<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 September 30, 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
POET HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 94-3221778
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
</TABLE>
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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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference to Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The number of shares outstanding of the Registrant's Common Stock on
September 30, 2000 was 10,740,287 shares.
<PAGE> 2
POET HOLDINGS, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Unaudited Condensed Consolidated Balance Sheets -- September 30, 2000 and December 31, 1999 3
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss -- Three
and Nine Months ended September 30, 2000 and 1999 4
Unaudited Condensed Consolidated Statements of Cash Flows -- Nine Months ended September
30, 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 11
PART II: OTHER INFORMATION 12
Item 1. Legal Proceedings 12
Item 2. Changes to Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
</TABLE>
SIGNATURES
Note Regarding Forward Looking Statements
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 "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.
2
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PART I: FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
POET HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PAR VALUE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,*
2000 1999
------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents .................................................. $ 18,695 $ 35,039
Short-term investments ..................................................... 15,630 9,311
Accounts Receivable trade (net of allowances of $289 and $134 at
September 30, 2000 and December 31, 1999, respectively) ................. 2,807 2,125
Inventories ................................................................ 32 32
Other current assets ....................................................... 2,927 288
-------- --------
Total current assets ................................................. 40,091 46,795
Property, furniture and equipment, net ........................................ 1,238 581
Other assets, net ............................................................. 221 224
-------- --------
Total assets .................................................................. $ 41,550 $ 47,600
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................... $ 1,302 $ 933
Accrued liabilities ........................................................ 2,179 2,149
Deferred revenue ........................................................... 1,083 845
Current portions of debt (including capital lease obligations) ............. 234 283
-------- --------
Total current liabilities ............................................ 4,798 4,210
Long-term obligations ......................................................... 145 326
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; 100,000,000 shares authorized;
shares outstanding: 2000 -- 10,740,287; 1999 -- 10,547,106 .............. 11 11
Additional paid-in capital .................................................... 65,799 65,582
Deferred stock compensation ................................................... (435) (927)
Accumulated deficit ........................................................... (29,141) (22,058)
Accumulated other comprehensive income ........................................ 373 456
-------- --------
Total stockholders' equity ........................................... 36,607 43,064
-------- --------
Total liabilities and stockholders' equity .................................... $ 41,550 $ 47,600
======== ========
</TABLE>
* Balance sheet as of December 31, 1999 derived from audited financial
statements in POET Holdings Annual Report on Form 10-K.
See Notes to Unaudited Condensed Consolidated Financial Statements
3
<PAGE> 4
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Product ($0, $714, $0 and $1,656 in the three and nine month
periods ended September 30, 2000 and 1999, respectively,
from a stockholder) ............................................... $ 2,568 $ 2,081 $ 6,566 $ 5,555
Consulting and training ($0, $714, $0 and $1,656 in the three
and nine month periods ended September 30, 2000 and 1999,
respectively, from a stockholder) ................................. 280 375 916 1,213
Support and maintenance ($0, $20, $0 and $40 in the three and
nine month periods ended September 30, 2000 and 1999,
respectively, from a stockholder) ................................. 445 331 1,244 935
-------- -------- -------- --------
Total revenues ................................................ 3,293 2,787 8,726 7,703
-------- -------- -------- --------
Cost and operating expenses:
Cost of product ...................................................... 86 63 262 170
Cost of consulting and training ...................................... 250 269 789 799
Cost of support and maintenance ...................................... 335 254 906 768
Selling and marketing ................................................ 3,393 1,827 9,297 5,300
Research and development ............................................. 1,231 727 3,420 2,353
General and administrative ........................................... 1,081 547 2,608 1,345
Amortization of deferred stock compensation(*) ....................... 92 210 362 439
