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 March 31, 1997
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 March 31, 1997, 6,621,564 shares of the issuer's common
stock were outstanding.
This report contains 15 pages. There are 2 exhibits.
<PAGE> 2
CATALYST INTERNATIONAL, INC.
FORM 10-QSB
INDEX
Page No.
PART I. Financial Information
Item 1. Financial Statements:
Balance Sheets - March 31, 1997
and December 31, 1996 . . . . . . . . . . . 3
Statements of Operations - Three months
ended March 31, 1997 and 1996 . . . . . . . 5
Statements of Cash Flows - Three months
ended March 31, 1997 and 1996 . . . . . . . 6
Notes to Financial Statements . . . . . . . . 7
Item 2. Management's Discussion and Analysis or
Plan of Operation . . . . . . . . . . . . . 8
PART II. Other Information:
Item 6. Exhibits and Reports on Form 8-K . . . . . . . 12
Signatures . . . . . . . . . . . . . . . . . . 13
<PAGE> 3
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
<TABLE>
<CAPTION>
CATALYST INTERNATIONAL, INC.
Balance Sheets
(in thousands)
ASSETS
March 31, Dec. 31,
1997 1996
(unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 5,436 $ 9,321
Accounts receivable 5,766 5,979
Refundable income taxes 216 213
Prepaid expenses 426 408
------- -------
Total Current Assets 11,844 15,921
Equipment and Leasehold Improvements:
Computer hardware and software 3,576 3,406
Office equipment 2,247 2,194
Leasehold improvements 809 780
------- -------
6,632 6,380
Less accumulated depreciation 2,393 2,138
------- -------
Total Equipment and
Leasehold Improvements 4,239 4,242
Other Assets:
Capitalized software development costs 18 36
------- -------
Total Other Assets 18 36
------- -------
Total Assets $16,101 $20,199
======= =======
</TABLE>
See accompanying notes
<PAGE> 4
<TABLE>
<CAPTION>
CATALYST INTERNATIONAL, INC.
Balance Sheets
(in thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, Dec. 31,
1997 1996
(unaudited)
<S> <C> <C>
Current Liabilities:
Accounts payable $ 636 $ 1,044
Accrued liabilities 669 1,023
Reserve for restructuring and
severance costs 318 597
Deferred software license fees 44 13
Deferred services and maintenance 1,939 1,663
Redemption price of common stock - 1,073
Current portion of long-term debt 52 51
------- -------
Total Current Liabilities 3,658 5,464
Noncurrent Liabilities:
Long-term debt 118 132
Deferred services and maintenance 94 132
Deferred rent 319 324
------ -------
Total Non-Current Liabilities 531 588
------ -------
Total Liabilities 4,189 6,052
Stockholders' Equity:
Common stock, $.10 Par Value;
25,000,000 shares authorized;
shares issued: 8,587,654 in 1997
and 8,501,217 in 1996 859 850
Additional paid-in capital 31,087 31,075
Accumulated deficit (10,982) (8,726)
Treasury stock, at cost: 1,966,090 shares
of common stock in 1997 and 1,740,145
shares in 1996 (9,052) (7,979)
Common stock to be redeemed for
treasury stock - (1,073)
------- -------
Total Stockholders' Equity 11,912 14,147
------- -------
Total Liabilities and Stockholders' Equity $16,101 $20,199
======= =======
</TABLE>
See accompanying notes
<PAGE> 5
<TABLE>
<CAPTION>
CATALYST INTERNATIONAL, INC.
Statements of Operations
(in thousands, except per share amounts)
(unaudited)
Three Months Ended
March 31,
------------------
1997 1996
---- ----
<S> <C> <C>
Revenues:
Software license fees $ 1,297 $ 3,258
Services and maintenance 2,825 3,161
Hardware and other - 1
------ ------
Total Revenues 4,122 6,420
Operating Expenses:
Cost of license fees 97 84
Cost of services and maintenance 2,896 2,894
Product development 943 954
Sales and marketing 1,249 1,199
General and administrative 1,267 570
------ ------
Total Operating Expenses 6,452 5,701
------ ------
Income (loss) from operations (2,330) 719
Other income 74 252
------ ------
Income (loss) before provision
for income taxes (2,256) 971
Provision for income taxes - 240
------ ------
Net income (loss) $(2,256) 731
====== ======
Net income (loss) per share $ (0.34) $ 0.09
Shares used in computing net income
(loss) per share 6,591 8,438
</TABLE>
See accompanying notes
<PAGE> 6
<TABLE>
<CAPTION>
CATALYST INTERNATIONAL, INC.
