Eastside Business -- Forecast Bright For Bsquare's Stock Debut

The three former Digital Equipment employees who co-founded Bsquare, a Bellevue software developer for chip-based devices, are about to strike it rich as their company goes public, becoming the latest beneficiaries of the technology-stock boom.

William Baxter, chairman, president and chief executive officer, will see his 5.1 million shares carry a value of roughly $66.3 million dollars, if the deal gets priced in the mid-range at $13. Albert Dosser and Peter Gregory, co-founders and senior vice presidents, will have stock worth roughly $76.6 million and $66.9 million, respectively.

The stock was expected to be priced as early as today.

Bsquare produces software built on top of the Windows CE operating system for specialized appliances, including television set-top boxes, gaming systems and hand-held computers. The company is poised as one of the largest software specialists for the hot emerging arena of "intelligent" devices that, among other things, can connect users to the Internet without a personal computer.

The company plans to sell 4 million shares of its common stock at a starting price of between $12 and $14, according to the preliminary prospectus filed with the Securities and Exchange Commission.

The company's ticker symbol on the Nasdaq market will be BSQR.

The company expects to make roughly $47.4 million in net proceeds from the sale, if the stock is sold at $13 a share. About $4 million of the net proceeds would pay for equipment and moving expenses, the prospectus said. The other funds have been designated for general corporate purposes.

Adam Hamilton, a research analyst with Seattle brokerage firm McAdams, Wright & Ragen, said Bsquare has an advantage over other pre-public companies because of its affiliation with Microsoft.

On top of name recognition, the software giant is investing a lot of energy into the intelligent-programming category, he said.

"Microsoft, a big company with a lot of financial resources, is throwing their weight behind hand-held devices to protect the family jewels," Hamilton said. "It separates (Bsquare) from the pack a little bit."

On the flip side, Bsquare's business is tied directly to its relationship with Microsoft - one that can be modified or severed at any time. For the six months ended June 30, roughly 87 percent of Bsquare's total revenue was generated under its master development and license agreement with the software giant. Most of its employees work on project-specific work plans for Microsoft.

Additionally, Bsquare must receive written permission from Microsoft to design or develop products or provide services that compete with Windows CE. Microsoft is not bound by a noncompetition provision. The company has created a marketing program to encourage systems integrators to work on Windows CE, the prospectus said.

"We do not believe that we could replace the Microsoft revenue in the short or medium term if existing work plans were canceled or curtailed, and such cancellations or curtailments would substantially reduce our revenue," the prospectus said.

The company's major shareholder will be TA Associates, a Boston venture-capital firm that bought a 25.5 percent interest in the company, but will own 22.4 percent after the initial public offering. The investment is worth roughly $93 million at $13 a share.

Paul Allen's Vulcan Ventures owns roughly 1.5 million shares.

Bsquare was founded in July 1994 by Baxter, Dosser and Gregory, and has received backing from EnCompass Ventures of Kirkland and TA Associates. CS First Boston is the lead underwriter for the offering.

The company also has been profitable from its start, posting a profit of $2.3 million for 1998 and $866,000 for the first six months of 1999.

Its sales increased from $14.4 million in 1997 to $24.6 million in 1998. The company reported $18.5 million in sales for the six months ended June 30. Bsquare employs 348.

CEO Baxter served from June 1993 to October 1994 as principal engineer of Digital Equipment, a manufacturer of business and networking computer systems. Monica Soto's phone: 206-515-5632. E-mail: msoto@seattletimes.com