless wireless extension to BeIA, enabling Web pads and other
Internet appliances and dedicated devices to distribute media and
share broadband Internet access wirelessly in and around the home.
"OEMs" are the device manufacturers most recognized by the public.
Typically, OEMs are the companies that actually have reseller and/or direct
selling relationships with service providers as well as consumers. OEMs gather
market requirements from service providers and consumers, and work to deliver
Internet appliance solutions that meet their target customer's requirements.
Working closely with OEMs gives us direct access to consumer requirements and
enables us to further develop our software platform to meet the OEM's customer
needs. Our relationship with OEMs is typically a contractual relationship where
the OEM pays us per-unit royalties for each appliance delivered incorporating
BeIA. Some of our OEM customers include:
. Compaq Computer Corporation. We recently signed an OEM agreement with
Compaq, a leading PC and device company, that allows Compaq to pre-
install and distribute BeIA on Compaq's Internet appliances.
Initially, Compaq is marketing these devices to telecommunications
companies, Internet service providers, and Web content providers. In
addition, we are working with Compaq on joint marketing and
development initiatives.
. Qubit Technology. Qubit has entered into an OEM agreement with us
where Qubit intends to use BeIA as the software platform for its
wireless Web Tablet. Additionally, we are engaged in collaborative
sales, marketing and development efforts with Qubit. Qubit is working
with organizations that include financial and telecommunications
companies who are expected to bring these devices to market.
. Fountain Technologies Inc. Fountain has entered into an OEM Agreement
with us that allows Fountain to distribute Internet appliances using
BeIA as its software platform.
"Service providers" is a term describing those companies that either
have an infrastructure for providing access to the Web, own content, or have an
established business model that can be fulfilled through delivering Internet
appliances. Examples of services providers might be ISPs, financial
institutions, retailers and telephone companies. Service providers typically
already have relationships with consumers, and look to an Internet appliance to
expand their reach or to help ensure that their consumers remains loyal to their
services. Service providers looking to augment their services and retain
customers will look to offer Internet appliances specifically geared to their
customer base. Service providers will require a highly customizable user
environment that promotes their brand and services. Service providers have
direct feedback from consumers and will provide valuable insight into the
functionality of BeIA, and will make recommendations for future features and
enhanced functionality. Currently, our relationships with service providers are
fostered through our OEM customers.
The term "Integrators" describes a group of companies whose business
is creating and delivering Internet appliances and accompanying functionality,
services and features to targeted groups of consumers. Integrators typically
provide an end-to-end solution matching devices, ISPs, necessary software
platforms, content and back-end server applications. We expect the integrators
to appreciate BeIA's scalability, its easily customizable user interface and
advanced development environment, and our application and integration services.
Integrators will also likely leverage our relationships with ODMs, OEMs and
service providers.
BeOS
We have adopted a two-tiered approach for distributing and selling
BeOS, our desktop operating system that will enable us to concentrate our
resources on development and let other, well-focused third parties handle
distribution and consumer marketing.
. BeOS Personal Edition. BeOS Personal Edition is a free, easy-to-
install, fully functional version of BeOS. Anyone using Windows can
download it in a single file directly from our Website and install it
on their Windows system. Although BeOS Personal Edition is a fully
functional version of BeOS, it does not include some third party
royalty-bearing technologies. The free distribution approach is aimed
at getting BeOS in the hands of as many users as possible. It is our
belief that once users and developers have experienced BeOS, they will
fully appreciate its advantages as an operating system and a platform
for Internet appliances. We also believe this will facilitate wider
adoption of BeOS as a modern operating system for digital media
applications. Additionally, an increase in the number of BeOS users
could stimulate third party development of software drivers,
technologies and applications for BeOS.
. BeOS Pro Edition. BeOS Pro Edition is our enhanced, full-featured
version of BeOS available on CD-ROM. It will be made available to PC
OEMs, value-added software developers, other software vendors,
distributors and end users through several third-party publishers
worldwide. These publishers will package and license the product, and
will handle all marketing, sales, and end-user support. Also, these
publishers may choose to add additional software and services.
Competition
The markets in which we compete are highly competitive and rapidly
changing. Our principal competition in the operating system software platform
market consists of operating system and software platform developers.
We believe the principal competitive factors impacting the market for
BeIA are:
. partnerships with device and service providers;
. key technological features and capabilities of the software platforms;
. technical, financial and marketing resources; and
. the overall number of users.
In addition to the above competitive factors, we believe additional
competitive factors impacting the market for BeOS are:
. strength of publisher partnerships, and reseller and distribution
channels; and
. the number and strength of third party applications available for use
on the software platform.
Many of our current and potential competitors have longer operating
histories, significantly greater number of customers, a greater number of
popular applications and tools specifically designed for their operating
systems, greater brand recognition, and greater financial, technical, marketing
and distribution resources than we do. This may allow them to compete more
favorably than we do with respect to some or all of the above factors.
New product releases or improvements in our competitor's existing
operating systems could enable these operating systems to more effectively
address the needs of developers and manufacturers of Internet appliances or the
requirements for use of digital media in a manner similar to those offered by
our products. For example, enhancements and features could be added to
Microsoft's Windows operating system, Apple's Mac OS, or UNIX based operating
systems such as Linux which could significantly reduce or eliminate any
perceived advantages in our software platforms over these competitors.
BeIA
In the market for Internet appliances, there is increased competition
to offer non-PC devices that provide access to the Internet and enable digital
media content on the Internet. Companies such as Microsoft Corporation, QNX
Software Systems Ltd., Wind River Systems, Inc., vendors of UNIX-based operating
systems such as Linux, and vendors of embedded operating systems have operating
systems that are being used or may be used for Internet appliances. We also face
competition from vendors of embedded browsers and manufacturers of set-top boxes
and terminals such as WebTV, a subsidiary of Microsoft. Many of these companies
have an established market presence, relationships with device and service
providers who will develop and market Internet appliances, and have
significantly greater financial, marketing and technical resources than we do.
