<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from __________ to __________
Commission file number: 333-87267
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POET HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 94-3221778
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
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999 BAKER WAY, SUITE 200
SAN MATEO, CALIFORNIA 94404
(650) 286-4640
(Address, including zip code, of Registrant's principal executive offices
and telephone number, including area code)
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Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: Common Stock,
$0.001 par value
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the Registrant's Common Stock on
March 31, 2000 was 10,644,305 shares.
<PAGE> 2
POET HOLDINGS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets - March 31,
2000 and December 31, 1999 3
Unaudited Condensed Consolidated Statements of Operations and
Comprehensive Loss Three Months ended March 31, 2000 and
1999 4
Unaudited Condensed Consolidated Statements of Cash Flows -
Three Months ended March 31, 2000 and 1999 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes to Securities and Use of Proceeds 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES
</TABLE>
In addition to historical information, this Form 10-Q contains forward-looking
statements that relate to future events or future financial performance. In some
cases, forward-looking statements can be identified by terminology such as
"may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "intends," "potential" or "continue," or the negative
of such terms or other comparable terminology. These statements are only
predictions. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Actual results could differ
materially from those anticipated in these forward-looking statements as a
result of various factors, including the risks outlined below under "Risk
Factors" as well as "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Risk Factors" in POET Holding's Annual Report on
Form 10-K dated March 30, 2000 as filed with the SEC. All forward-looking
statements included in this document are based on information available to us on
the date hereof. We assume no obligation to update any such forward-looking
statements.
PART I: FINANCIAL INFORMATION
2
<PAGE> 3
ITEM 1 FINANCIAL STATEMENTS
POET HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PAR VALUE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------- --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents ......................................... $ 6,633 $ 35,039
Short-term investments ............................................ 35,281 9,311
Accounts Receivable trade (net of allowances of $90 and $134
in 2000 and 1999, respectively) ................................. 2,075 2,125
Inventories ....................................................... 25 32
Other current assets .............................................. 309 288
-------- --------
Total current assets .......................................... 44,323 46,795
Property, furniture and equipment, net ............................... 678 581
Other assets, net .................................................... 258 224
-------- --------
Total assets ......................................................... $ 45,259 $ 47,600
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................. $ 728 $ 933
Accrued liabilities ............................................... 1,341 2,149
Deferred revenue .................................................. 1,102 845
Current portions of debt (including capital lease obligations) .... 264 283
-------- --------
Total current liabilities ..................................... 3,435 4,210
Long-term obligations ................................................ 280 326
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $0.001 par value; 3,000,000 shares
authorized; no shares outstanding
Common Stock, $0.001 par value; 30,000,000 shares authorized
Series A, 30,000,000 shares designated; shares outstanding:
2000 - 10,644,305; 1999 - 10,547,106 ............................ 11 11
Additional paid-in capital ........................................... 65,609 65,582
Deferred stock compensation .......................................... (703) (927)
Accumulated deficit .................................................. (23,806) (22,058)
Accumulated other comprehensive income ............................... 433 456
-------- --------
Total stockholders' equity .................................... 41,544 43,064
======== ========
Total liabilities and stockholders' equity ........................... $ 45,259 $ 47,600
======== ========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements
3
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POET HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
-------- --------
<S> <C> <C>
Revenues:
Product ($0 and $429 in 2000 and 1999, respectively from a
preferred stockholder) ..................................... $ 2,017 $ 1,684
Consulting and training ...................................... 369 394
Support and maintenance ($0 and $20 in 2000 and 1999,
respectively from a preferred stockholder) ................. 385 300
-------- --------
Total revenues .......................................... 2,771 2,378
-------- --------
Cost and operating expenses:
