<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 June 30, 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 X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
July 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
June 30, 2000 and September 30, 1999 1
Statements of Operations and Comprehensive Loss
Three Months and Nine Months Ended June 30, 2000 and 1999 2
Statements of Cash Flows
Nine Months Ended June 30, 2000 and 1999 3
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CE SOFTWARE, INC.
BALANCE SHEETS
June 30, 2000 and September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
June 30 September 30
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 401,841 $ 227,071
Trade accounts receivable 425,879 500,185
Recoverable income taxes 176,121 176,121
Inventories 147,175 250,208
Other current assets 175,103 287,725
------------ ------------
Total current assets 1,326,119 1,441,310
------------ ------------
------------ ------------
Property, fixtures, and equipment:
Land 82,877 91,796
Building 1,312,016 1,312,016
Fixtures and equipment 2,722,940 2,716,807
------------ ------------
Total property, fixtures, and equipment 4,117,833 4,120,619
------------ ------------
Less accumulated depreciation 2,902,165 2,710,159
------------ ------------
Net property, fixtures, and equipment 1,215,668 1,410,460
------------ ------------
Other intangible assets, net of amortization 12,957 21,927
Other assets 28,485 19,285
------------ ------------
Total assets $ 2,583,229 $ 2,892,982
------------ ------------
------------ ------------
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 106,431 $ 100,237
Trade accounts payable 108,689 207,259
Accrued payroll and benefits 123,134 141,144
Other accrued payables 115,541 120,057
Due to affiliates - 825,701
Deferred revenue 2,723 9,444
------------ ------------
Total current liabilities 456,518 1,403,842
Long-term debt, net of current portion 160,211 240,859
------------ ------------
Total liabilities 616,729 1,644,701
------------ ------------
Stockholders' equity:
Common stock 113,112 113,112
Additional paid in capital 1,185,093 35,910
Retained earnings 668,295 1,099,259
------------ ------------
Total stockholders' equity 1,966,500 1,248,281
------------ ------------
Total liabilities and stockholders' equity $ 2,583,229 $ 2,892,982
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
1
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CE SOFTWARE INC.
Statements of Operations and Comprehensive Loss
For the three and six months ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net revenues $ 751,567 $ 1,346,759 $ 2,401,850 $ 2,795,663
Cost of revenues 146,653 236,592 580,011 607,175
----------- ----------- ----------- -----------
Gross profit 604,914 1,110,167 1,821,839 2,188,488
Sales and marketing 208,140 466,182 665,740 1,333,520
General and administrative 302,681 362,716 1,075,595 1,050,263
Research and development 171,835 288,642 508,425 893,678
----------- ----------- ----------- -----------
Operating expenses 682,656 1,117,540 2,249,760 3,277,461
----------- ----------- ----------- -----------
Operating loss (77,742) (7,373) (427,921) (1,088,973)
Other income (expense):
Gain on sale of investments - - - 1,827
Loss on sale of land - - - (25,000)
Change in market value of trading securities - (53,459) - (160,555)
Miscellaneous income 3,942 - 6,543 -
Interest income 5,107 406 8,349 2,376
Interest expense (5,459) (8,154) (17,935) (26,973)
----------- ----------- ----------- -----------
Total other income (expense) 3,590 (61,207) (3,043) (208,325)
----------- ----------- ----------- -----------
Loss before income tax benefit (74,152) (68,580) (430,964) (1,297,298)
Income tax benefit - 14,000 - 472,935
----------- ----------- ----------- -----------
Net loss (74,152) (54,580) (430,964) (824,363)
Other comprehensive loss, before tax -
Unrealized loss on securities - (60,776) - (379,980)
Income tax benefit related to items of other
comprehensive loss - 24,000 - 156,000
----------- ----------- ----------- -----------
Comprehensive loss $ (74,152) $ (91,356) $ (430,964) $(1,048,343)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic net loss per share $ (.07) $ (.05) $ (.38) $ (.73)
Shares used in per share calculation - basic 1,131,124 1,131,124 1,131,124 1,131,124
Diluted net loss per share $ (.07) $ (.05) $ (.38) $ (.73)
Shares used in per share calculation - diluted 1,131,124 1,131,124 1,131,124 1,131,124
</TABLE>
See accompanying notes to consolidated financial statements.
