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 quarterly period ended June 30, 2001

          |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                        Commission File Number: 000-26387

                                 BE INCORPORATED
             (Exact name of Registrant as specified in its charter)

                               Delaware 94-3123667
       (State or other jurisdiction of (IRS Employer Identification No.)
                         incorporation or organization)

                    800 El Camino Real, Menlo Park, CA 94025
          (Address of principal executive offices, including zip code)

                                 (650) 462-4100
              (Registrant's telephone number, including area code)




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. [X] Yes [ ] No.

The number of shares of Common Stock outstanding as of July 31, 2001 was
36,639,953.



<PAGE>


                                 BE INCORPORATED
                                    FORM 10-Q
                                TABLE OF CONTENTS

                                                                            PAGE

PART I.    FINANCIAL INFORMATION

     Item 1.    Condensed Financial Statements:

                Consolidated Balance Sheets at June 30, 2001
                 and December 31, 2000                                         2

                Consolidated Statements of Operations for the three
                 and six month periods ended June 30, 2001 and June 30, 2000   3

                Consolidated Statements of Cash Flows for the six months
                     ended June 30, 2001 and June 30, 2000                     4

                Notes to Condensed Consolidated Financial Statements           5


     Item 2.    Management's Discussion and Analysis of Financial Condition
                and Results of Operations                                      9


     Item 3.    Quantitative and Qualitative Disclosures About Market Risk    28

PART II.   OTHER INFORMATION

     Item 1.    Legal Proceedings                                             29

     Item 2.    Changes in Securities and Use of Proceeds                     29

     Item 3.    Defaults upon Senior Securities                               29

     Item 4.    Submission of Matters to a Vote of Security Holders           29

     Item 5.    Other Information                                             30

     Item 6.    Exhibits and Reports on Form 8-K                              30

                Signatures                                                    31






                                       1
<PAGE>



                         PART I - FINANCIAL INFORMATION

ITEM 1.    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                        BE INCORPORATED AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                            (in thousands; unaudited)
<TABLE>
<CAPTION>


                                                          June 30,  December 31,
                                                            2001        2000
                                                         ---------    ---------
<S>                                                      <C>          <C>
ASSETS
Current assets:
   Cash and cash equivalents .........................   $   3,148    $   9,463
   Short-term investments ............................       1,754        4,594
   Accounts receivable ...............................         276           26
   Prepaid and other current assets ..................         356          549
                                                         ---------    ---------
       Total current assets ..........................       5,534       14,632
Property and equipment, net ..........................         311          391
Other assets, net of accumulated amortization ........         713        1,048
                                                         ---------    ---------
        Total assets .................................   $   6,558    $  16,071
                                                         =========    =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable ..................................   $      25    $     362
   Accrued expenses ..................................       1,085        1,502
   Technology license obligations, current portion ...         425          454
   Deferred revenue ..................................          64          109
                                                         ---------    ---------
       Total current liabilities .....................       1,599        2,427
Technology license obligations, net of current portion         238          320
                                                         ---------    ---------
       Total liabilities .............................       1,837        2,747
                                                         ---------    ---------
Stockholders' Equity:
   Common stock ......................................          36           36
   Additional paid-in capital ........................     109,062      108,880
   Accumulated other comprehensive income ............           2            1
   Deferred stock compensation .......................        (551)      (1,218)
   Accumulated deficit ...............................    (103,828)     (94,375)
                                                         ---------    ---------
       Total stockholders' equity ....................       4,721       13,324
                                                         ---------    ---------
        Total liabilities and stockholders' equity ...   $   6,558    $  16,071
                                                         =========    =========
</TABLE>

              The accompanying notes are an integral part of these
             unaudited condensed consolidated financial statements.


                                       2
<PAGE>



                        BE INCORPORATED AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
               (in thousands, except per share amounts; unaudited)


<TABLE>
<CAPTION>

                                                                          Three Months            Six Months
                                                                         Ended June 30,          Ended June 30,
                                                                        2001       2000         2001       2000
                                                                      ------      ------      ------     -------
<S>                                                                 <C>         <C>         <C>         <C>
Net revenues ....................................................   $    715    $    142    $    815    $    396
Cost of revenues ................................................        320         261         571         554

Gross profit (loss) .............................................        395        (119)        244        (158)

Operating expenses:
   Research and development, including amortization of deferred .      2,326       2,039       4,807       4,500
     stock compensation of $50, $196, $152 and $509
   Sales and marketing, including amortization of deferred ......        456       2,072       2,074       4,400
     stock compensation of $(101), $189, $(37) and $426
   General and administrative, including amortization of deferred      1,450       1,211       2,596       2,724
     stock compensation of $80, $272, $216 and $755
   Restructuring charge .........................................        143        --           450        --
                                                                      ------      ------      ------     -------
       Total operating expenses .................................      4,375       5,322       9,927      11,624
                                                                      ------      ------      ------     -------
Loss from operations ............................................     (3,980)     (5,441)     (9,683)    (11,782)

Interest expense ................................................        (13)        (29)        (28)        (63)
Other income and expenses, net ..................................         97         351         258         726
                                                                      ------      ------      ------     -------
Net loss ........................................................   $ (3,896)   $ (5,119)   $ (9,453)   $(11,119)
                                                                    ========    ========    ========    ========

Net loss per common share--basic and diluted ....................   $   (.11)   $   (.14)   $   (.26)   $   (.32)
                                                                    ========    ========    ========    ========
Shares used in per common share
   calculation--basic and diluted ...............................     36,466      35,496      36,330      35,247
                                                                    ========    ========    ========    ========
</TABLE>


              The accompanying notes are an integral part of these
             unaudited condensed consolidated financial statements.




                                       3
<PAGE>

                        BE INCORPORATED AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (in thousands; unaudited)
<TABLE>
<CAPTION>

                                                        Six Months Ended June 30,
                                                            2001         2000
                                                            -----       -----
<S>                                                      <C>         <C>
Cash flows from operating activities:
   Net loss ..........................................   $ (9,453)   $(11,119)
   Adjustments to reconcile net loss to net
     cash used in operating activities:
       Depreciation and amortization .................        516         580
       Amortization of discount on
        technology license obligations ...............         29          63
       Loss on disposal of fixed assets ..............          6
       Compensation expense incurred on issuance
        of stock .....................................       --            33
       Amortization of deferred stock compensation....         331      1,690
       Changes in assets and liabilities
          Accounts receivable ........................       (250)         38
          Prepaid and other current assets ...........        193         174
          Accounts payable ...........................       (337)       (621)
          Accrued expenses ...........................       (417)       (167)
          Deferred revenue ...........................        (45)        (19)
                                                            -----       -----
            Net cash used in operating activities ....     (9,427)     (9,348)
                                                            -----       -----
Cash flow provided by investing activities:
   Acquisition of property and equipment .............        (72)        (89)
   Acquisition of licensed technology ................       (175)       (389)
   Purchases of short-term investments ...............     (1,728)    (37,546)
   Sales of short-term investments ...................      4,569      51,588
                                                            -----       -----
            Net cash provided by investing activities       2,594      13,564
                                                            -----       -----
Cash flows provided by financing activities:
Proceeds from issuance of common
   stock:
     pursuant to common stock options ................         14       2,181
     pursuant to common stock warrants ...............        180         455
     under Employee Stock Purchase Plan ..............        324         368
   Repurchase of common stock ........................       --            (3)
                                                            -----       -----
            Net cash provided by financing activities         518       3,001
                                                            -----       -----
Net increase (decrease) in cash and cash equivalents .     (6,315)      7,217
                                                            -----       -----
Cash and cash equivalents, beginning of period .......      9,463       6,500
                                                            -----       -----
Cash and cash equivalents, end of period .............   $  3,148    $ 13,717
                                                         ========    ========
</TABLE>

              The accompanying notes are an integral part of these
             unaudited condensed consolidated financial statements.


                                       4
<PAGE>



                        BE INCORPORATED AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

1.   Organization and Business

     Be  Incorporated  (the  "Company"  or "Be") was  founded in 1990 and offers
     software  platforms  designed for  Internet  appliances  and digital  media
     applications.  The Company's software platforms are (i) BeIA: consisting of
     three components;  BeIA Client Platform, BeIA Management and Administration
     Platform,  and  BeIA  Integrations  Services;  (ii)  Home  Audio  Reference
     Platform  (HARP),  a  BeIA-based   reference   platform  or  prototype  for
     Internet-enabled  home  stereo  devices;  and  (iii)  BeOS,  the  Company's
     operating  system designed for digital media  applications and which serves
     as the development platform for BeIA.

     The  Company's  revenues  to date have been  primarily  generated  from the
     following sources: sale of BeOS to resellers and distributors, direct sales
     of BeOS to end  users  through  its  BeDepot.com  Web  site  and  royalties
     received  for the BeIA Client  Platform  starting  in the first  quarter of
     2001. 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 2000,  the
     Company  discontinued  sales of software  through its BeDepot.com  website.
     Since inception,  the Company has experienced losses and negative cash flow
     from operations and expects to continue to experience  significant negative
     cash flow in the foreseeable future.

     On July 31, 2001,  the Company  announced the  elimination of its sales and
     marketing  departments in order to conserve resources.  The Company expects
     sales and marketing functions to be greatly limited in the future.

     The Company operates in one business segment,  software  platforms designed
     for Internet appliances and digital media applications.

2.   Basis of Presentation

     The condensed consolidated financial statements include the accounts of the
     Company and its wholly owned  subsidiaries.  All  significant  intercompany
     balances and transactions have been eliminated.

     The  condensed  consolidated  financial  statements  have been  prepared in
     accordance  with the rules and  regulations  of the Securities and Exchange
     Commission  ("SEC")  applicable to interim financial  information.  Certain
     information  and  footnote  disclosures  included in  financial  statements
     prepared in accordance with generally accepted  accounting  principles have
     been  omitted in these  interim  statements  pursuant to such SEC rules and
     regulations.  Management recommends that these interim financial statements
     be read in conjunction with the audited financial statements of the Company
     for the year ended December 31, 2000 and the notes thereto contained in the
     Company's  Annual Report on Form 10-K.  The December 31, 2000 balance sheet
     was derived from  audited  financial  statements,  but does not include all
     disclosures required by generally accepted accounting principles.

