<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 March 31, 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.
April 30, 1999 Common Stock 1,095,900
Class B Common Stock 0
<PAGE>
CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
Table of Contents
Part I FINANCIAL INFORMATION
Item 1. Financial Statements: Page
Consolidated Balance Sheets
March 31, 1999 and September 30, 1998 3
Consolidated Statements of Operations and
Comprehensive Loss
Three Months and Six Months Ended March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows
Six Months Ended March 31, 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 4. Submission of Matters for Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1999 and September 30, 1998
<TABLE>
<CAPTION>
Assets March 31 September 30
Current assets: (Unaudited)
<S> <C> <C>
Cash and cash equivalents $2,354,109 4,106,493
Investments 2,986,997 2,882,031
Trade accounts receivable, net 451,623 479,953
Inventories 262,176 394,649
Other current assets 404,582 251,102
__________ __________
Total current assets 6,459,487 8,114,228
Property, fixtures, and equipment:
Land 91,796 316,796
Building 1,312,016 1,312,016
Fixtures and equipment 2,706,733 2,633,551
__________ __________
Total property, fixtures, and equipment 4,110,545 4,262,363
Less accumulated depreciation 2,546,734 2,360,475
__________ __________
Net property, fixtures, and equipment 1,563,811 1,901,888
Deferred income taxes 364,000 369,000
Other intangible assets, net of amortization 27,908 33,888
Other assets 38,029 43,256
__________ __________
Total assets $8,453,235 10,462,260
__________ __________
__________ __________
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $91,519 87,480
Trade accounts payable 217,208 238,343
Accrued payroll and benefits 159,918 171,033
Income taxes payable (107,191) 275,744
Other accrued payables 78,632 111,991
Deferred revenue 23,207 33,948
Deferred income taxes 65,000 588,000
_________ _________
Total current liabilities 528,293 1,506,539
Long-term debt, net of current portion 295,778 342,685
_________ _________
Total liabilities 824,071 1,849,224
Stockholders' equity:
Common stock, $.10 par value. Authorized
2,000,000 shares; issued and outstanding
1,095,900 in 1998 and 1997 109,590 109,590
Additional paid-in capital 5,893,710 5,893,710
Accumulated comprehensive income (259,251) (72,138)
Retained earnings 1,885,115 2,681,874
__________ __________
Total stockholders' equity 7,629,164 8,613,036
__________ __________
Total liabilities and stockholders' equity $8,453,235 10,462,260
__________ __________
__________ __________
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Loss
For the three and six months ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31, Six Months Ended March 31,
<S> <C> <C> <C> <C>
1999 1998 1999 1998
Net revenues $580,416 1,288,014 1,448,904 2,510,660
Cost of revenues 163,692 273,890 370,583 549,672
_________ _________ _________ _________
Gross profit 416,724 1,014,124 1,078,321 1,960,988
Sales and marketing 474,562 505,173 867,338 1,080,559
General and administrative 416,260 453,859 820,412 897,375
Research and development 308,449 330,584 605,036 655,716
_________ _________ _________ _________
Operating expenses 1,199,271 1,289,616 2,292,786 2,633,650
Operating loss (782,547) (275,492) (1,214,465) (672,662)
Other income (expense):
Gain on sale of investments - - 1,827 -
Loss on sale of land (25,000) - (25,000) -
Change in market value of trading securities (454,459) - (107,096) -
Interest income 54,981 31,394 107,860 56,468
Interest expense (9,058) (19,746) (18,820) (40,182)
__________ _________ _________ _________
Total other income (expense) (433,536) 11,648 (41,229) 16,286
Loss before income tax (expense) benefit (1,216,083) (263,844) (1,255,694) (656,376)
Income tax benefit (expense) 443,000 (1,256) 458,935 (1,256)
_________ _________ _________ __________
Net loss (773,083) (265,100) (796,759) (657,632)
_________ _________ _________ _________
Other comprehensive loss, before tax -
Unrealized loss on securities (516,667) - (319,113) -
Income tax benefit related to items of other
comprehensive loss 214,500 - 132,000 -
Comprehensive loss $(1,075,250) (265,100) (983,872) (657,632)
_________ _________ _________ __________
_________ _________ _________ __________
Basic net loss per share $ (.71) (.24) (.73) (.60)
