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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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Form 10-K

|           |  |                                                                                                                                          
|---------- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                                                                          
|          
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
	15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934.
	 For the fiscal year ended December 31, 2001
	or
|          
|o          |  | 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 of
	incorporation or organization) |  | (I.R.S. Employer
	Identification No.)



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999 Baker Way, Suite 200

San Mateo, California 94404


(650) 577-2500


(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




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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
þ          No
o

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.     o

The aggregate market value of voting stock held
by non-affiliates of the Registrant was approximately
$11,760,000 as of March 1, 2002, based upon the closing
price on the Neuer Marktof the Frankfurt Stock Exchange
reported for such date. This calculation does not reflect a
determination that certain persons are affiliates of the
Registrant for any other purpose.

The number of shares outstanding of the
Registrants Common Stock on December 31, 2001 was
10,876,912 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrants Proxy Statement
for its 2002 Annual Meeting of Stockholders (the Proxy
Statement), to be filed with the Securities and Exchange
Commission, are incorporated by reference to Part III of this
form 10-K Report.



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TABLE OF CONTENTS



|             |                                                                                               |  |  |  |  |  |  | 
|------------ | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I      
|             | Item 1. Business                                                                             
|             | Item 2. Properties                                                                           
|             | Item 3. Legal Proceedings                                                                    
|             | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II     
|             | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                
|             | Item 6. Selected Consolidated Financial Data                                                 
|             | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|             | Item 7A. Qualitative and Quantitative Disclosure About Market Risk                           
|             | Item 8. Financial Statements and Supplementary Data                                          
|             | Item 9. Disagreements on Accounting and Financial Disclosure                                 
|PART III    
|             | Item 10. Directors and Executive Officers of the Registrant                                  
|             | Item 11. Executive Compensation                                                              
|             | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|             | Item 13. Certain Relationships and Related Transactions                                      
|PART IV     
|             | Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|             | SIGNATURES                                                                                   
|EXHIBIT 3.2 
|EXHIBIT 3.3 
|EXHIBIT 10.6
|EXHIBIT 10.8



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POET HOLDINGS, INC.

FORM 10-K

INDEX

|           |  |                                                                                        |    |      |    | 
|---------- |  | -------------------------------------------------------------------------------------- | -- | ---- | -- | 
|           |  |                                                                                        |    | Page
|           |  |                                                                                        |    |     
|PART I    
|Item 1.    |  | Business                                                                               |    |      | 1  | 
|Item 2.    |  | Properties                                                                             |    |      | 10 | 
|Item 3.    |  | Legal Proceedings                                                                      |    |      | 10 | 
|Item 4.    |  | Submission of Matters to a Vote of Security
	Holders                                   |    |      | 10 | 
|PART II   
|Item 5.    |  | Market For Registrants Common Equity and
	Related Stockholder Matters                 |    |      | 10 | 
|Item 6.    |  | Selected Consolidated Financial Data                                                   |    |      | 14 | 
|Item 7.    |  | Managements Discussion and Analysis of
	Financial Condition and Results of Operations |    |      | 15 | 
|Item 7A.   |  | Quantitative and Qualitative Disclosures About
	Market Risk                            |    |      | 31 | 
|Item 8.    |  | Financial Statements and Supplementary Data                                            |    |      | 32 | 
|Item 9.    |  | Disagreements on Accounting and Financial
	Disclosure                                  |    |      | 51 | 
|PART III  
|Item 10.   |  | Directors and Executive Officers of the Registrant                                     |    |      | 51 | 
|Item 11.   |  | Executive Compensation                                                                 |    |      | 53 | 
|Item 12.   |  | Security Ownership of Certain Beneficial Owners
	and Management                        |    |      | 53 | 
|Item 13.   |  | Certain Relationships and Related Transactions                                         |    |      | 53 | 
|PART IV   
|Item 14.   |  | Exhibits, Financial Statement Schedules and
	Reports on Form 8-K                       |    |      | 54 | 
|SIGNATURES |  |                                                                                        | 57 |     





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PART I




Item 1.     Business

Note Regarding Forward-Looking
Statements

This annual report 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 under Managements
Discussion and Analysis of Financial Condition and Results of
Operations  Risk Factors and elsewhere in this
annual report. 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.

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 (B2B) processes and
information exchange over the Internet. Our Internet solutions
provide our customers with the ability to efficiently create,
manage, manipulate and electronically distribute and exchange
complex business information, such as product catalogs, customer
pricing and other related information. Our solutions leverage
the Internet as a new means to increase customer relationships,
create new electronic sales channels, accelerate and automate
business processes and reduce overhead costs. 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 our customers, software vendors and
original equipment manufacturers, to build efficient, secure,
reliable and high performance applications that are fully
integrated, easy to use and cost efficient. Our open systems
approach, which works with a variety of development tools,
hardware, system 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 and
existing and emerging technology platforms.

The Poet Solution

We are a provider of comprehensive supplier
enablement applications for B2B e-commerce. Our Poet eSupplier
Solutions (formerly named Poet eCatalog Suite) product family
helps enterprises to establish new business relationships with
their partners  suppliers, intermediaries, customers
and buying organizations  and to efficiently develop
new distribution channels through electronic marketplaces. These
applications address the specific requirements of our customers
who wish to engage in e-commerce. These requirements include,
among others, the creation, management, and aggregation of
comprehensive electronic catalogs and tools for sophisticated
manipulation, customization and distribution, using the XML
standard. Our products thus provide unique business critical
solutions for companies looking to utilize XML and the Internet
for e-commerce initiatives. Our applications utilize our object
database management system but can also be deployed with a
relational database system, most notably the Oracle database.

We offer a range of products to address the
various customer requirements, from a small footprint hand held
device all the way to a multi tier, high availability industrial
control system. Our products include FastObjects by Poet
(formerly named Poet Object Server Suite), an award-winning
object database designed

1



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for management of complex data in embedded
systems and industrial applications. FastObjects by Poet,
together with its database development and administration tools,
provides a powerful object data management solution to be
integrated in Internet and other software applications and in
computer-aided systems, such as medical and industrial
automation systems. Our database products uniquely address the
needs for a secure, reliable and high performance data
management component with a low total cost of ownership for
those application types.


We are one of the few software companies that
provide both a database that supports XML and applications for
storing, manipulating and managing business documents and
related processes. Our customers may benefit greatly from the
synergies resulting from the combination of our proven
object-oriented database management system and these innovative
e-commerce applications.

Strategy

Our objective is to make complex applications
simple and affordable for a large group of organizations by
providing sophisticated, easy to use and powerful software and
applications that leverage the Internet. To this end, we aspire
to become the leading supplier of object-oriented data
management solutions and to capitalize on our substantial
experience and know-how in the area of object-oriented data
management systems, XML, Java and electronic catalogs to develop
and market successfully our Internet e-commerce applications.
Key elements of our strategy include the following:

Leverage Database Technology For New Internet
Applications.With the development of
the Poet eSupplierSolutions product family we have extended our
core competency of object database technology into software
applications to facilitate business-to-business exchange of
documents and related processes. With the advent of data
exchange standards such as XML, we anticipate additional demand
for these applications that will foster revenue growth. We
intend to further develop these applications to provide complete
solutions including further enhanced features and functions.

Expand Sales And Distribution.We intend to expand our global sales
capabilities by expanding the number of systems integrators,
software vendors, value added resellers and original equipment
manufacturers that form our indirect sales channel.

Foster Strategic Relationships.We have entered into strategic
relationships with software developers, original equipment
manufacturers and marketing partners in order to accelerate the
development and acceptance of our products. We intend to
continue our strategy of partnering with software vendors who
offer complementary products and functions and incorporating
those products and functions into our products. We are fostering
existing and new relationships, similar to our licensing
arrangements with Verity, Inc. for a text search engine, and
with Simba Technologies Inc. for the creation of an Open
Database Connectivity driver for FastObjects by Poet. In
addition, we intend to enter into joint marketing partnerships
with vendors of complimentary products, such as our existing
partnerships with Ariba, Inc. and Commerce One, Inc., both
developers of complimentary business-to-business e-commerce
software applications.

Extend Database Technology.We have historically pursued and will
continue to pursue the development of state of the art
technology. We intend to extend our database technology by
continuing to enhance the performance and scalability of our
FastObjects by Poet product line and by providing advanced
support for complex data models and integration with
object-oriented programming languages. In addition, we intend to
continue to enhance our development and administration tools and
data access products to make it easier to build, deploy and use
applications based on FastObjects by Poet.

Continue To Pursue Open Systems Approach.We intend to continue to pursue an
open systems approach, which allows customers to rapidly develop
applications using our database products and customize our
existing Internet solutions. Our products are designed to work
with a variety of standard tools and to take advantage of
existing investments in hardware, software and network
infrastructures. Our products support the programming languages
Java and C++, the data exchange protocols XML and cXML among
others, the product categorization standards UNSPSC, BMEcat and
eClass4, and numerous operating systems such as Microsoft
Windows, Novell Netware, Sun Solaris, HP-UX and Linux. In
addition, we are members of

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Internet and database standards organizations
including the Object Data Management Group and Java Data Objects.


Products

Our product offerings consist of two customer
solutions, eSupplier Solutions and FastObjects by Poet. Our Poet
eSupplier Solutions (formerly named Poet eCatalog Suite)
provides a tool for businesses to efficiently manage and
exchange electronic catalogs over the Internet for electronic
purchasing systems such as the Ariba Procurement system, the
Commerce One Marketplace System and the SAP Procurement System,
among others. Our FastObjects by Poet offering provides
companies with an object-oriented database management system
that can be embedded as a high performance component into our
customers applications and systems.



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | The Poet eSupplierSolutions Product Family
	(formerly called Poet eCatalog Suite)

Our Poet eSupplierSolutions product family
consists of applications that provide a comprehensive electronic
catalog system that enables companies of all sizes to seamlessly
conduct B2B e-commerce. These applications provide a turnkey
solution to create electronic catalogs from existing internal
information systems and databases and manage the processes to
automate customization and distribution and aggregation of these
catalogs. Traditionally, catalog information has been
distributed by paper, phone or email with infrequent updates,
often outdated information and no customization for particular
customers. We believe that the Poet eSupplierSolutions product
family has the potential to foster stronger, longer-lasting
business relationships and, when established, will lead to
significantly higher efficiencies and eventually to greater
volumes of business. Our eSupplier Solutions offerings include
eSupplierLink, eSupplierWeb and eSupplierPort.

Poet eSupplierLink.Poet eSupplierLink is a turnkey solution that gives MRO
suppliers of any size, from any industry, regardless of
infrastructure or e-commerce strategy, the ability to easily
create, manage and distribute product catalogs in any format
over the Internet. eSupplierLink delivers measurable business
benefits by giving suppliers global reach and fast time to
market without disruptions to their existing business models and
IT infrastructure. It helps create new electronic sales channels
and encourage buyer loyalty by enabling suppliers to maintain
rich content, customize it for each buyer and distribute it to
any eProcurement system or eMarketplace.

Poet eSupplierWeb.Poet eSupplierWeb offers eMarketmakers and Application Service
Providers (ASPs) a hosted, highly scalable solution that
makes it easy for suppliers to create, maintain and distribute
customized eCatalogs over the Internet. eSupplierWeb takes a
unique self-service approach that removes enablement barriers
for suppliers, reduces the administrative burden on
eMarketmakers and ASPs, and encourages stronger, more meaningful
supplier-buyer relationships. eSupplierWeb enables eMarketmakers
to immediately connect thousands of suppliers and achieve early
liquidity for their eMarketplaces. Buyers benefit from the
currency and accuracy of information as well a greater selection
of competitively priced products. Poet eSupplierWeb enables ASPs
to provide comprehensive catalog management functionality to
customers in both vertical and horizontal industries without
requiring them to install and maintain a resident application.
With eSupplierWeb, ASPs can host eCatalogs for their existing
customers, attract new customers, and enhance their strategic
position in B2B e-commerce.

Poet eSupplierPort.Poet eSupplierPort is a hosted, highly scalable solution that
helps buyers optimize their eProcurement system. Poet
eSupplierPort Standard Edition enables buyers to verify,
approve, and customize supplier catalog content before it is
introduced to their eProcurement systems. By providing
integrated content validation functionality, the Standard
Edition reduces IT involvement in the procurement process and
ensures desired products are purchased at contractually
specified prices. Poet eSupplierPort Extended Edition
incorporates supplier enablement functionality for buyers to
efficiently manage or grow their supplier group. Poet
eSupplierPort Extended Edition makes it possible for suppliers
of all sizes, from any industry, and with virtually any
technical background to create, maintain, and distribute
customized catalogs on a self-service basis. By facilitating
supplier enablement, buyers can increase supplier participation,
promote higher-quality catalogs, and improve the efficiency of
their eProcurement systems.

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The Poet eSupplierSolutions product family
provides users with the following benefits:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Enables Suppliers To Use The Internet More
	Efficiently For B2B E-Commerce.Suppliers typically use traditional
	electronic data interchange, or EDI, solutions or conventional
	paper, fax and telephone to provide catalog information to their
	business customers. EDI is often used over costly private
	networks primarily by large companies with significant
	information technology resources. In contrast, our applications
	use the Internet as the transport medium and XML as a uniform
	exchange protocol to provide cost-effective and ubiquitous
	communication with a wide range of customers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| | Protection Of Investment In Existing
	Information Systems.Many suppliers
	currently operate internal information systems that contain at
	least portions of relevant catalog data. However, this data is
	often stored in proprietary formats inappropriate for electronic
	distribution, and it would be difficult and expensive to change
	the existing internal information systems to reformat this data
	into uniform formats for useful e-commerce. The Poet
	eSupplierSolutions product family complements existing internal
	information systems by extracting product and service
	information from the existing system and by transforming the
	information into a standard XML format for a generic master
	catalog. The master catalog can then be extended with our tools
	by adding information such as comprehensive descriptions and
	pictures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | Automatically Creates Customized Catalogs.The Poet eSupplierSolutions product
	family provides an intuitive, user-friendly interface for
	creating and managing customer catalogs. The applications are
	capable of mass customization, which allows the creation of
	customer profiles that are used to maintain information specific
	to each business customer, such as special pricing, selection of
	products and required data formats. The customer profiles are
	used to generate customized catalogs. The catalogs are then
	transmitted to the business customer and automatically interact
	with the customers own purchasing software via the
	Internet. Administration of the data exchange is automatic,
	resulting in a scalable solution that can easily serve hundreds
	of customer organizations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | Provides A Platform For Integration With
	Purchasing Systems.We expect that
	many different and competing XML dialects for catalog data
	exchange will evolve. The Poet eSupplierSolutions product family
	provides a flexible platform architecture that can easily be
	extended with additional delivery formats. Today, the Poet
	applications support a range of catalog exchange formats, such
	as cXML and the Catalog Information Format, or CIF, xCBL, CUP,
	OCI, BMEcat and eClass. cXML and CIF support the compatibility
	with the Ariba Operating Resource Management System electronic
	purchasing system. Ariba, Inc. is a leading provider of
	electronic purchasing systems for the purchasers of goods.
	Aribas Operating Resource Management System is an
	e-commerce application that automates the purchasing of
	maintenance, repair and operating supplies. XCBL and CUP are the
	exchange formats to connect electronic catalogs to the
	e-business applications from Commerce One, Inc., a leading
	provider of electronic marketplace software. BMEcat is a
	standardized catalog exchange format defined by Germanys
	Bundesanstalt fuer Materialwirtschaft (BME). This format is
	widely used in the German marketplace. OCI, or Open Catalog
	Interface, is a standardized interface into SAPs
	procurement application. We plan to develop future versions of
	the Poet eSupplierSolutions product family with additional
	functionalities that will make it compatible with other leading
	electronic purchasing systems.
|
| | Reduces Costs For Catalog Management.Internal information systems are not
	designed to provide outbound and customized electronic catalog
	management. The conventional distribution of this information
	via paper, fax or telephone is slow and expensive, quickly
	becomes outdated and cannot be customized. The costs for a
	proprietary electronic data interchange solution are prohibitive
	for most suppliers. Our applications can reduce costs by
	automating significant portions of the catalog management
	process by accelerating the speed of business processes without
	requiring additional expensive personnel for administration and
	maintenance. In addition, the Poet eSupplierSolutions product
	family has the potential to help establish strong business
	relationships with customers by linking the companies
	electronically, which may increase business volume.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

We began shipping Version 1.0 of the Poet
eCatalog product family in September 1999. As of
December 31, 2001, we were shipping version 4.5 of our
eSupplierSolutions software applications.

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| |                    
| | -------------------
| | FastObjects by Poet

FastObjects by Poet allows software developers to
build standard applications that require low to zero database
maintenance and administration, high availability, secure access
and storage management and high performance. FastObjects by Poet
supports powerful programming of complex multidimensional data
models, such as those common among Internet applications,
without the performance and programming difficulties often
experienced with relational databases. Since its introduction in
1991 by a predecessor entity, FastObjects by Poet has been used
by our customers to build high-performance applications in a
variety of challenging programming environments where relational
databases have been unable to provide adequate functionality.
Our customers use FastObjects by Poet as an integrated data
management engine for a wide variety of products, systems and
applications, including commercial Web sites, telecommunications
equipment, medical equipment, industrial process control,
financial information systems, customer information systems,
electronic product documentation to mobile computing
applications and XML-based, Internet business applications. For
more information regarding the predecessor entities of our
subsidiaries, see Statutory Information.

The development of FastObjects by Poet was
started in 1989 by a predecessor entity, which began marketing
FastObjects by Poet Version 1.0 in 1991. The latest major
version, FastObjects by Poet 8.0, was released in June
2001. We have licensed our software to more than 1,000
independent software vendors, original equipment manufacturers
and corporate customers since 1996.

We believe that FastObjects by Poet delivers the
following key benefits to our customers who build applications:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Faster Time To Market.Because data is represented in
	FastObjects by Poet exactly as it is used by the object-oriented
	programming languages, such as Java, no translation from other
	programming languages is necessary. Using an object-oriented
	database management system such as FastObjects by Poet reduces
	the applications total source code, as well as the time to
	program the source code substantially. FastObjects by Poet also
	offers customers an HTML interface to build Web pages and an
	interface for other productivity tools. To further reduce time
	to market, FastObjects by Poet eliminates the need to write
	database conversion programs for application upgrades and new
	applications accessing existing Poet databases.                           
|
| | Low Cost Of Ownership.Because FastObjects by Poet needs
	virtually no administration and maintenance after being
	installed, the product is well suited for applications requiring
	a database that is integrated into the application and invisible
	to the end-user. Due to these features, FastObjects by Poet may
	be used in environments with minimal or no administration, such
	as applications for mobile computers, telecommunications
	equipment, medical devices and large volume end-user software
	applications. In addition, because the low to zero
	administration feature reduces costs significantly, customers
	using FastObjects by Poet can build applications for end-user
	markets in which the ongoing costs of a database administrator
	would be prohibitive.
|
| | Provides Direct Storage And Management Of
	Complex Data Models Without Additional Programming.FastObjects by Poet provides direct
	storage of C++, Java and XML data models without requiring the
	programmer to write additional code to map these models from
	applications into relational databases. This permits rapid
	access to and processing of complex data models and facilitates
	concurrent use of the database as other transactions may freely
	access other stored objects. As a result of these features,
	applications can be developed in less time with higher
	performance and greater reliability and flexibility.                                                                                                                                                
|
| | Low Memory Requirements And High Scalability.The low memory consumption of
	FastObjects by Poet enables deployment in a wide variety of
	computing environments, reaching from personal computers and
	mobile computers to Windows NT and UNIX server environments.
	FastObjects by Poet can overcome resource limitations associated
	with laptop computers by scaling down while maintaining the
	capability to size up to databases on large server systems. We
	are striving to make our powerful database management systems
	available to even more limited computing environments such as
	personal digital assistants, like Palm, Inc.s Palm Pilot
	device, and have, in a research project conducted together                                                                 

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | with Ericsson, Inc., developed a Java database
	with memory requirements as low as one-tenth of our standard
	database that can be included in hand-held devices.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | Open Systems Approach.FastObjects by Poet is designed as a
	platform-independent product capable of working on numerous
	standard operating systems. FastObjects by Poet is compatible
	with leading operating systems such as Microsoft Windows,
	Windriver VxWorks, Novell Netware, Sun Solaris, HP-UX and Linux.
	In addition, FastObjects by Poet is compatible within
	widely-used relational database management systems such as those
	of Oracle and Microsoft. We intend to continue this open
	platform approach, which allows our customers to easily and
	rapidly deploy applications on these platforms without
	modification.
|
| | High Availability.The newest version of FastObjects by Poet provides sophisticated
	fail-over mechanisms that allow our customers to deploy their
	applications into environments where the uninterrupted
	availability of the database is mission-critical. Our solution
	complements fault tolerant operating system infrastructures.                                                                                                                                                                                                                                                                                                   
|
| | Security.We have
	implemented additional security services for FastObjects by
	Poet, that allow our customers to encrypt the database storage
	system and the data transport. Our security services go beyond
	regular access control and are compatible with emerging
	regulations, such as 21 CFR Part 11, a new regulation
	issued by the FDA.                                                                                                                                                                                                                                                                                         

Services

We believe that providing high-quality services
is critical to ensuring customer success and satisfaction.
Accordingly, we supplement all of our product offerings with
technical support and consulting services. We offer several
levels of support including software updates, telephone
technical support, the service of dedicated support engineers,
training and customer specific workshops. Our Consulting Group
provides fee-based consulting services designed to allow the
seamless integration of our products into the software systems
of our customers. In addition, our Consulting Group undertakes
custom development projects for customers by which we add
additional and customized features and functionality to our
product base. The Support & Maintenance Group provides
support for a software product once it has been approved by our
quality control department and has been made commercially
available.

We support customers on a continuous basis
through the provision of product information and software
patches over our support Website. In addition, customers may
seek offline support from us via e-mail and facsimile.

Customers

We have licensed versions of our products to over
1,000 customers worldwide. In 1999, Novell, Inc. accounted for
16% of our revenues and more than 24% of our revenues in both
1998 and 1997. However, we fulfilled our contractual obligations
with Novell in the third quarter of 1999, and since such date,
we have not derived any revenue from sales to Novell. Our
customers represent a broad spectrum of enterprises within
diverse sectors, including technology, telecommunications,
publishing, defense, transportation, banking and finance.

See the Consolidated Statements of Operations and
Comprehensive Loss for the detail of our revenues by product,
consulting and training, and support and maintenance. See the
Risk Factor The Success Of Our International Operations Is
Dependent Upon Many Factors Which Could Adversely Affect Our
Ability To Sell Our Products Internationally And Could Affect
Our Profitability for risks and details associated with
our foreign revenues. See Note 11 of the Notes to Consolidated
Financial Statements for additional information on segment
information, operations by geographic area and significant
customers.

6



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##### Table of Contents



The following is a representative list of
customers from our customer base who have purchased licenses
and/or services from us.



| |                                 
| | --------------------------------
| | Financial Services and Insurance



| |                                
| | -------------------------------
| | Audatex Holdings Ltd           
| | Bankgesellschaft Berlin AG     
| | Bausparkasse Schwabisch Hall AG
| | DataCard Corporation           
| | Dresdner Bank                  
| | Techniker Krankenkasse         
| | HSBC Trinkaus & Burkhardt KGaA 



| |                                  
| | ---------------------------------
| | Software, Technology and Internet



| |                                       
| | --------------------------------------
| | ADDISON Software und Service GmbH     
| | Avisium                               
| | AOL (formerly CompuServe Incorporated)
| | Cyra Technologies, Inc.               
| | Digital Zone International A/S        
| | DVG                                   
| | The ForeFront Group, Inc.             
| | Ganymede Software Inc.                
| | GSD Software und Datentechnik mbH     
| | Hewlett Packard                       
| | IDS Scheer AG                         
| | IntelliCorp, Inc.                     
| | ipro Consulting GmbH                  
| | Lernout & Hauspie Speech Products N.V.
| | Mitsubishi                            
| | On Center Software, Inc.              
| | Pixelpark GmbH                        
| | Philips GmbH                          
| | Pythia Communication & Computer GmbH  
| | Riverton Software                     
| | Schaefer Shop                         
| | Tool, S.A.                            
| | TurboMed EDV GmbH                     



| |                                                   
| | --------------------------------------------------
| | Telecommunications Equipment and Embedded
	Systems



| |                                         
| | ----------------------------------------
| | AM Communications, Inc.                 
| | Avaya                                   
| | Beckman Coulter, Inc.                   
| | Bosch Telecom GmbH                      
| | Echelon Corporation                     
| | Ericsson, Inc.                          
| | Lucent Technologies Network Systems GmbH
| | Lucent Technologies, Inc.               
| | Metrohm AG                              
| | Nortel Networks                         
| | The Perkin-Elmer Corporation            
| | Rohde & Schwarz International GmbH      
| | US West, Inc.                           
| | Wandel & Golterman, Inc.                

