<PAGE>
CE SOFTWARE HOLDINGS, INC.
1996 ANNUAL REPORT
<PAGE>
ANNUAL REPORT CONTENTS
LETTER TO STOCKHOLDERS.............................. 1
PRODUCT OVERVIEW..................................... 3
FINANCIAL OVERVIEW................................... 5
MANAGEMENT'S DISCUSSION AND ANALAYSIS
OF FINANCIAL CONDITION AND RESULTD OF OPERATIONS..... 6
INDEPENDENT AUDITORS' REPORT......................... 9
CONSOLIDATED BALANCE SHEETS......................... 10
CONSOLIDATED STATEMENTS OF OPERATIONS............... 12
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY..... 13
CONSOLIDATED STATEMENTS OF CASH FLOWS............... 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...........16
MARKET FOR REGISTRANT'S CONNON EQUITY
AND RELATED STOCKHOLDER MATTERS..................... 23
OFFICERS AND DIRECTORS.............................. 24
STOCKHOLDER INFORMATION............................. 25
<PAGE>
page 1
LETTER TO STOCKHOLDERS
TO OUR STOCKHOLDERS,
The underlying theme of this past year was returning to our proven strength.
Every action we took as an organization helped us refocus our efforts back
toward the market we know best - electronic mail.
One of the more visible changes was my return to the presidency of the operating
company in June. This came with a decision by Ford Goodman, former president
and CEO of CE Software, to step aside and head an Internet-related start-up
company called NetTarget, in which CE Software took a small seed interest. With
the leadership transition, also came a marked shift in product direction. Most
notable was the August introduction and November delivery of QuickMail Pro, an
Internet E-mail client for Windows and Macintosh. It is the first mail product
from CE Software that can run independently of a Macintosh server and which
provides a viable E-mail solution for the 50 million (and growing) individuals
and businesses utilizing the Internet.
Why Internet E-mail ?
Our QuickMail LAN product, an E-mail solution for small to medium Macintosh-
centric businesses, accounted for more than 75 percent of our revenues in fiscal
'96. But because of its reliance on the Apple platform for a server solution,
the potential for substantial growth, year over year, is somewhat dependent on
Apple's market share. Looking for new opportunities to leverage our E-mail
technology strengths was a market reality.
Like all technology companies - including Microsoft and Apple - CE Software took
a hard look at the new opportunity represented by the Internet and realized that
we needed to turn on a dime and address this market with our product solutions.
Despite all of the hoopla surrounding the World Wide Web, the largest Internet
usage is E-mail. Making QuickMail, which already has more than 2.3 million
business users worldwide, available as an Internet product was an obvious way to
capitalize on the growth of this new world-wide market, which, by various
accounts, has the potential of encompassing 300 million users by the turn of
the century.
A key way we market our new Internet E-mail product is by using the Internet
itself. We offer a free, fully functional, limited feature version called
QuickMail Express. You can try out QuickMail Express yourself by checking our
Web site at http://www.cesoft.com. QuickMail Express is designed to entice
customers tp purchase QuickMail Pro.
<PAGE>
page 2
LETTER TO STOCKHOLDERS - continued
Focus
Our shift in product strategy has been coupled with actions to streamline our
operations. Every employee has been involved in making decisions that help us
work smarter, faster, and better. The result is an organization that is working
far leaner and more cohesively than ever before.
In line with our back-to-basics focus, CE Software sold its equity stake in
4-Sight, L.C., a joint venture which markets and distributes fax and prepress
software products. The sale to our investment partner resulted in a one-time
gain of $505,000, as well as the scheduled repayment of our $1.4 million
investment. This helped us maintain a strong cash position with more than
$1.8 million in the bank, very little debt, and a positive cash flow.
CE Software filed a lawsuit and also took a one-time write-off during our third
quarter for the Network Scheduler product which we acquired from Powercore Inc.
With this $510,000 write-off we anticipate that we will not have any future
write-offs in relation to this product.
Moving Ahead
By focusing our efforts on the messaging and Internet space, and by delivering
products - in the form of QuickMail Pro and QuickMail Express - which meet user
needs today, CE Software is well-positioned for growth. It has been a year of
transition - a coming together. We have a focus that builds on our strengths
as we look and work toward the future.
Thank you for staying with us through the hard times. We feel confident that
we have the right products, in the right market, at the right time to reward
your faith in the coming year.
_____________
Cordially,
PHOTO
OF MR. SKEIE /s/ Richard A. Skeie
PLACED
HERE Richard A. Skeie
President
_____________
<PAGE>
page 3
PRODUCT OVERVIEW
QUICKMAIL PRO
_____________
QuickMail Pro(tm) is CE Software's first true Internet E-mail
PHOTO OF client - designed specifically to meet the needs of the more
QUICKMAIL PRO than 50 million Internet users worldwide. Even more
BOX PLACED significantly, it is the company's first single-user messaging
HERE product and it is our first messaging product to accommodate
_____________ Windows-only environments, as well as all Macintosh
workgroups.
QuickMail Pro has adopted and updated QuickMail LAN's award-winning intuitive
interface and combined it with a full Internet messaging feature-set for Windows
and Macintosh users.
Unlike QuickMail LAN, which is tied to CE Software's proprietary server
software, QuickMail Pro can function with any server-Windows, Macintosh or UNIX-
that supports the Internet messaging standard Post Office Protocol, version 3
(POP3). POP3 is a set of rules which software vendors use to develop products.
Simple put, POP3 allows users to retrieve E-mail sent to them.
QuickMail Pro began shipping in November 1996 and was well-received by the
Windows and Macintosh communities alike.
Languages Available Most Popular Market Segments
. English . Large busnesses with Windows and or
. German Macintosh systems
. French . Small businesses interested in getting
. Swedish on the Internet
. Kanji (Japanese) . Single users/Home users
QUICKMAIL EXPRESS
_____________
CE Software offers a second Internet E-mail client known as
PHOTO OF QuickMail Express which is available free of charge.
QUICKMAIL QuickMail Express is a fully functioning E-mail client with
EXPRESS LOGO the same look and feel as QuickMail Pro. Compared to other
PLACED HERE freeware Internet E-mail offerings it is more graphical and
_____________ easier to use. However, QuickMail Express does not offer all
of the features that are offered in QuickMail Pro.
QuickMail Express is designed to introduce Internet users to our solutions and
satisfy their initial E-mail needs. Once they've come to depend on the freeware
version, they are offered an aggressive upgrade path to the more sophisticated
feature-set of QuickMail Pro. CE Software is taking every step possible to get
its freeware software into the hands of users everywhere.
