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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 2000
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-26387
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BE INCORPORATED
(Exact name of Registrant as specified in its charter)
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Delaware 94-3123667
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
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 28, 2001, was
approximately $47,285,282.
The number of shares of Common Stock outstanding as of February 28, 2001 was
36,484,591.
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, 2000
are incorporated herein by reference into Part III (Items 10, 11, 12 and 13)
of this Report.
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BE INCORPORATED
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2000
TABLE OF CONTENTS
PART I
Item 1. Business............................................................................... 1
Item 2. Properties............................................................................. 23
Item 3. Legal Proceedings...................................................................... 23
Item 4. Submission of Matters to a Vote of Security Holders.................................... 23
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................. 24
Item 6. Selected Financial Data................................................................ 25
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 26
Item 7a. Quantitative and Qualitative Disclosures About Market Risk............................. 31
Item 8. Consolidated Financial Statements and Supplementary Data............................... 32
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure... 33
PART III
Item 10. Directors and Executive Officers of the Registrant..................................... 34
Item 11. Executive Compensation................................................................. 34
Item 12. Security Ownership of Certain Beneficial Owners and Management......................... 34
Item 13. Certain Relationships and Related Transactions......................................... 34
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K......................... 35
Signatures...................................................................................... 37
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," and variations of such words and similar expressions
are intended to identify such forward-looking statements. These statements are
not guarantees of future performance and are subject to certain risks,
uncertainties and assumptions that are difficult to predict; therefore, actual
results and outcomes may differ materially from what is expressed or
forecasted in any such forward-looking statements. Such risks and
uncertainties include those set forth 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
Be Incorporated offers software solutions designed specifically for Internet
appliances and digital media applications. An Internet appliance is a
dedicated device designed specifically to access information from the Internet
for a given purpose. An Internet appliance's hardware and software are
seamlessly integrated together to provide users with a responsive and easy to
use interface. In early 2000, we shifted the primary focus of the company from
the marketing and distribution of BeOS, our desktop operating system, to the
development, marketing and deployment of BeIA, our software solution intended
for Internet appliances. BeIA gives our customers the ability to create
completely customized Internet appliances that deliver unique services,
information, and entertainment to their targeted end consumers.
BeIA, the Complete Internet Appliance Solution(TM), consists of three
components: BeIA Client Platform, BeIA Management and Administration Platform
(MAP), and BeIA Integration Services. This integrated package of small
footprint client-side software, remote administration capability, and
integration services, delivers a responsive user experience and the kind of
stable environment that consumers have come to expect from traditional home
appliances. Using BeIA, developers and manufacturers of Internet appliances
and related hardware and systems, including Original Equipment Manufacturers
(OEMs), consumer electronic companies, system integrators, and Original Device
Manufacturers (ODMs), collectively referred to as "device providers," can
design Internet appliances with the following features:
. Modular architecture with small footprint. BeIA Client Platform includes
a comprehensive Web browser, popular plug-ins like Flash Player and
RealPlayer, a Java Virtual Machine, and a customizable user-interface.
Device providers can save storage space--and thus stay within their cost
considerations--by using only those pieces necessary for a given device.
Furthermore, our proprietary compression technology reduces the entire
software stack by a factor of four to five times its original size.
. Stable and responsive operating environment. BeIA Client Platform offers
users a highly responsive and stable experience that users typically
associate with consumer electronics devices. It requires no rebooting
for most configuration changes and is resistant to crashes. Operating in
a broadband environment, BeIA Client Platform allows near-instant
availability and response from the user interface and, despite
considerable demands on the device, it provides responsive, glitch-free
playback of popular media.
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. Complete Scalability. BeIA Client Platform operates on a wide range of
hardware systems, giving device providers many price and functionality
choices. It provides support for new protocols to give developers the
ability to add new functionality. Device providers can build more robust
solutions and add new functionality over time or as new technologies are
adopted by the market. With BeIA MAP, device or service providers can
remotely manage a range or class of devices that might have different
functionality for targeted customers.
. Easy customization. BeIA allows device or service providers to control
the user experience and the branding "look and feel" of the device
interface. BeIA Client Platform's application framework allows designers
to use standard web development tools to rapidly complete and modify
their design work using HTML, Javascript or Flash. Device or service
providers can update the device's look and feel, branding and
functionality remotely from a BeIA MAP server. We also provide a native
development environment based on BeOS that runs on standard PCs which
facilitates quicker and less costly development of applications running
on BeIA.
. Rapid remote upgradability. BeIA Client Platform's fast and clean
development environment and modular, operating system core enables
device providers to change, update and augment the appliances remotely
without any consumer involvement or hassle. This means that as new
technologies emerge, older appliances may not need to be replaced by the
user. The device or service provider can install upgrades to the system
via BeIA MAP capabilities with little or no user involvement.
. Comprehensive browsing capability. BeIA Client Platform'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. The
Client Platform delivers an immersive, media-rich experience that allows
inexpensive devices to take advantage of upcoming streaming media
portals. It also provides the ability to combine Internet access with
existing media services such as TV and FM radio. BeIA includes
RealNetworks' RealPlayer for audio and video streaming, Macromedia's
Flash and Sun's Java Virtual Machine. BeIA supports WAV, MPEG, MP3 and
other formats that enable exciting additions to regular Web content.
An Internet appliance involves more than just the hardware and the software.
It also includes the branding, the device look and feel, the maintenance and
support of the software, and the efficient integration of all key pieces. Our
customers may choose to do much of this work themselves, or they may elect to
have Be act as a Value Added Reseller (VAR), integrating key parts (the
hardware, the client software, the server software, and the management of
network services) to bring it together into a cohesive product offering.
Utilizing each of BeIA Client Platform, BeIA MAP and BeIA Integration Services
together, a device provider is better able to bring a product to market
quickly while fulfilling the needs of its user community at a reasonable cost.
It is because of the existence of these components that we believe BeIA
provides the "Complete Internet Appliance Solution."
