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 June 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 July 31, 1996, 8,114,765 shares of the issuer's common
stock were outstanding.
This report contains 28 pages. There are 3 exhibits.
<PAGE>
CATALYST INTERNATIONAL, INC.
FORM 10-QSB
INDEX
Page
PART I. Financial Information No.
Item 1. Financial Statements:
Balance Sheets - June 30, 1996 and
December 31, 1995 ............................ 3
Statements of Operations - three months
ended June 30, 1996 and 1995 ................. 5
Statements of Operations - six months
ended June 30, 1996 and 1995 ................. 6
Statements of Cash Flows - six months
ended June 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 4. Submission of Matters to a Vote of
Security Holders ............................ 14
Item 6. Exhibits and Reports on Form 8-K .............. 14
Signatures .................................... 15
<PAGE>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
CATALYST INTERNATIONAL, INC.
Balance Sheet
(in thousands)
ASSETS
June 30, December 31,
1996 1995
(unaudited)
Current Assets:
Cash and cash equivalents $ 272 $ 3,730
Short-term investments 19,291 19,883
Accounts receivable 8,271 6,835
Refundable income taxes - 87
Prepaid expenses 417 374
Deferred software license fees 394 -
------- -------
Total Current Assets 28,645 30,909
Equipment and Leasehold Improvements:
Computer hardware and software 2,707 2,141
Office equipment 2,087 1,730
Leasehold improvements 769 476
------- -------
5,563 4,347
Less accumulated depreciation 1,629 1,277
------- -------
Total Equipment and
Leasehold Improvements 3,934 3,070
Other Assets:
Capitalized software development costs 70 105
------- -------
Total Other Assets 70 105
------- -------
Total Assets $32,649 $34,084
======= =======
See accompanying notes
<PAGE>
CATALYST INTERNATIONAL, INC.
Balance Sheet
(in thousands, except share data)
LIABILITIES AND STOCKHOLDER'S EQUITY
June 30, December 31,
1996 1995
(unaudited)
Current Liabilities:
Accounts payable $ 913 $ 1,114
Accrued liabilities 665 477
Deferred software license fees - 297
Deferred services and maintenance 1,721 1,770
Current portion of long-term debt 49 123
------- -------
Total Current Liabilities 3,348 3,781
Noncurrent Liabilities:
Long-term debt 153 324
Deferred service and maintenance 566 384
Deferred rent 334 344
------- -------
Total Non-Current Liabilities 1,053 1,052
------- -------
Total Liabilities 4,401 4,833
Stockholders' Equity:
Common stock, $.10 Par Value;
25,000,000 shares authorized; 848 842
shares issued: 8,478,681 in 1996
and 8,421,323 in 1995
Additional paid-in capital 31,059 31,124
Accumulated deficit (2,602) (1,665)
Treasury stock, at cost: 300,632 shares
of common stock in 1996 and 300,000
shares in 1995 (1,057) (1,050)
------- -------
Total Stockholder's Equity 28,248 29,251
------- -------
Total Liabilities and Stockholder's Equity $32,649 $34,084
======= =======
See accompanying notes
<PAGE>
CATALYST INTERNATIONAL, INC.
Statement of Operations
(in thousands, except per share amounts)
(unaudited)
Three Months Ended
June 30, June 30,
1996 1995
Revenues:
Software license fees $2,603 $2,228
Services and maintenance 3,474 2,375
Hardware and other 110 4
------ ------
Total Revenues 6,187 4,607
Operating Expenses:
Cost of license fees 33 55
Cost of services and maintenance 3,059 2,171
Cost of hardware and other - 3
Product development 1,051 583
Sales and marketing 1,288 1,089
General and administrative 665 314
Write-off of purchased research
and development 2,002 -
------ ------
Total Operating Expenses 8,098 4,215
------ ------
Income (loss) from operations (1,911) 392
Other income (expense) 243 (68)
------ ------
Income (loss) before provision
for income taxes (1,668) 324
Provision for income taxes - -
------ ------
Net income (loss) $(1,668) $ 324
====== ======
Net income (loss) per share $( 0.20) $ 0.05
Shares used in computing net
income (loss) per share 8,519 6,638
See accompanying notes
<PAGE>
CATALYST INTERNATIONAL, INC.