2
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CE SOFTWARE INC.
Statements of Cash Flows
For the nine months ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net loss $(430,964) $(824,363)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Depreciation and amortization:
Property, fixtures, and equipment 192,006 271,699
Purchased software 8,970 5,980
Change in market value trading securities - 221,331
Proceeds from sale of trading securities - 967,922
Gain on sale of trading securities - (1,827)
Decrease in deferred income taxes payable - (508,776)
Loss on sale of land - 25,000
Decrease (increase) in trade accounts receivable 74,306 (251,443)
Decrease (increase) in other current assets and other assets 103,422 (121,375)
Decrease in inventories 103,033 101,306
(Decrease) increase in accounts payable and accrued expenses (121,096) 53,548
Decrease in deferred revenue (6,721) (19,914)
Decrease in income taxes payable - (337,934)
---------- -----------
Net cash used in operating activities (77,044) (418,846)
Cash flows from investing activities:
Increase in additional paid in capital 26,587 -
Increase in due to affiliates 296,895 38,696
Proceeds from sale of land 8,919 200,000
Purchase of property and equipment and other intangible assets (6,133) (78,899)
---------- -----------
Net cash provided by investing activities 326,268 159,797
Cash flows from financing activities:
Payment of long-term debt (74,454) (65,270)
---------- -----------
Net cash used in financing activities (74,454) (65,270)
---------- -----------
Net increase (decrease) in cash and cash equivalents 174,770 (324,319)
Cash and cash equivalents at beginning of period 227,071 451,152
---------- -----------
Cash and cash equivalents at end of period $ 401,841 $ 126,833
---------- -----------
---------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 18,193 $ 28,878
Income taxes - 310,000
Investing and financing activities:
Amounts due to affiliates contributed as
additional paid in capital $1,122,596 -
</TABLE>
See accompanying notes to consolidated financial statements.
3
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CE SOFTWARE, INC.
Notes to Financial Statements
June 30, 2000
(Unaudited)
1) Accounting policies
During interim periods, CE Software, Inc. (CESW), which was a wholly-owned
subsidiary of CE Software Holdings, Inc. (Holdings) through April 28, 2000,
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.
Reclassification
Certain amounts have been restated to conform with current presentation.
2) Subsequent Events
On April 27, 2000, CESW 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 CESW for each outstanding share of Holdings (Spin-off), which
represented all the outstanding shares of CESW 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 CESW as additional capital,
cash of approximately $431,000 and all amounts owed by CESW to Holdings of
approximately $692,000. In addition, CESW could receive additional Holdings
capital contributions, which are based upon certain Holdings stock options,
exercised within three months after the merger. Since July 1, 2000, additional
capital contributions of approximately $314,000 have been received by CESW from
the exercise of such options.
4
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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
CESW 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 June 30, 2000 and 1999.
Quarter Ended June 30, Nine Months Ended June 30,
2000 1999 2000 1999
Percentage of net revenues:
Net revenues 100% 100% 100% 100%
Cost of revenues 20 18 24 22
--- --- --- ---
Gross profit 80 82 76 78
Sales and marketing 28 35 28 48
General and administrative 40 27 45 37
Research and development 23 21 21 32
--- --- --- ---
Total operating expenses 91 83 94 117
--- --- --- ---
Operating loss (11) (1) (18) (39)
Other income (expense), net 1 (4) - (7)
--- --- --- ---
Loss before income taxes (10) (5) (18) (46)
Income tax benefit - 1 - 17
--- --- --- ---
Net loss (10)% (4)% (18)% (29)%
--- --- --- ---
--- --- --- ---
Three months ended June 30, 2000
Net Revenues
Net revenues for the third quarter of the current year were $752,000 compared
to $1,347,000 for the third quarter of the prior year. Revenues were down in
both the Personal Application and Messaging groups compared to same period a
year ago.