Every user who downloads QuickMail Express and registers their copy
electronically is offered incentives to upgrade to QuickMail Pro. It is a
strategy that has worked well for others in the industry, including Netscape
Communications, Inc., and its Navigator product.
QuickMail Express is available for download from our Web site at
http://www.cesoft.com and from a number of local and regional Internet Service
Providers.
Languages Available Most Popular Market Segments
. English . Small office/ Home office
. Education (K-12 and Higher Educational
Institutions)
<PAGE>
page 4
PRODUCT OVERVIEW - continued
QUICKMAIL LAN
_____________
QuickMail LAN continues to be recognized worldwide as the
PHOTO OF E-mail solution of choice for Macintosh-centric businesses.
QUICKMAIL LAN In fact, QuickMail dominates the small business Apple
BOX PLACED messaging marketplace.
HERE
_____________ A key market differentiator for QuickMail LAN is that it
provides users with a one-stop source for electronic mail.
Everything required to set up a complete E-mail system is
available in one box, including clients for Macintosh and Windows, as well as
Macintosh server software.
There are a number of add-on products to the QuickMail LAN system. One of the
most popular is CE Software's QM-Internet Gateway, which helps the internal mail
system communicate over the Internet. This past year, CE Software introduced
QuickMail LAN version 3.6 which, among other things, made our popular E-mail
solution take advantage of the advanced features of Apple's Power Macintosh
line.
Today QuickMail LAN has more than 2.3 million users worldwide.
Languages Available Most Popular Market Segments
. English . Small business
. German . Creative agencies
. French (Advertising agencies,
. Swedish Design firms, etc.)
. Danish . Education (K-12 and Higher
. Italian Education Institutions)
. Kanji (Japanese)
QUICKEYS
_____________
In August, we shipped QuicKeys(R) version 3.5 and it received
PHOTO OF rave reviews. In fact, at the Macworld Expo in January '97,
QUICKEYS the preeminent Macintosh trade show, it was nominated for
BOX PLACED awards by major monthly Macintosh publications.
HERE
_____________ QuicKeys is a Macintosh application that enables users to
create shortcuts for tasks they perform frequently on their
computers. It makes every Macintosh application work faster
and better.
QuicKeys is most often used in graphic design environments. Today, it is as
commonly found in graphic design houses as applications such as PageMaker and
Quark.
Languages Available Key Market Segments
. English . Graphic design
. German . Advertising
. French . Publishing
. Swedish . New Media
. Kanji (Japanese)
CE Software, Inc., offers these products as well as several others, such as
CalendarMaker(tm), TimeVision NS(tm), and WebArranger(tm). CE Software's
products are sold in 16 countries and available in seven languages.
<PAGE>
page 5
FINANCIAL OVERVIEW
<TABLE>
<CAPTION>
Years ended September 30,
Statements of Operations Data 1996 1995 1994
(Amounts in thousands,
except per share data)
<S> <C> <C> <C>
Net revenues $10,438 12,919 11,385
Loss before income taxes (1,409) (682) (2,773)
Net loss (1,399) (443) (1,801)
Loss per common share,
primary and fully diluted $ (.24) (.08) (.32)
Shares used to compute primary
per share data 5,743 5,746 5,563
Shares used to compute fully diluted
per share data 5,744 5,748 5,565
</TABLE>
<TABLE>
<CAPTION>
As of September 30,
Balance Sheet Data 1996 1995 1994
(Amounts in thousands)
<S> <C> <C> <C>
Cash and cash equivalents $1,863 1,335 343
Current assets 5,381 5,296 5,524
Total assets 8,970 11,015 11,205
Long-term debt 919 951 988
Stockholders' equity $6,451 7,845 8,288
</TABLE>
<TABLE>
<CAPTION>
As of September 30,
Company Data 1996 1995 1994
<S> <C> <C> <C>
Total employees 94 120 124
Total full-time employees 92 117 119
</TABLE>
<PAGE>
page 6
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 consolidated
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. Within this discussion and analysis
all dollar amounts (except for per share amounts) have been rounded to the
nearest thousand.
The following table sets forth certain data derived from the consolidated
statements of operations, expressed as a percentage of net revenues for each
of the years in the three-year period ended September 30, 1996.
<TABLE>
<CAPTION>
Years ended September 30,
1996 1995 1994
Percentage of net revenues:
<S> <C> <C> <C>
Net revenues 100% 100 100
Cost of revenues 17 16 13
Gross profit 83 84 87
Sales and marketing 39 39 35
General and administrative 36 29 29
Research and development 19 19 18
Intangible assets write-off
and restructuring expenses 8 - -
In-process R & D write-off and
other acquisition-related
expenses - - 30
Total operating expenses 102 87 112
Operating loss (19) (3) (25)
Other income (expense), net 6 (2) 1
Loss before income taxes (13) (5) (24)
Income tax benefit - (2) (8)
Net loss (13)% (3) (16)
</TABLE>
NET REVENUES
Sales to domestic and international distributors represent approximately 49%
of the Company's fiscal 1996 revenues, with two domestic distributors accounting
for 23% of total revenues and two international distributors accounting for 9%
of total revenues. Net revenues for fiscal 1996 decreased by 19% from the prior
year, and net revenues for fiscal 1995 increased by 13% from the prior year.
The decrease in fiscal 1996 is due to a $903,000 decrease in revenues from the
Company's Messaging products, an $850,000 decrease in revenues from the
Company's Personal Application products, and a $728,000 decrease in revenues
from the Company's Calendaring and Scheduling products. Revenues from the
Company's Messaging products fell 10%, but still accounted for approximately
76% of total net revenues. These revenues were negatively impacted by Apple
Computer's decreased market share of business applications. The decrease in
revenues in Personal Applications was due to reduced revenues from QuicKeys,
partially offset by additional revenues from WebArranger. Sales of QuicKeys
were down for most of the year, but improved significantly the last two months
of the fiscal year, as the result of a long-awaited product upgrade. Revenues
from Calendaring and Scheduling products decreased 70% as marketing efforts were
scaled back and the product was directed to only smaller PC-focused workgroups.
This action was necessary due to technical barriers, making the launch of
TimeVision NS into larger enterprises more difficult than projected. The
Company is the plaintiff in a pending lawsuit related to the acquisition of this
technology. See note 2 of the financial statements.
