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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
X Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended September 30, 1998.
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, West Des Moines, Iowa 50265
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (515) 221-1801
_______________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.10 per share
(Title of class)
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
(Cover page continued)
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Indicate by mark (X) if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: $4,356,926
Aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing price of the Common Stock on
November 30, 1998: $5,205,525.
Number of shares outstanding of each of the registrant's classes of common stock
as of November 30, 1998:
Common Stock 1,095,900
Class B Common Stock 0
DOCUMENTS INCORPORATED BY REFERENCE:
List hereunder the following documents if incorporated by reference and the Part
of the 10-KSB into which the document is incorporated.
Portions of the registrant's Annual Report to Stockholders for the fiscal year
ended September 30, 1998, are incorporated herein by reference in Parts I, II,
and IV.
Portions of the Proxy Statement to be delivered to stockholders in connection
with the Annual Meeting of Stockholders to be held February 25, 1999, are
incorporated by reference into Part III.
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CE SOFTWARE HOLDINGS, INC.
1998 FORM 10-KSB ANNUAL REPORT
Table of Contents
Page
Trademarks/Definitions 1
PART I
Item 1. Business 2
Item 2. Properties 13
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 14
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 7. Financial Statements 14
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 14
PART III
Item 9. Directors and Executive Officers of the Registrant 15
Item 10. Executive Compensation 15
Item 11. Security Ownership of Certain Beneficial Owners and
Management 15
Item 12. Certain Relationships and Related Transactions 15
PART IV
Item 13. Exhibits, Financial Statements, and Reports on Form 8-K 16
Signatures 19
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TRADEMARKS/DEFINITIONS
ArrangeTM, BackMaticTM, ButtonActionTM, CEToolboxTM, ChoosyTM, CursorWaitTM,
DayVisionTM, Demo QuicKeys(r), DialogKeysTM, DisMountyTM, Finder EventsTM,
Grab EaseTM, GrabberTM, MailManagerTM, MassCopierTM, Medi:for(r),
MenuDecisionTM, MenuWaitTM, MobileVisionTM, MountyTM, MousieTM,
My Time Manager(r), NameFinderTM, NameServerTM, NetModemChoosyTM,
Network Scheduler(r), ns:AgentTM, NSDDTM, Paste EaseTM, Printer BridgeTM,
ProcessSwapTM, ProKeyTM, QK IconsTM, QK InstallTM, QM ServerTM, QM
AdministratorTM, QM-Connect GatewayTM, QM ConfigTM, QM-Data Collection BridgeTM,
QM-Direct BridgeTM, QM FormsTM, QM-InternetTM Gateway, QM-Link GatewayTM, QM
MenuTM, QM-MHS GatewayTM, QM-QM BridgeTM, QM RecorderTM, QM Recorder IITM, QM
RemoteTM, QM ResourcesTM, QM-Script GatewayTM, QM-Serial GatewayTM, QM ServerTM,
QM TimeOutsTM, QuickAccessTM, QuicKeys(r), QuicKeys IconsTM, QuickConferenceTM,
QuickMailTM, QuickMailTM Pro, QuickMailBarTM, QuickMessengerTM, QuickSendTM,
QuickTimerTM, Schedule/DOS(r), Scrap EaseTM, Screen EaseTM, SpeakEaseTM,
TeamVisionTM, Technical Assistance AssistantTM, TimeVision(r), TimeVision NSTM,
TypeEaseTM, VaccineTM, WebArranger(r), WindowDecisionTM, and WindowWaitTM are
trademarks or registered trademarks of CE Software, Inc., an Iowa corporation.
IBM(r) is a registered trademark of International Business Machines Corporation
("IBM"). Macintosh(r) and Apple(r) are registered trademarks, and
AppleScriptTM, AppleTalkTM, AppleTalk Remote AccessTM , and MacTM are
trademarks of Apple Computer, Inc. ("Apple"). MS-DOS(r) and Microsoft(r)
are registered trademarks and Windows(r) is a trademark of Microsoft
Corporation ("Microsoft"). IntercallTM is a trademark of Holmen and Ungman.
QM-LinkTM and QM PostmanTM are trademarks of Netstrategy Software, Inc.
Novell(r) is a registered trademarks of Novell, Inc. Netscape NavigatorTM is a
trademark of Netscape Communications, Inc., CalendarMakerTM is a trademark of
PrairieSoft, Inc., and WebWhackerTM is a trademark of The Forefront Group, Inc.
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PART I
Item 1: Business
General
CE Software Holdings, Inc., a Delaware corporation (the "Company"), develops
computer software products that enhance communications, connectivity, and
productivity for businesses and home-based personal computer users. The
Company's products include business E-mail software, collectively known as the
QuickMail product family and developed for use with both Microsoft's Windows and
Apple's Macintosh operating systems; personal productivity tools such as the
QuicKeys product family, which as of November 20, 1998, became available for
use in the Microsoft's Windows operating system in addition to Apple's Macintosh
operating system.
The Company
Formed in 1988 as Anubis Corporation, the Company changed its name to CE
Software Holdings, Inc. in February 1990 after acquiring all the common stock
of CE Software, Inc., an Iowa corporation. The merger was accounted for as a
reverse acquisition. CE Software Holdings, Inc., exists primarily as a stock
holding company, and accordingly, the operations described in this document,
unless otherwise specified, are those of the subsidiary, CE Software, Inc.
The operating subsidiary, CE Software, Inc. (CE) was formed in January 1987 as
the successor to a business started in 1981 as the software development arm of
a retail computer store known as Computer Emporium. The three founders of CE
Software, Inc.: Richard A. Skeie, Donald M. Brown, and John S. Kirk, which Mr.
