<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the quarterly period ended December 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.
January 31, 1998 Common Stock 1,095,900
Class B Common Stock 0
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CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
Table of Contents
Part I FINANCIAL INFORMATION
Item 1. Financial Statements: Page
Consolidated Balance Sheets
December 31, 1997 and September 30, 1997 3
Consolidated Statements of Operations
Three Months Ended December 31, 1997 and 1996 4
Consolidated Statements of Cash Flows
Three Months Ended December 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 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
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CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Assets December 31 September 30
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,612,254 1,454,434
Short-term investments 495,244 490,957
Trade accounts receivable, net 636,713 1,108,062
Recoverable income taxes 24,153 24,153
Inventories 650,732 743,111
Deferred income taxes 113,500 117,200
Other current assets 193,227 165,624
___________ ___________
Total current assets 3,725,823 4,103,541
Property, fixtures, and equipment:
Land 316,796 316,796
Building 1,312,016 1,312,016
Fixtures and equipment 2,739,933 2,998,885
___________ ___________
4,368,745 4,627,697
Less accumulated depreciation 2,228,371 2,410,190
___________ ___________
Net property, fixtures, and equipment 2,140,374 2,217,507
Deferred income taxes 69,500 65,800
Purchased computer software technology, net 111,114 144,447
Other intangible assets, net 145,171 182,265
Other assets 53,961 58,959
___________ ___________
Total assets $6,245,943 6,772,519
___________ ___________
___________ ___________
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $44,981 43,953
Trade accounts payable 225,485 316,845
Accrued payroll and benefits 300,442 317,852
Other accrued expenses 165,670 164,894
Deferred revenue 85,303 100,691
___________ ___________
Total current liabilities 821,881 944,235
Long-term debt, net of current 822,563 834,253
___________ ___________
Total liabilities 1,644,444 1,778,488
Stockholders' equity (note 2):
Common stock, $.10 par value.
Authorized 2,000,000 shares; issued
and outstanding 1,095,900 and 1,095,900 109,590 109,590
Additional paid-in-capital 5,893,710 5,893,710
Accumulated deficit (1,401,801) (1,009,269)
___________ ___________
Total stockholders' equity 4,601,499 4,994,031
___________ ___________
Total liabilities and stockholders' equity $6,245,943 6,772,519
See accompanying notes to consolidated financial statements.
3
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CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the three months ended December 31, 1997 and 1996
(Unaudited)
</TABLE>
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Net revenues $1,222,646 2,006,062
Cost of revenues 275,782 329,711
___________ ___________
Gross profit 946,864 1,676,351
Sales and marketing 575,386 950,947
General and administrative 443,516 713,909
Research and development 325,132 403,887
___________ ___________
Operating expenses 1,344,034 2,068,743
___________ ___________
Operating loss (397,170) (392,392)
Other income (expense):
Interest income 25,074 46,054
Interest expense (20,436) (21,617)
___________ ___________
Loss before income taxes (392,532) (367,955)
Income taxes - -
___________ ___________
Net loss $(392,532) (367,955)
___________ ___________
___________ ___________
Weighted average common shares outstanding 1,095,900 1,124,459
Loss per share, basic and diluted (note 3) $ (.36) (.33)
</TABLE>
See accompanying notes to consolidated financial statements.
4
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CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three months ended December 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (392,532) (367,955)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Depreciation and amortization:
Property, fixtures, and equipment 107,111 133,991
Purchased software 33,333 78,900
Other 37,094 22,280
Decrease (increase) in trade accounts receivable 471,349 (356,341)
Decrease in recoverable income taxes - 185,586
Decrease in inventories 92,379 4,174
Increase in other receivables and other assets (26,892) (37,079)
Decrease in accounts payable and accrued expenses (107,994) (143,336)
Decrease in deferred revenue (15,388) (30,282)
Other 150 12,728
___________ __________
Net cash provided by (used in) operating activities 198,610 (497,334)
Cash flows from investing activities:
Proceeds from sale of property and equipment 1,350 12,016
Purchase of property and equipment (31,478) (56,169)
Proceeds from note receivable - 467,000
___________ __________
Net cash (used in) provided by investing activities (30,128) 422,847
Cash flows from financing activities:
Proceeds from issuance of common stock - 14,232
Payment of long-term debt (10,662) (13,800)
___________ __________
Net cash (used in) provided by financing activities (10,662) 432
___________ __________
Net increase (decrease) in cash and cash equivalents 157,820 (74,055)
Cash and cash equivalents at beginning of period 1,454,434 1,862,703
___________ __________
Cash and cash equivalents at end of period $1,612,254 1,788,648
___________ __________
___________ __________
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 20,297 27,478
Income taxes - -
</TABLE>
See accompanying notes to consolidated financial statements.