Approximate net revenues by product group for the three years ended September
30, 1996, 1995, and 1994, are as follows:
<PAGE>
page 7
<TABLE>
<CAPTION>
Years ended September 30,
1996 1995 1994
<S> <C> <C> <C>
Messaging $ 7,979,000 8,882,000 6,958,000
Personal applications 2,153,000 3,003,000 3,775,000
Calendaring and scheduling 306,000 1,034,000 652,000
Total net revenues $10,438,000 12,919,000 11,385,000
</TABLE>
Net revenues from international channels were $2,606,000, $3,146,000, and
$2,379,000 in fiscal 1996, 1995, and 1994, respectively. These revenues
represented 25%, 24%, and 21% of total net revenues for each of the three years,
respectively. The decrease in fiscal 1996 is primarily within the Japanese
market.
COST OF REVENUES
The Company's cost of revenues is composed primarily of the costs of manuals,
diskettes, packaging, manufacturing expenses, royalties paid to outside
developers for the use of certain software included with some of the Company's
products, and amortization of capitalized purchased software. Amortization of
capitalized purchased software includes both purchased product rights and
technology rights.
Gross profit as a percentage of net revenues has been 83%, 84%, and 87% in
fiscal 1996, 1995, and 1994, respectively. The slight decrease in fiscal 1996
compared to fiscal 1995 is primarily due to somewhat higher royalty payments
made to outside developers. This increase was partially offset by decreased
packaging costs. The decrease in fiscal 1995 compared to fiscal 1994 was due
primarily to higher amortization expense associated with capitalized purchased
software.
SALES AND MARKETING
Sales and marketing expenses decreased by $914,000 during fiscal 1996 compared
to fiscal 1995. The decrease is primarily in marketing/advertising expenses,
$570,000; salaries and benefits, $200,000; facility overhead expenses,$80,000;
and travel and entertainment, $40,000. The decrease in marketing/advertising
expense is due to significantly less advertising in industry publications that
was partially offset by more direct mail campaigns. The decrease in salaries
and benefits is due to both lower sales commissions and a somewhat smaller
staff. The decrease in facility overhead expenses and travel and entertainment
expenses is due to a smaller staff. The increase in expenses during fiscal 1995
compared to fiscal 1994 was primarily in marketing/advertising, $673,000, and
salaries and benefits, $439,000. These expenses were predominantly associated
with increased direct marketing sales.
GENERAL AND ADMINISTRATIVE
General and administrative expenses are composed principally of salaries of
administrative and technical support personnel, fees for professional services,
amortization of other intangible assets, and facilities expenses. These
expenses increased less than 1%, or $27,000, in fiscal 1996 compared to fiscal
1995. The increase is primarily due to increased use of contract labor. The
$510,000 increase in fiscal 1995 compared to fiscal 1994 was primarily in
salaries and benefits, $460,000, and amortization of other intangible assets,
$106,000.
RESEARCH AND DEVELOPMENT
Research and development expenses were $2,000,000, $2,498,000, and $2,029,000
in fiscal 1996, 1995, and 1994, respectively. These expenses were 19%, 19%,
and 18% of net revenues in the three years, respectively. The primary areas
that decreased in fiscal 1996 were salaries and benefits, $253,000; employee
relocation expenses, $109,000; facility overhead expenses, $70,000; travel and
entertainment, $30,000; and contract fees paid to external product developers,
$28,000. These decreases are predominantly associated with a department
realignment based on development teams and fewer management staff. The primary
areas which increased in fiscal 1995 compared to fiscal 1994 were salaries and
benefits, $369,000, and contract fees paid to external product developers,
$106,000. These expenses are predominantly associated with increased software
development activities.
<PAGE>
page 8
MANAGEMETN'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS - continued
WRITE-OFF OF INTANGIBLE ASSETS AND RESTRUCTURING EXPENSES
In fiscal 1996 the Company reported a one-time charge of $801,000. Of this
charge, $510,000 was related to the write-off of intangible assets. These
intangible assets were acquired in fiscal 1994 from Powercore, Inc., and were
determined to be impaired due to poor revenue performance and an assessment of
their recoverability through an analysis of undiscounted estimated future cash
flows. An additional expense of $184,000 was recorded, related to the write-off
of prepaid developer royalties that were expensed due to current and estimated
future decreasing revenues associated with the products. The remaining charge
of $107,000 relates to restructuring expenses associated with workforce
reductions and the consolidation of offices.
WRITE-OFF OF IN-PROCESS RESEARCH AND DEVELOPMENT AND OTHER ACQUISITION-RELATED
EXPENSES
A total of $3,039,000 of the purchase price of Powercore, Inc., was allocated to
in-process research and development. This cost was expensed at the time of the
acquisition and has been combined with $401,000 of other non-recurring
acquisition-related expenses on the statement of operations in fiscal 1994.
GAIN ON SALE OF JOINT VENTURE
In fiscal 1996 the Company sold its ownership interest in a joint venture,
4-Sight, L.C., and recorded a gain on the sale of $505,000.
INCOME TAX EXPENSE
The Company's effective rate of income tax benefit for fiscal 1996, 1995, and
1994 was 1%, 35%, and 35%, respectively. These benefits result from tax
operating loss carrybacks against earnings in fiscal 1993, 1992, and 1991. As
of the end of fiscal 1996, all operating loss carrybacks available to the
Company have been utilized. The Company has recorded a valuation allowance for
its operating loss carryforward until future taxable earnings are recorded.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased to $1,863,000 at the end of fiscal 1996,
from $1,335,000 at the end of fiscal 1995. The entire balance is invested in
one of two types of cash equivalents. A total of $724,000 is invested in a
money market fund, and $1,139,000 is invested through a repurchase agreement
arrangement which offers overnight liquidity and competitive returns.
Cash provided from operating activities was $616,000. Two primary sources of
cash from operating activities were non-cash expenses of depreciation and
amortization (including write-offs) of $1,559,000, and reductions in the level
of recoverable income taxes and trade accounts receivable of $1,258,000. Cash
of $250,000 was also provided from the sale of a joint venture, 4-Sight, L.C.,
and $467,000 was provided from the repayment of a note receivable from
4-Sight, L.C. Of the available cash, $467,000 was invested in the purchase of
property, fixtures and equipment, and $400,000 was paid to Common Knowledge,
Inc., for the purchase of software technology.
Cash and cash equivalents increased to $1,335,000 at the end of 1995, from
$343,000 at the end of fiscal 1994. Cash provided from operating activities was
$2,035,000. Of the cash generated, $795,000 was invested in the purchase of
property, fixtures and equipment. Included in this investment is the
acquisition of $225,000 of land adjacent to the Company's headquarters which
gives the Company an additional option for future expansion. In addition,
$845,000 was advanced by the Company to its joint venture, 4-Sight, L.C. These
advances were converted to a note in fiscal 1996 and are being repaid in
installments, the last of which is due March 31, 1997.