Statement of Operations
(in thousands, except per share amounts)
(unaudited)
Six Months Ended
June 30, June 30,
1996 1995
Revenues:
Software license fees $5,861 $4,290
Services and maintenance 6,635 4,080
Hardware and other 111 17
------ ------
Total Revenues 12,607 8,387
Operating Expenses:
Cost of license fees 117 195
Cost of services and maintenance 5,953 4,291
Cost of hardware and other - 4
Product development 2,005 1,075
Sales and marketing 2,487 2,148
General and administrative 1,235 720
Write-off of purchased research
and development 2,002 -
------ ------
Total Operating Expenses 13,799 8,433
------ ------
Loss from operations (1,192) (46)
Other income (expense) 495 (81)
------ ------
Loss before provision for income taxes (697) (127)
Provision for income taxes 240 -
------ ------
Net Loss $ (937) $ (127)
====== ======
Net Loss per share $(0.11) $(0.02)
Shares used in computing net
loss per share 8,480 6,364
See accompanying notes
<PAGE>
CATALYST INTERNATIONAL, INC.
Statement of Cash Flows
(in thousands)
(unaudited)
Six months ended
June 30,
1996 1995
Operating Activities:
Net loss $ (937) $ (127)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 326 279
Compensation expense on stock options 7 11
Write-off of purchased research and
development 2,002 -
Loss on disposal of equipment - 22
Changes in operating assets and liabilities:
Accounts receivable (1,343) (473)
Short term investments 593 -
Prepaid expenses (37) (92)
Accounts payable (259) (179)
Deferred services and maintenance 132 778
Deferred rent (10) 69
Deferred software license fees (690) (452)
Income taxes 133 28
Accrued liabilities (301) (98)
------ ------
Total adjustments 553 (106)
Net cash used by operating activities (384) (233)
Investing Activities:
Purchase of equipment and leasehold
improvements (1,119) (811)
Additions to capitalized software costs - (64)
Purchase of Information Strategies, Inc. (1,500) -
Other - 4
Net cash used by investing activities (2,619) (871)
Financing Activities:
Proceeds from long-term debt - 500
Payments on long-term debt (381) (187)
Expenses related to initial public offering (83) -
Proceeds from stock options exercised 3 3
Purchase of treasury stock 7 -
Dividends paid - (50)
------- -------
Net cash provided (used) by
financing activities (455) 266
Net decrease in cash (3,458) (838)
Cash at the beginning of period 3,730 1,359
Cash at the end of the period $ 272 $ 521
See accompanying notes
<PAGE>
CATALYST INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
June 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 six month periods ended June 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. Stock Options and Warrants
The Company has adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS 123). The
Company has elected, as allowed under SFAS 123, to continue to apply
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" for determining annual compensation charges and
will disclose the impact of fair value.
3. Acquisition of Information Strategies, Inc. ("ISI")
On April 3, 1996, the Company acquired all outstanding common stock
of ISI for $1,500,000 in cash. The acquisition has been accounted for as a
purchase and, accordingly, the purchase price has been 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 technology
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.
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Total Revenues
The Company's total revenues for the second quarter of 1996 were $6.2
million, which represented an increase of 34.3% over second quarter
1995 total revenues of $4.6 million. For the first six months of 1996,
total revenues were $12.6 million, representing an increase of 50.3%
over 1995 total revenues of $8.4 million for the same period.
International revenues decreased 22.9% in the second quarter of 1996
to $1.0 million, down $236,000 from second quarter 1995revenues of
$1.3 million. International revenues represented 17% of total revenues
for the second quarter of 1996 compared to 28.3% in the same period of
1995. For the first six months of 1996, total international revenues were
$2.3 million, the same as for the first six months of 1995. For the first six
months of 1996, international revenues represented 18.3% of total revenues
as compared to 27.4% for the first six months of 1995. This decrease in
international revenues as a percentage of total revenues for the quarter and
year to date is due, in general, to the lengthening of the sales cycle the
Company has recently experienced in certain international markets.
Software License Fees
The second quarter of 1996 software license fee revenues of $2.6
million represented an increase of 16.8% over the second quarter of 1995
software license fee revenues of $2.2 million. For the first six months of
1996, total software license fee revenues were $5.5 million, representing
an increase of 28.5% over 1995 software license revenues of $4.3 million
for the same period. The Company believes that Catalyst WMS Release 6.0,
which was introduced in January 1996, has been well received in the market,
based upon the sale of several corporate licenses during the second quarter
of 1996.
Services and Maintenance
Services and maintenance revenues increased 46.3% to $3.5 million in the
second quarter of 1996, up from $2.4 million in the second quarter of 1995.
The components of services and maintenance revenues as a percentage of
total revenues in the second quarter of 1996 were 50.2% for software
modifications, 31.2% for professional services and 18.6% for maintenance
agreements compared with 41.8%, 40.5% and 17.7%, respectively, in the
second quarter of 1995. For the first six months of 1996, total services and
maintenance revenues were $6.6 million, representing an increase of 62.6%
over the first six months of 1995 service and maintenance revenues of $4.1
million. Services and maintenance revenues increased in the second quarter
and year to date periods due to the increased number of Catalyst WMS
implementations and maintenance agreement renewals.
