<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended December 31, 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.
January 31, 2000 Common Stock 1,114,894
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CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
Table of Contents
Part I FINANCIAL INFORMATION
Item 1. Financial Statements Page
Consolidated Balance Sheets
December 31, 1999 and September 30, 1999 3
Consolidated Statements of Operations
Three Months Ended December 31, 1999 and 1998 4
Consolidated Statements of Cash Flows
Three Months Ended December 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 7
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
Item 1.Financial Statements
CONSOLIDATED BALANCE SHEETS
CE Software Holdings, Inc., and Subsidiaries
December 31, 1999 and September 30, 1999
<TABLE>
<CAPTION>
December 31 September 30
Assets (unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 4,150,619 $ 4,126,637
Investments 503,148 1,278,601
Trade accounts receivable 617,851 500,185
Notes receivable 600,000 -
Recoverable income taxes 176,121 176,121
Inventories 228,999 250,208
Other current assets 344,226 313,579
___________ ___________
Total current assets 6,620,964 6,645,331
Property, fixtures, and equipment:
Land 91,796 91,796
Building 1,312,016 1,312,016
Fixtures and equipment 2,719,705 2,716,807
___________ ___________
Total property, fixtures, and equipment 4,123,517 4,120,619
Less accumulated depreciation 2,780,306 2,710,159
___________ ___________
Net property, fixtures, and equipment 1,343,211 1,410,460
Other intangible assets, net of amortization 18,937 21,927
Other assets 19,285 19,285
___________ ___________
Total assets $ 8,002,397 $ 8,097,003
___________ ___________
___________ ___________
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 102,239 $ 100,237
Trade accounts payable 171,207 207,259
Accrued payroll and benefits 144,662 146,143
Other accrued payables 131,257 120,057
Deferred revenue 10,172 9,444
Total current liabilities 559,537 583,140
Long-term debt, net of current portion 214,506 240,859
___________ ___________
Total liabilities 774,043 823,999
Stockholders' equity:
Common stock 111,314 110,567
Additional paid-in capital 5,956,376 5,927,619
Retained earnings 1,160,664 1,234,818
___________ ___________
Total stockholders' equity 7,228,354 7,273,004
___________ ___________
Total liabilities and
stockholders' equity $ 8,002,397 $ 8,097,003
___________ ___________
___________ ___________
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3
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CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the three months ended December 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Net revenues $ 915,518 $ 868,487
Cost of revenues 215,078 206,890
___________ ___________
Gross profit 700,440 661,597
Sales and marketing 229,399 392,776
General and administrative 414,652 404,153
Research and development 192,752 296,587
___________ ___________
Operating expenses 836,803 1,093,516
___________ ___________
Operating loss (136,363) (431,919)
Other income (expense):
Gain on sale of investments - 1,827
Change in market value of trading securities - 347,363
Interest income 68,727 52,879
Interest expense (6,518) (9,761)
___________ ___________
Total other income 62,209 392,308
Loss before income tax benefit (74,154) (39,611)
Income tax benefit - (15,935)
___________ ___________
Net loss (74,154) (23,676)
___________ ___________
___________ ___________
Other comprehensive income, before tax-
Unrealized gains on securities - 197,554
Income tax expense related to items of other
comprehensive income - (82,500)
___________ ___________
Comprehensive income (loss) $ (74,154) $ 91,378
___________ ___________
___________ ___________
Basic loss per share $ (.07) $ (.02)
Shares used in per
share calculation - basic 1,109,738 1,095,900
Diluted loss per share $ (.07) $ (.02)
Shares used in per
share calculation - diluted 1,109,738 1,095,900
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4
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CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three months ended December 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (74,154) $ (23,676)
Adjustments to reconcile net loss to
net cash (used in) provided by
operating activities:
Depreciation and amortization:
Property, fixtures, and equipment 70,147 95,649
Purchased software 2,990 2,990
Amortization of premium 5,453 -
Accretion of discount - (6,452)
Change in market value (trading securities) - (347,363)
Proceeds from sale of trading securities - 967,922
Gain on sale of trading securities - (1,827)
Decrease deferred income taxes payable - (238,500)
Increase in trade accounts receivable (117,666) (102,231)
Increase in other current assets (30,647) (106,391)
Decrease in inventories 21,209 53,508
Decrease increase in other assets - 7,998
(Decrease)increase in trade accounts payable (36,052) 2,693
Increase (decrease) in accrued expenses 9,719 (40,325)
Increase (decrease) in deferred revenue 728 (7,653)
Increase in income taxes payable - 22,565
___________ ___________
Net cash (used in) provided
by operating activities (148,273) 278,907
Cash flows from investing activities:
Purchase of held-to-maturity investments - (540,310)
Increase in notes receivable (600,000) -
Proceeds upon maturity of
held-to-maturity investments 770,000 87,110
Purchase of property and equipment (2,898) (57,306)
___________ ___________
Net cash provided by (used in)
investing activities 167,102 (510,506)
Cash flows from financing activities:
Payment of long-term debt (24,351) (21,139)
Proceeds from exercise of stock options 29,504 -
___________ ___________
Net cash provided by (used in)
financing activities 5,153 (21,139)
Net increase (decrease) in cash
and cash equivalents 23,982 (252,738)
Cash and cash equivalents
at beginning of period 4,126,637 4,106,493
___________ ___________
Cash and cash equivalents at end of period $ 4,150,619 $ 3,853,755
___________ ___________
___________ ___________
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 6,752 $ 52,937
Income taxes - 200,000
___________ ___________
___________ ___________
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5
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CE SOFTWARE HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 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 held-to-maturity securities.