The Company believes it will be able to fund its working capital needs from
operations, available cash, and from its $2,000,000 line of credit facility.
RISK AND UNCERTAINTY
The preceding statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" 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 product upgrades may not be effected on a timely
basis, the risk that such product upgrades may not achieve market acceptance,
the risk that competitors will develop similar products and reach the market
first,and the risk that the Company would not be able to fund its working
capital needs from cash flow, or be able to borrow under its line of credit.
<PAGE>
page 9
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND STOCKHOLDERS
CE SOFTWARE HOLDINGS, INC.:
We have audited the accompanying consolidated balance sheets of CE Software
Holdings, Inc., and subsidiaries as of September 30, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended September 30, 1996.
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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CE Software
Holdings, Inc., and subsidiaries as of September 30, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended September 30, 1996, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Des Moines, Iowa
November 8, 1996
<PAGE>
page 10
CONSOLIDATED BALANCE SHEETS
CE Software Holdings, Inc., and Subsidiaries
September 30, 1996 and 1995
<TABLE>
<CAPTION>
Assets (note 3) 1996 1995
Current assets:
<S> <C> <C>
Cash and cash equivalents $1,862,703 1,334,739
Trade accounts receivable, less allowance for
doubtful accounts of $47,000 in 1996 and
$80,000 in 1995 (note 7) 1,454,887 2,369,133
Recoverable income taxes 208,185 552,384
Note receivable (note 1) 942,444 -
Inventories 471,597 493,570
Deferred income taxes (note 5) 119,000 165,000
Other current assets 321,971 381,197
Total current assets 5,380,787 5,296,023
Property, fixtures, and equipment:
Land 316,796 316,796
Building 1,311,104 1,307,050
Fixtures and equipment 3,025,500 2,911,849
4,653,400 4,535,695
Less accumulated depreciation 1,970,580 1,725,431
Net property, fixtures, and equipment 2,682,820 2,810,264
Investment in and advances to joint venture - 1,175,029
Deferred income taxes (note 5) 64,000 8,000
Purchased computer software technology,
net of amortization 384,098 336,087
Other intangible assets, net of amortization 411,439 1,075,471
Other assets 47,220 313,884
Total assets $8,970,364 11,014,758
</TABLE>
<PAGE>
page 11
CONSOLIDATED BALANCE SHEETS
CE Software Holdings, Inc., and Subsidiaries
September 30, 1996 and 1995
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1996 1995
Current liabilities:
<S> <C> <C>
Current portion of long-term debt (note 3) $ 41,133 34,793
Trade accounts payable 526,030 511,995
Accrued payroll and benefits 329,091 470,660
Other accrued payables 217,625 336,278
Deferred revenue 526,792 899,294
Total current liabilities 1,640,671 2,253,020
Long-term debt, net of current (note 3) 878,292 916,280
Total liabilities 2,518,963 3,169,300
Stockholders' equity (note 4):
Common stock, $.02 par value. Authorized
10,000,000 shares; issued and outstanding
5,617,128 in 1996 and 5,739,517 in 1995 112,343 114,790
Additional paid-in capital 6,038,758 6,031,801
Retained earnings 300,300 1,698,867
Total stockholders' equity 6,451,401 7,845,458
Total liabilities and stockholders equity $8,970,364 11,014,758
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
page 12
CONSOLIDATED STATEMENTS OF OPERATIONS
CE Software Holdings, Inc., and Subsidiaries
Years ended September 30, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net revenues (note 7) $10,437,520 12,919,124 11,384,940
Cost of revenues 1,722,261 2,015,269 1,496,838
Gross profit 8,715,259 10,903,855 9,888,102
Sales and marketing 4,112,293 5,026,791 4,026,928
General and administrative 3,782,374 3,755,702 3,245,324
Research and development 2,000,472 2,497,595 2,028,724
Write-off of intangible assets and
restructuring expenses (note 1) 800,746 - -
Write-off of in-process research and
development and other acquisition-
related expenses (note 2) - - 3,440,000
Operating expenses 10,695,885 11,280,088 12,740,976
Operating loss (1,980,626) (376,233) (2,852,874)
Other income (expense):
Interest income 175,968 112,185 112,828
Gain on sale of joint venture 504,926 - -
(Loss) earnings from joint
ventures (21,349) (325,504) 8,606
Interest expense (87,486) (92,766) (41,553)
Loss before income taxes (1,408,567) (682,318) (2,772,993)
Income tax benefit (note 5) (10,000) (239,759) (972,000)
Net loss $(1,398,567) (442,559) (1,800,993)
Loss per common share, primary
and fully diluted $(.24) (.08) (.32)
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Page 13
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CE Software Holdings, Inc., and Subsidiaries
Years ended September 30, 1996, 1995, and 1994
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings Total
<S> <C> <C> <C> <C>
Balances at September 30, 1993 $108,915 5,082,988 3,942,419 9,134,322
Common stock issued for
assets acquired (note 2) 5,875 948,813 - 954,688
Net loss - - (1,800,993) (1,800,993)
Balances at September 30, 1994 114,790 6,031,801 2,141,426 8,288,017
Net loss - - (442,559) (442,559)
Balances at September 30, 1995 114,790 6,031,801 1,698,867 7,845,458
Common stock issued upon
exercise of stock options 53 6,957 - 7,010
Common stock repurchased from
officer (note 4) (2,500) - - (2,500)
Net loss - - (1,398,567) (1,398,567)
Balances at September 30, 1996 $112,343 6,038,758 300,300 6,451,401
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
page 14
CONSOLIDATED STATEMENTS OF CASH FLOWS
CE Software Holdings, Inc., and Subsidiaries
Years ended September 30, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,398,567) (442,559) (1,800,993)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization:
Property, fixtures and equipment 542,615 522,331 429,439
Purchased software 351,989 397,268 220,945
Other 154,481 175,809 70,148
Write-off of Powercore, Inc., intangible
assets 509,551 - -
Write-off of prepaid developer royalties 184,442 - -
Undistributed loss (earnings) in
joint ventures 21,349 325,504 (8,606)
Gain on sale of joint venture (504,926) - -
Write-off of in-process research and
development - - 3,039,000
Deferred income taxes (10,000) (73,109) 13,000
Decrease (increase) in trade accounts
receivable 914,246 167,899 (638,734)
Decrease (increase) in recoverable income
taxes 344,199 445,049 (997,433)
Decrease (increase) in inventories 21,973 23,305 (36,419)
Decrease (increase) in other assets 188,690 221,473 (186,251)
Increase (decrease) in trade accounts payable 14,035 (179,115) 381,410
Decrease in income taxes payable - - (71,292)
(Decrease) increase in accrued expenses (260,222) (36,905) 146,848
(Decrease) increase in deferred revenue (372,502) 574,328 188,025
Other (85,156) (85,931) (9,997)
Net cash provided by operating activities 616,197 2,035,347 739,090