7



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##### Table of Contents





| |            
| | -----------
| | Health Care



| |                                    
| | -----------------------------------
| | Biomerieux                         
| | Immunex                            
| | National Board of Medical Examiners



| |              
| | -------------
| | Manufacturing



| |           
| | ----------
| | Benteler  
| | Linde     
| | Siemens AG



| |      
| | -----
| | Other



| |                                                             
| | ------------------------------------------------------------
| | ARINC Incorporated                                          
| | EADS (European Aircraft and Defense Systems,
	formerly DASA)
| | National Simulation Center                                  

Selling and Marketing

We market our products primarily through our
direct sales force and indirect sales channels. As of
December 31, 2001, our direct sales force consisted of
42 sales representatives and sales support personnel,
19 of whom are based in the U.S. and 23 of whom are based
in Europe. We have developed profiles of target customers for
each product. Potential customers in each of our sales regions
are matched against such profiles and ranked by priority. We use
a variety of marketing programs to build market awareness of our
company, our Poet brand name, our products and our services. Our
activities include market research, product and strategy updates
with industry analysts, public relations activities, direct mail
and relationship marketing programs, seminars, trade shows,
speaking engagements of senior management and Website marketing.
Our marketing organization also produces marketing materials in
support of sales to potential customers, including brochures,
white papers, presentations and demonstrations.

In marketing FastObjects by Poet, our direct
sales force focuses on original equipment manufacturers,
independent software vendors and large commercial end-users who
maintain their own development units, all of whom can integrate
our database into their own systems. In order to increase the
visibility of the FastObjects by Poet to end-users working with
applications into which the product is embedded, we seek
agreements with our original equipment manufacturers,
independent software vendors and large commercial end-user
customers to label their products Powered by Poet.

The Poet eSupplierSolutions product family is
targeted at small, medium and large supplier organizations,
operators of electronic marketplaces, application service
providers, and purchasing departments of Fortune 1000 companies.
We sell our Poet eSupplierSolutions product family directly and
via partners.

Research and Development

We have made substantial investments in research
and development through both internal development and, to a
lesser extent, technology acquisition. Although we plan to
continue to evaluate externally-developed technology for
integration into our products, we expect that the majority of
enhancements to existing as well as new products will be
developed by our internal research and development department.

The strategic importance which we place on our
research and development is reflected by the size of our
Research and Development Group which, as of December 31,
2001, comprised 44 of our 143 total employees. Most of our
employees in the Research and Development Group have university
degrees in either information technology or mathematics. Our
Research and Development Group is based entirely in Hamburg,
Germany, where the cost of attracting and retaining highly
qualified research and development staff is considerably lower
than in the United States.

Our research and development expenditures,
including purchased software, for fiscal 2001, 2000 and 1999
were approximately $3.9 million, $4.4 million and
$3.2 million, respectively. We expect that we will continue
to commit significant resources to research and development in
the future, especially for the development of Internet-related
applications. All research and development expenses have been
expensed as incurred.

8



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##### Table of Contents



Competition

The markets for database and e-commerce software
are intensely competitive. Our customers requirements and
the technology available to satisfy those requirements
continually change. We expect competition to persist and
intensify in the future. Not only were we the first database
vendor to provide support for XML, but we also believe that we
are a pioneer in building the next generation of XML-based
Internet e-commerce applications. Our sources of principal
competition include:



| |   |                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In-house development efforts by potential
	customers or partners;                                                                                                                                                                                                                                                            
|
| |  | Other software vendors that address similar
	customer needs and that may have a larger market share or
	greater name recognition and resources than us, including
	vendors of object-oriented database management systems, such as
	eXcelon Inc. (formerly Object Design, Inc.), Versant
	Corporation, and Objectivity, Inc.;
|
| |  | Other content management companies, such as
	Chrystal Software, Incorporated, Vignette Corporation, Inso
	Corporation, Documentum, Inc., Requisite Technology, Inc.,
	SAQQARA Systems, Inc., Broadvision, Inc., Heiler Software AG and
	Webmethods, Inc.; and                                                                
|
| |  | Potentially, vendors of relational database
	systems, such as Oracle Corporation, Microsoft Corporation,
	Sybase, Inc., Pervasive Software, Inc., Progress Software
	Corporation, IBM, and Informix Corporation.                                                                                                             

We believe that our competitive advantages over
these principal sources of competition are as follows:



| |   |                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We provide faster time to market and lower cost
	with our ready solutions due to the expense and time required to
	independently develop object-oriented storage solutions;                   
|
| |  | Our products are easily integrated into other
	software;                                                                                                                                      
|
| |  | Our product architecture provides for optimal
	performance and scalability;                                                                                                                   
|
| |  | We offer discrete solutions for catalog content
	and management, as opposed to competing products that may be
	offered as part of larger, more expensive products with multiple
	purposes; and
|
| |  | Our object-oriented databases eliminate extra
	coding and maintenance required by relational databases offered
	by other vendors.                                                             

Proprietary Rights and Licensing

Our success and ability to compete is dependent
upon our ability to develop and maintain the proprietary aspects
of our technology and operate without infringing on the
proprietary rights of others. We rely on a combination of
trademark, trade secret and copyright law, and contractual
restrictions of our customers, partners, employees, management
contractors and consultants to protect the proprietary aspects
of our technology. We have entered into a license agreement with
Novell with regard to Version 5.0 of our FastObjects by
Poet. For more details, see Item 13 of this Annual Report.

We presently own the U.S. trademark
POET and the U.S. trademark application for
FastObjects. Our German subsidiary, Poet Software
GmbH, owns the trademark POET in Germany, Austria,
Netherlands, Luxembourg, Belgium, France, Spain, Italy,
Yugoslavia, Switzerland and China. We currently own no patents
and have no patent applications. We are not dependent on any
material licenses from third parties. We license our software to
customers under license agreements that impose restrictions on
the licensees ability to utilize our software. However,
these legal protections afford only limited protection for our
technology.

Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy aspects of our
products or to obtain and use information that we regard as
proprietary. We integrate third-party software into our
products. This third-party software may not continue to be
available on commercially reasonable terms. We license the Simba
SQL Engine for Open Database Connectivity from Simba
Technologies, Inc., an open database connectivity engine, and
Topic Developer Toolkit from Verity, Inc., a text search engine
that is

9



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##### Table of Contents



an optional function of FastObjects by Poet. If
we cannot maintain these third-party software licenses,
shipments of our products could be delayed until equivalent
software could be developed or licensed and integrated into our
products.


Employees

We consider our qualified and highly motivated
employees a key factor in our success. Our future success will
depend in part on our ability to attract, retain and motivate
highly qualified technical management personnel for whom
competition is intense. Approximately half of our employees hold
university degrees. As of December 31, 2001, the Company
had a total of 143 employees, 71% of whom are based in Europe.

From time to time, we also employ independent
contractors to support our professional services, research and
development, and sales and marketing organizations. Our
employees are not represented by any collective bargaining unit,
and we have never experienced a work stoppage. We believe our
relations with our employees are good.




Item 2.     Properties

Our headquarters, as well as the headquarters of
our subsidiary, Poet Software Corporation, are currently located
in a leased facility in San Mateo, California, consisting of
approximately 12,118 square feet under a four-year lease,
which expires in April 2004.

Our other primary offices are located in the
cities of Hamburg and Munich, Germany and approximate a total of
44,100 square feet. Our subsidiary, Poet Software GmbH, in
which our research and development efforts are based, operates
out of these locations. These leases expire in 2003 and 2005,
respectively.

In addition, we have leased sales and support
offices in the following North American locations: Irving,
Texas; Minnetonka, Minnesota; Chicago, Illinois; and Marin,
California.




Item 3.     Legal
Proceedings

We currently do not have any pending material
legal proceedings.




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

Not Applicable.




PART II




Item 5.     Market
for Registrants Common Equity and Related Stockholder
Matters

Poets common stock has been quoted on the
Neuer Markt of the Frankfurt Stock Exchange under the symbol
POXA since our initial public offering on
November 17, 1999. Prior to this time, there was no public
market for our stock. See Selected Consolidated Financial
Data in Item 6.  Selected Financial
Data for the high and low closing sales prices per share
of our common stock as reported on the Neuer Markt for the
periods indicated.

We currently expect to retain future earnings, if
any, for use in the operation and expansion of our business and
do not anticipate paying any cash dividends in the foreseeable
future. On December 31, 2001, there were approximately 90
stockholders of record of our common stock.

The German Equity Market



| |                       
| | ----------------------
| | German Securities Laws

As a United States company offering securities on
a German stock exchange, we are subject to various laws and
regulations in both jurisdictions. Some of these laws and
regulations, in turn, can affect the ability of holders of our
securities to transfer or sell our securities.

10



---



##### Table of Contents



At present, Germany does not restrict the export
or import of capital, except for investments in Iraq and Libya
in accordance with applicable resolutions adopted by the United
Nations and the European Union. However, for statistical
purposes only, every individual or corporation residing in
Germany must report to the German Central Bank, subject only to
immaterial exceptions, any payment received from or made to an
individual or a corporation not a resident of Germany if such
payment exceeds DM5,000 (2,550 euro or the equivalent in a
foreign currency). In addition, residents of Germany must report
any claims against or any liabilities payable to non-residents
if such claims or liabilities, in the aggregate, exceed
DM3.0 million (1.53 million euro, or the equivalent in
a foreign currency) during any one month. Residents must also
report any direct investment outside Germany if such investment
exceeds DM100,000 (51,000 euro, or the equivalent in a foreign
currency).

There are no limitations on the right of
non-resident owners to hold or vote the shares imposed by German
law or our certificate of incorporation or bylaws.



| |                                                  
| | -------------------------------------------------
| | The Frankfurt Stock Exchange and the Neuer
	Markt

The Frankfurt Stock Exchange is the most
significant of the eight German stock exchanges and accounts for
more than 75% of the turnover in traded shares in Germany. The
aggregate annual turnover of the Frankfurt Stock Exchange in
1998 of approximately DM8,338 billion, based on the
Frankfurt Stock Exchanges practice of separately recording
the sale and purchase components involved in any trade, for both
equity and debt instruments, made it the fourth largest stock
exchange in the world in terms of turnover behind the New York,
London and Tokyo Stock Exchanges.

The Neuer Markt segment of the Frankfurt Stock
Exchange is a new trading segment that was launched in March
1997. It is designed for innovative, small to mid-size companies
in high-growth industries or in traditional industries that have
an international orientation and that are willing to provide
active investor relations. Issuers are requested to provide
investors on an ongoing basis with information such as annual
and quarterly reports, including cash flow statements, and a
corporate action timetable. This information is required to be
submitted in English and German as well as in electronic form,
thus enabling the stock exchange to disseminate corporate
information via the Internet.



| |                           
| | --------------------------
| | Trading on the Neuer Markt

Trading of shares listed on the Neuer Markt takes
place on the floor of the stock exchange, but is computer-aided.
Shares listed on the Neuer Markt can also be traded on a
computer-aided system called Xetra. Trading takes place on every
business day between 9:00 a.m. and 8:00 p.m.,
Frankfurt time. Trading within the Xetra system is done by banks
and securities dealers who have been admitted to trading on at
least one of Germanys stock exchanges. Xetra is integrated
into the Frankfurt Stock Exchange and is subject to its rules
and regulations.

Markets in listed securities are generally of the
auction type, but listed securities also change hands in
inter-bank dealer markets off the Frankfurt Stock Exchange.
Price formation is determined by open bid by state-appointed
specialists who are themselves exchange members, but who do not,
as a rule, deal with the public. Prices of shares traded on the
Neuer Markt are displayed continuously during trading hours. At
the half-way point of each trading day, a single standard
quotation is determined for all shares. The members
association of the Frankfurt Stock Exchange publishes a daily
list of prices which contains the standard prices of all traded
securities, as well as their highest and lowest quotations
during the past year.

Transactions on the Frankfurt Stock Exchange,
including transactions within the Xetra system, are settled on
the second business day following trading. Transactions off the
Frankfurt Stock Exchange, for large volumes or if one of the
parties is foreign, are generally also settled on the second
business day following trading, unless the parties have agreed
upon a different date. Following a recent amendment to the
conditions of German banks for securities trading,
customers orders to buy or sell listed securities must be
executed on a stock exchange, unless the customer instructs
otherwise. Trading can be suspended by the Frankfurt Stock
Exchange if orderly stock exchange trading is temporarily
endangered or if a suspension is in the public interest.

11



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##### Table of Contents



A specific feature of the Neuer Markt is the
introduction of the obligatory Designated Sponsor
or, an entity admitted for trading at the Frankfurt Stock
Exchange which provides additional liquidity by quoting prices
for the buying and selling of shares on request. Each issuer on
the Neuer Markt is required to nominate at least two Designated
Sponsors which will not only ensure that there is sufficient
liquidity for its shares, but also serve as consultants on all
stock market related matters for the issuer.

Poets shares have been admitted for listing
on the Neuer Markt. The Neuer Markt is still a relatively new
market. Accordingly, there can be no assurance that an active
trading market for the shares will develop on the Neuer Markt or
that the Neuer Markt will not experience problems in settlement
or clearance as trading develops. Any such delays or problems
could adversely affect the market price of the shares. Persons
proposing to trade the shares on the Neuer Markt should inform
themselves about the potential costs of such trading.



| |                   
| | ------------------
| | German Tax Matters

The following is a summary of certain tax matters
arising under German tax law in force of which we are aware on
the date of this Annual Report. The summary does not purport to
be a comprehensive description of all of the tax considerations
that may be relevant as to the decision to acquire shares of our
common stock. The summary is based on the tax laws of Germany in
effect on the date of this Annual Report, which may be subject
to changes, possibly with retroactive effect. The summary does
not address aspects of German taxation other than taxation of
dividends, capital gains taxation and gift and inheritance
taxation, and does not address all aspects of such German
taxation. The summary does not consider any specific facts or
circumstances that may apply to a particular purchaser. The
summary assumes that the stockholder is subject to unlimited
German income taxation and is referred to as a German holder.
Prospective investors should consult their professional advisors
as to the tax consequences of the acquisition, holding and
disposal of the shares of our common stock, including in
particular, the effect of tax laws of any other jurisdiction.
The legislation on the taxation of dividends and capital gains
has been changed for such income incurred after
December 31, 2001. The following synopsis provides a brief
and non-comprehensive overview of the taxation on income derived
after such date.



| |                             
| | ----------------------------
| | Income Taxation of Dividends

Any dividends distributed to German holders are,
in principle, subject to German income tax including a
solidarity surcharge and possibly church tax. However, 50% of
the dividends distributed to German individuals and 100% of the
dividends distributed to a German corporate holder after
December 31, 2001 are exempt of the aforementioned taxes.
An individual German holder will be entitled to a deduction of
50% of income-related expenses proved to the tax authorities or,
alternatively, to a fixed allowance of 51 Euros per
calendar year and a tax exemption known as a savers exemption of
1,550 Euros per calendar year in relation to his or her
total income from capital investments including dividends. Legal
entities may not deduct any expenses related to the
aforementioned tax-free dividends.

Dividend withholding tax levied in the United
States in accordance with the U.S./ German Double Taxation
Treaty of August 29, 1989 can be credited against the
German income tax liability of the German holder. Alternatively,
a German holder may deduct the total amount of U.S. withholding
tax from his or her German taxable income. This tax credit or
deduction is not available if the savers exemption mentioned
above is available to the German holder.

A German corporation having beneficial title to
at least 10% of the shares in a U.S. corporation is entitled to
a reduction or refund of U.S. tax in excess of 5%, and all other
German holders are entitled to a refund or reduction of U.S. tax
in excess of 15% if the treaty applies. If the shares are held
by German holders through a partnership, the dividends,
including the withholding tax credit are allocated to the
partners according to their interest in the partnership.

In addition, distributions to a German holder are
subject to German withholding tax at a rate of 25%, plus
solidarity surcharge at a rate of 5.5% thereon, resulting in an
effective tax rate of 26.37%.

12



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##### Table of Contents



German holders that are corporate investors
holding less than 10% of our shares will be entitled to a tax
credit for U.S. withholding taxes.



| |                  
| | -----------------
| | Capital Gains Tax

Capital gains on the disposal of shares held as a
private asset of a German holder are only taxable if the
disposal is effected within a twelve-month period after their
acquisition. However, in such case only 50% of the gain is
taxable. Capital gains on the disposal of shares held by a
German corporate holder are tax-exempt.

Capital gains resulting from the disposal of
shares of common stock by a stockholder who is not tax resident
in Germany is not subject to German capital gains tax unless the
shares of common stock are part of the business property of a
permanent establishment or a fixed place of business of the
stockholder located in Germany.



| |                           
| | --------------------------
| | Gift and Inheritance Taxes

Shares held by an individual resident in Germany
are subject to German inheritance and gift tax upon transfer by
reason of death or as a gift, based on the market value at the
time of the death or donation, respectively. Transfers of shares
of common stock held by a person who is not a tax resident in
Germany are not subject to German inheritance and gift tax,
unless:



| |   |                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the shares of common stock are part of the
	business property of a permanent establishment or a fixed place
	of business of the stockholder located in Germany; or                                                                             
|
| |  | the heir, donee or beneficiary is tax resident in
	Germany or, if of German nationality, has been resident in
	Germany within the five-year period prior to the death or the
	gift (certain public officials resident abroad are also covered).



| |                   
| | ------------------
| | Other German Taxes

There are no German transfer, stamp or other
similar taxes of which we are aware which would apply to the
sale or transfer of the shares of common stock.

13



---



##### Table of Contents






Item 6.     Selected
Consolidated Financial Data

The selected consolidated financial data set
forth below should be read in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the Consolidated
Financial Statements of Poet Holdings, Inc. and its subsidiaries
included elsewhere in this Form 10-K. The historical
results are not necessarily indicative of results to be expected
for any future period. See Managements Discussion
and Analysis of Financial Condition and Results of
Operations.

|                                            |                                             |                                          |         |        |        |      |         |        |        |      |        |       |        |   |        |       |        |   |        |       |        | 
|------------------------------------------- | ------------------------------------------- | ---------------------------------------- | ------- | ------ | ------ | ---- | ------- | ------ | ------ | ---- | ------ | ----- | ------ | - | ------ | ----- | ------ | - | ------ | ----- | ------ | 
|                                            |                                             |                                         
|                                            |                                             | Year Ended December 31,                 
|                                            |                                             |                                         
|                                            |                                             | 2001                                     |         | 2000   |        | 1999 |         | 1998   |        | 1997
|                                            |                                             |                                          |         |        |        |      |         |        |        |     
|                                            |                                             |                                         
|                                            |                                             | (In thousands, except per share amounts)
|Consolidated Statement of Operations
	Data: |                                             |                                          |         |        |        |      |         |        |        |      |        |       |        |   |        |       |        |   |        |      
|Revenues                                    |                                             | $                                        | 9,811   |        |        | $    | 12,227  |        |        | $    | 10,614 |       |        | $ | 8,917  |       |        | $ | 7,717  |      
|Cost of revenues                            |                                             |                                          | 2,755   |        |        |      | 2,822   |        |        |      | 2,376  |       |        |   | 2,546  |       |        |   | 1,931  |      
|                                            |                                             |                                          |         |        |        |      |         |        |        |      |        |       |        |   |        |       |        |   |        |      
|                                            | Gross profit                                |                                          |         | 7,056  |        |      |         | 9,405  |        |      |        | 8,238 |        |   |        | 6,371 |        |   |        | 5,786 |       
|Operating expenses:                         |                                             |                                          |         |        |        |      |         |        |        |      |        |       |        |   |        |       |        |   |        |      
|                                            | Selling and marketing                       |                                          |         | 12,808 |        |      |         | 13,092 |        |      |        | 7,591 |        |   |        | 5,922 |        |   |        | 7,163 |       
|                                            | Research and development                    |                                          |         | 3,901  |        |      |         | 4,448  |        |      |        | 3,221 |        |   |        | 2,612 |        |   |        | 2,906 |       
|                                            | General and administrative                  |                                          |         | 3,272  |        |      |         | 3,631  |        |      |        | 1,825 |        |   |        | 1,428 |        |   |        | 1,581 |       
|                                            | Amortization of deferred stock compensation |                                          |         | 227    |        |      |         | 444    |        |      |        | 626   |        |   |        | 47    |        |   |        |      |       
|                                            |                                             |                                          |         |        |        |      |         |        |        |      |        |       |        |   |        |       |        |   |        |      
|                                            |                                             | Total operating expenses                 |         |        | 20,208 |      |         |        | 21,615 |      |        |       | 13,263 |   |        |       | 10,009 |   |        |       | 11,650 | 
|                                            |                                             |                                          |         |        |        |      |         |        |        |      |        |       |        |   |        |       |        |   |        |      
|Operating loss                              |                                             |                                          | (13,152 | )      |        |      | (12,210 | )      |        |      | (5,025 | )     |        |   | (3,638 | )     |        |   | (5,864 | )    
|Other, net                                  |                                             |                                          | 1,091   |        |        |      | 2,375   |        |        |      | (539   | )     |        |   | (352   | )     |        |   | (19    | )    
|                                            |                                             |                                          |         |        |        |      |         |        |        |      |        |       |        |   |        |       |        |   |        |      
|Net loss                                    |                                             | $                                        | (12,061 | )      |        | $    | (9,835  | )      |        | $    | (5,564 | )     |        | $ | (3,990 | )     |        | $ | (5,883 | )    
|                                            |                                             |                                          |         |        |        |      |         |        |        |      |        |       |        |   |        |       |        |   |        |      
|Basic and diluted net loss per share        |                                             | $                                        | (1.11   | )      |        | $    | (0.92   | )      |        | $    | (2.64  | )     |        | $ | (2.65  | )     |        | $ | (4.17  | )    
|                                            |                                             |                                          |         |        |        |      |         |        |        |      |        |       |        |   |        |       |        |   |        |      

|                                                         |  |                         |        |      |  |      |        |      |  |      |        |  |  |   |         |   |  |   |         |  
|-------------------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------- | - |  | - | ------- | -
|                                                         |  |                        
|                                                         |  | Year Ended December 31,
|                                                         |  |                        
|                                                         |  | 2001                    |        | 2000 |  | 1999 |        | 1998 |  | 1997
|                                                         |  |                         |        |      |  |      |        |      |  |     
|                                                         |  |                        
|                                                         |  | (In thousands)         
|BALANCE SHEET DATA:                                      |  |                         |        |      |  |      |        |      |  |      |        |  |  |   |         |   |  |   |         |  
|Cash, cash equivalents and short-term investments        |  | $                       | 21,804 |      |  | $    | 29,168 |      |  | $    | 44,350 |  |  | $ | 4,776   |   |  | $ | 1,525   |  
|Working capital                                          |  |                         | 21,154 |      |  |      | 28,927 |      |  |      | 42,585 |  |  |   | 2,809   |   |  |   | 456     |  
|Total assets                                             |  |                         | 25,638 |      |  |      | 38,907 |      |  |      | 47,600 |  |  |   | 7,533   |   |  |   | 4,000   |  
|Long-term portion of debt and capital lease
	obligations |  |                         |       |      |  |      | 95     |      |  |      | 326    |  |  |   | 2,906   |   |  |   | 2,846   |  
|Redeemable convertible preferred stock                   |  |                         |       |      |  |      |       |      |  |      |       |  |  |   | 15,996  |   |  |   | 9,925   |  
|Total stockholders equity (deficit)                     |  | $                       | 22,545 |      |  | $    | 34,382 |      |  | $    | 43,064 |  |  | $ | (15,302 | ) |  | $ | (11,218 | )

Stock prices (in euros  close values
as traded on the Neuer Markt):

|               |  |      |       |     |  |             |      |      |  |                |  |  |        |  |  |  |       | 
|-------------- |  | ---- | ----- | --- |  | ----------- | ---- | ---- |  | -------------- |  |  | ------ |  |  |  | ----- | 
|Fiscal 2001    |  | High |       | Low |  | Fiscal 2000 |      | High |  | Low           
|               |  |      |       |     |  |             |      |      |  |               
|First Quarter  |  |      | 13.18 |     |  |             | 4.90 |      |  | First Quarter  |  |  | 200.00 |  |  |  | 25.30 | 
|Second Quarter |  |      | 5.06  |     |  |             | 1.77 |      |  | Second Quarter |  |  | 117.80 |  |  |  | 39.50 | 
|Third Quarter  |  |      | 1.91  |     |  |             | 0.73 |      |  | Third Quarter  |  |  | 37.00  |  |  |  | 11.61 | 
|Fourth Quarter |  |      | 3.05  |     |  |             | 0.78 |      |  | Fourth Quarter |  |  | 21.00  |  |  |  | 10.50 | 

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Item 7.     Managements
Discussion and Analysis of Financial Condition and Results of
Operations

The following discussion should be read in
conjunction with the selected financial data in Item 6 of
this Annual Report and our financial statements and notes
thereto in Item 8 of this Annual Report.

