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United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Period Ended September 30, 2003.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Transition Period from __________ to __________.
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 Avenue, Suite 6, Mountain View, California 94041
(Address of principal executive offices, including zip code)
(650) 965-4842
(Registrant's telephone number, including area code)
------------------------
(Former name, former address and former fiscal year,
if changed since last report)
- - ------------------------------------------------------------------------------
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 periods 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 whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, No Par Value --- 38,450,527 shares as of November 5, 2003
- - ------------------------------------------------------------------------------
BE INCORPORATED
Index
PAGE
PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Net Assets in Liquidation at September 30, 2003...........1
Consolidated Statement of Changes in Net Assets in Liquidation for the
period from March 16, 2002 to September 30, 2003....................................2
Condensed Consolidated Balance Sheet at December 31, 2001...........................3
Condensed Consolidated Statements of Operations for the period
from January 1, 2002 to March 15, 2002 and for the three months
ended March 31, 2001................................................................4
Condensed Consolidated Statements of Cash Flows of Operations for
the period from January 1, 2002 to March 15, 2002 and for the three months
ended March 31, 2001................................................................5
Notes to Condensed Consolidated Financial Statements................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Discontinued Operations.............................................................9
Item 3. Quantitative and Qualitative Disclosure about Market Risk..........................15
Item 4. Controls and Procedures............................................................16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................................17
Item 2. Changes in Securities and Use of Proceeds..........................................17
Item 3. Defaults Upon Senior Securities....................................................17
Item 4. Submission of Matters to a Vote of Security Holders................................17
Item 5. Other Information..................................................................17
Item 6. Exhibits and Reports on Form 8-K...................................................17
SIGNATURES ...................................................................................18
CERTIFICATIONS ...................................................................................19
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
BE INCORPORATED
CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION
(In thousands)
(unaudited)
September 30, 2003
------------------
ASSETS
Cash and cash equivalents ....................................... $27,283
Other assets .................................................... 3
-------
Total assets .................................................. $27,286
=======
LIABILITIES
Accounts payable ................................................ $ 36
Technology License obligations .................................. 540
Estimated costs during period of liquidation (Note 2) ........... 2,426
Contingent liabilities (Note 4)
-------
Total liabilities ............................................. 3,002
-------
Net assets in liquidation ..................................... $24,284
=======
The accompanying notes are an integral part
of these financial statements.
-1-
BE INCORPORATED
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
(In thousands)
(Unaudited)
For the period from
March 16, 2002 to
September 30, 2003
-------------------
Net assets in liquidation at March 16, 2002 $ 3,185
Recoveries and refunds, net 76
Earnings on cash and cash equivalents 7
--------
Net assets in liquidation at March 31, 2002 $ 3,268
Recoveries and refunds, net 5
Earnings on cash and cash equivalents 17
--------
Net assets in liquidation at June 30, 2002 $ 3,290
Recoveries and refunds, net (186)
Earnings on cash and cash equivalents 16
--------
Net assets in liquidation at September 30, 2002 $ 3,120
Recoveries and refunds, net (15)
Earnings on cash and cash equivalents 14
--------
Net assets in liquidation at December 31, 2002 $ 3,119
Recoveries and refunds, net (32)
Earnings on cash and cash equivalents 9
--------
Net assets in liquidation at March 31, 2003 $ 3,096
Recoveries and refunds, net (69)
Earnings on cash and cash equivalents 7
--------
Net assets in liquidation at June 30, 2003 $ 3,034
Recoveries and refunds, net 21,240
Earnings on cash and cash equivalents 10
--------
Net assets in liquidation at September 30, 2003 $ 24,284
========
The accompanying notes are an integral part
of these financial statements.