Skeie and Mr. Kirk remain involved in the Company, still beneficially and
collectively own approximately 27% of the Company's outstanding common stock.
On June 30, 1997 the Company amended its Restated Certificate of Incorporation
to effect a one for five reverse stock split of the Company's Common Stock.
From and after the amendment, the Company has been authorized to issue 2,000,000
shares of Common Stock, par value $.10.
Early in the 1980's, the original business focused on developing accounting
software, games, and programming products for the Apple II computer. Shortly
after the release of the Macintosh computer in 1984, CE released its first
Macintosh program. For several years, the bulk of CE's product development and
sales was for the Macintosh. Beginning in 1990, the Company also focused on
re-engineering existing Macintosh E-mail products for use with Microsoft's
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Windows operating systems. In 1991, an upgrade extended the functionality of
QuickMail LAN, the Company's flagship proprietary E-mail product, to users of
IBM and IBM-compatible computers. QuickMail LAN was upgraded again in 1993 to
support Microsoft's Windows operating systems.
In fiscal 1997, CE re-engineered QuickMail LAN from a proprietary system to one
based on the Internet's open standards such as POP3 (Post Office Protocol 3).
The new product, called QuickMail Office, accommodates a Windows 95, Windows NT,
or Mac OS E-mail server, whereas QuickMail LAN requires a Macintosh server.
QuickMail Office is a complete, client-server business E-mail solution for small
to mid-sized companies running Windows or Mac OS.
In fiscal 1998, CE re-engineered its second major product group, QuicKeys, to
operate within Microsoft's Windows operating system. Like the Macintosh
version, QuicKeys for Windows automates any repetitive, multi-step function
to save the time of numerous repetitive keystrokes. QuicKeys for Windows was
released in November of 1998.
In fiscal 1998, the investment in Relevance Technologies, Inc. was sold as part
of a merger between Relevance and Documentum, Inc. ("Documentum"). The Company
received $690,829 in cash and 114,182 shares of Documentum. Of the stock
received, the agreement requires that 14,302 shares be held in escrow for a
period of one year. The Company has classified these restricted shares as
available-for-sale securities, and the unrestricted shares as trading
securities. During fiscal 1998, the Company sold 67,300 shares of Documentum
stock on the open market, resulting in losses of $353,616. These losses are
netted with the original $6,206,362 gain results in an overall net gain from the
sale of investments of $5,852,746.
Products
CE's business and personal productivity software products have received awards
from professional groups, user groups, and industry trade publications both in
the United States and internationally.
For convenience's sake, CE's products can be divided into three distinct groups:
messaging, personal productivity applications, and group calendaring and
scheduling. The messaging group includes QuickMail Office, QuickMail Pro,
QuickMail LAN, the QM-Internet Gateway and the Intercall gateway. The personal
productivity group includes QuicKeys and WebArranger. Lastly, group calendaring
and scheduling consists of the TimeVision NS product. This line was
discontinued in 1997.
Divided according to these three groups, the Company's approximate net revenues
are as follows:
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Years ended September 30,
- -----------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------
Messaging $3,345,000 5,553,000 7,979,000
Personal applications 1,012,000 1,428,000 2,153,000
Calendaring and scheduling - 75,000 306,000
- -----------------------------------------------------------------------
Total net revenues $4,357,000 7,056,000 10,438,000
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
In fiscal 1997 and 1998, sales of the QuickMail product family and of QuicKeys
were responsible for substantially all of the Company's revenues. CE believes
that the products in the messaging and personal productivity groups, as updated
from time to time, will continue to make a significant revenue contribution.
Of course, these products may be at risk of reduced sales if the Company is
unable to produce competitive products or respond to changes in usage of such
products.
Personal Applications
QuicKeys
QuicKeys, CE's automation utility, was first introduced in 1987 for Macintosh
users and is now available for Microsoft's Windows users as well. QuicKeys
automates any repetitive, multi-step function performed on a Macintosh or
Windows computer . Since its release, QuicKeys has been the leading desktop
automation package for the Macintosh computing environment and has won several
awards from key computer industry publications such as Macworld magazine.
CE released QuicKeys 3.0 in August 1993. Recognizing the changing requirements
of the software industry, this release built in close support for two of the
leading Apple Computer technology initiatives: Apple Events and AppleScript.
In addition, QuicKeys 3.0 was designed from the start to take advantage of the
audio/visual workstations then being offered by Apple Computer. With the
appropriate technology installed, shortcuts could be triggered either by voice
command or by the more traditional keyboard interaction.
QuicKeys 3.0 greatly simplified user interaction by combining many operating
components into one main user interface window. In 1993, QuicKeys 3.0 was named
Best Utility of the Year by the editors of MacUser magazine.
CE released QuicKeys 3.5 in August 1996. QuicKeys 3.5 allows users to create
customized toolbars and floating palettes for triggering shortcuts. Version
3.5 also supports batch processing, which performs the same QuicKeys sequence
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on multiple files, as well as a new, tab-oriented interface with movable
windows. In the spring of 1997, CE released version 3.5.2, with native support
for Power Macintosh computers, and in November 1997, a software patch was
made available to insure complete compatibility between QuicKeys and Apple's
Mac OS 8. QuicKeys sells for a suggested retail price of $119.00.
CE released QuicKeys 1.0 for Windows in November 1998. This new automation
software is designed to save time and boost productivity for anyone who uses
Microsoft Windows 95, 98 or NT 4.0. QuicKeys is designed to save a PC users
time and effort by automatically performing hundreds of common but
time-consuming computer tasks, such as opening programs, typing text, choosing
from menus, plus many more. QuicKeys also automates longer tasks that require
several consecutive steps, such as compressing and sending files via E-mail.
