<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended June 30, 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, P.O. Box 65580, West Des Moines, Iowa 50265
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (515) 221-1801
Former name, former address and former fiscal year, if changed since last
report: No changes.
_______________________________________________________________________________
Indicate by mark (X) whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
July 30, 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:
Consolidated Balance Sheets
June 30, 1998 and September 30, 1997 3
Consolidated Statements of Operations
Three and Nine Months Ended June 30, 1998 and 1997 5
Consolidated Statements of Cash Flows
Nine Months Ended June 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II OTHER INFORMATION
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1998 and September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
ASSETS: June 30 September 30
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 947,046 1,454,434
Short-term investments 1,128,306 490,957
Trade accounts receivable, net 455,134 1,108,062
Recoverable income taxes 24,710 24,153
Inventories 466,389 743,111
Deferred income taxes 77,000 117,200
Other current assets 190,379 165,624
___________ ___________
Total current assets 3,288,964 4,103,541
Property, fixtures, and equipment:
Land 316,796 316,796
Building 1,312,016 1,312,016
Fixtures and equipment 2,596,848 2,998,885
___________ ___________
4,225,660 4,627,697
Less accumulated depreciation 2,260,098 2,410,190
___________ ___________
Net property, fixtures, and equipment 1,965,562 2,217,507
Deferred income taxes 106,000 65,800
Purchased computer software technology, net 44,448 144,447
Other intangible assets, net 70,982 182,265
Other assets 44,475 58,959
___________ ___________
Total assets $5,520,431 6,772,519
___________ ___________
___________ ___________
</TABLE>
See accompanying notes to consolidated financial statements.
3
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CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1998 and September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY: June 30 September 30
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 47,110 43,953
Trade accounts payable 230,772 316,845
Accrued payroll and benefits 196,464 317,852
Other accrued expenses 120,137 164,894
Deferred revenue 52,088 100,691
___________ ___________
Total current liabilities 646,571 944,235
Long-term debt, net of current portion 798,357 834,253
___________ ___________
Total liabilities 1,444,928 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 (1,927,797) (1,009,269)
___________ ___________
Total stockholders' equity 4,075,503 4,994,031
___________ ___________
Total liabilities and stockholders' equity $5,520,431 6,772,519
___________ ___________
___________ ___________
</TABLE>
See accompanying notes to consolidated financial statements.
4
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CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the three and nine months ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30,
1998 1997 1998 1997
___________ ___________ ___________ ___________
<S> <C> <C> <C> <C>
Net revenues $ 905,260 1,654,630 3,415,920 5,328,995
Cost of revenues 203,692 278,109 753,364 882,770
___________ ___________ ___________ ___________
Gross profit 701,568 1,376,521 2,662,556 4,446,225
Sales and marketing 312,688 776,219 1,393,247 2,685,210
General and administrative 423,165 511,564 1,320,540 1,870,139
Research and development 226,339 336,303 882,055 1,103,278
___________ ___________ ___________ ___________
Operating expenses 962,192 1,624,086 3,595,842 5,658,627
___________ ___________ ___________ ___________
Operating loss (260,624) (247,565) (933,286) (1,212,402)
Other income (expense):
Interest income 19,432 25,935 75,900 102,728
Interest expense (19,704) (20,693) (59,886) (62,790)
___________ ___________ ___________ ___________
Loss before income taxes (260,896) (242,323) (917,272) (1,172,464)
Income tax expense - - 1,256 -
___________ ___________ ___________ ___________
Net loss $(260,896) (242,323) (918,528) (1,172,464)
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
Loss per common share, basic
and diluted (note 3) $ (.24) (.23) (.84) (1.06)
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
Weighted average number of
common shares and common
equivalent shares outstanding 1,095,900 1,075,406 1,095,900 1,108,423
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
</TABLE>
See accompanying notes to consolidated financial statements.