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BE INCORPORATED
Consolidated Balance Sheets - Unaudited
(in thousands, except share and per share amounts)
December 31,
2001
----
Assets
Current assets:
Cash and cash equivalents .................................... $ 5,381
Short-term investments ....................................... --
Accounts receivable .......................................... 66
Prepaid and other current assets ............................. 1,363
------
Total current assets ..................................... 6,810
Property and equipment, net ......................................... 2
Other assets, net of accumulated amortization ....................... 24
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Total assets ............................................. $ 6,836
======
Liabilities and stockholders' equity:
Accounts payable ............................................. $ 96
Accrued expenses ............................................. 94
Technology license obligations ............................... 815
Deferred revenue ............................................. 56
------
Total liabilities ........................................ 1,061
------
Commitments and Contingencies (Note 4)
Stockholders' Equity:
Preferred stock, $.001 par value:
Shares authorized: 2,000,000
Shares issued and outstanding: none
Common stock, $.001 par value:
Shares authorized: 78,000,000 shares
Shares issued and outstanding: 38,486,007................... 38
Additional paid-in capital........................................... 106,493
Deferred stock compensation.......................................... (39)
Accumulated deficit.................................................. (100,717)
Accumulated other comprehensive income (loss)........................ -
------
Total stockholders' equity................................ 5,775
------
Total liabilities and stockholders' equity.............. $ 6,836
=======
The accompanying notes are an integral part
of these financial statements.
-3-
BE INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
For the
Period Three
January 1, Months
2002 to Ending
March 15, March 31,
2002 2001
--------- --------
Net revenues ........................................... - 100
Cost of revenues ....................................... - 251
-------- --------
Gross profit (loss) .................................... - (151)
Operating expenses:
Research and development ............................ - 2,481
Sales and marketing ................................. - 1,618
General and administrative .......................... 551 1,146
Restructuring charge ................................ - 307
Total operating expenses ........................ 551 5,552
-------- --------
Loss from operations ................................... (551) (5,703)
Interest expense ....................................... - (15)
Other income and expenses, net ......................... 6 161
-------- --------
Net loss ............................................... (545) (5,557)
======== ========
Net loss per common share--basic and diluted ........... $ (.01) $ (.15)
======== ========
Shares used in per common share
calculation--basic and diluted ...................... 38,450 36,194
======== ========
The accompanying notes are an integral part
of these financial statements.
-4-
BE INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
For the
Period Three
January 1, Months
2002 to Ending
March 15, March 31,
2002 2001
--------- --------
Cash flows from operating activities:
Net loss ............................................ $ (545) $ (5,557)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization ................... 1 267
Amortization of discount on
technology license obligations ................. 5 15
Loss on disposal of fixed assets ................ 6
Amortization of deferred stock compensation ..... 2 302
Changes in assets and liabilities
Accounts receivable .......................... 52 (428)
Prepaid and other current assets ............. 78 (3)
Accounts payable ............................. (88) (190)
Accrued expenses ............................. (53) 202
Deferred revenue ............................. (56) 368
-------- --------
Net cash used in operating activities ...... (604) (5,018)
-------- --------
Cash flow provided by investing activities:
Acquisition of property and equipment ............... - (72)
Acquisition of licensed technology .................. - (175)
Purchases of short-term investments ................. - (1,728)
Sales of short-term investments ..................... - 3,588
-------- --------
Net cash provided by investing activities .. - 1,613
-------- --------
Cash flows provided by financing activities:
Proceeds from issuance of common stock:
pursuant to common stock options .................. - 12
pursuant to common stock warrants ................. - 180
under Employee Stock Purchase Plan ................ - 324
-------- --------
Net cash provided by financing activities .. - 516
-------- --------
Net increase (decrease) in cash and cash equivalents ... (604) (2,889)
-------- --------
Cash and cash equivalents, beginning of period ......... 5,381 9,463
-------- --------
Cash and cash equivalents, end of period ............... $ 4,777 $ 6,574
======== ========
The accompanying notes are an integral part
of these financial statements.
-5-
BE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Be Incorporated and its Significant Accounting Policies:
Be Incorporated ("Be") was founded in 1990 and prior to
the cessation of its business operations offered software platforms designed for
Internet appliances and digital media applications.
The unaudited condensed consolidated financial statements included herein
have been prepared by Be pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information or footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of Be the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial
information included therein. While Be believes that the disclosures are
adequate to make the information not misleading, it is suggested that these
financial statements be read in conjunction with the unaudited financial
statements and accompanying notes included in Be's Annual Report on Form 10-K/A
for the fiscal year ended December 31, 2001 as filed with the Securities and
Exchange Commission.
