Stealth Software Is Deemed Less Than Brilliant

Staff Reporter

For a man who needs to win the trust of tens of millions of computer users around the world or face bankruptcy, Kevin Bermeister did not exactly get off on the right foot.

Bermeister, chief executive of Brilliant Digital Entertainment Inc., thought he hit on a way to revive the flagging business: use proprietary software to create a network harnessing unused resources of PCs that then could be leased for large computing functions.

The problem? He didn't tell anyone he was doing it.

Sure, mention of the firm's Altnet software was tucked in the company's 10-K filing with the Securities and Exchange Commission. But the plan may have been doomed when word really went out.

Tech newsgroups were buzzing in late March that the software had been secreted in downloadable files for the Kazaa Media Desktop, the most widely used peer-to-peer file sharing program, and that sometime in May the dormant software would come to life on millions of PCs around the globe.

When Altnet comes to life on a PC, it will launch a popup window introducing itself and asking whether the user wants to sign on.

Bermeister defended the delivery method, saying that Microsoft, AOL and Real Networks had all done the same thing at one time. Others aren't so sure.

"The fact that Altnet is sleeper software throws into question its legitimacy," said Ben Silverman, whose column "Dotcom Scoop" appears in the New York Post. "While it hasn't been activated and it can be removed, as a consumer I would be wary of downloading anything from a company that isn't forthcoming as to what applications are being included in its software."

What it comes down to, said Ben Reneker, senior new media analyst at Kagan World Media, is whether Brilliant can "develop a trustworthy reputation and develop a compensation model that's lucrative enough to convince people to participate?"

Bermeister thinks all the publicity will serve the company well. "The jury's out and we will be judged on our future action," he said.

Time running out

But he conceded that the company only has four months or so to make something happen. According to SEC filings, Brilliant will run out of cash by November and without a multi-million dollar investment or large contract, the only alternative could be a bankruptcy filing.

As of Dec. 31, Brilliant Digital, founded in 1995 to deliver 3-D animation over the Internet, had $185,000 in cash and accrued expenses and debt of $1.8 million. It reported a net loss of $1.7 million for the fourth quarter ended Dec. 31, compared with a net loss of $2.7 million for the like-year earlier period. Fourth quarter revenues were $377,000, compared to $268,000 a year ago.

Its first quarter 2002 report is due out in mid May, and the company has issued no guidance.

The stock leapt from 15 cents to $1.30 the day after The New York Times reported on the downloading. But it closed that day at 35 cents and has been hovering at 40 cents since. Now, the stock is in danger of being de-listed from the American Stock Exchange, which requires a minimum price of $1 and net assets of $4 million.

Bermeister has tried to stem the bleeding by cutting the burn rate to $200,000 a month from $1.2 million. Among the cuts was the closure of Digital Hip Hop, a production studio that had produced animated music videos.

All the eggs are now in the Altnet basket.

Bermeister, who believes the software was downloaded with Kazaa more than 40 million times, said Brilliant Digital has deals pending with undisclosed content owners to use Altnet to distribute its product in much the same way as Kazaa does. The difference is that content on Altnet would be authorized by content owners and subject to digital rights management conditions.

If Altnet has a future, it's in distributed computing, Bermeister said. Revenues would be generated by selling unused capacity to labs and others in need of processing power but lacking capital or necessity to buy a supercomputer. PC owners would be compensated in some way, perhaps with vouchers to purchase items at e-commerce sites, Bermeister said. The rewards model is yet to be determined.

"I can tell you we're reasonably confident at this point in time that we're on track to turn this company around," he said.

Untried model

Neal Goldman, research director at Yankee Group, said Brilliant Digital will have a hard time selling the processing capacity because the types of businesses that need it biotech, high tech typically have proprietary information they would not want floating around the Internet.

But Reneker said the low burn rate could make Brilliant Digital an attractive low-risk, high-reward investment and even if Bermeister fails, the concept of harvesting unused processing capacity through the Internet is inevitable.

"I think somebody's going to pull it off. I just don't know if it's going to be Brilliant," he said. "I don't know if $185,000 is going to get them through the trials they're going to have to go through to get this going."

Goldman said negative publicity could yet lead to a successful resolution for Bermeister. "He's certainly gotten a lot of publicity," he said. "And that got Napster $15 million form Bertelsmann a couple of years ago."

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