-------- -------- -------- --------
Total costs and operating expenses ............................ 6,468 3,897 17,644 11,174
-------- -------- -------- --------
Operating loss .......................................................... (3,175) (1,110) (8,918) (3,471)
-------- -------- -------- --------
Other income (expense):
Interest expense ..................................................... (8) (887) (29) (1,079)
Interest income and other, net ....................................... 640 74 1,909 244
-------- -------- -------- --------
Total other income (expense), net ............................. 632 (813) 1,880 (835)
-------- -------- -------- --------
Loss before income taxes ................................................ (2,543) (1,923) (7,038) (4,306)
Income taxes ............................................................ (5) (1) (46) 8
-------- -------- -------- --------
Net loss ................................................................ $ (2,548) $ (1,924) $ (7,084) $ (4,298)
======== ======== ======== ========
Other comprehensive income (loss) -- foreign
currency translation adjustment ...................................... 73 (47) (83) 236
-------- -------- -------- --------
Comprehensive loss ...................................................... $ (2,475) $ (1,971) $ (7,167) $ (4,062)
======== ======== ======== ========
Basic and diluted net loss per share .................................... $ (0.24) $ (1.16) $ (0.67) $ (2.70)
======== ======== ======== ========
Shares used in computing basic and diluted net loss per share ........... 10,691 1,657 10,623 1,589
======== ======== ======== ========
(*) Amortization of deferred stock compensation
Cost of consulting and training ...................................... $ 10 $ 23 $ 41 $ 50
Cost of support and maintenance ...................................... 4 8 16 17
Selling and marketing ................................................ 40 99 160 201
Research and development ............................................. 26 56 105 108
General and administrative ........................................... 12 24 40 63
-------- -------- -------- --------
$ 92 $ 210 $ 362 $ 439
======== ======== ======== ========
</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>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss ...................................................... $ (7,084) $ (4,298)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization ............................ 386 1,243
Amortization of deferred stock compensation .............. 412 439
Amortization of investment discounts ..................... (26) --
Changes in assets and liabilities:
Trade accounts receivable ............................ (850) (99)
Inventories .......................................... (4) (12)
Other current assets ................................. (2,661) (472)
Other assets ......................................... (23) --
Accounts payable and accrued liabilities ............. 669 761
Deferred revenues .................................... 269 (1,468)
-------- --------
Net cash used for operating activities .......... (8,912) (3,906)
Cash flows from investing activities:
Purchases of property, furniture and equipment .............. (1,111) (318)
Proceeds from sales and maturities of short-term investments. 48,104 --
Purchases of short-term investments ......................... (54,423) --
-------- --------
Net cash used in investing activities ........... (7,430) (318)
Cash flows from financing activities:
Borrowings .................................................. -- 3,912
Repayments of debt .......................................... (248) (391)
Preferred stock issued, net ................................. -- 475
Common stock issued, net .................................... 298 59
-------- --------
Net cash provided by financing activities ....... 50 4,055
Effect of exchange rate changes on cash and equivalents ......... (52) 24
-------- --------
Increase (decrease) in cash and equivalents ..................... (16,344) (145)
Cash and equivalents -- beginning of period ..................... 35,039 4,776
-------- --------
Cash and equivalents -- end of period ........................... $ 18,695 $ 4,631
======== ========
Supplemental disclosure of cash flow information:
Interest paid ............................................... $ 36 $ 129
======== ========
Taxes paid .................................................. $ 46 $ 14
======== ========
Non-cash financing and investment activities:
Deferred stock compensation ................................. $ (112) $ 316
======== ========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements
5
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POET HOLDINGS, INC. AND SUBSIDIARIES
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 consolidated 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
September 30, 2000, the results of operations and comprehensive loss for the
three and nine month periods ended September 30, 2000 and 1999 and cash flows
for the nine month periods ending September 30, 2000 and 1999.
The results of operations for the three and nine month periods ended September
30, 2000 are not necessarily indicative of the results to be expected for the
fiscal year ending December 31, 2000. These consolidated financial statements
should be read in conjunction with the consolidated financial statements and the
accompanying notes included in the Company's 1999 Annual Report on Form 10-K
dated March 30, 2000 as filed with the SEC.