BeOS
In the desktop operating system market, we face competition from a
number of companies with significantly greater financial, marketing and
technical resources. The desktop operating system market has historically been
led by Microsoft Corporation, which has captured significant market share and
has significantly greater resources than we do. Other companies that offer
competing desktop operating systems include Apple Computer, Inc., IBM, and a
number of companies that offer versions of the UNIX operating system, including
SGI, the Hewlett-Packard Company, and Sun Microsystems. The open-source public
collaboration version of UNIX known as Linux is also a competing operating
system.
Product Development and Engineering
Our product development and engineering efforts are focused primarily
on enhancing the functionality, flexibility, performance and reliability of
BeIA. We also continue to develop BeOS as a software development platform for
Internet appliances and as a promotional opportunity for the capabilities of
BeIA.
We spend considerable resources on the development of core
technologies and new capabilities. Internet technologies are evolving at a rapid
pace and it is important that we identify and adopt emerging standards in a
timely manner. We obtain significant input concerning product development
directions from our technology partners, ODMs, OEM customers, service providers
and end users. We intend to play a technology leadership role in the emerging
Internet appliance market. The technology requirements and constraints for
Internet appliances are often markedly different than for personal computers. As
a result, we also expend resources to prototype advanced product concepts for
Internet appliances.
We have invested significant time and resources in creating a
structured process for product development and testing. This process uses both
commercially available and proprietary tools. Source code control is maintained
using the Perforce Fast Source Code Management tool set. Source code is compiled
and linked using the Cygnus EGCS tools. Both tool sets run under BeOS. This
enables our products to be developed using our own technology. We feel that this
results in a rapid identification and resolution of problems. Product testing is
performed in house by a dedicated quality assurance team. We also utilize a
formal beta test program. Software errors are logged and tracked using a
proprietary database which is available to our customers via a Web interface.
In 1997, 1998, and 1999 our research and development expenses were
approximately $4.4 million, $5.8 million, and $7.8 million, respectively.
Employees
As of December 31, 1999, we had 105 employees. Of these employees, 34
are in sales and marketing, 54 are in product development and engineering and 17
are in general and administrative. We consider our employee relations to be
good.
Facilities
We lease approximately 26,829 square feet in Menlo Park, California.
We also lease approximately 2,184 square feet in Paris, France to focus on
channel distribution, sales to OEMs, and third party developer relations and
recruitment. We believe that our current facilities are adequate to meet our
needs for the next twelve months.
Factors Affecting Our Business, Operating Results And Financial Condition
The following is a discussion of certain risks, uncertainties and other
factors that currently impact or may impact our business, operating results
and/or financial condition. Anyone evaluating us and making an investment
decision with respect to our Common Stock or other securities is cautioned to
carefully consider these factors, along with similar factors and cautionary
statements contained in our filings with the Securities and Exchange Commission.
We have incurred significant net losses and we may never achieve
profitability.
We incurred significant net losses of approximately $10.4 million in
1997, $16.9 million in 1998 and $24.5 million in 1999. As of December 31, 1999,
we had an accumulated deficit of approximately $73.2 million. We expect to incur
significant additional losses and continued negative cash flow from operations
in 2000 and beyond and we may never become profitable.
We expect to continue to incur significant sales and marketing,
research and development and general and administrative expenses. Sales of BeOS,
our desktop operating system, to resellers and distributors and direct sales to
end users have accounted for the primary source of our revenues to date. In
January 2000, we announced that we would be shifting our resources to focus
primarily on the market for Internet appliances. We also announced that a
version of BeOS would be made available for personal use at no charge and a more
fully featured version would only be available through third party publishers.
As a result, we may not generate any meaningful revenues from sales of BeOS in
the foreseeable future. Our shift to focus primarily on the market for Internet
appliances may not result in any increase in our revenues or any improvement in
our operations or financial condition and may not offset the loss of revenues
from sales of BeOS. We will need to generate significant revenues to achieve
profitability and positive operating cash flows. Even if we do achieve
profitability and positive operating cash flow, we may not be able to sustain or
increase profitability or positive operating cash flow on a quarterly or annual
basis.
We have recently announced that we will shift our resources to focus
primarily on a new and undeveloped market.
We have recently announced that we will be shifting our resources to
focus primarily on the market for Internet appliances and the further
development and marketing of BeIA, our software platform intended for Internet
appliances. We may be unsuccessful in our attempt to focus primarily on this
market and face significant challenges often encountered with companies
undergoing a strategic reorganization, which include:
. inability to effectively shift existing product development and
engineering, sales and marketing and management resources to focus on
the market for Internet appliances;
. management distraction and loss of key personnel as we focus on this
market and shift resources towards the development and marketing of
our software platform for Internet appliances market;
. inadequacy of our existing resources to understand the needs and
requirements of developers and manufacturers of Internet appliances;
. inability to train existing personnel or hire and train new qualified
personnel to address the market for Internet appliances; and
. failure to adapt to new and evolving trends in Internet appliances.
We may not successfully meet any or all of these challenges. Our
failure to meet one or more of these challenges could materially adversely
affect our business and prospects. In addition, our business and prospects are
highly dependent on the development and market acceptance of Internet appliances
and our ability to successfully market BeIA as a viable software platform for
Internet appliances. The market for Internet appliances is new, unproven and
subject to rapid technological change.
This market may never develop or may develop at a slower rate than we
anticipate. In addition, our success in marketing BeIA as a software platform
for Internet appliances is dependent upon developing and maintaining
relationships with industry-leading computer and consumer electronics companies,
system and hardware manufacturers, and Internet service and content providers.
Our failure to establish relationships with companies that offer Internet
appliances and establish BeIA in this market would have a material adverse
effect on our business and prospects.
We face intense competition from companies with significantly greater
financial, marketing, and technical resources.