Background
Emergence of the Internet Appliance
While general-purpose PCs do many things well, they do not necessarily fit
all uses of computing. Special-purpose devices can be very different from a
conventional computer in their interface design, form factor, location in the
home or office, or input/output options. 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 the same trend will hold true in the Internet
space. Consumers find they want tailor-made devices for communicating,
gathering information, and being entertained. As an indicator of this trend,
according to a report issued in January 2001 by Gartner Group's Dataquest
unit, the increase in PC sales in 2000 dipped by over 7% as compared to 1999.
Conversely, according to a February 2001 study by the Pew Internet and
American Life Project, the number of adults in the United States who were
connected to the Internet grew more than 18% over a study conducted only six
months earlier. The cost of PC hardware and
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software, and the knowledge required to operate and maintain a PC, 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.
Recognizing cost of ownership and ease-of-use are the principal barriers PC
Original Equipment Manufacturers and Internet Service Providers 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
order to be successful, these new types of devices must deliver a user
experience comparable with other consumer electronics products, offering
significant speed, reliability, stability, and ease of use. Further, these new
types of devices must support an array of services including broadband access,
high quality video and audio capabilities and expandability.
Industry analysts define Internet appliances as a wide range of new
products, typically in a different form factor than traditional PCs, that are
consumer-focused, low-cost and easy-to-use. They are primarily designed to
deliver the interactive benefits of the Internet or an Internet-like service,
like Web browsing and email. These new classes of devices are typically
categorized into one or more of the following market segments: communication,
information, computing, entertainment and/or "other" types of Internet
appliance devices. IDC, a market research firm in Massachusetts, conducted a
study focusing solely on the information appliance segment, where it estimates
the number of information appliances shipped in the United States will grow to
40.3 million units at a value of nearly $8 billion in 2004, with a compound
annual growth rate of 32.5%. In another study, covering the entire range of
all of the market segments described above, eTForecasts, a market research and
consulting firm based in Illinois, estimates shipments of Internet appliances
will grow to 767 million units worldwide by 2005, and a market value of over
$149 billion. eTForecasts defines the Internet appliance market segments to
include communications devices (Web cellular phones, Web screen phones, and e-
mail terminals), information devices (Web pads and Web terminals), computing
devices (handheld and palm computers, personal digital assistants, and data
collection appliances), entertainment devices (Web TVs, set top boxes, Web
digital TVs, Web music players, Web game consoles, and digital jukeboxes), and
other Internet appliances (electronic books, kitchen Internet appliances,
medical Internet appliances, and appliances for other specialized markets).
Key Requirements of Internet Appliances
While Internet appliances will vary in form and function, we believe a core
set of functionality is necessary for any type of Internet appliance to
succeed. To lower overall system costs, device providers are increasingly
seeking alternatives to traditional PCs that do not utilize expensive central
processing units and general-purpose operating systems, such as Windows.
Device and service providers often lack the necessary resources or time to
develop their own customized software. We believe these companies desire a
turnkey customizable software solution to meet their needs and shorten their
time to market. We believe the key features desired of an Internet appliance
software solution to be the following:
. Integrated, full-featured Web browser and support for a JavaVM and other
popular plug-ins like RealPlayer and Flash Player;
. Rich media capabilities such as CD-quality audio and television-quality
video;
. Completely customizable and easily localizable user interfaces to enable
creation of application-specific or custom-branded products worldwide;
. Remote management of devices to provide upgrades and new functionality
without user involvement;
. Scalable for larger applications, quickly upgradeable and extensible;
. Reliability and stability equivalent to other mainstream consumer
appliances; and
. Responsiveness and rapid start-up or "boot" times to encourage frequent
use.
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We believe an Internet appliance provider needs more than just a robust and
customizable software solution to produce a successful Internet appliance. In
many cases, they also need to have a reliable and cost-effective device for
the software to run on, and we believe they need an easy-to-use interface that
is tailored to their customers' wants and needs. To achieve this, appliance
providers often need a strong partner who will assist them with the selection
and integration of the hardware, software and content.
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. Additionally, traditional operating systems demand that the user have
at least a minimum amount of knowledge of the system and how to operate it
efficiently.
The majority of traditional operating systems used today, for example
Windows, are marketed as a distinct product that cannot be modified or are
very difficult to customize 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. While the claim that
Internet appliance users want to have a familiar operating environment has
been voiced, we believe Internet appliance users will, in fact, want no
perceptible operating system. Instead, users will want to have applications
such as e-mail and browsing available to them immediately and reliably without
concern for the additional demands of an operating system.
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
generally not scalable for larger applications and often 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 solution they need for their appliances.
Business Strategy
Our principal objective is to establish BeIA as the premier software
solution for appliances that deliver communication, information, and
entertainment over the Internet. We intend to continue to establish
relationships with reference platform designers, industry leading ODMs, OEMs,
consumer electronics companies, service providers, and integrators to create
appliances that serve the needs of their customers, and to further enhance and
promote BeIA as the software solution of choice for Internet appliances. The
key elements of our strategy in the Internet appliances market are:
Leverage Our Technology and Capabilities. We developed our core operating
system technology over the course of ten years. As a result, we believe we
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 providing rich media capabilities in a small memory footprint. We
will continue to innovate BeIA's capabilities to include additional modular
functionality, more comprehensive browsing capabilities, and provide
portability to new device platforms.
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Promote BeIA through strategic relationships with hardware manufacturers. We
intend to focus our marketing and sales efforts on establishing relationships
with strategic partners, such as OEMs and consumer electronic manufacturers,
that are capable of designing and delivering a large volume of products based
on our software solution. We also intend to promote the use and benefits of
our software solution by working closely with ODMs that are creating reference
designs for Internet appliances. Our goal is to ensure our software platform
will run on the products designed by these device manufacturers, that our
products represent a complete solution for such ODMs, and the products
featuring our software solution are ultimately adopted and marketed by device
and service providers.
Increase awareness of BeIA with device and service providers. We believe
providers of Internet services and companies who desire to strengthen their
brand with their customers through the use of Internet appliances 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 for new ways to offer services and support specifically
geared to their customer base. Service providers are those companies seeking
new ways to expand their service offerings to existing customers and attract
new customers through the use of Internet appliances. We believe these service
providers can better achieve these goals through Internet appliance offerings
that make it easier and more convenient for their customers to do business
with them. 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 products. In
addition, we intend to deliver added value to this market by encouraging
partnerships between service providers and device providers utilizing our
software solution.