QuicKeys simply records the keystrokes and mouse-clicks involved in the task
then plays the entire sequence back, quickly and accurately, whenever the user
presses the hot key or clicks the toolbar button designated for that task. In
addition to helping PC users work faster and easier, QuicKeys makes all the
elements of the user's computer system -- programs, documents, operating system
and Internet connection -- work together more efficiently. For instance, a
single QuicKeys sequence can easily perform a task that involves steps in
several programs. With a wide range of features, QuicKeys can automate and
control almost any function of any PC software. QuicKeys has garnered very
favorable feedback from the press and customers. QuicKeys for Windows sells for
a suggested retail price of $49.95.
WebArranger
In October 1995, CE Software, Inc. acquired the Arrange product software
technology from Common Knowledge, Inc. A month later, CE announced
WebArranger version 1.0, a Web-enabled personal information management
application that combines extensive Internet tracking and capturing
capabilities with the flexibility of Arrange.
Initially version 1.0 was distributed free to more than 20,000 users, via the
Internet. In February 1996, WebArranger 2.0 was released. Version 2.0 included
enhancements such as URL (Uniform Resource Locator) Validator that automatically
updates out-of-date Web addresses; Grabber technology that retrieves information
from the Web or any source with a single keystroke; a download agent that
automatically retries busy file transfer protocol sites until a successful
down load is logged; and WebWhacker, an application that allows users to
download and copy multiple Web pages or entire Web sites.
In September 1998, CE Software, Inc. discontinued sales of WebArranger due to
slow revenue and changing market demands.
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CalendarMaker
CalendarMaker for Macintosh, an application that allows Macintosh users to
design and create their own calendars, was upgraded to version 4.0 in March
1993. First introduced in 1986, CalendarMaker has consistently provided an
easy-to-use, easy-to-learn calendaring capability for the small business,
school, or church environments. Version 4.0 supports advanced functions such
as unlimited calendar size, duplicating events by date or time period, and
full-color capabilities. Version 4.1, released in January 1994, added memory
management routines to improve performance. Due do decreasing sales this product
was sold on May 30, 1997 for $100,000 to PrairieSoft, Inc. John S. Kirk, a
director and officer of CE Software Holdings, Inc., holds a material interest
in PrairieSoft, consisting in part of a 16% indirect ownership interest.
CalendarMaker was sold in May of 1997 and is further discussed in Item 12.
Messaging
QuickMail Office is an easy-to-use electronic mail package aimed at small to
mid-sized businesses. Originally released as an E-mail system for local area
networks (LAN) in 1988, QuickMail has recently been upgraded to offer full
support for industry messaging standards. QuickMail Office provides important
communications functionality such as sending and receiving of messages, remote
access to E-mail and connectivity to other office locations and E-mail systems.
CE also continues to sell and support QuickMail LAN, an E-mail package for
Macintosh-centric organizations. Gateway and bridge software that connects
QuickMail LAN with the Internet and with other applications are also available
from CE. These include the QM-QM Bridge, QM-Direct, QM-Link, QM-Script and
QM-Printer, which are included with the product, as well as a variety of other
gateways written by independent developers.
Since the release of QuickMail LAN in 1988, CE has improved and updated the
product. In 1989, the Company released a version of QuickMail LAN that
supported PCs on the QuickMail LAN network. In September, 1991, the Company
released version 2.5 of QuickMail LAN, integrating E-mail software for both
Macintoshes and PC's in the same box. In version 2.5, PC users gained access
to the QuickMail LAN network either through the AppleTalk solution or through
a file-based solution using a Novell network. In March, 1993, CE shipped
QuickMail LAN version 2.6, which further extended the product's functionality
by making the interface of the PC client consistent with Microsoft Windows.
In July 1994, the Company completed a publisher/developer agreement with
Netstrategy Software, Inc. that allowed the publishing and marketing of the
two QuickMail-related products, QM Postman and QM-Link for ARA. QM Postman is
a mail distribution product that makes it easier to send E-mail to a
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group of addresses, and QM-Link for ARA simplifies remote access to
QuickMail LAN accounts via AppleTalk Remote Access (ARA). These products
were discontinued in fiscal 1997 due to slow revenues and the new direction
of the E-mail industry.
In August 1994, the Company released QuickMail LAN 3.0, which included new
spell-checking features, an advanced mail management utility (MailManager)
and a powerful search engine used to find and display specific messages filed
in QuickMail LAN folders. QuickMail LAN 3.0 also included enhancements to the
server software designed to improve performance in high-traffic environments.
In September 1995, the Company released QuickMail LAN 3.5, which added new
features such as stylized text, drag-and-drop, QuickConference, enhanced
security, and expanded server-based mail handling capabilities. Version
3.6 followed in March 1996, improving QuickMail LAN's performance on Power
Macintosh machines as well as the ease with which address books are
distributed.
In fiscal 1996, the Company released two new gateway products for QuickMail LAN,
the Intercall gateway and the QM-Internet Gateway. Intercall connects QuickMail
LAN to the Internet using the popular UNIX-to-UNIX Copy Protocol (UUCP) standard
of communication. The QM-Internet Gateway connects QuickMail LAN to the
Internet via Simple Mail Transfer Protocol (SMTP). The Intercall gateway
sells for $500, and the QM-Internet Gateway for $2,500. Both gateways
accommodate an unlimited number of users.