3)Stockholders' Equity
At December 31, 1999, options to purchase an aggregate of 196,995 shares
were held by 40 persons, at exercise prices of from $2.16 to $46.25 per share.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following discussion should be read in conjunction with the consolidated
financial statements and related notes included elsewhere herein. Historical
results and percentage relationships are not necessarily indicative of the
operating results for any future period. Within this discussion and analysis
all dollar amounts (except for per share amounts) have been rounded to the
nearest thousand.
The following table sets forth certain data derived from the consolidated
statements of operations, expressed as a percentage of net revenues for the
quarters ended December 31, 1999 and 1998.
Quarter ended December 31,
1999 1998
Percentage of net revenues:
Net revenues 100% 100%
Cost of revenues 23 24
___ ___
Gross profit 77 76
Sales and marketing 25 45
General and administrative 46 47
Research and development 21 34
___ ___
Total operating expenses 92 126
Operating loss (15) (50)
Other income, net 7 45
___ ___
Loss before income tax benefit (8) (5)
Income tax benefit - (2)
___ ___
Net loss (8)% (3)%
___ ___
___ ___
Net Revenues
Net revenues for the first quarter of the current year were $916,000 compared
to $868,000 for the first quarter of the prior year. Personal application
revenues, as a percentage of net revenues, decreased to 29% in the first quarter
of fiscal 2000 from 34% in the first quarter of fiscal 1999. This represented a
decrease of 11% from the prior year within the Personal Application product
group. Nearly all of these revenues are from the sales of QuicKeys, the
Company's productivity enhancing utility program. QuicKeys automates any
repetitive, multi-step function performed on a Macintosh or Windows computer.
Prior to fiscal 1999, this product was only available for the Apple Macintosh
market, but the Company released a new version of QuicKeys for Windows in the
first quarter of fiscal 1999. These versions of QuicKeys, in the opinion of
management, offer meaningful, long-term growth potential.
As a percentage of net revenues, approximately 71% of the Company's current
revenues were from the Messaging product group compared to 66% a year ago.
This represented an increase of 14% within the Company's Messaging product
group. The majority of these revenues consists of the QuickMail Pro/Office
product line which is a cross-platform, open standards messaging products
available for both Microsoft Windows and Mac OS environments. Historically,
these revenues were primarily derived from QuickMail LAN, the Company's
Macintosh server based, E-mail solution, but over the past few years, revenues
from QuickMail LAN declined significantly and the product was discontinued in
fiscal 1999. The Company's
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efforts to promote QuickMail Pro/Office to its QuickMail LAN users for a year
2000 solution resulted in the current increase in the Messaging product
revenues from the prior year. Despite the increase, in management's opinion,
these revenues will continue to be negatively impacted by 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. Such
competition is expected to continue and may hinder substantial, long-term
growth of this product group.
Net revenues from international channels increased to approximately $345,000
in the first quarter of the current year, from $276,000 in the first quarter
of the prior year, representing 38% and 32% of net revenues, respectively.
The increase was primarily within the European market as a result of upgrades
associated with the year 2000.
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, as a percentage of net revenues, decreased to 23% from 24%
in the first quarter of fiscal 2000 compared to the same period a year ago.
In management's opinion, the decrease was the result of higher revenues which
resulted in fixed charges, such as amortization, being lower on a percentage
basis.
Sales and Marketing
Sales and marketing expenses decreased $163,000 or 42%, during the first quarter
of fiscal 2000 compared to the first quarter of fiscal 1999. The decrease was
primarily in the marketing expense category, which decreased $160,000 due to the
continued focus of marketing programs and advertising.
General and Administrative
General and administrative expenses are composed principally of salaries of
general, administrative, and technical support personnel, fees for professional
services, amortization of other intangible assets, and facilities expenses.