Develop industry leading product designs. Since the Internet appliance
market is emerging and device concepts are being refined, we believe our
success will, in part, be dependent on accurately monitoring the trends and
demands in the Internet appliances market. We plan to work closely with device
and service providers to address these demands. On a limited and focused
basis, we may work with device and service providers to design compelling
products that are capable of being adopted by a large number of users. By
working closely with device and service providers and, when required,
developing reference designs for products of interest to the consumer market,
we believe that we can stimulate the development of new products.
Products and Technologies
BeIA
The BeIA solution is comprised of three components: BeIA Client Platform,
BeIA Management and Administration Platform (MAP), and BeIA Integration
Services.
BeIA Client Platform, provides a high-performance, small-footprint
environment for special-purpose Internet enabled devices to deliver
information, communication, and entertainment into the hands of end users. One
of the core strengths of the BeIA technology is its ability to deliver,
display and control multiple audio and video inputs and applications with
little performance degradation. BeIA Client Platform has been designed and
optimized to provide the high level of responsiveness and stability users
typically experience and associate with consumer electronics devices. The
modular nature of BeIA Client Platform allows device providers to incorporate
only those features of the software required for a particular device, to
deliver specific content and to meet the cost target for each particular
device. BeIA Client Platform is made up of four building blocks:
. The base operating environment: The operating environment, built on the
proven technology of BeOS, is a high-performance, integrated software
solution for Internet-enabled devices designed to deliver Web browsing
experiences tailored to fit the user's needs.
. Robust browser technology: Rather than being an add-on application, the
browser technology is integrated into the operating environment to
provide a high degree of value in the user experience.
. Popular plug-ins: To support access to Web content, BeIA Client Platform
includes licensed technologies such as Java Virtual Machine, RealPlayer,
and Macromedia Flash Player. These plug-ins
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are all integrated in a highly customizable, Web content-based user
interface framework. Many additional modular plug-ins are available to
handle a wide variety of content formats.
. Development environment: A development environment in the form of a
software development kit (SDK) is available to provide a set of tools
that can be used to customize and enhance BeIA Client Platform
implementations.
BeIA Management and Administration Platform (MAP) allows service providers
to implement remote management features for the BeIA-based client devices
deployed to end users. A network of appliances connected through BeIA MAP
servers can be provided upgrades and updates to keep them at an appropriate
maintenance level, and can serve specific content defined by the user or
service provider, all in a secured manner. This capability coupled with the
technology built into the BeIA Client Platform virtually eliminates the need
for users to be responsible for the maintenance of the device's operating
environment and applications. BeIA MAP is composed of six building blocks:
. Device Management Server: The Device Management Server allows the
service or device provider to more easily control remote management
activities such as registering devices and end users, delivering
software updates, querying, granting, or revoking access privileges, and
querying devices capabilities.
. Administration Server: The Administration Server provides a web-based
interface for the service or device provider to deliver administrative
services to end-user devices. All the information on the customer
account is available to be examined and modified, including billing
information, device software updates and user access privileges. This
capability is all included in a single interface available only to the
service or device provider, not the end users.
. Mastering Station: The Mastering Station allows service or device
providers to configure and prepare BeIA software and content releases
for delivery to devices. A complete development environment is provided,
including local development and testing tools, and web-based tools for
administration, validation and deployment of new releases. The Mastering
Station allows updates to the Client Platform and content to be
collected and prepared for distribution to end user devices by the
Device Management Server. The end user can specify when the update is to
be done, either at the beginning of a session, or the end. Devices can
be updated on demand or periodically while the device is idle.
. Application Server: The Application Server provides end users with
access to Web-based applications. The service or device provider can
choose to offer a variety of applications, including e-mail, instant
messaging, chat rooms, and personal information management. Because
these services can be branded and customized by the service or device
provider, it can ensure the end user sees a single, cohesive
environment.
. Import Server: The Import Server provides many of the same features seen
in traditional web proxies, such as activity logging, blocking of sites,
and content filtering. It provides these features with reduced overhead
and more flexibility than traditional proxies. It is designed to allow
efficient but controlled access to "imported" content, such as content
the vendor does not provide.
. Authentication Server: The Authentication Server integrates with the
systems of major ISPs to give as many access options as possible to
service or device providers. Using industry standard protocols, the
Authentication Server is capable of controlling access to end user
devices. Authentication is not dependent upon how an end user obtains
Internet service or the service partnerships.
BeIA Integration Services offers to device or service providers a desired
expertise that facilitates their quick and reliable delivery and development
of new devices. Services are available in two distinct forms:
. Professional Engineering Services: Be provides a wide range of
integration services to assist our customers in the design, development,
and implementation of new products. As part of our BeIA Integration
Services offerings, we can develop features to brand the device for the
service
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provider and customize it to its needs. We intend to provide services to
our partners to assist them with pilot implementations and validation of
BeIA on new hardware platforms.
. Value Added Reseller Services: Be also intends to act as a VAR, bringing
together service providers, device manufacturers, hosting services, Web
content, and third-party applications to provide a complete solution for
Internet appliance creation.
HARP
In January 2001, we launched a BeIA-based reference platform for Internet-
enabled home stereo devices. Designed for consumer electronics companies and
home stereo component manufacturers, Be's Home Audio Reference Platform (HARP)
is an implementation of BeIA Client Platform that functions as a traditional
stereo component to play CDs, tapes and LPs, but can also be used to access
and broadcast Internet-based audio and other services. A HARP device transfers
the contents of a CD to an integrated hard disk in a format, such as the
popular MP3 format, that is compatible with the audio needs of the service
provider and its users. While encoding, or "ripping" the tracks of the CD in
the selected format onto the hard disk, the device can access the Internet for
additional information about the CD and artist, including art work, track name
and time, genre, and other available data. The information obtained from the
Internet is used to assist in the cataloging and organization of the music and
other audio tracks for easy retrieval in a number of convenient ways.
