<PAGE>
U. S. 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, 1996.
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. 0-18809
________________________________________________________________
CE SOFTWARE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 41-1614808
(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, 1996 Class A 5,742,128
Class B 0
<PAGE>
CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
Contents
Part I FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets
June 30, 1996 and September 30, 1995..................... 3
Consolidated Statements of Operations
Three and Nine Months Ended June 30, 1996 and 1995....... 4
Consolidated Statements of Cash Flows
Nine Months Ended June 30, 1996 and 1995................. 5
Notes to Consolidated 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................. 12
SIGNATURES................................................. 12
<PAGE>
CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1996 and September 30, 1995
(Unaudited)
ASSETS: June 30 September 30
Current assets:
Cash and cash equivalents $1,097,931 1,334,739
Trade accounts receivable, net 1,335,365 2,369,133
Recoverable income taxes 620,185 552,384
Inventories 447,883 493,570
Deferred income taxes 165,000 165,000
Other current assets 231,039 381,197
Total current assets 3,897,403 5,296,023
Property, fixtures and equipment:
Land 316,796 316,796
Building 1,307,050 1,307,050
Fixtures and equipment 2,989,653 2,911,849
4,613,499 4,535,695
Less accumulated depreciation 1,836,873 1,725,431
Net property and equipment 2,776,626 2,810,264
Investment in and advances to joint venture 1,175,642 1,175,029
Deferred income taxes 29,000 8,000
Purchased computer software technology, net (note 3) 462,998 336,087
Other intangible assets, net 433,719 1,075,471
Other assets 16,295 313,884
$ 8,791,683 11,014,758
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of long-term debt $40,447 34,793
Trade accounts payable 329,957 511,995
Accrued payroll and benefits 424,199 470,660
Other accrued expenses 318,911 336,278
Deferred revenue 722,971 899,294
Total current liabilities 1,836,485 2,253,020
Long-term debt, net of current portion 885,474 916,280
Total liabilities 2,721,959 3,169,300
Stockholders' equity (note 2):
Common stock, $.02 par value. Authorized 10,000,000
shares; issued and outstanding 5,742,128 114,843 114,790
Additional paid-in-capital 6,038,758 6,031,801
Retained (deficit) earnings (83,877) 1,698,867
Total stockholders' equity 6,069,724 7,845,458
$ 8,791,683 11,014,758
See accompanying notes to consolidated financial statements.
3
<PAGE>
CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the three and nine months ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30 Nine Months Ended June 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net revenues $2,259,718 2,757,333 7,949,824 9,896,173
Cost of revenues 433,557 554,293 1,376,840 1,543,187
Gross profit 1,826,161 2,203,040 6,572,984 8,352,986
Sales and marketing 1,091,809 1,368,550 3,222,043 3,797,534
General and administrative 954,048 947,077 2,976,819 2,878,129
Research and development 535,999 643,828 1,558,429 1,947,634
Write-off of intangible assets and
restructuring expenses (note 4) 800,746 - 800,746 -
Operating expenses 3,382,602 2,959,455 8,558,037 8,623,297
Operating loss (1,556,441) (756,415) (1,985,053) (270,311)
Other income (expense):
Equity in earnings (loss) of joint venture 8,416 (168,310) 53,651 (79,387)
Miscellaneous income - 44 522 2,031
Interest expense (22,947) (25,162) (67,481) (69,425)
Interest income 42,848 27,227 129,617 65,429
Loss before income taxes (1,528,124) (922,616) (1,868,744) (351,663)
Income tax benefit - (308,000) (86,000) (120,759)
Net loss $(1,528,124) (614,616) (1,782,744) (230,904)
Average common shares outstanding 5,742,000 5,749,732 5,742,000 5,747,866
Net Loss per share $(.27) (.11) (.31) (.04)
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the nine months ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,782,744) (230,904)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization:
Property, fixtures and equipment 409,207 383,198
Purchased software technology 273,089 329,201
Other 132,201 131,718
Write-off of Powercore, Inc. intangible assets 509,551 0
Undistributed (earnings) loss of joint venture (53,651) 79,387
Deferred income taxes (21,000) (57,109)
Decrease in trade accounts receivable 1,033,768 581,103
Increase in recoverable income taxes (67,801) (363,076)
Decrease (increase) in inventories 45,687 (41,079)
Decrease (increase) in other receivables and
other assets 438,096 (54,000)
Decrease in accounts payable and accrued
expenses (245,866) (97,400)
(Decrease) increase in deferred revenue (176,323) 134,674