These expenses for the first quarter of fiscal 2000 increased 3% or $10,000
from the first quarter of the prior year, representing 46% and 47% of net
revenues for first fiscal quarter of the current year and prior year,
respectively. The slight increase in expenses was the cummulative effect of
changes in a couple of expenses categories. Legal and accounting increased
$42,000 as a result of expenses associated with the merger activity. Salaries
and related expenses increased $25,000 primarily due to additional expenses
related to a workforce reduction in the first quarter of fiscal 2000.
Depreciation and amortization decreased $40,000 due to a portion of intangible
assets and fixed assets becoming fully amortized or depreciated. Contract
labor and temporary help decreased $23,000 during the first quarter of fiscal
2000 due to the lack of expenses associated with a system conversion during the
first quarter of fiscal 1999.
Research and Development
Research and development expenses decreased to $193,000 in the first quarter of
fiscal 1999, compared to $297,000 in the first quarter of the prior year,
representing 21% and 34% of net revenues, respectively. The primary areas
that decreased in the first quarter of fiscal 2000 were salaries and benefits,
$34,000, associated
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with workforce reductions, and contract labor and temporary help, $47,000, due
to a more focused development effort, with the remaining decrease a result of
lower expenses associated with a smaller department.
Income Tax Benefit
No income tax benefit was recorded by the Company for the first quarter of
fiscal 2000 due to continued losses.
Liquidity and Capital Resources
Cash and cash equivalents remained virtually unchanged at $4,151,000 at the
end of the first quarter of fiscal 2000 from $4,127,000 at the end of
fiscal 1999. A $770,000 increase in cash and cash equivalents due to the
maturity of short-term investments was offset by a $600,000 loan to ATIO
Corporation USA, Inc (ATIO). The loan is due February 2000 with an interest
rate of 7% and is in accordance with the merger agreement between the Company
and ATIO.
Employees
As of December 31, 1999, the Company employed 30 full-time equivalent employees
(FTE's). Part-time employees in total working an aggregate of a 40-hour work
week make one FTE. As of September 30, 1999 and December 31, 1998, the Company
employed 42 and 41 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. Looking forward, management currently does not expect
any significant changes in the number of employees.
Recent Developments
The Company announced the signing of a definitive agreement to merge with
Minneapolis, Minnesota-based ATIO Corporation USA, Inc., a privately held
producer of CyberCall, a fully integrated E-business customer care solution.
Terms of the Merger Agreement
Subject to conditions described in the merger agreement, the transaction is
expected to close in the first or second quarter of 2000. At the effective
time of the merger, ATIO will merge into CESH and current ATIO shareholders will
receive one CESH share per 15.5 ATIO shares. The merger is structured to be
treated as a tax-free reorganization under the Internal Revenue Code. The
post-merger company will initially trade on the NASDAQ Small Cap market under
the symbol CESH.
The definitive agreement is subject to the following funding requirements, all
of which must occur by closing: (a) approximately $5 million from CESH, (b)
$964,000 from Minneapolis-based Venturian Corp. (NASDAQ: VENT) and (c) a minimum
of $1.5 million pursuant to a private offering by CESH prior to closing, the
terms and conditions of which are yet to be determined. The private offering
by CESH will not be registered with the SEC and the securities acquired through
the
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private offering could not be sold or offered in the United States absent
registration or an applicable exemption from registration.
Immediately following the closing, but without considering the effect of the
private offering, current CESH shareholders will own approximately 51% and
Venturian will hold approximately 15% of the shares of the post-merger
company. The agreement contemplates that in the first half of 2000 ATIO
International, a current ATIO shareholder, will purchase 314,062 shares of
the post-merger company, priced at $6.48 per share, for a total of
approximately $2.1 million in cash.
Additional conditions to the completion of the merger include the
restructuring of certain ATIO agreements, the restructuring of ATIO debt or
conversion of ATIO debt into equity and the ongoing commitment and availability
of key ATIO managers and staff. CESH shareholders will vote to approve the
merger at the CESH annual meeting to be held in the first quarter of 2000.
As a further condition of the merger, CESH's subsidiary company CE Software,
Inc., will be distributed to current CESH shareholders simultaneous with the
merger with ATIO. It is anticipated that development, sales and support of CE
Software's products, QuicKeys and QuickMail, will continue uninterrupted and
CE Software's headquarters will remain in West Des Moines, IA.
About ATIO
ATIO's critically acclaimed product, CyberCall, is a comprehensive customer
interaction solution for E-businesses. CyberCall enables shoppers to interact
with an E-business through a variety of access media including Internet chat,
Web callback, E-mail, fax, or telephone call. CyberCall handles all
transactions in the same manner so that customers experience consistent
service levels regardless of how they choose to contact the E-business.
