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, 1999.
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition period from to .
Commission File No. 0-18809
_______________________________________________________________________________
CE SOFTWARE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 41-1614808
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
1801 Industrial Circle, P.O. Box 65580, West Des Moines, Iowa 50265
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (515) 221-1801
Former name, former address and former fiscal year, if changed since last
report: No changes.
_______________________________________________________________________________
Indicate by mark (X) whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
July 31, 1999 Common Stock 1,099,200
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
June 30, 1999 and September 30, 1998 3
Consolidated Statements of Operations and
Comprehensive Loss
Three Months and Nine Months Ended June 30, 1999 and 1998 4
Consolidated Statements of Cash Flows
Nine Months Ended June 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1999 and September 30, 1998
<TABLE>
<CAPTION>
Assets June 30 September 30
Current assets: (Unaudited)
<S> <C> <C>
Cash and cash equivalents $3,455,323 4,106,493
Investments 1,650,282 2,882,031
Trade accounts receivable, net 731,396 479,953
Inventories 293,343 394,649
Other current assets 385,627 251,102
__________ __________
Total current assets 6,515,971 8,114,228
Property, fixtures, and equipment:
Land 91,796 316,796
Building 1,312,016 1,312,016
Fixtures and equipment 2,712,450 2,633,551
__________ __________
Total property, fixtures, and equipment 4,116,262 4,262,363
Less accumulated depreciation 2,632,174 2,360,475
__________ __________
Net property, fixtures, and equipment 1,484,088 1,901,888
Deferred income taxes 363,000 369,000
Other intangible assets, net of amortization 24,918 33,888
Other assets 32,467 43,256
__________ __________
Total assets $8,420,444 10,462,260
__________ __________
__________ __________
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $98,253 87,480
Trade accounts payable 283,805 238,343
Accrued payroll and benefits 176,681 171,033
Income taxes payable (62,190) 275,744
Other accrued payables 114,736 111,991
Deferred revenue 14,034 33,948
Deferred income taxes (19,000) 588,000
__________ __________
Total current liabilities 606,319 1,506,539
Long-term debt, net of current portion 266,642 342,685
__________ __________
Total liabilities 872,961 1,849,224
Stockholders' equity:
Common stock, $.10 par value. Authorized
2,000,000 shares; issued and outstanding
1,095,900 in 1999 and 1998 109,590 109,590
Additional paid-in capital 5,893,710 5,893,710
Accumulated comprehensive income (296,028) (72,138)
Retained earnings 1,840,211 2,681,874
__________ __________
Total stockholders' equity 7,547,483 8,613,036
__________ __________
Total liabilities and stockholders' equity $8,420,444 10,462,260
__________ __________
__________ __________
</TABLE>
See accompanying notes to consolidated financial statements.