2. BALANCE SHEET COMPONENTS
SHORT-TERM INVESTMENTS
Investments with original maturities greater than three months and less than one
year are classified as short-term investments. The Company accounts for
investments in accordance with SFAS No. 115 "Accounting for Certain Investments
in Debt and Equity Securities." The Company's policy is to protect the value of
its investment portfolio and to minimize principal risk by earning returns based
on current interest rates. The Company has classified all of its investments as
available-for-sale securities. While the Company's practice is to hold debt
securities to maturity, the Company has classified all debt securities as
available-for-sale securities, as the sale of such securities may be required
prior to maturity to implement management strategies. The carrying value of all
securities is adjusted to fair market value, with unrealized gains or losses
being excluded from earnings and reported as a separate component of
stockholder's equity. Cost is based on the specific identification method for
purposes of computing realized gains and losses.
Short-term investments include the following available-for-sale securities at
September 30, 2000 (in thousands):
<TABLE>
<CAPTION>
UNREALIZED
AMORTIZED HOLDING UNREALIZED MARKET
COST GAINS HOLDING LOSS VALUE
--------- ---------- ------------ ------
<S> <C> <C> <C> <C>
Money market funds ............................... $ 606 $ - $ - $ 606
Commercial paper ................................. 26,709 - 15 26,694
U.S. government agencies ......................... 6,011 - 11 6,000
------- ------- ------- -------
Total available for sale securities .......... $33,326 $ - $ 26 $33,300
======= ======= ======= =======
Included in cash and cash equivalents ............ 17,670
Included in short-term investments ............... 15,630
-------
Total available for sale securities .......... $33,300
-------
</TABLE>
OTHER CURRENT ASSETS
In June 2000, we entered into an unsecured note agreement loaning 2.5 million
euros (approximately $2,200,000 based on the U.S. Dollar/euro exchange rate at
September 30, 2000) to a services provider. The loan bears interest at 11% per
year and is due on December 31, 2000.
3. 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):
6
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<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net loss (numerator), basic and diluted ............ $ (2,548) $ (1,924) $ (7,084) $ (4,298)
Shares (denominator):
Weighted average common shares outstanding ... 10,734 1,674 10,676 1,611
Weighted average common shares
outstanding subject to repurchase ........... (43) (17) (53) (22)
-------- -------- -------- --------
Shares used in computing basic and diluted
net loss per share .......................... 10,691 1,657 10,623 1,589
======== ======== ======== ========
Net loss per share basic and diluted ............... $ (0.24) $ (1.16) $ (0.67) $ (2.70)
======== ======== ======== ========
</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 (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
2000 1999
------- ------
<S> <C> <C>
Redeemable Convertible Preferred Stock ............. -- 4,982
Shares of common stock subject to repurchase ....... 39 48
Outstanding options ................................ 936 490
Warrants ........................................... 56 107
------- ------
Total .............................................. 1,031 5,627
======= ======
Weighted average exercise price of options ......... $ 24.84 $ 2.11
======= ======
Weighted average exercise price of warrants ........ $ 6.88 $ 6.63
======= ======
</TABLE>
4. 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
and facilitate effective business-to-business processes and information exchange
over the internet. 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues(1):
United States ........... $1,704 $1,690 $4,316 $4,611
Germany ................. 1,589 1,097 4,410 3,092
------ ------ ------ ------
$3,293 $2,787 $8,726 $7,703
====== ====== ====== ======
</TABLE>
-------------
(1) Revenues are broken out geographically by the ship-to location of
the customer.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------- -------
<S> <C> <C>
Long lived assets:
United States.................. $ 517 $ 221
Germany........................ 721 360
-------- -------
$ 1,238 $ 581
</TABLE>
During 1996, the Company entered into product licensing and service agreements
with Novell, Inc., a stockholder of the Company. Revenues from this stockholder
are detailed on the consolidated statements of operations. The Company does not
specifically identify and account for the related costs of revenue by customer.
The Company believes that costs and the related gross margin of its revenues to
this stockholder are similar to costs and gross margin to unaffiliated
customers.
5. DISPOSITION OF PRODUCT LINE
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In September 2000, the Company sold the Content Management Suite (CMS) product
line to Sorman Information AB, Vaxjo, a Swedish company. The agreement provides
that Sorman will assume the intellectual property rights for CMS worldwide
except for the United States, Canada and South Korea and the obligations
associated with the European CMS customer base. Sorman has a six month exclusive
option to assume the intellectual property rights for the United States and
Canada. The agreement includes a license fee arrangement which would provide
license revenues to POET based upon future CMS sales by Sorman within the next
three years.