In November 1996, the Company released QuickMail Pro, an Internet E-mail client
for Windows and Macintosh. Originally available as a client-only solution,
QuickMail Pro became part of a complete, all-in-one-box business E-mail solution
with the addition of three E-mail servers to the product family. The result was
the debut of QuickMail Office in the spring of 1997.
In January 1998, the Company released an upgrade to QuickMail Office which
included tools that help companies prevent the unauthorized use of server
resources by people who send bulk E-mail, also known as "spam". In addition,
the upgrades feature simplified address book management, improved integration
with other E-mail programs and more efficient directory services plug-ins.
QuickMail Office includes easy-to-use QuickMail Pro client software plus
powerful E-mail server software for Windows NT, Windows 95, and Mac OS.
Designed to bring the powerful features and ease-of-use associated with
QuickMail LAN forward to the future, QuickMail Office has been garnering
favorable reviews in the computer trade press.
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Calendaring and Scheduling
In May 1994, CE Software, Inc., acquired the assets of Powercore, Inc. of
Manteno, Ill., including Network Scheduler. A version of the product for DOS
was originally released by Powercore in 1989, and versions for Windows followed
in 1990, 1991, and 1993.
In March 1995, ten months after acquiring Network Scheduler, CE released
TimeVision NS, a calendaring and scheduling application that allows groups
of people within a department or throughout a company to schedule meetings
and shared resources as well as track the completion of tasks. Available for
Windows and DOS environments, TimeVision NS operates over almost any LAN.
TimeVision NS accommodates hundreds of users within a company, but due to
technical barriers within the product, its release into larger enterprises
has been restricted. As of the end of fiscal 1997, CE no longer actively
promotes, sells, or supports TimeVision NS.
Product Support
CE believes that customer technical support is an important part of its
overall performance. As of September 30, 1998, the Company had 7 full-time
employees involved in technical support services, available to all customers
by electronic mail, Worldwide Web site, telephone, or fax. Certain customers
are charged an annual maintenance fee for upgrades and support. Support
services include explaining how the customer's computer works, how their
other software works in relation to CE products, solving problems with
software operation, and suggesting solutions to business and personal
computing issues.
Distribution and Marketing
The Company's products are primarily marketed through independent distributors
in the United States, through numerous independent dealers and distributors in
other countries, directly to large corporate accounts under site licensing
agreements, and directly to end-users through direct marketing campaigns.
Of the Company's total net revenues for fiscal 1998, approximately 22% are
through independent, domestic, nonexclusive distributors. Sales to one such
distributor, Ingram Micro, accounted for nearly 19% of total net revenues.
Domestic distributors purchase product at a discount from list prices.
Of the Company's total net revenues for fiscal 1998, approximately 30% are
through independent, international distributors. Several of these
distributors are
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limited by contract to distribution within a specified geographic area.
The Company expects to continue emphasizing its international
sales in upcoming periods by providing additional translations of its products.
It currently provides translations of certain programs in Japanese, German,
French and several other languages. Sales to three such distributors, Computers
Unlimited in the United Kingdom, Prisma in West Germany, and Moreware in Sweden,
accounted for approximately 6%, 4%, and 4% of total net revenues, respectively.
The economic downturn in Asia has significantly reduced our revenues in that
market. Sales to our largest Asian distributor, SRA in Japan, account for 1%
of total net revenues, compared to 8% a year ago. International distributors
generally require a somewhat larger discount, in return for various advertising,
customer service, and customer registration duties performed by them.
The Company gives its distributors industry-standard rights of return for stock
balancing and for defective products, and replacement rights when products are
upgraded to new versions. A reserve for returns has been recorded and was
$50,800 and $35,800 at September 30, 1998 and 1997, respectively. Returns
exchanged for product upgrades and new version releases do not have a material
impact on the financial statements because of the Company's low cost to replace
such returns. Returns from end users, for any reason, have not been
significant.
Product Development
The personal computer software industry continues to undergo rapid technological
change, requiring a continuous high level of enhancement of existing products
and development of new products. The Company is committed to the creation of
new products and intends to continue the enhancement of existing products.
The Company's future financial performance will depend in part on the successful
development, completion, and introduction of new software products, and of
enhanced versions of existing products, and customer acceptance of those
products. In the future, there is no assurance that the Company will not
encounter difficulties that could delay or prevent the successful development
of, or marketing of, new products and/or enhancements of existing products.
There also can be no assurance that such products will yield positive results
or that such results can be obtained on a timely basis or without the
expenditure of substantial funds.
The Company's software products are primarily developed internally, although
the Company has increased the amount of extended development with several
partners and has purchased and/or licensed software products from independent
authors and other software companies. As of September 30, 1998, 12 employees
were engaged full time in product development. During fiscal years
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1998, 1997, and 1996, the Company spent approximately $1,169,000,
$1,429,000, and $2,000,000, respectively, on product development and enhancement
activities, representing approximately 27%, 20%, and 19%, respectively, of net
revenues in each of these periods.
Competition
The personal computer software market is highly competitive and has been subject
to rapid change, which is expected to continue. The Company's competitors
include many independent software vendors that have financial, marketing, and
technological resources far in excess of those of the Company. Certain of
these include Microsoft, IBM (Lotus), QUALCOMM, Netscape Communications, Inc.,
and Novell Corporation. In addition, certain computer manufacturers may devote
significant resources to creating software, directly competitive with products
of the Company, for inclusion with their computers and computer systems without
additional charge to consumers.
