-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RBT4NzjbX+UQsejr3aoSVVxsfVjIBYwkKtGt/b3TgCeZqOBoGN8i33lUD5fnKVzB Jz5z/mkgbKAMS2+m0GpVUA== 0000895921-02-000017.txt : 20020607 0000895921-02-000017.hdr.sgml : 20020607 20020604205859 ACCESSION NUMBER: 0000895921-02-000017 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020605 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BE INC CENTRAL INDEX KEY: 0000895921 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 943123667 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-26387 FILM NUMBER: 02670374 BUSINESS ADDRESS: STREET 1: 800 EL CAMINO RD STREET 2: SUITE 300 CITY: MENLO PARK STATE: CA ZIP: 95117 BUSINESS PHONE: 6504624100 MAIL ADDRESS: STREET 1: 800 EL CAMINO REAL STREET 2: SUITE 300 CITY: MENLO PARK STATE: CA ZIP: 95117 10-K/A 1 k10a2_main.txt AMENDMENT #2 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A (Amendment No. 2) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 0-26387 BE INCORPORATED (Exact name of Registrant as specified in its charter) Delaware 94-3123667 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 655 West Evelyn Street, Suite 6, Mountain View, California 94041 (Address of principal executive offices, including zip code) (650) 965-4842 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $0.001 PAR VALUE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ___ The approximate aggregate market value of the common stock held by non-affiliates of the Registrant, based upon the last sale price of the Common Stock reported on the Nasdaq National Market, as of May 15, 2002, was approximately $4,194,785. The number of shares of Common Stock outstanding as of May 15, 2002 was 38,450,527. 1 BE INCORPORATED FORM 10-K/A AMENDED ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 Table of Contents PART IV Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K... 3 Note:The purpose of this amended filing is to correct a typographical error reporting the amount of "Other income and expenses, net" as disclosed in the Consolidated Statements of Operations - Unaudited on page F-3 of the Registrant's Amendment No. 1 to Form 10-K/A filed with the Securities and Exchange Commission on May 7, 2002. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a) (1) Financial Statements The unaudited consolidated financial statements of the registrant are filed as part of this Amendment No. 2 to Annual Report on Form 10-K/A. (2) Financial Statement Schedule Schedule II--Valuation and Qualifying Accounts is filed on page F-26 of this Amendment No. 2 to Annual Report on Form 10-K/A. All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are omitted because they are not required under the related instructions or are inapplicable. (3) Exhibits EXHIBIT NUMBER DESCRIPTION OF DOCUMENT 2.1*** Asset Purchase Agreement by and among Palm Inc., ECA Subsidiary Acquisition Corporation and the Company, dated August 16, 2001, as amended and restated on September 10, 2001 2.2*** Plan of Dissolution of the Company as approved by the stockholders of the Company on November 12, 2001 3.1* Amended and Restated Certificate of Incorporation 3.2* Bylaws 4.1* Form of Common Stock Certificate 4.2* Form of Warrant to purchase an aggregate of up to 1,046,102 shares of common stock issued in connection with the Series 1 convertible preferred stock financing 4.3* Warrant to purchase up to 1,538,462 shares of common stock, dated December 23, 1998, issued by Be Incorporated to Intel Corporation 4.4* Amended and Restated Investors' Rights Agreement, dated February 4, 1998 9.1*** Form of Stockholder Support Agreement by and among Palm Inc., ECA Subsidiary Acquisition Corporation and the Company, dated August 16, 2001, as amended and restated on September 10, 2001 10.1* Form of Indemnity Agreement entered into between the Company and its directors and officers 10.2.1* 1992 Stock Option Plan 10.2.2* Form of 1992 Stock Option Agreement 10.3.1* 1999 Equity Incentive Plan 10.3.2* Form of 1999 Equity Incentive Plan Stock Option Agreement 10.3.3* Form of 1999 Stock Option Grant Notice 10.4.1* Employee Stock Purchase Plan 10.4.2* Form of Employee Stock Purchase Plan Offering 10.5.1* Non-Employee Directors' Stock Option Plan 10.5.2* Form of Nonstatutory Stock Option 10.6.1* Office Lease dated June 24, 1994, by and between Menlo Station Development and the Company 10.6.2* Amendment to Office Lease, dated April 10, 1997, by and between Menlo Station Development and the Company 10.7* Employment Agreement, dated June 22, 1998, by and between the Company and Wesley S. Saia 10.8* Employment Agreement, dated March 12, 1999, by and between the Company and Roy Graham 10.9* Employment Agreement, dated October 9, 1998, by and between the Company and Jean R. Calmon 10.10* Stock Purchase Agreement, dated as May 1, 1998, by and among StarCode Software, Inc., the Stockholders of StarCode Software, Inc., and Be Incorporated 10.11*+ Software Distribution Agreement, dated November 5, 1998, by and between the Company and Plat'Home Co. Ltd. 11 10.12** Form of Change in Control Agreement 10.13*** Funding Agreement, dated August 16, 2001, by and between Palm Inc. and the Company 10.14*** Form of Non-Competition Agreement, effective November 13, 2001, by and between Palm, Inc. and certain stockholders or optionholders of the Company 21.1* List of Subsidiaries * Incorporated by reference from the Registrant's Registration Statement on Form S-1, as amended (File No. 333-77855) ** Incorporated by reference from the Registrant's Annual Report on Form 10-K, filed with the SEC on March 30, 2000 *** Incorporated by reference from the Registrant's Definitive Proxy Statement, filed with the SEC on October 9, 2001 + Confidential Treatment has been granted with respect to certain portions of this agreement (b) Reports on Form 8-K Current Report on Form 8-K, filed November 28, 2001, announcing that Be completed Palm's acquisition of substantially all of the intellectual property and other technology assets of Be pursuant to the terms of an Amended and Restated Asset Purchase Agreement, dated September 10, 2001, entered into between Be, Palm and ECA Subsidiary Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of Palm. Current Report on Form 8-K, filed March 6, 2002, announcing that (i) on February 19, 2002 Be had filed suit against Microsoft Corporation for the destruction of Be's business resulting from the anticompetitive business practices of Microsoft and (ii) on March 4, 2002, the Company planned to file a certificate of dissolution with the Delaware Secretary of State on March 15, 2002 in accordance with the Plan of Dissolution approved by stockholders on November 12, 2001. Current Report on Form 8-K, filed March 28, 2002, announcing that on March 15, 2002, Be had filed a certificate of dissolution with the Delaware Secretary of State and voluntarily delisted from the Nasdaq National Market. (c) See Item 14 (a)(3) above. (d) See Item 14 (a)(2) above. 12 Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment No. 2 to Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Mountain View, State of California, on June 5, 2002. BE INCORPORATED By: /S/ DANIEL S. JOHNSTON ----------------------------------------- Name: Daniel S. Johnston Title: President and General Counsel Pursuant to the requirements of the Securities Exchange Act of 1934, this Amendment No. 2 to Annual Report has been signed by the following persons on behalf of the Registrant in the capacities and on the dates indicated. Signature Title(s) Date /s/ DANIEL S. JOHNSTON President and General Counsel June 5, 2002 ----------------------------- Daniel S. Johnston * Director June 5, 2002 ----------------------------- P.C. Berndt * Director June 5, 2002 ----------------------------- Andrei M. Manoliu * Director June 5, 2002 ----------------------------- Barry M. Weinman * By /S/ DANIEL S. JOHNSTON Daniel S. Johnston -------------------------------- Attorney-in-fact 13 1. Index to Unaudited Consolidated Financial Statements The following unaudited financial statements are filed as part of this Amended Annual Report: Unaudited Consolidated Balance Sheets............................. F-2 Unaudited Consolidated Statements of Operations................... F-3 Unaudited Consolidated Statements of Stockholders' Equity (Deficit)................................ F-4 Unaudited Consolidated Statements of Cash Flows................... F-5 Notes to Unaudited Consolidated Financial Statements.............. F-6 2. Index to Financial Statement Schedules The following financial statement schedule is filed as part of this report and should be read in conjunction with the Unaudited Consolidated Financial Statements: Schedule II Valuation and Qualifying Accounts................. F-26 F-1 BE INCORPORATED Consolidated Balance Sheets - Unaudited (in thousands, except share and per share amounts)