There is already intense competition to develop and market operating
systems. This competition exists in the market for desktop operating systems as
well as operating systems and software platforms intended for the Internet
appliances market. Companies such as Microsoft Corporation, Apple Computer,
Inc., QNX Software Systems Ltd., Palm, Inc., vendors of UNIX-based operating
systems such as Linux, and vendors of embedded operating systems, have operating
systems that are being used or may be used for Internet appliances. We also face
competition from vendors of embedded browsers and manufacturers of set-top boxes
and terminals. Many of these companies have an established market presence,
relationships with OEMs and consumer electronic manufacturers such as those
developing and marketing Internet appliances, and have significantly greater
financial, marketing and technical resources than we do. As a result, we may
have difficulty attracting manufacturers and developers to create devices and
software that will use our software platform. These more established companies,
together with a large number of smaller companies who offer software platforms
that may be used for Internet appliances, may capture a larger portion of the
market than we do. We also expect to face increased competition from new
entrants offering software platforms intended for use on Internet appliances.
We expect our competitors to continue to improve and enhance their
current products and to introduce new products and software platforms,
especially those intended for the Internet appliances market. Successful product
introductions and product improvements by our competitors could reduce or
eliminate any perceived advantages in our software platform over these
competitors and could reduce market acceptance for our software platform and
make it obsolete. To be competitive, we must continue to invest significant
resources in research and development, sales and marketing, and continue to
enhance and improve our software platform. We may have insufficient resources to
make these investments and may be unable to make the advances necessary to be
competitive. Our failure to compete successfully against current or future
competitors would have a material adverse effect on our business and prospects.
Our success depends on our ability to establish and maintain strategic
relationships, and the loss of any of our strategic relationships could harm our
business and have an adverse impact on our revenue.
Our success depends in large part on our ability to establish and
maintain strategic relationships with industry-leading computer and consumer
electronic companies, hardware and systems manufacturers, and Internet service
and content providers. In the Internet appliance market, we have agreements with
Compaq Computer Corporation, Qubit Technology and Fountain Technologies Inc.,
and collaboration arrangements with National Semiconductor, Inc., First
International Computer, Inc. (FIC), and DT Research, Inc. We cannot be certain
that we will be able to reach agreements with additional partners on a timely
basis or at all, or that these partners will devote adequate resources to
promote our software platform. We may be unable to enter into new agreements
with additional partners on terms favorable to us or at all. The market for
Internet appliances is new and subject to rapid technological change. We may be
unable to successfully meet the requirements of existing or future strategic
partners. As a result, we may be unable to maintain strategic relationships with
developers and manufacturers of Internet appliances and Internet service and
content providers. If we are unable to develop or maintain relationships with
strategic partners and customers, we will have difficulty selling and gaining
market acceptance for our products and our business and results of operations
will be materially adversely affected.
Agreements with strategic partners may not result in any increase in our
revenues or improvement in our operations or financial conditions.
Existing agreements with OEM customers, for example, those with
Compaq, Qubit and Fountain, and arrangements with our other strategic partners
including National Semiconductor and FIC, generally do not contain any minimum
purchase commitments or minimum payment obligations. Similarly, new agreements
with additional OEM customer and arrangements with new strategic partners, may
not contain any minimum purchase commitments or minimum payment obligations.
Agreements with existing and new OEM customers may be limited to a pilot or test
program. These partners are free to use software platforms developed by other
companies in their Internet appliance products and are under no obligation to
develop or
market products based on our software platform. In addition, our arrangements
with existing and new strategic partners may not result in the marketing or
shipment of any commercial products based on our platform or may include only a
limited number of demonstration models. As a result, existing arrangements and
new arrangements, if any, with strategic partners may not result in any actual
sales, any increase in our revenues, or any improvement in our operations or
financial condition.
We are dependent upon the success of the products and services offered by
our partners and customers in the Internet appliances market.
We expect to market BeIA primarily to developers and manufacturers of
Internet appliances and providers of services to access information and
entertainment over Internet. Our intent is that that these manufacturers and
service providers will incorporate our software platform into their products and
services. Our BeIA customers may include computer and consumer electronic
companies, manufacturers of the hardware and systems used in Internet
appliances, and Internet service and content providers. As a result, our success
is dependent in large part on factors which are outside our control which
include, the performance of our customers and the market acceptance of our
customers' products and services based on our software platform. We have little
or no ability to influence the development and marketing efforts of our
customers and customers may fail to dedicate adequate resources necessary to
successfully develop and market products based on our software platform.
We expect long sales cycles associated with our software platform intended
for the Internet appliances market and our stock price could decline if sales
are delayed or cancelled.
We believe that the adoption of BeIA as the software platform
represents a significant product decision for the developers and manufacturers
of Internet appliances and we expect long sales cycles as we collaborate and
educate customers and partners on the use and benefits of our software platform.
We similarly expect that customers and partners will spend a significant amount
of time performing internal reviews and testing our software platform before
accepting and adopting our product. Any failure to gain acceptance for our
software platform and any delays in sales of our product could cause our
quarterly operating results to vary significantly from projected results, which
could cause our stock price to decline.
Our products may never gain broad market acceptance.
We have two principle products, BeIA, our software platform intended
for the Internet appliances market and BeOS, our operating system intended for
the desktop market. BeOS has been our primary source of revenues in the past and
it has been used primarily by a limited number of enthusiasts and application
developers. Our business and prospects are dependent on the broader market
acceptance of our products, especially the acceptance of BeIA as a viable
software platform for a broad range of Internet appliances and devices enabling
Internet-based and digital media applications. In an effort to increase the
market acceptance of our software platform, we announced that a version of BeOS
will be made available for personal use. Despite these efforts, we may not
experience any significant increase in the number of BeOS users or a broader
market acceptance of our software platform and developers may decide not to
adopt or develop products based on our software platform.
We may be unsuccessful at marketing BeIA as the software platform of
choice for Internet appliances, and developers and manufacturers of Internet
appliances and Internet service and content providers may not elect to
incorporate BeIA in their products and services. Potential customers may not
perceive any significant advantages over other operating systems such as
Microsoft Windows CE, QNX, the UNIX-based operating systems, Linux, or embedded
browsers and operating systems. In addition, we may be unable to demonstrate the
commercial viability and cost-effective nature of our products. If our products,
especially our software platform intended for the Internet appliances, are not
accepted or adopted by an increasing number of developers and manufacturers, our
business and prospects will be materially adversely affected.
