<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2000.
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition period from to .
Commission File No. 000-29741
________________________________________________________________________________
CE SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
Iowa 42-1298712
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
1801 Industrial Circle, P.O. Box 65580, West Des Moines, Iowa 50265
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (515) 221-1801
Former name, former address and former fiscal year, if changed since
last report: No changes.
________________________________________________________________________________
Indicate by mark (X) 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 NO X (Because of item 2)
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
May 31, 2000 Common Stock 1,131,124
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CE SOFTWARE, INC.
Table of Contents
Part I FINANCIAL INFORMATION
Item 1. Financial Statements: Page
Balance Sheets
March 31, 2000 and September 30, 1999 3
Statements of Operations and Comprehensive Loss
Three Months and Six Months Ended March 31, 2000 and 1999 4
Statements of Cash Flows
Six Months Ended March 31, 2000 and 1999 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CE SOFTWARE, INC.
BALANCE SHEETS
March 31, 2000 and September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
March 31 September 30
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 169,988 $ 227,071
Trade accounts receivable 400,764 500,185
Recoverable income taxes 176,121 176,121
Inventories 178,789 250,208
Other current assets 177,533 287,725
------------ ------------
Total current assets 1,103,195 1,441,310
------------ ------------
------------ ------------
Property, fixtures, and equipment:
Land 82,877 91,796
Building 1,312,016 1,312,016
Fixtures and equipment 2,720,316 2,716,807
------------ ------------
Total property, fixtures, and equipment 4,115,209 4,120,619
------------ ------------
Less accumulated depreciation 2,844,821 2,710,159
------------ ------------
Net property, fixtures, and equipment 1,270,388 1,410,460
------------ ------------
Other intangible assets, net of amortization 15,947 21,927
Other assets 28,485 19,285
------------ ------------
Total assets $ 2,418,015 $ 2,892,982
------------ ------------
------------ ------------
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 104,324 $ 100,237
Trade accounts payable 202,336 207,259
Accrued payroll and benefits 222,490 141,144
Other accrued payables 114,089 120,057
Due to affiliates 688,255 825,701
Deferred revenue 7,463 9,444
------------ ------------
Total current liabilities 1,338,957 1,403,842
Long-term debt, net of current portion 187,588 240,859
------------ ------------
Total liabilities 1,526,545 1,644,701
------------ ------------
Stockholders' equity:
Common stock 113,112 113,112
Additional paid in capital 35,910 35,910
Retained earnings 742,448 1,099,259
------------ ------------
Total stockholders' equity 891,470 1,248,281
------------ ------------
Total liabilities and stockholders' equity $ 2,418,015 $ 2,892,982
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
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CE SOFTWARE INC.
Statements of Operations and Comprehensive Loss
For the three and six months ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31, Six Months Ended March 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net revenues $ 734,766 580,416 1,650,284 1,448,904
Cost of revenues 218,280 163,692 433,358 370,583
---------- ---------- ---------- ----------
Gross profit 516,486 416,724 1,216,926 1,078,321
Sales and marketing 254,376 474,562 483,775 867,338
General and administrative 380,119 346,307 704,858 687,547
Research and development 185,719 308,449 378,471 605,036
---------- ---------- ---------- ----------
Operating expenses 820,214 1,129,318 1,567,104 2,159,921
---------- ---------- ---------- ----------
Operating loss (303,728) (712,594) (350,178) (1,081,600)
Other income (expense):
Gain on sale of investments - - - 1,827
Loss on sale of land - (25,000) - (25,000)
Change in market value of trading securities - (454,459) - (107,096)
Interest income 1,933 481 3,242 1,970
Interest expense (5,958) (9,058) (12,476) (18,819)
Miscellaneous income 2,601 - 2,601 -
---------- ---------- ---------- ----------
Total other income (expense) (1,424) (488,036) (6,633) (147,118)
Loss before income tax benefit (305,152) (1,200,630) (356,811) (1,228,718)
Income tax benefit - 443,000 - 458,935
---------- ---------- ---------- ----------
Net loss (305,152) (757,630) (356,811) (769,783)
Other comprehensive loss, before tax -
Unrealized loss on securities - (516,667) - (319,113)
Income tax benefit related to items of other
comprehensive loss - 214,500 - 132,000
---------- ---------- ---------- ----------
Comprehensive loss $ (305,152) (1,059,797) (356,811) (956,896)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic net loss per share $ (.27) (.67) (.32) (.68)
Shares used in per share calculation - basic 1,131,124 1,131,124 1,131,124 1,131,124
Diluted net loss per share $ (.27) (.67) (.32) (.68)
Shares used in per share calculation - diluted 1,131,124 1,131,124 1,131,124 1,131,124
</TABLE>
See accompanying notes to financial statements.