December 31, 2001 2000 ----- ---- Assets Current assets: Cash and cash equivalents .................................................... $ 5,381 $ 9,463 Short-term investments ....................................................... -- 4,594 Accounts receivable .......................................................... 66 26 Prepaid and other current assets ............................................. 1,363 549 Total current assets ..................................................... 6,810 14,632 Property and equipment, net ......................................................... 2 391 Other assets, net of accumulated amortization ....................................... 24 1,048 Total assets ............................................................. $ 6,836 $16,071 ======= ===== Liabilities and stockholders' equity Current liabilities: Accounts payable ............................................................. $ 96 $ 362 Accrued expenses ............................................................. 94 1,502 Technology license obligations, current portion .............................. 815 454 Deferred revenue ............................................................. 56 109 Total current liabilities ................................................ 1,061 2,427 Technology license obligations, net of current portion .............................. -- 320 Total liabilities ........................................................ 1,061 2,747 Commitments and Contingencies (Note 6) Stockholders' Equity: Preferred stock, $.001 par value: Shares authorized: 2,000,000 in 2000 and 1999 Shares issued and outstanding: none Common stock, $.001 par value: Shares authorized: 78,000,000 shares in 2001 and 2000 Shares issued and outstanding: 38,486,007 in 2001 and 36,202,899 in 2000 38 36 Additional paid-in capital...................................................... 106,493 108,880 Deferred stock compensation.................................................... (39) (1,218) Accumulated deficit............................................................ (100,717) (94,375) Accumulated other comprehensive income (loss).................................. - 1 Total stockholders' equity........................................... 5,775 13,324 Total liabilities and stockholders' equity......................... $ 6,836 $ 16,071 ======= ========
The accompanying notes are an integral part of these unaudited consolidated financial statements. F-2 BE INCORPORATED Consolidated Statements of Operations - Unaudited (in thousands, except per share amounts)
Year Ended December 31, 2001 2000 1999 -------- -------- -------- Net revenues ...................................................... $ 2,713 $ 480 $ 2,656 Cost of revenues .................................................. 2,831 1,097 1,436 Gross profit (loss) ............................................... (118) (617) 1,220 Operating expenses: Research and development, including amortization of deferred stock compensation of $(551) in 2001, $794 in 2000 and .... 6,269 9,139 10,429 $1,927 in 1999 Sales and marketing, including amortization of deferred stock compensation of $(533) in 2001, $646 in 2000 and $1,692 in 1999 1,681 7,812 10,966 General and administrative, including amortization of deferred stock compensation of $(912) in 2001, $1,173 in 2000 and $2,614 in 1999 ............................................ 2,777 4,740 5,120 Restructuring expense ........................................ 450 -- -- -------- -------- -------- Total operating expenses ................................ 11,177 21,691 26,515 -------- -------- -------- Loss from operations .............................................. (11,295) (22,308) (25,295) Interest expense .................................................. (56) (155) (138) Net gain on Asset Sale ............................................ 4,883 -- -- Other income and expenses, net .................................... 126 1,311 927 -------- -------- -------- Net loss .......................................................... (6,342) (21,152) (24,506) -------- -------- -------- Other comprehensive gain(loss) Unrealized gains(losses) on investments ..................... (1) 18 (17) Comprehensive loss ................................................ $ (6,343) $(21,134) $(24,523) ======== ======== ======== Net loss .......................................................... $ (6,342) $(21,152) $(24,506) Accretion of mandatorily redeemable convertible preferred stock ......................... -- -- (292) -------- -------- -------- Net loss attributable to common stockholders ...................... $ (6,342) $(21,152) $(24,798) ======== ======== ======== Net loss per common share--basic and diluted ...................... $ (0.17) $ (0.60) $ (1.41) ======== ======== ======== Shares used in per common share calculation--basic and diluted ................................. 36,762 35,533 17,589 ======== ======== ========
The accompanying notes are an integral part of these unaudited consolidated financial statements. F-3 BE INCORPORATED Consolidated Statements of Stockholders' Equity (Deficit) - Unaudited (in thousands, except share amounts)
Additional Def. Other Common Stock Paid-in Stock Accumulated Comp. Shares Amount Capital Comp. Deficit Loss Total ----------- ------ --------- ------- --------- ---- -------- Balance, January 1, 1999 .................... 5,094,757 $ 5 $ 25,302 $(4,490) $ (48,717) -- $(27,900) Repurchase of common stock .................. (39,640) -- (3) -- -- -- (3) Exercise of stock options ................... 294,548 -- 65 -- -- -- 65 Exercise of common stock warrants ........... 286,411 1 578 -- -- -- 579 Deferred stock compensation related to grants of ................................... -- -- 7,457 (7,457) -- -- -- stock options Cancellation of options ..................... (1,024) 1,024 Amortization of deferred stock compensation . -- -- -- 6,233 -- -- 6,233 Compensation expense on grant of fully vested options ................................... -- -- 662 -- -- -- 662 Issuance of common stock for cash, net of issuance costs of $4,034 .................. 6,557,465 6 35,303 -- -- -- 35,309 Conversion of Mandatorily Redeemable Convertible Preferred Stock ............... 22,498,874 23 38,274 -- -- -- 38,297 Net loss .................................... -- -- -- -- (24,506) -- (24,506) Accretion of mandatorily redeemable convertible preferred stock ............... -- -- (292) -- -- -- (292) Unrealized loss on investments .............. -- -- -- -- -- $(17) (17) ----------- ------ --------- ------- --------- ---- -------- Balance, December 31, 1999 .................. 34,692,415 35 106,322 (4,690) (73,223) (17) 28,427 Repurchase of common stock .................. (22,165) -- (2) -- -- -- (2) Exercise of stock options ................... 911,110 1 2,225 -- -- -- 2,226 Exercise of common stock warrants ........... 454,625 -- 454 -- -- -- 454 Compensation expense on grant of fully vested options ................................... -- -- 38 -- -- -- 38 Cancellation of options ..................... -- -- (859) 859 -- -- -- Sale of shares under the ESPP ............... 166,914 -- 702 -- -- -- 702 Amortization of deferred stock compensation . -- -- -- 2,613 -- -- 2,613 Net loss .................................... -- -- -- -- (21,152) -- (21,152) Unrealized gain on investments .............. -- -- -- -- -- 18 18 ----------- ------ --------- ------- --------- ---- -------- Balance, December 31, 2000 .................. 36,202,899 36 108,880 (1,218) (94,375) 1 13,324 Repurchase of common stock .................. (4,498) -- (1) -- -- -- (1) Exercise of stock options ................... 71,569 -- 22 -- -- -- 22 Exercise of common stock warrants ........... 179,291 -- 179 -- -- -- 179 Stock bonus awards .......................... 1,693,484 1 202 -- -- -- 203 Cancellation of options ..................... -- -- (3,175) 3,175 -- -- -- Sale of shares under the ESPP ............... 343,262 1 386 -- -- -- 387 Amortization of deferred stock compensation . -- -- -- (1,996) -- -- (1,996) Net loss .................................... -- -- -- -- (6,342) -- (6,342) Unrealized loss on investments .............. -- -- -- -- -- (1) (1) ----------- ------ --------- ------- --------- ---- -------- Balance, December 31, 2001 .................. 38,486,007 $ 38 $ 106,493 $ (39) $(100,717) $-- $ 5,775 =========== ====== ========= ======= ========= ==== ========
The accompanying notes are an integral part of these unaudited consolidated financial statements. F-4 BE INCORPORATED Consolidated Statements of Cash Flows - Unaudited (in thousands)
Year Ended December 31, 2001 2000 1999 ------- ------- ------- Cash flows from operating activities: Net loss....................................................................... $ (6,342) $ (21,152) $ (24,506) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization.............................................. 791 1,187 966 Gain on Asset Sale to Palm................................................. (4,884) -- -- Loss on disposal of fixed assets........................................... 188 5 69 Write-off of impaired licensed technology assets........................... 914 -- -- Licensed technology used in research and development....................... -- -- 320 Amortization of discount on technology license obligations................. 56 109 134 Compensation expense incurred on issuance of stock......................... -- 38 662 Amortization of deferred stock compensation................................ (1,996) 2,613 6,233 Changes in assets and liabilities: Accounts receivable.................................................... (40) 141 310 Prepaid and other current assets....................................... (814) 241 (525) Other accrued.......................................................... -- -- (91) Accounts payable....................................................... (266) (548) 284 Accrued expenses....................................................... (1,408) (169) 456 Deferred revenue....................................................... (53) 10 (293) ------- ------- ------- Net cash used in operating activities.............................. (13,854) (17,525) (15,981) ------- ------- ------- Cash flow provided by (used in) investing activities: Acquisition of property and equipment.......................................... (72) (182) (515) Acquisition of licensed technology............................................. (425) (746) (1,893) Purchases of short-term investments............................................ (1,727) (64,377) (81,749) Proceeds from Asset Sale, net.................................................. 5,087 -- -- Sales and maturities of short-term investments................................. 6,322 82,412 67,357 Deposits and other............................................................. -- -- (63) ------- ------- ------- Net cash provided by (used in) investing activities................ 9,185 17,107 (16,863) ------- ------- ------- Cash flows provided by financing activities: Proceeds from issuance of common stock pursuant to common stock options........ 22 2,226 65 Proceeds from issuance of common stock pursuant to common stock warrants....... 179 455 579 Proceeds from issuance of common stock under the Employee Stock Purchase Plan.. 387 702 -- Proceeds from issuance of common stock in initial public offering, net......... -- -- 35,309 Repurchase of common stock..................................................... (1) (2) (3) ------- ------- ------- Net cash provided by financing activities.......................... 587 3,381 35,950 ------- ------- ------- Net increase (decrease) in cash and cash equivalents........................... (4,082) 2,963 3,106 Cash and cash equivalents, beginning of year................................... 9,463 6,500 3,394 Cash and cash equivalents, end of year......................................... $ 5,381 $ 9,463 $ 6,500 ======= ======= ======= Supplemental schedule of noncash financing activities: Conversion of mandatorily redeemable convertible preferred stock to common stock................................................................. $ -- $ -- $ 38,297 ======= ======= ========== Stock bonus awards............................................................. $ 203 $ -- $ -- ======== ======= ======= Accretion of mandatorily redeemable preferred stock............................ $ -- $ -- $ 292 ======= ======= ======== Future obligations under noncancelable technology licenses..................... $ -- $ -- $ 809 ======= ======= ======== Unearned stock based compensation related to stock option grants, net of cancellations................................................................ $ (3,175) $ (859) $ 6,433 =========== ========= =========
The accompanying notes are an integral part of these unaudited consolidated financial statements. F-5 BE INCORPORATED Notes to Unaudited Consolidated Financial Statements NOTE 1--NATURE OF BUSINESS: Be Incorporated ("Be" or the "Company") was founded in 1990 and offered software platforms designed for Internet appliances and digital media applications. On August 16, 2001, the Board of Directors of the Company unanimously adopted resolutions approving the sale of substantially all of the Company's intellectual property and other technology assets (the "Asset Sale") to ECA Subsidiary Acquisition Corporation, a Delaware corporation and an indirect wholly-owned subsidiary of Palm, Inc. ("Palm"), pursuant to an Asset Purchase Agreement dated August 16, 2001. On October 9, 2001, the Company filed a definitive proxy statement soliciting stockholder approval for the Asset Sale and the dissolution of the Company pursuant to a plan of dissolution (the "Plan of Dissolution"). The Plan of Dissolution provides for the orderly liquidation of Be's remaining assets, the winding-up of Be's business and operations and the dissolution of the Company. In accordance with the terms of the Plan of Dissolution, Be will pay, or provide for the payment of, all of its liabilities and obligations following the approval of the Board to proceed with the liquidation and dissolution of the company. If there are any remaining assets after the payment, or the provision for payment, of all of its liabilities and obligations, Be will then distribute such assets to its stockholders in one or more distributions. At a special meeting of stockholders held on November 12, 2001, the stockholders of Be approved the Asset Sale and the Plan of Dissolution. The Asset Sale was completed on November 13, 2001. Under the terms of the Purchase Agreement, Be received an aggregate of 4,104,478 shares of Palm common stock valued at approximately $11,000,000 on the closing date of the transaction. On March 15, 2002, the Company filed a certificate of dissolution with the Delaware Secretary of State in accordance with the plan of dissolution approved by stockholders on November 12, 2001 and as set forth in the Definitive Proxy Statement filed on October 9, 2001. Traditionally, the Company's revenues were primarily generated from the following sources: sale of BeOS to resellers and distributors, and direct sales of BeOS to end users through our BeDepot.com Web site. In 2000, the Company shifted its resources to focus primarily on the market for Internet appliances and the further development and marketing of BeIA, its software platform intended for Internet appliances. At the same time it announced that it would be making available at no charge a version of BeOS for personal use, and a more fully featured version would be available for a charge through third party publishers. During 2001, revenues were mainly attributable to BeIA integration services and revenue-related consulting services in 2001, the latter being performed under a funding agreement that was entered into August 16, 2001 in connection with the Asset Sale. NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Basis of presentation These unaudited consolidated financial statements were prepared on a going concern basis and therefore contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. Following its March 15, 2002 filing of a certificate of dissolution with the Delaware Secretary of State, the Company adopted liquidation accounting (see Note 5). Since November 2001, the Company has been winding down its operations and has substantially reduced its working capital requirements. The Company's working capital requirements are now minimal and it believes that existing cash and cash equivalents will be sufficient to meet operating and capital requirements for the next twelve months. As part of the winding down process, the Company intends to distribute part of its remaining cash to its shareholders as soon as practicable under Delaware law and dissolution procedures. After that time, the Company intends to retain only a nominal amount of cash to complete the winding down process. F-6 BE INCORPORATED Notes to Unaudited Unaudited Consolidated Financial Statements (continued) Principles of consolidation These uanudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. Foreign currency translation The functional currency of the Company's foreign subsidiary is the U.S. Dollar. Nonmonetary assets and liabilities are remeasured into U.S. Dollars at historical rates, monetary assets and liabilities are remeasured at exchange rates in effect at the end of the year and income statement accounts are remeasured at average rates for the period. Remeasurement gains and losses of the Company's foreign subsidiary are included in the results of operations and are not significant. Use of estimates The preparation of unaudited financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Financial instruments The Company considers all highly liquid investments with an original or remaining maturities of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents are deposited with two major banks in the United States. Deposits in these banks may exceed the amount of insurance provided on such deposits. The Company has not experienced any losses on its deposits of its cash and cash equivalents. Management has classified all of its short-term investments as available for sale. Realized gains and losses are calculated using the specific identification method. Realized gains and losses in 2001, 2000 and 1999 were not significant. The Company had no short-term investments at December 31, 2001 and unrealized gains and losses at December 31, 2000 and 1999 are shown in the Consolidated Statements of Operations and Stockholders' Equity (Deficit) - Unaudited. The carrying amounts of certain of the Company's financial instruments, including cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to their short maturities. The fair value of short term investments is set forth in note 4 of Notes to the Unaudited Consolidated Financial Statements. Certain risks and concentrations Although the Company filed a certificate of dissolution on March 15, 2002 with the State of Delaware, it will continue to exist for three years following this date or for such longer period as the Delaware Court of Chancery shall direct for the purpose of prosecuting and defending lawsuits and enabling Be to close its business, to dispose of its property, to discharge its liabilities and to distribute to its stockholders any remaining assets. Under Delaware law, in the event Be fails to create an adequate contingency reserve for payment of its expenses and liabilities during this period, each Be stockholder could be held liable for payment to Be's creditors of such stockholder's pro rata share of amounts owed to creditors in excess of the contingency reserve. The liability of any stockholder would be limited to the amounts previously received by such stockholder from Be (and from any liquidating trust or trusts). As a result, a stockholder could be required to return all distributions previously made to such stockholder and would receive no amounts from Be under the Plan of Dissolution. Moreover, in the