3
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CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Loss
For the three and nine months ended June 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30,
<S> <C> <C> <C> <C>
1999 1998 1999 1998
Net revenues $1,346,759 905,260 2,795,663 3,415,920
Cost of revenues 236,592 203,692 607,174 753,364
__________ __________ __________ __________
Gross profit 1,110,167 701,568 2,188,489 2,662,556
Sales and marketing 466,182 312,688 1,333,520 1,393,247
General and administrative 405,645 423,165 1,226,058 1,320,540
Research and development 288,642 226,339 893,678 882,055
__________ __________ __________ __________
Operating expenses 1,160,469 962,192 3,453,256 3,595,842
__________ __________ __________ __________
Operating loss (50,302) (260,624) (1,264,767) (933,286)
Other income (expense):
Gain on sale of investments - - 1,827 -
Loss on sale of land - - (25,000) -
Change in market value of trading securities (53,459) - (160,555) -
Interest income 53,011 19,432 160,871 75,900
Interest expense (8,154) (19,704) (26,974) (59,886)
__________ __________ __________ __________
Total other income (expense) (8,602) (272) (49,831) 16,014
Loss before income tax (expense) benefit (58,904) (260,896) (1,314,598) (917,272)
Income tax benefit (expense) 14,000 - 472,935 (1,256)
__________ __________ __________ __________
Net loss $(44,904) $(260,896) $(841,663) $(918,528)
Other comprehensive loss, before tax -
Unrealized loss on securities (60,776) - (379,890) -
Income tax benefit related to items of other
comprehensive loss 24,000 - 156,000 -
__________ __________ __________ __________
Comprehensive loss $ (81,680) $(260,896) $(1,065,553) $(918,528)
__________ __________ __________ __________
__________ __________ __________ __________
Basic net loss per share $ (.04) (.24) (.77) (.84)
Shares used in per share calculation - basic 1,095,900 1,095,900 1,095,900 1,095,900
Diluted net loss per share $ (.04) (.24) ( .77) (.84)
Shares used in per share calculation - diluted 1,095,900 1,095,900 1,095,900 1,095,900
</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 nine months ended June 30, 1999 and 1998
(Unaudited)
<TABLE>
<S> <C> <C>
1999 1998
Cash flows from operating activities:
Net loss $(841,663) $(918,528)
Adjustments to reconcile net loss to
net cash (used in) provided by operating activities:
Depreciation and amortization:
Property, fixtures, and equipment 271,699 316,324
Purchased software 23,075 99,999
Other - 111,283
Amortization of premium 2,536 -
Accretion of discount (12,962) -
Change in market value trading securities 160,555 -
Proceeds from sale of trading securities 967,922 -
Gain on sale of trading securities (1,827) -
Decrease in deferred income taxes payable (445,000) (557)
Loss on sale of land 25,000 -
(Increase) Decrease in trade accounts receivable (251,443) 652,928
Increase in other current assets and other assets (123,736) (10,271)
Decrease in inventories 101,306 276,722
Increase (Decrease) in accounts payable and accrued expenses 53,855 (252,218)
Decrease in deferred revenue (19,914) (48,603)
Decrease in income taxes payable (337,934) -
Other - (14,053)
__________ __________
Net cash (used in) provided by operating activities (428,531) 213,026
Cash flows from investing activities:
Proceeds from sale of property, fixtures, and equipment - 5,350
Purchase of held-to-maturity investments (1,571,475) -
Proceeds upon maturity of held-to-maturity investments 1,307,110 -
Purchases of short-term investments - (924,317)
Maturities of short-term investments - 300,000
Proceeds from sale of land 200,000 -
Purchase of property, equipment and other intangible assets (93,004) (68,708)
__________ __________
Net cash used in investing activities (157,369) (687,675)
__________ __________
Cash flows from financing activities:
Payment of long-term debt (65,270) (32,739)
__________ __________
Net decrease in cash and cash equivalents (651,170) (507,388)
Cash and cash equivalents at beginning of period 4,106,493 1,454,434
__________ __________
Cash and cash equivalents at end of period $3,455,323 $947,046
__________ __________
__________ __________
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $27,878 $60,136
Income taxes $310,000 $1,813
</TABLE>
See accompanying notes to consolidated financial statements.
5
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CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999
(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.
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) Investments
Investments consist of trading securities, available-for-sale securities, and
held-to-maturity securities.
Trading securities are unrestricted common stock of Documentum, Inc. The
investment is recorded at market value, with the unrealized loss recognized in
other income (expense).
Available-for-sale securities are restricted stock of Documentum, Inc. The
investment is recorded at market value, with the unrealized gain (loss)
recorded as a component of stockholders' equity.
3) Stockholders' Equity
At June 30, 1999, options to purchase an aggregate of 154,174 shares were held
by 55 persons, at exercise prices of from $2.16 to $46.25 per share.
4) Effect of New Accounting Pronouncements
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130), is effective for both interim and annual periods beginning
after December 15, 1997. Accordingly, the Company has applied the provisions
of
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SFAS 130 for the period ended June 30, 1999 and has retroactively restated
all Statements of Income to conform with the disclosure provisions of SFAS 130.
