United States
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 September 30, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-27138
CATALYST INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 39-1415889
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8989 North Deerwood Drive, Milwaukee, WI 53223
(Address of principal executive offices) (Zip Code)
(414) 362-6800 FAX (414) 377-6263
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, during the past 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 [ ]
As of November 1, 1996, 7,958,170 shares of the issuer's common stock
were outstanding.
This report contains 16 pages. There are 2 exhibits.
<PAGE>
CATALYST INTERNATIONAL, INC.
FORM 10-QSB
INDEX
Page
PART I. Financial Information No.
Item 1. Financial Statements:
Balance Sheets - September 30, 1996 and
December 31, 1995 ............................ 3
Statements of Operations - Three months
ended September 30, 1996 and 1995 ............ 5
Statements of Operations - Nine months
ended September 30, 1996 and 1995 ............ 6
Statements of Cash Flows - Nine months
ended September 30, 1996 and 1995 ............ 7
Notes to Financial Statements .................. 8
Item 2. Management's Discussion and Analysis or
Plan of Operation ............................ 9
PART II. Other Information:
Item 6. Exhibits and Reports on Form 8-K ....... 15
Signatures .................................... 16
<PAGE>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Balance Sheet
(in thousands)
ASSETS
Sept. 30, Dec. 31,
1996 1995
(unaudited)
Current Assets:
Cash and cash equivalents $ 243 $ 3,730
Short-term investments 16,357 19,883
Accounts receivable 8,353 6,835
Refundable income taxes 194 87
Prepaid expenses 496 374
------- -------
Total Current Assets 25,643 30,909
Equipment and Leasehold Improvements:
Computer hardware and software 3,030 2,141
Office equipment 2,105 1,730
Leasehold improvements 771 476
------- -------
5,906 4,347
Less accumulated depreciation (1,874) (1,277)
------- -------
Total Equipment and Leasehold Improvements 4,032 3,070
Other Assets:
Capitalized software development costs 53 105
------ -------
Total Other Assets 53 105
------- -------
Total Assets $29,728 $34,084
======= =======
See accompanying notes
<PAGE>
Balance Sheet
(in thousands, except share data)
LIABILITIES AND STOCKHOLDER'S EQUITY
Sept. 30, Dec. 31,
1996 1995
(unaudited)
Current Liabilities:
Accounts payable $ 616 $ 1,114
Accrued liabilities 759 477
Deferred software license fees 25 297
Deferred services and maintenance 1,103 1,770
Current portion of long-term debt 50 123
------ -------
Total Current Liabilities 2,553 3,781
Noncurrent Liabilities:
Long-term debt 145 324
Deferred service and maintenance 360 384
Deferred rent 329 344
------ -------
Total Non-Current Liabilities 834 1,052
------ -------
Total Liabilities 3,387 4,833
Stockholders' Equity:
Common stock, $.10 Par Value;
25,000,000 shares authorized; 849 842
shares issued: 8,492,302 in 1996
and 8,421,323 in 1995
Additional paid-in capital 31,067 31,124
Accumulated deficit (3,840) (1,665)
Treasury stock, at cost: 414,132 shares
of common stock in 1996 and 300,000
shares in 1995 (1,735) (1,050)
------- -------
Total Stockholder's Equity 26,341 29,251
------- -------
Total Liabilities and Stockholder's Equity $29,728 $34,084
======= =======
See accompanying notes
<PAGE>
Statement of Operations
(in thousands, except per share amounts)
(unaudited)
Three Months Ended
September 30,
1996 1995
Revenues:
Software license fees $1,309 $2,813
Services and maintenance 3,374 2,676
Hardware and other - 74
------ ------
Total Revenues 4,683 5,563
Operating Expenses:
Cost of license fees 73 130
Cost of services and maintenance 2,862 2,354
Product development 1,114 679
Sales and marketing 1,204 1,132
General and administrative 1,131 398
------ ------
Total Operating Expenses 6,384 4,693
------ ------
Income (loss) from operations (1,701) 870
Other income (expense) 223 (50)
------ ------
Income (loss) before provision
for income taxes (1,478) 820
Provision (benefit) for income taxes (240) -
------ ------
Net income (loss) ($1,238) $ 820
====== ======
Pro forma net income (loss) per share $(0.15) $ .12
Shares used in computing pro forma net
income (loss) per share 8,119 6,622
See accompanying notes
<PAGE>
Statement of Operations
(in thousands, except per share amounts)
(unaudited)
Nine Months Ended
September 30,
1996 1995
Revenues:
Software license fees $ 7,170 $ 7,103
Services and maintenance 10,009 6,756
Hardware and other 111 91
------ ------
Total Revenues 17,290 13,950
Operating Expenses:
Cost of license fees 190 325
