<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 March 31, 1997.
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.
April 30, 1997 Class A 5,627,028
Class B 0
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CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
Contents
Part I FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets
March 31, 1997 and September 30,1996..............................3
Consolidated Statements of Operations
Three and Six Months Ended March 31, 1997 and 1996................4
Consolidated Statements of Cash Flows
Six Months Ended March 31, 1997 and 1996..........................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 4. Submission of Matters to a Vote of Security Holders....... 11
Item 6. Exhibits and Reports on Form 8-K...........................12
SIGNATURES...........................................................12
<PAGE>
CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1997 and September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
ASSETS: March 31 September 30
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,852,222 1,862,703
Short-term investments 282,856 -
Trade accounts receivable, net 1,161,536 1,454,887
Recoverable income taxes 22,599 208,185
Note receivable - 942,444
Inventories 507,596 471,597
Deferred income taxes 107,000 119,000
Other current assets 302,452 321,971
Total current assets 4,236,261 5,380,787
Property, fixtures, and equipment:
Land 316,796 316,796
Building 1,312,110 1,311,104
Fixtures and equipment 3,000,809 3,025,500
4,629,715 4,653,400
Less accumulated depreciation 2,186,158 1,970,580
Net property, fixtures, and equipment 2,443,557 2,682,820
Deferred income taxes 76,000 64,000
Purchased computer software technology, net 226,298 384,098
Other intangible assets, net 366,879 411,439
Other assets 68,170 47,220
$7,417,165 8,970,364
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of long-term debt $42,331 41,133
Trade accounts payable 224,894 526,030
Accrued payroll and benefits 298,703 329,091
Other accrued expenses 156,327 217,625
Deferred revenue 303,000 526,792
Total current liabilities 1,025,255 1,640,671
Long-term debt, net of current portion 856,418 878,292
Total liabilities 1,881,673 2,518,963
Stockholders' equity (note 2):
Common stock, $.02 par value. Authorized
10,000,000 shares; issued and outstanding
5,627,028 and 5,617,128 112,541 112,343
Additional paid-in-capital 6,052,792 6,038,758
(Accumulated deficit) retained earnings (629,841) 300,300
Total stockholders' equity 5,535,492 6,451,401
$7,417,165 8,970,364
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 3
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CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the three and six months ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31, Six Months Ended March 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net revenues $1,668,303 3,001,574 3,674,365 5,690,106
Cost of revenues 274,950 510,512 604,661 943,283
Gross profit 1,393,353 2,491,062 3,069,704 4,746,823
Sales and marketing 958,044 1,107,805 1,908,991 2,130,234
General and administrative 644,666 1,028,618 1,358,575 2,022,249
Research and development 363,088 505,474 766,975 1,022,430
Operating expenses 1,965,798 2,641,897 4,034,541 5,174,913
Operating loss (572,445) (150,835) (964,837) (428,090)
Other income (expense):
Equity in (loss) earnings
of joint venture - (33,281) - 45,235
Interest expense (20,480) (22,518) (42,097) (44,534)
Interest income 30,739 42,062 76,793 86,769
Loss before income taxes (562,186) (164,572) (930,141) (340,620)
Income tax benefit - 41,000 - 86,000
Net loss $(562,186) (123,572) (930,141) (254,620)
Average common shares
outstanding 5,627,028 5,743,691 5,624,661 5,742,149
Net loss per share $(.10) (.02) (.17) (.04)
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 4
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CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the six months ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net loss $(930,141) (254,620)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Depreciation and amortization:
Property, fixtures, and equipment 264,625 269,331
Purchased software technology 157,800 191,689
Other 44,560 88,180
Undistributed earnings of joint venture - (45,235)
Deferred income taxes - (7,000)
Decrease in trade accounts receivable 293,351 532,513
Decrease (increase) in recoverable income taxes 185,586 (83,805)
(Increase) decrease in inventories (35,999) 9,112
(Increase) decrease in other receivables and
other assets (1,431) 188,113
Decrease in accounts payable and accrued
expenses (392,822) (162,069)
Decrease in deferred revenue (223,792) (240,373)
Other 35,293 (52,604)