The effect of implementing SFAS 130 was disclosure only, there was no impact to
the Company's financial position and results of operations.
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" (SFAS 131), is effective for both
interim and annual periods beginning after December 15, 1997. Accordingly, the
Company has applied the provisions of SFAS 131 for the period ended June 30,
1999, however, there was no restatement necessary to conform with the
provisions. The effect of implementing SFAS 131 was disclosure only and not
applicable to the Company's financial position and results of operations.
Statement of Position 97-2, "Software Revenue Recognition" (SOP 97-2), is
effective for fiscal years beginning after December 31, 1997. This statement
requires revenue recognition for software licensing when certain criteria are
met. The Company's revenue is generated exclusively from the development and
licensing of single element products, as defined in the statement, and from
post-contract customer support (PCS) arrangements. The Company does offer
separate PCS services that are recognized ratable over the terms of the
arrangement. There are insignificant PCS services provided with initial
license arrangement that are not recognized ratably over the license agreement
but rather are recognized with the initial licensing fee as prescribed in the
statement. The adoption of SOP 97-2 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 ended June 30, 1999 and 1998.
<TABLE>
Quarter Ended June 30, Nine Months Ended June 30,
<S> <C> <C> <C> <C>
1999 1998 1999 1998
Percentage of net revenues:
Net revenues 100% 100% 100% 100%
Cost of revenues 17 23 22 22
___ ___ ___ ___
Gross profit 83 77 78 78
Sales and marketing 35 34 47 41
General and administrative 30 47 44 39
Research and development 21 25 32 26
___ ___ ___ ___
Total operating expenses 86 106 123 106
___ ___ ___ ___
Operating loss (3) (29) (45) (28)
Other income (expense), net (1) 0 (2) 1
___ ___ ___ ___
Loss before income taxes (4) (29) (47) (27)
Income tax benefit (expense) 1 0 17 0
___ ___ ___ ___
Net loss (3)% (29)% (30)% (27)%
</TABLE>
Three months ended June 30, 1999
Net Revenues
Net revenues for the third quarter of the current year were $1,347,000 compared
to $905,000 for the third quarter of the prior year. Revenues were up in both
the Messaging and Personal Applications product groups. As a percentage of net
revenues, approximately 45% of the Company's current revenues were from Personal
Application products compared to 19% a year ago. Nearly all of these revenues
are from the sales of QuicKeys, the Company's productivity enhancing utility
program. During fiscal 1998, this product was only available for the Apple
Macintosh market. The Macintosh's smaller market share over the last few years
has negatively impacted these revenues and in the opinion of management, the
new version of QuicKeys for Windows, released in this first quarter of fiscal
year 1999, offers growth potential. During the third quarter of the current
fiscal year, approximately 8% of the Personal Application revenue resulted from
the release of QuicKeys for Windows, representing a decrease from the 23% of
revenue from last quarter. The decrease was due to the release of QuicKeys 4.0
for the Macintosh.
8
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Revenues from the Company's Messaging products increased 1% compared to the
prior year and accounted for approximately 55% of total net revenues in the
third quarter of fiscal year 1999, compared to 81% in third quarter of fiscal
year 1998. This represents the focus of the Company on its personal application
products. Historically, these Messaging revenues were primarily derived from
QuickMail LAN, the Company's Macintosh server based, E-mail solution. Over the
past few years, revenues from the QuickMail LAN product have declined
significantly and was discontinued in the first half of fiscal 1999, resulting
in no revenue for the the third quarter of fiscal year 1999. Presently, all of
messaging revenues are generated from the Company's QuickMail Pro and QuickMail
Office products. These sales consisted of 100% and 82% of messaging product
revenues for the third quarter of fiscal 1999 and the third quarter last year,
respectively. These products are cross-platform, open standards messaging
products available for both Microsoft Windows and Mac OS environments. In
management's opinion, these revenues have been negatively impacted due to the
development of strong competition within the E-mail market. This competition
includes the prevalence of inexpensive and in some cases free, E-mail software.