event a stockholder has paid taxes on amounts previously received, a repayment of all or a portion of such amount could result in a stockholder incurring a net tax cost if the stockholder's repayment of an amount previously distributed does not cause a commensurate reduction in taxes payable. Although Be intends to exercise caution in setting up its contingency reserve and making distributions to stockholders, there can be no assurance that the contingency reserve established by Be will be adequate to cover its expenses and liabilities. F-7 BE INCORPORATED Notes to Unaudited Consolidated Financial Statements (continued) Property and equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, generally three years. Upon disposal, the cost of the asset and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations. Depreciation expense for 2001, 2000, and 1999 was $266,000, $347,000 and $287,000, respectively. Accounting for Long-Lived Assets The Company reviews its property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount these assets may not be recoverable. Recoverability is measured by comparison of its carrying amount to future net cash flows the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the projected discounted future cash flows arising from the asset. At each balance sheet date, the unamortized cost of purchased software is compared to the net realizable value of the related software product. The amount by which the unamortized cost exceeds the net realizable value of the software is charged to operations. The net realizable value of the software product is determined by estimating future gross revenues and reduced by the estimated future costs of selling the product. Income taxes The Company accounts for its income taxes in accordance with the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. Advertising costs Advertising costs, included in sales and marketing expenses, are expensed as incurred and were nil, $73,000 and $154,000 in 2001, 2000 and 1999, respectively. Research and development costs Costs incurred in the research and development of new software products are expensed as incurred, including minimum payments made and due to third parties for technology incorporated into the Company's product, until technological feasibility is established. Development costs are capitalized beginning when a product's technological feasibility has been established and ending when the product is available for general release to customers. Products and enhancements generally reached technological feasibility and were released for sale at substantially the same time. F-8 BE INCORPORATED Notes to Unaudited Consolidated Financial Statements (continued) Revenue recognition In 2001, the Company's revenue was primarily derived from BeIA integration services and revenue-related consulting services, the latter being performed under a funding agreement that was entered into on August 16, 2001 in connection with the sale of substantially all of the Company's assets to Palm. In the second half of 2000, the Company's revenue was primarily derived from royalties on sales of BeOS by third-party publishers. In prior periods, revenue was generated from licensing fees on sales to end-users either by direct-order on the Company's web site or sales by distributors. The Company recognized product revenues from orders on the Company's web site upon shipment, provided a credit card authorization was received, the fee was fixed and determinable, collection of resulting receivables was probable and product returns were reasonably estimable. The Company used a standard shrink wrap license for all of its sales. Under the license, the Company was obligated to provide limited telephone support to end users who purchase the Company's product and provided a 5-day money back guarantee. The Company accrued the costs of providing telephone support upon shipment of the product based on the historical cost of providing such support to its customers. In addition, upon shipment of its product, the Company recorded an allowance for estimated sales returns. Product revenues for sales to its distributors were recognized upon sell through to an end user provided a signed contract existed, the fee was fixed and determinable and collection was probable. The Company recognized revenue from these distributors upon sale by the distributors to an end user because the Company did not have sufficient experience with the distributors to reasonably estimate returns. During 1999, under certain circumstances, the Company offered an upgrade to its product in conjunction with product sales at no additional charge. Generally, such rights were offered prior to new versions being released and gave the customers who purchase products between established dates the right to such an upgrade. Revenue was allocated to an upgrade right based on the price for upgrades when sold separately. The Company recognized upgrade revenue when the criteria for product revenue recognition from end users set forth above are met. At December 31, 2001, deferred revenue consisted primarily of sales transaction for which collection was uncertain. At December 31, 2000, deferred revenue consisted primarily of prepaid royalties for BeIA. At December 31, 1999, deferred revenue consisted of revenue related to distributor sales not sold through to end users. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 10, or SAB 101, "Revenue Recognition in Financial Statements," which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. The Company adopted SAB 101 in the fourth quarter of 2000. The adoption of SAB 101 did not have a material impact on the Company's financial position or results of operations. Stock-based compensation The Company accounts for stock based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25, or APB 25, "Accounting for Stock Issued to Employees" as interpreted by FIN 44, "Accounting for Certain Transactions involving Stock Compensation, No. 25"and Financial Accounting Standards Board Interpretation ("FIN") No.28, "Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans," and complies with the disclosure provisions of Statement of Financial Accounting Standards No. 123, or SFAS 123, "Accounting for Stock-Based Compensation." Under APB 25, compensation expense is based on the difference, if any, on the date of grant, between the estimated fair value of the Company's common stock and the exercise price. SFAS 123 defines a "fair value" based method of accounting for an employee stock option or similar equity investment. The pro forma disclosures of the difference between the compensation expense included in net loss and the related cost measured by the fair value method are presented in Note 7. The Company accounts for equity instruments issued to nonemployees in accordance with the provisions of SFAS 123 and Emerging Issues Task Force 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services." F-9 BE INCORPORATED Notes to Unaudited Consolidated Financial Statements (continued) Comprehensive income (loss) Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The differences between net loss and comprehensive loss are shown in the Unaudited Consolidated Statements of Operations. Net loss per common share Basic net loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of vested common shares outstanding for the period. Diluted net loss per common share is computed giving effect to all dilutive potential common shares, including options, warrants and preferred stock. Options, warrants and preferred stock were not included in the computation of diluted net loss per common share in 2001, 2000 and 1999 because the effect would be antidilutive. A reconciliation of the numerator and denominator used in the calculation of basic and diluted net loss per common share follows (in thousands, except per share data):
2001 2000 1999 ------ ------ ------ Net loss per common share, basic and diluted: Net loss ........................................ $ (6,342) $(21,152) $(24,506) Accretion of mandatorily redeemable convertible preferred stock .............................. -- -- (292) ------ ------ ------ Numerator for net loss per common share, basic and diluted ........... (6,342) (21,152) (24,798) Denominator for basic and diluted loss per common share: Weighted average common shares outstanding ............................. 36,762 35,533 17,589 ======== ======== ======== Net loss per common share basic and diluted ..... $ (0.17) $ (0.60) $ (1.41) ======== ======== ======== Antidilutive securities: Options to purchase common stock ........... 3,207 5,911 6,010 Common stock subject to repurchase ......... 35 222 499 Preferred stock ............................ -- -- -- Warrants ................................... 1,538 2,130 2,585 ------ ------ ------ 4,780 8,263 9,094 ======== ======== ========