     In management's  opinion, the condensed  consolidated  financial statements
     include all adjustments  necessary to present fairly the financial position
     and results of operations  for each interim period shown.  Interim  results
     are not necessarily  indicative of results to be expected for a full fiscal
     year.

                                       5
<PAGE>

     At the end of the first quarter of 2001,  the Company  stated in its Annual
     Report on Form 10-K that it  believed  existing  cash and cash  equivalents
     would not be sufficient to meet its operating and capital  requirements  at
     its anticipated level of operations beyond the end of the second quarter of
     2001.  Following the reduction in workforce carried out at the beginning of
     the second quarter,  and the further reduction in workforce and elimination
     of the Company's  sales and marketing  departments  at the beginning of the
     third  quarter,  the Company  anticipates  that  existing  capital  will be
     insufficient  to fund its  operations at the currently  anticipated  levels
     beyond the third  quarter of 2001.  The Company  has engaged an  investment
     banking  firm  to  assist  in  securing   various   strategic  and  funding
     alternatives, including the sale of the Company or portions of its business
     or assets.  The Company has also engaged in  discussions  and  negotiations
     with third parties  involving the potential sale of the Company's  business
     or assets.  However,  the  Company  has not  secured  or  entered  into any
     agreements to obtain additional  capital or to sell the Company's  business
     or assets.  There can be no  assurance  the Company  will be able to obtain
     additional  funds,  on  acceptable  terms or at all, or that any  strategic
     alternatives  including the sale of the Company or portions of its business
     or assets will materialize.  Without additional capital prior to the end of
     the  third  quarter  of 2001,  the  Company  will  most  likely  cease  its
     operations  and will commence a plan of  liquidation.  In  anticipation  of
     these events,  the Company has scaled back its operations  including recent
     layoffs of  significant  portions of its workforce and  elimination  of the
     sales and marketing functions.  The Company believes the cash proceeds from
     the sale of its business or assets and any subsequent liquidation following
     such sale may be  insignificant  due to,  among other  things,  the current
     market value of the  Company's  assets and payments to be made to creditors
     and to employees  pursuant to change in control or severance  arrangements.
     The  Company  cannot  assure its  stockholders  that they will  receive any
     consideration or value following liquidation or the sale of the business or
     assets  of the  Company  or that the per share  value of common  stock as a
     result  of  liquidation  or the  proceeds  per  share  from  a sale  of the
     Compan's  assets  will  equal or  exceed  the price or prices at which the
     common stock traded prior to effecting any liquidation, dissolution or sale
     of the Company.

     The consolidated  financial  statements do not include any adjustments that
     might result from the outcome of these uncertainties.

3.   Recent Accounting Pronouncements

     In June 1998, the Financial  Accounting Standards Board,  ("FASB"),  issued
     Statement  of  Financial   Accounting  Standards  No.  133,  or  SFAS  133,
     "Accounting for Derivative  Instruments and Hedging  Activities."  SFAS 133
     establishes  new  standards of  accounting  and  reporting  for  derivative
     instruments and hedging activities.  SFAS 133 requires that all derivatives
     be  recognized at fair value in the  statement of financial  position,  and
     that the corresponding  gains or losses be reported either in the statement
     of  operations  or as a  deferred  item  depending  on the  type  of  hedge
     relationship  that exists with respect of such  derivatives.  In July 1999,
     the  Financial  Accounting  Standards  Board issued  Statement of Financial
     Accounting  Standards  No. 137,  or SFAS 137,  "Accounting  for  Derivative
     Instruments and Hedging Activities - Deferral of the Effective Date of FASB
     Statement No. 133." SFAS 137 deferred the effective date until fiscal years
     beginning  after June 30,  2000.  In June 2000,  the  Financial  Accounting
     Standards Board issued Statement of Financial Accounting Standards No. 138,
     or SFAS 138, "Accounting for Derivative  Instruments and Hedging Activities
     - An Amendment of FASB  Statement  133." SFAS 138 amends the accounting and
     reporting   standards  for  certain  derivative   activities  such  as  net
     settlement  contracts,   foreign  currency  transactions  and  intercompany
     derivatives.  The  Company's  implementation  of SFAS 133 since  January 1,
     2001, has not had a material impact on its financial position or results of
     operations.

     In June 2001, the FSAB unanimously approved the issuance of two statements,
     Statement of Financial Accounting Standards No. 141, or SFAS 141, "Business
     Combinations," and Statement of Financial  Accounting Standards No. 142, or
     SFAS  142,  "Goodwill  and Other  Intangible  Assets."  SFAS 141  addresses
     financial accounting and reporting for business combinations and amends APB
     No.16  "Business   Combinations."   It  requires  the  purchase  method  of
     accounting for business  combinations  initiated  after June 30, 2001. SFAS
     142 addresses financial  accounting and reporting for acquired goodwill and
     other intangible assets and supersedes APB No.17,  "Intangible  Assets." It
     changes the  accounting  for  goodwill  from an  amortization  method to an
     impairment  only approach.  It is effective for fiscal year beginning after
     March 15, 2001. The adoption of these  statements is not expected to have a
     significant  impact on the  Company's  financial  position  and  results of
     operations

                                       6
<PAGE>

4.   Net Loss Per 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  and  warrants.  Options  and  warrants  were not  included  in the
     computation  of diluted net loss per common share  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):
<TABLE>
<CAPTION>

                                                                Three Months Ended       Six Months Ended
                                                                     June 30,               June 30,
                                                                2001        2000         2001        2000
                                                              --------    --------      ------     -------
                                                                   (unaudited)             (unaudited)
<S>                                                           <C>         <C>           <C>        <C>
Historical net loss per common share, basic and diluted:
   Numerator for net loss, basic and diluted ..............   $ (3,896)   $ (5,119)     (9,453)    (11,119)

   Denominator for basic and diluted loss per common share:
     Weighted average common shares
       outstanding ........................................     36,466      35,496      36,330      35,247
                                                              ========    ========      ======     =======
   Net loss per common share basic and diluted ............   $   (.11)   $   (.14)   $   (.26)   $   (.32)
                                                              ========    ========      ======     =======
   Antidilutive securities:
     Options to purchase common stock .....................      6,114       6,672       6,114       6,672
     Common stock not yet vested ..........................        129         332         129         332
     Warrants .............................................       --         2,130        --         2,130
                                                              --------    --------      ------     -------
                                                                 6,243       9,134       6,243       9,134
</TABLE>

5.   Comprehensive Income (loss)

     Statement of Financial  Accounting Standard No. 130 (SFAS 130),  "Reporting
     Comprehensive  Income"  establishes  rules for  reporting  and  display  of
     comprehensive  income  (loss) and its  components.  The  following  are the
     components of comprehensive income (loss) (in thousands):
<TABLE>
<CAPTION>

                                                   Three Months Ended       Six Months Ended
                                                         June 30,               June 30,
                                                     2001       2000        2001        2000
                                                  --------    --------    --------    --------
<S>                                               <C>         <C>         <C>         <C>
Net loss ......................................   $ (3,896)   $ (5,119)   $ (9,453)   $(11,119)
Unrealized gain (loss) on marketable securities         (6)          5           1          13
                                                  --------    --------    --------    --------
Comprehensive loss ............................   $ (3,902)   $ (5,114)   $ (9,452)   $(11,106)
                                                  ========    ========    ========    ========
</TABLE>



   The components of accumulated other comprehensive income, net of related tax
are as follows (in thousands):
<TABLE>
<CAPTION>
                                                    June 30,   December 31,
                                                      2001        2000
                                                     -----        -----
<S>                                               <C>          <C>
Unrealized gain on marketable securities.......   $      2     $     1
                                                     -----        -----
                                                         2           1
                                                     =====        =====
</TABLE>


                                       7
<PAGE>

6.   Restructuring Charge

     On April 2, 2001,  the Company  announced its decision,  made at the end of
     the first quarter,  to restructure its operations to reflect current market
     and  financial  conditions  by  closing  its  European  office in Paris and
     eliminating  positions  principally in the Company's  sales,  marketing and
     general  administration  departments in the United States. As a result, the
     Company  recorded a  restructuring  charge of $307,000 in the first quarter
     for the closing of its European office,  which is comprised of $272,000 for
     involuntary  termination  benefits and $35,000 for termination of operating
     contracts  and  professional  fees.  The Company  recorded a  restructuring
     charge of approximately  $143,000 in the second quarter for the involuntary
     termination benefits related to the elimination of 22 positions in the U.S.

     At June 30, 2001, this restructuring plan was substantially  completed with
     a remaining $22,000 accrual for social charges due in Europe on termination
     benefits.

7.   Legal Proceedings

     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 a party named 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.
     The  stockholder  is seeking  damages in the amount of  approximately  $2.0
     million.  Prior to this  filing,  the  Company  had been  participating  in
     communications with the parties 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 its 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 its  intent to seek
     reimbursement under its D&O insurance policy.


                                       8
<PAGE>

8.   Subsequent Events

     Subsequent to June 30, 2001,  the Company  announced the  elimination of 28
     positions.  In  addition  to the  elimination  of the sales  and  marketing
     departments,   positions  in  administration   and  engineering  were  also
     affected.  The  eliminated  positions  represent  approximately  33% of the
     Company's  existing  workforce.   The  Company's  remaining  positions  are
     primarily  engaged in product  development.  The Company does not expect to
     record any associated restructuring charge.