Cost of services and maintenance 8,815 6,645
Cost of hardware and other - 4
Product development 3,119 1,754
Sales and marketing 3,691 3,280
General and administrative 2,366 1,118
Write-off of purchased research
and development 2,002 -
------ ------
Total Operating Expenses 20,183 13,126
------ ------
Income (loss) from operations (2,893) 824
Other income (expense) 717 (131)
------ ------
Income (loss) before provision
for income taxes (2,176) 693
Provision for income taxes - -
------ ------
Net income (loss) $(2,176) $ 693
====== ======
Pro forma net income (loss) per share $ (0.27) $ 0.10
Shares used in computing pro forma net
income (loss) per share 8,132 6,641
See accompanying notes
<PAGE>
Statements of Cash Flows
(in thousands)
(unaudited)
Nine months ended
September 30,
1996 1995
Operating Activities:
Net income (loss) ($2,176) $ 693
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Depreciation and amortization 652 478
Compensation expense on stock options 22 21
Write-off of purchased research
and development 2,002 -
Loss on disposal of equipment - 22
Changes in operating assets and liabilities:
Short term investments 3,526 -
Accounts receivable (1,426) (1,510)
Prepaid expenses (115) (183)
Accounts payable (556) (273)
Accrued liabilities (161) (79)
Deferred services and maintenance (692) 754
Deferred software license fees (271) (85)
Deferred rent (15) 64
Income taxes (107) (47)
------ ------
Total adjustments 2,859 (838)
Net cash provided by (used in)
operating activities 682 (145)
Investing Activities:
Purchase of equipment and leasehold
improvements (1,525) (1,145)
Additions to capitalized software costs - (76)
Purchase of Information Strategies, Inc. (1,499) -
Other - 4
------- ------
Net cash used by investing activities (3,024) (1,217)
Financing Activities:
Proceeds from long-term debt - 500
Payments on long-term debt (389) (236)
Expenses related to initial public offering (83) -
Proceeds from stock options exercised 7 4
Purchase of treasury stock (679) -
Dividends paid - (74)
------- -------
Net cash provided by (used in)
financing activities (1,144) 194
------ ------
Net decrease in cash (3,487) (1,168)
Cash and cash equivalents at the
beginning of period 3,730 1,359
------ ------
Cash and cash equivalents at the
end of the period $ 243 $ 191
======= =======
See accompanying notes
<PAGE>
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
(Unaudited)
1. Basis of Presentation
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-QSB and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for fiscal year end financial statements. In the opinion of
management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the three month and nine month
periods ended September 30, 1996 are not necessarily indicative
of the results that may be expected for the year ended December
31, 1996. For further information, refer to the financial
statements and footnotes thereto included in the Catalyst
International, Inc. annual report on Form 10-KSB for the year
ended December 31, 1995.
2. Acquisition of Information Strategies, Inc. ("ISI")
In the second quarter of 1996, the Company acquired all
outstanding common stock of ISI for $1,500,000 in cash. The
acquisition was accounted for as a purchase and, accordingly, the
purchase price was allocated to the assets purchased and
liabilities assumed based upon fair values at the date of
acquisition. The assets acquired included purchased research and
development totaling $2,002,000. Such purchased research and
development was immediately charged to operations in the second
quarter of 1996 as technological feasibility had not been reached
and such research and development does not have alternative
future uses. The operating results of ISI have been included in
the statement of operations since the date of acquisition. Pro
forma results of operations have not been presented because the
effects of this acquisition were not significant.
3. Pro Forma Net Income Per Share of Common Stock
Pro forma net income per share of common stock is computed based
on the weighted average number of shares of common stock
outstanding for each period presented and, for each period of
1995 through the Company's initial public offering ("IPO") in
<PAGE>
November, assumes the conversion of all outstanding shares of
Series A, B, C and D preferred stock into common stock effective
at the beginning of each period presented. Pro forma net income
per share of common stock also includes the dilutive effect of
stock options calculated using the "treasury stock method" (using
the IPO price per share prior to November 1995 and the actual
market price thereafter).