On August 16, 2001, the Board of Directors of Be unanimously adopted
resolutions approving the sale of substantially all of our 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, we filed a definitive proxy statement soliciting
stockholder approval for the Asset Sale and the dissolution of Be 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.
On October 29, 2003, Be filed a petition for determinations pursuant to
Delaware Code Ann. Tit. 8, Section 280(c) with the Delaware Court of Chancery
seeking determination of any amounts and form of security that will be
reasonably likely to be sufficient to provide compensation for any claims
against Be. After the court has made its determination Be will announce the
final plan for stockholder distribution under the Plan of Dissolution.
-6-
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, we 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.
Accordingly, all activities of Be as of March 15, 2002 are presented under
the liquidation basis of accounting. Under the liquidation basis of accounting,
assets are stated at their estimated net realizable values and liabilities are
stated at their anticipated settlement amount, if reasonably estimable. Because
we no longer have business operations or operating, investing or financing
activities while in liquidation, our condensed consolidated statements of
operations and statements of cash flows in this Quarterly Report on Form 10-Q
compare the period from January 1, 2002 to March 15, 2002 with the three month
period ending March 31, 2001 in accordance with the requirements of the
liquidation basis of accounting. See "Activities While in Liquidation" below.
Additionally, Be's common stock was delisted from the NASDAQ National Market
effective March 15, 2002.
Activities While in Liquidation
Changes in net assets in liquidation for the period from March 16, 2002 to
March 31, 2002 of $83,000, were primarily a result of the early termination of a
technology license agreement. Changes in net assets in liquidation for the
period from April 1, 2002 to June 30, 2002, were primarily a result of earnings
on cash and cash equivalents. Changes in net assets in liquidation for the
periods from July 1, 2002 to June 30, 2003 were primarily a result of salary
payments, professional fees and other costs related to our liquidation and
dissolution activities. Changes in net assets in liquidation for the period from
July 1, 2003 to September 30, 2003 were primarily a result of the settlement
amount received from Microsoft after mediation of Be's antitrust lawsuit filed
in February, 2002, offset by income taxes, director and officer compensation
payments, professional fees and other costs related to our liquidation and
dissolution activities.
Be expects to continue to incur certain administrative, legal and other
costs associated with winding up its affairs. These costs have been accrued (See
Note 2).
While the amount of unknown or contingent liabilities cannot be
specifically quantified at this time and could decrease remaining assets
available for distribution to Be's shareholders, Be has filed a petition for
determinations pursuant to Delaware Code Ann. Tit. 8, Section 280(c) with the
Delaware Court of Chancery seeking determination of any amounts and form of
security that will be reasonably likely to be sufficient to provide compensation
for any claims against Be. Further, if Be is subject to any liabilities, this
could require that it establish reserves that could delay certain distributions
to Be shareholders. Because of the uncertainties as to the precise net
realizable value of Be's assets and the settlement amount of Be's debts and
liabilities, Be cannot at this time determine the timing or amount of
distributions that may be made to its shareholders, if any. Only if there are
assets remaining at the time of the liquidation of Be's assets will Be
shareholders receive a distribution of those assets. After the Delaware Court of
Chancery has made its determination Be will announce the final plan for
stockholder distribution under the Plan of Dissolution.
-7-
Note 2 - Balance Sheet Components (in Thousands):
Estimated Costs During Period of Liquidation:
September 30, 2003
------------------
Accrued salaries, wages and benefits $ 24
Accrued Director and Officer compensation
from lawsuit settlement income 1,162
Accrued taxes payable against lawsuit settlement income 981
Accrued professional fees 217
Accrued leases payable 8
Miscellaneous accrued expenses 34
------
Estimated costs during period of liquidation $2,426
======
Note 3 - Net Loss Per Share:
Basic net loss per share is computed using the weighted average number of
common shares outstanding during the periods. Diluted net loss per share is
computed using the weighted average number of common and potentially dilutive
common shares during the periods presented. Diluted loss per share was the same
as basic loss per share for the three months ended March 31, 2002 and 2001.