Individual users can develop their own "play lists" and select from these
lists when listening to music. Included in the design of HARP is the
capability for a device to act as a media delivery server, providing multiple
audio streams to different parts of the home and serving the needs of several
users at once. We have built a prototype HARP device as an example of how such
a device can be designed and built. Be does not intend to market this device
to end users, but instead, we intend to pursue relationships with consumer
electronics companies with an interest in building Internet-enabled home audio
devices. We expect that any revenues generated from this endeavor will be
derived through licensing the HARP design to consumer electronics companies.
BeOS
BeOS is our operating system designed for digital media applications and
serves as the development platform for BeIA. As a development platform, BeOS
is particularly well suited for development of code for BeIA because it has
complete Application Programming Interface (API) compatibility, and
approximately 90% binary compatibility with BeIA running on an Internet
appliance. The binary compatibility issues stem from the physical differences
between a development environment and the target device. Internet appliances
will typically have no hard disk drive, will have very limited capacity for
testing and debugging tools, and may have significant hardware capability
differences from the development machine. These differences prevent any
serious development from being done on BeIA-powered devices, although limited
testing and debugging can be done. BeOS provides a robust, reliable
environment for creating new code (applications, drivers, and system
extensions), testing and debugging of code in the BeOS environment, and remote
testing and debugging of the code on devices, with a set of tools that allow
for high productivity and maximum effectiveness. We expect professional
developers of BeIA code will use this environment almost exclusively for their
coding, testing, and debugging needs.
BeOS, as a desktop operating environment, maximizes the performance of
digital audio and video applications that run on a 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, and combines
fast performance and rich digital media applications for both processor-
intensive applications and lower-cost PC platforms.
The Personal Edition of BeOS is available at no charge as a single
downloadable file from our Website. Millions of copies of BeOS Personal
Edition have been distributed to date. BeOS Pro Edition is available for a fee
from our licensed publishers. We expect the revenues from BeOS to be minimal
in the future. The development platform for BeIA, is under development and has
not yet been released.
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Marketing, Sales and Customers
BeIA
Our sales and marketing group is dedicated to defining the most compelling
software solutions, establishing relationships with industry leading device
and service providers to create Internet appliances based on our software
solution, and further enhancing and promoting BeIA as the solution of choice
for Internet appliances. We market and sell our products by actively pursuing
relationships among six broad classifications of customers and strategic
partners:
. Reference Platform Designers are companies who create a new concept by
integrating key components and systems produced by ODMs, and/or
manufacture key components of Internet appliances. These designers do
not typically manufacture devices themselves. Many of the components
used by ODMs are based on designs provided by reference platform
designers, so it is important for BeIA to run on or support the
components provided by these companies. Our relationship with reference
platform designers is typically symbiotic in nature where we share
common or parallel business goals, and we often participate in joint
sales and marketing activities.
. Original Device Manufacturers (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 to meet 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 it manufactures. Since ODMs are the
primary producers of the key components and systems used in the Internet
appliances market, it is important BeIA runs on their hardware and
system designs. Our relationship with ODMs is similarly symbiotic in
nature where we share common or parallel business goals. As a result, we
often participate in joint sales and marketing activities. Our efforts
are targeted to ensure our software platform will run on the reference
platform designs and the resulting ODM product designs and that the
products featuring our software solution are ultimately adopted and
marketed by OEMs and service providers. In certain cases we will
provide, and charge for, BeIA Integration Services for ODMs.
. Original Equipment Manufacturers (OEMs) are the device manufacturers
most recognized by the public for their brand name and products.
Typically, OEMs are the companies that 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 solution to meet the OEM's customer needs. Our relationship
with OEMs is typically a contractual relationship to provide software
and services to support the development of their products. OEMs
typically license BeIA Client Platform, and purchase maintenance and
support, from us on a per-unit royalty basis, and will generally pay
BeIA MAP license fees based on the number of units supported by the BeIA
MAP Software. In many cases we will also provide, and charge for, BeIA
Integration Services for OEMs.
. Consumer Electronics Companies (CEs) are traditional device
manufacturers most recognized by the public for their stereo,
television, or other home entertainment products. Typically, CEs are the
companies that have reseller and/or direct selling relationships with
multi-level distributors and consumers. CEs gather market requirements
from consumers and work to deliver Internet-enabled solutions that meet
their target customer's requirements. Working closely with CEs gives us
direct access to consumer requirements and enables us to further develop
our software solutions to meet the CE's customer needs. Our relationship
with CEs is typically a contractual relationship to provide software and
services to support the development of their products. CEs typically
license BeIA Client Platform, and purchase maintenance and support, from
us on a per-unit royalty basis, and will generally pay BeIA MAP license
fees based on the number of units supported by the BeIA MAP Software. In
many cases we will also provide, and charge for, BeIA Integration
Services for CEs.
8
. Service Providers are 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 service providers might be financial
institutions, retailers, ISPs and/or telephone companies. Service
providers typically already have relationships with consumers, and look
to an Internet appliance strategy to expand their reach or to help
ensure their customers remain 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. They will make recommendations for future
features and enhanced functionality. Currently, our relationships with
service providers are fostered through our OEM customers. The service
providers in the technology industry are showing interest in the
Internet appliance market but many lack the resources to bring products
to market at this time. We believe this category of customer will become
more active as the market matures.
. Integrators are 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 the scalability of our products, the 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.
We have established relationships with a number of prominent ODMs in the
technology industry. Our current list of ODM partners is:
. Acer Group. We are working with Acer to ensure that BeIA runs on a
variety of Acer's Internet appliance hardware platforms. Acer is the
world's third-largest PC manufacturer, and provides solutions to OEM
customers on a global basis. Acer is also a leading Internet-enabler by
providing Internet component technologies, devices, and services.
. Arima Computer Corporation. We are working with Arima to offer BeIA as
the software solution for its Internet appliance devices. Arima is a
leading ODM based in Taiwan that does business with powerful core
technologies and offers integration capabilities to provide solutions to
brand-name marketing companies. Be and Arima additionally announced they
would cooperate on sales and marketing of these jointly developed
solutions to OEMs.