Pursuant to Securities and Exchange Commission Staff Accounting
Bulletin No. 83, common stock sold and stock options granted by
the Company during the 12 months immediately preceding the
initial filing of the Registration Statement for the IPO have
been included as common stock equivalents as if they were
outstanding for each period presented, whether or not dilutive,
because the sale or option price per share was below the IPO
price per share.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Total Revenues
The Company's total revenues for the third quarter of 1996 were
$4.7 million, which represented a decrease of 15.8% over third
quarter 1995 total revenues of $5.6 million. For the first nine
months of 1996, total revenues were $17.3 million, representing
an increase of 23.9% over 1995 total revenues of $14.0 million
for the same period. The increase in total revenues for the nine
month period is due, in part, to increased services and
maintenance revenues resulting from the increased number of
Catalyst WMS implementations, rollouts of additional sites on
corporate licenses, upgrades to new releases of Catalyst WMS and
renewals of maintenance agreements.
International revenues were $1.3 million in the third quarter of
1996 and 1995, and represented 27.7% of total revenues for the
third quarter of 1996 compared to 23.2% in the same period of
1995. For the first nine months of 1996, total international
revenues were $3.6 million, the same as for the first nine months
of 1995. For the first nine months of 1996, international
revenues represented 20.8% of total revenues as compared to 25.7%
for the first nine months of 1995. This decrease in
international revenues as a percentage of total year to date
revenues is due, in general, to the slower than anticipated
start-up of the Company's South American operations.
<PAGE>
Software License Fees
The third quarter of 1996 software license fee revenues of $1.3
million represented a decrease of 53.5% over the third quarter of
1995 software license fee revenues of $2.8 million, attributable
to decreased license fee revenues for sales of Catalyst WMS in
the quarter. For the first nine months of 1996, total software
license fee revenues were $7.2 million, remaining relatively
unchanged from 1995 software license revenues of $7.1 million for
the same period. Although the Company has been experiencing a
lengthening of the sales cycle in domestic and international
markets, the Company believes that Catalyst WMS Release 6.0 was
well received in the market. The Company will begin to sell
Catalyst WMS Release 7.0 in the fourth quarter of 1996, which
will be available for delivery in the first quarter of 1997.
Services and Maintenance
Services and maintenance revenues increased 26.1% to $3.4 million
in the third quarter of 1996, up from $2.7 million in the third
quarter of 1995. The components of services and maintenance
revenues as a percentage of total revenues in the third quarter
of 1996 were 36.2% for software modifications, 21.0% for
professional services and 14.9% for maintenance agreements
compared with 24.1%, 16.1% and 8.0%, respectively, in the third
quarter of 1995. For the first nine months of 1996, total
services and maintenance revenues were $10.0 million,
representing an increase of 48.1% over the first nine months of
1995 service and maintenance revenues of $6.8 million. Services
and maintenance revenues increased in the third quarter and year
to date periods due to the increased number of Catalyst WMS
implementations, rollouts of additional sites on corporate
licenses, upgrades to new releases of Catalyst WMS and renewals
of maintenance agreements.
Hardware and Other
Hardware and other revenues do not represent a material
percentage of total revenues in the third quarter of either 1996
or 1995. Total hardware and other revenue for the third quarter
were zero for 1996 and $74,000 for 1995. For the first nine
months of 1996, total hardware and other revenues were $111,000,
as compared to $91,000 for the same period in 1995. The increase
in the year to date period is primarily due to resale of certain
hardware products through ISI. The decrease in the third quarter
is due to the Company's decision to discontinue ISI's re-sale
operations in its entirety. Hardware and other revenue should
continue to be a non-material portion of the Company's total
revenue.
<PAGE>
Cost of Software License Fees
In the third quarter of 1996 cost of software license fees
declined 43.9% to $73,000 in 1996 from $130,000 in the same
period of 1995. For the first nine months of 1996, total cost of
software license fees was $190,000, a decline of 41.2% from total
cost of software license fees of $325,000 for the first nine
months of 1995. The Company continues to expense all software
development costs as product development expenditures as incurred
and anticipates doing so in future periods.
Cost of Services and Maintenance
In the third quarter of 1996 cost of services and maintenance
increased 21.6% to $2.9 million in 1996 from $2.4 million in the
third quarter of 1995. For the first nine months of 1996, total
cost of services and maintenance was $8.8 million, representing a
32.7% increase over total cost of services and maintenance of
$6.6 million for the first nine months of 1995. The cost of
services and maintenance has increased in 1996 due to the
Company's hiring of additional software engineers, customer
service representatives, and installers in anticipation of
increased Catalyst WMS implementations. The number of employees
in services and maintenance increased to 171 at September 30,
1996 from 134 at September 30, 1995, due primarily to the hiring
of new employees for the Software Engineering and Customer
Service Departments.