Other (46,286) (58,899)
Net cash provided by operating activities 447,928 736,814
Cash flows from investing activities:
Proceeds from sale of property, fixtures and equipment 9,962 700
Purchase of computer software technology (400,000) 0
Purchase of property, fixtures and equipment (426,556) (710,933)
Maturities of short-term investments 0 629,331
Advances received from (paid to) joint venture 150,000 (845,000)
Net cash used in investing activities (666,594) (925,902)
Cash flows from financing activities:
Proceeds from stock options exercised 7,010 0
Payment of long-term debt (25,152) (27,385)
Net cash used in financing activities (18,142) (27,385)
Net decrease in cash and cash equivalents (236,808) (216,473)
Cash and cash equivalents at beginning of period 1,334,739 343,159
Cash and cash equivalents at end of period $1,097,931 126,686
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $67,724 77,232
Income taxes $4,976 256,116
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1996
(Unaudited)
1) Results of Operations
During interim periods, CE Software Holdings, Inc. follows the accounting
policies set forth in its Annual Report to Stockholders and its Report on
Form 10-KSB 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 Annual Report to Stockholders when reviewing
interim financial results.
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) Stockholders' Equity
At June 30, 1996, options to purchase an aggregate of 714,261 shares at
exercise prices from $1.97 to $9.25 per share were outstanding.
3) Purchased Computer Software Technology
In October 1995, CE Software, Inc. acquired certain software technology from
Common Knowledge, Inc. for cash of $400,000 and a 2% royalty fee on revenues
generated from the acquired technology over the next three years.
4) Write-off of Intangible Assets and Restructuring Expenses
In the third quarter of fiscal 1996 the Company reported a one-time charge of
approximately $801,000. Of this charge, $510,000 relates 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 continued 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 in the quarter 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.
6
<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 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 the
quarters and nine month periods ended June 30, 1996 and 1995.
Quarter Ended June 30, Nine Months Ended June 30
1996 1995 1996 1995
Percentage of net revenues:
Net revenues 100% 100% 100% 100%
Cost of revenues 19 20 17 16
Gross profit 81 80 83 84
Sales and marketing 48 50 41 38
General and administrative 42 34 37 29
Research and development 24 23 20 20
Write-off of intangible assets and
restructuring expenses 36 0 10 0
Total operating expenses 150 107 108 87
Operating loss (69) (27) (25) (3)
Other income, net 1 (6) 2 0
Loss before income taxes (68) (33) (23) (3)
Income tax benefit 0 (11) (1) (1)
Net loss (68)% (22)% (22)% (2)%
Three Month Analysis
Net Revenues
Net revenues for the third quarter of the current year were $2,260,000
compared to $2,757,000 for the third quarter of the prior year. The 18.0%
decrease in net revenues was due to a $221,000 decrease in revenues from the
Company's Personal Agent products, a $139,000 decrease in revenues from the
Company's Group Agent products, and a $137,000 decrease in revenues from the
Company's Workgroup Agent products. The decreased revenues in the Personal
Agents (utilities and applications) products was due to reduced revenues from
7
<PAGE>
QuicKeys, partially offset by additional revenues from WebArranger. Sales of
QuicKeys is down in anticipation of the product upgrade scheduled for the
fourth quarter. Revenues in the Company's core Group Agent (messaging)
products were down 6.8% Revenues from Workgroup Agents (calendaring and
scheduling) products decreased as we scaled back marketing efforts and directed
the product to only smaller PC-focused workgroups. This action was necessary
due to technical barriers making the launch of TimeVision NS into large
enterprises more difficult than projected.
Net revenues from international channels showed a slight decrease to
approximately $678,000 from $698,000 in the third quarter of the prior year,
representing 30% and 25% of total net revenues, respectively.
Cost of Revenues
The Company's cost of revenues is composed primarily of the costs of manuals,
diskettes, packaging, 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.
Gross profit as a percentage of net revenues was 81% and 80% in the third
quarter of fiscal 1996 and 1995, respectively. The increase in the third
quarter of fiscal 1996 is primarily due to a slightly lower software
amortization expense.