Cost of product .............................................. 78 39
Cost of consulting and training .............................. 272 247
Cost of support and maintenance .............................. 232 282
Selling and marketing ........................................ 2,830 1,646
Research and development ..................................... 957 757
General and administrative ................................... 624 352
Amortization of deferred stock compensation .................. 145 104
-------- --------
Total operating expenses ................................ 5,138 3,427
-------- --------
Operating loss .................................................. (2,367) (1,049)
-------- --------
Other income (expense):
Interest expense ............................................. (11) (92)
Interest income and other, net ............................... 630 87
-------- --------
Total other expense, net ................................ 619 (5)
-------- --------
Loss before income taxes ........................................ (1,748) (1,054)
Income taxes .................................................... -- 8
-------- --------
Net loss ........................................................ $ (1,748) $ (1,046)
======== ========
Other comprehensive income (loss) - foreign currency
translation adjustment ....................................... (23) 99
-------- --------
Comprehensive loss .............................................. (1,771) (947)
======== ========
Basic and diluted net loss per share ............................ $ (0.17) $ (0.67)
======== ========
Shares used in computing basic and diluted net loss per share ... 10,574 1,556
======== ========
Pro forma basic and diluted net loss per share .................. $ (0.16)
========
Shares used in computing pro forma basic and diluted net loss
per share .................................................... 6,467
========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements
4
<PAGE> 5
POET HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss ................................................. $ (1,748) $ (1,046)
Adjustments to reconcile net loss to net cash used
for operating activities:
Depreciation and amortization ........................ 97 124
Amortization of deferred stock compensation .......... 145 104
Amortization of investment discounts ................. (418) --
Changes in assets and liabilities:
Trade accounts receivable ......................... (13) 193
Inventories ....................................... 6 (22)
Other current assets .............................. (28) (2)
Other assets ...................................... (45) (7)
Accounts payable and accrued liabilities .......... (871) (59)
Deferred revenues ................................. 269 (300)
-------- --------
Net cash used for operating activities ........ (2,606) (1,015)
Cash flows from investing activities
Purchases of property, furniture and equipment ......... (212) (62)
Proceeds from sales and maturities of short-term
investments ........................................ 5,354 --
Purchases of short-term investments .................... (30,906) --
-------- --------
Net cash used in investing activities ......... (25,764) (62)
Cash flows from financing activities:
Borrowings ............................................. -- 3,900
Repayments of debt ..................................... (121) (10)
Common stock issued .................................... 106 3
-------- --------
Net cash provided by (used in) financing
activities ................................ (15) 3,893
Effect of exchange rate changes on cash and equivalents .... (21) (16)
-------- --------
Increase (decrease) in cash and equivalents ................ (28,406) 2,800
Cash and equivalents - beginning of period ................. 35,039 4,776
-------- --------
Cash and equivalents - end of period ....................... 6,633 7,576
======== ========
Supplemental disclosure of cash flow information:
Interest paid .......................................... 13 52
======== ========
Taxes paid ............................................. 20 15
======== ========
Non-cash financing and investment activities:
Deferred stock compensation ............................ (79) 316
======== ========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements
5
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1. UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited interim condensed consolidated financial statements
have been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"). Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed or omitted pursuant to such rules and regulations. In the
opinion of management, these unaudited condensed consolidated financial
statements include all adjustments necessary (consisting of normal, recurring
adjustments) for a fair presentation of POET's financial position as of March
31, 2000, the results of operations and comprehensive loss for the three months
ended March 31, 2000 and 1999 and cash flows for the three months ended March
31, 2000 and 1999.
The results of operations for the three months ended March 31, 2000 are not
necessarily indicative of the results to be expected for the fiscal year ending
December 31, 2000. These financial statements should be read in conjunction with
the financial statements and the accompanying notes included in the Company's
Form 10-K dated March 29, 2000 as filed with the SEC.