Product Development
Product development expenses as a percentage of total revenues
for the third quarter of 1996 increased to 23.8% from 12.2% in
the third quarter of 1995. For the first nine months of 1996,
product development expenses as a percentage of total revenues
increased to 18.0% from 12.6% for the same period in 1995.
Actual product development expenses were $1.1 million in the
third quarter of 1996 compared to $679,000 in the third quarter
of 1995. For the first nine months of 1996, actual product
development expenses were $3.3 million, compared to $1.8 million
for the same period in 1995, representing an increase of 77.8%.
The increase in product development costs is primarily due to an
increase in personnel related to development and support of new
and enhanced products. The product development staff consisted
of 72 and 41 employees at September 30, 1996 and September 30,
1995, respectively.
<PAGE>
Sales and Marketing
Sales and marketing expenses as a percentage of total revenues
for the third quarter of 1996 increased to 25.7% from 20.4% in
the third quarter of 1995. For the first nine months of 1996,
sales and marketing expenses as a percentage of total revenues
decreased to 21.3% from 23.5% for the same period in 1995.
Actual sales and marketing expenses increased 6.4% in the third
quarter of 1996 to $1.2 million from $1.1 million in the third
quarter of 1995. For the first nine months of 1996, actual sales
and marketing expenses were $3.7 million, compared with $3.3
million for the same period in 1995, representing an increase of
12.5%. The increase in sales and marketing expenses in the third
quarter is due to the increased number of sales and marketing
employees from 26 at September 30, 1995 to 33 at September 30,
1996 and an increase in international sales and marketing efforts
resulting from the establishment of sales offices in Brazil and
France.
General and Administrative
General and administrative expenses as a percentage of total
revenues for the third quarter of 1996 increased to 24.2% from
7.2% in the third quarter of 1995. For the first nine months of
1996, general and administrative expenses as a percentage of
total revenues increased to 13.7% from 8.0% in the same period in
1995. Actual general and administrative expenses increased
184.2% to $1.1 million in the third quarter of 1996 from $398,000
in the third quarter of 1995. For the first nine months of 1996,
actual general and administrative expenses were $2.4 million,
compared to $1.1 million for the same period in 1995,
representing an increase of 137.3%. There were 25 and 11
employees in general and administrative roles at September 30,
1996 and September 30, 1995, respectively. The increase in
general and administrative expenses is due to increased personnel
costs related to the enhancement of the infrastructure of the
Company, evidenced primarily by an increase in the number of
management personnel, along with a change in internal accounting
methods, resulting in the reflection of internal Information
Technology expenses as well as all executive officer salary
expenses in General and Administrative expenses.
<PAGE>
Purchased Research and Development
The Company incurred a one-time charge of $2.0 million in the
second quarter of 1996 related to the purchase of ISI. This
charge represented the write-off of purchased research and
development costs, as required by accounting principles. Such
purchased research and development had not reached technological
feasibility and does not have alternative future uses.
Other Income and Expense
Interest income for the third quarter of 1996 was $225,000 which
was offset by $4,000 of interest expense compared to $2,000 of
interest income offset by $41,000 of interest and other expenses
in the third quarter of 1995. For the first nine months of 1996,
interest and other income was $777,000 which was offset by
$62,000 of interest expense, while in the first nine months of
1995 interest income of $11,000 was offset by $99,000 of interest
expense. The increase in interest income was due to investment
of the proceeds from the Company's initial public offering in
November 1995.
Income Tax Expense
A tax benefit of $240,000 was recorded in the third quarter of
1996 to reverse prior Federal and state tax expenses recorded in
the first quarter of 1996 when the Company was profitable. Since
the Company is operating at a loss for the first nine months of
1996, the previously recorded tax expense has been reversed. No
Federal and state tax expense was recorded for the quarter and
nine months ended September 30, 1995 due to the Company's federal
net operating loss position and use of state operating loss
carryforwards. No deferred tax expense has been recorded in
either the quarter or nine month period as the Company continues
to record a valuation allowance to reserve for the net deferred
tax assets.
Liquidity and Capital Resources
Net cash provided by operating activities was $682,000 for the
nine months ended September 30, 1996, compared to net cash used
in operating activities of $145,000 for the nine months ended
September 30, 1995. The increase in net cash provided by
operations in the first nine months of 1996 from the first nine
months of 1995 is due primarily to the increase in short term
investments of the proceeds received from the Company's initial
public offering in November 1995 offset by the Company's year to
date net operating loss in 1996.