During the period from January 1, 2002 to March 15, 2002 and the three month
period ended March 31 2001, options to purchase approximately 899,000 and 7.1
million shares of Common Stock, respectively, were outstanding but not included
in the calculation because they were anti-dilutive. During the period from
January 1, 2002 to March 15, 2002 and the three month period ended March 31
2001, warrants to purchase approximately 1.5 million shares were outstanding but
not included in the calculation because they were anti-dilutive. Any outstanding
option exercised after the March 15, 2002 Record Date would not entitle the
holder of any resulting shares of Common Stock to be eligible for participation
in any liquidation distribution to stockholders, and therefore terminated.
NOTE 4 - Legal Contingencies:
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, we 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. On August 21, 2002, the Judicial Panel on Multidistrict
Litigation ordered the lawsuit against Microsoft transferred to the federal
district court for the District of Maryland in Baltimore, to be coordinated by
Judge Frederick Motz. On September 5, 2003 Be and Microsoft announced the
parties had reached a mutually acceptable mediated settlement of the lawsuit,
approved by Be's Board of Directors, whereby Microsoft would pay Be, after
attorney's fees, the amount of $23,250,000 to end further litigation. On
September 10, 2003, Judge Motz dismissed the lawsuit with prejudice as
stipulated by Be and Microsoft.
-8-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF DISCONTINUED OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Discontinued Operations contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Any statements
contained in this document, including without limitation statements to the
effect that Be or its management "believes," "expects," "anticipates," "plans,"
"may," "will," "projects," "continues," or "estimates," or statements concerning
"potential," or "opportunity" or other variations thereof or comparable
terminology or the negative thereof, that are not statements of historical fact
should be considered forward-looking statements. These forward-looking
statements are based on current expectations and entail various risks and
uncertainties that could cause actual results to differ materially from those
projected in the forward-looking statements. Some of such risks and
uncertainties are set forth below under "Risk Factors".
Overview
Be was founded in 1990 and prior to the cessation of its business
operations offered software solutions designed for Internet appliances and
digital media applications. On August 16, 2001, we entered into an asset
purchase agreement with Palm, Inc. to sell substantially all of our intellectual
property and other technology assets. This transaction was approved by our
stockholders on November 12, 2001 and was completed on November 13, 2001. On
March 15, 2002, we filed a Certificate of Dissolution with the Secretary of
State of Delaware pursuant to Section 275 of the Delaware General Corporation
Law, closed our transfer books and voluntarily delisted our common stock from
the Nasdaq National Market System.
Prior to 1998, we had no revenues and our operations consisted primarily of
research and development. In December 1998, we shipped the first version of
BeOS, our desktop operating system targeted primarily to end users. Prior
releases of BeOS were targeted primarily to software developers. Throughout 1999
we focused on delivering BeOS as a desktop operating system to end users, but
ultimately determined the barriers to entry and the cost of intense competition
in that market was more than we could overcome. In recognition of this, and to
address shareholder value, in 2000 we shifted our resources to focus primarily
on the market for Internet appliances and the further development, marketing and
deployment of BeIA, our software solution intended for Internet appliances. At
the same time we announced that we would be making available at no charge a
version of BeOS for personal use, and a more fully featured version would be
available for a charge through third party publishers. Our revenues in 2000 were
primarily generated from the sale of BeOS to our licensed third party
publishers, and other resellers and distributors, and direct sales of BeOS to
end users through our BeDepot.com Web site. We also generated revenue by
collecting commission from sales of third party software through our BeDepot.com
Web site.
-9-
In 2001, revenues were generated through royalty payments, maintenance and
support fees, professional services and integration fees and by revenue-related
consulting services performed after August 16, 2001 under a funding agreement
with Palm executed in connection with the asset sale. These payments and fees
were received from developers and manufacturers of Internet appliances, as well
as other systems and hardware manufacturers incorporating BeIA into their
products. However, revenues from BeIA did not offset the loss of revenues from
sales of BeOS. Upon the completion of the sale of substantially all of our
assets to Palm, we received an aggregate of 4,104,478 shares of Palm common
stock and sold these shares on November 13, 2001 for $10,100,772 in cash, net of
brokerage and transaction fees. As a result of the sale of our assets and the
cessation of our business operations, we do not expect to generate any future
revenues.