Net cash (used in) provided by operating
activities (602,970) 433,232
Cash flows from investing activities:
Proceeds from sale of property,
fixtures, and equipment 12,816 3,199
Purchase of computer software technology - (400,000)
Purchase of property, fixtures, and equipment (65,027) (294,792)
Purchases of short-term investments (282,856) -
Advances received from joint venture - 150,000
Proceeds from note receivable 934,000 -
Net cash provided by (used in)
investing activities 598,933 (541,593)
Cash flows from financing activities:
Proceeds from stock options exercised - 7,010
Proceeds from issuance for common stock 14,232 -
Payment of long-term debt (20,676) (17,141)
Net cash used in financing activities (6,444) (10,131)
Net decrease in cash and cash equivalents (10,481) (118,492)
Cash and cash equivalents at beginning of period 1,862,703 1,334,739
Cash and cash equivalents at end of period $1,852,222 1,216,247
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $41,242 44,478
Income taxes - 4,976
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 5
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CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1997
(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 March 31, 1997, options to purchase an aggregate of 776,311 shares at
exercise prices from $.88 to $9.25 per share were outstanding.
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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 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 six month periods ended March 31, 1997 and 1996.
Quarter Ended March 31, Six Months Ended March 31,
1997 1996 1997 1996
Percentage of net revenues:
Net revenues 100% 100% 100% 100%
Cost of revenues 16 17 16 17
Gross profit 84 83 84 83
Sales and marketing 57 37 52 37
General and administrative 39 34 37 36
Research and development 22 17 21 18
Total operating expenses 118 88 110 91
Operating loss (34) (5) (26) (8)
Other income, net 0 0 1 2
Loss before income taxes (34) (5) (25) (6)
Income tax benefit 0 (1) 0 (2)
Net loss (34)% (4)% (25)% (4)%
Three Month Analysis
Net Revenues
Net revenues for the second quarter of the current year were $1,668,000 compared
to $3,001,000 for the second quarter of the prior year. The 44% decrease in
revenues was due to a $1,009,000, or 43% decrease in revenues from the Company's
Messaging products; a $262,000, or 45% decrease in revenues from the Company's
Personal Applications products; and a $62,000, or 67% decrease in revenues from
the Company's Calendaring and Scheduling products.
Revenues from Messaging products accounted for 79% of total net revenues. In
Management's opinion, these revenues were negatively impacted by a continued
weak Macintosh market. Going forward the Company's crossplatform Messaging
product, QuickMail Pro, will not be tied to the success of the Macintosh market.
Revenues in the prior year, from these products, were positively impacted by the
release of QuickMail version 3.6, in March of 1996. Revenues from Personal
Applications products
Page 7
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were negatively impacted by reduced sales of WebArranger. This decrease was
partially offset by an increase in revenues from QuicKeys. Revenues from
Calendaring and Scheduling products accounts for only 2% and 3% of net revenues
during the second quarter of fiscal 1997 and 1996, respectively.
Net revenues from international channels decreased to approximately $441,000
from $793,000 in the second quarter of the prior year, representing 26% of total
net revenues in both periods.
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.
Gross profit as a percentage of net revenues was 84% and 83% in the second
quarter of fiscal 1997 and 1996, respectively. The improvement in the second
quarter of fiscal 1997 is mainly due to a somewhat lower royalty expense paid
to outside developers.
Sales and Marketing
Sales and marketing expenses decreased $150,000 during the second quarter of
fiscal 1997 compared to the second quarter of fiscal 1996. This decrease was
primarily in marketing/advertising expense, $120,000, and salaries and benefits,
$33,000. The decrease in marketing/advertising expense was primarily due to
significantly less direct mail campaigns. The decrease in salaries and benefits
was due to both lower sales commissions and 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 second quarter decreased 37% or $384,000 from
the second quarter of the prior year. The decrease was primarily in salaries
and benefits, $195,000; contract labor, $118,000; rent, $26,000; and
amortization expense, $22,000. The decreases are primarily due to smaller staff
levels, fewer consultants, and less executive salaries.