Note Regarding Forward-Looking
Statements

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 and elsewhere in this Annual Report. 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.

Overview

We are a provider of innovative data management
software and solutions that allow organizations to share, manage
and manipulate complex information and to facilitate effective
business-to-business processes and information exchange over the
Internet. Our database management system utilizes and supports
complex, multidimensional data models and standard Internet
programming languages. Our Internet solutions provide our
customers with the ability to author, manipulate and
electronically distribute complex business documents based on
advanced exchange protocols using the Internet as a new means to
increase customer relationships, accelerate business processes
and reduce costs, thereby facilitating effective B2B information
exchange.

From commencement of our operations in March 1995
through December 2001, 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 December 31, 2001,
we had an accumulated deficit of $44.0 million, and for the
year ended December 31, 2001, our net loss was
$12.1 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.

We derive our revenue from the sale of software
product licenses and professional consulting, training and
technical support and maintenance services. The software product
license revenue is substantially derived from the sales of our
FastObjects by Poet product line, and to a lesser extent, from
sales of our Poet eSupplier Solutions product line. Product
revenue generated from our FastObjects by Poet product line was
$4.1 million and $6.3 million for years ended
December 31, 2001 and December 31, 2000, respectively.
Product revenue generated from our Poet eSupplier Solutions
product line was $2.3 million and $2.1 million for
years ended December 31, 2001 and December 31, 2000,
respectively. Revenue generated from our Poet Content Management
Suite product line was $0 and $0.7 million for the years
ended December 31, 2001 and December 31, 2000,
respectively. In September 2000, the Company sold the Content
Management Suite (CMS) product line to Sörman
Information AB, Växjö, a Swedish company, in exchange
for future royalties through September 2003. See Note 10 in the
Notes to Consolidated Financial Statements for additional detail
on the disposition of the CMS product line.

Substantially all of our customers enter into
maintenance and support agreements upon the commercial release
of each customers application that includes licensed Poet
products. Since 1996, we have had an average renewal rate of
maintenance and support contracts of approximately 70%.

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Historically, we have been dependent on a few key
customers. In 1999 approximately 16% of our revenues were
derived from Novell, Inc. (Novell). The revenues
generated from Novell in 1999 were due to the pro-rated
amortization of deferred revenues. As of December 31, 1999,
all deferred revenues related to Novell were recognized as
planned. In 2001 and 2000, there were no revenues attributable
to Novell. Although we are seeking to diversify our customer
base and expand our net revenues through our product offerings,
we anticipate that our operating results will continue to depend
on volume sales to a relatively small number of customers.

Amortization of deferred stock compensation
represents the difference between the exercise price of options
granted and the estimated fair market value of the underlying
common stock on the date of grant. We have recorded deferred
compensation within stockholders equity of approximately
$1.5 million through December 31, 2001. We recorded
amortization of deferred compensation of $227,000, $444,000 and
$626,000 during 2001, 2000, and 1999, respectively. At
December 31, 2001, the remaining deferred compensation will
be amortized as follows: $104,000 during 2002 and $22,000 during
2003. The amortization expense relates to options awarded to
employees in all operating expense categories. The amount of
deferred compensation expense to be recorded in future periods
could decrease if options for which accrued but unvested
compensation has been recorded are forfeited.

Comparison of Results for the Year Ended
December 31, 2001 and 2000



| |               
| | --------------
| | Total Revenues

Total revenues decreased 19.8% to
$9.8 million in the year ended December 31, 2001, from
$12.2 million in the year ended December 31, 2000.

Product revenue.Our
product revenues are comprised primarily of sales of the
FastObjects by Poet (FO) and Poet eSupplier Solutions
(ESS) product lines. Product revenues decreased 29.4% to
$6.4 million, or 65.6% of total revenues, for the year
ended December 31, 2001, from $9.1 million, or 74.5%
of total revenues, in the year ended December 31, 2000. The
decrease in product revenues was primarily attributable to a
$2.2 million decrease in revenue from sales of the FO
product line and a $0.7 million decrease in the Poet
Content Management Suite (CMS) product line. The decrease in
revenues generated by the FO product line was primarily due to
weakening economic conditions in the United States and Europe
compounded by the events of September 11, 2001. The
decrease in revenues generated by the CMS product line was
primarily attributable to our decision to cease development and
promotion of the product midway through fiscal year 2000. We
subsequently sold the CMS product line in September 2000.

Consulting and training
revenues.Consulting and training
revenues increased 9.9% to $1.5 million, or 15.2% of total
revenues, in the year ended December 31, 2001, from
$1.4 million, or 11.1% of total revenues, in the year ended
December 31, 2000. The increase in consulting and training
revenues was primarily attributable to consulting services
performed in relation to our ESS product line in 2001 that
did not occur in 2000.

Support and maintenance
revenues.Support and maintenance
revenues increased 7.3% to $1.9 million, or 19.2% of total
revenues, in the year ended December 31, 2001, from
$1.8 million, or 14.4% of total revenues, in the year ended
December 31, 2000. The increase is primarily attributable
to an increase in the overall number of support and maintenance
customers.



| |                 
| | ----------------
| | Cost of Revenues

Cost of product
revenue.Cost of software product
revenues decreased 18.0% to $278,000 in the year ended
December 31, 2001 from $339,000 in the year ended
December 31, 2000. The decrease was primarily attributable
to decreased license fees. As a percentage of product revenues,
cost of product revenues increased to 4.3% in the year ended
December 31, 2001, from 3.7% in the year ended
December 31, 2000. The percentage increase was primarily
due to our fixed product costs in connection with decreased
license fees.

Cost of consulting and training
revenues.Cost of consulting and
training revenues increased 6.1% to $1.3 million for the
year ended December 31, 2001, from $1.2 million for
the year ended December 31, 2000

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as a result of increased consulting and training
revenues. As a percentage of consulting and training revenues,
cost of consulting and training revenues decreased to 85.0% in
the year ended December 31, 2001, from 88.0% in the year
ended December 31, 2000, due to higher utilization of
consulting and training personnel.


Cost of support and maintenance
revenues.Cost of support and
maintenance revenues decreased 6.1% to $1.2 million for the
year ended December 31, 2001, from $1.3 million for
the year ended December 31, 2000 as a result of decreased
personnel and related compensation. As a percentage of support
and maintenance revenues, cost of support and maintenance
revenues decreased to 64.2% in the year ended December 31,
2001, from 73.4% in the year ended December 31, 2000. The
decrease in cost of support and maintenance revenues as a
percentage of support and maintenance revenues was primarily
attributable to the decrease in personnel and related
compensation in conjunction with an increase in support and
maintenance revenue.



| |             
| | ------------
| | Gross Profit

Gross profit decreased 25.0% to $7.1 million
in the year ended December 31, 2001, from $9.4 million
in the year ended December 31, 2000. The decrease in gross
profit was primarily attributable to a decrease in product
revenues, which generate a higher profit margin than service
revenues. Gross profit as a percentage of total revenues
decreased to 71.9% in the year ended December 31, 2001,
from 76.9% in the year ended December 31, 2000. The
decrease in gross profit percentage was primarily due to a
decrease in product revenue.



| |                   
| | ------------------
| | Operating Expenses

Selling and
marketing.Selling and marketing
expenses decreased 2.2% to $12.8 million in the year ended
December 31, 2001, from $13.1 million in the year
ended December 31, 2000. The decrease was primarily
attributable to a decrease of $0.7 million in marketing
expenses partially offset by an increase in sales expenses of
$0.4 million. The increase in the selling related expenses
was primarily attributable to an increase in sales personnel and
related compensation for the first six months of fiscal 2001,
partially offset by a decrease in sales personnel and related
compensation in the last six months of fiscal 2001. The decrease
in marketing expenses was primarily attributable to a decrease
in spending on marketing programs.

Research and
development.Research and development
expenses decreased 12.3% to $3.9 million in the year ended
December 31, 2001, from $4.4 million in the year ended
December 31, 2000. The decrease in research and development
expenses resulted primarily from a decrease in the number of
outside consultants hired to perform research and development.

General and
administrative.General and
administrative expenses decreased 9.9% to $3.3 million in
the year ended December 31, 2001, from $3.6 million in
the year ended December 31, 2000. The decrease was
primarily attributable to a decrease in fees paid to outside
professional service providers.

Total other income (expense),
net.Other, net decreased 51.0% to
income of $1.2 million in the year ended December 31,
2001, from income of $2.4 million in the year ended
December 31, 2000. The decrease in income was primarily
attributable to a decrease in interest income as a result of
lower average cash and equivalent balances in the fiscal year
ended December 31, 2001, as well as the overall decrease in
interest rates on investment balances.

Comparison of Results for the Year Ended
December 31, 2000 and 1999



| |               
| | --------------
| | Total Revenues

Total revenues increased 15.2% to
$12.2 million in the year ended December 31, 2000,
from $10.6 million in the year ended December 31, 1999.

Product revenue.Our
product revenues were comprised primarily of sales of the
FastObjects by Poet product line (FO), Poet eSupplier Solutions
product line (ESS) and Poet Content Management Suite
(CMS) product lines. Product revenues increased 16.7% to
$9.1 million, or 74.5% of total revenues, in the

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year ended December 31, 2000, from
$7.8 million, or 73.6% of total revenues, in the year ended
December 31, 1999. The increase in product revenues was
primarily attributable to an additional $2.0 million of
revenues from sales of ESS offset by a decrease of revenues
generated by the FO and CMS product lines. The decrease in
revenues generated by the FO product line was primarily
attributable to the absence of amortized revenue from Novell.
Novell accounted for $1.6 million in amortized
FO license revenue in fiscal year 1999 and none in 2000.
The decrease in revenues generated by the CMS product line was
primarily attributable to our decision to cease development and
promotion of the product midway through fiscal year 2000. We
subsequently sold the CMS product line in September 2000.


Consulting and training
revenues.Consulting and training
revenues decreased 9.8% to $1.4 million, or 11.1% of total
revenues, in the year ended December 31, 2000, from
$1.5 million, or 14.2% of total revenues, in the year ended
December 31, 1999. The decrease in consulting and training
revenues was primarily attributable to significant consulting
engagements in fiscal year 1999 not repeated in fiscal year 2000.

Support and maintenance
revenues.Support and maintenance
revenues increased 35.3% to $1.8 million, or 14.4% of total
revenues, in the year ended December 31, 2000, from
$1.3 million, or 12.2% of total revenues, in the year ended
December 31, 1999. The increase was primarily attributable
to an increase in the overall number of support and maintenance
customers.



| |                 
| | ----------------
| | Cost of Revenues

Cost of product
revenue.Cost of software product
revenues increased 14.9% to $339,000 in the year ended
December 31, 2000 from $295,000 in the year ended
December 31, 1999. The increase was primarily attributable
to increased third-party license fees. As a percentage of
product revenues, cost of product revenues decreased to 3.7% in
the year ended December 31, 2000, from 3.8% in the year
ended December 31, 1999.

Cost of consulting and training
revenues.Cost of consulting and
training revenues increased 13.6% to $1.2 million for the
year ended December 31, 2000, from $1.1 million for
the year ended December 31, 1999. As a percentage of
consulting and training revenues, cost of consulting and
training revenues increased to 88.0% in the year ended
December 31, 2000, from 69.9% in the year ended
December 31, 1999, due to a greater utilization of outside
consultants, who have a higher average cost than in-house
consultants, during the fiscal year ended December 31, 2000
compared to the fiscal year ended December 31, 1999.

Cost of support and maintenance
revenues.Cost of support and
maintenance revenues increased 25.2% to $1.3 million for
the year ended December 31, 2000, from $1.0 million
for the year ended December 31, 1999 as a result of
increased support and maintenance revenues. As a percentage of
support and maintenance revenues, cost of support and
maintenance revenues decreased to 73.4% in the year ended
December 31, 2000, from 79.3% in the year ended
December 31, 1999. The decrease in cost of support and
maintenance revenues as a percentage of support and maintenance
revenues was primarily attributable to the increase in support
and maintenance revenues.



| |             
| | ------------
| | Gross Profit

Gross profit increased 14.2% to $9.4 million
in the year ended December 31, 2000, from $8.2 million in
the year ended December 31, 1999. The increase in gross
profit was primarily attributable to an increase in product
revenues. Gross profit as a percent of total revenues remained
relatively stable at 76.9% in the year ended December 31,
2000, from 77.6% in the year ended December 31, 1999.



| |                   
| | ------------------
| | Operating Expenses

Selling and
marketing.Selling and marketing
expenses increased 72.5% to $13.1 million in the year ended
December 31, 2000, from $7.6 million in the year ended
December 31, 1999. Of this increase, $3.0 million was
attributable to selling expenses and $2.5 million was
attributable to marketing expenses. The increase in the selling
related expenses was primarily attributable to an increase in
sales personnel and related

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compensation. The increase in marketing expenses
was primarily attributable to an increase in spending on
marketing programs and an increase in marketing personnel and
related compensation.


Research and
development.Research and development
expenses increased 38.1% to $4.4 million in the year ended
December 31, 2000, from $3.2 million in the year ended
December 31, 1999. The increase in research and development
expenses resulted primarily from increases in the number of
research and development personnel due to new product
development, including the Poet eSupplier Solutions product
line, and an increase in the number of outside consultants hired
to perform research and development.

General and
administrative.General and
administrative expenses increased 99.0% to $3.6 million in
the year ended December 31, 2000, from $1.8 million in
the year ended December 31, 1999. The increase was
primarily attributable to an increase in bad debt expense, costs
of being a public company and personnel and related compensation.

Total other income (expense),
net.Other, net increased 540% to
income of $2.4 million in the year ended December 31,
2000, from expense of $547,000 in the year ended
December 31, 1999. The increase to income was primarily
attributable to an increase in interest income as a result of
higher average cash and equivalent balances in the fiscal year
ended December 31, 2000 due to the receipt of proceeds from
our initial public offering in November 1999, and an interest
expense charge of $809,000 made in conjunction with the
conversion of debt to common stock in the fiscal year ended
December 31, 1999.



| |                                
| | -------------------------------
| | 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 $41.5 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 December 31, 2001, we had
$10.9 million in cash and equivalents, $10.9 million
in short term investments and $21.2 million in working
capital. As of December 31, 2000, we had $18.7 million
in cash and equivalents, $10.4 million in short term
investments, $4.0 million in long term investments and
$28.9 million in working capital. The decrease in working
capital was primarily due to operational expenditures.

Net cash used in operating activities was
$10.9 million in 2001, $10.3 million in 2000 and
$3.9 million in 1999. Net cash used in operating activities
in each period primarily reflects the net losses in each period.
Net cash used in operating activities in 2001 primarily reflects
the net loss (less non-cash expenses) and the decrease in
accounts payable and accrued liabilities partially offset by the
decrease in accounts receivable. Net cash used in operating
activities in 2000 primarily reflects the net loss (less
non-cash expenses) and the increase in accounts receivable. Net
cash used in operating activities in 1999 primarily reflects the
net loss (less non-cash expenses), the increase in accounts
receivable and the decrease in deferred revenue partially offset
by the increase in accounts payable and accrued liabilities.

Net cash provided by investing activities was
$3.2 million in 2001. Net cash used in investing activities
was $6.5 million in 2000 and $9.8 million in 1999.
Investing activities includes fixed asset acquisitions of
$0.6 million, $1.3 million and $0.5 million
during 2001, 2000 and 1999, respectively. Also included in
investing activities was the net maturity of $3.8 million
of short and long-term investments during 2001 compared to net
acquisitions of $5.1 million of short and long-term investments
during 2000.

Net cash used in financing activities was
$0.1 million in 2001. Net cash provided by financing
activities was $0.5 million in 2000 and $43.9 million
in 1999. Our financing activities in fiscal year 2001 used cash
primarily to repay debt and provided cash primarily through the
issuance of common stock issued under our stock plans. Our
financing activities in fiscal years 2000 and 1999 provided cash
primarily through the issuance of common stock upon exercise of
stock options and through the issuance of common stock upon the
completion of our initial public offering, respectively.

In June 2000, we entered into an unsecured note
agreement loaning 2.5 million euros (approximately
$2,356,000 based upon the U.S. Dollar/Euro exchange rate on
December 31, 2000) to a service provider. The

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loan bore interest at 11% per annum and was due
on December 31, 2000. In November 2000, the note agreement
was amended to call for an immediate interest payment of
DM230,000 (approximately $111,000 based upon the
U.S. Dollar/ German Deutsche Mark exchange rate on
December 31, 2000) and for the payment of the principal in
full by the end of December 2000. The note was paid in full in
December 2000.


Capital expenditures were $0.6 million,
$1.3 million, and $0.5 million for the years 2001,
2000 and 1999, respectively. Our capital expenditures consisted
of purchases of operating resources to manage our operations,
including property, furniture, and equipment. For 2002 we
currently expect to make aggregate investments in capital
expenditures in the amount of approximately $0.3 million,
which will be financed largely through working capital.
Approximately 60% of these investments will be made in Europe
and 40% in North America.

In January 1999, we entered into a
$3.9 million convertible note agreement with Technologie
Beteiligungsgesellschaft (TBG). Under this agreement, TBG
purchased a convertible note in the 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
$0.8 million.

In 1997, our subsidiary Poet Software GmbH
entered into a loan agreement with IKB Deutsche Industriebank in
the amount of DM1.5 million (approximately $684,000 based
on the U.S. Dollar/ German Deutsche Mark exchange rate at
December 31, 2001) bearing interest at 7% per year with
principal payments due quarterly of DM125,000 commencing on
June 15, 1999 and ending on March 15, 2002. The
principal balance of the IKB Deutsche Industriebank AG loan at
December 31, 2001 was DM125,000 (approximately $57,000
based on the U.S. Dollar/ German Deutsche Mark exchange
rate at December 31, 2001). We have guaranteed the payment
of principal and interest under this loan.

We also have non-cancelable operating leases for
office space, and to a lesser extent, equipment and automobiles
of approximately $3.1 million at December 31, 2001
that are payable through 2005.

We expect to incur significant operating
expenses, particularly selling and marketing and research and
development expenses, for the foreseeable future in order to
execute our business plan. We anticipate that such operating
expenses will constitute a material use of our cash resources.
As a result, our net cash flows will depend heavily on the level
of future sales and our ability to manage operating expenses. In
addition, we may utilize cash resources to fund acquisitions of,
or investments in, complementary businesses, technologies or
product lines. Although management is of the opinion that our
cash resources together with our anticipated cash flows from
operations will be sufficient to meet our working capital and
operating resource expenditure requirements for at least the
next 12 months, changes in our customer demand or
impairment of our investments may cause unanticipated
fluctuations in our cash resources. See Note 1 and Note 2 in our
Notes to Consolidated Financial Statements for additional
information on our cash and equivalents and investments.

Critical Accounting Policies

We have identified the following as critical
accounting policies of our company: revenue recognition and
reserves for doubtful accounts.



| |                    
| | -------------------
| | Revenue Recognition

Our revenue recognition policy is significant
because our revenue is a key component of our results of
operations.

In addition, our revenue recognition determines
the timing of certain expenses, such as commissions and
royalties. Revenue results are difficult to predict, and any
shortfall in revenue or delay in recognizing revenue could cause
our operating results to vary significantly from quarter to
quarter. For more information on our revenue recognition policy,
refer to Note 1 of our Notes to Consolidated Financial
Statements.

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| |                                
| | -------------------------------
| | Reserves for Doubtful
	Accounts

We record a provision for doubtful accounts for
all specific receivables that we judge to be unlikely for
collection. We also record an additional provision for doubtful
accounts based on size and age of all receivable balances
against which we have not established a specific reserve. We
periodically review these allowances, analyzing each
customers payment history and information regarding
customers credit worthiness known to us.

Recent Accounting Pronouncements

In June 1999, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 137,
Accounting for Derivative Instruments and Hedging
Activities  Deferral of the Effective Date of SFAS
133, which delayed the effective date of SFAS
No. 133, Accounting for Derivative Instruments and
Hedging Activities, which is effective for Poets
fiscal year 2001. This statement establishes accounting and
reporting standards requiring that every derivative instrument,
including certain derivative instruments embedded in other
contracts, be recorded in the consolidated balance sheet as
either an asset or liability measured at its fair value. The
statement also requires that changes in the derivatives
fair value be recognized in earnings unless specific hedge
accounting criteria are met. The adoption of SFAS 133 did not
have a material effect on the Companys consolidated
financial statements.

In July 2001, the FASB issued Statement of
Financial Accounting Standards No. 141, Business
Combinations (SFAS 141) and Statement of
Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets (SFAS 142).

SFAS 141 requires all business combinations to be
accounted for using the purchase method of accounting and is
effective for all business combinations initiated after
June 30, 2001. The adoption of SFAS 141 did not have a
material effect on the Companys operating results or
financial condition.

SFAS 142 requires goodwill to be tested for
impairment under certain circumstances, and written off when
impaired, rather than being amortized as previous standards
required. SFAS 142 is effective for fiscal years beginning after
December 15, 2001. Early application is permitted for
entities with fiscal years beginning after March 15, 2001
provided that the first interim period financial statements have
not been previously issued. The Company does not expect a
material effect on its financial position, results of operations
or cash flows as a result of SFAS 142.

In August 2001, the FASB released SFAS
No. 144 (SFAS 144), Accounting for the
Impairment or Disposal of Long-Lived Assets, which is
effective in 2002. SFAS 144 establishes standards for
accounting for impairment of long-lived assets used by an entity
or held measuring impairments. The Company does not expect the
adoption of SFAS 144 to have a material impact on its
financial position, results of operations or cash flows.

RISK FACTORS

Risks Related To Our Business

In addition to other information in this
Form 10-K, the following risk factors should be carefully
considered in evaluating our business because such factors
currently may have a significant impact on our business,
operating results and financial condition. As a result of the
risk factors set forth below and elsewhere in this
Form 10-K, and the risks discussed in our other Securities
and Exchange Commission filings, actual results could differ
materially from those projected in any forward-looking
statements.

The Continuing Economic Slowdown, Particularly
in Information Technology Spending, Will Adversely Impact Our
Business.

Our business has been adversely impacted by the
economic slowdown, particularly the decline in information
technology spending. Moreover, the economic uncertainty has been
accentuated by the events of September 11, 2001. We expect
the economic slowdown to continue to adversely impact our
business for at

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least the next quarter and potentially longer.
Our ability to forecast the timing and amount of our sales has
been substantially reduced by the economic slowdown. The adverse
impacts from the slowdown include longer sales cycles, lower
average selling prices and reduced bookings and revenues.


Our Failure To Increase Our Revenues Would
Prevent Us From Achieving And Maintaining
Profitability.

We have incurred significant net losses since we
commenced operations in 1995. We have not achieved
profitability, and we expect to incur net losses for the
foreseeable future. We cannot be certain that we can achieve
revenue growth or that we will achieve sufficient revenues for
profitability. To date, we have funded our operations primarily
from the sale of equity securities and to a lesser degree from
cash from operations. As of December 31, 2001, we had an
accumulated deficit of $44.0 million. We expect to continue
to incur significant product development, sales and marketing,
and administrative expenses. As a result, we will need to
generate significant revenues to achieve and maintain
profitability. If we do achieve profitability, we cannot be
certain that we can sustain or increase profitability on a
quarterly or annual basis in the future. See Selected
Financial Data and Managements Discussion and
Analysis of Financial Condition and Results of Operations
for more information.

If We Do Not Effectively Manage Future Growth,
Our Business Will Suffer.

Even after giving effect to our recent workforce
reductions, the scope of our operations and our workforce has
expanded significantly over a relatively short period. Our
ability to compete effectively and to manage future expansion of
our operations, if any, will require us to continue to improve
our financial and management controls, reporting systems and
procedures on a timely basis, and expand, train and manage our
employee workforce.