. DT Research, Inc. We are working with DT Research to ensure BeIA is
fully integrated with DT Research's family of Internet appliances based
on National Semiconductor's Geode reference platform. DT Research,
headquartered in Milpitas, California, is a provider of information
appliance solutions based on the thin client platform for server-
centric, Internet-centric, and vertical applications.
. First International Computer, Inc. We are working with FIC to offer BeIA
as the operating system software solution for FIC's recently expanded
family of subsystems for Internet appliances. FIC is one of the leading
PC motherboard and system vendors based in Taiwan.
. Proview Group. We are working with Proview to ensure that BeIA runs on a
variety of Proview's Internet appliance offerings. The Proview Group,
headquartered in Taiwan, is among the leading global suppliers of CRT
monitors. Proview also has multiple worldwide manufacturing locations,
and its established high-volume manufacturing capabilities allow for a
quick time-to-market for new devices.
9
We have also established relationships with OEM and CE customers including:
. Sony Electronics, Inc. In March 2001, we signed an OEM license and
distribution agreement with Sony Electronics Inc. Under the agreement,
Sony is granted a license to include BeIA Client Platform in the Sony
eVilla(TM) Network Entertainment Center. We have worked with Sony on the
design and implementation of this product since March 2000 under the
terms of a professional services agreement that supplements the OEM
license and distribution agreement.
. TEAC Corp. In March 2000, we entered into an OEM license and
distribution agreement with TEAC Corp. that allows TEAC, or its
professional division, TASCAM, to include our software with certain
advanced audio products.
. Compaq Computer Corporation. In November 1999, we entered into an OEM
license and distribution agreement with Compaq Computer Corporation that
allows Compaq to pre-install and distribute BeIA on Compaq's iPaq
Internet appliances.
We have also established relationships with certain Reference Platform
Designers. These companies design and manufacture the key components that go
into qInternet appliances. Some of the Reference Platform Designers we are
working with are:
. National Semiconductor Corporation. We are working together with
National Semiconductor to develop a series of production-ready reference
platforms for Internet appliances. These platforms are based on
National's Geode hardware running BeIA Client Platform.
. Intel Corporation. Be has established a relationship with Intel
Corporation as a reference platform designer and as a potential ODM for
HARP. We are working with Intel to provide a proof-of-concept for
manufacturers wishing to build low-cost, high-performance home audio
devices, using Intel's Celeron processor, that support several audio
encoding and playback features. These features include managing and
using audio content like compact discs and audio streamed from the
Internet to send multiple streams of audio to a variety of locations in
the home and support home networking products.
We have also established relationships with several System Integrators.
These companies typically bring together ODMs, OEMs, and service providers to
bring a product to market. Some examples of integrators we are working with
are:
. Qubit Technology. In December 1999, we entered into a license and
distribution agreement with Qubit Technology, where Qubit is licensed to
use BeIA as the software solution for its wireless Web Tablet.
. Music Browser, Inc. We are working with Music Browser to include our
technology in its Music Republic product, an innovative broadband
digital music delivery system for retail environments. A pilot
installation of 14 Music Republic stations was launched in September
2000 at Tower Records, Lincoln Center in New York City.
BeOS
Be has adopted a two-tiered approach for distributing and selling BeOS. Our
approach enables us to concentrate our resources on development and allow
third parties to focus on distribution and consumer marketing.
. BeOS Personal Edition. BeOS Personal Edition is a free, easy-to-install,
fully functional version of BeOS. It can be downloaded in a single file
directly from our Website and installed onto a Windows system. Although
BeOS Personal Edition is a fully functional version of BeOS, it does not
include some third party royalty-bearing technologies.
. BeOS Pro Edition. BeOS Pro Edition is our enhanced, full-featured
version of BeOS available on CD-ROM. It is offered to PC OEMs, value-
added software developers, other software vendors,
10
distributors and end users through our third-party publishers. These
publishers package and license the product and handle all marketing,
sales, and end-user support. Also, these publishers may choose to add
additional software and services.
Product Development and Engineering
Our product development and engineering efforts are focused primarily on
enhancing the functionality, flexibility, performance and reliability of BeIA.
We continue to develop and innovate the core technology and architecture of
BeOS as the integration platform for BeIA and as a software development
environment for Internet appliances.
A key ingredient of a compelling software solution 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. In December 1999, we entered
into an agreement with Opera to integrate their Web browser technology
with our products, and to distribute it as a component of our products.
. RealNetworks, Inc. In August 1999, we signed a license agreement with
RealNetworks, a leader in streaming media technology on the Internet, to
enable its RealPlayer product to run on our products. RealPlayer 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. In September 1999, we signed a license agreement
with Sun Microsystems for its PersonalJava technology which is
integrated into BeIA. Java technologies will allow users of a wide range
of Internet appliances running on our software solutions 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 solutions. In December 1998,
we entered into a software license agreement with Intel where it
provides us with technical specifications and software for Indeo, a
technology that enables compression and decompression of video data.
This allows our products to be compatible with applications that use
this compression technology.
. Bitstream, Inc. In November 1999, we entered into an agreement to
license Bitstream's FontFusion product, a unified font rendering engine,
as a key component of the BeIA Client Platform. We have also licensed
Bitstream's unified, stroke-based CJK (Chinese, Japanese, Korean) font.
By integrating this font into BeIA Client Platform, we solve a
significant problem facing manufacturers of Internet appliances bound
for Asian markets by providing complete, high-quality Asian font support
without using a large amount of memory.
. Macromedia, Inc. In July 2000, we entered into an agreement with
Macromedia to include its Macromedia Flash Player in BeIA Client
Platform. The inclusion of the Macromedia Flash Player in BeIA Client
Platform allows users to view Macromedia Flash content on the Web and
will ensure a rich multimedia experience. Macromedia Flash Player
software delivers low-bandwidth animations, presentations, and Web sites
for Internet users.
. Beatnik, Inc. In September 1999, we entered into an agreement with
Beatnik, Inc., a leader in interactive audio technologies and content
for the Web and digital devices, to include the Beatnik Audio Engine in
our BeIA Client Platform. Using the Beatnik Audio Engine, a BeIA-powered
Internet appliance will be able to play Beatnik's Rich Music Format
(RMF) files, which can be used to sonify Web pages and other digital
devices.