Our research and development expenses consisted primarily of compensation
and related costs for research and development personnel. We also included in
research and development expenses the costs relating to licensing of
technologies and amortization of costs of software tools used in the development
of our operating system. Costs incurred in the research and development of new
releases and enhancements were expensed as incurred. These costs included the
cost of licensing technology that was incorporated into a product or an
enhancement that was still in preliminary development, and for which
technological feasibility had not been established. Once the product was further
developed and technological feasibility had been established, development costs
were capitalized until the product was available for general release. Products
and enhancements have generally reached technological feasibility and were
released for sale at substantially the same time. As we have ceased business
operations, we do not expect to incur any research and development expenses in
the future.
Our sales and marketing expenses consisted primarily of compensation and
related costs for sales and marketing personnel, marketing programs, public
relations, investor relations, promotional materials, travel, and related
expenses for attending trade shows. In July 2001, we eliminated our sales and
marketing group. As we have ceased operations, we do not expect to incur any
sales and marketing expenses in the future.
General and administrative expenses consisted primarily of compensation and
related expenses for management, finance, and accounting personnel, professional
services and related fees, occupancy costs and other expenses. We expect our
general and administrative expenses in the future to be minimal. However, we
continue to incur legal, accounting and other professional fees related to our
liquidation and dissolution, continue to lease rental space and continue to
employ Dan Johnston, our President and General Counsel, in order to facilitate
the wind up of our operations and to oversee legal proceedings.
In the past, we marketed and sold our products in the United States and
internationally. International sales of products accounted for approximately 0%,
23% and 56% of total revenues in 2001, 2000 and 1999, respectively. We do not
expect to generate any revenues in the near or extended future.
-10-
From time to time in the past, we have granted stock options to employees,
consultants and non-employee directors. As of December 31, 2001, we had recorded
deferred compensation related to these options in the total amount of $12.6
million, net of cancellations, representing the difference between the deemed
fair value of our common stock, as determined for accounting purposes, and the
exercise price of options at the date of grant. Of this amount, $11.9 million
had been amortized at December 31, 1999, with $2.6 and $(2.0) million being
amortized in 2000 and 2001, respectively. The negative amount shown for 2001 is
due to the cancellation of options. Following the filing of our certificate of
dissolution on March 15, 2002, it was deemed that the remaining options no
longer had any value and accordingly the remaining deferred compensation balance
was cancelled. We amortized the deferred compensation charge monthly over the
vesting period of the underlying option. Due to cessation of our business
operations, we will not grant stock options to employees, consultants or
directors in the future.
Comparison of the period from January 1, 2002 to March 15, 2002 to the Three
Month Period ended March 31, 2001
Since the completion of the Asset Sale to Palm on November 13, 2001, we
have generated no material revenues from operations and the vast majority of our
expenses have been of a general and administrative nature.
General and administrative expenses decreased approximately $615,000, or
54%, to $531,000 for the period from January 1, 2002 to March 15, 2002 from $1.1
million for the three month period ended March 31, 2001. In 2002, such expenses
are primarily attributable to the rent costs of approximately $242,000 for the
lease of our former headquarters in Menlo Park. This lease expired on February
28, 2002. Other expenses included salary costs of approximately $140,000 for the
5 person transition team in charge of winding down operations. Remaining
expenses were related to professional fees and also to moving costs for the
relocation of our offices. After May 15, 2002, only one employee remains with
the company.
Statement of Changes in Net Assets in Liquidation from March 16, 2002 to
September 30, 2003
Changes in net assets in liquidation for the period from March 16, 2002 to
March 31, 2002 of $83,000 were primarily a result of the early termination of a
technology license agreement. Changes in net assets in liquidation for the
period from April 1, 2002 to June 30, 2002, were primarily a result of earnings
on cash and cash equivalents. Changes in net assets in liquidation for the
periods from July 1, 2002 to June 30, 2003 were primarily a result of salary
payments, professional fees and other costs related to our liquidation and
dissolution. Changes in net assets in liquidation for the period from July 1,
2003 to September 30, 2003 were primarily a result of the settlement amount
received from Microsoft after mediation of Be's antitrust lawsuit filed in
February, 2002, offset by income taxes, director and officer compensation
payments, professional fees and other costs related to our liquidation and
dissolution activities.