F-10 BE INCORPORATED Notes to Unaudited Consolidated Financial Statements (continued) Recent accounting pronouncements In June 2001, the Financial Accounting Standards Board issued FAS No. 141 Business Combinations ( FAS 141 ) and FAS No. 142 Goodwill and Other Intangible Assets ( FAS 142 ). FAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. FAS 141 also specifies the criteria applicable to intangible assets acquired in a purchase method business combination to be recognized and reported apart from goodwill. FAS 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment, upon initial adoption of the standard and then annually. FAS 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and be reviewed for impairment. In August 2001, the FASB issued SFAS No. 143 Accounting for Asset Retirement Obligations. SFAS No. 143 requires, among other things, retirement obligations to be recognized when they are incurred and displayed as liabilities, with a corresponding amount capitalized as part of the related long-lived asset. The capitalized element must be expensed over its useful life using a systematic and rational method. The adoption of SFAS No. 143 is not expected to have a significant impact on the Company's financial position, results of operations or cash flows. In October 2001, the FASB issued SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets, which is required to be applied starting with fiscal years beginning after December 12, 2001. SFAS No. 144 requires, among other things, the application of one accounting model for long-lived assets that are impaired or to be disposed of by sale. The adoption of SFAS No. 144 is not expected to have a significant impact on our financial position, results of operations or cash flows. Reclassifications Certain prior year amounts have been reclassified for consistency with current year financial statement presentation. F-11 BE INCORPORATED Notes to Unaudited Consolidated Financial Statements (continued) NOTE 3--DISPOSALS: Asset Sale to Palm On August 16, 2001, the Board of Directors of the Company unanimously adopted resolutions approving the sale of substantially all of the Company's intellectual property and other technology assets to ECA Subsidiary Acquisition Corporation, a Delaware corporation and an indirect wholly-owned subsidiary of Palm, Inc., pursuant to an Asset Purchase Agreement dated August 16, 2001. On October 9, 2001, the Company filed a definitive proxy statement soliciting stockholder approval for the Asset Sale and the dissolution of the Company pursuant to a plan of dissolution (the "Plan of Dissolution"). The Plan of Dissolution provides for the orderly liquidation of Be's remaining assets, the winding-up of Be's business and operations and the dissolution of the Company. In accordance with the terms of the Plan of Dissolution, Be will pay, or provide for the payment of, all of its liabilities and obligations following the approval of the Board to proceed with the liquidation and dissolution of the Company. If there are any remaining assets after the payment, or the provision for payment, of all of its liabilities and obligations, Be will then distribute such assets to its stockholders in one or more distributions. At a special meeting of stockholders held on November 12, 2001, the stockholders of Be approved the Asset Sale and the Plan of Dissolution. The Asset Sale was completed on November 13, 2001. Under the terms of the Purchase Agreement, Be received an aggregate of 4,104,478 shares of Palm common stock valued at approximately $11,000,000 on the closing date of the transaction. The gain on the asset sale to Palm is as follows (in thousands): Total gross proceeds.............................................. $11,000 ======= Severance agreements and bonuses.................................. 3,100 Bankers' fees..................................................... 1,250 Broker's fees..................................................... 900 Legal and accounting fees......................................... 534 Non-cash expense related to stock bonuses........................ 202 Other expenses.................................................... 131 --- Net gain on asset sale............................................ $4,883 ====== As part of its employee recruiting and retention plan, Be had a policy of entering into change of control agreements with certain employees considered to be critical to effectuating a transaction such as the Asset Sale with Palm. Several senior executive officers and key employees of the Company were parties to these change of control agreements at the time of the closing of the Asset Sale. Pursuant to the terms of the agreements, these executive officers and key employees were paid a lump sum severance payment equal to twelve months base salary as well as the continuation of certain health insurance benefits. In addition, in order to further assure the dedication and continued efforts of Be's executives through the critical transition period up to the closing of the Asset Sale, the Board of Directors of the Company approved grants of shares of common stock of Be in the form of stock bonuses to certain employees, including some executive officers, still employed with Be at the closing of the Asset Sale or who may be terminated by the Company without cause after July 30, 2001. In addition to these stock bonuses, the Board approved an aggregate of $867,000 in incentive cash bonuses to certain designated employees, including certain executive officers, for continuing to provide services to Be through the transition period, and to assist the Company in fulfilling a condition to the closing of the Asset Sale that specified that certain employees of Be, and a specified percentage of Be's remaining employee workforce, remain employees of the Company and accept employment with Palm as of the closing. The aggregate charge against the net gain on the Asset Sale related to severance agreements and bonuses for certain of the Company's executive officers and key employees (including non-cash expenses) was approximately $3.3 million. Service fees related to banker, broker, legal and accounting fees accounted for approximately $2.7 million in additional charges. Other miscellaneous expenses related to the transaction accounted for approximately $131,000. F-12 BE INCORPORATED Notes to Unaudited Consolidated Financial Statements (continued) NOTE 4--BALANCE SHEET ACCOUNTS:
December 31, 2001 2000 ---- ---- Cost Fair Value Cost Fair Value -------- -------- -------- -------- Cash and cash equivalents Cash..................................................... $ 4 $ 4 $ 426 $ 426 Money Market............................................. 5,377 5,377 8 8 Repurchase Agreements.................................... -- -- 6,785 6,785 Corporate Obligations.................................... -- -- 1,250 1,250 Commercial paper......................................... 994 994 $ 5,381 $ 5,381 $ 9,463 $ 9,463 ======== ======== ======== ========
December 31, 2001 2000 ---- ---- Cost Fair Value Cost Fair Value -------- -------- -------- -------- Short-term investments Federal government obligations......................... -- -- -- -- Corporate debt obligations............................. -- -- -- -- Commercial paper......................................... $ 4,593 4,594 --------------- --------------- --------- ----- -- -- $ 4,593 $ 4,594 =============== =============== ========= ========
All short-term investments mature within one year. F-13 BE INCORPORATED Notes to Unaudited Consolidated Financial Statements (continued) December 31, 2001 2000 ----- ---- Property and equipment, net Computer equipment ......................................... $ 21 $ 1,124 Furniture and fixtures ..................................... -- 390 ------- ------- 21 1,514 Less: accumulated depreciation ............................. (19) (1,123) ------- ------- $ 2 $ 391 ======= ======= Accrued expenses License and royalty liabilities ............................ $ 37 $ 70 Payroll and related ........................................ -- 932 Other ...................................................... 57 500 ------- ------- $ 94 $ 1,502 ======= ======= Other assets, net Technology licenses ........................................ $ -- $ 3,520 Deposits ................................................... 24 24 ------- ------- 24 3,544 Less: accumulated amortization ............................. -- (2,496) ------- ------- $ 24 $ 1,048 ======= ======= Beginning in 1998, the Company entered into other technology license agreements including non cancelable minimum payments. The present value of payments due under these agreements (see Note 6) was recorded as an asset and amortized over the lesser of the term of the agreement or three years, if technological feasibility was established at the date the agreement was signed or as research and development costs if technological feasibility had not been established and there was no alternative future use for the licensed technology. During 2001, 2000 and 1999, costs capitalized under these agreements were nil, $100,000 and $809,000, respectively. F-14 BE INCORPORATED Notes to Unaudited Consolidated Financial Statements (continued) NOTE 5--DISSOLUTION OF THE COMPANY: On March 15, 2002, the Company filed a certificate of dissolution with the Delaware Secretary of State in accordance with the plan of dissolution approved by stockholders on November 12, 2001 and as set forth in the Definitive Proxy Statement filed on October 9, 2001. Following such filing, the Company adopted liquidation accounting. Set forth below is the Company's pro forma balance sheet as of December 31, 2001, as if the certificate had been filed on that date. Under liquidation accounting, all assets and liabilities are stated at realizable value unlike under going concern accounting where assets and liabilities are stated at historical value. PRO FORMA STATEMENT OF NET ASSETS IN LIQUIDATION (IN THOUSANDS)