5
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CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the nine months ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
___________ ___________
<S> <C> <C>
Cash flows from operating activities:
Net loss $(918,528) (1,172,464)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization:
Property, fixtures, and equipment 316,324 390,243
Purchased software technology 99,999 206,318
Other 111,283 66,840
Decrease in trade accounts receivable 652,928 381,508
(Increase) decrease in recoverable income taxes (557) 184,032
Decrease (increase) in inventories 276,722 (160,637)
(Increase) decrease in other assets (10,271) 34,315
Decrease in accounts payable and accrued expenses (252,218) (373,541)
Decrease in deferred revenue (48,603) (348,768)
Other (14,053) 35,686
___________ ___________
Net cash provided by (used in) operating activities 213,026 (756,468)
Cash flows from investing activities:
Proceeds from sale of property, fixtures, and equipment 5,350 12,841
Purchase of property, fixtures, and equipment (68,708) (65,865)
Purchases of short-term investments (924,317) (282,856)
Maturities of short-term investments 300,000 -
Proceeds from note receivable - 934,000
___________ ___________
Net cash (used in) provided by investing activities (687,675) 598,120
Cash flows from financing activities:
Proceeds from issuance for common stock - 14,232
Payment of long-term debt (32,739) (31,021)
___________ ___________
Net cash used in financing activities (32,739) (16,789)
___________ ___________
Net decrease in cash and cash equivalents (507,388) (175,137)
Cash and cash equivalents at beginning of period 1,454,434 1,862,703
___________ ___________
Cash and cash equivalents at end of period $ 947,046 1,687,566
___________ ___________
___________ ___________
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 60,136 61,855
Income taxes 1,813 1,554
</TABLE>
See accompanying notes to consolidated financial statements.
6
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CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1998
(Unaudited)
1) Accounting policies
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.
Effect of New Accounting Standards
In October 1997, the AICPA Accounting Standards Executive Committee issued
Statement of Position 97-2, "Software Revenue Recognition"(SOP 97-2), which is
effective for the Company's fiscal year beginning October 1, 1998. SOP 97-2
established new rules for the recognition of software revenue. The effect of
implementing SOP 97-2 is expected to be immaterial to the Company's financial
position and results of operations.
Results of Operations
The results of operations for the interim period reported are not necessarily
indicative of results to be expected for the year. The information reflects all
the adjustments (none of which were other than normal recurring items) which
are, in the opinion of management, necessary to present a fair statement of the
results for the interim period.
2)Stockholders' Equity
At June 30, 1998, options to purchase an aggregate of 141,152 shares at exercise
prices from $2.31 to $46.25 per share were outstanding.
3)Earnings 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 June 30, 1998 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.
7
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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 nine month periods ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
Quarter Ended June 30, Nine Months Ended June 30,
_____________________ __________________________
1998 1997 1998 1997
____ ____ ____ ____
<S> <C> <C> <C> <C>
Percentage of net revenues:
Net revenues 100% 100% 100% 100%
Cost of revenues 23 17 22 17
____ ____ ____ ____
Gross profit 77 83 78 83
Sales and marketing 34 47 41 50
General and administrative 47 31 39 35
Research and development 25 20 26 21
____ ____ ____ ____
Total operating expenses 106 98 106 106
____ ____ ____ ____
Operating loss (29) (15) (28) (23)
Other income, net 0 0 1 1
____ ____ ____ ____
Loss before income taxes (29) (15) (27) (22)
Income tax expense 0 0 0 0
____ ____ ____ ____
Net loss (29)% (15)% (27)% (22)%
____ ____ ____ ____
____ ____ ____ ____
</TABLE>
Three Month Analysis
____________________
Net Revenues
Net revenues for the third quarter of the current year were $905,000 compared
to $1,655,000 for the same quarter last year. The 45% decrease in revenues was
due to a $564,000, or 43% decrease in revenues from the Company's Messaging
products, a $168,000, or 49% decrease in revenues from the Company's Personal
Applications products and an $18,000 decrease in revenues from the Company's
Calendaring and Scheduling products.
Revenues from Messaging products accounted for 81% of total net revenues.
Historically these revenues were primarily derived from QuickMail LAN, the
Company's Apple Macintosh server based, E-mail solution. In management's
opinion, these revenues have been negatively impacted by the Macintosh's
shrinking market share. Over the past year and a half, the Company has
developed
8
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and begun marketing QuickMail Pro and QuickMail Office. These new cross-
platform, open standards, Messaging products are available for both Microsoft
Windows and Macintosh environments. Revenues from these new products accounted
for 82% of the third quarter's Messaging product revenues, up from just 45% a
year ago. In management's opinion the reduction in revenues from QuickMail LAN
was primarily due to the recent development of strong competition within the
open standards E-mail market. It is management's opinion that the prevalence
and functionality of inexpensive, and in some cases free, E-mail software may
hinder substantial, long-term growth of this product group.