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Forward Looking Statements

THIS REPORT CONTAINS FORWARD-LOOKING  STATEMENTS THAT HAVE BEEN MADE PURSUANT TO
THE PROVISIONS OF THE PRIVATE  SECURITIES  LITIGATION  REFORM ACT OF 1995.  SUCH
FORWARD-LOOKING  STATEMENTS  ARE BASED ON CURRENT  EXPECTATIONS,  ESTIMATES  AND
PROJECTIONS ABOUT THE COMPANY'S BUSINESS,  MANAGEMENT'S  BELIEFS AND ASSUMPTIONS
MADE BY MANAGEMENT.  WORDS SUCH AS "ANTICIPATES," "EXPECTS," "INTENDS," "PLANS,"
"BELIEVES,"  "SEEKS,"  "ESTIMATES,"  "LIKELY" AND  VARIATIONS  OF SUCH WORDS AND
SIMILAR  EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH  FORWARD-LOOKING  STATEMENTS.
THESE  STATEMENTS  ARE NOT GUARANTEES OF FUTURE  PERFORMANCE  AND ARE SUBJECT TO
CERTAIN  RISKS,  UNCERTAINTIES  AND  ASSUMPTIONS  THAT ARE DIFFICULT TO PREDICT;
THEREFORE,  ACTUAL  RESULTS  AND  OUTCOMES  MAY DIFFER  MATERIALLY  FROM WHAT IS
EXPRESSED OR FORECASTED IN ANY SUCH FORWARD-LOOKING  STATEMENTS.  SUCH RISKS AND
UNCERTAINTIES  INCLUDE THOSE SET FORTH IN THIS SECTION UNDER "FACTORS  AFFECTING
OUR  BUSINESS,OPERATING  RESULTS AND FINANCIAL  CONDITION" AND ELSEWHERE IN THIS
REPORT  AS WELL AS THOSE  NOTED IN OUR  ANNUAL  REPORT ON FORM 10-K FOR THE YEAR
ENDED  DECEMBER 31, 2000 AND OUR OTHER PUBLIC  FILINGS WITH THE  SECURITIES  AND
EXCHANGE COMMISSION. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY
FORWARD-  LOOKING  STATEMENTS,  WHETHER AS A RESULT OF NEW  INFORMATION,  FUTURE
EVENTS OR OTHERWISE.

Overview

     Be was founded in 1990. We offer software  solutions  designed for Internet
appliances and digital media applications.  Our software solutions are (i) BeIA:
the Complete Internet  Appliance  Solution(TM),  consisting of three components;
BeIA Client  Platform,  BeIA Management and  Administration  Platform,  and BeIA
Integration  Services;  (ii) Home Audio Reference  Platform (HARP), a BeIA-based
reference platform or prototype for  Internet-enabled  home stereo devices;  and
(iii) BeOS, our operating  system  designed for digital media  applications  and
which  serves as the  development  platform for BeIA.  Prior to 1998,  we had no
revenues and our operations consisted primarily of research and development.  In
December  1998,  we shipped the first  version of BeOS,  our  desktop  operating
system  targeted  primarily to end users.  Prior  releases of BeOS were targeted
primarily to software developers.  Throughout 1999 we focused on delivering BeOS
as a desktop  operating  system to end users,  and while we were slowly  gaining
users and traction within the desktop operating system market, we determined the
cost of competing in that market was more than we could afford.  In  recognition
of this, and to address  shareholder  value, in 2000 we shifted our resources to
focus  primarily  on  the  market  for  Internet   appliances  and  the  further
development,  marketing and deployment of BeIA, our software  solution  intended
for Internet  appliances.  At the same time we announced that we would be making
available  at no charge a version  of BeOS for  personal  use,  and a more fully
featured version would be available for a charge through third party publishers.

                                       9
<PAGE>

     Our revenues in 2000 were primarily  generated from the sale of BeOS to our
licensed  third party  publishers,  and other  resellers and  distributors,  and
direct  sales of BeOS to end users  through our  BeDepot.com  Web site.  We also
generated  revenue by collecting  commission  from sales of third party software
through  our  BeDepot.com  Web site.  In the  first  quarter  of 2001,  we began
recognizing  revenue  from  royalties  and fees  related  to our  BeIA  software
platform.

     We  expect  our  future  revenues,  if any,  to  continue  to be  primarily
generated   through  royalty   payments,   maintenance  and  support  fees,  and
professional  services and  integration  fees from our existing  contracts  with
developers  and  manufacturers  of Internet  appliances,  and other  systems and
hardware  manufacturers  incorporating BeIA into their products.  We expect that
any  revenues  from BeIA will be  generally  derived  through  licensing of BeIA
through such existing  contracts with developers and  manufacturers  of Internet
appliances  and  related  service  fees  including   integration,   support  and
maintenance  fees.  The revenues  from BeIA have not offset the loss of revenues
from sales of BeOS and we expect that our  revenues and cash flow for the future
periods to continue to be negatively impacted.

     Since  adopting and  incorporating  BeIA as a software  solution  generally
represents a significant  product  decision for developers and  manufactures  of
Internet  appliances  and related  systems and hardware,  we have  experienced a
longer  sales cycle as we have  collaborated  with and  educated  customers  and
partners on the use and  benefits of BeIA.  We expect our revenues in the future
to be dependent in large part upon the success of our customers'  products using
our BeIA  solution.  We have little or no  influence  over the  development  and
marketing efforts of our customers. Our customers are generally under no minimum
payment obligations or minimum purchase requirements. Our customers and partners
are  free to use  software  platforms  developed  by  other  companies  in their
Internet  appliance  products and are under no  obligation  to develop or market
products  based on our  software  solution.  As a result,  we have very  limited
ability to  evaluate  the  success of our  partnership  efforts  and predict the
realization or timing of any revenues.

     Our research and development expenses consist primarily of compensation and
related  costs for  research  and  development  personnel.  We also  include  in
research  and   development   expenses  the  costs   relating  to  licensing  of
technologies and amortization of costs of software tools used in the development
of our operating  system.  Costs incurred in the research and development of new
releases and enhancements are expensed as incurred. These costs include the cost
of licensing  technology that is incorporated  into a product or an enhancement,
which is still in preliminary development, and technological feasibility has not
been  established.  Once the  product is  further  developed  and  technological
feasibility has been  established,  development  costs are capitalized until the
product is available for general  release.  To date,  products and  enhancements
have generally reached technological feasibility and have been released for sale
at substantially the same time.

                                       10
<PAGE>

     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.  As  announced on July 31, 2001,  we have
eliminated the Compan's  sales and marketing  departments to conserve  existing
resources.  We expect our sales and marketing functions to be greatly limited in
the future and carried out by the executive management team. Re-establishment of
a formal sales and  marketing  function  will be in large part  dependent on our
ability to secure sufficient capital to fund our ongoing  operations.  If we are
able to secure sufficient  additional capital, we expect our sales and marketing
expenses to increase as we further  promote  awareness of our software  solution
and further  develop and expand our  relationships  with  existing and potential
partners.

     General and  administrative  expenses consist primarily of compensation and
related expenses for management, finance, and accounting personnel, professional
services and related fees,  occupancy costs and other  expenses.  We expect that
our  general  and  administrative  expenses  in the future will be in large part
dependent  on our  ability  to secure  sufficient  capital  to fund our  ongoing
operations.  If we are able to secure sufficient  capital, we expect our general
and administrative  expenses to increase as we expand our existing facilities or
relocate to new  facilities  that better address any growth we may experience or
incur costs  related to any growth in our business and the costs of operating as
a public company.

     We  sell  our   products   in  the  United   States  and   internationally.
International sales of products accounted for less than 1% for the three and six
month periods ended June 30, 2001 and approximately 19% and 9% for the three and
six month periods  ended June 30, 2000.  Because of our shift in focus away from
BeOS,  we expect that in the future a higher  percentage  of our total  revenues
will be derived from North America as compared with revenues to date.  While, to
date,  the majority of our  international  revenues have been  denominated in US
dollars, we expect most of our international revenues to be denominated in local
currencies. We do not currently engage in currency hedging activities.  Although
exposure  to  currency  fluctuations  to date  has  been  insignificant,  future
fluctuations  in currency  exchange  rates may  adversely  affect  revenues from
international sales.

     From time to time in the past,  we have granted  stock options to employees
and non-employee  directors and expect to continue to do so in the future. As of
June 30, 2001, we had recorded deferred compensation related to these options in
the total  amount  of $15.7  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,  $5.7 million had been  amortized at December 31, 1998,  with $6.2
million,  $2.6 million and $331,000,  being  amortized in 1999, 2000 and the six
month period ended June 30, 2001,  respectively.  Future amortization of expense
arising out of options granted through June 30, 2001 is estimated to be $320,000
for the  remaining  six months of 2001,  $226,000 in 2002 and $5,000 in 2003. We
amortize the deferred compensation charge monthly over the vesting period of the
underlying option.

                                       11
<PAGE>

Comparison

     Certain prior year costs have been reclassified to conform with the current
year presentation.

     Operating  expenses as shown in the Consolidated  Statements of Operations,
include non-cash charges for stock compensation amortization as follows:
<TABLE>
<CAPTION>

                                                               Three Months       Six Months
                                                              Ended June 30,    Ended June 30,
                                                            ----------------   ----------------
                                                             2001      2000      2001     2000
                                                            ------    ------   ------    ------
                                                              (in thousands)     (in thousands)
<S>                                                        <C>        <C>      <C>       <C>
Amortization of deferred compensation included in:
     Research and development ...........................   $   50    $  196   $  152    $  509
     Sales and marketing ................................     (101)      189      (37)      426
     General and administrative .........................       80       272      216       755
                                                            ------    ------   ------    ------
        Total amortization of deferred stock compensation   $   29    $  657   $  331    $1,690
                                                            ======    ======   ======    ======
</TABLE>


     Excluding the amortization of deferred compensation, operating expenses are
as follows:
<TABLE>
<CAPTION>

                                                     Three Months          Six Months
                                                    Ended June 30,       Ended June 30,
                                                   -----------------   -----------------
                                                    2001       2000      2001      2000
                                                   -------   -------   -------   -------
                                                     (in thousands)      (in thousands)
<S>                                                <C>       <C>       <C>       <C>
Operating expenses:
     Research and development ..................   $ 2,276   $ 1,843   $ 4,655   $ 3,991
     Sales and marketing .......................       557     1,883     2,111     3,974
     General and administrative ................     1,370       939     2,380     1,969
     Amortization of deferred stock compensation        29       657       331     1,690
                                                   -------   -------   -------   -------
        Total operating expenses ...............   $ 4,232   $ 5,322   $ 9,477   $11,624
                                                   =======   =======   =======   =======
</TABLE>


Comparison of the Three Month Period ended June 30, 2001 to the Three Month
Period ended June 30, 2000

     Net  Revenues.  Net revenues  increased  $573,000 to $715,000 for the three
month period ended June 30, 2001 from  $142,000 for the three month period ended
June  30,  2000.  Revenues  are not  directly  comparable  as they  were  mainly
attributable  to shipments of BeOS in 2000 and to BeIA  integration  services in
2001.