The Company's messaging and personal productivity products are marketed
primarily through the retail channel. All of these products face competing
products offering many similar features. The Company believes that the
principal competitive factors in the market include product features and
functions, ease of understanding and operating the software, product
reliability, price/performance characteristics, name recognition, and
availability and quality of support and training services. Price competition
could become an increasing factor in the personal computer software market,
which could, in turn, be expected to increase pressures on profit margins in
the future.
Product Protection
The Company regards its software as proprietary and attempts to protect it with
copyrights, trade secret laws, and internal nondisclosure safeguards, as well as
restrictions on disclosure and transferability that are incorporated into its
software license agreements. The Company licenses its software products to
customers rather than transferring title. Despite these restrictions, it may be
possible for competitors or users to copy aspects of the Company's products or
to obtain information which the Company regards as trade secrets. Computer
software generally can be patented only with difficulty, and existing copyright
laws afford only limited practical protection. Policing unauthorized use of
such a broadly disseminated product as computer software is difficult, and
software piracy can be expected to be a persistent problem for the packaged
software industry. These problems may be particularly acute in international
markets. However, because of the rapid pace of technological change in its
industry, such protections are less significant than factors such as knowledge,
ability, and
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experience of the Company's employees, frequent product enhancement, and the
timeliness and quality of Company support services.
Employees
As of September 30, 1998, the Company employed 40 full-time equivalent employees
(FTE's). Part-time employees in total working an aggregate of a 40-hour
workweek make one FTE. As of September 30, 1997, December 31, 1997, March 31,
1998, and June 30, 1998, the Company employed 65, 56, 40, and 42 FTE's,
respectively. Over the last few years the Company has steadily taken steps
to reduce its workforce. These steps have included both normal employee
attrition, as well as employee severance. Such reductions within the areas of
development, sales and marketing have been in response to the Company's focus on
a smaller number of products and the outsourcing of some functions requiring a
particular expertise. Within the administrative areas, reductions have been in
response to reduced workloads caused by a smaller volume of transactions. In
the past few months the number of FTE's has stabilized and in the near-term,
management does not expect any significant changes in the number of employees.
Risk and Uncertainty
YEAR 2000 Software Exposure
The Company is cognizant of the issues associated with the two digit programming
code in existing computer systems as the Year 2000 nears. The Year 2000 problem
is complex and can be quite extensive, as many computer systems will be affected
in some way by the rollover of the two-digit year value to a four-digit year
value. Systems that do not properly recognize such information could generate
erroneous data or cause a system to fail. The Year 2000 issue creates risk for
the Company from unforeseen problems in its products, its own computer systems
and from third parties with whom the Company deals. Failures of the Company's
and/or third parties' computer systems could have a material impact on the
Company's ability to conduct its business. The Company has programs which it
continues to evaluate and modify to ensure products will operate properly in
the Year 2000 and in the years immediately following 2000, for both future
shipments of its products and for its products already in the current customer
installed base. Many products will operate properly in the Year 2000 and in
the years immediately following 2000, while others still may require further
modification in order to operate properly in the Year 2000 and in the years
immediately following 2000. While the Company believes that most of its
currently developed and actively marketed products will operate properly in the
Year 2000 and in the years immediately following 2000 for significantly all
functionality, these software products could contain errors or defects related
to the Year 2000. Versions of the Company's products, which are not the most
currently released or which are not currently being developed, may not operate
properly
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in the Year 2000 and in the years immediately following 2000. The
Company sells some of its older product lines, which are not being actively
developed and updated, as such these products may not necessarily operate
properly in the Year 2000 and in the years immediately following 2000. The
Company has provided information on its Web site for the purpose of assisting
customers in planning for the transition to Year 2000. Such information is
informational only and is provided without warranty of any kind. The Company
recognizes that whether its products will be viewed to operate properly in the
Year 2000 and in the years immediately following 2000 will depend upon many
factors, many of which are completely out of the Company's control. This
uncertainty may result in lawsuits against the Company. Management cannot
estimate the impact of any such suits on the Company. The Company is not
involved in any legal matters relating to Year 2000 issues. The Company is
addressing the potential impact to the Company of Year 2000 operability by any
of its key suppliers or customers. It is believed the corporate systems will
operate properly in the Year 2000 and in the years immediately following 2000.
The Year 2000 project cost is not expected to be material. The Company believes
that its exposure on Year 2000 issues is not material to its business as a
whole.
Forward-looking statements
The Company or management may make or may have made certain forward-looking
statements, orally or in writing, such as those within Management's Discussion
and Analysis contained in it's various SEC filings. The Company wishes to
ensure that such statements are accompanied by meaningful cautionary statements,
so as to ensure to the fullest extent possible the protections of the safe
harbor established in the Private Securities Litigation Reform Act of 1995.
Such statements are therefore qualified in their entirety by reference to and
are accompanied by the following discussion of certain important factors that
could cause actual results to differ materially from those described in such
forward-looking statements.
The Company cautions the reader that this list of factors is not intended to be
exhaustive. The Company operates in a continually changing business
environment, and new risk factors emerge from time to time. Management cannot
predict such factors, nor can it assess the impact, if any, of such factors on
the Company's business or the extent to which any factors may cause actual
results to differ materially from those described in any forward-looking
statement. None of the Company's forward-looking statements should be relied
upon as prediction of actual results.
Risk factors that may affect future results
The Company may experience material fluctuations in future revenues and
operating results on a quarterly or annual basis resulting from a number of
factors, including: 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 Microsoft Windows
12
<PAGE>
or Apple Macintosh markets; the risk that the prevalence and functionality
of available free E-mail software will increase and further erode revenues;
the risk that the market value of its equity investments may decrease
significantly; and the risk associated with domestic and international
general economic conditions. The Company's products are sold in markets
that change rapidly and the Company must continually anticipate and adapt its
products to emerging computer technologies and capabilities. The Company may
not be able to successfully adapt to these changing markets.