Liquidity and Capital Resources
Since our inception, we traditionally financed our operations primarily
through the sale of our equity securities and through borrowing arrangements. On
November 13, 2001, we sold substantially all of our assets to Palm for
approximately $11.0 million in Palm stock. That same day, we sold 4,104,478
shares of Palm stock for $10,100,772 in cash, net of brokerage and transaction
fees. Cash and cash equivalents and short-term investments decreased
approximately $600,000 to $4.8 million at March 15, 2002 from $5.4 million at
December 31, 2001. This decrease was primarily attributable to the amounts used
to fund the winding down of our operations.
Since November 2001, we have been winding down our business operations and
have substantially reduced our working capital requirements. Our working capital
requirements are now minimal and we believe that existing cash and cash
equivalents will be sufficient to meet our remaining operating and capital
requirements for at least the next twelve months or until a final liquidation
occurs. As part of the winding down process, we intend to distribute part of our
remaining cash to our shareholders as soon as practicable under Delaware law and
dissolution procedures. After that time, we intend to retain only a nominal
amount of cash to complete the winding down process.
Critical Accounting Policies
Use of estimates and liquidation accounting
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.
All activities of Be as of March 15, 2002 are presented under the
liquidation basis of accounting. Under the liquidation basis of accounting,
assets are stated at their estimated net realizable values and liabilities are
stated at their anticipated settlement amount, if reasonably estimable.
-11-
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 and could cause actual results to differ materially
from the results contemplated by the forward looking statements contained in
this quarterly report. 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.
Our stockholders may be liable to our creditors for an amount up to the amount
received from Be if our reserves for payments to creditors are inadequate.
Although we filed a certificate of dissolution on March 15, 2002 with the
State of Delaware, Be 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 our expenses
and liabilities.
Our stock transfer books were closed on March 15, 2002, the final record date,
after which any trades will not be recorded by Be.
We closed our stock transfer books and discontinued recording transfers of
Common Stock at the close of business on March 15, 2002 (the "Record Date"), the
date of effectiveness of the Certificate of Dissolution we filed with the
Delaware Secretary of State. Thereafter, certificates representing our Common
Stock will not be assignable or transferable on our books except by will,
intestate succession or operation of law. Although our Common Stock currently
trades on the "over-the-counter" securities market, the proportionate interests
of our stockholders have been fixed on the basis of their respective stock
holdings at the close of business on the Record Date, and, after the Record
Date, any distributions made by us will be made solely to the stockholders of
record at the close of business on the Record Date, except as may be necessary
to reflect subsequent transfers recorded on our books as a result of any
assignments by will, intestate succession or operation of law. For any other
trades after the Record Date, the seller and purchaser of the stock will need to
negotiate and rely on contractual obligations between themselves with respect to
the allocation of stockholder proceeds arising from ownership of the shares.
Our financial statements for the 2001 and 2002 fiscal years have not been
audited.
We did not perform an audit of our fiscal 2001 or 2002 financials that were
filed with our annual reports on Form 10-K. In order to further curtail expenses
in connection with our wind-up and dissolution, we filed unaudited financial
statements with our Form 10-K, as amended, for the 2001 fiscal year and again
with our Form 10-K for the 2002 fiscal year. Because these financial statements
were not audited by an outside auditor, such statements could be subject to
change or the financial information included therein may be materially different
from audited financial information. There can be no assurance that such changes
or differences would not be significant. In addition, the fact that our 2001 and
2002 financial statements have not been audited could subject us to penalties or
other sanctions, which could harm our shareholders.
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Our stock was delisted from the Nasdaq National Market on March 15, 2002 and is
significantly less liquid than before.
We voluntarily requested that our stock be delisted from trading on the
Nasdaq Stock Market on March 15, 2002 due to the fact that we had ceased our
business operations. Following delisting, the ability of stockholders to buy and
sell our shares has been materially impaired, and is limited primarily to
over-the-counter quotation services, such as Pink Sheets, that handle high-risk
ventures and are not regulated by the Securities and Exchange Commission.