In addition, traditional operating systems could evolve and new
operating systems could emerge to more effectively address the needs of the
manufacturers and developers of Internet appliances and the digital media
requirements of users and OEMs. For example, enhancements and features could be
added to Microsoft's Windows operating system and Apple's Mac OS which could
significantly decrease the differences between our products and these operating
systems. As a result, any technical or marketing advantage we may have in the
market for operating systems could be lost and the demand and acceptance of our
products would diminish.
We are dependent upon third party publishers for the marketing and sale of
the commercial version of BeOS and we have little or no control over the efforts
and operation of these publishers.
In January 2000, we announced that a version of BeOS would be
available for personal use at no charge. We also announced that we would make
the commercial version of BeOS available through third party publishers. Our
intent is to license the commercial version of BeOS to third party publishers
and that these publishers would be responsible for the packaging, sales,
marketing and support related to the commercial version. Our success in the
desktop market is highly dependent on these publishers' ability to sell and
market BeOS and incorporate it as part of successful product offerings. We have
little or no ability to influence the marketing and promotional efforts of these
publishers and these companies may fail to dedicate adequate resources necessary
to successfully market and promote the commercial version of BeOS.
We have limited experience marketing and selling our products, which makes
it difficult to evaluate our business.
We were founded in 1990 and shipped our first commercial product in
December 1998. Prior to 1998, our business was primarily focused on research and
product development activities. To date, we have not generated any significant
revenues from sales of our products and this makes it difficult to evaluate our
business and prospects. In January 2000, we announced a shift in our resources
to focus primarily on the Internet appliances market, a new and unproven market
and a market in which we have little experience competing. Your evaluation of
our business and prospects must be made in light of the risks and uncertainties
frequently encountered by companies in an early stage of development and
offering products in a market featuring intense competition from companies with
substantially greater financial and marketing resources. Risks faced in this
regard include:
. our inability to manage or adapt to new and evolving trends in
Internet appliances and digital media;
. our inability to market our product as a viable software platform,
especially to leading developers and manufacturers of Internet
appliances;
. our failure to gain any sustainable level of market share or to
compete with operating systems and software platforms offered by
others; and
. costs and delays in releasing new versions and product upgrades.
We may not successfully meet any of these challenges. Our failure to
meet one or more of these challenges could materially adversely affect our
business and prospects. It is also difficult to predict the size and future
growth rate, if any, of the market for our software platform. We have limited
experience upon which to determine or predict trends that may emerge and
adversely affect our business or prospects. The market for our software platform
may not develop or may develop more slowly than we anticipate, and may never
become economically sustainable.
We may not be able to respond to the rapid technological change in the
markets in which we compete.
The markets in which we participate or seek to participate are subject
to:
. rapid technological change;
. frequent product upgrades and enhancements;
. changing customer requirements for new products and features; and
. multiple, competing and evolving industry standards.
The introduction of software platforms that contain new technologies
and the emergence of new industry standards could render our products less
desirable or obsolete. In particular, we expect that changes in the Internet-
based technology and digital media enabling technology will require us to
rapidly evolve and adapt our products to be competitive. As a result, the life
cycle of each release of our products is difficult to estimate. To be
competitive, we will need to develop and release new products and software
platform upgrades that respond to technological changes or evolving industry
standards on a timely and cost-effective basis. We cannot be certain that we
will successfully develop and market these types of products and software
platform upgrades or that our products will achieve market acceptance. If we
fail to produce technologically competitive products in a cost-effective manner
and on a timely basis, our business and results of operations could suffer
materially.
We will need to raise additional capital that may not be available to us.
We currently believe that our existing capital resources, combined
with the net proceeds of this offering, will be sufficient to meet our presently
anticipated cash requirements for at least the next 12 months. However, we may
need to raise additional capital and we cannot be certain that we will be able
to obtain additional financing on favorable terms, if at all. If we cannot raise
additional capital on acceptable terms, we may not be able to expand our sales
and marketing efforts, further develop or enhance our products, take advantage
of future opportunities or respond to competitive pressures or unanticipated
requirements. Any of these events could have a material adverse effect on our
business and results of operations. If additional capital is raised through the
issuance of equity securities, our stockholders' percentage ownership of the
common stock will be reduced and our stockholders may experience dilution in net
book value per share, or the new equity securities may have rights, preferences
or privileges senior to those of our stockholders. Any debt financing, if
available, may involve covenants limiting or restricting our operations or
future opportunities.
Our revenues and operating results are subject to significant fluctuations
and our stock price may fall if we fail to meet the expectations of the public
market.
Our revenues and operating results will likely vary significantly from
period to period due to a number of factors, some of which are under our
control, such as product enhancements by us, and many of which are outside our
control, such as new product releases and product enhancements by our
competitors. Customer orders may be deferred in anticipation of new product
releases, product enhancements or upgrades by us or by our competitors. In
addition, changes in the pricing policies or marketing efforts of our competitor
and our response to these changes, which could include price reductions or
increased marketing efforts by us, may cause significant fluctuations in our
revenues and operating results. Based on these factors, we may fail to meet the
expectations of the public market in any given period and our stock price would
likely be materially adversely affected.
We may be unable to adjust expenses in a timely manner to compensate for
revenue shortfalls.
Our expense levels are fixed and based, in part, on our expectations
of future sales. We may be unable to adjust spending in a timely manner to
compensate for any sales shortfall. A significant portion of our expenses
include minimum payments for licensed technology under licensing agreements,
payment obligations under non-cancellable lease arrangements, rent and other
payments that are fixed and do not vary with revenues. We plan to increase our
operating expenses to:
. expand our sales and marketing efforts;
. fund greater levels of product development and engineering;
. expand and increase the number of our relationships with strategic
partners; and
. broaden our customer support capabilities.
Any delay in generating revenue could cause significant variations in
our operating results from quarter to quarter and could result in substantial
operating losses. If we fail to generate sufficient sales or if our sales are
below expectations, operating results are likely to be materially adversely
affected.
The demand for our software platform is dependent on our ability to support
key industry standards and access to enabling technologies.