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CE SOFTWARE INC.
Statements of Cash Flows
For the six months ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (356,811) $ (769,783)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Depreciation and amortization:
Property, fixtures, and equipment 134,662 186,259
Purchased software 5,980 5,980
Change in market value trading securities - 107,096
Proceeds from sale of trading securities - 967,922
Gain on sale of trading securities - (1,827)
Decrease in deferred income taxes payable - (389,000)
Loss on sale of land - 25,000
Decrease in trade accounts receivable 99,421 28,330
Decrease (increase) in other current assets and other assets 100,992 (146,432)
Decrease in inventories 71,419 132,473
Increase (decrease) in accounts payable and accrued expenses 70,455 (63,970)
Decrease in deferred revenue (1,981) (10,741)
Decrease in income taxes payable - (382,935)
--------- ---------
Net cash provided by (used in) operating activities 124,137 (311,628)
Cash flows from investing activities:
(Decrease) increase in due to affiliates (137,446) 46,500
Proceeds from sale of land 8,919 200,000
Purchase of property and equipment and other intangible assets (3,509) (73,181)
--------- ---------
Net cash (used in) provided by investing activities (132,036) 173,319
Cash flows from financing activities:
Payment of long-term debt (49,184) (42,868)
--------- ---------
Net cash used in financing activities (49,184) (42,868)
--------- ---------
Net decrease in cash and cash equivalents (57,083) (181,177)
Cash and cash equivalents at beginning of period 227,071 451,152
--------- ---------
Cash and cash equivalents at end of period $ 169,988 $ 269,975
--------- ---------
--------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 12,734 $ 18,590
Income taxes - 310,000
</TABLE>
See accompanying notes to financial statements.
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CE SOFTWARE INC.
Notes to Financial Statements
March 31, 2000
(Unaudited)
1) Accounting policies
During interim periods, CE Software, Inc. (CESI), which was a wholly-owned
subsidiary of CE Software Holdings, Inc. (Holdings) during the periods covered
by this report, follows the accounting policies set forth in the financial
information in its Form 10-SB filed with the Securities and Exchange Commission.
Users of financial information produced for interim periods are encouraged to
refer to the footnotes contained in the financial reports in its Form 10-SB
when reviewing interim financial results.
Results of Operations
The results of operations for the interim period reported are not necessarily
indicative of results to be expected for the year. The information reflects
all the adjustments (none of which were other than normal recurring items)
which are, in the opinion of management, necessary to present a fair statement
of the results for the interim period.
2) Subsequent Events
On April 27, 2000, CESI effected a stock dividend to Holdings of 1,130,124
shares. All common shares and per share amounts have been adjusted
retroactively to give effect to the stock dividend.
After the close of business on April 28, 2000, Holdings consummated a merger
with Lightning Rod Software, Inc. (Lightning Rod). Immediately prior to the
merger, Holdings declared and paid a dividend to all of its shareholders of
one share of CESI for each outstanding share of Holdings (Spin-off), which
represented all the outstanding shares of CESI after the stock dividend
discussed in the above paragraph.
In conjunction with the merger of Holdings and Lightning Rod, Holdings
immediately prior to the merger contributed to CESI as additional capital,
cash of approximately $406,000 and all amounts owed by CESI to Holdings of
approximately $694,000. In addition, CESI could receive additional Holdings
capital contributions which are based upon certain Holdings stock options
exercised within three months after the merger. Through June 8, 2000,
additional capital contributions of approximately $8,000 have been received
by CESI from the exercise of such options.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following discussion should be read in conjunction with the financial
statements and related notes included elsewhere herein. Historical results
and percentage relationships are not necessarily indicative of the operating
results for any future period. The financial information is reported for CESI
as if it had been a separate reporting company during the periods reported,
although the spin-off did not take place until April 28, 2000.