Item 2: Properties
The Company's principal facility is a 22,000-square-foot office building
which the Company built in 1990 in West Des Moines, Iowa. In May 1994, the
Company borrowed $1,000,000 secured by a mortgage on this building. In
February 1995, the Company purchased the land adjacent to this building,
giving the Company an additional option for future expansion. The purchase
price was $225,000. This adjacent land was contracted for sale in December
of 1998 with an anticipated closing in January of 1999. The sales price is
$200,000.
Since August of 1996, the Company has leased 1,700 square feet of office space
in a facility adjacent to the Company's principal facility. This office space
was subleased to a third party during all of fiscal year 1998 until the lease
expired in August of 1998. The third party tenant continues to rent minimal
office space on a month-to-month basis.
Item 3: Legal Proceedings
None
Item 4: Submission of Matters to a Vote of Security Holders
No matters were submitted to the stockholders in the fourth quarter of fiscal
1998.
13
<PAGE>
PART II
Item 5: Market for Registrant's Common Equity and Related Stockholder
Matters
Incorporated by reference is data for shares of Class A common stock: market
prices per share, stock market, and number of stockholders in "Market for
Registrant's Common Equity and Related Stockholder Matters" on page 23 of the
Registrant's Annual Report to Stockholders for the fiscal year ended
September 30, 1998.
Item 6: Management's Discussion and Analysis of Financial Condition and
Results of Operations
Incorporated by reference is "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 6 through 9 of the
Registrant's Annual Report to Stockholders for the fiscal year ended
September 30, 1998.
Item 7: Financial Statements
Incorporated by reference are "Consolidated Financial Statements,"
"Notes to Consolidated Financial Statements" and "Independent Auditors'
Report" appearing on pages 10 through 22 of the Registrant's Annual Report
to Stockholders for the fiscal year ended September 30, 1998.
Item 8: Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Not applicable.
14
<PAGE>
PART III
Item 9: Directors and Executive Officers of the Registrant
Information with respect to this Item may be found in the section captioned
"Nominees for Elections as Directors" appearing in the Proxy Statement to be
delivered to stockholders in connection with the Annual Meeting of Stockholders
to be held February 25, 1999. Such information is incorporated herein by
reference.
Information with respect to delinquent Form 4 filings may be found in the
section captioned "Security Ownership of Certain Beneficial Owners and
Management" appearing in the Proxy Statement to be delivered to stockholders
in connection with the Annual Meeting of Stockholders to be held February 25,
1999. Such information is incorporated herein by reference.
Item 10: Executive Compensation
Information with respect to this Item may be found in the section captioned
"Executive Compensation" appearing in the Proxy Statement to be delivered to
stockholders in connection with the Annual Meeting of Stockholders to be held
February 25, 1999. Such information is incorporated herein by reference.
Item 11: Security Ownership of Certain Beneficial Owners and
Management
Information with respect to this Item may be found in the section captioned
"Security Ownership of Certain Beneficial Owners and Management" appearing in
the Proxy Statement to be delivered to stockholders in connection with the
Annual Meeting of Stockholders to be held February 25, 1999. Such
information is incorporated herein by reference.
Item 12: Certain Relationships and Related Transactions
Information with respect to this Item may be found in the section captioned
"Executive Compensation" appearing in the Proxy Statement to be delivered to
stockholders in connection with the Annual Meeting of Stockholders to be held
February 25, 1999. Such information is incorporated herein by reference.
Sale of CalendarMaker
CalendarMaker for Macintosh, an application that allows Macintosh users to
design and create their own calendars, was upgraded to version 4.0 in March
1993. First introduced in 1986, CalendarMaker has consistently provided an
easy-to-use, easy-to-learn calendaring capability for the small business,
school, or church environments. Version 4.0 supports advanced functions such
as unlimited calendar size, duplicating events by date or time period, and
full-color capabilities. Version 4.1, released in January 1994, added memory
management routines to improve performance. Due do decreasing sales this
product was sold on May 30, 1997 for $100,000 to PrairieSoft, Inc. John S.
Kirk, a director and officer of CE Software Holdings, Inc., holds a material
interest in PrairieSoft, consisting in part of a 16% indirect ownership
interest.
15
<PAGE>
PART IV
Item 13: Exhibits, Financial Statements, and Reports on Form 8-K
(a) The following documents are filed as a part of this Report:
1. Financial Statements
The following consolidated financial statements of CE Software Holdings, Inc.,
and subsidiaries, and the Independent Auditors' Report issued thereon, appear
on pages 10 through 22 of the Registrant's Annual Report to Stockholders for
the fiscal year ended September 30, 1998, and are incorporated by reference
in Part II, Item 7:
Independent Auditors' Report.
Consolidated Balance Sheets, as of September 30, 1998 and 1997.
Consolidated Statements of Operations, for each of the years in the
three-year period ended September 30, 1998.
Consolidated Statements of Stockholders' Equity, for each of the years
in the three-year period ended September 30, 1998.
Consolidated Statements of Cash Flows, for each of the years in the
three-year period ended September 30, 1998.
Notes to Consolidated Financial Statements.