The demand and acceptance of our product is dependent upon our ability
to support a wide range of industry standards such as those used for streaming
media and Internet browsing and access to key enabling technologies. These key
technologies include a Web browser under license from Opera Software A/S. If we
were to lose our rights to this Web browser or any other key technology
incorporated into our products, we may be required to devote significant time
and resources to replace such browser or other key technologies. This could in
turn be costly, result in the unavailability or delay the release of our
products, and would materially adversely affect our business and operating
results. We also license other enabling technologies for inclusion in our
product, such as third party compression and decompression algorithms known as
"codecs." We may be unable to license these enabling technologies at favorable
terms or at all which may result in lower demand for our products.
In our effort to increase market acceptance for our products, we may forego
near-term revenue by providing our products at little or no cost to potential
customers.
In an attempt to increase the market acceptance of our software
platform, we have recently announced that a version of BeOS will be made
available to end users for free. In the future, we may decide to continue to
forego immediate revenue potential by providing other versions of BeOS at little
or no cost. We may also forego near-term revenue potential in the Internet
appliances market by providing BeIA to developers and manufactures at little to
no cost. Customers, whether end-users or the developers or manufacturers of
Internet appliances, may be unwilling to pay for any upgrades or enhanced
versions of our products. Our decision to forego near-term revenue in
expectation of increasing the users and adopters of our software platform may
not yield any increase or sustainable market acceptance for our products and may
not result in any future revenues. In addition, we may reduce prices in response
to competitive factors or to pursue new market opportunities.
Our success depends upon availability of third party applications that
operate on our software platform.
Demand and market acceptance for our products will depend upon the
availability of an increasing number of third party applications that operate on
our software platform. These applications include video and audio editing, 3D
games, creative audio and video content development and manipulation, and
personal productivity applications.
In part to encourage the development of an increasing number of
applications that operate on our software platform and to increase market
acceptance for our products, we have announced that a version of BeOS will be
made available for personal use at no charge. However, providing a version of
BeOS to end-users for free may not result in any significant increase in the
number of BeOS users and third party developers, which are generally under no
obligation to develop applications based on our software platform, may not
increase their development of applications that run on our products. A
developer's decision to write applications for our software platform is based in
part on the perception and analysis of the relative technical, financial and
other benefits of developing applications for our platform versus writing
applications for more popular operating systems such as Microsoft's Windows,
Apple's Mac OS, Palm OS, or Linux. If we fail to attract a sufficient number of
application developers who develop and market successful applications on out
software platform, the demand for our products and our business will suffer.
Moreover, any delay or unsuccessful release of third party applications could
have a material adverse effect on our business and results of operations.
Our success is dependent on the continued growth and improvement of the
Internet and adoption of Internet appliances.
Our future success depends on the continued growth of and reliance by
consumers and businesses on the Internet, particularly in the Internet appliance
market. Use and growth of the Internet will depend in significant part on
continued rapid growth in the number of households and commercial, educational
and government institutions with access to the Internet. The use and growth of
the Internet will also depend on the number and quality of products and services
designed for use on the Internet. Because use of the Internet as a source of
information, products and services is a relatively recent phenomenon, it is
difficult to predict whether the number of users drawn to the Internet will
continue to increase and whether any significant market for commercial use of
the Internet will continue to develop and expand. Either Internet use patterns
may decline as the novelty of the medium recedes or the quality of products and
services offered online may not support continued or increased use.
The rapid rise in the number of Internet users and the growth of
electronic commerce and applications for the Internet has placed increasing
strains on the Internet's communications and transmission infrastructure. This
could lead to significant deterioration in transmission speeds and the
reliability of the Internet as a commercial medium and could reduce the use of
the Internet by businesses and individuals. The Internet may not be able to
support the demands placed upon it by this continued growth. Any failure of the
Internet to support growth due to inadequate infrastructure or for any other
reason would seriously limit its development as a viable source of commercial
and interactive content and services. This could impair the development and
acceptance of Internet appliances which could in turn materially adversely
affect our business and prospects.
We may be unable to expand our sales and support organization to increase
sales and market awareness for our products.
We must expand our sales and marketing efforts aimed at computer and
consumer electronic companies, systems and hardware manufacturers, and Internet
service and content providers. Without this increase we may be unable to
increase sales and market acceptance of our software platform. This would
require a sophisticated sales force and the commitment of significant
financial resources on our part. Competition for qualified sales personnel is
intense, especially those with an understanding of emerging Internet-based
technologies and markets. We may not be able to hire the type and number of
sales personnel that we require on a timely basis or at all.
We will need to increase our staff to support new customers and the
expanding needs of existing customers. Hiring customer service and support
personnel is very competitive in our industry due to the limited number of
people available with the necessary technical skills and understanding of
operating systems and Internet-based applications. If we cannot hire adequate
numbers of qualified sales, marketing and customer service personnel, our
business could suffer materially.
We may be unable to manage any growth that we may experience.
To succeed in the implementation of our business strategy, we must
rapidly execute our sales and marketing strategy, further develop and enhance
our products and product support capabilities especially those intended for the
Internet appliance market, and implement effective planning and operating
processes. To manage any anticipated growth we must:
. establish and manage multiple relationships with OEMs, Internet
service and content providers and other third parties;
. continue to implement and improve our operational, financial and
management information systems; and
. hire, train and retain additional qualified personnel.
Our systems, procedures and controls may not be adequate to support
our operations, and our management may not be able to perform the tasks required
to capitalize on market opportunities for our products and services. If we fail
to manage our growth effectively, our business could suffer materially.
We expect continued erosion in the average selling prices of our products.
We anticipate that the average selling prices of our products will
fluctuate and decrease in the future in response to a number of factors,
including:
. competitive pricing pressures;
. rapid technological changes; and
. sales discounts.
We also anticipate that the average selling price of our products will
decrease as we market our products to Internet appliance developers and
manufacturers. Therefore, to maintain or increase our gross margins, we must
develop and introduce new products and product enhancements on a timely basis.
As our average selling prices decline, we must increase our unit sales volume to
maintain or increase our revenue. If our average selling prices decline more
rapidly than our costs, our gross margins will decline, which could seriously
harm our business and results of operations.
We are dependent on third party development tools.