Research and Development
Research and development expenses decreased to approximately $363,000 in the
second quarter of the current year from $505,000 in the second quarter of the
prior year, representing 22% and 17% of net revenues, respectively. The primary
area that decreased in the second quarter of fiscal 1997 was salaries and
benefits, $114,000. This decrease was predominantly associated with a somewhat
smaller staff. Staff reductions were the result of a more focused development
effort.
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Income Tax Benefit
The Company recorded no income tax benefit for the second quarter of fiscal
1997. The Company has utilized all available net operating loss carrybacks and
has recorded a valuation allowance for its net operating loss carryforward until
future taxable earnings are recorded.
Six Month Analysis
Net Revenues
Net revenues for the first six months of the current year were $3,674,000
compared to $5,690,000 for the same period last year. The 35% decrease in net
revenues was due to a $1,536,000, or 35% decrease in revenues from the Company's
Messaging products; a $367,000, or 32% decrease in revenues from the Company's
Personal Applications products; and a $113,000, or 68% decrease in revenues from
the Company's Calendaring and Scheduling products.
Revenues from Messaging products accounted for 77% of total net revenues. In
Management's opinion, these revenues were negatively impacted by a continued
weak Macintosh market. Going forward the Company's crossplatform Messaging
product, QuickMail Pro, will not be tied to the success of the Macintosh market.
Revenues in the prior year, from these products, were positively impacted by the
release of QuickMail version 3.6, in March of 1996. Revenues from Personal
Applications products were negatively impacted by reduced sales of WebArranger.
This decrease was partially offset by a slight increase in revenues from
QuicKeys. Revenues from Calendaring and Scheduling products accounts for only
1% and 3% of net revenues during the first six months of fiscal 1997 and 1996,
respectively.
International net revenues decreased to $1,016,000 in the first six months of
the current year from $1,402,000 in first six months of the prior year,
representing 28% and 25% of net revenues, respectively.
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 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 84% and 83% in the first six
months of fiscal 1997 and 1996, respectively. The improvement in fiscal 1997
was mainly due to a slightly lower cost of materials.
Sales and Marketing
Sales and marketing expenses decreased $221,000 during the first six months of
fiscal 1997 compared to the first six months of fiscal 1996. This decrease was
primarily in marketing/advertising expense, $187,000, and salaries and benefits,
$33,000. The decrease in marketing/advertising expense was primarily due to
significantly less direct mail campaigns. The decrease in salaries and benefits
was due to both lower sales commissions and a smaller staff.
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General and Administrative
General and administrative expenses are composed principally of salaries and
benefits of administrative and technical support personnel, fees for
professional services, amortization of intangible assets and facilities
expenses. These expenses for the first six months decreased 33% or $664,000
from the same period last year. The decrease was primarily in salaries and
benefits, $324,000; contract labor and outside services, $150,000; rent,
$50,000; amortization expense, $44,000; facility overhead expenses, $33,000;
travel and entertainment, $24,000; and office supplies, $17,000. These
decreases are primarily due to smaller staff levels, fewer consultants, and less
executive salaries.
Research and Development
Research and development expenses decreased to approximately $767,000 for the
first six months of the current year from $1,022,000 in the same period last
year, representing 21% and 18% of net revenues, respectively. The primary area
that decreased in the first six months of fiscal 1997 was salaries and benefits,
$230,000. This decrease was predominantly associated with a somewhat smaller
staff. Staff reductions were the result of a more focused development effort.
Income Tax Benefit
The Company recorded no income tax benefit for the first six months of fiscal
1997. The Company has utilized all available net operating loss carrybacks and
has recorded a valuation allowance for its net operating loss carryforward until
future taxable earnings are recorded.
