Coolearth Third Quarter 2002 Report

The following letter is from David Zimmerman, President and CEO of Coolearth Software.

“This quarterly report is intended for people who are interested in hearing more about Coolearth. This includes our customers, partners, analysts, investors, employees, and other friends who have a vested interest in us. It is part of our commitment to ensure that Coolearth is open about communicating who we are, what we’re doing, our recent accomplishments, and our future goals.”

Supply Chain Execution
“I’m very pleased to see that demand in the SCE space has blossomed. With over 17% annual growth, AMR ranks SCE as one of the few bright spots in the enterprise applications market. At Coolearth, we’re seeing this firsthand. Many companies who have spent years implementing ERP, CRM, planning, and e-commerce initiatives are now realizing that these solutions won’t work without a solid foundation of real-time inventory data. These same companies have fewer IT dollars to spend and are only approving projects with proven ROI. This has created a resurgence in SCE, particularly in warehouse management systems.

“While there are many SCE vendors to choose from, many continue to sell roughly the same legacy WMS applications that they sold 10-15 years ago. Constrained by functional limitations and attracted by large deal sizes, almost all SCE vendors continue to focus on large, high-volume distribution centers, and not manufacturers. Very few SCE vendors really understand process industry needs specific to foods, beverages, and chemicals – industries that continue to function despite the downturn in the economy. As pressures swell among process manufacturers to cut costs and improve customer service, demand for an off-the-shelf solution has increased.

“Coolearth is meeting this demand with Whistle. We built Whistle from the ground-up to handle both warehouse management and shop floor execution for manufacturers. We then pre-loaded it with advanced functionality for the food, beverage, and chemical industries, such as FIFO/FEFO picking and catch-weighting. We then made it easy to use, easy to run on either NT or UNIX, and easy to integrate with ERP. Whistle can actually be live in 45 days. I’m happy to say that our market positioning is more than hype – we’ve recently competed head-to-head against top SCE vendors, including Manhattan Associates (the market leader) and beat them hands-down.”

Year-To-Date Accomplishments
“One year ago, I laid out several strategic goals for Coolearth. First and foremost was to find more ways to benefit our customers. Second was to find new customers and exceed our sales from the previous year. Third was to raise awareness of our Whistle solution by making significant investments into sales and marketing. I am happy to report significant progress on all fronts.”

Benefiting our Customers
“Ultimately, everything we do is designed to benefit our customers. We are currently benefiting more customers than ever before. In the past year, Whistle has gone live at over 15 new facilities. We are saving our customers millions of dollars by cutting inventory carrying costs and increasing productivity throughout their plants. Our projects have a 100% success rate, and every customer has been a reference for us. Two customers in particular, National Frozen Foods and Ed Miniat, have agreed to do detailed case studies.

“We have also made a number of improvements to Whistle that benefit our customers. This year, we released Whistle SCE versions 3.1 and 3.2, which introduced dozens of new features. We also released the Whistle Dashboard, a web-based reporting and analytics tool, and Whistle Alerts, a rules-based event management tool. We are currently designing more advanced distribution functionality and testing Whistle’s graphical user interface on Intermec Windows CE-based wireless devices.

“We have also invested heavily in customer support. This year, we implemented a full issue-tracking system that support, development, and QA use to resolve issues quickly. We are now providing our customers with secure access over the web to their respective issue lists. In addition to standard business hours, we are also providing the option now of 7×24 pager support for severe errors with guaranteed 15 minute response times.”

New Customers and Annual Growth
“In our first three quarters of FY02, we signed six new license agreements (4 food and 2 chemical customers). As we close third quarter, we’ve already exceeded our total sales from last year, continuing our 5-year trend of strong annual growth. Our revenues this year come from software licensing (18%), annual support fees (7%), services (57%) and hardware (18%). The company continues to be profitable, with software-based revenues rising in proportion to services. The Puget Sound Business Journal just ranked Coolearth as one of Washington’s 100 fastest-growing companies for the second year in a row. With this kind of performance, I’ve been able to allocate an increasingly large budget to both R&D and marketing activities.”

Raising Awareness
“Beginning in May, we began thoroughly documenting our market positioning and go-to-market initiatives. We now understand better than ever before our key messages, differentiators, benefits, and capabilities. We laid out a comprehensive sales and marketing plan, developed new collaterals, and updated our corporate identity. You’ll notice our new name (Coolearth Software), new logo, and new website athttp://www.coolearth.com.

“Whereas our sales leads have traditionally been generated by word-of-mouth, we are now managing direct mail and email campaigns to thousands of potential customers. We are drawing food, beverage, and chemical manufacturers to our website, where they qualify themselves, download our ROI calculator, and register for free online demos. Our sales pipeline is very strong, and I recently hired an experienced director of sales to manage this department and coach our team on solution selling.

“We continue to raise awareness in other areas, as well. We are preparing for an extended PR campaign and analyst tour early next year. We are also working on alliances and partnerships with various ERP vendors, including a well-known local company in Redmond who wishes to bring its business solutions to the process industry. We were also the top pick of another ERP vendor who wanted to acquire us. We had to decline the offer, which was below market value and targeted at less fortunate companies that needed to sell.”

Tasks Planned
“Through the end of this year, we are going to continue executing on all fronts. From a sales perspective, I would like to sign up another 2-3 customers by December. I would also like to see significant progress made with our ERP partners to open indirect channels and focus on joint customers. From a development perspective, I would like to start work on Whistle SCE 4.0, and have our Windows CE client fully tested and operational. We need to recruit additional employees in the areas of development, sales, and executive management. We have also considered the possibility of raising a small amount of investment capital through a private round of financing.

“There’s a lot more that I’d like to share, but I wanted to keep this update as brief as possible. If you would like to know more, please feel free to contact me directly. Thank you for your time.”

David Zimmerman
President and CEO

About Coolearth Software
Coolearth is a leading provider of supply chain execution solutions to food & beverage, chemical, and other process manufacturers. Solutions from Coolearth are designed to fulfill the unique needs of hybrid production facilities requiring integrated warehouse management and shop floor execution solutions. Coolearth products go beyond traditional warehouse management systems built for distribution centers by cutting costs and improving efficiency throughout the entire production facility.

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