The complexity of our products and their
installation require highly trained sales personnel. The demand
for sales personnel is very competitive in our industry due to
the limited number of individuals with the requisite technical
skills, understanding of the Internet and database management
systems. We cannot be certain that we will be successful in our
efforts to hire and retain qualified sales personnel.

Customers who license our software typically
engage our professional services, including consulting, support
and training. We believe that growth in our product sales
depends on our ability to provide our customers with these
services and to educate third-party resellers on how to use our
products. Hiring and retaining service personnel is competitive,
and such personnel require training and education over time to
reach and maintain full productivity. If our professional
services organization is unable to service our customers as we
grow, customers may become dissatisfied with our services and we
may lose customers, which would harm our business.

If We Fail To Meet The Continued Listing
Requirements Of The Neuer Markt, Our Common Stock Could Be
Delisted And The Liquidity Of Our Common Stock Would
Decline.

Our common stock is listed on the Neuer Markt.
Certain new Deutsche Börse rules that became effective on
October 1, 2001 for companies trading on the Neuer Markt
impose requirements for listed companies to maintain a minimal
per share price or market capitalization to continue trading
over the Neuer Markt. The Company will not be subject to the new
rules until April 1, 2002 due to a six-month stay from the
application of the rules.

Under the new rules, if the average price for a
companys shares is less than one (1) Euro per share
for a period of 30 consecutive trading days and the
companys market capitalization is less than
20 million Euros, the companys admission to the Neuer
Markt will be terminated unless the average price for the
companys shares during the next 90 trading days is at
least one (1) Euro for at least 15 consecutive trading days
within that period, and the companys market capitalization
is at least 20 million Euros. If a company does not meet
these requirements, the companys admission to the Neuer
Markt will be terminated one month after the 90 trading day
period.

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Delisting could reduce the ability of holders of
our common stock to purchase or sell shares as quickly and as
inexpensively as they have done historically. Failure to obtain
listing on another market or exchange may make it more difficult
for traders to sell our securities. Broker-dealers may be less
willing or able to sell or make a market in our common stock.
Not maintaining a listing on a major stock market may result in
a decrease in the trading price of our common stock due to a
decrease in liquidity, reduced analyst coverage and less
interest by institutions and individuals in investing in our
common stock.

If We Fail To Establish And Maintain
Relationships With Indirect Sales Partners, Our Distribution
Capabilities Will Be Seriously Harmed, Which Would Harm Our
Revenues.

We rely heavily upon our indirect sales channels,
which consist of other businesses that implement our software
into their products. These partners currently consist of
original equipment manufacturers, system integrators,
independent software vendors and other third-party resellers.
For the years ended 2001 and 2000, approximately 55% and 65%,
respectively, of our product revenues were derived through these
indirect sales partners. In order to successfully market our
products, we need to maintain relationships with our indirect
sales partners as well as establish new relationships with
similar parties. Our failure to maintain existing relationships
or establish a sufficient number of new relationships with
sufficiently qualified indirect sales partners would limit our
distribution capabilities and, in turn, adversely affect our
revenues, which would seriously harm our financial condition and
results of operations.

We Do Not Expect To Derive Further Revenue
From A Key Customer From Which We Previously Derived A
Significant Portion Of Our Revenues, And If We Are Unable To
Replace These Revenues, Our Results Of Operations Will Be
Harmed.

We derived a significant portion of our revenues
in fiscal years 1997 through 1999 from one key customer, Novell,
Inc. For the year ended 1999, we derived 16% of our revenues
from Novell. For each of the years ended 1998 and 1997, we
derived 24% or more of our revenues from Novell. We have
completed our delivery, support and maintenance obligations to
Novell, and we have not generated further revenue from Novell
after September 1999. If we are unable to generate revenues at
an equivalent or greater level from other customers in the
future, our revenues will decrease, which will harm our results
of operations.

In The Future, We May Need To Raise Additional
Capital In Order To Remain Competitive In The Electronic
Commerce Industry. This Capital May Not Be Available On
Acceptable Terms, If At All.

Although our existing cash and equivalents and
short-term investment balances are expected to decline further
during fiscal 2002, we believe that our existing balances
together with our anticipated cash flow from operations will be
sufficient to meet our working capital and operating resource
expenditure requirements for at least the next 12 months.
Given the significant changes in our business and results of
operations in fiscal 2001, the decline in cash and equivalents
and investment balances may be greater than presently
anticipated. After fiscal 2002, we may need to raise additional
funds and we cannot be certain that we will be able to obtain
additional financing on favorable terms, if at all. If we cannot
raise funds on acceptable terms, if and when needed, we may not
be able to develop or enhance our products and services, take
advantage of future opportunities, grow our business or respond
to competitive pressures or unanticipated requirements, which
could seriously harm our business.

We Depend On Strategic Relationships With Our
Partners.

Our ability to maintain and develop strategic
relationships with vendors, resellers and technology partners is
fundamental to the success of our company. If our current or
future strategic partners are not able to successfully develop,
resell or market our products, our business could be seriously
harmed. We currently have strategic relationships with companies
including Ariba, Inc., Commerce One, Inc. and SAP AG. There
is no guarantee that these alliances will be successful in
creating a larger market for our product offerings or result in
additional business for our company. If these relationships are
not successful, our business, operating results and financial
position could be seriously harmed.

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Our Future Revenue Is Dependent Upon Our
Ability To Successfully Increase Sales Of Our Poet
eSupplierSolutions Product Family.

We expect that our future financial performance
will depend significantly on revenue from our Poet
eSupplierSolutions product family. We released Version 1.0 of
Poet eCatalog Suite (the predecessor to Poet eSupplier
Solutions) in September 1999. In fiscal 2001, we derived 36% of
our revenue from Poet eSupplier Solutions product family, an
increase from 23% of product revenue from fiscal 2000. As of
December 31, 2001 we have released version 4.5 of Poet
eSupplierSolutions product family. We face significant risks
inherent in the introduction of this product line. Market
acceptance of the Poet eSupplierSolutions product family will
depend in part upon the market for Internet-based electronic
purchasing systems. We cannot predict the success of this
market. We also cannot be certain that the Poet
eSupplierSolutions product family will meet customers
requirements or expectations or that our products will be free
of significant software defects, which may only become apparent
in longer-term operations. If the Poet eSupplierSolutions
product family does not meet customers requirements or
expectations, upgrading or enhancing the product could be costly
and time-consuming and may harm our business, results of
operations and financial condition. For more information
regarding these products, see Business 
Products and  Services.

Some Of Our Customers Are Small Emerging
Growth Companies That May Represent Credit Risks.

Some of our customers include small emerging
growth companies. Many of these companies have limited operating
histories, are operating at a loss and have limited access to
capital. With the significant slowdown in U.S. economic growth
in the past year and uncertainty relating to the prospects for
near-term U.S. economic growth, some of these customers may
represent a credit risk. If our customers experience financial
difficulties or fail to experience commercial success, we may
have difficulty collecting on our accounts receivable balances.

The Fastobjects By Poet Product Family
Currently Accounts For A Substantial Portion Of Our Revenues,
And If It Does Not Continue To Be Commercially Successful, Our
Future Revenues Will Be Significantly Harmed.

In fiscal year 2001, we derived 64% of our
product revenues from sales of our FastObjects by Poet product
line. We expect a significant portion of our future revenues to
continue to depend on the continued commercial success of our
FastObjects by Poet product line. We cannot be certain that the
FastObjects by Poet product line will continue to receive market
acceptance, or that we will be able to introduce enhanced
versions of our FastObjects by Poet products on a timely basis
to meet the evolving needs of our customers, maintain
compatibility with other third-party systems or remain
competitive. If our FastObjects by Poet product line is not
successful, our revenues will be negatively impacted, which
could harm our business, financial condition and results of
operations. For more information, see Managements
Discussion and Analysis of Financial Condition and Results of
Operations and Business  Products
and  Services.

Our Limited Operating History Makes
Forecasting Difficult.

We commenced operations in March 1995, and, as a
result of our limited operating history, we have limited
meaningful historical financial data upon which to plan revenues
and operating expenses. Our ability to forecast accurately our
quarterly revenues is further limited because our software
products have long sales cycles that make it difficult to
predict the quarters in which sales will occur. In addition, the
recent launch of our new Poet eSupplierSolutions product family,
makes it difficult to accurately forecast our revenues, as we
have limited experience with the purchasing patterns of
customers for our new products. We plan our expenses in part on
future revenue projections. Most of our expenses are fixed in
the short-term, and we may not be able to quickly reduce
spending if our revenues are lower than projected. If we do not
achieve our expected revenues, our operating results will be
below our expectations and the expectations of investors and
market analysts, which could cause the price of our common stock
to decline.

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If We Are Unable To Meet The Rapid Changes In
Software Technology, Our Existing Products Could Become
Obsolete.

The market for our products is characterized by
rapid technological change, frequent new product introductions
and technology enhancements, uncertain product life cycles,
changes in customer demands and evolving industry standards. We
cannot be certain that we will be able to enhance our current
products and develop new products on a timely basis to keep pace
with technological developments and to satisfy the increasingly
sophisticated requirements of our customers. New products based
on new technologies or new industry standards can render our
existing products obsolete and unmarketable. Any failure to
develop new products or product enhancements will substantially
decrease market acceptance and sales of our present and future
products, which will harm our business and financial results.

If The Extensible Markup Language Fails To
Become A Standard Data Exchange Protocol For The Internet, The
Marketability Of Our Products May Be Limited.

Our Poet eSupplierSolutions product family
operates with the eXtensible Markup Language, or XML, which we
expect to be a predominant data exchange protocol, or a standard
format for content structure and the method and means for
exchanging data, for e-commerce on the Internet in the future.
Should XML fail to be adopted as a predominant data exchange
protocol for e-commerce on the Internet, it would seriously
impede the marketability of our products and force us to adapt
our products to other data exchange protocols, which would be
costly and may not lead to marketable and competitive products.
Our failure to adapt or develop new products would have a
negative impact on our revenues, which would harm our business,
financial condition and results of operations.

We Depend On Our Key Personnel To Manage Our
Business Effectively, And If We Lose Key Personnel, We May Be
Unable To Replace Them, Which Could Disrupt Operations And Harm
Our Financial Condition.

Our success depends largely upon the skills,
experience and performance of our executive officers and key
employees, particularly Dirk Bartels, our Chief Executive
Officer. If we lose one or more of our key employees, our
business, financial condition and results of operations could be
harmed. We maintain a key person life insurance policy covering
Mr. Bartels, but not for any other of our key employees.
Our executive officers and all of our employees in the United
States are at-will employees, meaning they are not bound by
contract to continue service with us, and may terminate their
employment with little notice. Our executive officers and
employees in Germany generally have employment agreements,
pursuant to which they provide services to us for an unspecified
term and agree to provide six weeks to three months
notice prior to terminating their employment with us. If our
officers or employees terminate their employment on short
notice, we may not be able to replace them on a timely basis,
which could disrupt our operations.

Our future success also depends largely on our
ability to continue attracting and retaining highly skilled
personnel, and we face intense competition from other software
companies for qualified personnel. We have historically
experienced significant difficulties in hiring and retaining
qualified personnel in key management positions. For example,
over the past three years, our average annual workforce turnover
rate was approximately 29% in the United States and
approximately 26% in Germany, and we may encounter similar or
increased turnover rates in the future. We cannot be certain
that we will be successful in attracting or retaining qualified
personnel in the future, which could harm our business,
financial condition and results of operations.

Our Results Often Depend On A Small Number Of
Large Orders, And Our Revenues May Be Harmed If We Do Not
Complete One Or More Of These Orders In Any Quarter.

We derive a significant portion of our software
license revenues in each quarter from a small number of
relatively large orders. In fiscal 2001, 11% of our revenues
came from our two most significant customers. Although we do not
believe that the loss of any particular customer would
materially harm our business, our quarterly and annual results
of operations could be harmed if we are unable to complete one
or more substantial license sales in that quarter.

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The Unpredictability And Seasonality Of Our
Quarterly Results May Adversely Affect The Trading Price Of Our
Common Stock.

We generally ship our products shortly after
receipt of an order and typically do not have a significant
backlog of unfulfilled orders. Our software license revenues in
any quarter are substantially dependent on orders booked and
shipped in that quarter, and we cannot predict them with any
degree of certainty. Our revenues and results of operations will
vary significantly from quarter to quarter due to a number of
factors, many of which are outside of our control and any of
which may cause our stock price to fluctuate. The primary
factors that may affect us include the following:



| |   |                                                                                   
| | - | ----------------------------------------------------------------------------------
| |  | the timing of sales of our products and services;                                 
|
| |  | the timing of revenue and deferred revenue
	recognition under U.S. GAAP;          
|
| |  | changes in our pricing policies or the pricing
	policies of our competitors;      
|
| |  | increases in sales and marketing, product
	development or administration expenses;
|
| |  | the mix of services provided by us and
	third-party contractors;                  
|
| |  | our ability to attain and maintain quality levels
	for our products; and          
|
| |  | costs related to acquisitions of technology or
	businesses.                       

We also expect to experience seasonality in our
results of operations. We expect the growth rate of our sales to
be adversely affected in the third quarter of each year due to a
slowdown in sales in Europe and other foreign areas during the
summer months. In addition, we expect the growth rate of our
sales in the first quarter to be adversely affected due to our
customers budgeting cycles.

Due to the foregoing factors, you should not rely
on quarter-to-quarter comparisons of our results of operations
as an indication of our future performance. It is likely that in
some future quarters, our results of operations may be below the
expectations of public market analysts and investors. In this
event, the price of our common stock may fall.

Sales In The E-Commerce Software Market Are
Subject To Fluctuation.

Although sales to the e-commerce software market
have grown historically, this market is characterized by large
and often sporadic purchases. In addition, recently, we and
other companies in this market, as well as in the software
market generally, have warned of lower-than-expected revenue and
declines or delays in sales orders from customers. Sales
activity in the e-commerce software market depends upon the
stage of completion of expanding network infrastructures, the
availability of funding and the extent that service providers
are affected by regulatory and business conditions in the locale
of operations. A decline or delay in sales orders in this market
could have a material adverse effect on our business, operating
results and financial condition.

We Face Intense Competition That Could Reduce
Our Market Share.

The database and e-commerce software markets are
intensively competitive, subject to rapid change and
significantly affected by new product introductions and other
market activities of industry participants. We expect
competition to persist and intensify in the future. Principal
sources of competition include:



| |   |                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | in-house development efforts by potential
	customers;                                                                                                                                                                             
|
| |  | other vendors of software that address the same
	customer needs, such as vendors of object-oriented database
	management systems, like eXcelon Inc. (formerly Object Design,
	Inc.), Versant Corporation, and Objectivity Inc.    
|
| |  | content management companies such as Chrystal
	Software, Incorporated, Vignette Corporation, Inso Corporation,
	Documentum, Inc., Requisite Technology, Inc., SAQQARA Systems,
	Inc., Heiler Software AG and Webmethods, Inc.; and

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In the future, we may also face competition from
other sources that are poised to enter the market, including
vendors of relational database systems, such as Microsoft
Corporation, IBM, Informix Corporation, Pervasive Software,
Inc., Progress Software Corporation and Oracle Corporation. Many
of our current and potential competitors have longer operating
histories and significantly greater financial, technical,
marketing and other resources than we do. They have
well-established relationships with current and potential
customers and have the resources to enable them to more easily
adopt aggressive pricing policies to gain market share or bundle
their products in a manner that may discourage users from
purchasing our products. If we are unable to compete
successfully against our current and future competitors, we
could experience price reductions, reduced gross margins and
loss of market share, any one of which could materially and
adversely affect our business, operating results and financial
condition. See Business  Competition for
more information about our competition.

If We Fail To Manage Our Expansion
Effectively, We May Incur Significant Losses.

We have recently expanded our operations rapidly
and intend to continue this expansion into the foreseeable
future. This rapid growth places significant demands on
management and operational resources. In order to manage growth
effectively, we need to improve our operational systems,
procedures and controls on a timely basis. If we fail to
implement scalable key operational systems integral to our
business as our operations expand, we may incur significant
losses, which could harm our business, financial condition and
results of operations.

The Success Of Our International Operations Is
Dependent Upon Many Factors Which Could Adversely Affect Our
Ability To Sell Our Products Internationally And Could Affect
Our Profitability.

We market and sell our products in the United
States and internationally. In fiscal year 2001, we generated
53% of our total revenues through product licenses sold and
services rendered to customers located outside of the United
States, primarily in Germany. We intend to substantially expand
our international operations and enter new international
markets. Our international operations are, and will be, subject
to a variety of risks associated with conducting business
internationally, many of which are beyond our control. The
following factors may adversely affect our ability to achieve
and maintain profitability and our ability to sell our products
internationally:



| |   |                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------
| |  | expenses associated with customizing products for
	foreign countries;                                 
|
| |  | dependence on local partners who may not be able
	to meet the needs of a growing international market;
|
| |  | greater difficulty in accounts receivable
	collection and longer collection periods;                  
|
| |  | difficulties and costs of staffing and managing
	foreign operations;                                  
|
| |  | unexpected changes in regulatory requirements
	related to the Internet; and                           
|
| |  | limited or unfavorable intellectual property
	protection.                                             

Our international sales growth will be limited if
we are unable to establish additional foreign operations, expand
international sales channel management and support
organizations, hire additional personnel, customize products for
local markets and establish relationships with additional
distributors and third-party integrators.

Our International Operations Expose Us To
Risks Associated With Currency Fluctuations, Which Make Our
Future Results Of Operations Difficult To Predict.

To date, a majority of our international revenues
and costs have been denominated in foreign currencies,
especially in Euros. We believe that an increasing portion of
our international revenues and costs will be denominated in
foreign currencies in the future. We cannot predict the
potential consequences to our business as a result of the
adoption of the Euro as a common currency in parts of Europe. To
date, we have not engaged in any foreign exchange hedging
transactions, and we are, therefore, subject to foreign currency
risk, especially with regard to the U.S. Dollar and Euro
exchange rates.

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The expenses of our subsidiary Poet Software GmbH
are denominated in Euros. As a result, appreciation of the Euro
relative to the U.S. Dollar could adversely affect our results
of operations. Even when foreign currency expenses substantially
offset revenues in the same currency, profits may be diminished
when reported in Dollars. Fluctuations in the U.S. Dollar
relative to the Euro will affect comparisons of our reported
results of operations. Due to the constantly changing currency
exposures and the volatility of currency exchange rates, we
could experience currency losses in the future, and we cannot
predict the effect of the exchange rate fluctuations upon our
future results of operations. For more information regarding
currency fluctuations, see Exchange Rate Information.

If We Are Unable To Protect Our Intellectual
Property Rights, Competitors May Be Able To Use Our Technology
Or Trademarks, Which Could Weaken Our Competitive Position,
Reduce Our Revenues And Increase Costs.

We rely on a combination of copyright, trademark
and trade secret laws and restrictions on disclosure to protect
our intellectual property rights. We also enter into
confidentiality or license agreements with our employees,
consultants and customers, and control access to and
distribution of our software, documentation and other
proprietary information. Despite our efforts to protect our
proprietary rights, unauthorized parties may attempt to copy or
otherwise obtain and use our products or technology. Monitoring
unauthorized use of our products is difficult, and we cannot be
certain that the steps we have taken will prevent unauthorized
use of our technology, particularly in foreign countries where
the laws may not protect our proprietary rights as fully as in
the United States or Germany.

In recent years, there has been significant
litigation in the United States involving patents and other
intellectual property rights. Although we have never been
involved in any intellectual property litigation, we may be a
party to litigation in the future to protect our intellectual
property or as a result of alleged infringement of others
intellectual property. These claims and any resulting lawsuits
could subject us to significant liability for damages and
invalidation of our proprietary rights. Any potential
intellectual property litigation also could force us to do one
or more of the following:



| |   |                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | stop selling, incorporating or using our products
	or services that use the challenged intellectual property;                                                                                
|
| |  | obtain from the owner of the infringed
	intellectual property right a license to sell or use the
	relevant technology, which license may not be available on
	reasonable terms, or at all; or
|
| |  | redesign those products or services that use such
	technology.                                                                                                                               

If we are forced to take any of the foregoing
actions, we may be unable to manufacture and sell our products,
which would reduce our revenues.

To date, we have not been notified that our
products infringe the proprietary rights of third parties, but
there can be no assurance that third parties will not claim
infringement with respect to our current or future products. We
expect that developers of database, content management and
e-commerce software products will increasingly be subject to
infringement claims as the number of products and competitors in
our industry segment grows and as the functionality of products
increasingly overlaps. Any such claims, with or without merit,
could be time-consuming to defend, result in costly litigation,
divert managements attention and resources, cause product
shipment delays or require us to enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required,
may not be available on terms acceptable to us or at all. For
more information concerning our intellectual property rights,
see Business  Proprietary Rights and
Licensing.

Our Software Products May Have Unknown
Defects, Which Could Harm Our Reputation Or Impede Market
Acceptance Of Our Products.

Despite testing by us, defects have occurred in
the past and may occur in the future in our software. Complex
software like ours may be difficult to integrate with
customers existing systems and may contain errors or
defects when first introduced or when new versions or
enhancements are released. Although we conduct extensive
testing, we may not discover software defects that affect our
current or new products until after they are sold. In addition,
any defect in other software or hardware with which our software
interacts

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could be mistakenly attributed to our software by
our customers or their end-users. These defects or perceptions
of defects could cause our customers and their end-users to
experience service interruptions. Service interruptions could
damage our reputation or increase our product development costs,
divert our product development resources, cause us to lose
revenue, or delay market acceptance of our products, any of
which could harm our business, financial condition and results
of operations.


We May Be Subject To Product Liability Claims
That Could Result In Significant Costs To Us.

We may be subject to product liability claims for
defects in our products. Although we believe that our product
liability coverage is currently adequate, we did not obtain this
insurance until July 1996, and it is limited. A successful
liability claim brought against us in excess of relevant
insurance coverage could be costly, which could harm our
business, financial condition and results of operations.

We Rely On A Continuous Power Supply To
Conduct Our Operations, And Californias Current Energy
Crisis Could Disrupt Our Operations And Increase Our
Expenses.

California is in the midst of an energy crisis
that could disrupt our operations and increase our expenses. In
the event of an acute power shortage, that is, when power
reserves for the State of California fall below 1.5%, California
has on some occasions implemented, and may in the future
continue to implement, rolling blackouts throughout the state.
We currently do not have backup generators or alternate sources
of power in the event of a blackout, and our current insurance
does not provide coverage for any damages we or our customers
may suffer as a result of any interruption in our power supply.
If blackouts interrupt our power supply, we would be temporarily
unable to continue operations at our facilities in California.
Any such interruption in our ability to continue operations at
our facilities could damage our reputation, harm our ability to
retain existing customers and to obtain new customers, and could
result in lost revenue, any of which could substantially harm
our business and results of operations.

Furthermore, the deregulation of the energy
industry instituted in 1996 by the California government has
caused power prices to increase. Under deregulation, utilities
were encouraged to sell their plants, which traditionally had
produced most of Californias power, to independent energy
companies that were expected to compete aggressively on price.
Instead, due in part to a shortage of supply, wholesale prices
have skyrocketed over the past year. If wholesale prices
continue to increase, our operating expenses will likely
increase.

We May Engage In Future Acquisitions That
Dilute Our Stockholders Ownership And Cause Us To Incur
Debt Or Assume Contingent Liabilities

As part of our strategy, we expect to review
opportunities to buy other businesses or technologies that would
complement our current products, expand the breadth of our
markets or enhance our technical capabilities, or that may
otherwise offer growth opportunities. In the event of any future
purchases, we could:



| |   |                                                                               
| | - | ------------------------------------------------------------------------------
| |  | issue stock that would dilute our current
	stockholders percentage ownership;
|
| |  | incur debt; or                                                                
|
| |  | assume liabilities.                                                           

These purchases also involve numerous risks,
including:



| |   |                                                                                             
| | - | --------------------------------------------------------------------------------------------
| |  | problems combining the purchased operations,
	technologies or products;                     
|
| |  | unanticipated costs;                                                                        
|
| |  | diversion of managements attention from our
	core business;                                
|
| |  | adverse effects on existing business
	relationships with suppliers and customers;           
|
| |  | risks associated with entering markets in which
	we have no or limited prior experience; and
|
| |  | potential loss of key employees of purchased
	organizations.                                

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We cannot assure you that we will be able to
successfully integrate any businesses, products, technologies or
personnel that we might purchase in the future.