Approximately 19% of the Company's third quarter revenues are from Personal
Applications products. Revenues from these products decreased by 49%, compared
to the same period a year ago. The vast majority of these revenues are from
sales of QuicKeys. QuicKeys is the Company's productivity enhancing utility
program for Apple Macintosh users. In management's opinion, the Macintosh's
shrinking market share has negatively impacted these revenues. It is
management's opinion that a new version, QuicKeys for Windows, currently under
development, offers meaningful long-term growth potential.
Revenues from Calendaring and Scheduling products accounts for 0% and 1% of net
revenues during the third quarter of fiscal 1998 and 1997, respectively. This
product group was discontinued in 1997.
Approximate net revenues by product group for the three-month periods ended
June 30, 1998 and 1997 are as follows:
1998 1997
Messaging $ 733,000 $1,297,000
Personal applications 172,000 340,000
Calendaring and scheduling - 18,000
__________ __________
Total net revenues $ 905,000 $1,655,000
__________ __________
__________ __________
Net revenues from international channels decreased to approximately $313,000 in
the third quarter of fiscal 1998, from $486,000 in the third quarter of the
prior year, representing 35% and 29% of total net revenues, respectively. The
decrease in international net revenues was primarily within the Japanese and
Australian markets. In management's opinion, these decreases were primarily due
to the financial crisis in Asia, and it is not expected that the market for the
Company's products in Japan will be restored to their previous level of sales in
this calendar year.
Cost of Revenues
The Company's cost of revenues is composed of: 1) the costs of product materials
such as manuals, compact discs, and packaging; 2) amortization of capitalized
translation costs; 3) amortization of capitalized manufacturing expenses; 4)
royalties paid to outside developers for the use of certain software included
with some of the Company's products; and 5) amortization of capitalized
purchased software.
Cost of revenues, as a percentage of net revenues, increased from 17% to 23% in
the third quarter of fiscal 1998, compared to the same quarter a year ago. The
increase, on a percentage basis, was primarily due to higher amortization
expense of capitalized translation costs associated
9
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with the new international versions of QuickMail. Also contributing to the
increase, on a percentage basis, was a somewhat higher amortization expense
associated with both capitalized purchased software and capitalized
manufacturing expense.
Sales and Marketing
Sales and marketing expenses in the third quarter of fiscal 1998 were reduced
$464,000, or 60% compared to the third quarter of fiscal 1997. This sizeable
decrease was primarily within marketing/advertising expenses, $280,000, and
salaries and benefits, $143,000. The decrease in marketing/advertising expenses
was primarily due to less advertising resulting from the Company's focus on
fewer products. The decrease in salaries and benefits was primarily due to
workforce reductions.
General and Administrative
General and administrative expenses are composed principally of salaries and
benefits of administrative and technical support personnel, fees for
professional services, amortization of intangible assets and facilities
expenses. These expenses for the third quarter of fiscal 1998 were reduced
$88,000, or 17% compared to the third quarter of fiscal 1997. The largest of
these reductions were in salaries and benefits, $108,000, and legal and
accounting, $17,000, while facility overhead expense and amortization expenses
increased by $16,000 and $15,000, respectively. The decrease in salaries and
benefits was primarily due to workforce reductions. The decrease in legal and
accounting fees was primarily due to reduced legal fees in the current year as a
result of last year's settlement of a major lawsuit.
Research and Development
Research and development expenses decreased to approximately $226,000 in the
third quarter of the current year from $336,000 in the third quarter of the
prior year, representing 25% and 20% of net revenues, respectively. The
primary area that decreased in the third quarter of fiscal 1998 was salaries
and benefits, $102,000. The decrease was predominantly associated with some
workforce reductions.
Income Tax Benefit
The Company recorded no federal income tax benefit for the third quarter of
fiscal 1998. The Company has utilized all available net operating loss
carrybacks and has recorded a valuation allowance for its net operating
loss carryforward.
10
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Nine Month Analysis
___________________
Net Revenues
Net revenues for the first nine months of the current year were $3,416,000
compared to $5,329,000 for the same period last year. The 36% decrease in net
revenues was due to a $1,520,000, or 37% decrease in revenues from the Company's
Messaging products, a $322,000, or 29% decrease in revenues from the Company's
Personal Applications products, and a $71,000 decrease in revenues from the
Company's Calendaring and Scheduling products.
Revenues from Messaging products accounted for 77% of total net revenues.