11
We invest considerable resources in the development of core technologies and
new capabilities. Internet technologies are evolving at a rapid pace and it is
important 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
invest resources to prototype advanced product concepts for Internet
appliances.
We have invested significant resources to enhance BeIA Client Platform and
BeIA MAP, and to meet the needs of our customers/OEMs. Our goal is to provide
the best user experience, use inexpensive hardware components to their fullest
ability, and minimize the amount of storage required on the device. In the
last 12 months we have created improvements to our technology designed to help
us achieve those objectives. Some examples of these innovations are:
. User interface technology improvements: compression of digital images,
32-bit color palette, and reduced Random Access Memory requirements;
. Improved web compatibility: Web browsing technology was updated to meet
new World Wide Web Consortium (W3C) standards;
. Improved e-mail: support for new e-mail protocols, offline composing of
messages, and better handling of attachments;
. New file browsing capabilities: updated list view capabilities that
allows the user to access local and remote files using the same browsing
techniques;
. New local PDF viewer: local rendering of portable data format (PDF)
files according to the latest Adobe specifications. Our PDF viewer
downloads data as it is needed to display pages of a document, which
allows the user to start viewing the document quickly;
. Compressed File System: better utilization of storage space heightens
the perception of improved performance;
. New MAP Client Agent: provides device interaction with BeIA MAP for
remote installation of dynamic, incremental software upgrades without
user involvement;
. New BeIA Network Environment: improved network technology to support
high bandwidth connections;
. New input methods: traditional and simplified Chinese input methods have
recently been developed and added to BeIA. We also provide support for
Chinese Web pages in our browser.
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 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 that is available to our
customers via a Web interface.
Competition
The markets in which we participate are competitive and rapidly changing. We
believe the principal competitive factors in these markets are:
. Partnerships with device providers and service providers;
. Key technological features and capabilities of the software platforms;
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. Technical, financial and marketing resources; and
. Device providers clearly delivering targeted services that entice
consumers to regularly use the device.
In the market for Internet appliances, there is increased competition to
offer software to drive non-PC devices that provide access to the Internet and
enable digital media content on the Internet. For example, Microsoft
Corporation has traditionally been highly competitive in most computer
software markets, and if it chooses to fully enter the Internet appliance
software solutions market, it has the resources and expertise to be a
competitive factor. Other companies such as QNX Software Systems Ltd., Wind
River Systems, Inc., Merinta Inc., vendors of UNIX-based operating systems
such as Linux, and vendors of embedded operating systems have software that is
being used for Internet appliances. Improvements or modifications to other
existing operating systems such as Apple's Mac OS, Palm Inc.'s Palm OS or
companies that market other variations of Linux could also enable those
companies to compete in the Internet appliance market. We also face
competition from vendors of embedded browsers and manufacturers of set-top
boxes and terminals such as WebTV, a subsidiary of Microsoft.
We believe we compete favorably in the software solutions for Internet
appliances market because BeIA offers a modular, scalable and customizable
client solution, as well as a tightly integrated remote management capability.
Since Be is focused and dedicated to the appliance market, we offer a full
range of operating system technologies, comprehensive browsing capabilities,
the most popular Internet enabled plug-ins, easy customization, remote
administration capabilities and applications, and integrated services to
complete an Internet appliance solution.
Employees
As of December 31, 2000, we had 116 employees. Of these employees, 33 are in
sales and marketing, 68 are in product development and engineering and 15 are
in general and administrative. We consider our employee relations to be good.
Facilities
We lease approximately 23,963 square feet in Menlo Park, California. We also
lease approximately 2,184 square feet in Paris, France. We believe our current
facilities are adequate to meet our needs for the next twelve months.
13
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, $24.5 million in 1999 and $21.1 million for the year
ended December 31, 2000. As of December 31, 2000, we had an accumulated
deficit of approximately $94.4 million. We expect to incur significant
additional losses and continued negative cash flow from operations in 2001 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. Prior to this year, sales
of BeOS, our desktop operating system, to resellers and distributors and
direct sales to end users accounted for the primary source of our revenues. In
the first quarter of 2000, we shifted our resources to focus primarily on the
market for Internet appliances. We made a version of BeOS available for
personal use at no charge and a more fully featured version is available
through third party publishers. The personal edition was released at the end
of March and publishers began shipping the commercial version in April. 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 will need to raise additional capital that may not be available to us.
We believe existing cash and cash equivalents will not be sufficient to meet
operating and capital requirements at our currently anticipated level of
operations beyond the end of the second quarter of 2001. Additional capital
will be necessary in order to fund our operations at currently anticipated
levels beyond the second quarter of 2001. While we are actively considering
various funding alternatives, we have not secured or entered into any
arrangements to obtain additional capital. There can be no assurance we will
be able to obtain additional funds, on acceptable terms or at all. If we
cannot raise additional capital to continue our present level of operations,
we will have to scale back our business which could include among other
things, a reduction in our work force. As a result we may not be able to
further develop or enhance our product offering, take advantage of future
opportunities or respond to competitive pressures, any of which could have a
material adverse effect on our business and results of operations. Our
liquidity may also be adversely affected in the future by factors such as
higher interest rates, inability to borrow without collateral, availability of
capital financing and continued operating losses. 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.
We have recently shifted our resources to focus primarily on a new and
undeveloped market.
In the first quarter of 2000, we shifted our resources to focus primarily on
the market for Internet appliances and the further development and marketing
of BeIA, our software solution 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;
14
. management distraction and loss of key personnel as we focus on this
market and shift resources towards the development and marketing of our
software solution 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 solution 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 solution 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., Merinta 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 solution. These more established companies, together with a large
number of smaller companies who offer software platforms 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 solution over these
competitors and could reduce market acceptance for our software solution 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 solution. 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
15
Internet service and content providers. In the Internet appliance market, we
have agreements with Sony Electronics, TEAC, Compaq Computer Corporation, and
Qubit Technology and collaboration arrangements with National Semiconductor,
Inc., Intel Corporation, Acer Group, Arima Computer Corporation (Arima),
DT Research, Inc., First International Computer, Inc. (FIC), and Proview
Group. We cannot be certain 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 solution. 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 and device and service providers 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 Sony, TEAC,
Compaq and Qubit, and arrangements with our other strategic partners including
National Semiconductor, Intel, Arima, DT Research, FIC and Proview, 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 solution. 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 for these manufacturers and service
providers will incorporate our software solution 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 solution. We have
little or no ability to influence the development and marketing efforts of our
customers and our customers may fail to dedicate adequate resources necessary
to successfully develop and market products based on our software solution.