We are dependent on development tools provided by a limited number of
third party vendors. Development tools are software applications that assist
programmers in the development of applications. Together with our application
developers, we primarily rely upon software development tools provided by Cygnus
Solutions and Perforce Software. Cygnus Solutions was recently acquired by Red
Hat Software, one of our competitors. If we lose access to these development
tools or if Cygnus or Perforce fail to support or maintain these development
tools, we will either have to devote resources to maintain and support the tools
ourselves or transition to another vendor. Any maintenance or support of the
tools by us or the transition could be costly, time consuming, could delay our
product release and upgrade schedule, and could delay the development and
availability of third party applications used on our products. Failure to
procure the needed software development tools or any delay in the availability
of third party applications could negatively impact our ability and the ability
of third party application developers to release and support our software
platform and the applications that run on it. These factors could negatively and
materially affect the acceptance and demand for our products, our business and
prospects.
We depend on key personnel and attracting qualified employees for our
future success.
Our success depends to a significant degree upon the continued
contributions of our executive management team, including our co-founders Jean-
Louis Gassee, our Chief Executive Officer and Steve Sakoman, our Chief Operating
Officer, and other senior level financial, technical, marketing and sales
personnel. The loss of these or other members of our senior management team
could have a material adverse effect on our business and results of operations.
As of December 31, 1999, we had 105 employees. We anticipate that the
number of employees may increase during the next 12 months as we increase our
research and development activities and sales and marketing efforts. Our success
depends upon our ability to attract and retain additional highly qualified
senior management and technical, sales and marketing personnel to support
growing operations. Competition for qualified employees is intense. The process
of locating and hiring personnel with the combination of skills and attributes
required to carry out our strategy is time-consuming and costly. The loss of key
personnel or our inability to attract additional qualified personnel to
supplement or, if necessary, to replace existing personnel, could have a
material adverse effect on our business and results of operations.
Product defects may harm our business and reputation.
Computer operating systems, such as our products, frequently contain
errors or bugs. We have detected and may continue to detect errors and product
defects in connection with new releases and upgrades of our operating system and
related products. Despite our internal testing and testing by current and
potential customers, errors may be discovered after our products or related
software and tools are installed and used by customers. These errors could
result in reduced or lost revenue, delay in market acceptance, diversion of
development resources, damage to our reputation, or increased service and
warranty costs, any of which could materially adversely affect our business and
results of operations.
Our products must successfully integrate with products from other
vendors, such as third party software applications and computer hardware. As a
result, when problems occur in an Internet appliance, a personal computer or any
other device or network using our products, it may be difficult to identify the
source of the problem. The occurrence of hardware and software errors, whether
caused by our products or another vendor's products, may result in the reduction
or loss of market acceptance of our products, and any necessary product
revisions may force us to incur significant expenses. The occurrence of these
problems could materially adversely affect our business and results of
operations.
Our success depends on our ability to protect and enforce our proprietary
rights.
Our success depends significantly on our ability to protect our
proprietary rights to technologies used in our products. We rely primarily on a
combination of copyright, trademark and trade secret laws, as well as
confidentiality procedures and contractual provisions to protect our proprietary
rights. To date, we have no patents and existing copyright laws afford only
limited protection for our software. A substantial portion of our sales are
derived from the licensing of products under "shrink wrap" license agreements
that are not signed by licensees and, therefore, may be unenforceable under the
laws of certain jurisdictions. Despite any measures taken to protect our
proprietary rights, attempts may be made to copy aspects of our software
platform or to obtain and use information that we regard as proprietary which
could harm our business. In addition, the laws of some foreign countries do not
protect our intellectual property to the same extent as U.S. laws. Finally, our
competitors may independently develop similar technologies. The loss or
misappropriation of any material trademark, trade name, trade secret or
copyright could have a material adverse effect on our business and results of
operations.
The software industry is characterized by the existence of a large
number of patents and frequent litigation based on allegations of patent
infringement. As the number of entrants into our market increases, the
possibility of an infringement claim against us grows. For example, we may be
inadvertently infringing on a patent. In addition, because patent applications
can take many years to issue, there may be a patent application now pending of
which we are unaware upon which will be infringing when it issues in the future.
Although we do not believe that our products infringes on the rights of third
parties, third parties may still assert infringement claims against us in the
future and this could result in costly litigation and distraction of management.
To address such patent infringement claims, we may have to enter into royalty or
licensing agreements. Licenses may not be available on reasonable terms or at
all which could have a material adverse effect on our business and results of
operations.
We face risks relating to our online operations.
A significant barrier to widespread use of electronic commerce sites,
such as our BeDepot.com Web site, is concern regarding the security of
confidential information transmitted over public networks. We rely on encryption
and authentication technology licensed from third parties to provide the
security and authentication necessary to effect secure transmission of
confidential information, such as customer credit card numbers. Concerns over
the security of transactions conducted on the Internet and the privacy of users
may also inhibit the growth of online services, especially as a means of
conducting commercial transactions. Our failure to prevent any security breaches
may have a material adverse effect on our business and results of operations.
Despite our efforts to protect the integrity of our Web site and
products sold on it, a party may be able to circumvent our security measures and
could misappropriate proprietary information or cause interruptions in our
operations and damage to our reputation. Any such action could negatively affect
our customers' willingness to engage in online commerce with us. We may be
required to expend significant capital and other resources to protect against
these security breaches or to alleviate problems caused by these breaches. If
any compromise of our security were to occur, it could materially adversely
affect our reputation and business.
Our stock price is highly volatile.
The trading price of our common stock has fluctuated significantly and
has ranged from $3.25 to $39.5625 over the past 9 months since our initial
public offering in July 1999. In addition, many factors could cause the market
price of our common stock to fluctuate substantially, including:
. announcement by us or our competitors of significant strategic
partnerships, joint ventures, significant contracts, or acquisitions,
or rumors to that effect;
. announcement by us of loss of significant strategic partnerships,
joint ventures, significant contracts or acquisitions;
. news and announcements relating to the ongoing antitrust actions
involving Microsoft;
. announcements by us or our competitors concerning software errors or
delays in product releases;
. availability of key software applications developed for our products
or our competitor's products; and
. changes in financial estimates by securities analysts.