The following table sets forth certain data derived from the statements of
operations, expressed as a percentage of net revenues for the quarters ended
March 31, 2000 and 1999.
Quarter Ended March 31, Six Months Ended March 31,
2000 1999 2000 1999
Percentage of net revenues:
Net revenues 100% 100% 100% 100%
Cost of revenues 30 28 26 25
--- --- --- ---
Gross profit 70 72 74 75
Sales and marketing 35 82 29 60
General and administrative 52 60 43 48
Research and development 25 53 23 42
--- --- --- ---
Total operating expenses 112 195 95 150
--- --- --- ---
Operating loss (42) (123) (21) (75)
Other income, net - (84) (1) (10)
Loss before income taxes (42) (207) (22) (85)
--- --- --- ---
Income tax benefit - 76 - 32
--- --- --- ---
Net loss (42)% (131)% (22)% (53)%
--- --- --- ---
--- --- --- ---
Three months ended March 31, 2000
Net Revenues
Net revenues for the second quarter of the current year were $735,000 compared
to $580,000 for the second quarter of the prior year. Revenues were up in both
the Personal Application and Messaging groups compared to same period a year
ago.
Revenues from the Company's Personal Application products increased 52% compared
to the prior year, and as a percentage of net revenues, accounted for
approximately 40% of the Company's current revenues compared to 33% a year ago.
Nearly all of these revenues are from the sales of QuicKeys, the Company's
productivity enhancing utility. A new version of QuicKeys for Windows was
released in the first quarter of fiscal year 1999. During the second quarter
of the current fiscal year, approximately 9% of the Personal Application revenue
resulted from sales of QuicKeys for Windows, down from 23% during the second
quarter a year ago.
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As a percentage of net revenues, approximately 60% of the Company's current
revenues were from the Messaging product group compared to 67% a year ago.
The Company's Messaging product revenues were up 14% over the same period a
year ago. The majority of these revenues consists of the QuickMail Pro/Office
products which are cross-platform, open standards messaging products available
for both Microsoft Windows and Macintosh environments. Historically, these
revenues were primarily derived from QuickMail LAN, the Company's Macintosh
server based, E-mail solution, but over the past few years, revenues from
QuickMail LAN declined significantly and the product was discontinued in
fiscal 1999. The Company's efforts to promote QuickMail Pro/Office to its
QuickMail LAN users for a year 2000 solution resulted in the current increase
in the Messaging product revenues from the prior year. Despite the increase,
in management's opinion, these revenues will continue to be negatively impacted
by the development of strong competition within the E-mail market. This
competition includes the prevalence of inexpensive, and in some cases free,
E-mail software. Such competition is expected to continue and may hinder
substantial, long-term growth of this product group.
Net revenues from international channels increased to approximately $290,000
in the second quarter of the current year, from $197,000 in the second quarter
of the prior year, representing 39% and 34% of net revenues, respectively.
The increase was primarily within the European market as a result of upgrades
associated with the year 2000 and the release of translated versions of
QuickMail.
Cost of Revenues
The Company's cost of revenues is composed primarily of: 1) the costs of
product materials such as manuals, CD-ROMs, diskettes, and packaging; 2)
amortization of capitalized purchased software; 3) royalties paid to outside
developers for the use of certain software included with some of the Company's
products; 4) manufacturing expenses; and 5) amortization of capitalized
translation costs.
Cost of revenues increased $55,000 in the second quarter of fiscal 2000
compared to the same period a year ago. As a percentage of net revenues,
cost of revenues increased to 30% from 28%. The increase is due to increasing
the obsolete inventory valuation reserve.