There is no guarantee that our stock will continue to be quoted on
over-the-counter markets.
If we are unable to comply with the requirements for continued listing for
over-the-counter markets such as the Pink Sheets, our stock may no longer be
eligible for quotation on such services. For example, following our failure to
timely file audited financial statements with our Annual Report on Form 10-K for
the 2001 and 2002 fiscal years, our stock was removed from quotation on the OTC
Bulletin Board. The removal of our stock from quotation from regulated quotation
services may further limit the liquidity of our common stock and impair
stockholders' ability to buy and sell our shares.
We cannot guarantee how much cash, if any, will be available to distribute to
our stockholders and if there is cash to distribute, the timing of any such
distribution.
There is currently no firm timetable for the distribution of proceeds to
our stockholders because of contingencies inherent in winding up Be's business.
The proportionate interests of all of our stockholders will be fixed on the
basis of their respective stock holdings at the close of business on the Record
Date, and after such date, any distributions made by us will be made solely to
stockholders of record on the close of business on the Record Date, except to
reflect permitted transfers. We are, however, currently unable to predict the
precise nature, amount or timing of any distribution to stockholders. The actual
nature, amount and timing of all distributions will be determined by our Board
of Directors, in its sole discretion.
Uncertainties as to the precise net value of our non-cash assets, the
resolution of our outstanding claim against Microsoft Corporation and the
ultimate amount of our debts and liabilities make it impracticable to predict
the aggregate net value ultimately distributable to stockholders. Claims,
liabilities and expenses from operations (including costs associated with the
sale of our remaining assets and the settlement of our remaining liabilities,
taxes, legal and accounting fees and miscellaneous office expenses) will
continue to be incurred. These expenses will reduce the amount of cash available
for ultimate distribution to stockholders. However, no assurances can be given
that available cash and amounts received on the sale of assets will be adequate
to provide for our obligations, liabilities, expenses and claims and to make
cash distributions to stockholders. If such available cash and amounts received
from the sale of assets are not adequate to provide for our obligations,
liabilities, expenses and claims, we may not be able to distribute meaningful
cash, or any cash, to our stockholders.
The proceeds from the sale of our remaining assets may be less than anticipated.
Sales of any remaining assets will be made on such terms as are approved by
the Board of Directors and may be conducted by competitive bidding, public sales
or privately negotiated sales. The prices at which we will be able to sell these
assets will depend largely on factors beyond our control such as general market
conditions. Because some of our remaining assets may decline in value over time,
we may not be able to consummate the sale of these assets in time to generate
meaningful value. In addition, we may not obtain as high a price for a
particular asset as we might secure if we were not in liquidation.
-13-
We may be unable to negotiate settlements with respect to our remaining
liabilities.
We are currently in the process of negotiating settlements with respect to
our remaining obligations and liabilities which include, without limitation, tax
obligations, claims by licensees, and contractual and trade payables with third
parties including vendors and service providers. If we are unable to
successfully negotiate termination of these obligations, we will have fewer cash
proceeds to distribute to our stockholders.
If Be fails to retain the services of its remaining executive officer and Board
members, the plan of dissolution may not succeed.
The success of the Plan of Dissolution depends in large part upon Be's
ability to retain the services of its current President and Board of Directors.
For this reason, Be approved incentive arrangements with its President and the
three remaining members of its Board of Directors. Despite these arrangements,
the retention of qualified personnel is particularly difficult under Be's
current circumstances.
We may continue to incur the expense of complying with public company reporting
requirements and the risk of not fully complying with such requirements.
We have an obligation to continue to comply with the applicable reporting
requirements of the Securities Exchange Act of 1934, as amended, even though
compliance with such reporting requirements is economically burdensome. We may
face additional expenses or be forced to pay penalties if it is determined that
we are not in compliance with reporting or other requirements.
The decline in the value of our stock and our resulting cessation of business
operations and dissolution could give rise to securities class action claims
against us, which could deplete any proceeds that may be distributed to
stockholders.