Specifically, certain market segments such as the computer software
industry have experienced dramatic price and volume fluctuations from time to
time. These fluctuations may or may not be based upon any business or operating
results. Our common stock may experience similar or even more dramatic price and
volume fluctuations which may continue indefinitely.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
stock. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and diversion of management
attention and resources, all of which could materially harm our business and
results of operation.
Our Amended and Restated Certificate of Incorporation, bylaws, Delaware law
and change of control agreement with some of our key employees contain
provisions that could discourage a third party from acquiring us and
consequently decrease the market value of our common stock.
Our Amended and Restated Certificate of Incorporation grants our board
of directors the authority to issue up to 2,000,000 shares of preferred stock
and to determine the price, rights, preferences, privileges and restrictions,
including voting rights of these shares without any further vote or action by
the stockholders. Since the preferred stock could be issued with voting,
liquidation, dividend and other rights superior to those of the common stock,
the rights of the holders of common stock will be subject to, and may be
adversely affected by, the rights of the holders of any preferred stock that may
be issued. The issuance of preferred stock could have the effect of making it
more difficult for a third party to acquire a majority of our outstanding voting
stock which could decrease the market value of our stock. Further, provisions in
our Amended and Restated Certificate of Incorporation and bylaws and of Delaware
law could have the effect of delaying or preventing a third party from
acquiring us, even if a change in control would be in the best interest of our
stockholders. These provisions include the inability of stockholders to act by
written consent without a meeting and procedures required for director
nomination and stockholder proposal.
We have entered into a Change of Control Agreement with each of our
officers and some of our other key employees. These agreements provide that,
among other things, if an employee is terminated without cause or otherwise
resigns for good reason during the period starting six months prior to the date
of a change of control and ending eighteen months following our change of
control, then the employee shall be entitled to a severance payment, and the
acceleration and immediate exercisability of all unvested options. These
provisions may discourage a third party from acquiring us.
Future sales of our common stock may depress our common stock price.
The market price of our common stock could drop as a result of sales
of a large number of shares of common stock in the market or in response to the
perception that sales of large number of shares could occur. No prediction can
be made about the effect that future sales of common stock will have on the
market price of such shares.
We may engage in acquisitions that may harm our results, dilute our
stockholders and cause us to incur debt or assume contingent liabilities.
As part of our business strategy, we may make investments in
complementary companies, products or technologies that we believe would be
advantageous to the development of our business. While we currently have no
formal discussions, agreements or negotiations underway with respect to any such
acquisition, we may acquire businesses, products or technologies in the future.
If we buy a company, we could have difficulty in assimilating that company's
personnel and operations. In addition, the key personnel of the acquired company
may decide not to work for us. If we make other types of acquisitions, we could
have difficulty in assimilating the acquired technology or products into our
operations. These difficulties could disrupt our ongoing business, distract our
management and employees and increase our expenses. Furthermore, we may be
required to incur debt or issue equity securities to pay for any future
acquisitions, the issuance of which could be dilutive to our existing
stockholders.
ITEM 2. PROPERTIES
Our principal administrative, marketing and research and development
facility is located in approximately 26,829 square feet of space in Menlo Park,
California. This facility is leased through February 2002. We also lease
approximately 2,184 square feet in Paris, France to focus on channel
distribution, sales to OEMs and recruitment. This facility is leased through
March 2001.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information for Common Stock
Our common stock is traded on the NASDAQ National Market ("NNM") under the
symbol "BEOS." Public trading of the common stock commenced on July 20, 1999.
The following table shows, for the periods indicated, the high and low per share
prices of common stock, as reported on the NNM. Such prices represent prices
between dealers, do not include retail mark-ups, mark-downs or commissions and
may not represent actual transactions.
Quarter Ended High Low
- ------------- ---- ---
September 30, 1999........................... $10.93 $ 5.87
December 31, 1999............................ $39.56 $ 3.28
January 1, 2000 through February 29, 2000.... $27.69 $11.88
On February 29, 2000, the closing price of the common stock on the Nasdaq
National Market was $ 14.75 per share.
Stockholders
As of February 29, 2000, we had approximately 280 record holders of our
common stock.
Dividend Policy
We have never declared or paid cash dividends on our capital stock. We
currently expect to retain our future earnings, if any, for use in the operation
and expansion of our business and do not anticipate paying any cash dividends in
the foreseeable future.
Recent Sales of Unregistered Securities
(1) On November 15, 1999, we sold 113,755 shares of our common stock to 1
stockholder pursuant to exercises of warrants at an aggregate purchase
price of $113,755. The sale and issuance of these securities was
deemed to be exempt from registration under the Securities Act by
virtue of Section 4(2) and Regulation D.
(2) On December 23, 1999, we sold 59,791 shares of our common stock to 1
stockholder pursuant to exercises of warrants at an aggregate purchase
price of $59,791. The sale and issuance of these securities was deemed
to be exempt from registration under the Securities Act by virtue of
Section 4(2) and Regulation D.
(3) On December 27, 1999, we sold 112,865 shares of our common stock to 1
stockholder pursuant to exercises of warrants at an aggregate purchase
price of $404,057. The sale and issuance of these securities was
deemed to be exempt from registration under the Securities Act by
virtue of Section 4(2) and Regulation D.