Risks Related To The Internet

Our Performance Will Depend On The Growth Of
The Internet For E-Commerce.

Our future success in marketing our products
depends heavily on the acceptance of the Internet and its
widespread use for e-commerce. If Internet e-commerce does not
continue to grow or grows more slowly than expected, our
business, financial condition and results of operations could be
harmed. Consumers and businesses may reject the Internet as a
viable commercial medium for a number of reasons, including
potentially inadequate network infrastructure and security, slow
development of enabling technologies or insufficient commercial
support. In addition, the Internet infrastructure may not be
able to support the demands placed on it by increased usage and
bandwidth requirements. Delays in the development or adoption of
new standards and protocols required to handle increased levels
of Internet activity or increased government regulation could
cause the Internet to lose its viability as a commercial medium.
Even if the required infrastructure, standards, protocols or
complementary products, services or facilities are developed, we
may incur substantial expenses adapting our products and
services to changing or emerging technologies.

We Could Face Additional Burdens Associated
With Government Regulation Of, And Legal Uncertainties
Related To, The Internet.

New Internet legislation or regulation, or the
application of existing laws and regulations to the Internet and
e-commerce, could harm our business, financial condition and
results of operations. We are subject to regulations applicable
to businesses generally and laws and regulations directly
applicable to communications over the Internet and access to
e-commerce in particular. Although there are currently few laws
and regulations directly applicable to e-commerce, it is
possible that a number of laws and regulations may be adopted
with respect to the Internet, covering issues such as user
privacy, pricing, content, copyrights, distribution, antitrust,
taxation and characteristics and quality of products and
services. For example, the United States Congress recently
enacted Internet laws regarding childrens privacy,
copyrights and the transmission of sexually explicit material.
In addition, the European Union recently enacted its own
Internet privacy regulations. The burden of compliance with any
additional laws or regulations regarding the Internet may
decrease the growth of the Internet or e-commerce, which could,
in turn, decrease the demand for our products and services and
increase our costs of doing business.

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|         |                                                           
|-------- | ----------------------------------------------------------
|Item 7A. | Qualitative and Quantitative Disclosure
	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 equivalents, short-term investments and long-term
	investments, which consist primarily of investments in
	commercial paper and money market accounts, and reported at an
	aggregate fair market value of $21.8 million as of
	December 31, 2001. 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 December 31, 2001, 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 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. Although we transact business in various foreign
	countries, settlement amounts are usually based on U.S. Dollars
	or the Euro. Transaction gains or losses have not been
	significant in the past and there is no hedging activity on the
	Euro or other currencies. Based on the inter-company balance of
	$1.0 million at December 31, 2001, a hypothetical 10%
	adverse change in the Euro against the 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 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.

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|        |                                             
|------- | --------------------------------------------
|Item 8. | Financial Statements and Supplementary
	Data

POET HOLDINGS, INC.

INDEX TO FINANCIAL STATEMENTS

|                                                              |  |      |    | 
|------------------------------------------------------------- |  | ---- | -- | 
|                                                              |  | Page
|                                                              |  |     
|Report of Independent Public Accountants                      |  |      | 33 | 
|Consolidated Balance Sheets                                   |  |      | 34 | 
|Consolidated Statements of Operations and
	Comprehensive Loss |  |      | 35 | 
|Consolidated Statements of Stockholders
	Equity (Deficiency) |  |      | 36 | 
|Consolidated Statements of Cash Flows                         |  |      | 37 | 
|Notes to Financial Statements                                 |  |      | 38 | 

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INDEPENDENT AUDITORS REPORT

To the Board of Directors and Stockholders of
Poet Holdings, Inc.:

We have audited the accompanying consolidated
balance sheets of Poet Holdings, Inc. and its subsidiaries as of
December 31, 2001 and 2000, and the related consolidated
statements of operations and comprehensive loss,
stockholders equity (deficiency) and cash flows for
each of the three years in the period ended December 31,
2001. These consolidated financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, such consolidated financial
statements present fairly, in all material respects, the
consolidated financial position of Poet Holdings, Inc. and its
subsidiaries at December 31, 2001 and 2000, and the results
of their operations and their cash flows for the each of the
three years in the period ended December 31, 2001 in
conformity with accounting principles generally accepted in the
United States of America.



| |                      
| | ---------------------
| | DELOITTE & TOUCHE LLP

San Jose, California

January 25, 2002


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POET HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|                                           |                                                                                                                           |                            |        |         |        |   |        |         |        | 
|------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------ | ------- | ------ | - | ------ | ------- | ------ | 
|                                           |                                                                                                                           |                           
|                                           |                                                                                                                           | December 31,              
|                                           |                                                                                                                           |                           
|                                           |                                                                                                                           | 2001                       |        | 2000   
|                                           |                                                                                                                           |                            |        |        
|                                           |                                                                                                                           |                           
|                                           |                                                                                                                           | (In thousands, except     
|                                           |                                                                                                                           | share and par value       
|                                           |                                                                                                                           | amounts)                  
|ASSETS                                    
|Current assets:                            |                                                                                                                           |                            |        |         |        |   |        |        
|                                           | Cash and equivalents                                                                                                      |                            | $      | 10,905  |        |   | $      | 18,747  |       
|                                           | Short term investments                                                                                                    |                            |        | 10,899  |        |   |        | 10,421  |       
|                                           | Accounts receivable (net of allowances of $508
	and $478 in 2001 and 2000, respectively)                                  |                            |        | 1,993   |        |   |        | 3,751   |       
|                                           | Inventories and other current assets                                                                                      |                            |        | 450     |        |   |        | 438     |       
|                                           |                                                                                                                           |                            |        |         |        |   |        |        
|                                           |                                                                                                                           | Total current assets       |        |         | 24,247 |   |        |         | 33,357 | 
|Property, furniture and equipment, net     |                                                                                                                           |                            | 1,074  |         |        |   | 1,308  |        
|Long term investments                      |                                                                                                                           |                            |       |         |        |   | 4,003  |        
|Other assets                               |                                                                                                                           |                            | 317    |         |        |   | 239    |        
|                                           |                                                                                                                           |                            |        |         |        |   |        |        
|Total assets                               |                                                                                                                           | $                          | 25,638 |         |        | $ | 38,907 |        
|                                           |                                                                                                                           |                            |        |         |        |   |        |        
|LIABILITIES AND STOCKHOLDERS
	EQUITY     
|                                          
|Current liabilities:                       |                                                                                                                           |                            |        |         |        |   |        |        
|                                           | Accounts payable                                                                                                          |                            | $      | 582     |        |   | $      | 1,252   |       
|                                           | Accrued liabilities                                                                                                       |                            |        | 1,564   |        |   |        | 1,891   |       
|                                           | Deferred revenue                                                                                                          |                            |        | 890     |        |   |        | 1,043   |       
|                                           | Current portion of debt                                                                                                   |                            |        | 57      |        |   |        | 244     |       
|                                           |                                                                                                                           |                            |        |         |        |   |        |        
|                                           |                                                                                                                           | Total current liabilities  |        |         | 3,093  |   |        |         | 4,430  | 
|                                           |                                                                                                                           |                            |        |         |        |   |        |        
|Long term obligation                       |                                                                                                                           |                            |       |         |        |   | 95     |        
|Commitments and contingencies (Note 9)     |                                                                                                                           |                            |        |         |        |   |        |        
|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: 2001  10,876,912;
	2000  10,818,867 |                            |        | 11      |        |   |        | 11      |       
|                                           | Additional paid in capital                                                                                                |                            |        | 66,331  |        |   |        | 66,217  |       
|                                           | Deferred stock compensation                                                                                               |                            |        | (126    | )      |   |        | (353    | )     
|                                           | Accumulated deficit                                                                                                       |                            |        | (43,954 | )      |   |        | (31,893 | )     
|                                           | Accumulated other comprehensive income                                                                                    |                            |        | 283     |        |   |        | 400     |       
|                                           |                                                                                                                           |                            |        |         |        |   |        |        
|                                           |                                                                                                                           | Total stockholders equity |        |         | 22,545 |   |        |         | 34,382 | 
|                                           |                                                                                                                           |                            |        |         |        |   |        |        
|Total liabilities and stockholders equity |                                                                                                                           | $                          | 25,638 |         |        | $ | 38,907 |        
|                                           |                                                                                                                           |                            |        |         |        |   |        |        

See notes to consolidated financial statements.

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POET HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS

|                                                               |                                                                                                   |                          |         |        |        |      |         |        |        |   |        |        |        | 
|-------------------------------------------------------------- | ------------------------------------------------------------------------------------------------- | ------------------------ | ------- | ------ | ------ | ---- | ------- | ------ | ------ | - | ------ | ------ | ------ | 
|                                                               |                                                                                                   |                         
|                                                               |                                                                                                   | Year Ended December 31, 
|                                                               |                                                                                                   |                         
|                                                               |                                                                                                   | 2001                     |         | 2000   |        | 1999
|                                                               |                                                                                                   |                          |         |        |        |     
|                                                               |                                                                                                   |                         
|                                                               |                                                                                                   | (In thousands, except   
|                                                               |                                                                                                   | per share amounts)      
|Revenues:                                                      |                                                                                                   |                          |         |        |        |      |         |        |        |   |        |       
|                                                               | Product ($0, $0 and $1,571 in 2001, 2000 and
	1999, respectively from a stockholder)              |                          | $       | 6,435  |        |      | $       | 9,114  |        |   | $      | 7,812  |       
|                                                               | Consulting and training ($0, $0 and $10 in 2001,
	2000 and 1999, respectively from a stockholder) |                          |         | 1,493  |        |      |         | 1,358  |        |   |        | 1,505  |       
|                                                               | Support and maintenance ($0, $0 and $74 in 2001,
	2000 and 1999, respectively from a stockholder) |                          |         | 1,883  |        |      |         | 1,755  |        |   |        | 1,297  |       
|                                                               |                                                                                                   |                          |         |        |        |      |         |        |        |   |        |       
|Total revenues                                                 |                                                                                                   |                          | 9,811   |        |        |      | 12,227  |        |        |   | 10,614 |       
|                                                               |                                                                                                   |                          |         |        |        |      |         |        |        |   |        |       
|Operating expenses:                                            |                                                                                                   |                          |         |        |        |      |         |        |        |   |        |       
|                                                               | Cost of product                                                                                   |                          |         | 278    |        |      |         | 339    |        |   |        | 295    |       
|                                                               | Cost of consulting and training                                                                   |                          |         | 1,268  |        |      |         | 1,195  |        |   |        | 1,052  |       
|                                                               | Cost of support and maintenance                                                                   |                          |         | 1,209  |        |      |         | 1,288  |        |   |        | 1,029  |       
|                                                               | Selling and marketing                                                                             |                          |         | 12,808 |        |      |         | 13,092 |        |   |        | 7,591  |       
|                                                               | Research and development                                                                          |                          |         | 3,901  |        |      |         | 4,448  |        |   |        | 3,221  |       
|                                                               | General and administrative                                                                        |                          |         | 3,272  |        |      |         | 3,631  |        |   |        | 1,825  |       
|                                                               | Amortization of deferred stock compensation*                                                      |                          |         | 227    |        |      |         | 444    |        |   |        | 626    |       
|                                                               |                                                                                                   |                          |         |        |        |      |         |        |        |   |        |       
|                                                               |                                                                                                   | Total operating expenses |         |        | 22,963 |      |         |        | 24,437 |   |        |        | 15,639 | 
|                                                               |                                                                                                   |                          |         |        |        |      |         |        |        |   |        |       
|Operating loss                                                 |                                                                                                   |                          | (13,152 | )      |        |      | (12,210 | )      |        |   | (5,025 | )     
|                                                               |                                                                                                   |                          |         |        |        |      |         |        |        |   |        |       
|Other income (expense):                                        |                                                                                                   |                          |         |        |        |      |         |        |        |   |        |       
|                                                               | Interest expense                                                                                  |                          |         | (19    | )      |      |         | (38    | )      |   |        | (1,114 | )     
|                                                               | Interest income and other, net                                                                    |                          |         | 1,206  |        |      |         | 2,460  |        |   |        | 567    |       
|                                                               |                                                                                                   |                          |         |        |        |      |         |        |        |   |        |       
|                                                               | Total other income (expense), net                                                                 |                          |         | 1,187  |        |      |         | 2,422  |        |   |        | (547   | )     
|                                                               |                                                                                                   |                          |         |        |        |      |         |        |        |   |        |       
|Loss before income taxes                                       |                                                                                                   |                          | (11,965 | )      |        |      | (9,788  | )      |        |   | (5,572 | )     
|Income tax benefit (expense)                                   |                                                                                                   |                          | (96     | )      |        |      | (47     | )      |        |   | 8      |       
|                                                               |                                                                                                   |                          |         |        |        |      |         |        |        |   |        |       
|Net loss                                                       |                                                                                                   | $                        | (12,061 | )      |        | $    | (9,835  | )      |        | $ | (5,564 | )     
|                                                               |                                                                                                   |                          |         |        |        |      |         |        |        |   |        |       
|Other comprehensive income (loss)                              |                                                                                                   |                          | (117    | )      |        |      | (56     | )      |        |   | 315    |       
|                                                               |                                                                                                   |                          |         |        |        |      |         |        |        |   |        |       
|Comprehensive loss                                             |                                                                                                   | $                        | (12,178 | )      |        | $    | (9,891  | )      |        | $ | (5,249 | )     
|                                                               |                                                                                                   |                          |         |        |        |      |         |        |        |   |        |       
|Basic and diluted net loss per share (Note 1)                  |                                                                                                   | $                        | (1.11   | )      |        | $    | (0.92   | )      |        | $ | (2.64  | )     
|Shares used in computing basic and diluted net
	loss per share |                                                                                                   |                          | 10,829  |        |        |      | 10,653  |        |        |   | 2,109  |       
|*Amortization of deferred stock compensation                   |                                                                                                   |                          |         |        |        |      |         |        |        |   |        |       
|                                                               | Cost of consulting and training                                                                   |                          | $       | 24     |        |      | $       | 51     |        |   | $      | 73     |       
|                                                               | Cost of support and maintenance                                                                   |                          |         | 11     |        |      |         | 20     |        |   |        | 24     |       
|                                                               | Selling and marketing                                                                             |                          |         | 100    |        |      |         | 197    |        |   |        | 294    |       
|                                                               | Research and development                                                                          |                          |         | 66     |        |      |         | 127    |        |   |        | 155    |       
|                                                               | General and administrative                                                                        |                          |         | 26     |        |      |         | 49     |        |   |        | 80     |       
|                                                               |                                                                                                   |                          |         |        |        |      |         |        |        |   |        |       
|                                                               |                                                                                                   | $                        | 227     |        |        | $    | 444     |        |        | $ | 626    |       
|                                                               |                                                                                                   |                          |         |        |        |      |         |        |        |   |        |       

See notes to consolidated financial statements.

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POET HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY (DEFICIENCY)

|                                                                                               |  |                                   |            |         |  |                |    |              |  |               |        |               |  |              |        |   |  |   |         |   |  |   |      |   |  |   |         |  
|---------------------------------------------------------------------------------------------- |  | --------------------------------- | ---------- | ------- |  | -------------- | -- | ------------ |  | ------------- | ------ | ------------- |  | ------------ | ------ | - |  | - | ------- | - |  | - | ---- | - |  | - | ------- | -
|                                                                                               |  |                                   |            |         |  |                |    |              |  |               |        | Accumulated   |  |             
|                                                                                               |  |                                   |            |         |  |                |    |              |  | Other         |        | Total        
|                                                                                               |  | Common Stock                      |            |         |  |                |    |              |  | Comprehensive |        | Stockholders
|                                                                                               |  |                                   |            | Paid in |  | Deferred Stock |    | Accumulated  |  | Income        |        | Equity       
|                                                                                               |  | Shares                            |            | Amount  |  | Capital        |    | Compensation |  | Deficit       |        | (Loss)        |  | (Deficiency)
|                                                                                               |  |                                   |            |         |  |                |    |              |  |               |        |               |  |             
|                                                                                               |  |                                  
|                                                                                               |  | (In thousands, except share data)
|Balances at January 1, 1999                                                                    |  |                                   | 1,569,150  |         |  | $              | 1  |              |  | $             | 2,287  |               |  | $            | (1,237 | ) |  | $ | (16,494 | ) |  | $ | 141  |   |  | $ | (15,302 | )
|Exercise of Series A common stock options
	and warrants                                        |  |                                   | 142,900    |         |  |                |    |              |  |               | 124    |               |  |              |        |   |  |   |         |   |  |   |      |   |  |   | 124     |  
|Common stock issued upon conversion of debt                                                    |  |                                   | 275,106    |         |  |                | 1  |              |  |               | 4,507  |               |  |              |        |   |  |   |         |   |  |   |      |   |  |   | 4,508   |  
|Imputed loan discount                                                                          |  |                                   |            |         |  |                |    |              |  |               | 348    |               |  |              |        |   |  |   |         |   |  |   |      |   |  |   | 348     |  
|Conversion of preferred stock and Series B
	common stock to Series A common stock              |  |                                   | 4,981,957  |         |  |                | 5  |              |  |               | 16,467 |               |  |              |        |   |  |   |         |   |  |   |      |   |  |   | 16,472  |  
|Series A common stock issued for cash upon
	the initial public offering, net of issuance costs |  |                                   | 3,570,000  |         |  |                | 4  |              |  |               | 41,533 |               |  |              |        |   |  |   |         |   |  |   |      |   |  |   | 41,537  |  
|Series A common stock issued upon net
	exercise of warrants                                    |  |                                   | 7,993      |         |  |                |    |              |  |               |        |               |  |              |        |   |  |   |         |   |  |   |      |   |  |   |        |  
|Deferred stock compensation                                                                    |  |                                   |            |         |  |                |    |              |  |               | 316    |               |  |              | (316   | ) |  |   |         |   |  |   |      |   |  |   |        |  
|Amortization of deferred stock compensation                                                    |  |                                   |            |         |  |                |    |              |  |               |        |               |  |              | 626    |   |  |   |         |   |  |   |      |   |  |   | 626     |  
|Net loss                                                                                       |  |                                   |            |         |  |                |    |              |  |               |        |               |  |              |        |   |  |   | (5,564  | ) |  |   |      |   |  |   | (5,564  | )
|Foreign currency translation adjustment                                                        |  |                                   |            |         |  |                |    |              |  |               |        |               |  |              |        |   |  |   |         |   |  |   | 315  |   |  |   | 315     |  
|                                                                                               |  |                                   |            |         |  |                |    |              |  |               |        |               |  |              |        |   |  |   |         |   |  |   |      |   |  |   |         |  
|Balances at December 31, 1999                                                                  |  |                                   | 10,547,106 |         |  |                | 11 |              |  |               | 65,582 |               |  |              | (927   | ) |  |   | (22,058 | ) |  |   | 456  |   |  |   | 43,064  |  
|Exercise of common stock options and warrants                                                  |  |                                   | 271,761    |         |  |                |   |              |  |               | 765    |               |  |              |        |   |  |   |         |   |  |   |      |   |  |   | 765     |  
|Amortization and reversals of deferred stock
	compensation                                     |  |                                   |            |         |  |                |    |              |  |               | (130   | )             |  |              | 574    |   |  |   |         |   |  |   |      |   |  |   | 444     |  
|Net loss                                                                                       |  |                                   |            |         |  |                |    |              |  |               |        |               |  |              |        |   |  |   | (9,835  | ) |  |   |      |   |  |   | (9,835  | )
|Foreign currency translation adjustment                                                        |  |                                   |            |         |  |                |    |              |  |               |        |               |  |              |        |   |  |   |         |   |  |   | (38  | ) |  |   | (38     | )
|Unrealized loss on investments                                                                 |  |                                   |            |         |  |                |    |              |  |               |        |               |  |              |        |   |  |   |         |   |  |   | (18  | ) |  |   | (18     | )
|                                                                                               |  |                                   |            |         |  |                |    |              |  |               |        |               |  |              |        |   |  |   |         |   |  |   |      |   |  |   |         |  
|Balances at December 31, 2000                                                                  |  |                                   | 10,818,867 |         |  |                | 11 |              |  |               | 66,217 |               |  |              | (353   | ) |  |   | (31,893 | ) |  |   | 400  |   |  |   | 34,382  |  
|Common stock issued under stock plans, net of
	cancellations                                   |  |                                   | 58,045     |         |  |                |   |              |  |               | 114    |               |  |              |        |   |  |   |         |   |  |   |      |   |  |   | 114     |  
|Amortization of deferred stock compensation                                                    |  |                                   |            |         |  |                |    |              |  |               |        |               |  |              | 227    |   |  |   |         |   |  |   |      |   |  |   | 227     |  
|Net loss                                                                                       |  |                                   |            |         |  |                |    |              |  |               |        |               |  |              |        |   |  |   | (12,061 | ) |  |   |      |   |  |   | (12,061 | )
|Foreign currency translation adjustment                                                        |  |                                   |            |         |  |                |    |              |  |               |        |               |  |              |        |   |  |   |         |   |  |   | (103 | ) |  |   | (103    | )
|Unrealized loss on investments                                                                 |  |                                   |            |         |  |                |    |              |  |               |        |               |  |              |        |   |  |   |         |   |  |   | (14  | ) |  |   | (14     | )
|                                                                                               |  |                                   |            |         |  |                |    |              |  |               |        |               |  |              |        |   |  |   |         |   |  |   |      |   |  |   |         |  
|Balances at December 31, 2001                                                                  |  |                                   | 10,876,912 |         |  | $              | 11 |              |  | $             | 66,331 |               |  | $            | (126   | ) |  | $ | (43,954 | ) |  | $ | 283  |   |  | $ | 22,545  |  
|                                                                                               |  |                                   |            |         |  |                |    |              |  |               |        |               |  |              |        |   |  |   |         |   |  |   |      |   |  |   |         |  

See notes to consolidated financial statements.