Securities class action claims have been brought against companies in the
past where the market price of the company's securities has fallen due to an
inability of the company to achieve operational profitability. Any such
litigation could be very costly and divert our remaining resources from being
available for distribution to our stockholders. Any adverse determination in
this kind of litigation could also deplete our cash position, and reduce
proceeds that would otherwise be distributed to our stockholders. In addition,
in order to preserve proceeds for distribution to stockholders, we filed
unaudited financial statements with its Annual Report on Form 10-K, as amended,
for the 2001 fiscal year and with its Annual Report on Form 10-K for the 2002
fiscal year. As a result, we are not currently in compliance with the reporting
requirements of the Securities Exchange Act of 1934, as amended, and our
President cannot make certain certifications in connection with the filing of
this periodic report as required by the Sarbanes-Oxley Act of 2002.
-14-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We considered the provision of Financial Reporting Release No. 48
"Disclosure of Accounting Policies for Derivative Financial Instruments and
Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative
Information about Market Risk Inherent in Derivative Financial Instruments,
Other Financial Instruments and Derivative Commodity Instruments." We had no
holdings of derivative financial or commodity instruments at September 30, 2003.
However, we are exposed to interest rate risks. We believe that the fair value
of our money market accounts or related income would not be significantly
impacted by increases or decreases in interest rates due mainly to the
short-term nature of our money market accounts. However, a sharp decline in
interest rates could seriously harm interest earnings of our money market
accounts. Be does not use its investment portfolio for trading or other
speculative purposes.
-15-
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures.
As of September 30, 2003, we have only one general and administrative
employee, our President and General Counsel who remains with the company in
order to facilitate the wind up of our activities. Within the 90 days prior to
the filing of our Annual Report on Form 10-K for the year ending 2002 (the
"Evaluation Date"), our President and General Counsel carried out an evaluation
of the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Exchange Act).
Based upon that evaluation, our President and General Counsel concluded that our
disclosure controls and procedures are effective to ensure that material
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission rules and
forms.
Changes in internal controls.
During the period covered by this quarterly report on form 10-Q, there have
been no changes in Be's internal controls or in other factors that could
materially affect, or are materially likely to affect, such controls, including
corrective action with regard to significant deficiencies and material
weaknesses.
Limitations on the Effectiveness of Controls.
Be does not expect that our disclosure controls and procedures or our
internal controls will prevent all error. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. The design of any
system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions;
over time, control may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.
-16-
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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, we 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. On August 21, 2002, the Judicial Panel on Multidistrict
Litigation ordered the lawsuit against Microsoft transferred to the federal
district court for the District of Maryland in Baltimore, to be coordinated by
Judge Frederick Motz. On September 5, 2003 Be and Microsoft announced the
parties had reached a mutually acceptable mediated settlement of the lawsuit,
approved by Be's Board of Directors, whereby Microsoft would pay Be, after
attorney's fees, the amount of $23,250,000 to end further litigation. On
September 10, 2003, Judge Motz dismissed the lawsuit with prejudice as
stipulated by Be and Microsoft.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
Current Report on Form 8-K, filed September 12, 2003, announcing
that (i) on September 5, 2003, Be and Microsoft Corporation had
reached a mutually acceptable mediated settlement of an antitrust
lawsuit filed by Be in February 2002, which was then pending in the
United States District Court for the District of Maryland in
Baltimore; and (ii) Be would receive a payment from Microsoft, after
attorney's fees, in the amount of $23,250,000 to end further
litigation.
-17-
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 7, 2003
BE INCORPORATED
(Registrant)
By: /s/ DANIEL S. JOHNSTON
-----------------------------
Daniel S. Johnston
President and General Counsel
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Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Daniel S. Johnston, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Be Incorporated
("registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusion about the effectiveness
of the disclosure controls and procedures, as of the end of the period coverd by
this report based on such evaluations; and
c) disclosed in this report any change in registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal controls over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Dated: November 7, 2003
By: /s/ DANIEL S. JOHNSTON
-----------------------------
Daniel S. Johnston
President and General Counsel*
* Mr. Johnston is acting as chief executive officer and chief financial officer
of Be Incorporated.
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