Sales and Marketing
Sales and marketing expenses decreased $220,000 or 46%, during the second
quarter of fiscal 2000 compared to the second quarter of fiscal 1999. The
major variances are primarily decreases in marketing/advertising expenses,
$173,000 and salaries and benefits, $15,000. Marketing/advertising expenses
decreased as a result of a more focused marketing strategy and no products
being launched during the second quarter. A smaller sales and marketing
workforce accounted for the decrease in salaries and benefits.
General and Administrative
General and administrative expenses are composed principally of salaries of
general, administrative, and technical support personnel, fees for professional
services, amortization of other intangible assets, and facilities expenses.
These expenses for the second quarter increased 10% or $34,000 from the second
quarter of the prior year, representing 52% and 60% of net revenues for second
fiscal quarter of the current year and prior year, respectively. The major
changes in expenses are mainly due to higher salaries and related expenses of
$103,000 due to a workforce restructure in the second quarter of fiscal 2000;
a decrease in depreciation and amortization of $40,000 due to a portion of
intangible assets and fixed assets becoming fully amortized or depreciated;
a decrease in other outside services of $17,000 due to less expenses associated
with a software conversion that occurred during the second quarter of
fiscal 1999; and a decrease in contract labor and temporary help of $16,000
as a result of less use of outside labor due to the workforce restructure.
<PAGE>
Research and Development
Research and development expenses decreased to $186,000 in the second quarter
of fiscal 2000, compared to $308,000 in the second quarter of the prior year,
representing 25% and 53% of net revenues, respectively. The primary areas that
decreased in the second quarter of fiscal 2000 were salaries and benefits of
$65,000, associated with workforce reductions and contract labor and temporary
help of $47,000, due to a more focused development.
Income Tax Benefit
No income tax benefit was recorded by the Company for the second quarter of
fiscal 2000 due to continued losses.
Six Months ended March 31, 2000
Net Revenues
Net revenues for the first six months of the current year were $1,650,000
compared to $1,449,000 for the same period last year. The 14% increase in net
revenues was due to a $134,000 increase in revenues from the Company's Messaging
products and a $67,000 increase in revenues from the Company's Personal
Applications products.
Approximately 34% of the revenues for the first six months of the current and
prior fiscal years are from Personal Application products. Nearly all of these
revenues are from the sales of QuicKeys, the Company's productivity enhancing
utility program. During fiscal 1998, this product was only available for the
Apple Macintosh market. The Macintosh's smaller market share over the last few
years has negatively impacted these revenues and in the opinion of management,
the new version of QuicKeys for Windows, released in this first quarter of
fiscal year 1999 offers meaningful long-term growth potential even though
during the first six months of the current fiscal year, approximately 10% of
the Personal Application revenue resulted from the release of QuicKeys for
Windows compared to 21% a year ago.
Revenues from Messaging products accounted for 66% of total net revenues.
The majority of these revenues consist of the QuickMail Pro/Office products
which are cross-platform, open standards messaging products available for both
Microsoft Windows and Macintosh environments. Historically, these revenues
were primarily derived from QuickMail LAN, the Company's Macintosh server
based, E-mail solution, but over the past few years, revenues from QuickMail
LAN declined significantly and the product was discontinued in fiscal 1999.
The Company's efforts to promote QuickMail Pro/Office to its QuickMail LAN
users for a year 2000 solution resulted in the current increase in the
Messaging product revenues from the prior year. Despite the increase, in
management's opinion, these revenues will continue to be negatively impacted
by the development of strong competition within the E-mail market. This
competition includes the prevalence of inexpensive, and in some cases free,
E-mail software. Such competition is expected to continue and may hinder
substantial, long-term growth of this product group.
<PAGE>
Approximate net revenues by product group for the six-month periods ended
March 31, 2000 and 1999 are as follows:
2000 1999
Messaging $1,092,000 $ 958,000
Personal Applications 558,000 491,000
---------- ----------
Total net revenues $1,650,000 $1,449,000
Net revenues from international channels increased to approximately $634,000
in the first six months of the current year, from $473,000 in the same period
a year ago, representing 38% and 33% of net revenues, respectively. The
increase was primarily within the European market as a result of upgrades
associated with the year 2000 and the release of translated versions of
QuickMail.