     Cost of Revenues.  Cost of revenues increased $59,000, or 23%, to $320,000,
for the three month period ended June 30, 2001 from $261,000 for the three month
period ended June 30, 2000. A majority of such costs continue to result from the
continuing amortization of technology license agreements.

     Research and Development.  Research and development expenses,  exclusive of
stock compensation,  increased  $433,000,  or 23%, to $2.3 million for the three
month  period  ended June 30, 2001 from $1.8  million for the three month period
ended  June  30,  2000.  The  increase  results   primarily  from  increases  of
approximately  $400,000 in personnel  expenses,  primarily  attributable  to the
hiring of additional research and development personnel.

     Sales and  Marketing.  Sales and  marketing  expenses,  exclusive  of stock
compensation,  decreased  $1.3 million,  or 70%, to $557,000 for the three month
period  ended June 30, 2001 from $1.9  million for the three month  period ended
June 30, 2000. This decrease is primarily  attributable to the  restructuring of
our operations,  implemented  early in the quarter to reflect current market and
financial conditions, following which we closed our European office in Paris and
eliminated positions  principally in the sales and marketing  departments in the
United States.

                                       12
<PAGE>

     General and Administrative.  General and administrative expenses, exclusive
of stock compensation, increased $431,000, or 46%, to $1.4 million for the three
month period ended June 30, 2001 from  $939,000 for the three month period ended
June 30, 2000.  This increase is primarily  attributable to the payment of fees,
on a retainer  basis,  to an investment  banking  firm,  hired during the second
quarter of 2001,  to assist us in  exploring  various  strategic  and  financial
alternatives for maximizing shareholder value on a near-term basis.

     Restructuring Charge. On April 2, 2001, we announced our decision,  made at
the end of the first quarter,  to restructure  our operations to reflect current
market and  financial  conditions  by closing our  European  office in Paris and
eliminating positions principally in the Company's sales,  marketing and general
administration  departments  in the United  States.  As a result,  we recorded a
restructuring  charge of  $307,000  in the first  quarter for the closing of our
European  office,  which is comprised of $272,000  for  involuntary  termination
benefits and $35,000 for  termination  of operating  contracts and  professional
fees.  As  anticipated,  we  recorded a  restructuring  charge of  approximately
$143,000 in the second quarter for the involuntary  termination benefits related
to the elimination of 22 positions in the U.S.

     Amortization of Deferred Stock Compensation. Amortization of deferred stock
compensation  decreased $628,000,  or 96%, to $29,000 for the three month period
ended June 30,  2001,  from  $657,000  for the three month period ended June 30,
2000. The decrease is attributable to the cancellation of options and to the use
of an amortization methodology, which tends to record higher compensation in the
initial  years of the vesting  period.  These  amounts  represent  the allocated
portion of the difference  between the deemed fair value of our common stock and
the exercise price of stock options granted by us to employees and  non-employee
directors.

     Other Income (Expense),  Net. Net other income decreased $238,000,  or 74%,
to $84,000 for the three month period ended June 30, 2001 from  $322,000 for the
three month period ended June 30, 2000.  The decrease is primarily  attributable
to the decrease in interest income due to the reduced balances in our investment
portfolio used to fund operations.

Comparison  of the Six Month  Period ended June 30, 2001 to the Six Month Period
Ended June 30, 2000

     Net Revenues. Net revenues increased $419,000 to $815,000 for the six month
period ended June 30, 2001 from $396,000 for the six month period ended June 30,
2000.  Revenues are not directly  comparable as they were mainly attributable to
shipments  of BeOS in 2000 and to BeIA  royalties  and  integration  services in
2001.

     Cost of Revenues.  Cost of revenues increased  $17,000,  or 3%, to $571,000
for the six month  period  ended June 30, 2001 from  $554,000  for the six month
period ended June 30, 2000. A majority of such costs continue to result from the
continuing amortization of technology license agreements.

     Research and Development.  Research and Development expenses,  exclusive of
stock  compensation,  increased  $664,000,  or 17%, to $4.7  million for the six
month  period  ended June 30, 2001 from $4.0  million  for the six month  period
ended  June 30,  2000.  The  increase  results  primarily  from an  increase  of
approximately  $700,000 in personnel expenses following the hiring of additional
staff, net of savings of approximately $80,000 on outside consulting expenses.

                                       13
<PAGE>

     Sales and  Marketing.  Sales and  Marketing  expenses,  exclusive  of stock
compensation,  decreased $1.9 million, or 47%, to $2.1 million for the six month
period ended June 30, 2001 from $4.0 million for the six month period ended June
30, 2000. This decrease is primarily attributable to the impact of refocusing of
marketing  activities  initiated  in  the  first  quarter  of  2000  and  to the
restructuring  of our  operations,  implemented  early in the second  quarter of
2001.  The  refocusing  of marketing  activities  in 2000  resulted in decreased
public  relations  activities,  outside  consulting  and third  party  developer
programs  for a net  decrease  of  approximately  $1.1  million.  As part of the
restructuring  of our operations in 2001 to reflect current market and financial
conditions,  we closed our  European  office in Paris and  eliminated  positions
principally in the sales and marketing  departments in the United States,  for a
net impact of approximately $800,000.


     General and Administrative.  General and administrative expenses, exclusive
of stock compensation,  increased $411,000,  or 21%, to $2.4 million for the six
month  period  ended June 30, 2001 from $2.0  million  for the six month  period
ended June 30, 2000.  This increase is primarily  attributable to the payment of
fees,  on a retainer  basis,  to an investment  banking  firm,  hired during the
second  quarter  of 2001,  to  assist  us in  exploring  various  strategic  and
financial alternatives for maximizing shareholder value on a near-term basis.

     Amortization of Deferred Stock Compensation. Amortization of deferred stock
compensation  decreased  $1.4  million,  or 80%, to  $331,000  for the six month
period  ended June 30,  2001,  from $1.7  million for the six month period ended
June 30, 2000. The decrease is attributable  to the  cancellation of options and
to the  use  of an  amortization  methodology,  which  tends  to  record  higher
compensation in the initial years of the vesting period. These amounts represent
the  allocated  portion of the  difference  between the deemed fair value of our
common stock and the exercise price of stock options  granted by us to employees
and non-employee directors.

     Other Income (Expense),  Net. Net other income decreased $433,000,  or 65%,
to $230,000 for the six month  period ended June 30, 2001 from  $663,000 for the
six month period ended June 30, 2000. The decrease is primarily  attributable to
the decrease in interest  income due to the reduced  balances in our  investment
portfolio used to fund operations.


Taxes

     Since  inception,  the Company has  generated  net  operating  losses which
aggregated  approximately  $82.5  million as of June 30,  2001.  The Company has
provided a full valuation allowance against the losses since it believes that it
is more likely than not that such benefits  will not be realized.  The amount of
available  net  operating  losses  will be  reduced  in the case of a change  in
ownership as defined in the Internal Revenue Code.

Liquidity and Capital Resources

     Since our inception,  we have financed our operations primarily through the
sale of our equity securities and through borrowing arrangements.  Cash and cash
equivalents and short-term  investments decreased  approximately $9.2 million to
$4.9  million at June 30, 2001 from $14.1  million at December  31,  2000.  This
decrease is primarily attributable to the amounts used to fund operations.

                                       14
<PAGE>

     Cash used in  operating  activities  was level at $9.4  million for the six
month periods ended June 30, 2001 and June 30, 2000.

     Cash provided by investing activities decreased approximately $11.0 million
to $2.6  million  for the six month  period  ended June 30,  2001 as compared to
$13.6  million for the six month period ended June 30,  2000.  This  decrease is
primarily  attributable to lower net sales of short-term  investments in the six
month period ended June 30, 2001.

     Cash provided by financing  activities  for the six month period ended June
30, 2001 was  approximately  $518,000,  which represents a $2.5 million decrease
from the six month period ended June 30, 2000 of $3.0 million.  This decrease is
primarily  attributable  to the  proceeds  of $2.1  million  received  from  the
exercise of stock options in the first quarter of 2000.

     We require substantial working capital to fund our operations. We expect to
continue to  experience  losses from  operations  and negative cash flows for at
least the next twelve month period.

     At the end of the first  quarter of 2001, we stated in its Annual Report on
Form 10-K  that we  believed  existing  cash and cash  equivalents  would not be
sufficient  to meet our operating and capital  requirements  at our  anticipated
level of operations beyond the end of the second quarter of 2001.  Following the
reduction in workforce  carried out at the beginning of the second quarter,  and
the further  reduction in workforce and  elimination of the Company's  sales and
marketing  departments at the beginning of the third quarter, we anticipate that
existing  capital will be  insufficient  to fund our operations at the currently
anticipated  levels beyond the third quarter of 2001. The Company has engaged an
investment  banking  firm to assist in securing  various  strategic  and funding
alternatives,  including  the sale of the Company or portions of its business or
assets.  We have also engaged in discussions and negotiations with third parties
involving the potential sale of the Company's  business or assets.  However,  we
have not secured or entered into any agreements to obtain additional  capital or
to sell the Company's business or assets.  There can be no assurance the we will
be able to obtain  additional  funds, on acceptable terms or at all, or that any
strategic  alternatives  including  the sale of the  Company or  portions of its
business or assets will materialize. Without additional capital prior to the end
of the third quarter of 2001,  the Company will most likely cease its operations
and will commence a plan of liquidation.  In  anticipation  of these events,  we
have scaled back our operations including recent layoffs of significant portions
of our  workforce  and  elimination  of the sales and  marketing  functions.  We
believe the cash proceeds  from the sale of the Compan's  business or assets and
any  subsequent  liquidation  following such sale may be  insignificant  due to,
among other  things,  the current  market value of our assets and payments to be
made to creditors  and to  employees  pursuant to change in control or severance
arrangements.  We cannot  assure our  stockholders  that they will  receive  any
consideration  or value  following  liquidation  or the sale of the  business or
assets of the Company or that the per share value of common stock as a result of
liquidation  or the proceeds  per share from a sale of the Compan's  assets will
equal or exceed the price or prices at which the common  stock  traded  prior to
effecting any liquidation, dissolution or sale of the Company.