<PAGE>
Hardware and Other
Hardware and other revenues do not represent a material percentage
of total revenues in the second quarter of either 1996 or 1995. Total
hardware and other revenue for the second quarter were $110,000 for
1996 and $4,000 for 1995. For the first six months of 1996, total
hardware and other revenues were $111,000, as compared to $17,000
for the same period in 1995. The increase is primarily due to the
Company's acquisition of Information Strategies Incorporated ("ISI"),
a re-seller of certain hardware products, in April 1996. Hardware and
other revenue should decline due to the Company's decision to
discontinue ISI's re-sale operations.
Cost of Software License Fees
The second quarter of 1996 cost of software license fees declined
40.0% to $33,000 in 1996 from $55,000 in the same period of 1995.
For the first six months of 1996, total cost of software license fees
was $117,000, a decline of 40.0% from the first six months of 1995
cost of software license fees of $195,000. 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
The second quarter of 1996 cost of services and maintenance
increased 40.9% to $3.1 million in 1996 from $2.2 million in the
second quarter of 1995. For the first six months of 1996, total cost
of services and maintenance was $6.0 million, representing a 38.7%
increase over the first six months of 1995 cost of services and
maintenance of $4.3 million. 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 numbers of Catalyst WMS implementations.
The number of employees in services and maintenance increased to
170 at June 30, 1996 from 82 at June 30, 1995.
<PAGE>
Product Development
Product development expenses as a percentage of total
revenues for the second quarter of 1996 increased to 17.0%
from 12.7% in the second quarter of 1995. For the first six
months of 1996, product development expenses as a percentage
of total revenues increased to 15.9% from 12.8% for the same
period in 1995. Actual product development expenses
increased 80.3% to $1.0 million in the second quarter of 1996
from $583,000 in the second quarter of 1995. For the first six
months of 1996, actual product development expenses were
$2.0 million, compared to $1.1 million for the same period in
1995, representing an increase of 86.4%. 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 54 and 32 employees at June 30, 1996 and June 30, 1995, respectively.
Sales and Marketing
Sales and marketing expenses as a percentage of total revenues
for the second quarter of 1996 decreased to 20.8% from 23.6% in
the second quarter of 1995. For the first six months of 1996,
sales and marketing expenses as a percentage of total revenues
decreased to 19.7% from 25.6% for the same period in 1995.
Actual sales and marketing expenses increased 18.3% in the second
quarter of 1996 to $1.3 million from $1.1 million in the second quarter
of 1995. For the first six months of 1996, actual sales and marketing
expenses were $2.5 million, compared with $2.2 million for the same
period in 1995, representing an increase of 15.8%. While sales and
marketing expenses as a percentage of total revenues has declined,
the increase in sales and marketing expenses is due to the increased
number of sales and marketing employees from 23 at June 30, 1995 to
32 at June 30, 1996 and an increase in international marketing efforts.
<PAGE>
General and Administrative
General and administrative expenses as a percentage of total
revenues for the second quarter of 1996 increased to 10.7% from
6.8% in the second quarter of 1995. For the first six months of
1996, general and administrative expenses as a percentage of total
revenues increased to 9.8% from 8.6% in the same period in 1995.
Actual general and administrative expenses increased 112.0% to
$665,000 in the second quarter of 1996 from $314,000 in the
second quarter of 1995. For the first six months of 1996, actual
general and administrative expenses were $1.2 million, compared
to $720,000 for the same period in 1995, representing an increase
of 71.5%. There were 19 and 12 employees in general and
administrative roles at June 30, 1996 and June 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.
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, 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 second quarter of 1996 was $290,000
which was offset by $47,000 of interest expense, compared to
$6,000 of interest income offset by $74,000 of interest and other
expenses in the second quarter of 1995. For the first six months of
1996, interest income was $552,000 which was offset by $57,000
of interest expense, while in the first six months of 1995
interest income of $20,000 was offset by $101,000 of interest and
other expenses. The increase in interest income was due to
increased account balances due primarily to investment of the
proceeds from the Company's initial public offering.
Income Tax Expense
No income tax expense was recorded for the second quarter of
1996 due to the Company's net loss position. The $240,000 of tax
expense provided for the six months ended June 30, 1996 relates
to amounts owed under the alternative minimum tax rules. No tax
expense was recorded for the quarter and six months ended June
30, 1995 due to the Company's net loss position. No deferred tax
expense has been recorded in either quarter or six month period
as the Company continues to record a valuation allowance to
reserve for the net deferred tax asset.