<PAGE>
The increase in net cash provided by operations from the third
quarter of 1995 to the third quarter of 1996 was also due, in
part, to decreased accounts receivable and prepaid expenses and
increased accounts payable, deferred services and maintenance,
deferred rent, deferred software license fees, income taxes and
accrued liabilities, which were partially offset by cash
generated by the sale of short term investments.
Investing activities used cash of $3.0 million in the first nine
months of 1996 compared to $1.2 million in the first nine months
of 1995. The increase in cash used for investing activities is
due primarily to the purchase of ISI and the purchase of capital
equipment.
Financing activities used cash of $1.1 million in the first nine
months of 1996 compared to net cash provided by financing
activities of $194,000 in the first nine months of 1995. The
increase in cash used for financing activities is due to the
purchase of the Company's common stock for $679,000, pursuant to
the stock buy-back program approvded by the Company's Board of
Directors.
As of September 30 1996, the Company had $16.6 million in cash,
cash equivalents and short-term investments, which consist
primarily of high-quality municipal bonds. In addition, the
Company has a line of credit (the "Revolving Credit Facility")
with Bank One, West Bend, Wisconsin of $1.0 million. As of
September 30, 1996, there were no amounts outstanding under the
Revolving Credit Facility.
Longer term cash requirements, other than normal operating
expenses, are anticipated for the development of new software
products and enhancement of existing products; the financing of
anticipated growth; potential repurchases of the Company's common
stock; and possible acquisition of software products or
technologies complementary to the Company's business. The
Company believes that its existing cash, cash equivalents, short-
term investments and available line of credit, along with
anticipated cash generated from operations will be sufficient to
satisfy its cash requirements for at least the next 12 months.
<PAGE>
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the third quarter of
1996.
<PAGE>
SIGNATURES
In accordance with the requirement of the Securities Exchange Act
of 1934, as amended, the registrant caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CATALYST INTERNATIONAL, INC.
Dated November 14, 1996 By: /s/ Vaemond H. Crane
Vaemond H. Crane
President and Chief Executive
Officer
Signing on behalf of the
registrant and as principal
executive officer.
Dated November __, 1996 By: /s/ Lisa Sanregret-Williams
Lisa Sanregret-Williams
Vice President and Chief
Financial Officer
Signing on behalf of the
registrant and as principal
financial officer.
<PAGE>
Exhibit 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(amounts in thousands, except per share amounts)
Three months ended September 30,
1996 1995
Average shares outstanding 8,119 1,296
Net effect of conversion of
options and warrants (a) -(d) 258
Net effect of conversion of
preferred stock (b) - 4,764
Stock, options and warrants
issued within one year of
initial filing (c) - 304
----- -----
Total 8,119 6,622
===== =====
Net income (loss) ($1,238) 820
===== =====
Pro forma net income (loss) per share ($ 0.15) $ 0.12
====== ======
- -----------------------
(a) Computed using the "treasury stock" method.
(b) Computed using the "if-converted" method.
(c) Included in accordance with Staff Accounting Bulletin No. 83.
(d) Common stock equivalents and other potentially dilutive
securities were anti-dilutive in these periods.
<PAGE>
Exhibit 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(amounts in thousands, except per share amounts)
Nine months ended September 30,
1996 1995
Average shares outstanding 8,132 1,296
Net effect of conversion of
options and warrants (a) -(d) 277
Net effect of conversion of
preferred stock (b) - 4,764
Stock, options and warrants
issued within one year of
initial filing (c) - 304
----- -----
Total 8,132 6,641
===== ======
Net income (loss) ($2,176) $ 693
====== ======
Pro forma net income (loss) per share ($ 0.27) $ 0.10
====== ======
- -----------------------
(a) Computed using the "treasury stock" method.
(b) Computed using the "if-converted" method.
(c) Included in accordance with Staff Accounting Bulletin No. 83.
(d) Common stock equivalents and other potentially dilutive
securities were anti-dilutive in these periods.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1996
<CASH> 243
<SECURITIES> 16357
<RECEIVABLES> 8353
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 25643
<PP&E> 5906
<DEPRECIATION> 1874
<TOTAL-ASSETS> 29728
<CURRENT-LIABILITIES> 2553
<BONDS> 0
0
0
<COMMON> 849
<OTHER-SE> 31067
<TOTAL-LIABILITY-AND-EQUITY> 29728
<SALES> 17290
<TOTAL-REVENUES> 17290
<CGS> 9005
<TOTAL-COSTS> 20183
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62
<INCOME-PRETAX> (2176)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2176)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