                                       15
<PAGE>


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 Be's business, operating results and/or
financial condition. Anyone making an investment decision with respect to Be's
Common Stock or other securities of the Company is cautioned to carefully
consider these factors, along with the "Factors Affecting our Business,
Operating Results and Financial Condition" discussed in the Company's Annual
Report on Form 10-K for the year ended December 31, 2000 and our other public
filings with the Securities and Exchange Commission.

In the event that we do not enter  into any  arrangements  to secure  additional
capital,  including the sale of the Company or of any of its business or assets,
we will have to move  forward  with  contingency  plans,  which may  include the
liquidation, winding down or dissolution of the Company.

     At the end of the first  quarter of 2001, we stated in its Annual Report on
Form 10-K  that we  believed  existing  cash and cash  equivalents  would not be
sufficient  to meet our operating and capital  requirements  at our  anticipated
level of operations beyond the end of the second quarter of 2001.  Following the
reduction in workforce  carried out at the beginning of the second quarter,  and
the further  reduction in workforce and  elimination of the Company's  sales and
marketing  departments at the beginning of the third quarter, we anticipate that
existing  capital will be  insufficient  to fund our operations at the currently
anticipated  levels beyond the third quarter of 2001. The Company has engaged an
investment  banking  firm to assist in securing  various  strategic  and funding
alternatives,  including  the sale of the Company or portions of its business or
assets.  We have also engaged in discussions and negotiations with third parties
involving the potential sale of the Company's  business or assets.  However,  we
have not secured or entered into any agreements to obtain additional  capital or
to sell the Company's business or assets.  There can be no assurance the we will
be able to obtain  additional  funds, on acceptable terms or at all, or that any
strategic  alternatives  including  the sale of the  Company or  portions of its
business or assets will materialize. Without additional capital prior to the end
of the third quarter of 2001,  the Company will most likely cease its operations
and will commence a plan of liquidation.  In  anticipation  of these events,  we
have scaled back our operations including recent layoffs of significant portions
of our  workforce  and  elimination  of the sales and  marketing  functions.  We
believe the cash proceeds  from the sale of the Compan's  business or assets and
any  subsequent  liquidation  following such sale may be  insignificant  due to,
among other  things,  the current  market value of our assets and payments to be
made to creditors  and to  employees  pursuant to change in control or severance
arrangements.  We cannot  assure our  stockholders  that they will  receive  any
consideration  or value  following  liquidation  or the sale of the  business or
assets of the Company or that the per share value of common stock as a result of
liquidation  or the proceeds  per share from a sale of the Compan's  assets will
equal or exceed the price or prices at which the common  stock  traded  prior to
effecting any liquidation, dissolution or sale of the Company.

If we are unable to comply with the Nasdaq National  Markets  continued  listing
requirements, our common stock may be delisted from the Nasdaq.

     On April 2, 2001, we received a letter from The Nasdaq Stock  Market,  Inc.
stating  their  concern over the Company's  ability to sustain  compliance  with
Nasdaq's  continued listing  requirements  based on a "going concern" opinion we
received from  PricewaterhouseCoopers  LLP, our independent accountants,  in our
Annual  Report on Form 10-K.  We responded to Nasdaq in a letter dated April 23,
2001 providing them with an explanation of the Company's capital strategy and an
outline of recent steps we have taken to improve our financial position.

     On June 5, 2001,  we received a notice  from Nasdaq that Be's common  stock
had failed to maintain a minimum bid price of one dollar over the  preceding  30
consecutive  trading  days as  required  for  continued  listing  on the  Nasdaq
National  Market.  The notice  stated that if at any time prior to  September 3,
2001,  the closing bid price of Be's common stock does not sustain at one dollar
or more for at least 10  consecutive  trading  days,  Be's common stock could be
delisted  from the  exchange.  If Be's common stock fails to sustain the minimum
closing bid price for the requisite  number of days, the Nasdaq staff will issue
a determination that the common stock will be delisted. Thereafter, and prior to
any actual delisting, Be will have an opportunity to request a hearing. From the
date of the letter  through  August 10, 2001 the Company's  stock has not traded
above one dollar for 10 consecutive trading days.

                                       16
<PAGE>

     We are currently not in  compliance  with all of the Nasdaq's  criteria for
continued  listing and our common stock may be delisted at any time upon written
notice from The Nasdaq  National  Market if we continue to fail to meet Nasdaq's
quantitative or qualitative  criteria for continued listing. If our common stock
is  delisted  from The Nasdaq  National  Market,  it would  seriously  limit the
liquidity  of our common stock and limit our  potential to raise future  capital
through the sale of our common stock, which could have a material adverse effect
on our business.

We have incurred significant net losses and we may never achieve profitability.

     We incurred  significant net losses of approximately $10.4 million in 1997,
$16.9 million in 1998,  $24.5 million in 1999,  $21.2 million for the year ended
December 31, 2000 and $9.5 million for the six month period ended June 30, 2001.
As of June 30,  2001,  we had an  accumulated  deficit of  approximately  $103.8
million. We expect to incur significant additional losses and continued negative
cash flow from operations in 2001 and beyond and we may never become profitable.

     We expect to continue to incur  significant  research and  development  and
general and  administrative  expenses.  Prior to this year,  sales of BeOS,  our
desktop  operating system, to resellers and distributors and direct sales to end
users accounted for the primary source of our revenues.  In the first quarter of
2000,  we shifted our  resources  to focus  primarily on the market for Internet
appliances.  We made a version of BeOS  available  for personal use at no charge
and a more fully featured version is available  through third party  publishers.
The  personal  edition  was  released at the end of March and  publishers  began
shipping the commercial  version in April. As a result,  we may not generate any
meaningful  revenues from sales of BeOS in the foreseeable  future.  Although we
started to recognize  revenues for BeIA in the first quarter of 2001,  our shift
to focus  primarily on the market for Internet  appliances may not result in any
increase in our  revenues or any  improvement  in our  operations  or  financial
condition  and may not offset the loss of revenues  from sales of BeOS.  We will
need to generate  significant  revenues to achieve  profitability  and  positive
operating cash flows. Even if we do achieve profitability and positive operating
cash flow, we may not be able to sustain or increase  profitability  or positive
operating cash flow on a quarterly or annual basis.

We  have  recently  shifted  our  resources  to  focus  primarily  on a new  and
undeveloped market.

     In the first quarter of 2000,  we shifted our resources to focus  primarily
on the market for Internet  appliances and the further development and marketing
of BeIA,  our software  solution  intended for  Internet  appliances.  We may be
unsuccessful  in our  attempt  to  focus  primarily  on  this  market  and  face
significant  challenges often encountered with companies  undergoing a strategic
reorganization, which include:

o    inability  to  effectively   shift   existing   product   development   and
     engineering,  sales and marketing and management  resources to focus on the
     market for Internet appliances;

o    management distraction and loss of key personnel as we focus on this market
     and shift  resources  towards the development and marketing of our software
     solution for Internet appliances market;

o    inadequacy  of  our  existing   resources  to  understand   the  needs  and
     requirements of developers and manufacturers of Internet appliances;

o    inability  to train  existing  personnel  or hire and train  new  qualified
     personnel to address the market for Internet appliances; and

o    failure to adapt to new and evolving trends in Internet appliances.

                                       17
<PAGE>

     We may not successfully meet any or all of these challenges. Our failure to
meet one or more of these  challenges  could  materially  adversely  affect  our
business and  prospects.  In addition,  our  business and  prospects  are highly
dependent on the  development and market  acceptance of Internet  appliances and
our  ability to  successfully  market  BeIA as a viable  software  solution  for
Internet  appliances.  The market for Internet  appliances is new,  unproven and
subject to rapid  technological  change.  This  market may never  develop or may
develop  at a slower  rate than we  anticipate.  In  addition,  our  success  in
marketing BeIA as a software solution for Internet  appliances is dependent upon
developing and  maintaining  relationships  with  industry-leading  computer and
consumer electronics companies, system and hardware manufacturers,  and Internet
service  and content  providers.  Our failure to  establish  relationships  with
companies that offer Internet appliances and establish BeIA in this market would
have a material adverse effect on our business and prospects.

Change of control agreements with each of our officers and key employees contain
provisions   that  could   discourage  a  third  party  from  acquiring  us  and
consequently  decrease  the market  value of our common  stock or any  potential
distribution to stockholders  upon sale of the Company or any of its business or
assets.

     We have  entered  into a  Change  of  Control  Agreement  with  each of our
officers and other key employees.  These  agreements  provide that,  among other
things,  if such employee is terminated  without cause or otherwise  resigns for
good reason during the period  starting six months prior to the date of a change
of control and ending eighteen months following our change of control,  then the
employee shall be entitled to a lump sum severance payment, and the acceleration
and immediate  exercisability  of all unvested  options.  These  provisions  may
discourage  a  third  party  from  acquiring  us or  reduce  the  amount  of any
distribution to our stockholders  from the purchase price in the event of a sale
of the Company or any of its business or assets.