The demand for our software solution 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.
16
We expect long sales cycles associated with our software solution 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 their software solution represents a
significant product decision for the developers and manufacturers of Internet
appliances. We expect long sales cycles as we collaborate and educate
customers and partners on the use and benefits of our software solution. We
similarly expect customers and partners will spend a significant amount of
time performing internal reviews and testing our software solution before
accepting and adopting our product. Any failure to gain acceptance for our
software solution 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 solution 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 solution 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 solution, a version of BeOS has
been made available for personal use for no charge. Despite these efforts, we
may not experience any significant increase in the number of BeOS users or a
broader market acceptance of our software solution and developers may decide
not to adopt or develop products based on our software solution.
We may be unsuccessful at marketing BeIA as the software solution 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, PalmOS, 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 solution 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 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 solution,
especially to leading developers and manufacturers of Internet
appliances;
17
. 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 solution. 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
solution 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 that contain new technologies and the emergence
of new industry standards could render our products less desirable or
obsolete. In particular, we expect 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 solution 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 solution 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.
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 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-cancelable 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;
18
. 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.
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 March of 2000, a version of BeOS was made available for personal use at
no charge. In April of 2000, we also made the commercial version of BeOS
available through third party publishers. 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.
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 solution, we
have made a version of BeOS 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 manufacturers 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 solution 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 future success depends in part on our ability to continue to attract,
identify, hire and retain key personnel and qualified employees.
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, 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, 2000, we had 116 employees. Our success depends upon our
ability to attract and retain highly qualified senior management and
technical, sales and marketing personnel to support growing operations. 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. In
addition, there is intense competition for qualified personnel in the software
platform and development industry. Competition is especially intense in the
San Francisco Bay Area, where our corporate headquarters is located. The loss
of key personnel or our inability to attract qualified personnel to supplement
or replace existing personnel, could have a material adverse effect on our
business and results of operations.
If we are unable to secure sufficient funding or raise additional capital to
fund our present level of operations, we will have to scale back our business
which could include a reduction in our work force and the loss of employees.
As a result of any material reduction in our workforce and loss of employees,
we may not be able to further develop our product offerings, conduct our
business comparable with past practice or take advantage of future
opportunities, which could have a material adverse effect on our business.
19
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.
If we cannot raise additional capital to continue, and expand our present
level of operations, we may be unable to expand our sales and marketing
efforts aimed at computer and consumer electronic companies, systems and
hardware manufacturers, and Internet service and content providers. Without an
increase we may be unable to increase sales and market acceptance of our
software solution. 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 may be unable 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.
20
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 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 solution 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.
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.
21
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 applied for only one patent 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 solution 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.
Our stock price is highly volatile.
The trading price of our common stock has fluctuated significantly and has
ranged from $0.531 to $39.563 over the past 18 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.
22
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 some of our
officers and other key employees. These agreements provide that, among other
things, if such 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.
ITEM 2. PROPERTIES
Our principal administrative, marketing and research and development
facility is located in approximately 23,963 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 through January 2003.
ITEM 3. LEGAL PROCEEDINGS
In November 2000, our stock transfer agent, Wells Fargo Bank Minnesota,
N.A., received a demand letter from a stockholder alleging damages resulting
from the transfer agent's failure to timely issue its stock certificates.
While Be was not a party named in such demand letter, and no claim has yet
been filed with any court of competent jurisdiction, Be is named as a party on
the stockholder's draft claim attached to the demand letter. We have been
participating in communications with the parties in an effort to resolve the
matter prior to a lawsuit being filed. Be management believes that the
allegations as they relate to Be in the potential and draft claim are without
merit and intends to vigorously defend Be against any potential future related
legal action. However, there can be no assurance this threatened claim will be
resolved without costly litigation, or require Be's participation in the
settlement of such claim, in a manner that is not adverse to our financial
position, results of operations or cash flows. No estimate can be made of the
possible loss or possible range of loss associated with the resolution of this
contingency. If Be were held liable, it is our intent to seek reimbursement
under our D&O insurance policy.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
23
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
March 31, 2000................................................ $24.44 $12.13
June 30, 2000................................................. $17.00 $ 4.00
September 30, 2000............................................ $ 6.44 $ 3.75
December 31, 2000............................................. $ 6.44 $ 0.53
January 1, 2001 through February 28, 2001..................... $ 2.88 $ 0.78
On February 28, 2001, the closing price of the common stock on the Nasdaq
National Market was $1.50 per share.
Stockholders
As of February 28, 2001, 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
None.