Shares used in per
share calculation - basic 1,095,900 1,095,900 1,095,900 1,095,900
Diluted net loss per share $ (.71) (.24) (.73) (.60)
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
<PAGE>
CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the six months ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
Cash flows from operating activities:
<S> <C> <C>
Net loss $(796,759) $(657,632)
Adjustments to reconcile net loss to
net cash (used in) provided by operating activities:
Depreciation and amortization:
Property, fixtures, and equipment 186,259 212,656
Purchased software 20,085 66,666
Other - 74,189
Accretion of discount (12,905) -
Change in market value trading securities 107,096 -
Proceeds from sale of trading securities 967,922 -
Gain on sale of trading securities (1,827) -
Decrease in deferred income taxes payable (386,000) -
Loss on sale of land 25,000 -
Decrease in trade accounts receivable 28,330 531,519
Increase in other current assets and other assets (148,253) (11,615)
Decrease in inventories 132,473 204,737
Decrease in accounts payable and accrued expenses (65,609) (99,820)
Decrease in deferred revenue (10,741) (19,812)
Decrease in income taxes payable (382,935) -
Other - (9,654)
_________ _________
Net cash (used in) provided by operating activities (337,864) 291,234
Cash flows from investing activities:
Purchase of held-to-maturity investments (1,571,475) -
Proceeds upon maturity of held-to-maturity investments 87,110 -
Proceeds from sale of land 200,000 4,395
Purchase of property and equipment
and other intangible assets (87,287) (52,004)
_________ _________
Net cash used in investing activities (1,371,652) (47,609)
Cash flows from financing activities:
Payment of long-term debt (42,868) (21,788)
_________ _________
Net (decrease) increase in cash and cash equivalents (1,752,384) 221,837
Cash and cash equivalents at beginning of period 4,106,493 1,454,434
_________ _________
Cash and cash equivalents at end of period $2,354,109 $1,676,271
_________ _________
_________ _________
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $18,590 40,130
Income taxes 310,000 1,256
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 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 loss recorded as a
component of stockholders' equity.
3) Stockholders' Equity
At March 31, 1999, options to purchase an aggregate of 142,380 shares were held
by 44 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
SFAS 130 for the period ended March 31, 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 March
31, 1999, however, there was no restatement necessary to
6
<PAGE>
conform with the provisions. The effect of implementing SFAS 131 was immaterial
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
<PAGE>
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 March 31, 1999 and 1998.
<TABLE>
<CAPTION>
Quarter Ended March 31, Six Months Ended March 31,
1999 1998 1999 1998
Percentage of net revenues:
<S> <C> <C> <C> <C>
Net revenues 100% 100% 100% 100%
Cost of revenues 28 21 25 22
___ ___ ___ ___
Gross profit 72 79 75 78
Sales and marketing 82 39 60 43
General and administrative 72 35 57 36
Research and development 53 26 42 26
___ ___ ___ ___
Total operating expenses 207 100 159 105
___ ___ ___ ___
Operating loss (135) (21) (84) (27)
Other income, net (74) 1 (3) 1
___ ___ ___ ___
Loss before income taxes (209) (20) (87) (26)
Income tax benefit (expense) 76 0 32 0
___ ___ ___ ___
Net loss (133)% (20)% (55)% (26)%
___ ___ ___ ___
___ ___ ___ ___
</TABLE>
Three months ended March 31, 1999
Net Revenues
Net revenues for the second quarter of the current year were $580,000 compared
to $1,288,000 for the second quarter of the prior year. Revenues were down in
both the Messaging and Personal Applications product groups. As a percentage
of net revenues, approximately 33% of the Company's current revenues were from
Personal Application products compared to 25% 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 meaningful long-term growth potential. During the
second quarter of the current fiscal year, approximately 23% of the Personal
Application revenue resulted from the release of QuicKeys for Windows.
Revenues from the Company's Messaging products fell 60% compared to the prior
year, but still accounted for approximately 67% of total net revenues.