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POET HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                         |                                                                              |                                          |                                                      |         |       |         |         |         |        |         |        |        |        |        |  
|-------------------------------------------------------- | ---------------------------------------------------------------------------- | ---------------------------------------- | ---------------------------------------------------- | ------- | ----- | ------- | ------- | ------- | ------ | ------- | ------ | ------ | ------ | ------ | -
|                                                         |                                                                              |                                         
|                                                         |                                                                              | Year Ended December 31,                 
|                                                         |                                                                              |                                         
|                                                         |                                                                              | 2001                                     |                                                      | 2000    |       | 1999   
|                                                         |                                                                              |                                          |                                                      |         |       |        
|                                                         |                                                                              |                                         
|                                                         |                                                                              | (In thousands)                          
|Cash flows from operating activities:                    |                                                                              |                                          |                                                      |         |       |         |         |         |        |         |        |       
|Net Loss                                                 |                                                                              | $                                        | (12,061                                              | )       |       | $       | (9,835  | )       |        | $       | (5,564 | )     
|                                                         | Adjustments to reconcile net loss to net cash
	used in operating activities: |                                          |                                                      |         |       |         |         |         |        |         |        |        |       
|                                                         | Depreciation and amortization                                                |                                          |                                                      | 746     |       |         |         | 559     |        |         |        | 556    |       
|                                                         | Interest expense related to conversion of notes
	payable                     |                                          |                                                      |        |       |         |         |        |        |         |        | 809    |       
|                                                         | Amortization of deferred stock compensation                                  |                                          |                                                      | 227     |       |         |         | 444     |        |         |        | 626    |       
|                                                         | Amortization of investment discounts                                         |                                          |                                                      | (265    | )     |         |         | (18     | )      |         |        |       |       
|                                                         | Changes in assets and liabilities:                                           |                                          |                                                      |         |       |         |         |         |        |         |        |        |       
|                                                         |                                                                              | Accounts receivable                      |                                                      |         | 1,658 |         |         |         | (1,693 | )       |        |        | (681   | )     
|                                                         |                                                                              | Inventories and other current assets     |                                                      |         | (24   | )       |         |         | (127   | )       |        |        | 30     |       
|                                                         |                                                                              | Other assets                             |                                                      |         | (95   | )       |         |         | (27    | )       |        |        | (4     | )     
|                                                         |                                                                              | Accounts payable and accrued liabilities |                                                      |         | (943  | )       |         |         | 201    |         |        |        | 1,638  |       
|                                                         |                                                                              | Deferred revenue                         |                                                      |         | (143  | )       |         |         | 213    |         |        |        | (1,326 | )     
|                                                         |                                                                              |                                          |                                                      |         |       |         |         |         |        |         |        |       
|                                                         |                                                                              |                                          | Net cash used in operating activities                |         |       | (10,900 | )       |         |        | (10,283 | )      |        |        | (3,916 | )
|Cash flows from investing activities:                    |                                                                              |                                          |                                                      |         |       |         |         |         |        |         |        |       
|                                                         | Purchases of property, furniture and equipment                               |                                          |                                                      | (555    | )     |         |         | (1,300  | )      |         |        | (501   | )     
|                                                         | Loan receivable issued                                                       |                                          |                                                      |        |       |         |         | (2,394  | )      |         |        |       |       
|                                                         | Loan receivable payments received                                            |                                          |                                                      |        |       |         |         | 2,288   |        |         |        |       |       
|                                                         | Purchases of short-term and long-term investments                            |                                          |                                                      | (25,313 | )     |         |         | (60,824 | )      |         |        | (9,311 | )     
|                                                         | Proceeds from sales and maturities of short-term
	investments                |                                          |                                                      | 29,087  |       |         |         | 55,712  |        |         |        |       |       
|                                                         |                                                                              |                                          |                                                      |         |       |         |         |         |        |         |        |       
|                                                         |                                                                              |                                          | Net cash provided by (used in) investing
	activities |         |       | 3,219   |         |         |        | (6,518  | )      |        |        | (9,812 | )
|Cash flows from financing activities:                    |                                                                              |                                          |                                                      |         |       |         |         |         |        |         |        |       
|                                                         | Borrowings                                                                   |                                          |                                                      |        |       |         |         |        |        |         |        | 3,912  |       
|                                                         | Repayments of debt                                                           |                                          |                                                      | (231    | )     |         |         | (310    | )      |         |        | (2,151 | )     
|                                                         | Preferred stock issued                                                       |                                          |                                                      |        |       |         |         |        |        |         |        | 475    |       
|                                                         | Common stock issued, net of issuance costs                                   |                                          |                                                      | 114     |       |         |         | 765     |        |         |        | 41,661 |       
|                                                         |                                                                              |                                          |                                                      |         |       |         |         |         |        |         |        |       
|                                                         |                                                                              |                                          | Net cash provided by (used in) financing
	activities |         |       | (117    | )       |         |        | 455     |        |        |        | 43,897 |  
|Effect of exchange rate changes on cash and
	equivalents |                                                                              |                                          | (44                                                  | )       |       |         | 54      |         |        |         | 94     |       
|                                                         |                                                                              |                                          |                                                      |         |       |         |         |         |        |         |        |       
|Increase (decrease) in cash and equivalents              |                                                                              |                                          | (7,842                                               | )       |       |         | (16,292 | )       |        |         | 30,263 |       
|Cash and equivalents  beginning of year                 |                                                                              |                                          | 18,747                                               |         |       |         | 35,039  |         |        |         | 4,776  |       
|                                                         |                                                                              |                                          |                                                      |         |       |         |         |         |        |         |        |       
|Cash and equivalents  end of year                       |                                                                              | $                                        | 10,905                                               |         |       | $       | 18,747  |         |        | $       | 35,039 |       
|                                                         |                                                                              |                                          |                                                      |         |       |         |         |         |        |         |        |       
|Supplemental disclosure of cash flow information:        |                                                                              |                                          |                                                      |         |       |         |         |         |        |         |        |       
|                                                         | Interest paid                                                                |                                          | $                                                    | 14      |       |         | $       | 42      |        |         | $      | 128    |       
|                                                         |                                                                              |                                          |                                                      |         |       |         |         |         |        |         |        |       
|                                                         | Taxes paid                                                                   |                                          | $                                                    | 79      |       |         | $       | 19      |        |         | $      | 14     |       
|                                                         |                                                                              |                                          |                                                      |         |       |         |         |         |        |         |        |       
|Non-cash financing and investment activities:            |                                                                              |                                          |                                                      |         |       |         |         |         |        |         |        |       
|                                                         | Deferred stock compensation                                                  |                                          | $                                                    |        |       |         | $       | (130    | )      |         | $      | 316    |       
|                                                         |                                                                              |                                          |                                                      |         |       |         |         |         |        |         |        |       
|                                                         | Conversion of notes payable into Series A
	common stock                      |                                          | $                                                    |        |       |         | $       |        |        |         | $      | 3,900  |       
|                                                         |                                                                              |                                          |                                                      |         |       |         |         |         |        |         |        |       

See notes to consolidated financial statements.

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POET HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

Years Ended December 31, 2001, 2000 and
1999


1.     Business and
Significant Accounting Policies

Business.The
principal business activities of Poet Holdings, Inc. (the
Company) and its subsidiaries are the design and marketing of
innovative data management software and solutions that allow
organizations to share, manage and manipulate complex
information and to facilitate effective business-to-business
processes and information exchange over the Internet. Our
database management system utilizes and supports complex,
multidimensional data models and standard Internet programming
languages. Our Internet solutions provide our customers with the
ability to author, manipulate and electronically distribute
complex business documents based on advanced exchange protocols
using the Internet as a new means to increase customer
relationships, accelerate business processes and reduce costs,
thereby facilitating effective business-to-business information
exchange. The Company was incorporated in the state of Delaware
in November 1994.

Consolidation.The
accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany balances and transactions are
eliminated in consolidation.

Cash Equivalents.The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to
be cash equivalents.

Inventories.Inventories, consisting primarily of manuals and magnetic media,
are stated at the lower of cost (first-in, first-out
(FIFO) basis), or market value.

Investments.Investments with original maturities greater than three months
and with maturities less than one year from the balance sheet
date are classified as short-term investments. Investments with
maturities one year or greater from the balance sheet date are
classified as long-term investments. The Company accounts for
investments in accordance with (Statement of Financial
Accounting Standards) 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. 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 stockholders equity. Cost is based
on the specific identification method for purposes of computing
realized gains and losses.

Property, Furniture and
Equipment.Property, furniture and
equipment are stated at cost. Depreciation is computed generally
on a straight-line basis over the estimated useful lives of the
assets which range from three-to-seven years. Leasehold
improvements and assets acquired under capital lease are
amortized on a straight-line basis over the shorter of the lease
term or the estimated useful lives of the asset.

Other Assets.In
June 2000, we entered into an unsecured note agreement loaning
2.5 million euros (approximately $2,356,000 based upon the
U.S. dollar/euro exchange rate on December 31, 2000) to a
services provider. The loan was interest bearing at 11% per
annum and was due on December 31, 2000. In November 2000,
the note agreement was amended calling for an immediate interest
payment of 230,000 DM (approximately $111,000 based upon the
U.S. dollar/German Deutsche Mark exchange rate on
December 31, 2000) and for the payment of the principal in
full by the end of December 2000. The note was paid in full in
December 2000.

Impairment of Long-Lived Assets and Long-Lived
Assets To Be Disposed Of.The Company
evaluates its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of
such assets or intangibles may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future
undiscounted net cash flows expected

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POET HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the
assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.

Software Development
Costs.Costs for the development of
new software products and substantial enhancements to existing
software products are expensed as incurred until technological
feasibility has been established, at which time any additional
development costs would be capitalized in accordance with
Statement of Financial Accounting Standards
(SFAS) No. 86, Computer Software To Be Sold,
Leased, or Otherwise Marketed. Because the Company believes
its current process for developing software is essentially
completed concurrently with the establishment of technological
feasibility, no costs have been capitalized to date.

Revenue Recognition.The Companys revenue recognition policy is consistent with
Statement of Position No. 97-2, as amended. License
revenues are comprised of fees for the Companys software
products. Revenue from license fees is recognized when an
agreement has been signed, delivery of the product has occurred,
no significant Company obligations remain, the fee is fixed or
determinable, collectibility is probable and vendor-specific
objective evidence exists to allocate a portion of the total fee
to any undelivered elements of the arrangement. For electronic
delivery, the software is considered to have been delivered when
the Company has provided the customer with the access codes that
allow for immediate possession of the software. If the fee due
from the customer is not fixed or determinable, revenue is
recognized as payments become due from the customer. If
collectibility is not considered probable, revenue is recognized
when the fee is collected.

Support and maintenance arrangements do not
provide for specified upgrade rights and provide technical
support and the right to unspecified upgrades on an
if-and-when-available basis. Revenue from support arrangements
is recognized on a straight-line basis over the life of the
related agreement, which is typically one year. If support,
consulting services or training are included in an arrangement
that includes a license agreement, amounts related to support,
consulting services, training and the licenses are allocated
based on vendor-specific objective evidence. Vendor-specific
objective evidence for support, professional services and
license agreements is based on the price when such elements are
sold separately, or, when not sold separately, the price is
established by management, who have the relevant authority.
Where discounts are offered on multiple element arrangements, a
proportionate amount of that discount is applied to each element
included in the arrangement based on each elements fair
value. Consulting and training revenue is recognized when
provided to the customer. Revenues from custom development
projects are recognized on the percentage of completion basis.
Customer advances and billed amounts due from customers in
excess of revenue recognized are recorded as deferred revenue.

Cost of Revenues.Cost of product revenues includes cost of production and related
materials. Cost of support and maintenance revenues includes
payroll and other costs associated with product maintenance and
escrow services. Costs of consulting and training principally
includes payroll and related costs.

Financial Statement
Estimates.The preparation of
financial statements in conformity with accounting principles
generally accepted in the United States of America requires
management to make estimates and assumptions that affect
reported amounts of assets, liabilities, revenues, and expenses
as of the date and for the period presented. Actual amounts
could differ from those estimates.

Concentrations of Credit
Risk.Financial instruments which
potentially could subject the Company to a concentration of
credit risk principally consist of accounts receivable. The
Company sells the majority of its products to companies in North
America and Europe. To reduce credit risk, management performs
ongoing credit evaluations of its significant customers
financial condition and maintains reserves for estimated credit
losses. No individual customer accounted for more than 10% of
our revenues in 2001 or 2000. One customer, a

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POET HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

stockholder, accounted for 16% of our revenues in
1999. No individual customer accounted for more than 10% of our
accounts receivable balance at December 31, 2001 or 2000.

Financial
Instruments.The Companys
financial instruments include cash and equivalents, short-term
investments and long-term investments. At December 31, 2001 and
2000, the fair value of these financial instruments approximated
their financial statement carrying amounts.

Income Taxes.Income
taxes are accounted for using an asset and liability approach to
account for deferred income taxes. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amounts expected to be realized.

Foreign Currency
Translation.All assets and
liabilities of operations outside the United States are
translated into U.S. dollars from their functional currency,
which is the local currency, at year-end exchange rates. Income
and expense items are translated at the average exchange rate
for the year. Gains and losses resulting from translation are
included in other comprehensive income (loss). Gains and losses
on foreign currency transactions have been reflected in the
statements of operations and were not material in 2001, 2000 and
1999.

Certain Significant Risks and
Uncertainties.The Company operates in
the software industry, and accordingly, can be affected by a
variety of factors. For example, management of the Company
believes that changes in any of the following areas could have a
significant negative effect on the Company in terms of its
future financial position, results of operations or cash flows;
ability to increase revenues, the hiring, training and retention
of key employees; development of sales distribution
capabilities; market acceptance of the Companys products
under development; fundamental changes in the technology
underlying the Companys software products; litigation or
other claims against the Company; adverse changes in
international market conditions; successful and timely
completion of product development efforts; product introductions
by competitors and the ability to obtain additional financing.

Stock-Based
Compensation.The Company accounts for
stock-based awards to employees using the intrinsic value method
in accordance with APB No. 25, Accounting for Stock
Issued to Employees.

Net Loss per Common
Share.Basic net loss per common share
excludes dilution and is computed by dividing net loss by the
weighted average number of common shares outstanding for the
period (excluding shares subject to repurchase). Diluted net
loss per common share was the same as basic net loss per common
share for all periods presented since the effect of any
potentially dilutive securities is excluded as they are
anti-dilutive because of the Companys net losses.

Recent
Accounting Pronouncements

In June 1999, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 137,
Accounting for Derivative Instruments and Hedging
Activities  Deferral of the Effective Date of SFAS
133, which delayed the effective date of SFAS
No. 133, Accounting for Derivative Instruments and
Hedging Activities, which is effective for Poets
fiscal year 2001. This statement establishes accounting and
reporting standards requiring that every derivative instrument,
including certain derivative instruments embedded in other
contracts, be recorded in the consolidated balance sheet as
either an asset or liability measured at its fair value. The
statement also requires that changes in the derivatives fair
value be recognized in earnings unless specific hedge accounting
criteria are met. The adoption of SFAS 133 did not have a
material effect on the Companys consolidated financial
statements.

In July 2001, the FASB issued Statement of
Financial Accounting Standards No. 141, Business
Combinations (SFAS 141) and Statement of
Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets (SFAS 142).

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POET HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

SFAS 141 requires all business combinations to be
accounted for using the purchase method of accounting and is
effective for all business combinations initiated after
June 30, 2001. The adoption of SFAS 141 did not have a
material effect on the Companys operating results or
financial condition.

SFAS 142 requires goodwill to be tested for
impairment under certain circumstances, and written off when
impaired, rather than being amortized as previous standards
required. SFAS 142 is effective for fiscal years beginning after
December 15, 2001. Early application is permitted for
entities with fiscal years beginning after March 15, 2001
provided that the first interim period financial statements have
not been previously issued. The Company does not expect a
material effect on its financial position, results of operations
or cash flows as a result of SFAS 142.

In August 2001, the FASB released SFAS
No. 144 (SFAS 144), Accounting for the
Impairment or Disposal of Long-Lived Assets, which is
effective in 2002. SFAS 144 establishes standards for accounting
for impairment of long-lived assets used by an entity or held
measuring impairments. The Company does not expect the adoption
of SFAS 144 to have a material impact on its financial position,
results of operations or cash flows.

2.     Investments

Short-term and long-term investments include the
following available-for-sale securities at December 31,
2001 (in thousands).

|                                   |                                     |           |        |            |  |            |   |            |  |   |     |     |   |   |        |        | 
|---------------------------------- | ----------------------------------- | --------- | ------ | ---------- |  | ---------- | - | ---------- |  | - | --- | --- | - | - | ------ | ------ | 
|                                   |                                     |           |        | Gross      |  | Gross      |   |           
|                                   |                                     | Amortized |        | Unrealized |  | Unrealized |   | Estimated 
|                                   |                                     | Cost      |        | Gains      |  | Loss       |   | Fair Value
|                                   |                                     |           |        |            |  |            |   |           
|Money market funds                 |                                     | $         | 1,143  |            |  | $          |  |            |  | $ |    |     |   | $ | 1,143  |       
|Commercial paper                   |                                     |           | 12,983 |            |  |            | 4 |            |  |   | (6  | )   |   |   | 12,981 |       
|U.S. government agencies           |                                     |           | 6,920  |            |  |            | 4 |            |  |   | (16 | )   |   |   | 6,908  |       
|                                   |                                     |           |        |            |  |            |   |            |  |   |     |     |   |   |        |       
|                                   | Total available for sale securities |           | $      | 21,046     |  |            | $ | 8          |  |   | $   | (22 | ) |   | $      | 21,032 | 
|                                   |                                     |           |        |            |  |            |   |            |  |   |     |     |   |   |        |       
|Included in cash and equivalents   |                                     |           | 10,139 |            |  |            |   |            |  |   | (6  | )   |   |   | 10,133 |       
|Included in short-term investments |                                     |           | 10,907 |            |  |            | 8 |            |  |   | (16 | )   |   |   | 10,899 |       
|                                   |                                     |           |        |            |  |            |   |            |  |   |     |     |   |   |        |       
|                                   | Total available for sale securities |           | $      | 21,046     |  |            | $ | 8          |  |   | $   | (22 | ) |   | $      | 21,032 | 
|                                   |                                     |           |        |            |  |            |   |            |  |   |     |     |   |   |        |       

Short-term and long-term investments include the
following available-for-sale securities at December 31,
2000 (in thousands).

|                                   |                                     |           |        |            |  |            |   |            |  |   |     |     |   |   |        |        | 
|---------------------------------- | ----------------------------------- | --------- | ------ | ---------- |  | ---------- | - | ---------- |  | - | --- | --- | - | - | ------ | ------ | 
|                                   |                                     |           |        | Gross      |  | Gross      |   |           
|                                   |                                     | Amortized |        | Unrealized |  | Unrealized |   | Estimated 
|                                   |                                     | Cost      |        | Gains      |  | Loss       |   | Fair Value
|                                   |                                     |           |        |            |  |            |   |           
|Money market funds                 |                                     | $         | 3,878  |            |  | $          |  |            |  | $ |    |     |   | $ | 3,878  |       
|Commercial paper                   |                                     |           | 22,032 |            |  |            | 9 |            |  |   |    |     |   |   | 22,041 |       
|U.S. government agencies           |                                     |           | 4,030  |            |  |            |  |            |  |   | (27 | )   |   |   | 4,003  |       
|                                   |                                     |           |        |            |  |            |   |            |  |   |     |     |   |   |        |       
|                                   | Total available for sale securities |           | $      | 29,940     |  |            | $ | 9          |  |   | $   | (27 | ) |   | $      | 29,922 | 
|                                   |                                     |           |        |            |  |            |   |            |  |   |     |     |   |   |        |       
|Included in cash and equivalents   |                                     |           | 15,494 |            |  |            | 4 |            |  |   |    |     |   |   | 15,498 |       
|Included in short-term investments |                                     |           | 10,416 |            |  |            | 5 |            |  |   |    |     |   |   | 10,421 |       
|Included in long-term investments  |                                     |           | 4,030  |            |  |            |  |            |  |   | (27 | )   |   |   | 4,003  |       
|                                   |                                     |           |        |            |  |            |   |            |  |   |     |     |   |   |        |       
|                                   | Total available for sale securities |           | $      | 29,940     |  |            | $ | 9          |  |   | $   | (27 | ) |   | $      | 29,922 | 
|                                   |                                     |           |        |            |  |            |   |            |  |   |     |     |   |   |        |       

41



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##### Table of Contents



POET HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

At December 31, 2001 and 2000, the company
had $772,000 and $3,249,000, respectively, of cash and
equivalents excluded from the total available for sale
securities balances above.

3.     Property,
Furniture and Equipment, Net

Property, furniture and equipment, net, consist
of (in thousands):

|                                          |       |              |        |       |  |   |        |       | 
|----------------------------------------- | ----- | ------------ | ------ | ----- |  | - | ------ | ----- | 
|                                          |       |             
|                                          |       | December 31,
|                                          |       |             
|                                          |       | 2001         |        | 2000 
|                                          |       |              |        |      
|Computer equipment and software           |       | $            | 2,925  |       |  | $ | 2,618  |      
|Office equipment, furniture and fixtures  |       |              | 882    |       |  |   | 853    |      
|Leasehold improvements                    |       |              | 150    |       |  |   | 95     |      
|                                          |       |              |        |       |  |   |        |      
|                                          | Total |              |        | 3,957 |  |   |        | 3,566 | 
|Accumulated depreciation and amortization |       |              | (2,883 | )     |  |   | (2,258 | )    
|                                          |       |              |        |       |  |   |        |      
|Property, furniture and equipment, net    |       | $            | 1,074  |       |  | $ | 1,308  |      
|                                          |       |              |        |       |  |   |        |      

4.     Accrued
Liabilities

Accrued liabilities consist of (in thousands):

|                     |       |              |     |       |  |   |     |       | 
|-------------------- | ----- | ------------ | --- | ----- |  | - | --- | ----- | 
|                     |       |             
|                     |       | December 31,
|                     |       |             
|                     |       | 2001         |     | 2000 
|                     |       |              |     |      
|Compensation         |       | $            | 544 |       |  | $ | 738 |      
|Professional fees    |       |              | 397 |       |  |   | 476 |      
|Payroll tax accruals |       |              | 224 |       |  |   | 317 |      
|Other                |       |              | 399 |       |  |   | 360 |      
|                     |       |              |     |       |  |   |     |      
|                     | Total |              | $   | 1,564 |  |   | $   | 1,891 | 
|                     |       |              |     |       |  |   |     |      

5.     Long-Term
Obligations

Long-term obligations consists of (in thousands):

|                                       |       |              |     |      |  |   |      |     | 
|-------------------------------------- | ----- | ------------ | --- | ---- |  | - | ---- | --- | 
|                                       |       |             
|                                       |       | December 31,
|                                       |       |             
|                                       |       | 2001         |     | 2000
|                                       |       |              |     |     
|Term bank loan                         |       | $            | 57  |      |  | $ | 336  |    
|Capital lease obligations (see Note 9) |       |              | 0   |      |  |   | 2    |    
|Other                                  |       |              | 0   |      |  |   | 1    |    
|                                       |       |              |     |      |  |   |      |    
|                                       | Total |              |     | 57   |  |   |      | 339 | 
|Current portion                        |       |              | (57 | )    |  |   | (244 | )  
|                                       |       |              |     |      |  |   |      |    
|Total long-term obligations            |       | $            | 0   |      |  | $ | 95   |    
|                                       |       |              |     |      |  |   |      |    

The Company received $3.9 million from the
issuance of a convertible note to Technologie
Beteiligungsgesellschaft (TBG) in January 1999 due on
December 31, 2003 with an interest rate of 6% per annum. The
holder had the right to convert the entire principal amount of
the note at approximately $19 per share, excluding accrued
interest, into Series A common stock. No interest accrued
until June 30, 2000. The imputed interest of $348,000 was
amortized to interest expense over the term of the note. In
connection with this loan, TBG agreed not to charge the Company
any discretionary prepayment penalties or contingent payments at
the end of the terms of the three notes. On September 13,
1999 the Company and TBG executed

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POET HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

an amendment to the TBG loan agreement whereby
the principal debt amount of $3.9 million was converted
into 275,106 shares of Series A common stock. The result of
this conversion was a reduction in debt of $3.7 million and
a non-recurring charge of $809,000 to operations in fiscal 1999.
The non-recurring charge represented the fair value of the
securities transferred in the conversion in excess of the fair
value of the securities issued pursuant to the original
conversion date.

In 1997, Poet Software GmbH entered into a
long-term loan agreement with IKB Deutsche Industriebank of
1,500,000 DM (approximately $684,000 at December 31, 2001). The
note bears interest at 7% per year on the amount outstanding.
Repayments are due quarterly at 125,000 DM starting on
June 15, 1999 and ending on March 15, 2002. The loan
is secured by a guarantee from the Company.

6.     Stockholders
Equity



| |                        
| | -----------------------
| | Initial Public Offering

In November 1999, the Company completed its
initial public offering of 3,000,000 shares of common stock. In
December 1999, the Company sold an additional 570,000 shares of
common stock upon exercise of the Green Shoe. In total, the
Company generated net proceeds from the sale of stock at the IPO
and Green Shoe of $41.5 million.



| |                  
| | -----------------
| | Authorized Shares

On September 10, 1999, the Board of
Directors approved an increase in the authorized shares of
common stock to 30,000,000 shares and creation of new
undesignated preferred stock totaling 3,000,000 shares. On
June 14, 2000, the Board of Directors approved, and on
July 17, 2000, the stockholders approved, an increase in
the authorized shares of common stock to 100,000,000 shares.



| |                                        
| | ---------------------------------------
| | Redeemable Convertible Preferred
	Stock

On November 4, 1999, holders of 100% of the
Series A, B, C and D redeemable convertible preferred stock
and Series B common stock consented to the conversion of
all outstanding shares of Series A, B, C, and D redeemable
convertible preferred stock and Series B common stock into
Series A common stock upon the completion of the initial
public offering regardless of the offering price per share. Upon
completion of the Companys initial public offering on
November 17, 1999, all shares of Series A, B, C and D
redeemable convertible preferred stock and 1,361,173 shares of
Series B common stock were converted to shares of
Series A common stock in accordance with their existing
terms. All shares of Series A common stock were then
redesignated as undesignated common stock upon the consummation
of the initial public offering. All shares were converted on a
one-to-one basis. The consolidated statements of
stockholders equity (deficiency) have been
retroactively restated to reflect the Series B common stock
conversion.



| |         
| | --------
| | Warrants

During 1999, warrants to purchase 35,000 and
8,523 shares, respectively, of Series A common stock at an
exercise price of $7.04 per share were issued to a strategic
partner and a service provider for services rendered,
respectively. The warrants had an expiration date of
April 30, 2004 and upon the closing of the Companys
initial public offering, respectively. The value of these
warrants was estimated using the Black-Scholes option pricing
model with the following assumptions: expected life, the term of
the option, risk-free interest rate of 4.7%, 80% volatility and
no dividends during the expected term. The fair value of such
warrants at the date of issuance was insignificant. The warrants
issued to the strategic partner were exercised in fiscal 2000.
The warrants issued to the service provider were exercised in
fiscal 1999.