6. 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 September
30, 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 December 1999, the Commission released Staff Accounting Bulletin ("SAB") No.
101, "Revenue Recognition in Financial Statements," which provides guidance on
the recognition, presentation and disclosure of revenue in financial statements
filed with the SEC. The Company does not expect a material effect on its
financial position, results of operations or cash flows as a result of SAB 101.
In March 2000, the FASB issued Interpretation No. 44, ("FIN 44"), Accounting for
Certain Transactions Involving Stock compensation -- an Interpretation of APB
Opinion 25. This Interpretation clarifies (a) the definition of employee for
purposes of applying APB 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 effects of applying
this Interpretation are recognized on a prospective basis from July 1, 2000. The
adoption of FIN 44 did not have a significant impact on the financial results
for the three months ended September 30, 2000.
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.
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 is a self-service application allowing
supplier organizations and Net Marketplaces to efficiently create, manage and
distribute customized catalog data over the Internet. Our solutions leverage the
8
<PAGE> 9
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 September 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 September 30, 2000, we had an accumulated deficit of $29.1 million, and for
the three months ended September 30, 2000, our net loss was $2.5 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
COMPARISON OF RESULTS FOR THE QUARTER ENDED SEPTEMBER 30, 2000 TO THE QUARTER
ENDED SEPTEMBER 30, 1999
Total revenues increased 18% from $2.8 million for the quarter ended September
30, 1999 to $3.3 million for the quarter ended September 30, 2000. Product
revenues increased 23% from $2.1 million for the quarter ended September 30,
1999 to $2.6 million for the quarter ended September 30, 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 September 30, 1999. Consulting and training revenues
decreased 26% from $375,000 for the quarter ended September 30, 1999 to $280,000
for the quarter ended September 30, 2000. The decrease in consulting and
training revenues was primarily due to one significant customer in the quarter
ended September 30, 1999 not repeated in the quarter ended September 30, 2000.
Support and maintenance revenues increased 35% from $331,000 for the quarter
ended September 30, 1999 to $445,000 for the quarter ended September 30, 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 37% from $63,000 in the quarter ended
September 30, 1999 to $86,000 in the quarter ended September 30, 2000. This
increase was primarily attributable to increased license fees. Cost of
consulting and training revenues decreased 7% from $269,000 in the quarter ended
September 30, 1999 to $250,000 in the quarter ended September 30, 2000. This
decrease was primarily attributable to a decrease in personnel and related
compensation. The gross margin for consulting and training decreased to 11% in
the quarter ended September 30, 2000 from 28% in the quarter ended September 30,
1999, primarily as a result of a decrease in consulting revenues without a
significant decrease in our consulting and training personnel. Cost of support
and maintenance revenues increased 32% from $254,000 in the quarter ended
September 30, 1999 to $335,000 in the quarter ended September 30, 2000. The
increase was primarily attributable to an increase in personnel and related
compensation. The gross margin for support and maintenance increased to 25% in
the quarter ended September 30, 2000 from 23% in the quarter ended September 30,
1999 primarily as a result of the increase in support and maintenance revenues.
Selling and marketing expenses increased 89% from $1.8 million in the quarter
ended September 30, 1999 to $3.4 million in the quarter ended September 30,
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.
Research and development expenses increased 69% from $727,000 in the quarter
ended September 30, 1999 to $1.2 million in the quarter ended September 30,
2000. This increase was primarily attributable to an increase in personnel and
related compensation, as well as outsourcing of certain research and development
efforts.
General and administrative expenses increased 98% from $547,000 in the quarter
ended September 30, 1999 to $1.1 million in the quarter ended September 30,
2000. This increase was primarily attributable to due diligence costs associated
with corporate development efforts as well as costs associated with a publicly
traded company, including the costs of investor relations activities, which were
not incurred in the comparable prior quarter. The increase was also attributable
to an increase in personnel and related compensation.
9
<PAGE> 10
Other, net increased to income of $632,000 in the quarter ended September 30,
2000, from expense of $813,000 in the quarter ended September 30, 1999. The
increase was primarily attributable to interest income earned on higher cash and
cash equivalent and short-term investment balances in the quarter ended
September 30, 2000 as a result of the proceeds from the Company's initial public
offering in November 1999. In addition, the Company incurred a one-time interest
expense charge of $809,000 in the quarter ended September 30, 1999 for the
conversion of debt to common stock.