In management's opinion, such competition is expected to continue and may hinder
substantial, long-term growth of this product group.
Net revenues from international channels decreased to approximately $228,000 in
the third quarter of the current year, from $313,000 in the third quarter of the
prior year, representing 17% and 34% of net revenues, respectively. The
decrease was primarily due to a decline of sales in the European market and the
continued economic downturn in Asia.
Cost of Revenues
The Company's cost of revenues is composed primarily of: 1) the costs of
product materials such as manuals, CD-ROMs, 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 increased $33,000 in the third quarter of fiscal 1999 compared
to the same period a year ago. As a percentage of net revenues, cost of
revenues decreased to 17% from 23%. The decrease is due to higher revenues which
results in fixed charges, such as amortization, being lower on a percentage
basis.
Sales and Marketing
Sales and marketing expenses increased $153,000 or 49%, during the third quarter
of fiscal 1999 compared to the third quarter of fiscal 1998. The variances are
primarily increases in marketing/advertising expenses of $102,000; salaries and
benefits, $29,000; and other miscellaneous expense accounts, such as contract
labor and temporary help, $5,000 and travel and entertainment, $5,000. The
increases are a result of a larger sales and marketing workforce and
marketing/advertising expenses associated with the launching of new
products.
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 third quarter decreased 4% or $18,000 from the third
quarter
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of the prior year, representing 30% and 47% of net revenues for third
fiscal quarter of the current year and prior year, respectively. The change in
expenses is mainly due to lower depreciation and amortization expense; $52,000,
resulting from the full depreciation of certain assets and the full amortization
of purchased software technology and an increase in salaries and benefits
of $47,000.
Research and Development
Research and development expenses increased to $289,000 in the third quarter of
fiscal 1999, compared to $226,000 in the third quarter of the prior year,
representing 21% and 25% of net revenues, respectively. The primary areas that
increased in the third quarter of fiscal 1999 were salaries and benefits,
$26,000 and contract labor and temporary help, $32,000. The increases were due
to salary increases and outsourcing of some research and development, and
technical writing activities.
Income Tax Benefit
The Company recorded an income tax benefit of $14,000 for the third quarter
of fiscal 1999 compared to no tax benefit for the third quarter of fiscal 1998
because the Company has utilized all available net operating loss carrybacks and
had recorded a valuation allowance for its net operating loss carryforward.
Nine Months ended June 30, 1999
Net Revenues
Net revenues for the first nine months of the current year were $2,796,000
compared to $3,416,000 for the same period last year. The 18% decrease in net
revenues was due to a $919,000, or 35% decrease in revenues from the Company's
Messaging products and a $299,000, or 37% increase in revenues from the
Company's Personal Applications products.
Approximately 39% of the revenues for the first nine months of the current
fiscal year are from Personal Application products compared to 23% a year ago.
Nearly all of these revenues are from the sales of QuicKeys, the Company's
productivity enhancing utility program. During fiscal 1998, this product was
only available for the Apple Macintosh market. The Macintosh's smaller market
share over the last few years has negatively impacted these revenues and in the
opinion of management, the new version of QuicKeys for Windows, released in this
first quarter of fiscal year 1999 offers growth potential. During the first
nine months of the current fiscal year, approximately 14% of the Personal
Application revenue resulted from the release of QuicKeys for Windows.
Revenues from Messaging products accounted for 61% of total net revenues.
Historically, these revenues were primarily derived from QuickMail LAN, the
Company's Apple Macintosh server based, E-mail solution. Over the past few
years, revenues from QuickMail LAN have declined significantly. For the first
nine months of fiscal year 1999, QuickMail LAN accounted for 5% of Messaging
product revenues compared to 22% during the first nine months of the prior year.