During 1998, warrants to purchase 49,710 shares
of Series D redeemable convertible preferred stock at an
exercise price of $7.04 per share were issued to existing
investors in the Company in connection with the

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POET HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Companys bridge financing. The estimated
fair value of the warrants of $82,639 was recorded as interest
expense in 1998. The warrants expire September 2003. The value
of these warrants was estimated using the Black-Scholes option
pricing model with the following assumptions: expected life, the
term of the option, risk-free interest rate of 5.5%, 50%
volatility and no dividends during the expected term.

In connection with a capital lease agreement in
1995, the Company granted a warrant to purchase up to 7,291
shares of Series B redeemable convertible preferred stock
at $2.15 per share expiring in May 2002. Such warrant allowed
for a net exercise by the holder. The warrant was exercised in
fiscal 1999. In connection with a line of credit in 1996, the
Company granted warrants to purchase up to 6,555 shares of
Series C redeemable convertible preferred stock at $5.72
per share. The warrants expire on July 25, 2003 and
September 13, 2003, respectively. The value of these
warrants was estimated using the Black-Scholes option pricing
model with the following assumptions: expected life, the term of
the option, risk-free interest rate of 6.8% in 1995, and 6.5%
and 6.6% in 1996, 50% volatility and no dividends during the
expected term. The fair value of such warrants at the date of
issuance was insignificant.



| |                   
| | ------------------
| | Stock Option Plans

The Companys 1995 Stock Option Plan
(1995 Plan) authorizes the grant of options to
purchase up to 1,927,319 shares of common stock. The number of
shares reserved under the plan will automatically be increased
on January 1st of each year, in an amount equal to two percent
of the shares outstanding on that date. Incentive stock options
may be granted to employees and nonstatutory stock options to
employees, consultants and directors. Stock options are granted
with an exercise price at fair market value at the date of
grant. Options generally vest over a three or four year period
and expire ten years from the date of the grant.

The Companys 1999 Directors Stock
Option Plan (Directors Plan) became effective
upon the closing of the companys initial public offering
with 150,000 shares of common stock initially reserved. The
stockholders approved an increase in the shares of common stock
reserved for issuance under the Directors Plan to 250,000
shares of common stock on July 10, 2001. The option grants
under the Directors Plan are automatic and
non-discretionary. The Directors Plan provides for an
initial grant of options to each outside director of 40,000
shares of common stock on the later of the effective date of the
Directors Plan or the date on which an individual first
becomes an outside director. The initial grant vests 25% one
year after the date of the grant and an additional 25% each
anniversary of the date of grant thereafter, provided that the
optionee continues to serve as an outside director.
Additionally, each outside director will automatically be
granted 10,000 shares of common stock on each date the outside
director is re-elected by the Companys stockholders,
provided that the outside director has served on the board of
the directors for at least six months. Each subsequent option
grant shall vest 100% four years after the date of grant.

The Companys 2001 Nonstatutory Stock Option
Plan authorizes the grant of options to purchase up to 250,000
shares of common stock. Nonstatutory stock options may be
granted to employees, consultants and

44



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POET HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

directors. Stock options are granted with an
exercise price at fair market value at the date of grant.
Options generally vest over a three or four year period and
expire ten years from the date of the grant.

|                                                |  |             |           |                |  |   |       | 
|----------------------------------------------- |  | ----------- | --------- | -------------- |  | - | ----- | 
|                                                |  |             |           | Weighted      
|                                                |  | Options     |           | Average       
|                                                |  | Outstanding |           | Exercise Price
|                                                |  |             |           |               
|Activity under the Plans are as
	follows:       |  |             |           |                |  |   |       | 
|Balances, January 1, 1999                       |  |             | 571,338   |                |  | $ | 0.51  | 
|Granted (Weighted average fair value of $7.28)  |  |             | 602,000   |                |  | $ | 8.99  | 
|Exercised                                       |  |             | (135,565  | )              |  | $ | 0.47  | 
|Cancelled                                       |  |             | (263,294  | )              |  | $ | 1.68  | 
|                                                |  |             |           |                |  |   |       | 
|Balances, December 31, 1999                     |  |             | 774,479   |                |  | $ | 6.71  | 
|Granted (Weighted average fair value of $37.36) |  |             | 635,420   |                |  | $ | 36.60 | 
|Exercised                                       |  |             | (203,957  | )              |  | $ | 1.69  | 
|Cancelled                                       |  |             | (156,463  | )              |  | $ | 17.23 | 
|                                                |  |             |           |                |  |   |       | 
|Balances, December 31, 2000                     |  |             | 1,049,479 |                |  | $ | 24.21 | 
|Granted (Weighted average fair value of $3.08)  |  |             | 625,252   |                |  | $ | 2.43  | 
|Exercised                                       |  |             | (7,593    | )              |  | $ | 1.24  | 
|Cancelled                                       |  |             | (398,394  | )              |  | $ | 22.80 | 
|                                                |  |             |           |                |  |   |       | 
|Balances, December 31, 2001                     |  |             | 1,268,744 |                |  | $ | 14.06 | 
|                                                |  |             |           |                |  |   |       | 

Additional information regarding options
outstanding as of December 31, 2001 is as follows:

|                         |  |                     |           |                  |  |                  |      |        |  |                |        |  |  |  |         |  |  |   |        | 
|------------------------ |  | ------------------- | --------- | ---------------- |  | ---------------- | ---- | ------ |  | -------------- | ------ |  |  |  | ------- |  |  | - | ------ | 
|                         |  |                     |           |                  |  |                 
|                         |  | Options Outstanding |           |                 
|                         |  |                     |           | Options Vested  
|                         |  |                     |           | Weighted         |  |                  |      |       
|                         |  |                     |           | Average          |  |                  |      |        |  | Weighted      
|                         |  | Number              |           | Remaining        |  | Weighted Average |      | Number |  | Average       
|Range of Exercise Prices |  | Outstanding         |           | Contractual Life |  | Exercise Price   |      | Vested |  | Exercise Price
|                         |  |                     |           |                  |  |                  |      |        |  |               
|$  0.55 -  1.14          |  |                     | 176,513   |                  |  |                  | 8.03 |        |  | $              | 0.87   |  |  |  | 70,296  |  |  | $ | 0.62   | 
|1.19 -  1.46             |  |                     | 262,877   |                  |  |                  | 9.57 |        |  |                | 1.21   |  |  |  |        |  |  |   |       | 
|3.07 -  7.36             |  |                     | 268,500   |                  |  |                  | 8.86 |        |  |                | 4.54   |  |  |  | 68,889  |  |  |   | 4.80   | 
|11.12 - 18.72            |  |                     | 463,835   |                  |  |                  | 8.33 |        |  |                | 13.39  |  |  |  | 217,611 |  |  |   | 13.24  | 
|65.17                    |  |                     | 65,572    |                  |  |                  | 8.10 |        |  |                | 65.17  |  |  |  | 49,332  |  |  |   | 65.17  | 
|180.19                   |  |                     | 31,447    |                  |  |                  | 8.18 |        |  |                | 180.19 |  |  |  | 17,482  |  |  |   | 180.19 | 
|                         |  |                     |           |                  |  |                  |      |        |  |                |        |  |  |  |         |  |  |   |        | 
|Total                    |  |                     | 1,268,744 |                  |  |                  | 8.64 |        |  | $              | 14.06  |  |  |  | 423,610 |  |  | $ | 22.71  | 

In 2001 and 2000, no stock options were issued at
less than the estimated fair value at grant date. In 1999,
211,000 stock options with a weighted average exercise price of
$2.91 and a weighted average fair value of $8.81 were issued at
less than the estimated fair value at grant date. See deferred
stock compensation footnote for additional details.

At December 31, 2000 and 1999, options to
purchase 217,642 and 170,848 shares were vested and
exercisable with weighted average exercise prices of $24.76 and
$0.53, respectively. At December 31, 2001, 609,653 shares
were available for future grant under the Plans. Unvested common
shares issued under the Plans of 4,940 and 27,200 are subject to
repurchase at the original issuance price by the Company at
December 31, 2001 and 2000, respectively.

45



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POET HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                            
| | ---------------------------
| | Deferred Stock Compensation

In connection with grants of certain stock
options, the Company recorded deferred stock compensation of $0,
$0 and $316,000 in 2001, 2000 and 1999 for the difference
between the estimated fair value for accounting purposes and the
stock price as determined by the Board of Directors on the date
of grant. Deferred compensation is being amortized to expense
using an accelerated recognition approach over the vesting
period of the related stock options, generally four years.
Amortization of deferred stock compensation for the years ended
December 31, 2001, 2000 and 1999 was $227,000, $444,000 and
$626,000, respectively.



| |                             
| | ----------------------------
| | Employee Stock Purchase Plan

The Companys 1999 Employee Stock Purchase
Plan (the ESPP) became effective upon the closing of
the Companys initial public offering with 100,000 shares
initially reserved. Under the ESPP, eligible employees may
purchase common stock through payroll deductions not exceeding
15% of any employees compensation and limited to a total
of 1,000 shares in any offering period, and in no event may an
employee purchase more than $25,000 worth of stock, determined
at the fair market value of the shares at the time such option
is granted, in one year. The number of shares reserved for
issuance under the ESPP will automatically be increased on
January 1st of each year, in an amount equal to one percent of
the shares outstanding on that date. The price at which common
stock may be purchased is equal to 85% of the fair market value
of the common stock on the first day or the last day of the
applicable offering period, whichever is lower.



| |                                       
| | --------------------------------------
| | Additional Stock Purchase
	Information

Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation,
(SFAS 123) requires the disclosure of pro forma net loss.
Under SFAS 123, the fair value of stock-based awards by
companies to employees is calculated using the minimum value
method. This method requires subjective assumptions, including
expected time to exercise, which greatly affect the calculated
values. The Companys calculations were made using the
Black-Scholes option pricing model with the following weighted
average assumptions:

|                        |  |                    |     |                |  |      |     |      |  |      |     |      |  |  |     |   |  |  |     |   |  |  |     | 
|----------------------- |  | ------------------ | --- | -------------- |  | ---- | --- | ---- |  | ---- | --- | ---- |  |  | --- | - |  |  | --- | - |  |  | --- | 
|                        |  |                    |     |                |  |      |     |     
|                        |  |                    |     | Employee Stock
|                        |  | Stock Option Plans |     | Purchase Plan 
|                        |  |                    |     |               
|                        |  | 2001               |     | 2000           |  | 1999 |     | 2001 |  | 2000 |     | 1999
|                        |  |                    |     |                |  |      |     |      |  |      |     |     
|Risk-free interest rate |  |                    | 4.2 | %              |  |      | 5.9 | %    |  |      | 5.4 | %    |  |  | 3.3 | % |  |  | 6.0 | % |  |  | n/a | 
|Volatility              |  |                    | 138 | %              |  |      | 146 | %    |  |      | 156 | %    |  |  | 138 | % |  |  | 146 | % |  |  | n/a | 
|Dividend yield          |  |                    | 0.0 | %              |  |      | 0.0 | %    |  |      | 0.0 | %    |  |  | 0.0 | % |  |  | 0.0 | % |  |  | n/a | 

The expected life of options under the
Companys Stock Option Plans and the Companys ESPP
plan were estimated at 12 months following the vesting and
at 6 months, respectively. The Companys first ESPP
purchase was in 2000. The Companys calculations are based
on a single option valuation approach and forfeitures are
recognized as they occur. If the computed fair value of the
2001, 2000 and 1999 awards through the Companys option
plans and ESPP plan had been amortized to expense over the
vesting period of the awards, pro forma net loss would have been
$17,161,000 in 2001, $14,487,000 in 2000 and $5,837,000 in 1999.

46



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POET HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

7.     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):

|                                                                  |  |                          |         |      |  |      |        |   |  |   |        |  
|----------------------------------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                                  |  |                         
|                                                                  |  | Years Ended December 31,
|                                                                  |  |                         
|                                                                  |  | 2001                     |         | 2000 |  | 1999
|                                                                  |  |                          |         |      |  |     
|Net loss (numerator), basic and diluted                           |  | $                        | (12,061 | )    |  | $    | (9,835 | ) |  | $ | (5,564 | )
|                                                                  |  |                          |         |      |  |      |        |   |  |   |        |  
|Shares (denominator):                                             |  |                          |         |      |  |      |        |   |  |   |        |  
|Weighted average common shares outstanding                        |  |                          | 10,844  |      |  |      | 10,702 |   |  |   | 2,138  |  
|Weighted average common shares outstanding
	subject to repurchase |  |                          | (15     | )    |  |      | (49    | ) |  |   | (29    | )
|                                                                  |  |                          |         |      |  |      |        |   |  |   |        |  
|Shares used in computing basic and diluted net
	loss per share    |  |                          | 10,829  |      |  |      | 10,653 |   |  |   | 2,109  |  
|                                                                  |  |                          |         |      |  |      |        |   |  |   |        |  
|Net loss per share basic and diluted                              |  | $                        | (1.11   | )    |  | $    | (0.92  | ) |  | $ | (2.64  | )
|                                                                  |  |                          |         |      |  |      |        |   |  |   |        |  

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:

|                                             |  |                         |           |      |  |      |           |  |  |   |         | 
|-------------------------------------------- |  | ----------------------- | --------- | ---- |  | ---- | --------- |  |  | - | ------- | 
|                                             |  |                        
|                                             |  | Year Ended December 31,
|                                             |  |                        
|                                             |  | 2001                    |           | 2000 |  | 1999
|                                             |  |                         |           |      |  |     
|Shares of common stock subject to repurchase |  |                         | 4,940     |      |  |      | 27,200    |  |  |   | 36,273  | 
|Outstanding options                          |  |                         | 1,268,744 |      |  |      | 1,049,479 |  |  |   | 774,479 | 
|Warrants                                     |  |                         | 55,739    |      |  |      | 55,739    |  |  |   | 86,406  | 
|                                             |  |                         |           |      |  |      |           |  |  |   |         | 
|Total                                        |  |                         | 1,329,423 |      |  |      | 1,132,418 |  |  |   | 897,158 | 
|                                             |  |                         |           |      |  |      |           |  |  |   |         | 
|Weighted average exercise price of options   |  | $                       | 14.06     |      |  | $    | 24.21     |  |  | $ | 6.71    | 
|                                             |  |                         |           |      |  |      |           |  |  |   |         | 
|Weighted average exercise price of warrants  |  | $                       | 6.88      |      |  | $    | 6.88      |  |  | $ | 6.96    | 
|                                             |  |                         |           |      |  |      |           |  |  |   |         | 

8.     Income
Taxes

The Companys net deferred tax assets are
comprised of the following (in thousands):

|                                         |  |                         |         |      |  |      |         |   |  |   |        |  
|---------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                         |  |                        
|                                         |  | Year Ended December 31,
|                                         |  |                        
|                                         |  | 2001                    |         | 2000 |  | 1999
|                                         |  |                         |         |      |  |     
|Net deferred tax assets and liabilities: |  |                         |         |      |  |      |         |   |  |   |        |  
|Net operating loss carryforwards         |  | $                       | 17,540  |      |  | $    | 12,526  |   |  | $ | 8,706  |  
|Other temporary timing differences       |  |                         | 968     |      |  |      | 818     |   |  |   | 308    |  
|                                         |  |                         |         |      |  |      |         |   |  |   |        |  
|                                         |  |                         | 18,508  |      |  |      | 13,344  |   |  |   | 9,014  |  
|                                         |  |                         |         |      |  |      |         |   |  |   |        |  
|Valuation allowance                      |  |                         | (18,508 | )    |  |      | (13,344 | ) |  |   | (9,014 | )
|                                         |  |                         |         |      |  |      |         |   |  |   |        |  
|Net deferred tax assets                  |  | $                       |        |      |  | $    |        |   |  | $ |       |  
|                                         |  |                         |         |      |  |      |         |   |  |   |        |  

Deferred income taxes reflect the tax effects of
temporary differences between the carrying amount of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes, as well as net operating loss and
tax credit carryforwards. Due to an evaluation of the likelihood
of the realization of its

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POET HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

deferred tax assets, as of December 31,
2001, 2000 and 1999, the Company has fully reserved its net
deferred tax assets of $18,508,000, $13,344,000 and $9,014,000,
respectively.

The Companys income taxes
(benefit) consisted of the following current tax amounts
(in thousands):

|        |  |              |    |      |  |      |    |  |  |   |    |  
|------- |  | ------------ | -- | ---- |  | ---- | -- |  |  | - | -- | -
|        |  |             
|        |  | Year Ended  
|        |  | December 31,
|        |  |             
|        |  | 2001         |    | 2000 |  | 1999
|        |  |              |    |      |  |     
|State   |  | $            | 71 |      |  | $    | 47 |  |  | $ | 1  |  
|Foreign |  |              | 25 |      |  |      |   |  |  |   | (9 | )
|        |  |              |    |      |  |      |    |  |  |   |    |  
|Total   |  | $            | 96 |      |  | $    | 47 |  |  | $ | (8 | )
|        |  |              |    |      |  |      |    |  |  |   |    |  

The Companys effective tax rate differs
from the expected benefit at the federal statutory tax rate as
follows:

|                                    |  |                         |       |      |  |      |       |    |  |  |       |   
|----------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- | -- |  |  | ----- | --
|                                    |  |                        
|                                    |  | Year Ended December 31,
|                                    |  |                        
|                                    |  | 2001                    |       | 2000 |  | 1999
|                                    |  |                         |       |      |  |     
|Federal statutory tax rate          |  |                         | (35.0 | )%   |  |      | (35.0 | )% |  |  | (35.0 | )%
|State taxes, net of federal benefit |  |                         | (6.0  | )    |  |      | (6.0  | )  |  |  | (6.0  | ) 
|Other                               |  |                         | 1.0   |      |  |      | 1.2   |    |  |  | 0.8   |   
|                                    |  |                         |       |      |  |      |       |    |  |  |       |   
|Change in valuation allowance       |  |                         | 40.0  |      |  |      | 39.8  |    |  |  | 40.2  |   
|                                    |  |                         |       |      |  |      |       |    |  |  |       |   
|Effective tax rate                  |  |                         | 0     | %    |  |      | 0     | %  |  |  | 0     | % 
|                                    |  |                         |       |      |  |      |       |    |  |  |       |   

At December 31, 2001, the Company has net
operating loss carryforwards of approximately $24,262,000,
$9,861,000 and $16,962,000 available to offset future federal,
California and foreign taxable income, respectively. Federal
carryforwards expire beginning in 2009 through 2021 and the
California carryforwards expire beginning 2002 through 2011.

Due to an ownership change that occurred in 1996,
approximately $3,321,000 and $1,331,000 of federal and
California loss carryforwards, respectively, that can be used to
offset future taxable income are subject to an annual limitation
of approximately $983,000 for both federal and California
purposes. Additionally, due to an ownership change that occurred
in 1999, approximately $11,816,000 and $5,191,000 of federal and
California loss carryforwards, respectively, that can be used to
offset future taxable income are subject to a subsequent annual
limitation of approximately $4,666,000 for both federal and
California purposes. However, the utilization of net operating
loss carryforwards generated in or before 1999 cannot exceed
$4,666,666 annually. The extent to which the loss carryforwards
incurred since 1999 can be used to offset future taxable income
and tax liabilities may be limited depending on any future
ownership changes within any subsequent three year period. The
Companys foreign tax losses may be carried forward
indefinitely.

Foreign losses before income taxes for the years
ended December 31, 2001, 2000 and 1999 were $6,185,000,
$5,104,000 and $1,338,000, respectively.

9.     Commitments
and Contingencies



| |       
| | ------
| | Leases

The Company leases certain equipment under
capital leases and its facilities under non-cancelable operating
lease agreements. Equipment under capital leases had a net book
value of $0 at December 31, 2001 and 2000 (net of
accumulated amortization of $195,000 in 2001 and $268,000 in
2000). At December 31, 2001, the Company had no capital
lease obligations. Operating leases expire at various dates from
May 2001 through December 2005.

48



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##### Table of Contents



POET HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Future minimum rental commitments under
non-cancelable operating leases for office space, and to a
lesser extent equipment and automobiles, as of December 31,
2001 are as follows (in thousands):

|                             |  |           |       | 
|---------------------------- |  | --------- | ----- | 
|                             |  | Operating
|Year Ending December 31,     |  | Leases   
|                             |  |          
|2002                         |  |           | 1,533 | 
|2003                         |  |           | 985   | 
|2004                         |  |           | 450   | 
|2005                         |  |           | 113   | 
|                             |  |           |       | 
|Total minimum lease payments |  | $         | 3,081 | 
|                             |  |           |       | 

Rent expense was $1,385,000, $1,150,000 and
$1,025,000 for the fiscal years ended December 31, 2001,
2000 and 1999, respectively.

10.     Disposition
of Product Line

In September 2000, the Company sold the Content
Management Suite (CMS) product line to Sörman Information
AB, Växjö, a Swedish company in exchange for future
royalties through September 2003. The agreement provides that
Sörman 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. Sörman had a six month exclusive option to assume the
intellectual property rights for the United States and Canada.
The option was exercised in March 2001. The agreement includes a
license fee arrangement which provides license revenues to the
Company based upon CMS sales by Sörman within three years
of the execution of the agreement. As of December 31, 2001
CMS revenue generated as a result of this transaction has been
immaterial.

In a separate transaction in September 2000,
Sörman entered into a runtime license agreement with the
Company to purchase Object Server Suite (OSS) software.



|    |                                                                              
|--- | -----------------------------------------------------------------------------
|11. | 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):

|              |  |                         |       |      |  |      |        |  |  |   |        | 
|------------- |  | ----------------------- | ----- | ---- |  | ---- | ------ |  |  | - | ------ | 
|              |  |                        
|              |  | Year Ended December 31,
|              |  |                        
|              |  | 2001                    |       | 2000 |  | 1999
|              |  |                         |       |      |  |     
|Revenues(1):  |  |                         |       |      |  |      |        |  |  |   |        | 
|United States |  | $                       | 4,658 |      |  | $    | 6,136  |  |  | $ | 6,006  | 
|Germany       |  |                         | 5,153 |      |  |      | 6,091  |  |  |   | 4,608  | 
|              |  |                         |       |      |  |      |        |  |  |   |        | 
|              |  | $                       | 9,811 |      |  | $    | 12,227 |  |  | $ | 10,614 | 
|              |  |                         |       |      |  |      |        |  |  |   |        | 



---



|    |                                                                                
|--- | -------------------------------------------------------------------------------
|(1) | Revenues are broken out geographically by the
	ship-to location of the customer

49



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##### Table of Contents



POET HOLDINGS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                   |  |                         |       |      |  |      |       |  |  |   |     | 
|------------------ |  | ----------------------- | ----- | ---- |  | ---- | ----- |  |  | - | --- | 
|                   |  |                        
|                   |  | Year Ended December 31,
|                   |  |                        
|                   |  | 2001                    |       | 2000 |  | 1999
|                   |  |                         |       |      |  |     
|Long-lived assets: |  |                         |       |      |  |      |       |  |  |   |     | 
|United States      |  | $                       | 356   |      |  | $    | 496   |  |  | $ | 221 | 
|Germany            |  |                         | 718   |      |  |      | 812   |  |  |   | 360 | 
|                   |  |                         |       |      |  |      |       |  |  |   |     | 
|Total              |  | $                       | 1,074 |      |  | $    | 1,308 |  |  | $ | 581 | 
|                   |  |                         |       |      |  |      |       |  |  |   |     | 

During 1996 the Company entered into product
licensing and service agreements with Novell, Inc.
(Novell), a stockholder. Revenues from the
stockholder are detailed on the consolidated statements of
operations and comprehensive loss. 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 Novell are similar to
costs and gross margin to unaffiliated customers.

On September 30, 1999, the Company and
Novell amended their licensing agreement whereby the Company has
no further obligations to Novell to deliver any additional
products or services or refund monies previously paid, and
Novell has no obligations to make any further payments to the
Company. As a result of this amendment, previously deferred
revenues of $309,000 were recognized as revenue in September
1999.