Liquidity and Capital Resources
Net cash used in operating activities was $384,000 for the six
months ended June 30, 1996, and $233,000 for the six months
ended June 30, 1995. The increase in net cash used in operations
in the first six months of 1996 from the first six months of 1995 is
due primarily to the increase in the Company's net loss generated
through the non-cash write off of purchased research and
development from the ISI acquisition. The Company used $1.3
million cash in operations due to an increase in accounts
receivable; however, the Company would have experienced a net
income of $1.0 million had the write-off not occurred.
Investing activities used cash of $2.6 million in the first six months
of 1996 compared to $871,000 in the first six months of 1995.
The increase in cash used for investing activities is due primarily to
the purchase of ISI.
As of June 30 1996, the Company had $19.6 million in cash, cash
equivalents and marketable securities, 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 June 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 finance 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,
marketable securities 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 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on April
29, 1996, the following individuals were re-elected to serve on the
Company's Board of Directors until the 1999 annual meeting of
stockholders:
Votes For Votes Withheld
Vaemond H. Crane 6,287,742 2,657
Thomas S. Roberts 6,287,741 2,658
The following proposals were approved at the Company's Annual
Meeting:
1. Amendment of the Company's 1993 Stock Option Plan (the
"Option Plan"), to (a) increase the shares of Common Stock
available for purchase under options granted pursuant to the Option
Plan from 1,845,749 to 3,000,000; (b) extend the period of time
during which representatives of the estates of deceased participants
under the Option Plan have to exercise options following death of
the participant from 30 days to six months; and (c) allow
participants to pay the exercise price for the options in other than
cash at the discretion of the Compensation Committee and to
eliminate the requirement that a participant who exercises options
under the Option Plan execute a stockholders agreement.
Affirmative Votes: 5,371,865
Negative Votes: 854,714
Votes Withheld: 2,820
Broker Non-Votes: 61,000
2. Ratification of the appointment of Ernst & Young LLP as
independent auditors for the Company's 1996 fiscal year.
Affirmative Votes: 6,214,425
Negative Votes: 16,057
Votes Withheld: 59,917
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
10 1993 Stock Option Plan, as Amended
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 second 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 August 9, 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 August 9, 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 10
TEXT OF 1993 STOCK OPTION PLAN, AS AMENDED
(Amended as of April 29, 1996)
1. Purpose. The purpose of this Plan is to provide additional
incentive compensation to certain key employees of Catalyst
International, Inc. (the "Company") and to provide them with an
opportunity to acquire an equity interest in the Company. Stock
options granted under this Plan may be "incentive stock options" as
defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), and any successor thereto, or stock options
which are not qualified as incentive stock options under the Code
("nonqualified stock options"). Each stock option granted under
this Plan shall be clearly identified as either an incentive stock
option or a nonqualified stock option at the time of grant.
2. Eligible Employees. Options to purchase $0.10 par value
common stock of the Company (the "Common Stock") under this
Plan may be granted to employees of the Company, or of any
present or future subsidiary or parent of the Company, who are key
employees. For this purpose, and for all purposes under this Plan,
a parent or subsidiary of the Company shall be a "parent
corporation" or a "subsidiary corporation" of the Company as
defined in Sections 424(e) and 424(f) of the Code. An employee
who is a member of the class of employees and an eligible
employee who has been granted an option shall herein after be
referred to as a "Participant." An employee who has been
granted an option under the Plan may be granted additional options
under the Plan if the Committee shall so determine. In addition,
the Committee may at any time, regardless of the then current fair
market value of the Common Stock, grant new options to a
Participant in exchange for the surrender, at the option of the
Participant, of a previously granted option. The Company shall
effect the granting of options under the Plan by execution of
Incentive Stock Option Agreements and Nonqualified Stock
Option Agreements which shall contain, among other things, such
representations, warranties and other terms and conditions as shall
be necessary in the opinion of counsel to the Company to comply
with all applicable Federal and state securities laws.
3. Shares Available for Options. There shall be available for
purchase under options granted pursuant to this Plan a total of three
million (3,000,000) shares of the Common Stock, subject to
adjustment as provided in Paragraph 9.1 hereof. In the event that
options which have been granted under this Plan lapse, expire or
terminate for any reason (whether by voluntary surrender, lapse of
time, termination of employment or
<PAGE>
otherwise), to the extent that such options were unexercised,
options for an equivalent number of shares may be granted
hereunder; provided, however, in no event shall the number of
shares purchase through the exercise of options granted under this
Plan and the number of shares subject to options outstanding at any
time exceed in the aggregate three million (3,000,000) shares of the
Common Stock.
4. Maximum Calendar Year Grant to Any Employee. The
aggregate fair market value (determined at the time the option is
granted) of the stock with respect to which incentive stock options
are exercisable for the first time during any calendar year under this
Plan (and under all other plans of the Company or any parent or
subsidiary of the Company) shall not exceed $100,000 per
employee, and/or any other limit as may be prescribed by the Code
from time to time.