Sales and Marketing
Sales and marketing expenses decreased by $277,000 in the third quarter of
fiscal 1996 compared to the third quarter of fiscal 1995. The decrease was in
marekting/advertising expenses which were reduced by $286,000. This
decrease was due to significantly less advertising in industry publications that
was partially offset by more direct mail campaigns.
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 third quarter increased 0.7% or $7,000 from
the third quarter of the prior year. The slight increase is primarily in
contract labor, $64,000, which was partially offset by decreases in salaries and
benefits, $58,000. The increase in contract labor was due to both greater use
of temporary help within our internal systems development staff and consultants
hired to assist with product management of the technology acquired from Common
Knowledge, Inc.
8
<PAGE>
Research and Development
Research and development expenses decreased to $536,000 in the third quarter
of the current year from $644,000 in the third quarter of the prior year,
representing 24% and 23% of net revenues, respectively. The primary areas
that decreased in the third quarter of fiscal 1996 were salaries and benefits,
$77,000 and employee relocation expenses, $24,000. These decreases are
predominantly associated with a department realignment based on development
teams and less management staff.
Write-off of Intangible Assets and Restructuring Expenses
In the third quarter of fiscal 1996 the Company reported a one-time charge of
approximately $801,000. Of this charge, $510,000 relates 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 continued 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 in the quarter 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.
Income Tax Expense
The Company recorded no income tax benefit associated with the third quarter
loss, as doing so would have resulted in recognizing the benefit of an operating
loss carryforward for federal tax purposes. The Company has recorded a
valuation allowance until future taxable earnings are recorded.
Nine Month Analysis
Net Revenues
Net revenues for the first nine months of the current year were $7,950,000
compared to $9,896,000 for the same period last year. The 19.7% decrease in
net revenues was due to a $1,002,000 decrease in revenues from the Company's
Personal Agent products, a $680,000 decrease in revenues from the Company's
Workgroup Agent products and a $264,000 decrease in revenues from the
Company's core Group Agent (messaging) products. The decreased revenues in
Personal Agents (utilities and applications) products was due to reduced
revenues from QuicKeys, partially offset by additional revenues from
WebArranger. Sales of QuicKeys is anticipated to improve as the result of
our recently announced product upgrade. Revenues from Workgroup Agents
(calendaring and scheduling) products decreased as we scaled back marketing
9
<PAGE>
efforts and directed the product to only smaller PC-focused workgroups.
This action was necessary due to technical barriers making the launch of
TimeVision NS into large enterprises more difficult than projected.
International net revenues decreased to $2,080,000 in the first nine months of
the current year from $2,635,000 in first nine months of the prior year,
representing 26% and 27% of net revenues, respectively. The decrease was
primarily within the Japanese market.
Cost of Revenues
The Company's cost of revenues is composed primarily of the costs of manuals,
diskettes, packaging, royalties paid to outside developers from the use of
certain software included with some of the Company's products, and
amortization of capitalized purchased software.
Gross profit as a percentage of net revenues was 83% and 84% in the first nine
months of fiscal 1996 and 1995, respectively. The slight decrease in fiscal
1996 is mainly due to higher royalty expense paid to outside developers and
somewhat higher amortization expense associated with purchased software.
Sales and Marketing
Sales and marketing expenses decreased $575,000 in the first nine months of
fiscal year 1996 compared to the same period last year. This decrease is
primarily in marketing/advertising expense, $399,000; salaries and benefits,
$73,000; facility overhead expenses, $51,000; and travel and entertainment,
$37,000. The decrease in marketing/advertising expense was due to
significantly less advertising in industry publications and partially offset by
significantly more direct mail campaigns. The decrease in salaries and benefits
is due to both lower sales commissions and a slightly smaller staff. The
decrease in facility overhead expenses and travel and entertainment expense was
also due to a smaller staff.
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 nine months increased 3.4% or $99,000
from the same period last year. The increase is primarily in contract labor,
$135,000, and legal and accounting expenses, $25,000. These increases were
partially offset by decreases in salaries and benefits, $61,000. The increase
in contract labor was due to both greater use of temporary help within our
internal systems development staff and consultants hired to assist with
product management of the technology acquired from Common Knowledge, Inc.