This continued decline of QuickMail LAN resulted in the product being
discontinued in the first half of fiscal 1999. Presently, the majority of
messaging revenues is generated from the Company's QuickMail Pro and QuickMail
Office products. These revenues consisted of 95% and 75% of messaging product
revenues for the first three quarters of fiscal 1999 and the first three
quarters of last year, respectively. These products are cross-platform, open
standards
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messaging products available for both Microsoft Windows and Mac OS environments.
In management's opinion, these revenues have been negatively impacted due to the
development of strong competition within the E-mail market. This competition
includes the prevalence of inexpensive and in some cases free, E-mail software.
In management's opinion, such competition is expected to continue and may hinder
substantial, long-term growth of this product group.
Approximate net revenues by product group for the nine-month periods ended
June 30, 1999 and 1998 are as follows:
1999 1998
Messaging $1,698,000 $2,617,000
Personal applications 1,098,000 799,000
__________ __________
Total net revenues $2,796,000 $3,416,000
Net revenues from international channels decreased to approximately $701,000
in the first nine months of the current year, from $1,025,000 in the same
period a year ago, representing 25% and 30% respectively, of total net revenues
in both periods. The decrease was primarily due to a decline of sales in the
European market and the continued economic downturn in Asia.
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, remained unchanged at 22%
in the first nine months of fiscal 1999, compared to the same period a year ago.
Sales and Marketing
Sales and marketing expenses in the first nine months of fiscal 1999 were
reduced $60,000, or 4% compared to the first nine months of fiscal 1998. This
decrease was a result of lower salaries and benefits, $120,000; contract labor
and temporary help, $97,000; and travel and entertainment; $18,000, and an
increase in marketing/advertising expense of $169,000. The lower salaries and
benefits, contract labor and temporary help, and travel and entertainment were
primarily due to a more focused sales and marketing effort. The increase in
marketing/advertising expenses was primarily due to the launch of new products.
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 1999 were
reduced $94,000, or 7% from the same period a year ago. The largest of these
changes was a decrease in depreciation and
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amortization; $133,000 , and increases in contract labor and temporary help;
$16,000, and supplies; $12,000. The decrease in depreciation and amortization
was the result of the full depreciation of certain assets and the full
amortization of purchased software technology. The increases resulted from the
increased reliance on contract labor due to a smaller workforce and the
implementation of new accounting software.
Research and Development
Research and development expenses increased to $894,000 for the first nine
months of the current year from $882,000 in the same period last year,
representing 32% and 26% of net revenues, respectively. The primary areas that
changed in the first nine months of fiscal 1999 were a decrease in salaries and
benefits of $98,000 and an increase in contract labor of $122,000. The decrease
in salaries and benefits was the result of a more focused development effort,
while the increase in contract labor and temporary help resulted from the
outsourcing of some research and development, and technical writing activities.
Income Tax Benefit
The Company recorded a federal income tax benefit of $473,000 for the first nine
months of fiscal 1999 compared to no tax benefit for the first nine months of
fiscal 1998 because the Company has utilized all available net operating loss
carrybacks and had recorded a valuation allowance for its net operating loss
carryforward.
Liquidity and Capital Resources
Cash and cash equivalents decreased by $651,000 to $3,455,000 at the end of
the third quarter of fiscal 1999 from $4,106,000 at the end of fiscal 1998.
The decrease in cash and cash equivalents was primarily a result of the
proceeds on the sale of the operating loss for the nine months ended June 30,
1999 of $1,265,000, offset to some extent by the proceeds on the sales of
trading securities of $968,000 less, the tax payments of $310,000. The Company
believes it can fund its working capital needs from operations, available cash
and investments.
Recent Developments
The Documentum, Inc. stock has continued to decrease in value since
December 31, 1998. The combined market value of the trading and
available-for-sale shares of Documentum was $1,436,520, $465,395 and $351,160 at
December 31, 1998, March 31, 1999 and June 30, 1999, respectively. The market
price was $53.44, $17.31, $13.06 per share over the same period. There were no
shares sold during the third quarter of fiscal 1999. Recent market prices
indicate the stock is volatile. The Company continues to monitor this
investment and make decisions about its stock holdings considering this
volatility.