We may be unable to adjust expenses in a timely manner to compensate for revenue
shortfalls.

     Our expense levels are based, in part, on our expectations of future sales.
We may be unable to adjust  spending in a timely  manner to  compensate  for any
sales shortfall.  A significant portion of our expenses include minimum payments
for licensed  technology under licensing  agreements,  payment obligations under
non-cancelable lease arrangements, rent and other payments that are fixed and do
not vary with revenues.

     Any delay in generating  revenue could cause significant  variations in our
operating  results  from  quarter to  quarter  and could  result in  substantial
operating  losses.  If we fail to generate  sufficient sales or if our sales are
below  expectations,  operating  results are likely to be  materially  adversely
affected

                                       18
<PAGE>

We face intense competition from companies with significantly greater financial,
marketing, and technical resources.

     There is  already  intense  competition  to develop  and  market  operating
systems. This competition exists in the market for desktop operating systems, as
well as  operating  systems and  software  platforms  intended  for the Internet
appliances  market.  Companies such as Microsoft  Corporation,  Apple  Computer,
Inc., QNX Software Systems Ltd., Palm, Inc., Merinta Inc., vendors of UNIX-based
operating systems such as Linux, and vendors of embedded operating systems, have
operating systems that are being used or may be used for Internet appliances. We
also face  competition  from vendors of embedded  browsers and  manufacturers of
set-top boxes and terminals.  Many of these companies have an established market
presence,  relationships with OEMs and consumer electronic manufacturers such as
those  developing  and marketing  Internet  appliances,  and have  significantly
greater financial, marketing and technical resources than we do. As a result, we
may have difficulty  attracting  manufacturers  and developers to create devices
and  software  that  will use our  software  solution.  These  more  established
companies,  together with a large number of smaller companies who offer software
platforms that may be used for Internet appliances, may capture a larger portion
of the market than we do. We also expect to face increased  competition from new
entrants offering software platforms intended for use on Internet appliances.

     We expect our  competitors to continue to improve and enhance their current
products and to introduce new products and software platforms,  especially those
intended for the Internet  appliances market.  Successful product  introductions
and product  improvements  by our  competitors  could  reduce or  eliminate  any
perceived  advantages in our software  solution over these competitors and could
reduce market acceptance for our software  solution and make it obsolete.  To be
competitive,  we must continue to invest  significant  resources in research and
development,  sales and  marketing,  and  continue  to enhance  and  improve our
software solution. We may have insufficient  resources to make these investments
and may be unable to make the advances necessary to be competitive.  Our failure
to  compete  successfully  against  current or future  competitors  would have a
material adverse effect on our business and prospects.


Our  success  depends  on  our  ability  to  establish  and  maintain  strategic
relationships, and the loss of any of our strategic relationships could harm our
business and have an adverse impact on our revenue.

     Our success  depends in large part on our ability to establish and maintain
strategic  relationships with industry-leading  computer and consumer electronic
companies, hardware and systems manufacturers,  and Internet service and content
providers.  In the  Internet  appliance  market,  we have  agreements  with Sony
Electronics,  TEAC,  Compaq  Computer  Corporation,  and  Qubit  Technology  and
collaboration arrangements with National Semiconductor, Inc., Intel Corporation,
Acer Group,  Arima  Computer  Corporation  (Arima),  DT  Research,  Inc.,  First
International  Computer,  Inc. (FIC), and Proview Group. We cannot be certain we
will be able to reach  agreements with additional  partners on a timely basis or
at all, or that these  partners  will devote  adequate  resources to promote our
software  solution.  The  elimination  of our  sales and  marketing  team at the
beginning of the third quarter of 2001 has greatly limited our ability to secure
new agreements or, in some cases,  maintain  existing  relationships.  We may be
unable to enter into new agreements with additional  partners on terms favorable
to us or at all. The market for Internet  appliances is new and subject to rapid
technological  change. We may be unable to successfully meet the requirements of
existing or future strategic partners. As a result, we may be unable to maintain
strategic relationships with developers and manufacturers of Internet appliances
and  Internet  service  and  content  providers.  If we are unable to develop or
maintain  relationships  with  strategic  partners and  customers,  we will have
difficulty  selling and  gaining  market  acceptance  for our  products  and our
business and results of operations will be materially adversely affected.


                                       19
<PAGE>

Agreements  with  strategic  partners and device and service  providers  may not
result in any  increase in our  revenues or  improvement  in our  operations  or
financial conditions.

     Existing agreements with OEM customers, for example, those with Sony, TEAC,
Compaq and Qubit, and arrangements with our other strategic  partners  including
National Semiconductor, Intel, Arima, DT Research, FIC and Proview, generally do
not contain any minimum  purchase  commitments or minimum  payment  obligations.
Similarly, new agreements with additional OEM customer and arrangements with new
strategic partners,  may not contain any minimum purchase commitments or minimum
payment  obligations.  Agreements  with  existing and new OEM  customers  may be
limited to a pilot or test  program.  These  partners  are free to use  software
platforms  developed by other companies in their Internet appliance products and
are under no  obligation  to develop or market  products  based on our  software
solution. In addition, our arrangements with existing and new strategic partners
may not result in the marketing or shipment of any commercial  products based on
our platform or may include only a limited number of demonstration  models. As a
result,  existing  arrangements  and new  arrangements,  if any, with  strategic
partners may not result in any actual sales,  any increase in our  revenues,  or
any improvement in our operations or financial condition.


We are  dependent  upon the success of the products and services  offered by our
partners and customers in the Internet appliances market.

     We expect to market BeIA  primarily  to  developers  and  manufacturers  of
Internet  appliances  and  providers  of  services  to  access  information  and
entertainment  over the  Internet.  Our  intent is for these  manufacturers  and
service providers will incorporate our software solution into their products and
services.  Our BeIA  customers  may include  computer  and  consumer  electronic
companies,   manufacturers   of  the  hardware  and  systems  used  in  Internet
appliances, and Internet service and content providers. As a result, our success
is  dependent  in large part on factors  which are  outside  our  control  which
include,  the  performance  of our  customers  and the market  acceptance of our
customers' products and services based on our software solution.  We have little
or no  ability  to  influence  the  development  and  marketing  efforts  of our
customers and our customers may fail to dedicate adequate resources necessary to
successfully develop and market products based on our software solution.


The demand for our software  solution is dependent on our ability to support key
industry standards and access to enabling technologies.

     The demand and  acceptance of our product is dependent  upon our ability to
support a wide range of  industry  standards  such as those  used for  streaming
media and Internet browsing and access to key enabling  technologies.  These key
technologies  include a Web browser under license from Opera Software A/S. If we
were to lose  our  rights  to this  Web  browser  or any  other  key  technology
incorporated  into our products,  we may be required to devote  significant time
and resources to replace such browser or other key  technologies.  This could in
turn be  costly,  result  in the  unavailability  or delay  the  release  of our
products,  and would  materially  adversely  affect our business  and  operating
results.  We also  license  other  enabling  technologies  for  inclusion in our
product,  such as third party compression and decompression  algorithms known as
"codecs." We may be unable to license these enabling  technologies  at favorable
terms, or at all, which may result in lower demand for our products.


                                       20
<PAGE>

We expect long sales cycles  associated with our software  solution intended for
the Internet  appliances  market and our stock price could  decline if sales are
delayed or cancelled.

     We believe that the adoption of BeIA as their software solution  represents
a significant  product decision for the developers and manufacturers of Internet
appliances.  We expect long sales cycles as we collaborate and educate customers
and  partners on the use and  benefits of our  software  solution.  We similarly
expect customers and partners will spend a significant amount of time performing
internal reviews and testing our software solution before accepting and adopting
our product.  Any failure to gain  acceptance for our software  solution and any
delays in sales of our product  could cause our quarterly  operating  results to
vary significantly from projected results,  which could cause our stock price to
decline.


Our products may never gain broad market acceptance.

     We have two principle  products,  BeIA, our software  solution intended for
the Internet  appliances  market and BeOS, our operating system intended for the
desktop market.  BeOS has been our primary source of revenues in the past and it
has been used  primarily  by a limited  number of  enthusiasts  and  application
developers.  Our  business and  prospects  are  dependent on the broader  market
acceptance  of our  products,  especially  the  acceptance  of BeIA as a  viable
software solution for a broad range of Internet  appliances and devices enabling
Internet-based  and digital  media  applications.  In an effort to increase  the
market  acceptance  of our  software  solution,  a version of BeOS has been made
available  for personal use for no charge.  Despite  these  efforts,  we may not
experience  any  significant  increase  in the number of BeOS users or a broader
market  acceptance  of our software  solution and  developers  may decide not to
adopt or develop products based on our software solution.

     We may be unsuccessful at marketing BeIA as the software solution of choice
for Internet appliances, and developers and manufacturers of Internet appliances
and Internet service and content  providers may not elect to incorporate BeIA in
their  products  and  services.   Potential   customers  may  not  perceive  any
significant  advantages over other operating  systems such as Microsoft  Windows
CE, QNX, PalmOS, the UNIX-based  operating systems,  Linux, or embedded browsers
and  operating  systems.  In  addition,  we may be  unable  to  demonstrate  the
commercial viability and cost-effective nature of our products. If our products,
especially our software solution intended for the Internet  appliances,  are not
accepted or adopted by an increasing number of developers and manufacturers, our
business and prospects will be materially adversely affected.

         In addition, traditional operating systems could evolve and new
operating systems could emerge to more effectively address the needs of the
manufacturers and developers of Internet appliances and the digital media
requirements of users and OEMs. For example, enhancements and features could be
added to Microsoft's Windows operating system and Apple's Mac OS which could
significantly decrease the differences between our products and these operating
systems. As a result, any technical or marketing advantage we may have in the
market for operating systems could be lost and the demand and acceptance of our
products would diminish.


                                       21
<PAGE>

We have limited  experience  marketing and selling our products,  which makes it
difficult to evaluate our business.