COMPARISON OF RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 TO THE NINE
MONTHS ENDED SEPTEMBER 30, 1999
Total revenues increased 13% from $7.7 million for the nine months ended
September 30, 1999 to $8.7 million for the nine months ended September 30, 2000.
Product revenues increased 18% from $5.6 million for the nine months ended
September 30, 1999 to $6.6 million for the nine months ended September 30, 2000.
The increase in product revenue was primarily attributable to revenues generated
from our electronic Catalog Suite Product Line ("eCS") which was first
introduced in September of 1999 with limited sales in the nine months ended
September 30, 1999. Consulting and training revenues decreased 24% from $1.2
million for the nine months ended September 30, 1999 to $916,000 for the nine
months ended September 30, 2000. The decrease in consulting and training
revenues was primarily due to one significant customer in the nine months ended
September 30, 1999 not repeated in the nine months ended September 30, 2000.
Support and maintenance revenues increased 33% from $935,000 for the nine months
ended September 30, 1999 to $1.2 million for the nine months ended September 30,
2000. The increase in support and maintenance revenues was primarily due to in
overall increase in support and maintenance customers.
Cost of product revenues increased 54% from $170,000 in the nine months ended
September 30, 1999 to $262,000 in the nine months ended September 30, 2000. This
increase was primarily attributable to increased license fees. Cost of
consulting and training revenues decreased 1% from $799,000 in the nine months
ended September 30, 1999 to $789,000 in the nine months ended September 30,
2000. The gross margin for consulting and training decreased to 14% in the nine
months ended September 30, 2000 from 34% in the nine months ended September 30,
1999 primarily as a result of the decrease in consulting revenues without a
corresponding decrease in personnel and related compensation. Cost of support
and maintenance revenues increased 18% from $768,000 in the nine months ended
September 30, 1999 to $906,000 in the nine months ended September 30, 2000. The
increase was primarily attributable to an increase in personnel and related
compensation. The gross margin for support and maintenance increased to 27% in
the nine months ended September 30, 2000 from 18% in the nine months ended
September 30, 1999 primarily as a result of the increase in support and
maintenance revenues.
Selling and marketing expenses increased 75% from $5.3 million in the nine
months ended September 30, 1999 to $9.3 million in the nine months ended
September 30, 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.
Research and development expenses increased 45% from $2.4 million in the nine
months ended September 30, 1999 to $3.4 million in the nine months ended
September 30, 2000. This increase was primarily attributable to an increase in
personnel and related compensation, as well as outsourcing of certain research
and development efforts.
General and administrative expenses increased 94% from $1.3 million in the nine
months ended September 30, 1999 to $2.6 million in the nine months ended
September 30, 2000. This increase was primarily attributable to costs associated
with being a publicly traded company, including the costs of the shareholders'
meeting and investor relations activities, which did not occur in the comparable
prior nine months. The increase was also attributable to an increase in
personnel and related compensation.
Other, net increased to income of $1.9 million in the nine months ended
September 30, 2000, from expense of $835,000 in the nine months ended September
30, 1999. The increase was primarily attributable to interest income earned on
higher cash and cash equivalent and short-term investment balances in the nine
months ended September 30, 2000 as a result of the proceeds from the Company's
initial public offering in November 1999. In addition, the Company incurred a
one-time interest expense charge of $809,000 in the quarter ended September 30,
1999 for the conversion of debt to common stock.
Income tax expense increased to $46,000 in the nine months ended September 30,
2000, from income of $8,000 in the nine months ended September 30, 1999. The
income tax amount in the nine months ended September 30, 2000 represents foreign
withholding taxes accrued on sales made during the nine months.
LIQUIDITY AND CAPITAL RESOURCES
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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.
As of September 30, 2000, we had $18.7 million in cash and cash equivalents,
$15.6 million in short-term investments and $35.3 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 operating activities.