2. Exhibits.......................................... Page 21
The following exhibits are filed as part of, or incorporated by reference into,
this Report:
3(a) I Certificate of Incorporation
3(b) I Amendment dated April 10, 1990, to Certificate of Incorporation
3(c) I Amendment dated April 19, 1990, to Certificate of Incorporation
3(d) I Bylaws
3(e) I Amendment dated June 27, 1997, to the Restated Certificate of
Incorporation
4(a) I Form of Stock Certificate
4(b) I CE Software Holdings, Inc., 1990 Stock Option Plan
4(c) I Representative Form of Incentive Stock Option
4(d) II 1992 Stock Option Plan
4(e) II Nonemployee Directors Stock Option Plan
16
<PAGE>
10(a) I Agreement and Plan of Reorganization dated February 15, 1990,
between Anubis Corp., CE Software, Inc., Richard Skeie, Donald
Brown, and John Kirk on his own behalf and as custodian on
behalf of his minor children
10(b) I Profit Sharing Plan of CE Software, Inc.
10(c) I Form of CE Software, Inc., Noncompete-Nondisclosure
Agreement for Significant Employees
10(d) III Amended and restated Executive Employment Agreement with Stanford
H. Goodman, including Stock Purchase Agreement and
Non-Recourse Promissory Note
10(e) IV Asset Purchase Agreement
10(f) IV Registration Rights Agreement
10(g) IV Indemnity Agreement
10(h) IV Business Loan Agreement
10(i) V Amended Non-Recourse Promissory Note with Stanford H.
Goodman
10(j) VI First Amendment to Amended and Restated Executive
Employment Agreement with Stanford H. Goodman
10(k) VII Powercore, Inc., Lawsuit
10(l) VIII Settlement Agreement and General Release with Stanford H.
Goodman
10(m) VIII Unit Purchase and Debt Payment Agreement with 4-Sight plc
10(n) VIII Agreement to establish Net Target
10(o) VIII Executive Employment Agreement with Christian F. Gurney,
including Stock Purchase Agreement and Non-Recourse
Promissory Note.
21 Subsidiaries of the Registrant
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule - for SEC filing only
Legend
I Incorporated into this Report by reference to the Registrant's
Registration Statement on Form S-18 which became effective
August 31, 1990, (Registration No. 33-36008C).
II Incorporated into this Report by reference to the Registrant's
Registration Statement on Form S-8 which became effective
November 6, 1992, (Registration # 33-54210).
III Incorporated into this Report by reference to the exhibits filed
as part of the Registrant's Form 10-KSB for the fiscal year ended
September 30, 1993.
IV Incorporated into this Report by reference to the exhibits filed as
part of the Registrant's Form 8-K filed on May 24, 1994.
V Incorporated into this Report by reference to the exhibits filed
as part of the Registrant's Form 10-KSB for the fiscal year ended
September 30, 1994.
17
<PAGE>
VI Incorporated into this Report by reference to the exhibits filed as
part of the Registrant's Form 10-KSB for the fiscal year ended
September 30, 1995.
VII Incorporated into this Report by reference to the exhibits filed as
part of the Registrant's Form 10-QSB for the quarter ended
March 31, 1996.
VIII Incorporated into this Report by reference to the exhibits filed as
part of the Registrant's Form 10-KSB for the fiscal year ended
September 30, 1997.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of fiscal
1998.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
/s/ Richard A. Skeie
By___________________________
(Richard A. Skeie, President, and Director)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated below.
Signature Title Date
/s/ Richard A. Skeie 12/20/98
_________________________ President and Director ___________
(Richard A. Skeie)
/s/ John L.Mason 12/20/98
_________________________ Chief Financial Officer ___________
(John L. Mason)
/s/ John S. Kirk 12/20/98
_________________________ Secretary, Treasurer, ___________
(John S. Kirk) and Director
/s/ Christian F. Gurney 12/20/98
_________________________ Vice President ___________
(Christian F. Gurney) and Director
19
<PAGE>
EXHIBIT INDEX
Exhibit Reference (*)
Number Description or Page #
3(a) Certificate of Incorporation I
3(b) Amendment dated April 10, 1990, to Certificate of Incorporation I
3(c) Amendment dated April 19, 1990, to Certificate of Incorporation I
3(d) Bylaws I
3(e) Amendment dated June 27, 1997, to the Restated Certificate of
Incorporation Page 16
4(a) Form of Stock Certificate I
4(b) CE Software Holdings, Inc., 1990 Stock Option Plan I
4(c) Representative Form of Incentive Stock Option I
4(d) 1992 Stock Option Plan II
4(e) Nonemployee Director Stock Option Plan II
10(a) Agreement and Plan of Reorganization dated February 15, 1990,
between Anubis Corp., CE Software, Inc., Richard Skeie, Donald
Brown, and John Kirk on his own behalf and as custodian on
behalf of his minor children I
10(b) Profit Sharing Plan of CE Software, Inc. I
10(c) Form of CE Software, Inc., Noncompete-Nondisclosure
Agreement for Significant Employees I
10(d) Amended and restated Executive Employment Agreement with
Stanford H. Goodman, including Stock Purchase Agreement and
Non-Recourse Promissory Note III
10(e) Asset Purchase Agreement with Powercore, Inc., dated May 9,
1994 IV
10(f) Registration Rights Agreement with Powercore, Inc., dated May
9, 1994 IV
10(g) Indemnity Agreement with Powercore, Inc., dated May 9, 1994 IV
10(h) Business Loan Agreement with Brenton Bank dated May 6, 1994 IV
10(i) Amended Non-Recourse Promissory Note with Stanford H.
Goodman dated July 20, 1994 V
10(j) First Amendment to Amended and Restated Executive Employee
Agreement with Stanford H. Goodman dated February 24,1995 VI
10(k) Powercore, Inc., Lawsuit VII
10(l) Settlement Agreement and General Release with Stanford H.