Historical Pro Forma December 31, Adjustments December 31, 2001 2001 ------------ ----------- ------------ Assets Current assets: Cash and cash equivalents....................................... $ 5,381 $ - $ 5,381 Accounts receivable............................................. 66 (66) - Prepaid and other current assets................................ 1,363 (1,363) (a) - ------- ------ ----- Total current assets........................................ 6,810 (1,429) 5,381 Property and equipment, net............................................ 2 - 2 Other assets, net of accumulated amortization.......................... 24 24 ------- ------ ----- Total assets................................................ $ 6,836 (1,429) 5,407 ======= ======= ===== Liabilities Current liabilities: Accounts payable................................................ $ 96 - $ 96 Accrued expenses................................................ 94 300 (b) 394 Technology license obligations, current portion................. 815 - 815 Deferred revenue................................................ 56 (56) - ------- ------ ----- Total current liabilities................................... 1,061 244 1,305 ------- ------ ----- Stockholders' Equity: Common stock, $.001 par value:......................................... 38 (38) - Additional paid-in capital............................................. 106,493 - (106,493) Deferred stock compensation.......................................... (39) 39 - Accumulated deficit.................................................. (100,717) 100,717 - ------- ------ ----- Total stockholders' equity.................................. 5,775 (5,775) - ------- ------ ----- Total liabilities......................................... $ 6,836 $(5,775) 1,305 ------- ------ ----- Net assets in liquidation................................. -- -- $ 4,102 ======= ======= =====
(a) This amount is primarily related to liability insurance contracted for in accordance with the dissolution process and discussed in the Definitive Proxy Statement filed on October 9, 2001 (b) This amount represents estimated costs to liquidate the company according to the plan of dissolution and consists primarily of $150,000 in professional services and $130,000 in salary costs. F-15 BE INCORPORATED Notes to Unaudited Consolidated Financial Statements (continued) NOTE 6--COMMITMENTS AND CONTINGENCIES: Lease commitments The Company leased its facilities under non cancelable operating leases that expired in February 2002. In February 2002, the company entered into a renewable 6 month lease for a small office with a monthly lease payment of approximately $1,300 per month. Future annual minimum lease payments as of December 31, 2001 are as follows (in thousands): 2002.......................................................... $ 200 Thereafter.................................................. - ------ $ 200 ------ Total rent expense was $1,262,000, $1,308,000 and $1,168,000 for 2001, 2000 and 1999, respectively. In addition, the Company has entered into several technology licensing agreements which include non cancelable payments. These payments have been recorded at the net present value using a discount rate of 10% per annum. The future minimum payments under these agreement are as follows: 2002 $ 840 ---- 840 Less discount...................................................... (25) --- 815 Less current portion............................................... - ----- $ 815 ===== Contingencies Stockholder lawsuit As previously disclosed in the Company's filings with the Securities and Exchange Commission, in November 2000, the Company's stock transfer agent, Wells Fargo Bank Minnesota, N.A., received a demand letter from Financial Square Partners, a Be stockholder, alleging damages resulting from the transfer agent's failure to timely issue its stock certificates. While Be was not named as a party in such demand letter, Be was named as a party on the stockholder's draft claim attached to the demand letter. On May 9, 2001, the claim was in fact filed, naming Be and Wells Fargo Bank Minnesota, N.A. as defendants, and is currently active in the Superior Court of California. A settlement conference occurred in April 2002 and negotiations are ongoing. A trial, if required, is scheduled for June. Financial Square Partners is seeking damages in the amount of approximately $2.4 million. Prior to this filing, the Company had been participating in communications with the parties involved in an effort to resolve the matter prior to a lawsuit being filed. Be management continues to believe that the allegations as they relate to Be in the filed claim are without merit and intends to defend Be against this legal action. However, there can be no assurance this claim will be resolved without costly litigation, or require Be's participation in the settlement of such claim, in a manner that is not adverse to our financial position, results of operations or cash flows. No estimate can be made of the possible loss or possible range of loss associated with the resolution of this contingency. If Be were held liable, it is our intent to seek reimbursement under our D&O insurance policy. Antitrust lawsuit On February 15, 2002, Be engaged Susman Godfrey LLP on a contingency basis to bring forth claims against Microsoft Corporation for the destruction of Be's business resulting from anticompetitive business practices. On February 19, 2002, the Company filed a lawsuit in the United States District Court in San Francisco alleging, among other things, Microsoft harmed Be through a series of illegal, exclusionary and anticompetitive acts designed to maintain its monopoly in the Intel-compatible PC operating system market and created exclusive dealing arrangements with PC OEMs prohibiting the sale of PCs with multiple preinstalled operating systems. Be is seeking recovery of an unspecified amount of damages for the benefit of the Company and its stockholders. F-16 BE INCORPORATED Notes to Unaudited Consolidated Financial Statements (continued) NOTE 7--STOCKHOLDERS' EQUITY: Initial Public Offering In July 1999, the Company completed its initial public offering and sold 6,000,000 shares of its common stock at a price of $6.00 per share. The Company received approximately $32.2 million in cash, net of underwriting discounts, commissions and other offering expenses. Simultaneously with the closing of the initial public offering, the Company's mandatorily redeemable convertible preferred stock outstanding at December 31, 1998 automatically converted into 22,498,874 shares of common stock. In August 1999, the underwriters exercised their over-allotment option and the Company sold an additional 557,465 shares of its common stock at a price of $6.00 per share, thereby raising proceeds of approximately $3.1 million, net of underwriting discounts. Prior to the Company's voluntary delisting on March 15, 2002, the Company's shares were traded on the Nasdaq national market system under the symbol "BEOS". The Company's shares now trade on the over-the-counter market under the symbol "BEOSZ". Mandatorily Redeemable Convertible Preferred Stock On closing of the Company's initial public offering in July 1999, the Company's mandatorily redeemable preferred stock automatically converted into 22,498,874 shares of common stock (see above). Changes in the mandatorily redeemable convertible preferred stock during 1999 were as follows (in thousands): Amount Balance, January 1, 1999.................................. $ 38,005 Accretion to redemption value........................ 292 Conversion to common stock........................... (38,297) ------- Balance, December 31, 1999................................. $ -- ======= F-17 BE INCORPORATED Notes to Unaudited Consolidated Financial Statements (continued) Warrants The Company has issued fully exercisable warrants to purchase shares of its common stock. None of these warrants were exercised prior to 1999. Warrant activity can be analyzed as follows:
Number Number Number Number of Warrants Number of Warrants of Shares of Warrants Outstanding at of Warrants Outstanding at Issuance Date Expiration Exercise Price Under the Exercised in 1999 December 31,1999 Exercised in 2000 December Date Per share warrants 31,2000 ------------- ----------- -------- --------- ----------------- ---------------- ----------------- -------- April 1996 March 2001 $1.00 1,219,648 173,546 1,046,102 454,625 591,477 December 1998 December 2003 $3.25 1,538,462 -- 1,538,462 -- 1,538,462 May and December 1998 June 17, 2000 $3.58 112,865 112,865 -- -- -- ---------- ------- --------------- --------- ---------- 2,870,975 286,411 2,584,564 454,625 2,129,939 ========= ======= ========= ======= =========
Number Number of Warrants Number Number of Warrants Outstanding at of Warrants of Warrants Outstanding at Issuance Date Expiration Exercise Price December Exercised in Expired in 2001 December 31, 2001 Date Per share 31, 2001 2001 ------------- ----------- --------- --------- ------------- --------------- ----------------- April 1996 March 2001 $1.00 591,477 179,291 412,186 -- December 1998 December 2003 $3.25 1,538,462 -- -- 1,538,462 May and December 1998 June 17, 2000 $3.58 -- -- -- -- -------------- -------------- -------------- -------------- 2,129,939 179,291 412,186 1,538,462 ========= =========== ============= =============