Historically these revenues were primarily derived from QuickMail LAN, the
Company's Apple Macintosh server based, E-mail solution. In management's
opinion, these revenues have been negatively impacted by the Macintosh's
shrinking market share. Over the past year and a half, the Company has
developed and begun marketing QuickMail Pro and QuickMail Office. These new
cross-platform, open standards, Messaging products are available for both
Microsoft Windows and Macintosh environments. Revenues from these new products
accounted for 75% of the first nine months Messaging product revenues, up from
just 26% a year ago. In management's opinion the growth in revenues from these
new products, although substantial, has not been able to offset the reduction in
revenues from QuickMail LAN, primarily due to the recent development of strong
competition within the open standards E-mail market. It is management's opinion
that the prevalence and functionality of inexpensive, and in some cases free,
E-mail software may hinder substantial, long-term growth of this product group.
Approximately 23% of the revenues for the first nine months of the current
fiscal year are from Personal Applications products, which are primarily sales
of QuicKeys. QuicKeys is the Company's productivity enhancing utility program
for Apple Macintosh users. These sales have decreased, when compared to the
prior year, primarily due to strong sales in the first quarter of the prior
year, following the release of a significant upgrade to the product. In
management's opinion, the Macintosh's shrinking market share has negatively
impacted these revenues. It is management's opinion that a new version,
QuicKeys for Windows, currently under development, offers meaningful long-term
growth potential.
Revenues from Calendaring and Scheduling products accounts for 0% and 1% of net
revenues during the first nine months of fiscal 1998 and 1997, respectively.
This product group was discontinued in 1997.
Approximate net revenues by product group for the nine-month periods ended
June 30, 1998 and 1997 are as follows:
1998 1997
Messaging $2,617,000 $4,137,000
Personal applications 799,000 1,121,000
Calendaring and scheduling - 71,000
__________ __________
Total net revenues $3,416,000 $5,329,000
__________ __________
__________ __________
11
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Net revenues from international channels decreased to approximately $1,025,000
in the first nine months of the current year, from $1,502,000 in the same period
a year ago, representing 30% and 28% of total net revenues, respectively. The
decrease in international net revenues was primarily within the Japanese and
Australian markets. In management's opinion, these decreases were primarily due
to the financial crisis in Asia, and it is not expected that the market for the
Company's products in Japan will be restored to their previous level of sales
in this calendar year.
Cost of Revenues
The Company's cost of revenues is composed of: 1) the costs of product materials
such as manuals, diskettes, and packaging; 2) amortization of capitalized
translation costs; 3) amortization of capitalized manufacturing
expenses; 4) royalties paid to outside developers for the use of certain
software included with some of the Company's products; and 5) amortization of
capitalized purchased software.
Cost of revenues, as a percentage of net revenues, increased from 17% to 22% in
the first nine months of fiscal 1998, compared to the same period a year ago.
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
Pro server technologies.
Sales and Marketing
Sales and marketing expenses in the first nine months of fiscal 1998 were
reduced $1,292,000, or 48% compared to the first nine months of fiscal 1997.
This sizeable variance was primarily due to decreases within
marketing/advertising expenses, $799,000; salaries and benefits, $499,000;
travel and entertainment, $24,000; facility overhead allocation, $84,000 and an
increase in contract labor & temporary help, $146,000. The decrease in
marketing/advertising expenses was primarily due to significantly less trade
show expenditures and less advertising resulting from the Company's focus on
fewer products. The decrease in salaries and benefits was primarily due to
workforce reductions. The increase in contract labor and temporary help was due
to reliance on outside marketing expertise.
General and Administrative
General and administrative expenses are composed principally of salaries and
benefits of administrative and technical support personnel, fees for
professional services, amortization of intangible assets and facilities
expenses. These expenses for the first nine months of fiscal 1998 were reduced
$550,000, or 29% from the same period a year ago. The largest of these
reductions were in salaries and benefits, $407,000; legal and accounting,
$88,000; and travel and entertainment, $33,000. The decrease in legal and
accounting fees is primarily due to reduced legal fees in the current year as
a result of last year's settlement of a major lawsuit. The other decreases are
primarily associated with workforce reductions.
12
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Research and Development
Research and development expenses decreased to approximately $882,000 for the
first nine months of the current year from $1,103,000 in the same period last
year, representing 26% and 21% of net revenues, respectively. The primary areas
that decreased in the first nine months of fiscal 1998 was salaries and
benefits, $201,000 and contract labor, $19,000. These decreases were
predominantly associated with some workforce reductions.