Revenues from the Company's Personal Application products decreased 44% compared
to the prior year, and as a percentage of net revenues, accounted for
approximately 45% of the Company's current and prior year revenues. 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 third quarter of the current
fiscal year, approximately 9% of the Personal Application revenue resulted from
sales of QuicKeys for Windows, up from 8% during the third quarter a year ago.
As a percentage of net revenues, approximately 55% of the Company's current and
prior year third quarter revenues were from the Messaging product group. The
Company's Messaging product revenues were down 45% over the same period a year
ago. 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
5
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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. In management's
opinion, this decline in 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 decreased to approximately $213,000
in the third quarter of the current year, from $228,000 in the third quarter
of the prior year, representing 28% and 17% of net revenues, respectively.
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 decreased $90,000 in the third quarter of fiscal 2000
compared to the same period a year ago. As a percentage of net revenues,
cost of revenues increased to 20% from 18%. The increase is due to lower
revenues, which result in fixed charges, such as amortization, being higher
on a percentage basis.
Sales and Marketing
Sales and marketing expenses decreased $258,000 or 55%, during the third
quarter of fiscal 2000 compared to the third quarter of fiscal 1999. The
variances are primarily decreases in marketing/advertising expenses of
$154,000; salaries and benefits, $47,000; overhead allocation, $34,000;
contract labor and temporary help, $11,000 and miscellaneous, $12,000. The
decreases are a result of a smaller sales and marketing workforce, a
reallocation of overhead because of the workforce reduction and
restructuring, and a more focused marketing/advertising program.
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 third quarter decreased 17% or $60,000 from
the third quarter of the prior year, representing 40% and 27% of net revenues
for third fiscal quarter of the current year and prior year, respectively.
The decrease in expenses is the net effect of decreases in salaries and
benefits, $55,000; depreciation and amortization, $28,000; shipping, $23,000;
and contract labor and temporary help, $18,000; and an increase in overhead
allocation of $64,000. The decreases are a result of a smaller workforce,
lower shipping costs associated with the prior year QuicKeys upgrade release,
and less reliance on contract labor. The increase in overhead is a result of
the reallocation of expenses among the various departments as discussed
previously.
6
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Research and Development
Research and development expenses decreased to $172,000 in the third quarter
of fiscal 2000, compared to $289,000 in the third quarter of the prior year,
representing 23% and 21% of net revenues, respectively. The primary areas
that decreased in the third quarter of fiscal 2000 were salaries and benefits,
$54,000; and contract labor and temporary help, $32,000; and overhead
allocation, $31,000. The decreases were the result of a smaller workforce,
the reallocation of overhead expenses as discussed previously and less
reliance on contract labor.
Income Tax Benefit
No income tax benefit was recorded by the Company for the third quarter of
fiscal 2000 due to continued losses.
Nine Months ended June 30, 2000
Net Revenues
Net revenues for the first nine months of the current year were $2,402,000
compared to $2,796,000 for the same period last year. The 14% decrease in
net revenues was due to a $194,000, or 12% decrease in revenues from the
Company's Messaging products and a $200,000, or 18% decrease in revenues from
the Company's Personal Applications products.
Approximately 37% of the revenues for the first nine months of the current
fiscal year are from Personal Application products compared to 39% a year ago.
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 nine months of the current fiscal year,
approximately 10% of the Personal Application revenue resulted from the release
of QuicKeys for Windows compared to 14% a year ago.
Revenues in the current year from Messaging products accounted for 63% of total
net revenues compared to 61% a year ago. 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.