12.     Quarterly
Results  Unaudited

|                                            |                   |                                          |        |          |   |           |        |          |   |   |        |        |   |   |        |        |  
|------------------------------------------- | ----------------- | ---------------------------------------- | ------ | -------- | - | --------- | ------ | -------- | - | - | ------ | ------ | - | - | ------ | ------ | -
|                                            |                   |                                         
|                                            |                   | Three Months Ended                      
|                                            |                   |                                         
|                                            |                   | March 31,                                |        | June 30, |   | Sept. 30, |        | Dec. 31,
|                                            |                   | 2001                                     |        | 2001     |   | 2001      |        | 2001    
|                                            |                   |                                          |        |          |   |           |        |         
|                                            |                   |                                         
|                                            |                   | (In thousands, except per share amounts)
|Net revenues                                |                   | $                                        | 2,749  |          |   | $         | 2,805  |          |   | $ | 1,845  |        |   | $ | 2,412  |       
|Gross profit                                |                   | $                                        | 2,104  |          |   | $         | 2,126  |          |   | $ | 1,171  |        |   | $ | 1,655  |       
|Net loss                                    |                   | $                                        | (3,616 | )        |   | $         | (2,854 | )        |   | $ | (3,281 | )      |   | $ | (2,310 | )     
|Net loss per share:                         |                   |                                          |        |          |   |           |        |          |   |   |        |        |   |   |        |       
|                                            | Basic and Diluted |                                          | $      | (0.34    | ) |           | $      | (0.26    | ) |   | $      | (0.30  | ) |   | $      | (0.21  | )
|Shares used in computing per share amounts: |                   |                                          |        |          |   |           |        |          |   |   |        |        |   |   |        |       
|                                            | Basic and Diluted |                                          |        | 10,784   |   |           |        | 10,818   |   |   |        | 10,848 |   |   |        | 10,858 |  

|                                            |                   |                                          |        |          |   |           |        |          |   |   |        |        |   |   |        |        |  
|------------------------------------------- | ----------------- | ---------------------------------------- | ------ | -------- | - | --------- | ------ | -------- | - | - | ------ | ------ | - | - | ------ | ------ | -
|                                            |                   |                                         
|                                            |                   | Three Months Ended                      
|                                            |                   |                                         
|                                            |                   | March 31,                                |        | June 30, |   | Sept. 30, |        | Dec. 31,
|                                            |                   | 2000                                     |        | 2000     |   | 2000      |        | 2000    
|                                            |                   |                                          |        |          |   |           |        |         
|                                            |                   |                                         
|                                            |                   | (In thousands, except per share amounts)
|Net revenues                                |                   | $                                        | 2,771  |          |   | $         | 2,662  |          |   | $ | 3,293  |        |   | $ | 3,501  |       
|Gross profit                                |                   | $                                        | 2,189  |          |   | $         | 1,959  |          |   | $ | 2,622  |        |   | $ | 2,634  |       
|Net loss                                    |                   | $                                        | (1,748 | )        |   | $         | (2,787 | )        |   | $ | (2,548 | )      |   | $ | (2,752 | )     
|Net loss per share:                         |                   |                                          |        |          |   |           |        |          |   |   |        |        |   |   |        |       
|                                            | Basic and Diluted |                                          | $      | (0.17    | ) |           | $      | (0.26    | ) |   | $      | (0.24  | ) |   | $      | (0.26  | )
|Shares used in computing per share amounts: |                   |                                          |        |          |   |           |        |          |   |   |        |        |   |   |        |       
|                                            | Basic and Diluted |                                          |        | 10,574   |   |           |        | 10,618   |   |   |        | 10,691 |   |   |        | 10,746 |  

13.     Legal
Matters

None.

50



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##### Table of Contents






Item 9.     Disagreements
on Accounting and Financial Disclosure

Not Applicable.




PART III

Certain information required by Part III is
incorporated by reference from our definitive Proxy Statement to
be filed with the Securities and Exchange Commission in
connection with the solicitation of proxies for our 2002 Annual
Meeting of Stockholders (the Proxy Statement).




Item 10.     Directors
and Executive Officers of the Registrant

The following table sets forth certain
information regarding our executive officers and directors as of
March 1, 2002:

|                      |  |     |    |          |  |                                                                                              
|--------------------- |  | --- | -- | -------- |  | ---------------------------------------------------------------------------------------------
|Name                  |  | Age |    | Position
|                      |  |     |    |         
|Dirk Bartels          |  |     | 42 |          |  | President, Chief Executive Officer and Director                                              
|Gert Koehler(1)(2)    |  |     | 52 |          |  | Director                                                                                     
|Gerhard Schulmeyer(1) |  |     | 62 |          |  | Director                                                                                     
|Herbert May(1)(2)     |  |     | 52 |          |  | Director                                                                                     
|Robert Helgerth       |  |     | 44 |          |  | Vice President of Field Operations-eSupplier
	Solutions for Europe                           
|David Guinther        |  |     | 43 |          |  | Vice President of North American Field
	Operations- FastObjects                              
|Michael Hogan         |  |     | 38 |          |  | Vice President of Field Operations-eSupplier
	Solutions for North America and Asia-Pacific   
|Joerg Tewes           |  |     | 37 |          |  | Vice President of Engineering                                                                
|Jochen Witte          |  |     | 41 |          |  | Chief Financial Officer, Executive Vice President
	of European Operations and General Manager
|Jerry Wong            |  |     | 50 |          |  | Executive Vice President of U.S. Operations and
	Vice President of Finance                   



---



|    |                                  
|--- | ---------------------------------
|(1) | Member of audit committee.       
|   
|(2) | Member of compensation committee.

Dirk Bartelsis a
co-founder of Poet Holdings, Inc. and has served as President
and Chief Executive Officer since we commenced our operations in
March 1995. Prior to that time, Mr. Bartels served as a
General Manager of our subsidiary Poet Software GmbH.
Mr. Bartels has served as a director of our company since
March 1995 and has acted as our Chairman of the Board since
December 1996. Mr. Bartels received a Masters of Science in
Computer Science from the Technical University in Berlin,
Germany.

Dr. Gert Koehlerhas served as a director of Poet
Holdings, Inc. since March 1995 and has served as a member of
the compensation committee since January 1999 and as a member of
the audit committee since September 1999. From February 2000
through June 2001, Dr. Koehler was a Managing Director of
3i Europe PLC, a venture capital and private equity
company. Prior to this, Dr. Koehler was a Managing Director
with Technologieholding, a venture capital company, from October
1977 to February 2000. Dr. Koehler holds Masters degrees in
Solid State Physics and in Mathematics from the University of
Stuttgart, a Masters degree in Operational Research from the
University of Grenoble, and a Ph.D. in Mathematics from
Institute de Recherche Mathematique Applique in France and a
Masters of Science in Business Administration from Institute
dAdministration Enterprise in France.

Mr. Gerhard Schulmeyerhas served as a director of Poet
Holdings, Inc. since May 2001. Mr. Schulmeyer was President
and CEO of Siemens Corporation and was responsible for
Siemens U.S. operations until December 2001. From 1994 to
1999, he was President and CEO of Siemens Nixdorf. He headed
ABBs

51



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##### Table of Contents



American business from 1990 to 1994. He has also
held additional executive positions at Motorola, Sony-Wega and
Braun Electric. Mr. Schulmeyer serves on a number of
corporate boards, including Korn/ Ferry, Alcan, Ingram Micro,
Zurich Financial Services, FirePond, Inc. and PartMiner. He was
appointed non-executive chairman of the board of Arthur D.
Little in 1999. Mr. Schulmeyer is a Professor of Practice
at MITs Sloan School and holds degrees in Engineering and
Management from TU Frankfurt and MIT. He is a member of several
international organizations, including the US Chamber of
Commerce and the German American Chamber of Commerce.


Dr. Herbert Mayhas served as a director of Poet
Holdings, Inc. since November 2000. Dr. May has held
several leading positions at Alcatel in both Stuttgart and
Paris. His last position at Alcatel was Head of the Business
Systems division. In 1994, Dr. May acting in the position
of CEO took a leading role in establishing DeTeSystems in
Frankfurt. In 1995, he was appointed to the Board of Deutsche
Telekom AG, where he was responsible for large business
customers, multimedia and systems solutions. Today, Dr. May
manages his own consulting and investment company and is a
member of the Advisory Board of several IT and Multimedia
companies.

Robert Helgerthhas
served as Vice President of Field Operations 
eSupplier Solutions for Europe at our subsidiary Poet Software
GmbH since November 1999. From November 1994 to October 1999,
Mr. Helgerth served as Director of the Commercial PC group
for Compaq Computer GmbH. Prior to that, Mr. Helgerth was
Sales Director for Sequent Germany GmbH, a member of the
executive team at Dataplan and Field Office Manager and Sales
Representative at Nixdorf Computer.

David Guintherhas
served as Vice President of North American Field
Operations  FastObjects at our subsidiary Poet
Software Corporation since July 1999. He served as our District
Manager of Northern California from March 1997 to December 1998
and as our Director of Sales from January 1999 to June 1999.
Prior to joining our company, Mr. Guinther served as
Regional Sales Manager at ONTOS Inc., a component-based
technology solutions provider, from August 1996 to February 1997
and as Manager of Strategic Initiatives at Sybase, Inc., a
software company, from February 1993 to July 1996.
Mr. Guinther received a Bachelor of Business Administration
and a Master of Science in Business from the University of
Wisconsin in Madison.

Michael Hoganhas
served as Vice President of Field Operations 
eSupplier Solutions for North America and Asia-Pacific at our
subsidiary Poet Software Corporation since April 1997. From
March 1994 to April 1997, Mr. Hogan served as director of
Business Development at Novell, Inc., a directory-enabled
networking software provider. Mr. Hogan received a Bachelor
of Science from the College of Holy Cross.

Joerg Teweshas
served as Vice President of Engineering at our subsidiary Poet
Software GmbH since January 1995 and as our Vice President of
Development and General Manager since September 1997.
Mr. Tewes received a Masters degree in Computer Science
from the Technical University in Berlin, Germany.

Jochen Witteis a
co-founder of Poet Holdings and has served as our Chief
Financial Officer since we commenced operations in 1995.
Mr. Witte has also served as our Executive Vice President
of European Operations since July 1999. From March 1995 to July
1999, Mr. Witte served as one of our directors.
Mr. Witte holds a Master of Science in Business
Administration from the Technical University in Berlin, Germany.

Jerry Wonghas
served as our Vice President of Finance since March 1997 and has
served as our Executive Vice President of U.S. Operations
since July 1999. Mr. Wong also served at our subsidiary
Poet Software Corporation as Controller from July 1995 to
January 1996 and as Vice President of Finance from February 1996
to March 1997. From January 1993 to July 1995, Mr. Wong
served as the Controller at Blyth Software Inc., a software and
service provider. Mr. Wong received a Bachelor of Science
in Business Administration from the University of San Francisco.

Item 405 of Regulation S-K calls for
disclosure of any known late filing or failure by an insider to
file a report required by Section 16 of the Exchange Act.
This disclosure is contained in the section entitled
Section 16(a) Beneficial Ownership Reporting
Compliance in the Proxy Statement and is incorporated by
reference.

52



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##### Table of Contents





| |                                                                        
| | -----------------------------------------------------------------------
| | Additional Information According to Rules
	and Regulations Neuer Markt:



| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | Ownership of Common Stock and Options By
	Officers and Directors of Poet Holdings, Inc.

The following table sets forth information with
respect to beneficial ownership of the Companys common
stock and options by each officer and director as of
December 31, 2001:

|                      |  |                   |         |                      |  |  |        |    
|--------------------- |  | ----------------- | ------- | -------------------- |  |  | ------ | ---
|                      |  | Shares of Common  |         | Shares of Stock     
|                      |  | Stock Owned at    |         | Options Outstanding 
|Name                  |  | December 31, 2001 |         | at December 31, 2001
|                      |  |                   |         |                     
|Dirk Bartels          |  |                   | 781,836 |                      |  |  | 30,000 |    
|Gert Koehler(1)       |  |                   | 555,436 |                      |  |  | 35,000 |    
|Herbert May(1)        |  |                   |        |                      |  |  | 30,000 |    
|Gerhard Schulmeyer(1) |  |                   |        |                      |  |  | 40,000 |    
|Jochen Witte          |  |                   | 405,717 |                      |  |  | 31,000 | (2)
|Jerry Wong            |  |                   | 29,323  |                      |  |  | 43,500 |    



---



|    |                                                         
|--- | --------------------------------------------------------
|(1) | Outside, non-executive directors                        
|   
|(2) | Includes an option to purchase 1,000 held by
	Mrs. Witte

At December 31, 2001, shares of stock
options outstanding to non-officer employees totaled 1,059,244
shares.

During 2001, the following director and executive
officer of the Company resigned from the Company:

Jerome Lecoeurserved as a director of Poet Holdings,
Inc. from April 1995 to May 2001.

Volker Smidserved
as vice president of marketing and sales at Poet Software
Corporation from March 2000 to November 2001.




Item 11.     Executive
Compensation

The information required by this section is
incorporated by reference from the information in the sections
entitled Election of Directors  Directors
Compensation, Executive Compensation and
Stock Price Performance Graph in the Proxy Statement.




Item 12.     Security
Ownership of Certain Beneficial Owners and
Management

The information required by this section is
incorporated by reference from the information in the section
entitled Election of Directors  Security
Ownership of Certain Beneficial Owners and Management in
the Proxy Statement.




Item 13.     Certain
Relationships and Related Transactions

The information required by this section is
incorporated by reference from the information in the section
entitled Certain Relationships and Related
Transactions in the Proxy Statement.

53



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##### Table of Contents






PART IV




Item 14.     Exhibits,
Financial Statement Schedules and Reports on
Form 8-K

(a) The following documents are filed as
part of this Form 10-K



| |     |                      
| | --- | ---------------------
| | (1) | Financial Statements:



| |                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------
| | Reference is made to the Index to Financial
	Statements of Poet Holdings, Inc. under Item 8 in Part II
	of this Form 10-K.



| |     |                               
| | --- | ------------------------------
| | (2) | Financial Statement Schedules:



| |                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The following financial statement schedule of
	Poet Holdings, Inc. for the years ended December 31, 1999,
	December 31, 2000 and December 31, 2001 is filed as
	part of this Annual Report and should be read in conjunction
	with the Financial Statements of Poet Holdings, Inc.

|                                                 |  |  |          | 
|------------------------------------------------ |  |  | -------- | 
|Schedule II  Valuation and
	Qualifying Accounts |  |  | Page  56 | 



| |     |          
| | --- | ---------
| | (3) | Exhibits:



| |                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The exhibits listed below are required by
	Item 601 of Regulation S-K. Each management contract
	or compensatory plan or arrangement required to be filed as an
	exhibit to this Form 10-K has been identified.

|               |          |                         |  |                                                                                                                                                      
|-------------- | -------- | ----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |          | Description of Document
|               |          |                        
|               | 3.1(1    | )                       |  | Amended and Restated Certificate of Incorporation
	of the Registrant.                                                                                
|               | 3.2      |                         |  | Certificate of Amendment to Amended and Restated
	Certificate of Incorporation of the Registrant                                                     
|               | 3.3      |                         |  | Amended and Restated Bylaws of the Registrant.                                                                                                       
|               | 4.1(2    | )                       |  | Form of Registrants common stock
	certificate.                                                                                                      
|               | 10.1(3   | )                       |  | Change of Control Severance Agreement by and
	between the Registrant and Jerry Wong, dated November 14,
	1995.                                       
|               | 10.2(4   | )                       |  | Change of Control Severance Agreement by and
	between the Registrant and Michael Hogan, dated April 2,
	1997.                                        
|               | 10.4.1(5 | )                       |  | Employment Contract between POET Software GmbH
	and Jörg Tewes, dated September 29, 1997.                                                            
|               | 10.4.2(6 | )                       |  | English Summary of Exhibit 10.4.1.                                                                                                                   
|               | 10.5.1(7 | )                       |  | Employment Contract between POET Software GmbH
	and Jochen Witte, dated May 19, 1993.                                                                
|               | 10.5.2(8 | )                       |  | English Summary of Exhibit 10.5.1.                                                                                                                   
|               | 10.6     |                         |  | 1995 Stock Plan.                                                                                                                                     
|               | 10.7(9   | )                       |  | 1999 Director Option Plan.                                                                                                                           
|               | 10.8     |                         |  | 1999 Employee Stock Purchase Plan.                                                                                                                   
|               | 10.9(10  | )                       |  | 2001 Nonstatutory Stock Option Plan                                                                                                                  
|               | 10.10(11 | )                       |  | Form of Indemnification Agreement between the
	Registrant and each of its directors and executive officers.                                          
|               | 10.11(12 | )                       |  | Second Amended and Restated Stockholder Rights
	Agreement, dated December 23, 1998.                                                                  
|               | 10.12(13 | )                       |  | Warrant to purchase shares of Series A common
	stock of the Registrant issued to Ariba, Inc., dated
	April 30, 1999.                                 
|               | 10.13(14 | )                       |  | Form of warrant to purchase shares of
	Series D preferred stock of the Registrant.                                                                   
|               | 10.14(15 | )                       |  | Lease Agreement, dated November 23, 1998,
	between Spieker Properties, L.P., and the Registrants
	wholly owned subsidiary POET Software Corporation.

54



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|               |            |                         |  |                                                                                                                                                                                                      
|-------------- | ---------- | ----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |            | Description of Document
|               |            |                        
|               | 10.15.1(16 | )                       |  | Office Lease Agreement between the
	Registrants wholly owned subsidiary POET Software GmbH and
	GBR Petersen/ Schroeder/ Schmiel-Vemieter for office space in
	Hamburg, Germany, dated May 29, 1997.
|               | 10.15.2(17 | )                       |  | English Summary of Exhibit 10.15.1.                                                                                                                                                                  
|               | 10.16(18   | )                       |  | Agreement between POET Software Corporation and
	Ariba, Inc., dated April 30, 1999.                                                                                                                  
|               | 22.1(19    | )                       |  | Subsidiaries of Registrant.                                                                                                                                                                          
|               | 24.1       |                         |  | Power of Attorney (see page 57).                                                                                                                                                                     




|    |                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference from Registrants
	Registration Statement on Form S-1 (Reg. No. 333-87267)                                     
|   
|(2) | Incorporated by reference from Registrants
	Registration Statement on Form S-1 (Reg. No. 333-87267).                                    
|   
|(3) | Incorporated by reference from Registrants
	Registration Statement on Form S-1 (Reg. No. 333-87267).                                    
|   
|(4) | Incorporated by reference from Registrants
	Registration Statement on Form S-1 (Reg. No. 333-87267).                                    
|   
|(5) | Incorporated by reference from Registrants
	Registration Statement on Form S-1 (Reg. No. 333-87267).                                    
|   
|(6) | Incorporated by reference from Registrants
	Registration Statement on Form S-1 (Reg. No. 333-87267).                                    
|   
|(7) | Incorporated by reference from Registrants
	Registration Statement on Form S-1 (Reg. No. 333-87267).                                    
|   
|(8) | Incorporated by reference from Registrants
	Registration Statement on Form S-1 (Reg. No. 333-87267).                                    
|   
|   
|(9) | Incorporated by reference from Registrants
	Quarterly Report on Form 10-Q for the quarter ended
	September 30, 2001 (Reg. No. 000-28017)



|     |                                                                                                                                          
|---- | -----------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference from Registrants
	Quarterly Report on Form 10-Q for the quarter ended
	September 30, 2001 (Reg. No. 000-28017)
|    
|(11) | Incorporated by reference from Registrants
	Registration Statement on Form S-1 (Reg. No. 333-87267).                                    
|    
|(12) | Incorporated by reference from Registrants
	Registration Statement on Form S-1 (Reg. No. 333-87267).                                    
|    
|(13) | Incorporated by reference from Registrants
	Registration Statement on Form S-1 (Reg. No. 333-87267).                                    
|    
|(14) | Incorporated by reference from Registrants
	Registration Statement on Form S-1 (Reg. No. 333-87267).                                    
|    
|(15) | Incorporated by reference from Registrants
	Registration Statement on Form S-1 (Reg. No. 333-87267).                                    
|    
|(16) | Incorporated by reference from Registrants
	Registration Statement on Form S-1 (Reg. No. 333-87267).                                    
|    
|(17) | Incorporated by reference from Registrants
	Registration Statement on Form S-1 (Reg. No. 333-87267).                                    
|    
|(18) | Incorporated by reference from Registrants
	Registration Statement on Form S-1 (Reg. No. 333-87267).                                    
|    
|(19) | Incorporated by reference from Registrants
	Registration Statement on Form S-1 (Reg.
	No. 333-87267).                                   

(b) Reports on Form 8-K

We filed a report on Form 8-K on
March 1, 2000, which contained (1) an ad hoc notice
filed with the Frankfurt Stock Exchange, (2) a copy of a
slide presentation at an analysts conference, and (3) a
press release announcing our fourth quarter revenues.

We filed a report on Form 8-K on
April 5, 2001, which contained a press release announcing
our preliminary financial results for the quarter ended
March 31, 2001.

We filed a report on Form 8-K on
April 25, 2001, which contained a press release announcing
our first quarter results of fiscal 2001.

We filed a report on Form 8-K on
October 19, 2001, which contained a press release
announcing our preliminary financial results for the quarter
ended September 30, 2001.

We filed a report on Form 8-K on
October 31, 2001, which contained a press release
announcing our third quarter results of fiscal 2001.

55



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##### Table of Contents



SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

|                                 |      |                                              |  |                  |  |              |  |              |  |                |  |   |  |  |  |      |   |  |  |     | 
|-------------------------------- | ---- | -------------------------------------------- |  | ---------------- |  | ------------ |  | ------------ |  | -------------- |  | - |  |  |  | ---- | - |  |  | --- | 
|                                 |      |                                             
|                                 |      | Years Ended December 31, 2001, 2000 and 1999
|                                 |      |                                             
|                                 |      | Balance at                                   |  |                  |  | Reversals to |  |             
|                                 |      | Beginning of                                 |  | Charged to Costs |  | Costs and    |  |              |  | Balance at End
|                                 |      | Period                                       |  | and Expenses     |  | Expenses     |  | (Deductions) |  | of Period     
|                                 |      |                                              |  |                  |  |              |  |              |  |               
|                                 |      |                                             
|                                 |      | (In thousands)                              
|Description                      |      |                                              |  |                  |  |              |  |              |  |                |  |   |  |  |  |      |   |  |  |    
|Allowance for doubtful accounts: |      |                                              |  |                  |  |              |  |              |  |                |  |   |  |  |  |      |   |  |  |    
|                                 | 2001 |                                              |  | 478              |  |              |  | 193          |  |                |  |  |  |  |  | (163 | ) |  |  | 508 | 
|                                 | 2000 |                                              |  | 134              |  |              |  | 391          |  |                |  |  |  |  |  | (47  | ) |  |  | 478 | 
|                                 | 1999 |                                              |  | 65               |  |              |  | 96           |  |                |  |  |  |  |  | (27  | ) |  |  | 134 | 

56



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##### Table of Contents






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
March 30, 2002.



| |                    
| | -------------------
| | POET HOLDINGS, INC.
| | (Registrant)       



| |     |                 
| | --- | ----------------
| | By: | /s/ DIRK BARTELS

| |                                       
| | --------------------------------------
| |                                       
| | Dirk Bartels                          
| | President and Chief Executive
	Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below constitutes and appoints
Dirk Bartels and Jerry Wong, and each of them, his true and
lawful attorneys-in-fact, each with full power of substitution,
for him in any and all capacities, to sign any amendments to
this report on Form 10-K and to file the same, with
exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying
and confirming all that each of said attorneys-in-fact or their
substitute or substitutes may do or cause to be done by virtue
hereof.

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the
capacities and on the date indicated:

|                       |  |                                                                                                          |  |               
|---------------------- |  | -------------------------------------------------------------------------------------------------------- |  | --------------
|Signature              |  | Title                                                                                                    |  | Date          
|                       |  |                                                                                                          |  |               
|/s/ DIRK BARTELS       |  | President and
	Chief Executive Officer                                                                   |  | March 30, 2002
|                      
|/s/ JOCHEN WITTE       |  | Chief Financial Officer and Executive Vice
	President of European Operations                             |  | March 30, 2002
|                      
|/s/ JERRY WONG         |  | Executive Vice President of U.S. Operations,
	Principal Accounting Officer and Vice President of Finance |  | March 30, 2002
|                      
|/s/ GERT KOEHLER       |  | Director                                                                                                 |  | March 30, 2002
|                      
|/s/ GERHARD SCHULMEYER |  | Director                                                                                                 |  | March 30, 2002
|                      
|/s/ DR. HERBERT MAY    |  | Director                                                                                                 |  | March 30, 2002

57