24
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,
------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(in thousands, except per share data)
Consolidated Statement of
Operations Data:
Net revenues................ $ -- $ 86 $ 1,199 $ 2,656 $ 480
Cost of revenues (1)........ -- 84 2,161 1,436 1,097
-------- -------- -------- -------- --------
Gross profit (loss)......... -- 2 (962) 1,220 (617)
Operating expenses (3):
Research and development.. 3,629 5,170 8,133 10,429 9,139
Sales and marketing....... 2,971 4,452 5,617 10,966 7,812
General and
administrative........... 1,397 1,393 2,729 5,120 4,740
-------- -------- -------- -------- --------
Total operating
expenses............... 7,997 11,015 16,479 26,515 21,691
-------- -------- -------- -------- --------
Loss from operations........ (7,997) (11,013) (17,441) (25,295) (22,308)
Other income, net........... 220 580 580 789 1,156
-------- -------- -------- -------- --------
Net loss.................... $ (7,777) $(10,433) $(16,861) $(24,506) $(21,152)
======== ======== ======== ======== ========
Net loss attributable to
common stockholders........ $ (7,902) $(10,448) $(18,423) $(24,798) $(21,152)
======== ======== ======== ======== ========
Net loss per common share--
basic and diluted (2)...... $ (10.85) $ (4.87) $ (5.80) $ (1.41) $ (0.60)
======== ======== ======== ======== ========
Shares used in per common
share Calculation--basic
and diluted (2)............ 728 2,145 3,178 17,589 35,533
======== ======== ======== ======== ========
As of December 31,
------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(in thousands)
Consolidated Balance Sheet
Data:
Cash, cash equivalents and
short-term investments..... $ 6,670 $ 899 $ 11,648 $ 29,129 $ 14,057
Working capital............. 6,222 (3,206) 9,702 26,740 12,205
Total assets................ 7,385 1,303 13,634 32,310 16,071
Mandatory redeemable
convertible preferred
stock...................... 14,037 14,052 38,005 -- --
Total stockholders' equity
(deficit).................. $ 6,467 $(16,978) $(27,900) $ 28,427 $ 13,324
- --------
(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) Operating expenses include the amortization of deferred compensation which
was recorded by us and which represents the difference between the deemed
fair value of our common stock, as determined for accounting purposes and
the exercise price of options at the date of grant. For the purposes of
the financial statements, this expense was disclosed as being applicable
to each line item as follows:
Year Ended December 31,
------------------------------
1996 1997 1998 1999 2000
---- ---- ------ ------ ------
(in thousands)
Analysis of the amortization of deferred
compensation:
Research and development................... $371 $480 $1,747 $1,927 $ 794
Sales and marketing........................ 127 273 833 1,692 646
General and administrative................. 457 114 1,301 2,614 1,173
---- ---- ------ ------ ------
Total amortization of deferred stock
compensation............................ $955 $867 $3,881 $6,233 $2,613
==== ==== ====== ====== ======
25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report on form 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" and variations of such words and similar expressions are
intended to identify such forward-looking statements. These statements are not
guarantees of future performance and are subject to certain risks,
uncertainties and assumptions that are difficult to predict; Therefore, actual
results and outcomes may differ materially from what is expressed or
forecasted in any such forward-looking statements. Such risks and
uncertainties include those set forth above under "factors affecting our
business, operating results and financial condition" and elsewhere in this
report as well as those noted in our 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 "Factors Affecting our business operating results and financial
condition" and "Business"under item 1 in this report.
Overview
Be was founded in 1990. We offer software solutions designed for Internet
appliances and digital media applications. Our software solutions are (i)
BeIA: the Complete Internet Appliance Solution(TM), consisting of three
components; BeIA Client Platform, BeIA Management and Administration Platform,
and BeIA Integration Services, (ii) Home Audio Reference Platform (HARP), a
BeIA-based reference platform or prototype for Internet-enabled home stereo
devices, and (iii) BeOS, our operating system designed for digital media
applications and which serves as the development platform for BeIA. Prior to
1998, we had no revenues and our operations consisted primarily of research
and development. In December 1998, we shipped the first version of BeOS, our
desktop operating system targeted primarily to end users. Prior releases of
BeOS were targeted primarily to software developers. Throughout 1999 we
focused on delivering BeOS as a desktop operating system to end users, and
while we were slowly gaining users and traction within the desktop operating
system market, we determined that the cost of competing in that market was
more than we could afford. In recognition of this, and to address shareholder
value, in 2000 we shifted our resources to focus primarily on the market for
Internet appliances and the further development, marketing and deployment of
BeIA, our software solution intended for Internet appliances. At the same time
we announced that we would be making available at no charge a version of BeOS
for personal use, and a more fully featured version would be available for a
charge through third party publishers.
Our revenues in 2000 have been primarily generated from the sale of BeOS to
our licensed third party publishers, and other resellers and distributors, and
direct sales of BeOS to end users through our BeDepot.com Web site. We also
generated revenue by collecting commission from sales of third party software
through our BeDepot.com Web site.
We expect our future revenues to be primarily generated through royalty
payments, maintenance and support fees, and professional services and
integration fees from developers and manufacturers of Internet appliances, and
other systems and hardware manufacturers incorporating BeIA into their
products. We expect that any revenues from BeIA will be generally derived
through licensing of BeIA to developers and manufacturers of Internet
appliances and related service fees including integration, support and
maintenance fees. The revenues from BeIA have not offset the loss of revenues
from sales of BeOS and we expect that our revenues and cash flow for the
future periods to continue to be negatively impacted.
26
Since adopting and incorporating BeIA as a software solution generally
represents a significant product decision for developers and manufactures of
Internet appliances and related systems and hardware, we have experienced a
longer sales cycle as we have collaborated with and educated 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 solution. We have little or no influence over the development
and marketing efforts of our customers. Our customers are generally under no
minimum payment obligations or 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 solution. 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.
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 into a
product or an enhancement, which is still in preliminary development, and
technological feasibility has not been established. Once the product is
further developed and technological feasibility has been established,
development costs are capitalized until the product is available for general
release. To date, products and enhancements have generally reached
technological feasibility and have been released for sale at substantially the
same time. We expect research and development expenses will increase in the
future as we further develop and enhance BeIA and develop new products for the
Internet appliances market.
Our sales and marketing expenses consist primarily of compensation and
related costs for sales and marketing personnel, marketing programs, public
relations, investor relations, promotional materials, travel, and related
expenses for attending trade shows. We expect that our sales and marketing
expenses in the future will be in large part dependent on our ability to
secure sufficient capital to fund our ongoing operations. If we are able to
secure sufficient capital, we expect our sales and marketing expenses to
increase as we further promote awareness of our software solution and further
develop and expand our relationships with existing and potential partners.
General and administrative expenses consist primarily of compensation and
related expenses for management, finance, and accounting personnel,
professional services and related fees, occupancy costs and other expenses. We
expect that our general and administrative expenses in the future will be in
large part dependent on our ability to secure sufficient capital to fund our
ongoing operations. If we are able to secure sufficient capital, we expect our
general and administrative expenses to increase as we expand our existing
facilities or relocate to new facilities that better address any growth we may
experience or incur costs related to any growth in our business and the costs