2. NET LOSS PER SHARE
The following is a reconciliation of the numerators and denominators used in
computing basic and diluted net loss per share (in thousands):
<TABLE>
<CAPTION>
PROFORMA
THREE THREE MONTHS THREE MONTHS
MONTHS ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31,
2000 1999 1999
------------ ------------ ------------
<S> <C> <C> <C>
Net loss (numerator), basic and
diluted ............................. $ (1,748) $ (1,046) $ (1,046)
Shares (denominator):
Weighted average common
shares outstanding ............... 10,627 1,573 6,484
Weighted average common
shares outstanding
subject to repurchase ............ (53) (17) (17)
-------- -------- --------
Shares used in computing basic
and diluted net loss per share ...... 10,574 1,556 6,467
======== ======== ========
Net loss per share basic and diluted ... $ (0.17) $ (0.67) $ (0.16)
======== ======== ========
</TABLE>
For the above mentioned periods, the Company had securities outstanding which
could potentially dilute basic earnings per share in the future, but were
excluded from the computation of diluted net loss per share in the periods
presented, as their effect would have been antidilutive. Such outstanding
securities consist of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
--------- ---------
<S> <C> <C>
Redeemable Convertible Preferred Stock........ 0 4,910,935
Shares of common stock subject to repurchase.. 50,561 17,609
Outstanding options........................... 815,509 614,101
Warrants...................................... 86,406 72,079
--------- ---------
Total......................................... 952,476 5,614,724
========= =========
Weighted average exercise price of options.... $ 23.39 $ 0.54
========= =========
Weighted average exercise price of warrants... $ 6.96 $ 6.43
========= =========
</TABLE>
6
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3. SEGMENT INFORMATION, OPERATIONS BY GEOGRAPHIC AREA AND SIGNIFICANT CUSTOMERS
The Company operates in one reportable segment, the development and marketing of
software products that allow businesses to share and manage complex information
enabled by the Company's database management system. The Company principally
operates in the U.S. and Germany. The following is a summary of operations
within geographic areas (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
------ ------
<S> <C> <C>
Revenues (1):
United States ............................... $1,294 $1,399
Germany ..................................... 1,477 979
------ ------
$2,771 $2,378
</TABLE>
(1) Revenues are broken out geographically by the ship-to location of the
customer
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
----- -----
<S> <C> <C>
Long-lived assets:
United States .................................... $243 $221
Germany .......................................... 435 360
---- ----
$678 $581
</TABLE>
During 1996 the Company entered into product licensing and service agreements
with Novell, Inc. a preferred stockholder. Revenues from the preferred
stockholder are detailed on the consolidated statements of operations. The
Company does not specifically identify and account for the related costs of
revenues by customer. The Company believes that costs and the related gross
margin of its revenues to the preferred stockholder are similar to costs and
gross margin to unaffiliated customers.
4. EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants issued SOP
98-1, Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use. This standard requires companies to capitalize qualifying computer
software costs incurred during the application development stage and amortize
them over the software's estimated useful life. SOP 98-1 is effective for fiscal
years beginning after December 15, 1998. The adoption of SOP 98-1 did not have a
significant impact on the financial results for the three months ended March 31,
2000.
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. Under SFAS No. 133, certain contracts that were not formerly
considered derivatives may now meet the definition of a derivative. As amended
in June 1999 by SFAS No. 137, this statement is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. The Company has not
yet determined the impact that the adoption of SFAS 133 will have on its
earnings or statement of financial position. The Company is required to adopt
SFAS 133 on January 1, 2001.
In March 2000, the FASB issued Interpretation No. 44, ("FIN 44"), Accounting for
Certain Transactions Involving Stock compensation - an Interpretation of APB 25.
This Interpretation clarifies (a) the definition of employee for purposes of
applying Opinion 25, (b) the criteria for determining whether a plan qualifies
as a noncompensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. This Interpretation is effective July 1,2000, but certain
conclusions in this Interpretation cover specific events that occur after either
December 15, 1998, or January 12, 2000. To the extent that this Interpretation
covers events occurring during the period after December 15, 1998, or January
12, 2000, but before the effective date of July 1, 2000, the
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effects of applying this Interpretation are recognized on a prospective basis
from July 1, 2000. Poet has not yet determined the impact, if any, of adopting
this interpretation.
PART I: FINANCIAL INFORMATION
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with POET's unaudited
condensed consolidated financial statements and notes thereto. The results
described below are not necessarily indicative of the results to be expected in
any future period. This discussion contains forward-looking statements that
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology such as "may," "will,"
"should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "intends," "potential" or "continue" or the negative of such terms
or other comparable terminology. These statements are only predictions. Although
we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including the risks outlined under "Risk Factors" in POET Holding's Annual
Report on Form 10-K dated March 30, 2000 as filed with the SEC. All
forward-looking statements included in this document are based on information
available to us on the date hereof. We assume no obligation to update
forward-looking statements.
OVERVIEW
We are a provider of innovative software infrastructure and solutions that allow
organizations to efficiently share, manage and manipulate complex data and
facilitate effective business-to-business processes and information exchange
over the Internet. Our object database management system utilizes and supports
complex, multidimensional data models, or frameworks within a database for the
organization of information elements and their interrelationships, and standard
Internet programming languages. Our database system allows software vendors and
original equipment manufacturers, or manufacturers who develop and produce
products incorporating another company's product, to build efficient, high
performance applications that are fully integrated, easy to use and cost
efficient. Our Internet solutions provide our customers with the ability to
efficiently author, manipulate and electronically distribute and exchange
complex business documents. Our solutions leverage the Internet as a new means
to increase customer relationships, accelerate business processes and reduce
costs. Our open systems approach, which works with a variety of tools, hardware,
software and networks, allows our customers to rapidly develop applications
using our database products and customize our Internet solutions for work with a
variety of standard application environments and third-party tools without
having to make any significant adjustments to their existing internal
information technology systems. It is our objective to make complex applications
simple and affordable for a large group of organizations by providing
sophisticated, easy to use and powerful software products that leverage the
Internet.