5. Administration.
5.1 The Committee. The Plan shall be administered by the
Stock Option Committee (the "Committee") which shall be
comprised of at least two (2) persons. The members of the
Committee shall be appointed from time to time by the Board of
Directors of the Company. A majority of the members of the
Committee shall constitute a quorum at any meeting thereof and
the acts of a majority of members present at any meeting of the
Committee at which a quorum is present, or acts unanimously
approved in writing by a majority of the entire Committee, shall be
the acts of the Committee.
5.2 Power of the Committee. The Committee is authorized and
shall have plenary authority in its discretion, subject only to the
provisions of the Plan and the applicable provisions of the Code, to
determine the exercise prices applicable to options, the eligible
employees to whom and the time or times at which options shall be
granted, the number of shares of Common Stock subject to each option
and the extent to which options may be exercisable in
installments; to interpret the Plan; to prescribe, amend and rescind
rules and regulations pertaining to the Plan; and to make
determinations and interpretations which it deems consistent with
the Plan's provisions. The Committee's determinations and
interpretations shall be final, conclusive and binding.
6. Terms and Conditions of Options.
6.1 Option Price. The purchase price of each share of Common
Stock under each incentive stock option granted pursuant to this
Plan shall be the fair market value thereof at the date of grant of
such option, unless the Participant owns (applying
<PAGE>
the attribution rules of Section 424(d) of the Code) more than ten
percent (10%) of the total combined voting power of all classes of
stock of the Company or of a subsidiary or parent of the Company
(hereinafter referred to as a "10% Shareholder"), in which case the
per share price shall be at least one hundred ten percent (110%) of
the fair market value per share of the Common Stock of the
Company at the date of grant of such option. The fair market value
of the Common Stock on the date each option is granted shall be
the market value determined by an independent third-party
appraiser or by the Committee in conformity with pertinent law
and applicable regulations and rulings of the Treasury Department.
6.2 Exercise Period.
(a) No option granted pursuant to this Plan shall be
exercisable after the expiration of ten (10) years (five (5)years if
the Participant holds an incentive stock option and is a 10%
Shareholder) from its date of grant and it shall lapse upon the
expiration of said ten (or five) year period unless it shall lapse at an
earlier date by reason of termination of employment as provided in
Paragraph 6.3, below, or as otherwise determined by the
Committee. The Committee may, in its sole discretion, require that
a Participant be employed by the Company or a subsidiary or
parent of the Company for a designated number of years prior to
the exercise by him of any option or portions of options granted
pursuant to this Plan, and may, in its sole discretion, determine the
exercise dates on which options or portions of options may be
exercised by a Participant. Any such requirements or limitations
may subsequently be reduced or waived by the Committee in its
sole discretion, unless such reduction or waiver is prohibited by the
Code or other applicable law.
(b) If under this Plan options are granted over a class of
equity securities which is registered pursuant to Section 2 of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), then with respect to any option over such equity security
granted to a Participant who is subject to Section 16(b) of the
Exchange Act, such option shall provide that at least six months
shall have elapsed from the date of grant of such option to the date
of disposition of such option or any such equity security acquired
upon exercise of such option.
<PAGE>
(c) Prior to the Company becoming subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, it is
intended that the offer and sale of Common Stock pursuant to
options granted under this Plan shall be exempt under applicable
exemptions (the "Federal Exemptions") of the Securities Act of
1933, as amended (the "Securities Act") and the rules promulgated
thereunder. It is also intended that the offer and sale of Common
Stock pursuant to options granted under this Plan shall be exempt
from registration under the securities laws of any state pursuant to
applicable exemptions under such laws (the "Blue Sky
Exemptions"). Notwithstanding anything else in this Plan to the
contrary, until the offer and sale of Common Stock pursuant to
options granted hereunder have been registered under the
Securities Act granted hereunder, including the number of options,
the aggregate offering price, and the ability to exercise such
options shall be subject to the requirements and limitations of the
Federal Exemptions and the Blue Sky Exemptions.
6.3 Termination of Employment. If the employment of any
Participant with the Company, and any subsidiary or parent
corporation of the Company, is terminated, the following shall
apply:
(a) Except in the case of a Participant's death as provided for
in Paragraph 6.3(b), below, the Participant shall have thirty (30)
days from the date of termination of employment to exercise any
option granted hereunder as to all or part of the shares under such
option, subject to the condition that no option shall be exercisable
at such time as the exercise thereof would result in a violation of
federal or state securities laws or subsequent to ten (10) years (five
(5) years if the Participant holds an incentive stock option and is a
10% Shareholder) after date of grant, and provided that at the time
of termination the Participant had a present right to exercise such
option. To the extent an option is not exercised within such period,
it shall lapse.