Cost of Revenues
The Company's cost of revenues is composed primarily of: 1) the costs of
product materials such as manuals, CD-ROMs, diskettes, and packaging; 2)
amortization of capitalized purchased software; 3) royalties paid to outside
developers for the use of certain software included with some of the Company's
products; 4) manufacturing expenses; and 5) amortization of capitalized
translation costs.
Cost of revenues, as a percentage of net revenues, increased from 25% to 26% in
the first six months of fiscal 2000, compared to the same period a year ago.
The increase is due to increasing the obsolete inventory valuation reserve.
Sales and Marketing
Sales and marketing expenses in the first six months of fiscal 2000 were
reduced $384,000, or 44% compared to the first six months of fiscal 1999.
The decrease was primarily a result of lower marketing/advertising expenses
of $333,000 and contract labor and temporary help of $16,000. The lower
expenses were due to the continued focus of marketing programs and
advertising.
General and Administrative
General and administrative expenses are composed principally of salaries and
benefits of administrative and technical support personnel, fees for
professional services, amortization of intangible assets and facilities
expenses. These expenses for the first six months of fiscal 2000 increased
$17,000, or 2% from the same period a year ago. The increase in expenses
was from an increase in salaries and benefits of $136,000, resulting from
additional expenses related to workforce reductions, which were primarily
offset by decreases in depreciation and amortization expense of $66,000 as a
result of a portion of intangible assets and fixed assets becoming fully
amortized or depreciated, and a decrease in contract labor and temporary
help of $39,000, due to the lower expenses associated with a system
conversion.
Research and Development
Research and development expenses decreased to approximately $378,000 for
the first six months of the current year from $605,000 in the same period
last year, representing 23% and 42% of net revenues, respectively. The
primary areas that decreased in the first six months of fiscal 2000 were
salaries and benefits of $98,000 and contract labor of $94,000. The
decreases in salaries and benefits and contract labor and temporary help
were the result of workforce reductions and a more focused development
effort.
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Income Tax Benefit
No income tax benefit was recorded by the Company for the first six months
of fiscal 2000 due to continued losses.
Liquidity and Capital Resources
Cash and cash equivalents decreased by $57,000 to $170,000 at the end of the
second quarter of fiscal 2000 from $227,000 at the end of fiscal 1999. The
decrease in cash and cash equivalents was primarily the result of the operating
losses during the first six months of fiscal 2000. As discussed in note 2 to
the financial statements, subsequent to March 31, 2000 approximately $1,100,000
was contributed by Holdings to CESI as additional capital for all amounts owed
by CESI to its former parent. The Company believes it can fund its working
capital needs from operations and available cash and equivalents through fiscal
year 2000.
Risk and Uncertainty
The preceding statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in this Form 10-QSB which are
not historical facts are forward looking statements. These forward looking
statements involve risks and uncertainties that could render them materially
different, including, but not limited to, the risk that new products and product
upgrades may not be effected on a timely basis; the risk that such products may
not achieve market acceptance within the Windows or Macintosh markets; the risk
that the prevalence and functionality of available free E-mail software will
increase and further erode revenues; the risk that new operating systems or new
technologies could render current products obsolete or unmarketable; and the
risk that the Company would not be able to fund its working capital needs from
cash flows.
<PAGE>
CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(3.1) Articles of Incorporation
Incorporated by reference to Exhibit 2.1 of Form 10SB/A filed with the
Commission on March 10, 2000.
(3.2) Bylaws
Incorporated by reference to Exhibit 2.2 of Form 10SB/A filed with
the Commission on March 10, 2000.
(11) Statement regarding computation of per share earnings
The computation of per share earnings is contained on page 4 of
this report.
(27) Financial Data Schedule - electronic filers only
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the
quarter ended March 31, 2000.
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SIGNATURES
Pursuant to the requirements 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.
CE SOFTWARE, INC.
(Registrant)
Signature Title Date
/s/ John S. Kirk June 12, 2000
_________________________ President and Chief Financial ______________
(John S. Kirk) Officer
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EXHIBIT INDEX
Exhibit
Number Description
27 Financial Data Schedule - electronic filers only
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