From commencement of our operations in March 1995 through March 2000, our
operating activities related primarily to increasing our research and
development capabilities, designing and developing the software products which
we are currently selling and staffing our administrative, sales and marketing
organizations. Since our inception, we have incurred significant losses, and as
of March 31, 2000, we had an accumulated deficit of $23.8 million, and for the
three months ended March 31, 2000, our net loss was $1.7 million. We have not
achieved profitability on a quarterly or annual basis and anticipate that we
will incur net losses for the foreseeable future. We expect to continue to incur
significant selling and marketing, product development, professional services
and administrative expenses, and as a result, we will need to generate
significantly higher revenues to achieve and maintain profitability.
RESULTS OF OPERATIONS
8
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Total revenues increased 17% from $2.4 million for the quarter ended March 31,
1999 to $2.8 million for the quarter ended March 31, 2000. Product revenues
increased 20% from $1.7 million for the quarter ended March 31, 1999 to $2.0
million for the quarter ended March 31, 2000. The increase in product revenue
was primarily attributable to revenues generated from our electronic Catalog
Suite Product Line ("eCS") which was not available for sale in the quarter ended
March 31, 1999, and to increased revenues generated from our Object Server Suite
Product Line ("OSS"). Consulting and training revenues decreased 6% from
$394,000 for the quarter ended March 31, 1999 to $369,000 for the quarter ended
March 31, 2000. The decrease in consulting and training revenues was primarily
due to one significant customer in the quarter ended March 31, 1999 not
repeating in the quarter ended March 31, 2000. Support and maintenance revenues
increased 28% from $300,000 for the quarter ended March 31, 1999 to $385,000 for
the quarter ended March 31, 2000. The increase in support and maintenance
revenues was primarily due to an overall increase in support and maintenance
customers.
Cost of product revenues increased 100% from $39,000 in the quarter ended March
31, 1999 to $78,000 in the quarter ended March 31, 2000. This increase was
primarily attributable to increased license fees. Cost of consulting and
training revenues increased 10% from $247,000 in the quarter ended March 31,
1999 to $272,000 in the quarter ended March 31, 2000. This increase was
primarily attributable to an increase in personnel and related compensation.
Cost of support and maintenance revenues decreased 18% from $282,000 in the
quarter ended March 31, 1999 to $232,000 in the quarter ended March 31, 2000.
This decrease was primarily attributable to a temporary decrease in personnel
and related compensation. Replacement personnel were hired in support and
maintenance in the latter part of the quarter ended March 31, 2000.
Selling and marketing expenses increased 75% from $1.6 million in the quarter
ended March 31, 1999 to $2.8 million in the quarter ended March 31, 2000.
Selling expenses increased primarily as a result of an increase in sales
personnel and related compensation. Marketing expenses increased primarily as a
result of increased spending on trade shows and public relations, as well as an
increase in personnel and related compensation. We anticipate continued growth
in selling and marketing expenses in subsequent periods primarily due to planned
increases in personnel who support the POET eCatalog Suite and various marketing
related programs including additional promotional activities for our POET
eCatalog Suite.
Research and development expenses increased 26% from $757,000 in the quarter
ended March 31, 1999 to $957,000 in the quarter ended March 31, 2000. This
increase was primarily attributable to an increase in personnel and related
compensation.
General and administrative expenses increased 77% from $352,000 in the quarter
ended March 31, 1999 to $624,000 in the quarter ended March 31, 2000. This
increase was primarily attributable to spending on investor relations activities
which did not occur in the prior year quarter and to increased personnel and
related compensation.
Other, net increased to income of $619,000 in the quarter ended March 31, 2000,
from expense of $5,000 in the quarter ended March 31, 1999. The increase is
primarily attributable to interest income earned on higher cash and cash
equivalent and short term investment balances in the quarter ended March 31,
2000 as a result of the proceeds from the Company's initial public offering in
November 1999.