ITEM 6. SELECTED FINANCIAL DATA
The tables that follow present portions of our consolidated financial
statements and are not complete. You should read the following selected
financial information in conjunction with our Consolidated Financial Statements
and related Notes and with "Management Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this 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,
-----------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
(in thousands, except per share data)
Consolidated Statement of Operations Data:
Net revenues ............................................ $ - $ - $ 86 $ 1,199 $ 2,656
Cost of revenues (1) .................................... - - 84 2,161 1,436
-------- ------- -------- -------- --------
Gross profit (loss) ..................................... - - 2 (962) 1,220
Operating expenses:
Research and development .............................. 2,268 3,039 4,422 5,792 7,812
Sales and marketing ................................... 1,558 2,711 4,032 4,496 8,900
General and administrative ............................ 927 1,292 1,694 2,310 3,570
Amortization of deferred stock
- 955 867 3,881 6,233
Compensation (3) .................................... -------- ------- -------- -------- --------
Total operating expenses ........................... 4,753 7,997 11,015 16,479 26,515
-------- ------- -------- -------- --------
Loss from operations .................................... (4,753) (7,997) (11,013) (17,441) (25,295)
Other income (expense), net ............................. (24) 220 580 580 789
-------- ------- -------- -------- --------
Net loss ................................................ $ (4,777) $(7,777) $(10,433) $(16,861) $(24,506)
======== ======= ======== ======== ========
Net loss attributable to common stockholders ............ $ (4,777) $(7,902) $(10,448) $(18,423) $(24,798)
======== ======= ======== ======== ========
Net loss per common share--basic and
Diluted (2) ............................................ $(154.10) $(10.85) $(4.87) $(5.80) $(1.41)
======== ======= ======== ======== ========
Shares used in per common share
31 728 2,145 3,178 17,589
Calculation--basic and diluted (2) ..................... ======== ======= ======== ======== ========
As of December 31,
------------------
1995 1996 1997 1998 1999
-------- ------- --------- --------- --------
(in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments ......... $ 340 $ 6,670 $ 899 $ 11,648 $29,129
Working capital ........................................... 401 6,222 (3,206) 9,702 26,740
Total assets .............................................. 7,140 7,385 1,303 13,634 32,310
Mandatory redeemable convertible preferred stock .......... - 14,037 14,052 38,005 -
Total stockholders' equity (deficit) ...................... $(1,215) $ 6,467 $(16,978) $(27,900) $28,427
(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.
(2) See Note 2 of Notes to 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.
(3) This expense relates to 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,
-----------------------
1995 1996 1997 1998 1999
----- ----- ----- ------- -------
(in thousands)
Analysis of the amortization of deferred compensation:
Research and development .............................. $ -- $ 371 $ 480 $1,747 $1,927
Sales and marketing ................................... -- 127 273 833 1,692
General and administrative ............................ -- 457 114 1,301 2,614
----- ----- ----- ------ ------
Total amortization of deferred stock compensation ... $ -- $ 955 $ 867 $3,881 $6,233
===== ===== ===== ====== ======
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS REPORT ON FROM 10-K 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, "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 AMENDED REGISTRATION STATEMENT ON FORM S-1 (FILE
No. 333-77855) AND OUR OTHER PUBLIC FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-
LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR
OTHERWISE. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO THESE DIFFERENCES INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THE SECTIONS TITLED "RISK FACTORS"
AND "BUSINESS"UNDER ITEM 1 IN THIS REPORT.
Overview
Be was founded in 1990. We offer software platforms designed for Internet
appliances and digital media applications. Our two software platforms are (i)
BeIA, a turnkey integrated software platform and development tools that enable
the creation of customized Internet appliances, and (ii) BeOS, our desktop
operating system optimized for digital media applications. 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 that was targeted primarily to end users. Prior
releases of BeOS were targeted primarily to software developers. In February of
2000, we announced the availability of BeIA, our software platform intended for
the Internet appliances market.
Our revenues to date have been 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. We also generate revenue by
collecting commission from sales of third party software through our BeDepot.com
Web site. In January 2000, we announced that we would be shifting our resources
to focus primarily on the market for Internet appliances. We also announced that
a version of BeOS would be made available for personal use at no charge and a
more fully featured version would only be available through third party
publishers. We have very little or no influence over the marketing and
promotional efforts of these third publishers and we may not generate any
meaningful revenues from sales of BeOS through these publishers in the
foreseeable future.
We expect our future revenues to be primarily generated through royalty
payments and service fees from developers and manufacturers of Internet
appliances, and other systems and hardware manufacturers incorporating BeIA into
their products. We do not expect the revenues, if any, from BeIA to offset the
loss of revenues from sales of BeOS in the foreseeable future and, as previously
announced, we expect that our revenues and cash flow for the future periods to
be negatively impacted.
Since adopting and incorporating BeIA as the software platform generally
represents a significant product decision for developers and manufactures of
Internet appliances and related systems and hardware, we expect longer sales
cycle as we collaborate with and educate customers and partners on the use and
benefits of BeIA. We expect our revenues in the future to be dependent in
large part upon the success of our customers' products using our BeIA platform.
We have little or no influence over the development and marketing efforts of our
customers. Our customers are generally under no minimum payment obligations of
minimum purchase requirements. Our customers and partners are free to use
software platforms developed by other companies in their Internet appliance
products and are under no obligation to develop or market products based on our
software platform. As a result, we have very limited ability to evaluate the
success of our partnership efforts and predict the realization or timing of any
revenues. Similarly, in the desktop market, we are highly dependent on the
marketing efforts and success of our third party publishers. We have little or
no influence over these publishers and which makes it difficult to predict the
realization or timing of any revenues from BeOS.
It has been our policy to defer revenues, in accordance with the provisions
of software revenue recognition rules, from sales to distributors and resellers
and we will apply such a policy in the future on sales of BeOS to publishers and
other partners and on royalty payments and other fees received for licensing of
BeIA to OEM's and other partners. We also defer an allocated portion of revenues
attributable to free product upgrades. We recognize revenues from sales to
distributors and resellers when we have evidence that our product has been sold
to end users. For example, we typically recognize revenue when we receive
confirmation from the distributor or reseller of sales to end users. Revenues
deferred due to free product upgrades are recognized as upgrades are shipped. As
of December 31, 1999, we had $99,000 in deferred revenues, related to BeOS
inventory at a distributor that had been reported as sold to end-users by the
distributor subsequent to year end.
Our cost of revenues consist primarily of the cost of packaging, software
duplication, documentation, translation and product fulfillment. We use a third
party fulfillment house to store, package and ship BeOS in retail channels. We
also include in the cost of revenues the amortized costs relating to the license
of third party technology used in the development of BeOS. In the future, we
expect cost of sales to be mainly related to the licensing of third party
technology.
Our research and development expenses consist primarily of compensation and
related costs for research and development personnel. We also include 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 include the cost
of licensing technology that is incorporated