Cash flows from investing activities:
Purchase of assets of Powercore, Inc. (note 2) - - (3,884,301)
Proceeds from sale of equipment 21,222 3,795 16,867
Purchase of property, fixtures, and equipment (466,732) (794,518) (590,999)
Purchase of short-term investments - - (1,157,265)
Maturities of short-term investments - 629,331 1,592,653
Purchase of other intangible assets (400,000) (828) (63,723)
Purchase of other assets (30,000) - (93,655)
Proceeds from sale of joint venture 250,000 - -
Distributions from (investment in and advances
to) joint ventures, net 97,415 (845,000) (345,397)
Proceeds from note receivable 467,000 - -
Net cash used in investing activities (61,095) (1,007,220) (4,525,820)
</TABLE>
<PAGE>
page 15
CONSOLIDATED STATEMENTS OF CASH FLOWS
CE Software Holdings, Inc., and Subsidiaries
Years ended September 30, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from stock options exercised 7,010 - -
Payment for repurchase of common stock (2,500) - -
Proceeds from issuance of long-term debt - - 1,000,000
Payments on long-term debt (31,648) (36,547) (12,380)
Net cash (used in ) provided by
financing activities (27,138) (36,547) 987,620
Net increase (decrease) in cash
and cash equivalents 527,964 991,580 (2,799,110)
Cash and cash equivalents at beginning of year 1,334,739 343,159 3,142,269
Cash and cash equivalents at end of year $1,862,703 1,334,739 343,159
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $81,868 100,330 29,515
Income taxes 4,976 360,947 186,451
Supplemental schedule of non-cash investing and
financing activities:
Conversion of an advance to a joint venture to
a note receivable $1,401,000 - -
Repurchase of common stock from officer in
exchange for cancellation of note receivable
(note 4) 419,375 - -
Receipt of common stock as payment
on accounts receivable - - 143,614
</TABLE>
On May 9, 1994, the Company acquired substantially all the assets of Powercore,
Inc., and certain in-process research and development. Cash paid of $3,039,000
was allocated to in-process research and development and expensed at the time of
acquisition. The fair value of assets acquired was $1,926,077 through payment
of cash of $845,301, assumption of liabilities of $126,088 and issuance of
293,750 shares of common stock of $954,688 (see note 2).
See accompanying notes to consolidated financial statements.
<PAGE>
page 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CE Software Holdings, Inc., and Subsidiaries
September 30, 1996, 1995, and 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of CE Software
Holdings, Inc., and its wholly owned subsidiaries, CE Software, Inc., and
CE Distributing, Inc. (the Company). CE Software Holdings, Inc., exists
primarily as the stock holding company. CE Distributing, Inc., was
incorporated in November 1992, and its principal asset is a note receivable
from a joint venture. All remaining operations are accounted for by
CE Software, Inc. All significant intercompany balances and transactions
have been eliminated in consolidation.
OPERATIONS
The Company manufactures and sells computer system enhancing and network
productivity software for Apple Macintosh and IBM PC and compatible personal
computers.
RECLASSIFICATIONS
Certain items in financial statements of prior years have been reclassified
to conform to current year's presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management of the Company to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company considers
money market funds and repurchase agreements with a maturity of three months or
less at date of purchase to be the equivalent of cash. At September 30, 1996
and 1995, cash equivalents totaled $1,862,703 and $1,217,444, respectively.
INVENTORIES
Inventories are composed primarily of instruction manuals, diskettes, shipping
boxes, capitalized production cost, and software translation cost. Inventories
are stated at the lower of cost or market with cost determined using the
first-in, first-out method.
PROPERTY, FIXTURES, AND EQUIPMENT
Property, fixtures and equipment are stated at cost. Depreciation is calculated
on the straight-line method over the estimated useful lives of the assets as
follows: 31 1/2 years for building and five to seven years for fixtures and
equipment.
PURCHASED COMPUTER SOFTWARE TECHNOLOGY
Purchased computer software technology is amortized over a period of three to
five years based on the expected life of the related products. Amortization of
the cost is included in cost of revenues and was $351,989, $397,268, and
$220,945 for the years ended September 30, 1996, 1995, and 1994, respectively.
Accumulated amortization at September 30, 1996 and 1995, was $562,702 and
$660,713, respectively. The cost of internally developed software is expensed
as research and development expenses, as incurred.
In October 1995, the Company purchased computer software technology from Common
Knowledge, Inc., for cash of $400,000, and a two percent royalty fee on revenues
generated from the acquired technology over the next three years.
OTHER INTANGIBLE ASSETS
Amortization expense was $664,032 (which includes the write-offs discussed
below), $175,809, and $70,148 for the years ended September 30, 1996, 1995, and
1994, respectively. Accumulated amortization at September 30, 1996 and 1995,
was $212,384 and $245,957, respectively. The Company assesses the
recoverability of intangible assets through analysis of undiscounted cash flows.
Based on this analysis, an additional expense of $362,059 was taken against
goodwill and an additional expense of $147,492 was taken against a trade name in
fiscal 1996. Both of these assets are related to the acquisition of
Powercore, Inc. (note 2), and are fully amortized as ofSeptember 30, 1996.
This additional amortization expense is included in the statement of operations
within the $800,746 write-off of intangible assets and restructuring expenses.
The balance of other intangibles as of September 30, 1996, consists of the
following:
<PAGE>
page 17
<TABLE>
<CAPTION>
Accumulated
Cost amortization Net
<S> <C> <C> <C>
Customer list $540,100 186,470 353,630
Other intangibles 83,723 25,914 57,809
$623,823 212,384 411,439
</TABLE>
The customer list is being amortized over seven years.
CLASS B COMMON AND PREFERRED STOCK
The Company has authorized 3,000,000 shares of $.01 par value Class B common
stock and 2,000,000 shares of $.01 par value preferred stock. No shares of
either class of stock have been issued as of September 30, 1996.
REVENUE RECOGNITION
Revenue from software licenses is recognized upon shipment of the product, net
of an allowance for estimated product returns. The Company provides an
allowance for product returns based upon historical experience and anticipated
returns from its major distributors. The allowance for estimated product
returns at September 30, 1996 and 1995, was $31,100 and $56,900, respectively,
and is netted against trade accounts receivable in the consolidated balance
sheets.