Goodman dated September 30, 1996 VIII
10(m) Unit Purchase and Debt Payment Agreement with 4-Sight Inc. dated
August 31, 1996 VIII
10(n) Agreement to establish Net Target dated September 30, 1996 VIII
* See legend on following page
20
<PAGE>
EXHIBIT INDEX
(continued)
Exhibit Reference
Number Description or Page #
10(o) Executive Employment Agreement with Christian F. Gurney
including Stock Purchase Agreement and
Non-Recourse Promissory Note. IX
21 Subsidiaries of the Registrant Page 24
23 Consent of KPMG Peat Marwick LLP Page 25
27 Financial Data Schedule - for SEC filing only
Legend
I Incorporated into this Report by reference to the Registrant's
Registration Statement on Form S-18 which became effective
August 31, 1990, (Registration No. 33-36008C).
II Incorporated into this Report by reference to the Registrant's
Registration Statement on Form S-8 which became effective
November 6, 1992, (Registration # 33-54210).
III Incorporated into this Report by reference to the exhibits filed as
part of the Registrant's Form 10-KSB for the fiscal year ended
September 30, 1993.
IV Incorporated into this Report by reference to the exhibits filed as
part of the Registrant's Form 8-K filed on May 24, 1994.
V Incorporated into this Report by reference to the exhibits filed as
part of the Registrant's Form 10-KSB for the fiscal year ended
September 30, 1994.
VI Incorporated into this Report by reference to the exhibits filed as
part of the Registrant's Form 10-KSB for the fiscal year ended
September 30, 1995.
VII Incorporated into this Report by reference to the exhibits filed as
part of the Registrant's Form 10-QSB for the quarter ended
March 31, 1996.
VIII Incorporated into this Report by reference to the exhibits filed as
part of the Registrant's Form 10-KSB for the fiscal year ended
September 30, 1996.
IX Incorporated into this Report by reference to the exhibits filed as
part of the Registrant's Form 10-KSB for the fiscal year ended
September 30, 1997.
21
<PAGE>
Exhibit 3(e)
CERTIFICATE OF AMENDMENT OF
RESTATED CERTIFICATE OF INCORPORATION OF
CE SOFTWARE HOLDINGS, INC.
CE Software Holdings, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, does hereby
certify:
FIRST: That Section 4.1 of Article 4 of the Restate Certificate of
Incorporation of the Corporation shall be amended to read as follows:
"ARTICLE 4- CAPITAL STOCK
4.1 The aggregate number of shares the corporation has authority to issue
shall be 7,000,000 shares of which 2,000,000 shares of the par value of $.10
shall be designated as Common Stock, 3,000,000 shares of the par value of $.01
shall be designated as Class B Common Stock and 2,000,000 of the par value of
$.01 shall be designated as Preferred Stock. All of the shares of Common Stock
of the corporation of the par value of $.02 issued and outstanding, or held as
treasury shares, immediately prior to the time this amendment becomes effective
shall be and are by this means automatically reclassified and changed (without
any further act) into shares of the par value of $.10, the number of which shall
equal the quotient derived from dividing the number of such shares by 5. This
amendment shall become effective without increasing or decreasing the amount of
stated capital or paid-in surplus of the corporation, and shall constitute a 1
for 5 reverse stock split, provided that no fractional shares of less than one
share shall be issued. The holders of fractional share interests of less than
one share that occur as a result of the foregoing reclassification and change
shall be paid in money by the Corporation the value of their fractional shares."
SECOND: That the aforesaid amendment was duly adopted by written consent in
accordance with Section 228 of the General Corporation Law of the State of
Delaware.
THIRD: That written notice of the taking of such corporate action without a
meeting by less than unanimous written consent was sent or given to all
shareholders at lease 20 days prior to the effective date of the amendment.
FOURTH: That the effective date of the aforesaid amendment shall be June
30, 1997.
CE Software Holdings, Inc. has caused this Certificate to be signed on this
27th day of June, 1997 by its Secretary and authorized officer, John S. Kirk,
who acknowledges that his signature is the act and deed of the corporation and
that the facts stated herein are true.
CE Software Holdings, Inc.
By /s/ John S. Kirk
_____________________
John S. Kirk
22
<PAGE>
EXHIBIT 21
CE SOFTWARE HOLDINGS, INC.
SUBSIDIARIES OF THE REGISTRANT
NAME STATE OF INCORPORATION
CE Software, Inc. . . . . . . . . . . . . . . . . . . . . .. . . . . . .Iowa
CE Distributing, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . .Iowa
23
<PAGE>
EXHIBIT 23
The Board of Directors
CE Software Holdings, Inc.:
We consent to incorporation by reference in the registration statements
(No's 33-54210 and 33-41037) on Form S-8 of CE Software Holdings, Inc. of our
report dated October 28, 1998, relating to the consolidated balance sheets of
CE Software Holdings, Inc. and subsidiaries as of September 30, 1998 and 1997,
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, 1998, which report appears in the September 30, 1998 Form 10-KSB of CE
Software Holdings, Inc.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Des Moines, Iowa
December 21, 1998
24
<PAGE>
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,106,493
<SECURITIES> 2,882,031
<RECEIVABLES> 502,953
<ALLOWANCES> 23,000
<INVENTORY> 394,649
<CURRENT-ASSETS> 8,114,228
<PP&E> 4,262,363
<DEPRECIATION> 2,360,475
<TOTAL-ASSETS> 10,462,260
<CURRENT-LIABILITIES> 1,506,539
<BONDS> 342,685
0
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<COMMON> 109,590
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