10
<PAGE>
Research and Development
Research and development expenses decreased to $1,558,000 for the first nine
months of the current year from $1,948,000 in the same period last year,
representing 20% of net revenues in both periods. The primary areas that
decreased in the first nine months of fiscal 1996 were salaries and benefits,
$180,000; employee relocation expenses, $101,000; contract fees paid to
external product developers, $28,000; facility overhead expenses, $48,000; and
travel and entertainment, $32,000. These decreases are predominately
associated with a department realignment based on development teams and less
management staff.
Income Tax Expense
The Company's effective rate of income tax benefit for the first nine months of
fiscal 1996 was 4.6% This benefit reflects the use of all remaining operating
loss carrybacks available to the company. The Company has recorded a
valuation allowance for operating loss carrybacks until future taxable earnings
are recorded.
Liquidity and Capital Resources
Cash and cash equivalents decreased by $237,000 to $1,098,000 at the end of
the first nine months of fiscal 1996 from $1,335,000 at the end of fiscal
1995. The primary source of cash generated was $448,000 provided from operating
activities. Of the available cash, $400,000 was paid to Common Knowledge,
Inc. for the purchase of software technology and $427,000 was invested in the
purchase of property and equipment. The Company believes it can fund its
working capital needs from operations, available cash, and from its $2,000,000
line of credit, against which the Company has no borrowings as of June 30,
1996.
Risk and Uncertainty
The preceding statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Three Month Analysis-Net
Revenues; and Nine Month Analysis-Net Revenues; and Liquidity and Capital
Resources" 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 product upgrades may not be effected on a timely
basis, the risk that such product upgrades may not achieve market acceptance,
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.
11
<PAGE>
CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Computation of Earnings per Common Share....Page 14
27 Financial Data Schedule - for SEC filing only
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended
June 30, 1996.
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 HOLDINGS, INC.
(Registrant)
Signature Title Date
/s/ Richard A. Skeie July 31, 1996
_________________________ President, Chief Executive ______________
(Richard A. Skeie) Officer and Director
/s/ John S. Kirk July 31, 1996
_________________________ Secretary and Treasurer, ______________
(John S. Kirk) Chief Financial Officer,
and Chief Accounting
Officer
12
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
11 Computation of Earnings per Common Share Page 14
27 Financial Data Schedule - for SEC filing only
13
<PAGE>
EXHIBIT 11
CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Primary Earnings
per Share Information:
Weighted average number of
shares outstanding during
the quarter 5,742,128 5,739,517 5,741,181 5,739,517
Annualized additional shares
due to stock options 1,327 10,215 1,403 8,349
5,743,455 5,749,732 5,742,584 5,747,866
Net loss $(1,528,124) $(614,616) $(1,782,744) $(230,904)
Primary loss per share $(.27) $(.11) $(.31) $(.04)
Fully Diluted Earnings
per Share Information:
Weighted average number of
shares outstanding during
the quarter 5,742,128 5,739,517 5,741,181 5,739,517
Annualized additional shares
due to stock options 1,327 10,216 2,465 10,872
5,743,455 5,749,733 5,743,646 5,750,389
Net loss $(1,528,124) $(614,616) $(1,782,744) $(230,904)
Fully diluted loss per share $(.27) $(.11) $(.31) $(.04)
</TABLE>
14
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,097,931
<SECURITIES> 0
<RECEIVABLES> 1,414,616
<ALLOWANCES> 79,251
<INVENTORY> 447,883
<CURRENT-ASSETS> 3,897,403
<PP&E> 4,613,499
<DEPRECIATION> 1,836,873
<TOTAL-ASSETS> 8,791,683
<CURRENT-LIABILITIES> 1,836,485
<BONDS> 885,474
0
0
<COMMON> 114,843
<OTHER-SE> 5,954,881
<TOTAL-LIABILITY-AND-EQUITY> 8,791,683
<SALES> 7,949,824
<TOTAL-REVENUES> 7,949,824
<CGS> 1,376,840
<TOTAL-COSTS> 1,376,840
<OTHER-EXPENSES> 8,374,247
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67,481
<INCOME-PRETAX> (1,868,744)
<INCOME-TAX> (86,000)
<INCOME-CONTINUING> (1,782,744)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,782,744)
<EPS-PRIMARY> (.31)
<EPS-DILUTED> (.31)
</TABLE>