Historically, these revenues were primarily
8
<PAGE>
derived from QuickMail LAN, the Company's Macintosh server based, E-mail
solution. Over the past few years, revenues from QuickMail LAN have declined
significantly. For the second quarter of fiscal year 1999, QuickMail LAN
accounted for 3% of Messaging product revenues compared to 22% for the second
fiscal quarter of the prior year. Management believes that the decline is due,
in part, to the reduced number of businesses using the Mac OS, and in part to
Company efforts to promote its QuickMail Pro/Office over QuickMail LAN. The
QuickMail LAN product was 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 sales consisted of 96% and
75% of messaging product revenues for the second quarter of fiscal 1999 and the
second 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 $197,000
in the second quarter of the current year, from $365,000 in the second quarter
of the prior year, representing 34% and 28% 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 decreased $110,000 in the second quarter of fiscal 1999
compared to the same period a year ago. As a percentage of net revenues, cost
of revenues increased to 28% from 21%. The increase is due to lower revenues
which results in fixed charges, such as amortization, being higher on a
percentage basis.
Sales and Marketing
Sales and marketing expenses decreased $31,000 or 6%, during the second quarter
of fiscal 1999 compared to the second quarter of fiscal 1998. The variances
are primarily decreases in salaries and benefits, $60,000; and contract labor
and temporary help, $26,000; with an increase in marketing/advertising expenses
of $47,000. A smaller sales and marketing workforce and less dependence on
contract labor associated with the outsourcing of various marketing functions
account for the decreases. Certain marketing/advertising expenses experienced
increases due to 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 second quarter decreased 8% or $38,000 from the second
quarter of the prior year, representing 72% and 35% of net revenues for second
fiscal quarter of the
9
<PAGE>
current year and prior year, respectively. The reduction in expenses is mainly
due to lower depreciation and amortization expense, $49,000, resulting from the
full amortization of purchased software technology.
Research and Development
Research and development expenses decreased to $308,000 in the second quarter of
fiscal 1999, compared to $331,000 in the second quarter of the prior year,
representing 53% and 26% of net revenues, respectively. The primary area that
decreased in the second quarter of fiscal 1999 was salaries and benefits,
$59,000 associated with some workforce reductions, while contract labor and
temporary help increased $45,000 due to outsourcing of some research and
development, and technical writing activities.
Income Tax Benefit
The Company recorded an income tax benefit of $443,000 for the second quarter
of fiscal 1999 compared to no tax benefit for the second 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.
Six Months ended March 31, 1999
Net Revenues
Net revenues for the first six months of the current year were $1,449,000
compared to $2,511,000 for the same period last year. The 42% decrease in net
revenues was due to a $926,000, or 49% decrease in revenues from the Company's
Messaging products and a $136,000, or 22% decrease in revenues from the
Company's Personal Applications products.
Approximately 34% of the revenues for the first six months of the current
fiscal year are from Personal Application products compared to 25% 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 meaningful long-term growth
potential. During the first six months of the current fiscal year,
approximately 21% of the Personal Application revenue resulted from the release
of QuicKeys for Windows.
Revenues from Messaging products accounted for 66% 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
six months of fiscal year 1999, QuickMail LAN accounted for 10% of Messaging
product revenues compared to 24% during the first six months of the prior year.
Management believes that the decline is due, in part, to the reduced number of
businesses using the Mac OS, and in part to Company efforts to promote its
QuickMail Pro/Office over QuickMail LAN. The QuickMail LAN product was
discontinued in the first half of fiscal 1999. Presently, the majority of
messaging revenues is generated from the Company's QuickMail Pro and
10
<PAGE>
QuickMail Office products. These sales consisted of 88% and 73% of messaging
product revenues for the first two quarters of of fiscal 1999 and the first two
quarters of 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.
Approximate net revenues by product group for the six-month periods ended
March 31, 1998 and 1997 are as follows:
1999 1998
Messaging $958,000 $1,884,000
Personal applications 491,000 627,000
_________ _________
Total net revenues $1,449,000 $2,511,000
Net revenues from international channels decreased to approximately $473,000 in
the first six months of the current year, from $712,000 in the same period a
year ago, representing 33% and 28% 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, increased from 22% to 25% in
the first six months of fiscal 1999, compared to the same period a year ago.