(b) If the Participant's termination of employment is due to
his death, the personal representative, administrator or other
representative of the estate of the deceased Participant or the
person or persons to whom the deceased Participant's rights under
the option shall pass by will or the laws of descent and distribution,
as the case may be, shall have the right to exercise any option
granted pursuant to this Plan as to all or part of the shares subject
to such option to the extent exercisable at the date of the
Participant's death. Such option must be exercised within six (6)
months after the date of the Participant's death, subject to the
condition that no option shall be exercisable at such time as the
exercise thereof would result in a violation of federal or state
securities laws or subsequent to ten (10) years (five (5) years if the
Participant holds an incentive stock option and is a 10%
Shareholder) after the date of grant. To the extent an option is not
exercised within such period, it shall lapse.
<PAGE>
(c) The Committee may in its sole discretion increase the
periods permitted for exercise of any option following a
termination of employment as provided in Subparagraphs 6.3(a)
and (b), above, if allowable under applicable laws; provided,
however, in no event shall an option be exercisable subsequent to
ten (10) years after the date of grant.
(d) The transfer of employment from a subsidiary or parent
of the Company to the Company or to a subsidiary or parent of the
Company or vice versa shall not be considered to constitute
termination of employment by a Participant.
6.4 Transferability of Options. During his lifetime a
Participant may not transfer any option granted to him pursuant to
this Plan and such options shall be exercisable only by the
Participant. Upon his death a Participant shall have the right to
transfer the option or options granted to him either by the terms of
his will or under the applicable laws of descent and distribution,
subject to the limitations set forth in Paragraph6.3(b), above, and
all such distributees shall be subject to the same terms and conditions
of this Plan as would the Participant, except as otherwise expressly
provided herein or as determined by the Committee.
6.5 Exercise of Options. Subject to the limitations stated
elsewhere in this Plan, options granted pursuant to this Plan will be
exercisable on such dates and during such periods and for such
number of shares as shall be determined by the Committee. An
option granted pursuant to this Plan shall be exercisable by
delivering to the Chief Financial Officer of the Company at its
principal business office a written notice designating the number of
shares for which it is being exercised. Payment in full in cash for
the number of shares for which the options have been exercised
must accompany said written notice; provided that the Committee
shall have the power and authority to designate from time to time
other forms of payment of the exercise price for such options and
in such event, payment for the number of shares for which the
options have been exercised shall be made in the manner and at the
times so designated by the Committee. The Company shall have
the right to delay the issue or delivery of any shares of Common
Stock under this Plan until (a) the completion of such registration
or qualification of such shares under any applicable federal or state
law, ruling or regulation as the Company shall determine to be
necessary or advisable and(b) receipt from the Participant of such
documents and information as the Committee may deem necessary
or appropriate in connection with such registration or qualification.
<PAGE>
7. Purchase for Investment. Unless at the time of exercise of
an option a registration statement under the Securities Act relating
to the shares of Common Stock being acquired has been declared
effective by the Securities and Exchange Commission and
continues to be effective, each Participant electing to purchase
shares upon the exercise of an option granted to him pursuant to
his Plan shall be required to give a written representation that he is
acquiring such shares for his own account for investment and not
with a view to, or for sale in connection with, the resale or
distribution of any such shares. A Participant shall acknowledge
that he understands that by "investment" it is meant that he is
acquiring such shares because of his desire to acquire a proprietary
interest in the Company and because of prospects of future
long-term appreciation in the value of such shares. Such
Participant shall further acknowledge his understanding that such
shares are not being registered under the Securities Act on the
ground that the issuance of shares pursuant to the exercise of any
option granted to him under this Plan is exempt under that Act as
not involving any public offering and that the basis for such
exemption would not be present if, notwithstanding such
representations, the Participant had in mind acquiring such shares
for resale on the occurrence or nonoccurrence of some
predetermined event. Each Participant shall further agree that he
will not sell or transfer any shares purchased upon exercise of an
option until he request and receives an opinion by the Company's
counsel or other counsel satisfactory to the Company to the effect
that such proposed sale or transfer will not result in a violation of
the Securities Act or a Registration Statement covering the sale or
transfer of the shares has been declared effective by the Securities
and Exchange Commission, or he obtains a no-action letter from
the Securities and Exchange Commission with respect to the
proposed transfer.