The December 1998 warrants were issued in connection with the issuance of Series 2 preferred stock in December 1998. The May and December 1998 warrants were issued for investment banker fees related to the issuance of the Series 2 preferred stock. F-18 BE INCORPORATED Notes to Unaudited Consolidated Financial Statements (continued) 1992 Stock Option Plan In 1992 the Company adopted a stock option plan (the "1992 Plan") under which 5,000 shares of the Company's common stock had been reserved for issuance of stock options to employees, directors, or consultants under terms and provisions established by the board of directors. In 1997 and 1998, the Company reserved an additional 5,995,000 shares and 2,000,000 shares, respectively, for issuance under the 1992 Plan. Options granted under the 1992 Plan are immediately exercisable; however, shares exercised under the 1992 Plan are subject to the Company's right of repurchase at the end of the holder's association with the Company. The Company's right of repurchase generally lapses as to 20% of the shares one year from the date of grant and (1)/60th each month thereafter or as to 25% of the shares one year from the date of grant and (1)/48th each month thereafter. The options expire ten years from the date of grant. On March 30, 1999, the board of directors terminated the 1992 Plan. 1999 Equity Incentive Plan On March 30, 1999 the Company adopted the Equity Incentive Plan (the "1999 Plan") under which a total of up to 8,000,000 shares of common stock were initially reserved for issuance. This number of shares initially reserved was reduced by the 1,943,347 shares reserved for issuance under options then outstanding under the 1992 Plan. If any of these 1,943,347 options are cancelled, the number of shares reserved under the 1999 Plan will be increased by the number of such cancellations. In addition, at the end of each year an additional number of shares will automatically be added to the number of shares already reserved for issuance under the 1999 Plan. This additional number of shares will be not more than the lesser of 5% of the number of shares of the Company's issued and outstanding common stock as of year end or the number equal to 8% of the number of shares of common stock issued and outstanding at year end less the number of shares of common stock reserved for issuance under the 1999 Plan but not subject to outstanding awards. The 1999 Plan provides for the grant of incentive stock options, non-qualified stock options, restricted stock purchase rights and stock bonuses to employees, consultants and directors. Incentive stock options may be granted only to employees. The exercise price of incentive stock options granted under the 1999 Plan must be at least equal to the fair market value of the Company's common stock on the date of grant. The exercise price of non-qualified stock options is set by the administrator of the 1999 Plan, but can be no less than 85% of the fair market value. The maximum term of options granted under the 1999 Plan is ten years. Options granted under the terms of the 1999 Plan become exercisable as to 25% of the shares awarded after one year and (1)/48th of the award monthly thereafter. Due to the cessation of the Company's business operations, the Company no longer expects to grant stock options under the 1999 Plan. F-19 BE INCORPORATED Notes to Unaudited Consolidated Financial Statements (continued) Activity under the Company's Plans is set forth below (in thousands, except per share and share numbers):
Options Outstanding ----------------------------------------------------- Average Weighted Available Price per Exercise for Grant Shares Share Amount Price --------- ------ --------- ------ -------- Balance, January 1, 1999...................... 351,488 2,204,927 0.10-0.35 $ 645 $ 0.29 Options authorized March................. 5,524,813 -- -- -- -- Options authorized December........... 298,435 -- -- -- -- Options granted.......................... (4,328,000) 4,328,000 0.35-14.38 22,726 5.25 Options exercised........................ -- (294,548) 0.10-5.00 (64) 0.22 Options terminated....................... 928,657 (928,657) 0.10-6.25 (2,875) 3.10 ------- -------- ------ Balance, December 31, 1999 ................... 2,775,393 5,309,722 0.10-14.38 20,432 $3.85 Options authorized....................... 1,810,145 -- -- -- -- Options granted.......................... (3,961,500) 3,961,500 1.00-17.88 32,112 8.11 Options exercised........................ -- (911,110) 0.10-12.88 (2,226) 2.44 Options terminated....................... 1,870,409 (1,870,409) 0.10-14.44 (13,662) 7.30 ---------- ------------- ------ Balance, December 31, 2000 ................. 2,494,447 6,489,703 0.10-17.88 36,656 $ 5.65 Options authorized....................... 2,108,580 -- -- -- -- Stock bonus awards........................ (1,693,484) -- -- -- -- Options granted.......................... (231,000) 231,000 0.49-1.97 360 1.56 Options exercised........................ -- (71,569) 0.10-1.00 (21) 0.29 Options terminated....................... 3,935,575 (3,935,575) 0.10-17.875 (21,939) 5.57 ---------- ------------- ------ Balance, December 31, 2001 ................... 6,614,118 2,713,559 $0.10-$14.75 $15,056 $ 5.55 ========= ========= =======
On November 13, 2001, following the closing of the Asset Sale to Palm, the Company granted 1,693,484 shares to employees under a conditional stock award program entered into on April 19, 2001. At December 31, 2001, 2000 and 1999, 2,769,941, 2,339,767 and 2,435,895 outstanding options were exercisable at weighted average exercise prices of $5.40, $4.52 and $2.01. Of these shares, nil shares, 295,869 shares and 848,685 shares at weighted average exercise prices of nil, $0.33 and $0.33, respectively, are subject to the Company's right of repurchase upon exercise. In addition, 35,480, 221,743 and 499,069 shares of the Company's outstanding common stock is subject to the Company's right of repurchase at weighted average prices of $0.25, $0.29 and $0.24, respectively. 1999 Non-Employee Directors' Stock Option Plan On March 30, 1999 the board of directors also adopted the Non-Employee Directors' Stock Option Plan (the "Directors' Plan"), and have reserved a total of 1,500,000 shares of common stock for issuance thereunder. The exercise price of options under the Directors' Plan will be equal to the fair market value of the common stock on the date of grant. The maximum term of the options granted under the Directors' Plan is ten years. Each initial grant under the Directors' Plan will vest at 1/4th of the shares subject to the option one year after the date of grant and (1)/48th of the shares each month thereafter. The rate of vesting of each subsequent grant will be (1)/48th of the shares on a monthly schedule after the date of grant. The board may amend (subject to stockholder approval as necessary) or terminate the Directors' Plan at any time. Due to the cessation of the Company's business operations, the Company no longer expects to grant stock options under this plan. F-20 BE INCORPORATED Notes to Unaudited Consolidated Financial Statements (continued) Activity under the 1999 Non-Employee Directors' Stock Option Plan is set forth below (in thousands, except per share and share numbers):
Options Outstanding ------------------------------------------------------ Average Weighted Available Price per Exercise for Grant Shares Share Amount Price ---------- -------- ---------- -------- --------- Options authorized............................. 1,500,000 -- $ -- $ -- $ -- Options granted................................ (700,000) 700,000 5.00-5.75 3,575 5.11 --------- ------- ----- Balance, December 31, 1999..................... 800,000 700,000 5.00-5.75 3,575 5.11 Options granted................................ (100,000) 100,000 16.13 1,612 16.13 Options terminated............................. 90,625 (90,625) 5.00 (453) 5.00 ------ -------- ----- Balance, December 31, 2000..................... 790,625 709,375 $5.00-16.13 $4,734 $ 6.67 Options terminated............................. 215,625 (215,625) 5.00-5.75 (1,116) 5.17 ------- --------- ------- Balance, December 31, 2001..................... 1,006,250 493,750 $5.00-16.13 $3,618 $ 7.33 ========= ======= ======
At December 31, 2001, 2000 and 1999, 392,708, 285,416 and nil options outstanding were exercisable at weighted average exercise prices of $6.39, $5.08 and nil, respectively. F-21 BE INCORPORATED Notes to Unaudited Consolidated Financial Statements (continued) Options Outstanding The options outstanding and currently exercisable by exercise price at December 31, 2001 are as follows:
Options Outstanding Options Exercisable ----------------------------------- ---------------------- Weighted Average Weighted Weighted Remaining Average Average Number Contractual Exercise Number Exercise Exercise Prices Outstanding Life (years) Price Exercisable Price --------------- ----------- ------------ ----- ------------ ----- $0.10-0.35.................................... 641,905 6.83 $0.49 596,342 $0.45 $1.00-4.56.................................... 188,667 8.66 4.17 181,583 $4.22 $5.00-5.75.................................... 1,464,676 7.27 5..06 1,329,116 $5.06 $6.00-9.00.................................... 346,079 8.05 7.26 266,129 $7.22 $12.88-17.88.................................. 565,982 8.09 13.51 396,771 $13.32 ------- ------- 3,207,309 7.49 $5.75 2,769,941 $5.40 ========= =========