5
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CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 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 December 31, 1997, options to purchase an aggregate of 138,026 shares at
exercise prices of from $2.44 to $46.25 per share were outstanding.
3) Earning Per Share
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
(SFAS 128), is effective for both interim and annual periods ending after
December 15, 1997. Accordingly, the Company has applied the provisions of
SFAS 128 for the period ended December 31, 1997 and has retroactively restated
all earnings per share and weighted average common share amounts to conform with
the provisions. The effect of implementing SFAS 128 was immaterial to the
Company's financial position and results of operations.
6
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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 ended December 31, 1997 and 1996.
Quarter ended December 31, 1997 1996
Percentage of net revenues:
Net revenues 100% 100%
Cost of revenues 22 16
___ ___
Gross profit 78 84
Sales and marketing 47 47
General and administrative 36 36
Research and development 27 20
___ ___
Total operating expenses 110 103
___ ___
Operating loss (32) (19)
Other income, net - 1
___ ___
Loss before income taxes (32) (18)
Income taxes - -
___ ___
Net loss (32)% (18)%
___ ___
___ ___
Net Revenues
Net revenues for the first quarter of the current year were $1,223,000 compared
to $2,006,000 for the first quarter of the prior year. Revenues were down in
both the Messaging and Personal Applications product groups. Revenues from the
Company's Messaging products fell 40% compared to the prior year, but still
accounted for approximately 75% of total net revenues. Historically these
revenues were primarily derived from QuickMail LAN, the Company's Macintosh
server based, E-mail solution. In management's opinion, these revenues have
been negatively impacted by a continued weak Macintosh market. Over the past
year the company has developed and begun marketing QuickMail Pro and QuickMail
Office. These new cross-platform, open standards, Messaging products are not
tied to the success of the Macintosh market and revenues from these products
have grown significantly. These products now account for 70% of the messaging
revenues, up from only 15% a year ago. Approximately 25% of the Company's
current revenues are from Personal Application products, which are primarily
sales of QuicKeys. These sales have decreased, when compared to the prior year,
primarily due to strong sales in the prior year, following the release of this
products most recent upgrade.
Net revenues from international channels decreased to approximately $347,000 in
the first quarter of the current year, from $575,000 in the first quarter of the
prior year, representing 28% and 29% of net
7
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revenues, respectively. The decrease was primarily within the Japanese and
Australian markets. In management's opinion these decreases were primarily due
to the financial crisis in Asia.
Cost of Revenues
The Company's cost of revenues is composed primarily of: 1) the costs of
product materials such as manuals, diskettes, and packaging; 2) amortization
of capitalized purchased software; 3) royalties paid to outside developers for
the use of certain software included with some of the Company's products;
4) manufacturing expenses; and 5) amortization of capitalized translation costs.
Cost of revenues decreased $54,000 in the first quarter of fiscal 1998 compared
to the same period a year ago, yet as a percentage of net revenues, they
increased to 22% from 16%. The increase, on a percentage basis, was primarily
due to higher amortization expense of capitalized translation costs associated
with the new international versions of QuickMail, and higher royalties now being
paid on the new QuickMail server technology.
Sales and Marketing
Sales and marketing expenses decreased $376,000, or 39%, during the first
quarter of fiscal 1998 compared to the first quarter of fiscal 1997. The
decrease is primarily in marketing/advertising expenses, which decreased
$244,000, and salaries and benefits which decreased $196,000. The decrease
in marketing/advertising expenses was mainly the result of not attending any
industry trade shows during the first quarter of fiscal 1998. The decrease in
salaries and benefits was mainly due to workforce reductions. This savings was
somewhat offset by increased dependence on contract labor, primarily associated
with the outsourcing of various marketing functions.
General and Administrative
General and administrative expenses are composed principally of salaries of
general, administrative, and technical support personnel, fees for professional
services, amortization of other intangible assets, and facilities expenses.