Liquidity and Capital Resources
Cash and cash equivalents remained virtually unchanged at $1,852,000 at the end
of the first six months of fiscal 1997 from $1,863,000 at the end of fiscal
1996. The primary source of cash was $934,000 provided from payments made on
the 4-Sight note receivable. As of March 31, 1997 this receivable has been paid
in full. Of the cash received, $283,000 was placed in a short-term investment.
This investment consists of a U.S. Treasury bill which we intend to hold until
maturity. The net loss for the year was the primary reason for the $603,000 of
cash being used in operating activities. The Company believes it can fund its
working capital needs from operations, available cash, available investments,
and from its $2,000,000 line of credit, against which the Company has no
borrowings as of March 31, 1997.
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, 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.
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CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
PART II: OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting on February 28, 1997, all Directors were
re-elected as follows:
For Withheld
Sheldon T. Fleck 4,726,943 206,535
Stanford H. Goodman 4,699,038 234,440
John S. Kirk 4,732,493 200,985
David J. Lundquist 4,727,993 205,485
Richard A. Skeie 4,700,753 232,725
The amendment to the 1990 Stock Option Plan was approved by the following vote.
Abstained or
For Against Broker non-vote
4,518,699 248,039 164,740
The amendment to the 1992 Stock Option Plan was approved by the following vote.
Abstained or
For Against Broker non-vote
4,517,384 245,339 169,755
The amendment to the Nonemployee Directors Stock Option Plan was approved
by the following vote.
Abstained or
For Against Broker non-vote
4,564,923 255,024 112,531
KPMG Peat Marwick LLP's selection as independent public accountants for the
company was approved by the following vote.
Abstained or
For Against Broker non-vote
4,896,483 17,985 18,010
Page 11
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Index on page 13
11 Computation of Earnings per Common Share
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
March 31, 1997.
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 May 12, 1997
_________________________ President, Chief Executive ______________
(Richard A. Skeie) Officer and Director
/s/ John S. Kirk May 12, 1997
_________________________ Secretary and Treasurer, ______________
(John S. Kirk) Chief Financial Officer,
and Chief Accounting Officer
Page 12
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EXHIBIT INDEX
Exhibit
Number Description
11 Computation of Earnings per Common Share Page 14
27 Financial Data Schedule - for SEC filing only
<PAGE>
EXHIBIT 11
CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, March 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Primary Earnings
per Share Information:
Weighted average number of
shares outstanding during
the quarter 5,627,028 5,741,477 5,624,661 5,740,708
Annualized additional shares
due to stock options - 2.214 - 1,441
5,627,028 5,743,691 5,624,661 5,742,149
Net loss $(562,186) $(123,572) $(930,141) $(254,620)
Primary loss per share $ (.10) $(.02) $(.17) $(.04)
Fully Diluted Earnings
per Share Information:
Weighted average number of
shares outstanding during
the quarter 5,627,028 5,741,477 5,624,661 5,740,708
Annualized additional shares
due to stock options - 4,249 460 3,034
5,627,028 5,745,726 5,625,121 5,743,742
Net loss $(562,186) $(123,572) $(930,141) $(254,620)
Fully diluted loss per share $ (.10) $(.02) $(.17) $(.04)
</TABLE>
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<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 1,852,222
<SECURITIES> 282,856
<RECEIVABLES> 1,161,536
<ALLOWANCES> 0
<INVENTORY> 507,596
<CURRENT-ASSETS> 4,236,261
<PP&E> 4,629,622
<DEPRECIATION> 2,186,158
<TOTAL-ASSETS> 7,417,165
<CURRENT-LIABILITIES> 1,025,255
<BONDS> 856,418
0
0
<COMMON> 112,541
<OTHER-SE> 5,422,951
<TOTAL-LIABILITY-AND-EQUITY> 7,417,165
<SALES> 3,674,365
<TOTAL-REVENUES> 3,674,365
<CGS> 604,661
<TOTAL-COSTS> 604,661
<OTHER-EXPENSES> 3,957,748
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,097
<INCOME-PRETAX> (930,141)
<INCOME-TAX> 0
<INCOME-CONTINUING> (930,141)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (930,141)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