Income Tax Benefit
The Company recorded no federal income tax benefit for the third quarter of
fiscal 1998. The Company has utilized all available net operating loss
carrybacks and has recorded a valuation allowance for its net operating loss
carryforward. The small tax expense reported represents some state taxes
incurred.
Liquidity and Capital Resources
Cash and cash equivalents decreased by $507,000 from $1,454,000 at the beginning
of the fiscal year, to $947,000 as of June 30, 1998. The primary sources of
cash from operating activities was a $653,000 decrease in the level of trade
accounts receivable and a $277,000 decrease in the level of inventories. The
decrease in trade accounts receivable was due to both effective collection
efforts and lower sales levels. The decrease in inventories was primarily due
to the amortization of capitalized translation costs, which are a component of
inventories. Of the $930,000 in cash generated from these two sources,
approximately $391,000 was used to fund the operating loss adjusted for the
non-cash expenses of depreciation and amortization. Of the available cash,
$924,000 was used to purchase short-term investments. These additional
investments were in a U.S. Treasury bill and several bank certificates of
deposit. Management expects that the Company will have no need to raise
additional funds within the next year. Management believes the Company can fund
its working capital needs from operations, available cash, and available
investments.
Employees
As of June 30, 1998, the Company employed 42 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, and
March 31, 1998, the Company employed 65, 56, and 40 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.
13
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Risk and Uncertainty
Safe harbor for 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 wished 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 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.
For a more complete discussion of these risk factors, see the Company's Form
10-KSB, filed December 23, 1997.
Trademarks
Quickmail and TimeVision NS are trademarks and QuicKeys, WebArranger, and
Network Scheduler are registered trademarks of CE Software, Inc. All other
brand or product names are trademarks or registered trademarks of their
respective holders.
14
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PART II: OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Sale of Stock held as an investment
On July 16, 1998, CE Software, Inc. ("CE"), a wholly owned subsidiary of the
Company sold its equity investment in Relevance Technologies, Inc.
("Relevance"). The investment was sold to Documentum, Inc. ("Documentum") and
was part of a merger between Relevance and Documentum.
Prior to the merger, CE owned 1,470,000 shares of Relevance's common stock.
This stock was acquired in 1996 in exchange for a license to certain CE
technologies and $75,000 in seed capital. Relevance was founded in 1996 by a
team of former CE employees, including former CE president Ford Goodman. Over
the past two years, San Francisco-based Relevance has developed highly
sophisticated, knowledge management software designed to integrate and organize
company-wide information.
Prior to the merger, Documentum, of Pleasanton, Calif., a leader in document
management software, held a minority interest in Relevance. In the merger,
Documentum acquired Relevance's remaining capital stock for $35 million.
Relevance stockholders received $3.5 million in cash plus Documentum common
stock valued, per the merger agreement, at $31.5 million. The agreement values
the stock at an average market price of $48.30 per share.
As the second-largest shareholder, CE received consideration totaling
$6,206,000, which included $691,000 in cash and 114,182 shares of Documentum's
common stock, Nasdaq National Market symbol, DCTM. This stock, when valued in
accordance with the $48.30 per share price established by the agreement, is
worth $5,515,000. The agreement requires a portion of the stock received, be
held in escrow for a one-year period. Of the stock held in escrow, CE owns
14,302 shares. These shares in escrow are at risk to compensate Documentum for
claims or damages incurred in connection with the merger resulting from any
inaccuracy in or breach of a representation or warranty made by Relevance. The
remaining 99,880 shares owned by CE have recently been registered for resale as
part of a Form S-3 registration statement.
Under the equity method of accounting CE's ownership in Relevance has been
carried at a book value of zero. As a result, in the fourth quarter ending
September 30, 1998, CE will report a gain on the sale of Relevance stock equal
to the consideration received of $6.2 million. For financial statement
purposes, this gain will utilize all available tax benefits from the Company's
current and carryforward net operating losses. In addition, the Company will
record a tax expense of approximately $1.7 million related to this sale.
The number of shares of Documentum stock received in exchange for Relevance's
stock was based upon the average closing price of Documentum's stock on the
Nasdaq National Market for the twenty trading-day period ending June 26, 1998.
This value of approximately $48.30 per share is the carrying value of the
Documentum stock on CE's books as of the closing date of the agreement and is
the value used in the calculation of the above reported gain.