Revenues associated with obligations to provide customers with future product
enhancements are deferred and recognized either pro rata over the term of the
respective agreements or, in the case of revenues associated with specific
upgrades, upon shipment of the upgraded products.
Post contract customer support (PCS) is provided with other software licenses,
but is not available separate from the license fee. Revenue equal to the
estimated costs of providing the PCS is deferred and recognized over the
estimated performance period. Other accrued payables at September 30, 1996 and
1995, include $153,028 and $183,581, respectively, of such deferrals.
ADVERTISING AND MARKETING
Advertising costs are expensed in the period the advertising takes place. For
the years ended September 30, 1996, 1995, and 1994, advertising and marketing
costs were $2,127,770, $2,683,401, and $2,033,345, respectively.
INVESTMENT IN JOINT VENTURES
CE Distributing, Inc., had a 50% interest in a joint venture, 4-Sight L.C. The
investment was accounted for under the equity method of accounting. Earnings
(losses) of $53,651, $(325,504), and $8,606 for the years ended
September 30, 1996, 1995, and 1994, respectively, are classified under other
income (expense) in the consolidated statements of operations. Effective
July 1, 1996, CE Distributing, Inc., sold its interest in 4-Sight, L.C., for
cash of $250,000. As of the closing date, August 31, 1996, the joint venture
had a payable to CE Distributing, Inc., in the amount of $1,401,000 that was
accruing interest at the prime rate. This payable resulted from advances, made
to provide working capital for the joint venture. On August 31, 1996, the
payable was assumed by the buyer, and converted to a note, payable in three
equal installments, plus accrued interest at 11%. The first installment was
paid on August 31, 1996, and the following two installments are payable on
December 31, 1996, and March 31, 1997. Interest earned on the advances and the
note in fiscal 1996, 1995, and 1994, was $115,495, $90,241, and $10,096,
respectively.
The Company continues to provide certain accounting, shipping and administrative
services to the joint venture under a separate service agreement.
In fiscal 1996, CE Software, Inc., acquired a 49% ownership interest in a
start-up joint venture, Net Target, Inc., for $75,000 in cash and certain
technology rights. The investment is accounted for under the equity method of
accounting and, as of September 30, 1996, the investment has a zero book value.
<PAGE>
page 18
NOTEES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
CE Software Holdings, Inc, and Subsidiaries
September 30, 1996, 1995, and 1994
INCOME TAXES
The Company files a consolidated federal income tax return. The Company
accounts for income taxes under the asset and liability method. Under the asset
and liability method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases, and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments," requires the Company to disclose the estimated
fair values for its financial instruments. Fair value estimates, methods, and
assumptions are set forth below:
Cash and cash equivalents, trade accounts receivable, note receivable, trade
accounts payable, and accrued expenses - The carrying amount approximates the
estimated fair value due to the short-term nature of those instruments.
Long-term debt - The carrying amount approximates the estimated fair value since
the debt bears interest at a variable interest rate.
Limitations - Fair value estimates are made as of a specific point in time,
based upon the relevant market information about the financial instruments.
Because no market exists for a majority of the Company's financial instruments,
fair value estimates are based on judgments regarding current economic
conditions and other factors. These estimates are subjective in nature and
involve uncertainties and matters of judgment and, therefore, cannot be
determined with precision. Changes in assumptions could significantly affect
the estimates.
LOSS PER COMMON SHARE
Loss per common share is computed by dividing the net loss by the weighted
average number of common and common equivalent shares outstanding during the
year for both primary and fully diluted computations. The weighted average
shares outstanding used for computing primary and fully diluted loss per common
share for each of the years ended September 30, 1996, 1995, and 1994, are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Primary:
Weighted average shares
outstanding during year 5,741,078 5,739,517 5,561,169
Additional shares due to
stock options 1,446 6,262 1,508
Additional shares due to
warrants - - 7
Shares used to compute primary
per share data 5,742,524 5,745,779 5,562,684
Fully diluted:
Weighted average shares
outstanding during year 5,741,078 5,739,517 5,561,657
Additional shares due to
stock options 3,015 8,154 3,612
Additional shares due to
warrants - - 9
Shares used to compute fully
diluted per share data 5,744,093 5,747,671 5,565,278
</TABLE>
EFFECT OF NEW FINANCIAL ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121), which
is effective for fiscal years beginning after December 15, 1995. SFAS 121
addresses the accounting for potential impairments of long-lived assets. The
effect of implementing SFAS 121 is expected to be immaterial to the Company's
financial position and results of operations.
<PAGE>
page 19
In October 1995, the FASB issued Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123). SFAS 123, which is
effective for fiscal years beginning after December 15, 1995, establishes
financial accounting and reporting requirements for stock-based employee
compensation plans. The effect of implementing SFAS 123 is expected to be
immaterial to the Company's financial position and results of operations.
(2) ACQUISITION
On May 9, 1994, CE Software, Inc., acquired substantially all the assets, and
in-process research and development of Powercore, Inc., a privately held
developer and manufacturer of computer software, for cash and 293,750 shares of
CE Software Holdings, Inc., common stock. The shares were issued subject to
certain registration rights to the holders and 250,000 of these shares are
currently held in escrow under the terms of the purchase agreement.
A summary of the total acquisition cost and the allocation to historical assets
and liabilities of Powercore, Inc., as of May 9, 1994, is a follows:
<TABLE>
<S> <C>
Cost of acquisition:
Cash payment for purchase of assets and
in-process research and development $3,816,000
Assumption of liabilities 126,088
Common stock issued 954,688
Legal fees 68,301
Amount to be allocated $4,965,077
Allocation as follows:
Tangible assets $ 142,400
Computer software technology 546,800
Trade name 172,400
Customer list 540,100
In-process research and development 3,039,000
Goodwill 524,377
$4,965,077
</TABLE>
The acquisition has been accounted for on the purchase method of accounting and
accordingly, the results of Powercore, Inc., from May 9, 1994, through
September 30, 1994, are included in the consolidated statements of operations.
Of the purchase price, the $3,039,000 allocated to in-process research and
development was expensed at the time of the acquisition and has been combined
with $401,000 of other non-recurring acquisition-related expenses in the
consolidated statement of operations.
Unaudited pro forma data for the year ended September 30, 1994, as though the
acquisition occurred on October 1, 1993, is as follows:
<TABLE>
<CAPTION>
1994
<S> <C>
Revenues $13,347,931
Net loss (1,614,929)
Net loss per share (.28)
</TABLE>
Included in the unaudited pro forma loss for 1994 is the write-off of in-process
research and development and other acquisition-related expenses, net of taxes,
in the amount of $2,236,000 or $.39 per share.