     We were  founded  in 1990 and  shipped  our  first  commercial  product  in
December 1998. Prior to 1998, our business was primarily focused on research and
product development  activities.  To date, we have not generated any significant
revenues  from sales of our products and this makes it difficult to evaluate our
business and  prospects.  In January 2000, we announced a shift in our resources
to focus primarily on the Internet  appliances market, a new and unproven market
and a market in which we have little  experience  competing.  Your evaluation of
our business and prospects must be made in light of the risks and  uncertainties
frequently  encountered  by  companies  in an  early  stage of  development  and
offering products in a market featuring intense  competition from companies with
substantially  greater  financial and marketing  resources.  Risks faced in this
regard include:

o    our  inability  to manage or adapt to new and  evolving  trends in Internet
     appliances and digital media;

o    our  inability  to  market  our  product  as a  viable  software  solution,
     especially to leading developers and manufacturers of Internet appliances;

o    our  failure to gain any  sustainable  level of market  share or to compete
     with operating systems and software platforms offered by others; and

o    costs and delays in releasing new versions and product upgrades.


     We may not successfully meet any of these  challenges.  Our failure to meet
one or more of these challenges  could materially  adversely affect our business
and prospects.  It is also difficult to predict the size and future growth rate,
if any, of the market for our software solution. We have limited experience upon
which to determine or predict  trends that may emerge and  adversely  affect our
business or prospects.  The market for our software  solution may not develop or
may develop more slowly than we  anticipate,  and may never become  economically
sustainable.


We may not be able to respond to the rapid  technological  change in the markets
in which we compete.

     The markets in which we participate or seek to participate are subject to:

o    rapid technological change;

o    frequent product upgrades and enhancements;

o    changing customer requirements for new products and features; and

o    multiple, competing and evolving industry standards.


     The  introduction  of  software  that  contain  new  technologies  and  the
emergence of new industry  standards could render our products less desirable or
obsolete. In particular,  we expect changes in the Internet-based technology and
digital media  enabling  technology  will require us to rapidly evolve and adapt
our products to be competitive.  As a result,  the life cycle of each release of
our  products is  difficult  to  estimate.  To be  competitive,  we will need to
develop and release new products and software  solution upgrades that respond to
technological   changes  or  evolving   industry   standards  on  a  timely  and
cost-effective basis. We cannot be certain that we will successfully develop and
market  these  types of  products  and  software  solution  upgrades or that our
products will achieve market acceptance.  If we fail to produce  technologically
competitive  products  in a  cost-effective  manner and on a timely  basis,  our
business and results of operations could suffer materially.


                                       22
<PAGE>

Our revenues and operating  results are subject to significant  fluctuations and
our  stock  price  may fall if we fail to meet the  expectations  of the  public
market.

     Our revenues and  operating  results  will likely vary  significantly  from
period  to  period  due to a number  of  factors,  some of which  are  under our
control,  such as product  enhancements by us, and many of which are outside our
control,   such  as  new  product  releases  and  product  enhancements  by  our
competitors.  Customer  orders may be  deferred in  anticipation  of new product
releases,  product  enhancements  or  upgrades by us or by our  competitors.  In
addition, changes in the pricing policies or marketing efforts of our competitor
and our response to these  changes,  which could  include  price  reductions  or
increased  marketing  efforts by us, may cause  significant  fluctuations in our
revenues and operating results.  Based on these factors, we may fail to meet the
expectations  of the public market in any given period and our stock price would
likely be materially adversely affected.


We are dependent  upon third party  publishers for the marketing and sale of the
commercial version of BeOS and we have little or no control over the efforts and
operation of these publishers.

     In March of 2000, a version of BeOS was made  available for personal use at
no  charge.  In April of 2000,  we also  made  the  commercial  version  of BeOS
available through third party  publishers.  Our success in the desktop market is
highly  dependent  on these  publishers'  ability  to sell and  market  BeOS and
incorporate  it as part of successful  product  offerings.  We have little or no
ability to influence the marketing and promotional  efforts of these  publishers
and  these  companies  may fail to  dedicate  adequate  resources  necessary  to
successfully market and promote the commercial version of BeOS.

In our effort to increase  market  acceptance  for our  products,  we may forego
near-term  revenue by  providing  our products at little or no cost to potential
customers.

     In an attempt to increase the market  acceptance of our software  solution,
we have made a version of BeOS  available to end users for free.  In the future,
we may decide to continue to forego  immediate  revenue  potential  by providing
other  versions  of BeOS at  little  or no cost.  We may also  forego  near-term
revenue  potential  in the  Internet  appliances  market  by  providing  BeIA to
developers and manufacturers at little to no cost. Customers,  whether end-users
or the developers or manufacturers of Internet  appliances,  may be unwilling to
pay for any  upgrades or  enhanced  versions of our  products.  Our  decision to
forego near-term  revenue in expectation of increasing the users and adopters of
our  software  solution  may  not  yield  any  increase  or  sustainable  market
acceptance  for our  products  and may not  result in any  future  revenues.  In
addition,  we may reduce prices in response to competitive  factors or to pursue
new market opportunities.

                                       23
<PAGE>


Our future  success  depends  in part on our  ability to  continue  to  attract,
identify, hire and retain key personnel and qualified employees.

     Our  success   depends  to  a   significant   degree  upon  the   continued
contributions  of our  executive  management  team,  including  our  co-founders
Jean-Louis  Gassee,  our  Chief  Executive  Officer,  Steve  Sakoman,  our Chief
Operating Officer,  and other senior level financial,  technical,  marketing and
sales  personnel.  The loss of these or other  members of our senior  management
team  could  have a  material  adverse  effect on our  business  and  results of
operations.

     As of June 30,  2001,  we had 86  employees.  Our success  depends upon our
ability to attract and retain highly qualified senior  management and technical,
sales and  marketing  personnel to support  growing  operations.  The process of
locating and hiring  personnel  with the  combination  of skills and  attributes
required to carry out our strategy is  time-consuming  and costly.  In addition,
there is intense  competition for qualified  personnel in the software  platform
and development industry. Competition is especially intense in the San Francisco
Bay Area, where our corporate headquarters is located. The loss of key personnel
or our  inability  to  attract  qualified  personnel  to  supplement  or replace
existing  personnel,  could have a material  adverse  effect on our business and
results of operations.

     On July 31, 2001, we announced the elimination of 28 positions. In addition
to  the  elimination  of the  sales  and  marketing  departments,  positions  in
administration  and  engineering  were also affected.  The eliminated  positions
represent  approximately 33% of our existing workforce.  Remaining positions are
primarily engaged in product development.  If we are unable to secure sufficient
funding or raise additional capital to fund our present level of operations,  we
will have to continue to scale back our  business  which  could  include,  among
other things,  significant  further reductions in our work force and the loss of
employees.  As a result of any material  reduction in our  workforce and loss of
employees, we may not be able to further develop our product offerings,  conduct
our  business  comparable  with  past  practice  or  take  advantage  of  future
opportunities, which could have a material adverse effect on our business.


Our success is dependent on the continued growth and improvement of the Internet
and adoption of Internet appliances.

     Our future  success  depends on the  continued  growth of and  reliance  by
consumers and businesses on the Internet, particularly in the Internet appliance
market.  Use and  growth of the  Internet  will  depend in  significant  part on
continued rapid growth in the number of households and  commercial,  educational
and government  institutions with access to the Internet.  The use and growth of
the Internet will also depend on the number and quality of products and services
designed  for use on the  Internet.  Because use of the  Internet as a source of
information,  products  and services is a relatively  recent  phenomenon,  it is
difficult  to predict  whether  the number of users drawn to the  Internet  will
continue to increase and whether any  significant  market for  commercial use of
the Internet will continue to develop and expand.  Either  Internet use patterns
may decline as the novelty of the medium  recedes or the quality of products and
services offered online may not support continued or increased use.

                                       24
<PAGE>

     The rapid rise in the number of Internet users and the growth of electronic
commerce and applications for the Internet has placed increasing  strains on the
Internet's  communications and transmission  infrastructure.  This could lead to
significant  deterioration  in  transmission  speeds and the  reliability of the
Internet  as a  commercial  medium and could  reduce the use of the  Internet by
businesses and individuals.  The Internet may not be able to support the demands
placed upon it by this continued growth.  Any failure of the Internet to support
growth due to inadequate  infrastructure or for any other reason would seriously
limit its development as a viable source of commercial and  interactive  content
and  services.  This could impair the  development  and  acceptance  of Internet
appliances  which could in turn  materially  adversely  affect our  business and
prospects.


We may be unable to manage any growth that we may experience.

     To succeed in the implementation of our business strategy,  we must rapidly
execute  our sales and  marketing  strategy,  further  develop  and  enhance our
products and product  support  capabilities  especially  those  intended for the
Internet  appliance  market,  and  implement  effective  planning and  operating
processes. To manage any anticipated growth we must:

o    establish and manage multiple relationships with OEMs, Internet service and
     content providers and other third parties;

o    continue to implement and improve our operational, financial and management
     information systems; and

o    hire, train and retain additional qualified personnel.


     Our  systems,  procedures  and  controls may not be adequate to support our
operations,  and our management may not be able to perform the tasks required to
capitalize on market opportunities for our products and services.  If we fail to
manage our growth effectively, our business could suffer materially.


We expect continued erosion in the average selling prices of our products.

     We  anticipate  that  the  average  selling  prices  of our  products  will
fluctuate  and  decrease  in the  future in  response  to a number  of  factors,
including:

o    competitive pricing pressures;

o    rapid technological changes; and

o    sales discounts.


     We also  anticipate  that the average  selling  price of our products  will
decrease  as we  market  our  products  to  Internet  appliance  developers  and
manufacturers.  Therefore,  to maintain or increase our gross  margins,  we must
develop and introduce new products and product  enhancements  on a timely basis.
As our average selling prices decline, we must increase our unit sales volume to
maintain or increase our revenue.  If our average  selling  prices  decline more
rapidly than our costs,  our gross margins will decline,  which could  seriously
harm our business and results of operations.

                                       25
<PAGE>


We are dependent on third party development tools.