Income tax expense decreased to $0 in the quarter ended March 31, 2000, from
income of $8,000 in the quarter ended March 31, 1999. The income tax amount in
the quarter ended March 31, 1999 represents a refund on overpayment of taxes in
that period. No income taxes were accrued in the quarter ended March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have primarily financed our operations through private sales
of redeemable convertible preferred stock and from our initial public offering,
resulting in net proceeds of $16.4 million and $41.6 million, respectively. To a
lesser extent, we have also financed our operations through a convertible note
financing and lending arrangements in the aggregate amount of $6.3 million.
9
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As of March 31, 2000, we had $6.6 million in cash and cash equivalents, $35.3
million in short-term investments and $40.9 million in working capital. As of
December 31, 1999, we had $35.0 million in cash and cash equivalents, $9.3
million in short-term investments and $42.6 million in working capital. The
decrease in working capital was primarily due to normal operational
expenditures.
Net cash used in operating activities was $2.6 million for the three months
ended March 31, 2000 and $1.0 million for the three months ended March 31, 1999.
Net cash used in operating activities in each period reflects the net losses in
each period.
Net cash used in investing activities was $25.8 million for the three months
ended March 31, 2000 and $62, for the three months ended March 31, 1999.
Investing activities reflect purchases of property, furniture and equipment in
each period, proceeds from the sales and maturities of short-term investments,
as well as purchases of short-term investments. Short-term investments are
securities with an original maturity of greater than three months and less than
a year. Since inception, we have generally funded capital expenditures either
through the use of working capital or, to a lesser extent, through equipment
leases.
Net cash provided by (used in) financing activities was ($15,000) for the three
months ended March 31, 2000 and $3.9 million for the three months ended March
31, 1999. Our financing activities for the three months ended March 31, 2000
used cash primarily to repay debt in the form of loans and capital leases. Our
financing activities for the three months ended March 31, 1999 provided cash
primarily through proceeds from a convertible note.
In January 1999, we entered into a $3.9 million convertible note agreement with
Technologie Beteilgungsgesellschaft (TBG). Under this agreement, TBG purchased a
convertible note in the aggregate principal amount of $3.9 million maturing on
December 31, 2003, and bearing interest at 6% per year. In September 1999, we
entered into an amendment to the convertible note agreement with TBG which
converted the entire outstanding principal balance of the note, excluding
accrued interest, into 275,106 shares of our common stock effective as of
September 30, 1999. As a result of this amendment, we recognized a non-recurring
charge in the quarter ended September 30, 1999 of approximately $809,000.
In 1997, our subsidiary POET Software GmbH entered into a loan agreement with
IKB Deutsche Industriebank in the amount of DM 1.5 million (approximately
$773,000 based on the U.S. Dollar/Deutsche Mark exchange rate at December 31,
1999) bearing interest at 7% per year with principal payments due quarterly of
DM 125,000 commencing on June 15, 1999 and ending on March 15, 2002. The
principal balance of the IKB Deutsche Industriebank AG loan at March 31, 2000
was DM 1,000,000 (approximately $489,000 based on the U.S. Dollar/Deutsche Mark
exchange rate at March 31, 2000). We have guaranteed the payment of principal
and interest under this loan.
We expect to experience significant growth in our operating expenses,
particularly as we increase our selling and marketing activities, increase
research and development and professional services spending, and enhance our
operational and financial systems for the foreseeable future in order to execute
our business plan. As a result, we anticipate that such operating expenses, as
well as planned capital expenditures, will constitute a material use of our cash
resources. In addition, we may utilize cash resources to fund acquisitions of,
or investments in, complementary businesses, technologies or product lines and
payoffs of credit lines.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk related to fluctuations in interest rates and in
foreign currency exchange rates:
Interest Rate Exposure. Our exposure to market risk due to fluctuations in
interest rates relates primarily to cash and cash equivalents and short term
investments, which consists primarily of investments in commercial paper and
money market accounts reported at an aggregate fair market value of $41.9
million as of March 31, 2000. These securities are subject to interest rate risk
inasmuch as their fair value will fall if market interest rates increase. If
market interest rates were to increase immediately and uniformly by 10% from the
levels prevailing at March 31, 2000, for example, the fair value of the
portfolio would not decline by a material amount. We do not use derivative
financial instruments to mitigate the risks inherent in these securities.