The increase is due to lower revenues which results in fixed charges, such as
amortization, being higher on a percentage basis.
Sales and Marketing
Sales and marketing expenses in the first six months of fiscal 1999 were
reduced $213,000, or 20% compared to the first six months of fiscal 1998.
This decrease was a result of lower salaries and benefits, $150,000; contract
labor and temporary help, $102,000; and an increase in marketing/advertising
expense of $67,000. The lower salaries and benefits and contract labor and
temporary help were primarily due to more 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
11
<PAGE>
intangible assets and facilities expenses. These expenses for the first six
months of fiscal 1999 were reduced $77,000, or 9% from the same period a year
ago. The largest of these changes was a decrease in salaries and benefits of
$99,000 along with increases in contract labor and temporary help; $14,000, and
legal and accounting; $12,000. The decrease in salaries and benefits was the
result of a smaller workforce. 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 decreased to approximately $605,000 for the
first six months of the current year from $656,000 in the same period last
year, representing 42% and 26% of net revenues, respectively. The primary
areas that changed in the first six months of fiscal 1999 were a decrease in
salaries and benefits of $124,000 and an increase in contract labor of $90,000.
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 $459,000 for the first six
months of fiscal 1999 compared to no tax benefit for the first six 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 $1,752,000 to $2,354,000 at the end of
the second 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 trading securities of $968,000 less the purchase of
$1,571,000 of held-to-maturity investments, the tax payments of $310,000 and
the operating loss for the six months ended of $1,214,000. 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 and $465,395 at December 31, 1998 and
March 31, 1999, respectively. The market price was $53.44 and $17.31 per share
December 31, 1998 and March 31, 1999, respectively. There were no shares sold
during the second quarter of fiscal 1999. Recent market prices indicate the
stock is volatile and has responded negatively towards lower than anticipated
sales, as reported by Documentum. 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 them
12
<PAGE>
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; 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 which is disclosed 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 legal matters 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 customers
and 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. The Company believes
that its exposure on Year 2000 issues could potentially be material to its
business as a whole. The
13
<PAGE>
Company believes that its exposure on Year 2000 issues is not material to its
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting on February 25, 1999, all Directors were
re-elected as follows:
For Withheld
Sheldon T. Fleck 860,060 5,555
Christian F. Gurney 860,040 5,575
John S. Kirk 860,060 5,555
David J. Lundquist 860,060 5,555
Richard A. Skeie 860,060 5,555
Proposal to amend the Certificate of Incorporation to allow for the elimination
of the Class B common and preferred stock.
Abstained or
For Against Broker non-vote
509,372 2,754 353,489
10
<PAGE>
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 March 31, 1999.
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 May 12, 1999
_________________________ President, Chief Executive ______________
(Richard A. Skeie) Officer, and Director
/s/ John S. Kirk May 12, 1999
_________________________ Secretary, Treasurer, and ______________
(John S. Kirk) Director
/s/ John L. Mason May 12, 1999
_________________________ Chief Financial Officer ______________
(John L. Mason)
17
<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> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,354,109
<SECURITIES> 2,986,997
<RECEIVABLES> 451,623
<ALLOWANCES> 0
<INVENTORY> 262,176
<CURRENT-ASSETS> 6,459,487
<PP&E> 4,110,545
<DEPRECIATION> 2,546,734
<TOTAL-ASSETS> 8,453,235
<CURRENT-LIABILITIES> 528,293
<BONDS> 387,297
0
0
<COMMON> 109,590
<OTHER-SE> 7,519,574
<TOTAL-LIABILITY-AND-EQUITY> 8,453,253
<SALES> 580,416
<TOTAL-REVENUES> 580,416
<CGS> 163,692
<TOTAL-COSTS> 163,692
<OTHER-EXPENSES> 1,199,271
<LOSS-PROVISION> (25,000)
<INTEREST-EXPENSE> (9,058)
<INCOME-PRETAX> (433,536)
<INCOME-TAX> (443,000)
<INCOME-CONTINUING> (23,676)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (773,083)
<EPS-PRIMARY> (.71)
<EPS-DILUTED> (.71)
</TABLE>