<PAGE>
8. Restrictions on Transfer and Right or Repurchase. Any
shares purchased pursuant to options granted hereunder may be
subject to certain restrictions on the transferability thereof which
restrictions shall be more fully described in a Stockholders
Agreement (the "Stockholders Agreement") to be executed by and
between the Participant and the Company at the time an option is
granted. The terms of the Stockholders Agreement will be
established by the Committee in its sole discretion. The
Stockholders Agreement may require, among other things, that if a
Participant or his estate desires to sell, transfer, pledge, gift or
otherwise dispose of any part of his Common Stock during his
lifetime or upon his death, the Company shall have the right, if it
so elects, to purchase from such Participant or his estate and the
Participant or his estate shall be required to sell to the Company,
such stock at its then fair market value. In addition, the
Stockholders Agreement may provide that if a Participant's
employment with the Company terminates for any reason,
including without limitation the death, disability or retirement of
such participant, the Company shall have the right, if it so elects, to
purchase from such Participant or his estate, and such Participant
or his estate shall be required to sell to the Company, such stock at
the price or prices, and pursuant to the procedures, set forth in the
Stockholders Agreement. The Stockholders Agreement may also
provide that the purchase price for any stock purchased by the
Company pursuant thereto shall be payable in installments over a
period not to exceed ten years. There shall be stamped on the
certificates representing shares purchased upon the exercise of any
option granted pursuant to the Plan an appropriate legend giving
notice of the Stockholders Agreement, the acquisition of such
shares for investment and the restrictions on their transfer by
reason thereof, and any other matters deemed appropriate by
counsel to the Company.
9. Miscellaneous.
9.1 Adjustments. In the event there is any increase or decrease
in the number of issued and outstanding shares of any class of
common stock of the Company, or in the number of issued and
outstanding share of any class of stock of the Company convertible
into shares of any class of common stock of the Company, by
reason of a stock dividend, stock split, reverse stock split, or
similar adjustment or in the event of any change in the Company or
in the issued and outstanding shares of the common stock of the
Company by reason of a recapitalization, merger, consolidation,
acquisition of stock or property, reorganization, liquidation, initial
public offering, or other significant event affecting the Company or
the issued and outstanding shares of the Common Stock, the
number of shares of Common Stock available for options provided
in Paragraph 3 hereof, the number of shares subject to each
outstanding option, the purchase price per share under each
outstanding option, and/or the consideration to be received upon
the exercise of each option shall be correspondingly adjusted as
deemed equitable by the Committee or each outstanding option
may be converted, at the sole discretion of the Committee, into a
new option to purchase such number or kind of shares of stock or
other securities with appropriate adjustment of the purchase price
per share as the Committee deems appropriate to reflect such
change. In addition, the Committee shall, in its sole discretion,
have authority to provide, in appropriate cases, for (i) waiver in
whole or in part of any remaining restrictions or vesting
requirements in connection with any option and/or (ii) the
conversion of any outstanding options into cash or other property
to be received in certain of the transactions specified above. Any
adjustment, waiver, conversion or the like carried out by the
Committee under this Paragraph shall be conclusive and binding
for all purposes of the Plan. In no event shall the aggregate fair
market value(determined at the time the option is granted) of the
stock with respect to which incentive stock options are exercisable
for the first time during any calendar year under this Plan (and
under all plans of the Company or any parent or subsidiary of the
Company) exceed $100,000 per employee as a result of adjustments
made under this Paragraph 9.1
<PAGE>
9.2 Fractional Shares. No fractional shares of stock shall be
issued upon the exercise of any option and the Company shall not
be under any obligation to compensate any Participant in anyway
for any such fractional share.
9.3 Reservation of Shares. The Company shall at all times
reserve an keep available such number of shares of its Common
Stock as shall be necessary for the exercise of all options which
may be granted pursuant to Paragraph 3, above. Said shares may
be in the form of treasury shares or authorized but previously
unissued shares, or both. If in the opinion of its counsel the issue
or sale of any shares of its stock hereunder shall not be lawful for
any reason, including the inability of the Company to obtain from
any regulatory body having jurisdiction authority deemed by such
counsel to be necessary to such issuance or sale, the Company shall
not be obligated to issue or sell any such shares.
9.4 No Obligation for Employment. The Plan shall not impose
any obligation on the Company to continue the employment of any
Participant or eligible employee.
9.5 Indemnification of Committee. Each person who is a
member of the Committee shall be indemnified and held harmless
by the Company against and for any loss, cost, liability, or expense,
including attorneys' fees, that may be imposed upon or be
reasonably incurred by him in connection with or resulting from
any claim, action, writ or proceeding to which he may be a party or
in which he may be involved by reason of any action taken or
failure to act under the Plan and against and from any and all
amounts paid by him in settlement thereof, with the Company's
approval, or paid by him in satisfaction of judgment in any such
action, suit or proceeding against him, except in relation to matters
as to which it shall be adjudged in such claim, action, suit or
proceeding, that such Committee member is liable for gross
negligence or willful misconduct in the performance of his duties.