Approximate net revenues by product group for the nine-month periods ended
June 30, 2000 and 1999 are as follows:
2000 1999
Messaging $1,504,000 $1,698,000
Personal Applications 898,000 1,098,000
---------- ----------
Total net revenues $2,402,000 $2,796,000
Net revenues from international channels increased to approximately $847,000
in the first nine months of the current year, from $701,000 in the same period
a year ago, representing 35% and 25% of net revenues,
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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 of: 1) the costs of product
materials such as manuals, diskettes, and packaging; 2) amortization of
capitalized translation costs; 3) amortization of capitalized manufacturing
expenses; 4) royalties paid to outside developers for the use of certain
software included with some of the Company's products; and 5) amortization of
capitalized purchased software.
Cost of revenues, as a percentage of net revenues, increased to 24% in the
first nine months of fiscal 2000, compared to 22% in the same period a year
ago. The increase is due to lower revenues, which result in fixed charges,
such as amortization, being higher on a percentage basis.
Sales and Marketing
Sales and marketing expenses in the first nine months of fiscal 2000 were
reduced $668,000, or 50% compared to the same period a year ago. This
decrease was mainly a result of lower marketing/advertising expense of
$488,000; overhead allocation, $77,000; salaries and benefits, $50,000;
contract labor and temporary help, $26,000; miscellaneous, $15,000 and dues
and subscriptions, $12,000. The decreases are a result of a more focused
marketing/advertising program, a smaller sales and marketing workforce, and
a reallocation of overhead because of the workforce reduction and restructuring.
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. In aggregate, these expenses for the first nine months of fiscal
2000 remained virtually unchanged from the prior nine months, representing
45% and 37% of net revenues, respectively. Decreases in depreciation and
amortization, $94,000; contract labor and temporary help, $57,000; shipping,
$38,000; telephone, $24,000; other outside services, $17,000; were offset by
increases in overhead allocation, $175,000; and salaries and benefits,
$81,000. The decrease in depreciation and amortization was as a result of
a portion of intangible assets and fixed assets becoming fully amortized or
depreciated. The decreases in contract labor, shipping, telephone, and other
outside services were the result of cost saving measures. A reallocation of
overhead expenses as discussed previously resulted in the increase in overhead
allocation. The increase in salaries and benefits resulted from the retention
of key personnel through the merger.
Research and Development
Research and development expenses decreased to $508,000 for the first nine
months of the current year from $894,000 during the same period last year,
representing 21% and 32% of net revenues, respectively. The primary areas
that decreased in the first nine months of fiscal 2000 were a decrease in
salaries and benefits, $152,000, contract labor and temporary help, $126,000;
overhead allocation, $98,000 and miscellaneous, $9,000. The decreases in
salaries and benefits and contract labor and temporary help were the result
of a more focused development effort, while the decrease in overhead was due
to the reallocation of expenses as discussed previously.
8
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Income Tax Benefit
No income tax benefit was recorded by the Company for the nine months ended
fiscal 2000 due to continued losses.
Liquidity and Capital Resources
Cash and cash equivalents increased by $175,000 to $402,000 at the end of the
third quarter of fiscal 2000 from $227,000 at the end of fiscal 1999. The
increase in cash and cash equivalents was primarily due to the additional
capital contribution of $431,000 in cash and the contribution of $27,000 from
the exercise of stock options described in note 2 to the financial statements.
As discussed in note 2 to the financial statements, as of April 28, 2000
approximately $1,123,000 (including the $431,000 in cash mentioned abive)
was contributed by Holdings to CESW as additional capital. The Company
believes it can fund its working capital needs from operations and available
cash and equivalents through June 30, 2001.
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.
9
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CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(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 June 30, 2000.
10
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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 August 14, 2000
_________________ President and Chief Financial _______________
(John S. Kirk) Officer
11
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EXHIBIT INDEX
Exhibit
Number Description
27 Financial Data Schedule - for SEC filing only
12
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