However, we do attempt to reduce such risks by generally limiting the maturity
date of such securities to no more than three months, placing investments with
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high credit quality issuers and limiting the amount of credit exposure with any
one issuer. In addition, we believe that we currently have the ability to hold
these investments until maturity and, therefore, believe that reductions in the
value of such securities attributable to short-term fluctuations in interest
rates would not materially affect our financial position, results of operations
or cash flows.
Foreign Currency Exchange Rate Exposure. Our exposure to market risk due to
fluctuations in foreign currency exchange rates relates primarily to the
intercompany balance with our German subsidiary. Although we transact business
in various foreign countries, settlement amounts are usually based on U.S.
dollars, the Deutsche Mark or the euro. Transaction gains or losses have not
been significant in the past and there is no hedging activity on the Deutsche
Mark, the euro or other currencies. Based on the intercompany balance of $14,000
at March 31, 2000, a hypothetical 10% adverse change in the Deutsche Mark
against U.S. dollars would not result in a material foreign exchange loss.
Consequently, we do not expect that reductions in the value of such intercompany
balances or of other accounts denominated in foreign currencies resulting from
even a sudden or significant fluctuation in foreign exchange rates would have a
direct material impact on our financial position, results of operations or cash
flows.
Notwithstanding the foregoing, analysis of the direct effects of interest rate
and foreign currency exchange rate fluctuations on the value of our investments
and accounts and the indirect effects of such fluctuations could have a material
adverse effect on our business, financial condition and results of operations.
For example, international demand for our products is affected by foreign
currency exchange rates. In addition, interest rate fluctuations may affect the
buying patterns of our customers. Furthermore, interest rate and currency
exchange rate fluctuations have broad influence on the general condition of the
U.S., foreign and global economies that could have a material adverse effect on
us.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On November 25, 1999, we completed the sale of an aggregate of 3,570,000 shares
of our common stock, par value $0.001 per share, at a price of $12.90 per share
in a firm commitment underwritten public offering. The offering was effected
pursuant to a Registration Statement on Form S-1 (Registration No. 333-88687),
which the United States Securities and Exchange Commission declared effective on
November 12, 1999. DG Bank and Bank Paribas were the lead underwriters for the
offering. Of the $46.0 million in aggregate proceeds we raised in the offering,
(i) $2.3 million was paid to underwriters in connection with the underwriting
discount, (ii) approximately $2.2 million was paid in connection with offering
expenses, printing fees, filing fees, and legal fees and (iii) approximately
$1.6 million was used to repay term notes outstanding. In addition to funding
operating losses since the completion of the offering, we expect to use the
proceeds of the offering principally for general corporate purposes, including
working capital and the funding of expected operating losses. We also expect to
use a portion of the proceeds to pursue possible acquisitions of complementary
businesses, technologies or products. Pending such uses, the Company is
investing the proceeds in short-term, interest-bearing, investment-grade
securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FROM 8-K
a) Exhibits
Exhibit Number Description
-------------- -----------
27.1 Financial Data Schedule
b) Reports on Form 8-K
A current report on Form 8-K was filed with the Securities and Exchange
Commission by POET Holdings on February 21, 2000 to report the issuance of a
press release announcing fourth quarter revenues, the filing of an ad hoc notice
with the Frankfurt Stock Exchange and the distribution of a slide presentation
at an analysts meeting.
II-1
<PAGE> 12
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on ________________,
2000.
POET Holdings, Inc.
(Registrant)
By: /s/ DIRK BARTELS
--------------------------------
Dirk Bartels
President and Chief Executive Officer
II-2
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 6,633
<SECURITIES> 35,281
<RECEIVABLES> 2,075
<ALLOWANCES> 90
<INVENTORY> 25
<CURRENT-ASSETS> 44,323
<PP&E> 2,479
<DEPRECIATION> 1,801
<TOTAL-ASSETS> 45,259
<CURRENT-LIABILITIES> 3,435
<BONDS> 0
0
0
<COMMON> 11
<OTHER-SE> 41,533
<TOTAL-LIABILITY-AND-EQUITY> 45,259
<SALES> 0
<TOTAL-REVENUES> 2,771
<CGS> 0
<TOTAL-COSTS> 582
<OTHER-EXPENSES> 4,556
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11
<INCOME-PRETAX> (1,748)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,748)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,748)
<EPS-BASIC> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