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 actual events
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
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<PAGE>
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; the risk of the growth potential of QuicKeys for Windows; the risk
that the market value of the Company's holdings in Documentum stock will further
decline; and the risk that the Company would not be able to fund its working
capital needs from cash flows.
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 in the Year 2000 and in the years
immediately following 2000.
The Company had sold a minimal amount of its QuickMail LAN product and other
older products in the first half of fiscal 1999, 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 discontinued the sale of these products and has disclosed this
action in detail on the Company's Web site. 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 actual or
threatened litigation relating to Year 2000 issues.
The Company continues to address the potential impact to the Company of Year
2000 operability by any of its key suppliers or customers. Its key suppliers
have represented their Year 2000 readiness to be sufficient at this time in
nearly all cases and others have stated their plans to be ready. 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. Although the Company
recognizes that its exposure on Year 2000 issues could potentially be material
to its business as a whole, the Company at this time believes that its exposure
on Year 2000 issues will not be material to its
14
<PAGE>
business as a whole. Actual results of the Company's business operations may
differ materially from this forward-looking statement. The actual impact of
Year 2000 issues will depend upon a number of factors, including, but not
limited to, customer's continued use of the Company's discontinued products,
the extent to which the Company's web cite is consulted by customers, the extent
to which the Company's customers are affected by Year 2000 problems unrelated or
related to the Company's products and general legal developments relating to
Year 2000 liability. Internal costs associated with the Year 2000 project have
not been separately monitored but would primarily relate to payroll related
costs. No external consultants have been contracted to assist specifically with
this project.
The Company has not yet developed contingency plans to address situations that
may result if the Company is unable to achieve Year 2000 readiness of its
critical operations, including operations under the control of third parties.
Additionally, the most reasonably likely worst case scenario has not yet been
clearly identified. Development of such contingency plans is in progress and is
expected to be completed by August 31, 1999. There can be no assurance that the
Company will be able to develop contingency plans that will adequately address
all Year 2000 issues that may arise. Some commentators have stated that a
significant amount of litigation will arise out of Year 2000 compliance issues,
and the Company is aware of a growing number of lawsuits against other software
vendors. Because of the unprecedented nature of such litigation, it is uncertain
whether or to what extent the Company may be affected by it. The impact of the
Year 2000 on future Company revenue is difficult to discern but is a risk to be
considered in evaluating the future of the Company.
14
<PAGE>
CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(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, 1999.
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, 1999
_______________________ President, Chief Executive _______________
(Richard A. Skeie) Officer, and Director
/s/ John S. Kirk August 12, 1999
_______________________ Secretary, Treasurer, and _______________
(John S. Kirk) Director
/s/ John L. Mason August 12, 1999
_______________________ Chief Financial Officer _______________
(John L. Mason)
16
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
27 Financial Data Schedule - for SEC filing only
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,455,323
<SECURITIES> 1,650,282
<RECEIVABLES> 731,396
<ALLOWANCES> 0
<INVENTORY> 293,343
<CURRENT-ASSETS> 6,515,971
<PP&E> 4,116,262
<DEPRECIATION> 2,632,174
<TOTAL-ASSETS> 8,420,444
<CURRENT-LIABILITIES> 606,319
<BONDS> 364,895
0
0
<COMMON> 109,590
<OTHER-SE> 7,547,483
<TOTAL-LIABILITY-AND-EQUITY> 8,420,444
<SALES> 1,346,759
<TOTAL-REVENUES> 1,346,729
<CGS> 236,592
<TOTAL-COSTS> 1,160,469
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (50,302)
<INTEREST-EXPENSE> (8,154)
<INCOME-PRETAX> (58,904)
<INCOME-TAX> (14,000)
<INCOME-CONTINUING> (23,676)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (44,904)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