The Company and it's subsidiary, CE Software, Inc., are plaintiffs in a pending
legal proceeding against Powercore, Inc., and its principal owners. The
complaint alleges a breach of contract and fraud in connection with the purchase
by CE Software of
<PAGE>
page 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
assets of Powercore. The complaint was filed on February 22, 1996, in the
United States District Court for the Northern District of Illinois, Eastern
Division. Actual damages in excess of $7 million and punitive damages of
$25 million are claimed. Although management believes the claims are
meritorious, no assurance can be given that damages in such amounts, in any
substantial amount, or in any amount, will be recovered.
(3) LONG-TERM DEBT AND LINE OF CREDIT
On May 6, 1994, CE Software, Inc., received $1,000,000 under a bank loan
agreement. The interest rate on the loan is adjustable on each five-year
anniversary and bears a rate of 2.75% over the five-year U.S. Treasury note
rate. As of September 30, 1996, the rate was 9.18% per annum. The loan is
secured by a mortgage on the real estate, a security interest in all business
assets owned, and is guaranteed by CE Software Holdings, Inc. Terms provide for
monthly principal and interest payments of $10,320 on a 15-year amortization
schedule. Maturities during the next five fiscal years are as follows:
1997, $41,133; 1998, $45,072; 1999, $49,388; 2000, $54,118; and 2001, $59,301.
The bank loan agreement also provides a $2,000,000 credit line which expires
April 30, 1997. There was no outstanding balance on this line as of
September 30, 1996 and 1995. Under the bank loan agreement, the Company is
required to satisfy certain financial covenants and is restricted from certain
transactions (such as issuing dividends) without prior written consent of the
bank.
(4) COMMON STOCK
STOCK OPTION PLANS
The Company has three stock option plans: the 1990 Plan, the 1992 Plan and the
Non-employee Directors Stock Option Plan. The 1990 Plan granted options to
certain employees to purchase shares of common stock. Total shares of common
stock that may be subject to options under the 1990 Plan are 400,000 shares.
The 1992 Plan is available to all employees and options are granted at the
discretion of the stock option committee of the board of directors. Total
shares of common stock that may be subject to options under the 1992 Plan are
500,000 shares. The Non-employee Directors Stock Option Plan is available to
directors who are not also employees of the Company. Total shares of common
stock that may be subject to options are 100,000 shares. Under all plans, the
purchase price per share under any option granted cannot be less than the market
value at the date of the grant. Options granted under the plans shall expire
10 years from the date such option is granted. One third of the options are
exercisable one year after the grant date with the remaining two thirds
exercisable pro rata during the succeeding 24 months.
At September 30, 1996, total options outstanding were 398,761 of which 263,729
were exercisable. Options granted, exercised, and cancelled during fiscal
years 1996, 1995, and 1994, were at exercise prices ranging from $1.25 to $7.38,
$2.31 to $6.75, and $2.75 to $7.38, respectively. Options outstanding under the
plans are exercisable at prices ranging from $1.25 to $9.25. The number of
options outstanding during each of the three years ended September 30,1996,
1995, and 1994, are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Number of options:
Outstanding at beginning of year 738,598 690,981 668,037
Granted 181,884 93,500 124,000
920,482 784,481 792,037
Exercised 2,611 - -
Cancelled 519,110 45,883 101,056
Outstanding at end of year 398,761 738,598 690,981
</TABLE>
STOCK REPURCHASED FROM OFFICER
Under an employment agreement and related stock purchase agreement entered into
in fiscal 1993, the Company had a $419,375 non-interest-bearing note receivable
from the former president of CE Software, Inc., in exchange for 125,000 shares
of common stock. Cash was paid for the par value of the shares when purchased,
and the shares have been held by the
<PAGE>
page 21
Company as collateral security for the note. For presentation purposes in 1995
and 1994, the note receivable and the increase in additional paid-in capital
were combined and net to zero. Under the former president's separation
agreement, dated September 30, 1996, the 125,000 shares were repurchased and
cancelled through the payment of $2,500 for the par value and cancellation of
the note receivable.
(5) INCOME TAX BENEFIT
Income tax benefit for the years ended September 30, 1996, 1995, and 1994,
consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current $ - (166,650) (985,000)
Deferred (10,000) (73,109) 13,000
$(10,000) (239,759) (972,000)
</TABLE>
Current income tax benefit for 1996, 1995, and 1994, includes $800, $(9,759),
and $(59,000), of state income tax expense (benefit), respectively.
The income tax benefit for 1996, 1995, and 1994 differs from the "expected" tax
benefit computed by applying the United States federal income tax rate of 34%
to the loss before income taxes, as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Computed "expected" tax benefit $(478,912) (231,988) (942,818)
(Increase) decrease in "expected"
tax benefit resulting from:
State income tax, net of
federal income tax effect - (6,400) (38,900)
Operating loss carryforward
not recognized 459,422 - -
Other, net 9,490 (1,371) 9,718
$ (10,000) (239,759) (972,000)
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred income tax assets and liabilities at September 30, 1996 and
1995, are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax assets:
Allowance for product returns $ 10,600 28,700
Allowance for doubtful accounts 16,000 29,800
Accrued expenses 89,000 103,400
Intangible assets 384,000 109,300
Net operating loss carryforward
(expiring in 2011) 194,000 -
Other 3,400 2,800
Gross deferred tax assets 697,000 274,000
Valuation allowance (387,000) -
310,000 274,000
Deferred tax liabilities:
Accelerated depreciation for
tax purposes (127,000) (114,400)
Other - 13,400
Gross deferred tax liabilities (127,000) (101,000)
Net deferred tax assets $183,000 173,000
</TABLE>
<PAGE>
page 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
CE Software Holdings, Inc. and Subsidiaries
September 30, 1996, 1995, and 1994
The net deferred tax assets at September 30, 1996, were composed of net current
deferred tax assets of $119,000 and net non-current deferred tax assets of
$64,000. The increase in the total valuation allowance for the years ended
September 30, 1996, 1995, and 1994, was $387,000, $0, and $0, respectively.
The Company has previously been profitable and was profitable during the year
ended September 30, 1994, excluding the write-off of in-process research and
development and other acquisition-related expenses (note 2). In addition,
during the year ended September 30, 1996, the Company has streamlined and
refocused its operations. Accordingly, management believes it is more likely
than not that results of future operations will generate sufficient taxable
income to realize the net deferred tax asset recorded at September 30, 1996.