15
<PAGE>
UNTIL WHICH TIME AS THE 114,182 SHARES OF DOCUMENTUM STOCK CURRENTLY OWNED BY CE
ARE SOLD, THE COMPANY IS AT RISK OF ANY MARKET FLUCTIATIONS THAT MAY OCCUR IN
THE VALUE OF DOCUMENTUM'S STOCK. THERE CAN BE NO ASSURANCE THAT THE PRICE AT
WHICH DOCUMENTUM'S STOCK CAN BE SOLD WILL NOT BE MATERIALLY DIFFERENT FROM THE
PRICE AT WHICH THE SHARES WERE VALUED IN THE AGREEMENT. THE CARRYING VALUE OF
DOCUMENTUM'S STOCK, AS OF THE CLOSING DATE OF THE AGREEMENT, REPRESENTED
APPROXIMATELY 50 PERCENT OF THE VALUE OF THE COMPANY'S TOTAL ASSETS. AS A
RESULT, ANY SIGNIFICANT FLUCUATIONS IN THE VALUE OF DOCUMENTUM'S STOCK WILL HAVE
A MATERIAL IMPACT ON THE COMPANY'S FINANCIAL POSITION AND RESULTS OF OPERATIONS.
As required by Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" (SFAS 115), the Company,
based on its intent to either hold or liquidate its interest, must classify the
Documentum stock as either "trading securities" or "available-for-sale
securities." Due to the Company's intent to sell, in the near term, the 99,880
non-escrow shares, these securities have been classified as "trading
securities." According to the provisions of SFAS 115 any unrealized holding
gains or losses from these securities will be included in earnings for the
period in which the unrealized holding gains or losses occur. Due to the
restrictions placed on the 14,302 shares held in escrow, the Company has
classified these securities as "available-for-sale". According to the
provisions of SFAS 115 any unrealized holding gains or losses from these
securities will be excluded from earnings and reported as a separate component
of stockholder's equity until realized.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - See index on page 18
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 June 30, 1998.
16
<PAGE>
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 August 12, 1998
_________________________ President, Chief Executive _______________
(Richard A. Skeie) Officer and Director
/s/ John S. Kirk August 12, 1998
_________________________ Secretary and Treasurer, _______________
(John S. Kirk) and Director
/s/ Daniel E. McCann August 12, 1998
_________________________ Chief Financial Officer _______________
(Daniel E. McCann)
17
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
11 Computation of Earnings per Common Share Page 19
27 Financial Data Schedule - for SEC filing only
18
<PAGE>
EXHIBIT 11
CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(given effect, pro forma, to the Reverse Stock Split)
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30, June 30,
1998 1997 1998 1997
____ ____ ____ ____
<S> <C> <C> <C> <C>
Basic Earnings
per Share Information:
Weighted average number of
shares outstanding during
the quarter 1,095,900 1,075,406 1,095,900 1,108,423
Annualized additional shares
due to stock options - - - -
_________ _________ _________ _________
1,095,900 1,075,406 1,095,900 1,108,423
_________ _________ _________ _________
_________ _________ _________ _________
Net loss $(260,896) $(242,323) $(918,528) $(1,172,464)
Basic loss per share $ (.24) $ (.23) $ (.84) $ (1.06)
Diluted Earnings
per Share Information:
Weighted average number of
shares outstanding during
the quarter 1,095,900 1,075,406 1,095,900 1,108,423
Annualized additional shares
due to stock options - - - -
_________ _________ _________ _________
1,095,900 1,075,406 1,095,900 1,108,423
_________ _________ _________ _________
_________ _________ _________ _________
Net loss $(260,896) $(242,323) $(918,528) $(1,172,464)
Diluted loss per share $ (.24) $ (.23) $ (.84) $ (1.06)
</TABLE>
19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 947,046
<SECURITIES> 1,128,306
<RECEIVABLES> 455,134
<ALLOWANCES> 0
<INVENTORY> 466,389
<CURRENT-ASSETS> 3,288,964
<PP&E> 4,225,660
<DEPRECIATION> 2,260,098
<TOTAL-ASSETS> 5,520,431
<CURRENT-LIABILITIES> 646,571
<BONDS> 798,357
0
0
<COMMON> 109,590
<OTHER-SE> 4,075,503
<TOTAL-LIABILITY-AND-EQUITY> 5,520,431
<SALES> 905,260
<TOTAL-REVENUES> 905,260
<CGS> 203,692
<TOTAL-COSTS> 203,692
<OTHER-EXPENSES> 962,192
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (19,704)
<INCOME-PRETAX> (260,896)
<INCOME-TAX> 0
<INCOME-CONTINUING> (260,896)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (260,896)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> (.24)
</TABLE>