ATIO has several high-profile E-business clients including Stockwalk.com
(NASDAQ: STOK), Invacare (NYSE: IVC), the global apparel retailer boo.com
and eStyle's premiere site, babystyle.com. For the 12-month period ending
December 1998, ATIO produced revenues of $697,000 for a loss of $4,169,000.
For the 9-month period ending September 30, 1999, ATIO recorded unaudited
results of $2,012,000 in revenue for a loss of $2,401,000.
ATIO employs 42 people, 26 at the corporate headquarters in Minneapolis,
MN. ATIO also has reseller agreements with Norstan (NASDAQ: NRRD) and SE
Technologies.
E-business Customer Care Marketplace
As more and more commerce is conducted over the Internet, it is expected that
the need to provide a wide-spectrum of customer service facilities will
increase. Traditionally, the telephone has been the primary means of
providing customer care, but many market researchers predict that within
the next few years, up to 40% of interactions will utilize new technologies
such as E-mail, chat and web collaboration. ATIO provides the solutions that
E-businesses will require to meet these new customer demands. International
Data Corporation has predicted that the burgeoning E-business customer service
applications sector will grow from $42 million in 1998 to $1.6 billion in 2002.
Other notable public companies in the E-business customer support sector include
SilkNet (NASDAQ: SILK), Kana Communications (NASDAQ: KANA), Interactive
Intelligence (NASDAQ: ININ), Quintus Corporation (NASDAQ: QNTS) and eGain
Communications (NASDAQ: EGAN).
Related Items
The headquarters of ATIO will remain in Minneapolis, MN. No layoffs are expected
as part of this merger and ATIO employment is projected to grow in the near
term. The effects of the merger are expected to be transparent to the current
customers of ATIO and CE Software, Inc.
Page 10
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Risk and Uncertainty
The preceding statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in this Form 10-QSB which are
not historical facts are forward looking statements. These forward looking
statements involve risks and uncertainties that could render them materially
different, including, but not limited to, the risk that new products and product
upgrades may not be effected on a timely basis; the risk that such products may
not achieve market acceptance within the Windows or Macintosh markets; the risk
that the prevalence and functionality of available free E-mail software will
increase and further erode revenues; the risk that the Company would not be able
to fund its working capital needs from cash flows; and the risk that the merger
with ATIO will not close as anticipated.
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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
A report on Form 8-K was filed during the quarter
ended December 31, 1999.
1) On December 28, 1999 the Registrant issued a press
release announcing the signing of an Agreement and Plan of Merger,
the effect of which will be (if approved by the stockholders of the
Registrant) that:
a) ATIO Corporation USA, Inc. will merge with and into
the Registrant,
b) The stock of the Registrant's subsidiary, CE Software,
Inc., will be distributed to the Registrant's stockholders and
c) Willem Ellis and others to be designated prior to the shareholder
meeting will become directors of the Registrant as successors to
those persons serving as directors immediately prior to the
effective time of the merger.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CE SOFTWARE HOLDINGS, INC.
(Registrant)
Signature Title Date
/s/ Christian F. Gurney February 14, 2000
_________________________ President, Chief Executive _________________
(Christian F. Gurney) Officer, and Director
/s/ John S. Kirk February 14, 2000
_________________________ Secretary, Treasurer, and _________________
(John S. Kirk) Director
/s/ Curt W. Lack February 14, 2000
_________________________ Chief Financial Officer _________________
(Curt W. Lack)
Page 13
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EXHIBIT INDEX
Exhibit
Number Description
27 Financial Data Schedule - for SEC filing only
Page 14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 4,150,619
<SECURITIES> 503,148
<RECEIVABLES> 617,851
<ALLOWANCES> 0
<INVENTORY> 228,999
<CURRENT-ASSETS> 6,620,964
<PP&E> 4,123,517
<DEPRECIATION> 2,780,306
<TOTAL-ASSETS> 8,002,397
<CURRENT-LIABILITIES> 559,537
<BONDS> 0
0
0
<COMMON> 111,314
<OTHER-SE> 7,228,354
<TOTAL-LIABILITY-AND-EQUITY> 8,002,397
<SALES> 915,518
<TOTAL-REVENUES> 915,518
<CGS> 215,078
<TOTAL-COSTS> 215,078
<OTHER-EXPENSES> 836,803
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (6,518)
<INCOME-PRETAX> (74,154)
<INCOME-TAX> 0
<INCOME-CONTINUING> (74,154)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (74,154)
<EPS-BASIC> (.07)
<EPS-DILUTED> (.07)
</TABLE>