(6) 401(k) PROFIT-SHARING PLAN
The Company has a 401(k) profit-sharing plan covering substantially all of its
employees. The profit-sharing component of the plan is funded by employer
contributions at the discretion of the board of directors. There was no
profit-sharing contribution for the years ended September 30, 1996 and 1995.
The profit-sharing expense for the year ended September 30, 1994, was $96,574.
Effective March 1, 1994, the plan was amended to include a 401(k) component that
allows qualified employees to contribute between 1% and 10% of their
compensation. The Company, at the discretion of the board of directors, can
make matching contributions to the accounts of qualified employees who have met
the one year of service requirement. Employer contributions for the years ended
September 30, 1996, 1995, and 1994, were $79,188, $71,524, and $52,354,
respectively.
(7) MAJOR CUSTOMERS AND EXPORT SALES
The Company's revenues (which are primarily from software sales for Apple
Macintosh personal computers) are primarily related to its messaging product
group, which represented 76%, 69%, and 61% of total revenues for the years ended
September 30, 1996, 1995 and 1994, respectively.
The Company's major customers are distributors. Of its domestic revenues, sales
to one distributor customer in 1996, 1995, and 1994 were approximately
$2,024,000, $2,418,000, and $2,416,000, respectively; sales to another domestic
distributor customer for each year were approximately $347,000, $812,000, and
$1,026,000, respectively. Accounts receivable from these two distributor
customers at September 30, 1996 and 1995 were approximately $735,000 and
$637,000, respectively.
Virtually all export sales are to distributors. Export sales were approximately
$2,606,000, $3,146,000, and $2,379,000 for the years ended September 30, 1996,
1995, and 1994, respectively. Sales to two export distributor customers
represented approximately $566,000 and $360,000 or 5% and 3% of net revenues in
fiscal 1996. Sales to one export distributor customer represented approximately
$1,466,000 or 11% of net revenues in fiscal 1995. Percentage components of
export sales by geographic area for 1996, 1995, and 1994, respectively, were
Europe (64, 44, and 53 percent); Japan (27, 49, and 35 percent); Australia
(8, 6, and 9 percent); and all others (1, 1, and 3 percent).
<PAGE>
page 23
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of November 30, 1996, there were 347 stockholders of record. The Company
believes that it has approximately 2,400 beneficial stockholders. The Company
has never paid cash dividends on its stock and anticipates it will continue to
retain earnings for use in the growth and operation of its business. Under the
Company's loan agreement, the bank requires prior approval before any dividends
can be paid.
The Company's common stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market under the symbol: CESH. The following table sets forth the
range of high and low sales prices per share of common stock for the last two
fiscal years as provided by Nasdaq.
<TABLE>
<CAPTION>
Quarter ended: Common stock
Low High
<S> <C> <C>
September 30, 1996 $0.984 $2.000
June 30, 1996 1.750 2.875
March 31, 1996 2.125 3.375
December 31, 1995 1.375 3.938
September 30, 1995 1.531 2.875
June 30, 1995 2.500 3.375
March 31, 1995 2.125 3.750
December 31, 1994 1.781 3.125
</TABLE>
<PAGE>
page 24
OFFICERS AND DIRECTORS
(THE PHOTO OF EASH INDIVIDUAL LISTED BELOW IS SHOWN TO THE LEFT OF THEIR NAME)
CE SOFTWARE HOLDINGS, INC. CE SOFTWARE, INC., AND
CE DISTRIBUTING, INC.
Richard A. Skeie Richard A. Skeie
President and Director President, Chief Executive Officer,
and Director
John S. Kirk Donald M. Brown
Secretary, Treasurer, Vice President
Chief Financial Officer, and
Director
Donald M. Brown Curtis W. Lack
Vice President Secretary, Treasurer, and
Chief Financial Officer
Stanford H. Goodman Christian F. Gurney
Director; Vice President of
President, Net Target, Inc. Product Lines
San Francisco, CA
Sheldon T. Fleck John S. Kirk
Director; Director
Private Investor
Minneapolis, MN Sheldon T. Fleck
Director
David J. Lundquist
Director; David J. Lundquist
Managing Partner, Director
Lundquist, Schiltz and Associates
Des Moines, IA
<PAGE>
page 25
STOCKHOLDER INFORMATION
COMPANY PROFILE
CE Software Holdings, Inc., and subsidiaries, headquartered in West Des Moines,
Iowa, design, develop, publish, market, and support a product line of commercial
software for personal computers to enhance office communications, connectivity,
and productivity of business and home users.
CORPORATE INFORMATION AND
INVESTOR INFORMATION
Please visit the company's Web site at:
http://www.cesoft.com
or direct inquiries to:
Investor Relations
CE Software Holdings, Inc.
P.O. Box 65580
West Des Moines, IA 50265
(515) 221-1801
STOCK TRADING
CE Software Holdings, Inc.'s common stock is traded on the Nasdaq National
Market tier of The Nasdaq Stock Market under the symbol: CESH.
SEC FORM 10-KSB
A copy of the Company's Annual Report on Form 10-KSB for the fiscal year ended
September 30, 1996, is available free of charge on the Securities and Exchange
Commission's Web site at:
http://www.sec/gov/cgi-bin/srch-edgar
or by writing to:
Investor Relations
CE Software Holdings, Inc.
P.O. Box 65580
West Des Moines, IA 50265
TRANSFER AGENT AND REGISTRAR
Norwest Bank Minnesota, N.A.
Stock Transfer
161 North Concord Exchange
P.O. Box 738
South St. Paul, MN 55075
(612) 450-4064
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
2500 Ruan Center
Des Moines, IA 50309
LEGAL COUNSEL
Davis, Brown, Koehn, Shors, & Roberts, P.C.
2500 Financial Center
Des Moines, IA 50309
ANNUAL MEETING
The Annual Meeting of Stockholders will be held at 1:30 p.m. on Friday,
February 28, 1997, at the Des Moines Golf and Country Club, West Des Moines,
Iowa.
CE Software Holdings, Inc., is committed to equal employment opportunity and
affirmative action.
Copywrite 1997 CE Software Holdings, Inc. All rights reserved
CalendarMaker, QuickMail, TimeVision NS and WebArranger are trademarks and
QuicKeys and Network Scheduler are registered tradmarks of CE Software, Inc.
All other brand or product names are trademarks or registered trademarks of
their respective holders.
<PAGE>
CE Software Holdings, Inc.
1801 Industrial Circle
P.O. Box 65580
West Des Moines, IA 50265
(515) 221-1801
http://www.cesoft.com
<PAGE>