Net cash used in operating activities was $8.9 million for the nine months ended
September 30, 2000 and $3.9 million for the nine months ended September 30,
1999. Net cash used in operating activities for the nine months ended September
30, 2000 reflects the net losses, the changes in other current assets and the
amortization of investment discounts for the period. In June 2000, we entered
into an unsecured note agreement loaning 2.5 million euros (approximately
$2,200,000 based on the U.S. Dollar/euro exchange rate at September 30, 2000) to
a services provider. The loan bears interest at 11% per year and is due on
December 31, 2000. Net cash used in operating activities for the nine months
ended September 30, 1999 primarily reflects the net losses for the period.
Net cash used in investing activities was $7.4 million for the nine months ended
September 30, 2000 and $318,000, for the nine months ended September 30, 1999.
Investing activities reflect proceeds from the sale and maturity of short-term
investments, as well as purchases of short-term investments and purchases of
property, furniture and equipment in each period. 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 financing activities was $50,000 for the nine months ended
September 30, 2000 and $4.1 million for the nine months ended September 30,
1999. Our financing activities for the nine months ended September 30, 2000
provided cash primarily through the issuance of common stock and used cash
primarily to repay debt in the form of loans and capital leases. Our financing
activities for the nine months ended September 30, 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 Beteiligungsgesellschaft mbH, or 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 September 15, 1999 and ending on March 15, 2002. The
principal balance of the IKB Deutsche Industriebank AG loan at September 30,
2000 was DM 750,000 (approximately $338,000 based on the U.S. Dollar/Deutsche
Mark exchange rate at September 30, 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
to payoff 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, and reported at an aggregate fair market value of $34.3
million as of September 30, 2000. These securities are subject to interest rate
risk in as much 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 September 30, 2000, for example, the fair value of the
portfolio would not decline by a material amount.
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<PAGE> 12
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 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
inter-company balance with our German subsidiary and with an outstanding loan to
a services provider. Although we transact business in various foreign countries,
settlement amounts are usually based on U.S. dollars, Deutsche Marks 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 inter-company balance of $799,000 and the third-party loan
receivable balance of $2,501,000 at September 30, 2000, a hypothetical 10%
adverse change in the Deutsche Mark or euro against U.S. dollar would not result
in a material foreign exchange loss. Consequently, we do not expect that
reductions in the value of such inter-company balances, third-party loan
receivable balances or of other account balances 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.
POET HOLDINGS, INC. AND SUBSIDIARIES
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 17, 2000, the Company held its Annual Meeting of Stockholders. At the
meeting, the stockholders elected as directors Dirk Bartels (with 5,340,127
affirmative votes, and 140,250 votes withheld), Gert Koehler (with 5,480,127
affirmative votes, and 0 votes withheld), and Jerome Leceour (with 5,480,127
affirmative votes, and 0 votes withheld).
The stockholders also approved an amendment to the Company's Certificate of
Incorporation increasing the number of authorized shares of the Company's Common
Stock from 30,000,000 to 100,000,000 (with 5,467,127 affirmative votes, 13,250
negative votes, 0 votes withheld and 0 broker non-votes).
The stockholders also approved an amendment to the Company's 1995 Stock Option
Plan increasing the number of shares of the Company's Common Stock reserved for
issuance thereunder by 300,000 shares (with 5,480,127 affirmative votes, 250
negative votes, 0 votes withheld and 0 broker non-votes).
The stockholders also ratified the appointment of Deloitte and Touche LLP, as
the Company's independent public accountants for the current fiscal year (with
5,480,127 affirmative votes, 250 negative votes and 0 votes withheld).
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ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
b) Reports on Form 8-K
(1) Current report on Form 8-K filed on July 27, 2000 in regards to
the announcement of the preliminary financial results for the
quarter ended June 30, 2000.
(2) Current report on Form 8-K filed on July 7, 2000 in regards to
the announcement of the preliminary financial results for the
quarter ended June 30, 2000.
13
<PAGE> 14
POET HOLDINGS, INC. AND SUBSIDIARIES
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 November 13, 2000.
POET Holdings, Inc.
(Registrant)
By: /s/ DIRK BARTELS
--------------------------------------
Dirk Bartels
President,
Chief Executive Officer and Director
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
15