     We are dependent on development tools provided by a limited number of third
party  vendors.   Development  tools  are  software   applications  that  assist
programmers in the  development of  applications.  Together with our application
developers, we primarily rely upon software development tools provided by Cygnus
Solutions  and  Perforce  Software.  Cygnus  Solutions  was  acquired by Red Hat
Software,  one of our competitors.  If we lose access to these development tools
or if Cygnus or Perforce fail to support or maintain these development tools, we
will either have to devote resources to maintain and support the tools ourselves
or transition to another  vendor.  Any maintenance or support of the tools by us
or the  transition  could be costly,  time  consuming,  could  delay our product
release and upgrade  schedule,  and could delay the development and availability
of third party applications used on our products.  Failure to procure the needed
software  development  tools or any  delay in the  availability  of third  party
applications  could negatively impact our ability and the ability of third party
application  developers  to release and support our  software  solution  and the
applications  that run on it. These  factors  could  negatively  and  materially
affect the acceptance and demand for our products, our business and prospects.


Product defects may harm our business and reputation.

     Computer operating systems, such as our products, frequently contain errors
or bugs. We have detected and may continue to detect errors and product  defects
in connection with new releases and upgrades of our operating system and related
products.  Despite our  internal  testing  and testing by current and  potential
customers,  errors may be discovered  after our products or related software and
tools are installed and used by customers.  These errors could result in reduced
or lost revenue, delay in market acceptance, diversion of development resources,
damage to our reputation,  or increased service and warranty costs, any of which
could materially adversely affect our business and results of operations.

     Our products must successfully  integrate with products from other vendors,
such as third party software  applications and computer  hardware.  As a result,
when problems occur in an Internet  appliance,  a personal computer or any other
device or network using our products, it may be difficult to identify the source
of the problem.  The occurrence of hardware and software errors,  whether caused
by our products or another  vendor's  products,  may result in the  reduction or
loss of market  acceptance of our products,  and any necessary product revisions
may force us to incur  significant  expenses.  The  occurrence of these problems
could materially adversely affect our business and results of operations.


                                       26
<PAGE>

Our  success  depends on our  ability to protect  and  enforce  our  proprietary
rights.

     Our success depends significantly on our ability to protect our proprietary
rights to technologies used in our products.  We rely primarily on a combination
of  copyright,  trademark  and trade  secret  laws,  as well as  confidentiality
procedures and  contractual  provisions to protect our  proprietary  rights.  To
date,  we have  applied for only one patent and existing  copyright  laws afford
only limited protection for our software. A substantial portion of our sales are
derived from the licensing of products  under  "shrink wrap" license  agreements
that are not signed by licensees and, therefore,  may be unenforceable under the
laws of  certain  jurisdictions.  Despite  any  measures  taken to  protect  our
proprietary  rights,  attempts  may be  made  to copy  aspects  of our  software
solution or to obtain and use  information  that we regard as proprietary  which
could harm our business. In addition,  the laws of some foreign countries do not
protect our intellectual  property to the same extent as U.S. laws. Finally, our
competitors  may  independently  develop  similar  technologies.   The  loss  or
misappropriation  of  any  material  trademark,  trade  name,  trade  secret  or
copyright  could have a material  adverse  effect on our business and results of
operations.

     The software  industry is  characterized by the existence of a large number
of patents and frequent litigation based on allegations of patent  infringement.
As the number of  entrants  into our market  increases,  the  possibility  of an
infringement  claim  against  us grows.  For  example,  we may be  inadvertently
infringing on a patent. In addition,  because patent  applications can take many
years to issue,  there may be a patent  application  now pending of which we are
unaware upon which will be infringing when it issues in the future.  Although we
do not believe that our products infringes on the rights of third parties, third
parties may still assert  infringement  claims against us in the future and this
could result in costly litigation and distraction of management. To address such
patent  infringement  claims,  we may have to enter into  royalty  or  licensing
agreements.  Licenses may not be available on  reasonable  terms or at all which
could have a material adverse effect on our business and results of operations.


Our stock price is highly volatile.

     The trading price of our common stock has fluctuated  significantly and has
ranged from $0.41 to $39.563  over the past 24 months  since our initial  public
offering in July 2000. In addition, many factors could cause the market price of
our common stock to fluctuate substantially, including:

o    announcement   by  us  or  our   competitors   of   significant   strategic
     partnerships,  joint ventures,  significant contracts, or acquisitions,  or
     rumors to that effect;

o    announcement  by us of loss of significant  strategic  partnerships,  joint
     ventures, significant contracts or acquisitions;

o    news and announcements  relating to the ongoing antitrust actions involving
     Microsoft;

o    announcements by us or our competitors concerning software errors or delays
     in product releases;

o    availability of key software applications developed for our products or our
     competitor's products; and

o    changes in financial estimates by securities analysts.


     Specifically,  certain  market  segments  such  as  the  computer  software
industry have experienced  dramatic price and volume  fluctuations  from time to
time. These  fluctuations may or may not be based upon any business or operating
results. Our common stock may experience similar or even more dramatic price and
volume fluctuations which may continue indefinitely.

     In the past,  securities  class  action  litigation  has often been brought
against a company  following  periods of  volatility  in the market price of its
stock.  We may in the  future be the target of  similar  litigation.  Securities
litigation  could  result in  substantial  costs  and  diversion  of  management
attention and  resources,  all of which could  materially  harm our business and
results of operation.

Delaware  law and our Amended and  Restated  Certificate  of  Incorporation  and
bylaws could  discourage a third party from acquiring us and could  consequently
decrease the market value of our common stock.

     Our Amended and Restated  Certificate of Incorporation  grants our board of
directors the authority to issue up to 2,000,000  shares of preferred  stock and
to  determine  the price,  rights,  preferences,  privileges  and  restrictions,
including  voting  rights of these shares  without any further vote or action by
the  stockholders.  Since  the  preferred  stock  could be issued  with  voting,
liquidation,  dividend and other rights  superior to those of the common  stock,
the  rights of the  holders  of common  stock  will be  subject  to,  and may be
adversely affected by, the rights of the holders of any preferred stock that may
be issued.  The issuance of  preferred  stock could have the effect of making it
more difficult for a third party to acquire a majority of our outstanding voting
stock which could decrease the market value of our stock. Further, provisions in
our Amended and Restated Certificate of Incorporation and bylaws and of Delaware
law could have the effect of delaying or preventing a third party from acquiring
us,  even  if a  change  in  control  would  be in  the  best  interest  of  our
stockholders.  These provisions  include the inability of stockholders to act by
written  consent  without  a  meeting  and  procedures   required  for  director
nomination and stockholder proposal. 27
<PAGE>


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 June 30, 2001.
However, we are exposed to financial market risks,  including changes in foreign
currency  exchange  rates and  interest  rates.  Much of our revenue and capital
spending is  transacted  in U.S.  dollars.  However,  the  expenses  and capital
spending of our French  subsidiary are  transacted in French  francs.  Since the
closing of our French subsidiary was substantially completed at the end of June,
we believe that foreign currency exchange rates should not materially  adversely
affect our overall financial  position,  results of operations or cash flows. We
believe that the fair value of our investment  portfolio or related income would
not be  significantly  impacted by increases or decreases in interest  rates due
mainly to the short-term nature of our investment  portfolio.  However,  a sharp
increase in  interest  rates  could have a material  adverse  effect on the fair
value of our investment portfolio.  Conversely, sharp declines in interest rates
could seriously harm interest earnings of our investment portfolio.

                                       28
<PAGE>


PART II - OTHER INFORMATION


ITEM 1.    LEGAL PROCEEDINGS

     As previously  disclosed in the Company's  filings with the  Securities and
Exchange  Commission,  in November 2000, our 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 a party  named 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.  The  stockholder is seeking damages in the amount
of  approximately  $2.0  million.  Prior to this  filing,  the  Company had been
participating  in  communications  with the  parties 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.


ITEM 2.    CHANGES IN SECURITIES AND USE OF PROCEEDS

Sales of Registered Securities and Use of Proceeds

     None.

Sales of Unregistered Securities

     None.


ITEM 3.    DEFAULT UPON SENIOR SECURITIES

     None.


ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     At the Company's 2001 Annual Meeting of Stockholders held on May 30, 2001,
stockholders voted on the following:

     Proposal I - Election of  Directors  - The  following  directors  were each
     elected  for a  three-year  term  expiring  at the 2004  Annual  Meeting of
     Stockholders:

                        Nominee                    For           Abstain
                        -------                    ---           -------
                  Barry M. Weinman             26,576,695        322,132
                  Andrei M. Manoliu            26,682,857        215,970
                  Garrett P. Gruener           26,572,431        326,396

          The  following  directors  will  continue  to serve as  members of the
          Company's board of directors  until their term is expired:  Jean-Louis
          F. Gassee, Stewart Alsop, William F. Zuendt, Steve M. Sakoman.

     Proposal II - Ratification  of selection of  PricewaterhouseCoopers  LLP as
     the Company's  Independent  Auditors for the fiscal year ended December 31,
     2001.

                       For          Against          Abstain    Broker Non-Vote
                       ---         --------         -------     ---------------
                  26,858,572        31,421            8,834            0

                                       29
<PAGE>


ITEM 5.    OTHER INFORMATION

     None.


ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:

          3.1* Amended and Restated Certificate of Incorporation

          3.2* Bylaws


     *    Filed  with  the  Company's   Registration   Statement  on  Form  S-1,
          Registration No. 333-77855,  declared  effective by the Securities and
          Exchange   Commission  on  July  20,  1999,   incorporated  herein  by
          reference.



(b)  Reports on Form 8-K

     None




                                       30
<PAGE>


                                   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.


BE INCORPORATED

By:   /s/ JEAN-LOUIS F. GASSEE                            Date : August 14, 2001
      Jean-Louis F. Gassee
      President, Chief Executive Officer and Director

By:   /s/ P.C. BERNDT                                     Date : August 14, 2001
      P.C. Berndt
      Chief Financial Officer





                                       31
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