These expenses for the first quarter decreased 38% or $270,000 from the first
quarter of the prior year, representing 36% of net revenues for both periods.
The largest of these reductions were in salaries and benefits, $169,000;
contract labor and outside services, $31,000; legal and accounting fees,
$31,000; facility overhead expenses, $18,000; travel and entertainment $11,000;
and office supplies, $6,000. These decreases are primarily due to workforce
reductions.
Research and Development
Research and development expenses decreased to $325,000 in the first quarter of
fiscal 1998, compared to $404,000 in the first quarter of the prior year,
representing 27% and 20% of net revenues, respectively. The primary areas that
decreased in the first quarter of fiscal 1998 were salaries and benefits,
$66,000, and contract labor, $12,000. These decreases are predominantly
associated with some workforce reductions.
8
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Income Tax Benefit
The Company recorded no income tax benefit for the first quarter of fiscal 1998.
The Company has previously utilized all operating loss carrybacks available.
The Company has recorded a valuation allowance for its operating loss
carryforward.
Liquidity and Capital Resources
Cash and cash equivalents increased by $158,000 to $1,612,000 at the end of the
first quarter of fiscal 1998 from $1,454,000 at the end of fiscal 1997. Cash
provided by operating activities was $199,000. The primary source of cash from
operating activities was a $471,000 decrease in the level of trade accounts
receivable. This decrease is the result of both effective collection efforts
and lower sales levels. 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
December 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; the risk
that the prevalence and functionality of available free E-mail software will
increase and further erode revenues; and the risk that the Company would not be
able to fund its working capital needs from cash flows, or be able to borrow
under its line of credit.
CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(11) Statement Regarding Computation of Per Share Earnings.....Page 12
(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
December 31, 1997.
9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CE SOFTWARE HOLDINGS, INC.
(Registrant)
Signature Title Date
/s/ Richard A. Skeie February 2, 1998
_________________________ President, Chief Executive ________________
(Richard A. Skeie) Officer, and Director
/s/ John S. Kirk February 2, 1998
_________________________ Secretary, Treasurer, and ________________
(John S. Kirk) Director
/s/ Daniel E. McCann February 2, 1998
_________________________ Chief Financial Officer ________________
(Daniel E. McCann)
10
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EXHIBIT INDEX
Exhibit
Number Description
11 Computation of Earnings per Common Share Page 12
27 Financial Data Schedule - for SEC filing only
11
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Exhibit 11
CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(given effect, pro forma, to the Reverse Stock Split and provisions of SFAF 128)
Three months ended December 31,
_______________________________
1997 1996
Basic Earnings
per Share Information:
Weighted average number of
shares outstanding during
the quarter 1,095,900 1,124,459
Annualized additional shares
due to stock options 0 0
_________ _________
1,095,900 1,124,459
Net loss $(392,532) (367,955)
Basis loss per share $ (.36) (.33)
Diluted Earnings
per Share Information:
Weighted average number of
shares outstanding during
the quarter 1,095,900 1,124,459
Annualized additional shares
due to stock options 0 0
_________ _________
1,095,900 1,124,459
Net loss $(392,532) (367,955)
Diluted loss per share $ (.36) (.33)
12
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 1,612,254
<SECURITIES> 495,244
<RECEIVABLES> 636,713
<ALLOWANCES> 0
<INVENTORY> 650,732
<CURRENT-ASSETS> 3,725,823
<PP&E> 4,368,745
<DEPRECIATION> 2,228,371
<TOTAL-ASSETS> 6,245,943
<CURRENT-LIABILITIES> 821,881
<BONDS> 822,563
0
0
<COMMON> 109,590
<OTHER-SE> 4,491,909
<TOTAL-LIABILITY-AND-EQUITY> 6,245,943
<SALES> 1,222,646
<TOTAL-REVENUES> 1,222,646
<CGS> 275,782
<TOTAL-COSTS> 275,782
<OTHER-EXPENSES> 1,318,960
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (20,436)
<INCOME-PRETAX> (392,532)
<INCOME-TAX> 0
<INCOME-CONTINUING> (392,532)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (392,532)
<EPS-PRIMARY> (.36)
<EPS-DILUTED> (.36)
</TABLE>