Statements of Cash Flows
(in thousands)
(unaudited)
Three months ended
March 31,
------------------
1997 1996
---- ----
<S> <C> <C>
Operating Activities:
Net income (loss) $(2,256) $ 731
Adjustments to reconcile net income (loss) to net
cash used by operating activities:
Depreciation and amortization 275 98
Compensation expense on stock options - 7
Changes in operating assets and liabilities:
Accounts receivable 213 (2,152)
Prepaid expenses (18) (42)
Accounts payable (408) 303
Deferred services and maintenance 237 (68)
Restructuring costs (279) -
Deferred rent (5) (5)
Deferred software license fees 31 (177)
Income taxes (3) 232
Accrued liabilities (354) 101
------- -------
Total adjustments (311) (1,703)
Net cash used in operating activities (2,567) (972)
Investing Activities:
Purchase of equipment and leasehold improvements (253) (642)
------- -------
Net cash used in investing activities (253) (642)
Financing Activities:
Payments on long-term debt (13) (33)
Expenses related to initial public offering - (85)
Proceeds from stock options exercised 21 1
Purchase of treasury stock (1,073) -
------- -------
Net cash used in financing activities (1,065) (117)
------- -------
Net decrease in cash (3,885) (1,731)
Cash and cash equivalents at the beginning of period 9,321 23,613
------- -------
Cash and cash equivalents at the end of the period $ 5,436 $21,882
======= =======
</TABLE>
See accompanying notes
<PAGE> 7
CATALYST INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
(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. Certain amounts in the 1996 financial statements have
been reclassified to conform to the 1997 presentation. Operating
results for the three month period ended March 31, 1997 are not
necessarily indicative of the results that may be expected for
the year ended December 31, 1997. 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, 1996.
2. Net Income (Loss) Per Share of Common Stock
Net income (loss) per share of common stock is computed based on
the weighted average number of shares of common stock outstanding
for each period presented. Net income (loss) per share of common
stock also includes the dilutive effect of stock options
calculated using the "treasury stock method."
<PAGE> 8
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion contains statements identified as "the
Company expects" or "the Company believes" or otherwise stated as
the Company's predictions for the future, which are forward-
looking statements and which involve certain risk factors. The
Company's actual results may differ materially from the results
discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those
herein identified, those discussed in the Company's Registration
Statement on Form SB-2, filed with the SEC and other factors
identified from time to time as risks in the Company's reports
filed with the SEC.
Total Revenues
The Company's total revenues for the first quarter of 1997 were
$4.1 million, which represented a decrease of 36% over first
quarter 1996 total revenues of $6.4 million. The decrease in
total revenues for the three month period is due, in part, to the
conclusion of the revenue stream from the larger than usual
number of implementations which occurred in the first quarter of
1997 and were not completely replaced with license fee revenue
from new sales.
International revenues were $1.1 million in the first quarter of
1997, which represented a decrease of 15.4% over first quarter
1996 international revenues of $1.3 million. International
revenues represented 26.9% of total revenues for the first
quarter of 1997 compared to 19.7% in the same period of 1996. The
decrease in international revenues from 1996 to 1997 is due to
fewer new international sales in the first quarter of 1997
compared to 1996; the increase in international revenues as a
percentage of total year to date revenues is due, in general, to
the lower revenues experienced in the US during the quarter.
Software License Fees
The first quarter of 1997 software license fee revenues of $1.3
million represented a decrease of 60.2% from the first quarter of
1996 software license fee revenues of $3.3 million, attributable
to decreased license fee revenues for Catalyst WMS in the first
quarter of 1997. Based on the large number of implementations in
the first quarter ended March 31, 1997 the Company believes that
Release 6.0 was well received in the marketplace; in addition,
based on sales of Release 7.0 in the first quarter, the Company
believes that Catalyst WMS Release 7.0 was well received in the
market.
<PAGE> 9
Services and Maintenance
Services and maintenance revenues decreased 10.6% to $2.8 million
in the first quarter of 1997, down from $3.2 million in the first
quarter of 1996. The components of services and maintenance
revenues as a percentage of total revenues in the first quarter
of 1997 were 17.1% for software modifications, 33.1% for
professional services and 18.3% for maintenance agreements
compared with 21.1%, 18.4% and 9.7%, respectively, in the first
quarter of 1996. Services and maintenance revenues decreased in
the first quarter due to the decreased number of modifications
required by new customers, the combined effect of an increased
number of Catalyst WMS implementations, rollouts of additional
sites on corporate licenses and 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 first quarter of either 1997
or 1996. The Company has no immediate plans to resell hardware
but may consider doing so in future periods to meet changing
customer demand.
Cost of Software License Fees
In the first quarter of 1997 cost of software license fees
increased 15.5% to $97,000 in 1997 from $84,000 in the same
period of 1996. The Company continues to expense all software
development costs as product development expenditures as
incurred. This may change in future periods in the event that
the Company changes to a point release development philosophy,
which could lead to the lengthening of the period of time between
major releases of Catalyst WMS.