Each such person shall give the Company an opportunity, at its
own expense, to handle and defend the same before he undertakes
to handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of
indemnification to which such person may be entitled under the
Company's Certificate of Incorporation or By-Laws, as amended,
as a matter of law, or otherwise, or any power that the Company
may have to indemnify them and hold them harmless.
<PAGE>
9.6 Rights as a Shareholder. No holder of an option granted
pursuant to this Plan shall have any rights as a shareholder of the
Company with respect to any shares covered by his option until the
date such shares are issued pursuant to the exercise of such option.
9.7 Taxes. The Company shall be entitled to pay or withhold
the amount of any tax which it believes is required as a result of the
grant or exercise of any option under the Plan, and the Company
may defer making delivery with respect to shares of Common
Stock obtained pursuant to the exercise of any option until
arrangements satisfactory to it have been made with respect to any
such withholding obligations.
10. Termination and Amendment. This Plan shall become
effective upon approval by the Board of Directors of the Company,
and, unless previously terminated, shall continue until the date ten
(10) years following the date of such approval, when it shall
terminate; no options shall be granted under the Plan after that
date. The Plan may at any time and from time to time be
terminated, modified, or amended by the Board of Directors of the
Company in its sole discretion; provided, however, that the Board
of Directors may not, unless otherwise permitted under federal law,
without the approval of the Company's shareholders, adopt any
amendment to the Plan for which shareholder approval is required
under tax, securities or any other applicable law. No termination,
modification or amendment of the Plan may, without the consent
of the Participant, materially adversely affect the rights of such
Participant under an outstanding option.
The Committee may amend, modify or terminate an outstanding
option, including, but not limited to, substituting another award of
the sale or of a different type, hanging the date of exercise, or
converting an incentive stock option into a nonqualified stock
option; provided, however that the Participant's consent to such
action shall be required unless the Committee determines that the
action, taking into account any related action, would not materially
adversely affect the Participant.
11. Other Benefit and Compensation Programs. Benefits
received by a Participant under an option granted pursuant to the
Plan shall not be included in, or have any effect on, the
determination of benefits under any other employee benefit plan,
contract, or similar arrangement provided by the Company, unless
expressly so provided by such other plan, contract, or arrangement,
or unless the Committee expressly determines otherwise.
12. Use of Words. The use of words of the masculine gender
in this Plan is intended to include, whenever appropriate, the
feminine or neuter gender and vice versa.
<PAGE>
Exhibit 11
STATEMENT RE: COMPUTATION OF PER SHARE
EARNINGS
(amounts in thousands, except per share amounts)
Three months ended June 30,
1996 1995
Average shares outstanding 8,152 1,295
Net effect of conversion of
options and warrants (a) 367 275
Net effect of conversion of
preferred stock (b) - 4,764
Stock, options and warrants
issued within one year of
initial filing (c) - 304
----- -----
Total 8,519 6,638
===== =====
Net income (loss) applicable
to common stock ($1,668) $ 324
Dividends on preferred stock - (125)
------ -----
(1,668) 199
====== =====
Net income (loss) per share
to common stock ($ 0.20) $ 0.03
======= =======
- -----------------------
(a) Computed using the "treasury stock" method
(b) Computed using the "if-converted" method
(c) Included in accordance with Staff Accounting Bulletin No. 83
<PAGE>
Exhibit 11
STATEMENT RE: COMPUTATION OF PER SHARE
EARNINGS
(amounts in thousands, except per share amounts)
Six months ended June 30,
1996 1995
Average shares outstanding 8,138 1,296
Net effect of conversion of
options and warrants (a) 342 (d)
Net effect of conversion of
preferred stock (b) - 4,764
Stock, options and warrants
issued within one year of
initial filing (c) - (304)
----- -----
Total 8,480 6,364
====== ======
Net income (loss) applicable
to common stock ($ 937) ($ 127)
Dividends on preferred stock - -
------- -------
($ 937) ($ 127)
======= =======
Net income (loss) per share
to common stock ($ 0.11) ($ 0.02)
======= =======
- -----------------------
(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 this period
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 272
<SECURITIES> 19291
<RECEIVABLES> 8271
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 28645
<PP&E> 5563
<DEPRECIATION> 1629
<TOTAL-ASSETS> 32649
<CURRENT-LIABILITIES> 3348
<BONDS> 0
0
0
<COMMON> 848
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 32649
<SALES> 12606
<TOTAL-REVENUES> 12606
<CGS> 0
<TOTAL-COSTS> 13798
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47
<INCOME-PRETAX> (697)
<INCOME-TAX> 240
<INCOME-CONTINUING> (937)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (937)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