Deferred stock compensation In accordance with the requirements of APB 25, the Company has recorded deferred compensation for the difference between the exercise price of the stock options granted before its initial public offering and the fair market value of the Company's stock at the date of grant. This deferred compensation is amortized to expense over the period during which the Company's right to repurchase the stock lapses or the options become exercisable, generally four or five years, using the multiple options method. At December 31, 2001, the Company had recorded deferred compensation related to these options in an amount of $12,591,000 (net of cancellations), of which $(1,996,000), $2,613,000 and $6,233,000 had been amortized to expense during 2001, 2000 and 1999. During 1999, options to purchase 4,173,000 shares of the Company's common stock were granted with exercise prices below the estimated market value at the date of grant; the weighted average exercise prices were $4.98 per share and the deemed weighted average market values of the common stock was $6.81 per share, respectively. During 2000 and 2001, all options were granted with an exercise price equal to the fair market value of the underlying common stock on the date of grant. Value of Options Granted The fair value of each option grant is estimated on the date of grant using a type of Black-Scholes option pricing model with the following assumptions used for grants: 2001 2000 1999 ----- ----- ---- Expected volatility........... 163% 142% 0% and 60% Weighted average risk-free interest rate.............. 4.50% 6.21% 4.80% Expected life................. 2 years 2 years 2 years Expected dividends............ 0% 0% 0% For the period prior to the Company's Initial Public Offering, volatility for the purposes of the SFAS No. 123 calculation was 0%. Based on the above assumptions, the aggregate fair value and weighted average fair value per share of options granted in 2001, 2000 and 1999 were $328,000, $29,359,000 and $13,919,000, and $1.42, $7.24 and $2.77, respectively. F-22 BE INCORPORATED Notes to Unaudited Consolidated Financial Statements (continued) Employee Stock Purchase Plan On May 4, 1999 the Company adopted an Employee Stock Purchase Plan (the "Purchase Plan"). The Company has reserved a total of 1,500,000 shares of common stock for issuance under the Purchase Plan. Under the terms of the Purchase Plan, employees who work at least 20 hours a week and have been employed for at least five months in a calendar year may contribute, during an offering period, a specified percentage, not to exceed 15%, of their compensation to purchase shares of common stock of the Company. Each offering period runs for a period of 24 months and will be divided into consecutive purchase periods of approximately six months. New offering periods commence every six months on August 1st and February 1st each year. The price of the common stock purchased under the Purchase Plan is equal to 85% of the fair market value of the common stock on the first day of the applicable offering period or the last day of the applicable purchase period whichever is lower. No person may purchase shares under the Purchase Plan to the extent that such person would own 5% or more of the total combined value or voting power of all classes of the capital stock of the Company or to the extent that such person's rights to purchase stock under stock purchase plans would accrue at a rate in excess of $25,000 per year. The first purchases under the Purchase Plan occurred in 2000, during which 166,914 shares were issued under the Purchase Plan at a weighted average purchase price of $4.21. In 2001, 343,262 shares were issued under the Purchase Plan at a weighted average purchase price of $1.13. At December 31, 2001, 989,824 shares were reserved for future issuance under the Purchase Plan. Due to the cessation of the Company's business operations, the Company no longer expects any shares of stock to be purchased under the Purchase Plan. Under SFAS No. 123, compensation cost is also recognized for the fair value of employee's purchase rights under the Employee Stock Purchase Plan, which was estimated using the following assumptions 2001 2000 1999 ----- ----- ---- Expected volatility.................. 163% 142% 60% Weighted average risk-free interest rate.................... 4.31% 6.18% 4.80% Expected life........................ 6 months 6 months 6 months Expected dividends................... 0% 0% 0% Based on the above assumptions, the aggregate fair value and weighted average fair value per share of those purchase rights granted in 2001, 2000 and 1999 was $43,000, $417,000 and $140,000, and $1.19, $3.45 and $1.94, respectively. . Pro forma stock compensation Had compensation cost been determined based on the fair value at the grant date for the awards made in 1995 and thereafter under the Company's stock option plans and employee stock purchase plan consistent with the provisions of SFAS No. 123, the Company's net loss would have been as follows (in thousands, except per share amounts):
2001 2000 1999 ----- ----- ---- Net loss attributable to common stockholders--as reported......................... $(6,342) $(21,152) $(24,798) Net loss attributable to common stockholders--pro forma........................... $(6,399) $(31,855) $(27,039) Net loss per common share--basic and diluted as reported.......................... $ (0.17) $ (0.60) $ (1.41) Net loss per common share--basic and diluted pro forma............................ $ (0.17) $ (0.90) $ (1.54)
Such pro forma disclosures may not be representative of future compensation cost because options vest over several years and additional grants are made each year. F-23 BE INCORPORATED Notes to Unaudited Consolidated Financial Statements (continued) NOTE 8--INCOME TAXES: The components of the net deferred tax asset are as follows (in thousands): December 31, 2001 2000 ----- ----- Net operating loss carryforwards........... $ 30,905 $ 27,492 Tax credit carryforwards................... 1,770 1,770 Property and equipment and intangibles..... 49 Other....................................... - 53 ------ ------- 32,675 29,364 Less: valuation allowance...................... (32,675) (29,364) ------- ------- Net deferred tax asset.......................... $ -- $ -- ======= ======= Due to uncertainty surrounding the realization of the favorable tax attributes in future tax returns, the Company has placed a valuation allowance against its net deferred tax assets. The valuation allowance increased $3.3 million in 2001, $9.4 million in 2000 and $7.9 million in 1999. The principal items accounting for the difference between income taxes benefit at the U.S. statutory rate and the benefit from income taxes reflected in the statement of operations are as follows (in thousands): 2001 2000 1999 ---- ----- ---- Federal benefit at statutory rate.. $ 2,156 $ 7,192 $ 8,332 Nondeductible expenses............. 679 (890) (2,242) Net operating losses and benefits.. (2,835) (6,302) (6,090) ------ ------ ------ $ -- $ -- $ -- ======= ======= ====== At December 31, 2001, the Company had approximately $81,745,000 of net operating loss carryforwards and $1,272,000 of research and development credits to offset future federal income taxes. The Company also had approximately $47,718,000 of net operating loss carryforwards and $498,000 of research and development credits to offset future state income taxes. Included in the net operating loss carryforwards referred to above, there are approximately $7,181,000 and $3,591,000 of net operating loss carryforwards for federal and state purposes, respectively, as of December 31, 2001, which relate to stock option deductions. The tax benefit of these additional losses will be credited to additional paid in capital if the Company's deferred tax asset is recognized. These carryforwards expire in the years 2005 through 2021 if not utilized. Due to changes in ownership, the Company's net operating loss and credit carryforwards may become subject to certain annual limitations. F-24 BE INCORPORATED Notes to Unaudited Consolidated Financial Statements (continued) NOTE 9--401(k) PROFIT SHARING PLAN: The Company has a 401(k) Profit Sharing Plan which covers all employees. Under the Plan, employees are permitted to contribute up to 15% of gross compensation not to exceed the annual limitation for any plan year ($10,500 in 2001). Discretionary contributions may be made by the Company. No contributions were made by the Company during 2001, 2000 and 1999. NOTE 10--GEOGRAPHIC INFORMATION: Management uses one measurement of profitability for its business. The Company markets its products and related services to customers in the United States, Europe and Asia. All long lived assets are maintained in the United States. Revenue information by geographic area is as follows (in thousands): Net Revenues 2001 Americas............................................... $ 2,693 Europe................................................. 10 Asia................................................... 10 ------ Total............................................... $ 2,713 ======= 2000 Americas............................................... $ 370 Europe................................................. 36 Asia................................................... 74 ------ Total............................................... $ 480 ====== 1999 Americas............................................... $ 1,156 Europe................................................. 755 Asia................................................... 745 ------ Total............................................... $ 2,656 ======= F-25 SCHEDULE II BE INCORPORATED VALUATION AND QUALIFYING ACCOUNTS (in thousands)
Additions Balance at Charged to Balance at Beginning Costs and Ending of Period Expenses Deductions of Period Year Ended December 31, 1999 Allowance for sales returns................................. $ 10 $-- $-- $ 10 Deferred tax asset valuation allowance.................... $12,080 $7,889 $-- $19,969 Year Ended December 31, 2000 Allowance for sales returns................................. $ 10 $-- $-- $ 10 Deferred tax asset valuation allowance.................... $19969 $9,395 $-- $29,364 Year Ended December 31, 2001 Allowance for sales returns................................. $ 10 $-- $10 $-- Deferred tax asset valuation allowance.................... $29,364 $ 3,311 $-- $32,675
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