Cost of Services and Maintenance
There was no material change in cost of services and maintenance,
which was $2.9 million for each of the first quarters of 1997 and
1996. The cost of services and maintenance stayed relatively
constant notwithstanding the fact that the number of employees
has grown. There were 165 employees in services and maintenance
at March 31, 1997 compared to 150 employees at March 31, 1996.
<PAGE> 10
Product Development
Product development expenses as a percentage of total revenues
for the first quarter of 1997 increased to 22.9% from 14.9% in
the first quarter of 1996. Actual product development expenses
were $943,000 in the first quarter of 1997 compared to $954,000
in the first quarter of 1996, representing a decrease of 1.2%.
The decrease in product development costs is primarily due to the
reorganization which occurred in the first quarter of 1997, the
effects of which may also be seen in future periods. The product
development staff consisted of 55 employees at March 31, 1997 and
March 31, 1996.
Sales and Marketing
Sales and marketing expenses as a percentage of total revenues
for the first quarter of 1997 increased to 30.3% from 18.7% in
the first quarter of 1996. Actual sales and marketing expenses
remained consistent at $1.2 million in the first quarters of 1997
and 1996. The increase in sales and marketing expenses as a
percentage of total revenues in the first quarter of 1997 is due
to an increase in international sales and marketing efforts
resulting from the addition of sales and marketing employees in
the UK and the establishment of sales offices in Brazil and
France. There were 28 and 23 sales and marketing employees at
March 31, 1997 and March 31, 1996, respectively.
General and Administrative
General and administrative expenses as a percentage of total
revenues for the first quarter of 1997 increased to 30.7% from
8.9% in the first quarter of 1996. Actual general and
administrative expenses increased 122.3% to $1.3 million in the
first quarter of 1997 from $570,000 in the first quarter of 1996.
There were 26 and 20 employees in general and administrative
roles at March 31, 1997 and March 31, 1996, respectively. The
increase in general and administrative expenses is due to
enhancement of the Company's infrastructure, accomplished in
fiscal 1996, the reorganization which occurred in the first
quarter of 1997 and a change in department classifications which
resulted in the reflection of internal Information Technology
expenses as well as all executive officer salary expenses in
General and Administrative expenses.
<PAGE> 11
Other Income and Expense
Interest income for the first quarter of 1997 was $78,000, offset
by $4,000 of interest and other expenses compared to $261,000 of
interest income offset by $9,000 of interest and other expenses
in the first quarter of 1996. The decrease in interest income
was due to lower cash levels in the first quarter of 1997 as the
Company's operating cash needs increased. Interest income was
higher in the first quarter of 1996 as a result of the investment
of the proceeds from the Company's initial public offering in
November 1995.
Income Tax Expense
No Federal and state tax expense was recorded for the quarter
ended March 31, 1997 due to the Company's federal and state net
operating loss position. No deferred tax expense has been
recorded in the quarter ended March 31, 1997 as the Company
continues to record a valuation allowance to reserve for the net
deferred tax assets.
Liquidity and Capital Resources
Net cash used in operating activities was $2.6 million for the
three months ended March 31, 1997, compared to $972,000 for the
three months ended March 31, 1996. The increase in net cash used
by operations in the first three months of 1997 from the first
three months of 1996 is due primarily to the net loss incurred
for the quarter ended March 31, 1997.
The decrease in cash used for investing activities from $642,000
during the three months ended March 31, 1996 to $253,000 during
the three months ended March 31, 1997 was due to decreased
equipment and leasehold improvement purchases.
Financing activities used cash of $1.1 million in the first three
months of 1997 compared to $117,000 in the first three months of
1996. The increase in cash used for financing activities is due
to the repurchase of approximately 226,000 shares of the
Company's common stock from the Company's former president and
chief executive officer for $1.1 million.
<PAGE> 12
As of March 31, 1997, the Company had $5.4 million in cash, cash
equivalents and short-term investments, which consist primarily
of money market funds and commercial paper. 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 March
31, 1997, 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.
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 first quarter of
1997.
<PAGE> 13
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: May 14, 1997 By: /s/ Sean P. McGowan
-------------------------
Sean P. McGowan
President and Chief Operating
Officer
Signing on behalf of the
registrant and as principal
executive officer.
Dated: May 14, 1997 By: /s/ Sean P. McGowan
-------------------------
Sean P. McGowan
President and Chief Operating
Officer
Signing on behalf of the
registrant and as acting
principal financial officer.
<PAGE> 14
Exhibit 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(amounts in thousands, except per share amounts)
Three months ended
March 31,
------------------
1997 1996
---- ----
Average shares outstanding 6,591 8,124
Net effect of conversion of
options and warrants (a) -(b) 314
----- -----
Total 6,591 8,438
===== =====
Net income (loss) ($2,256) $ 731
===== =====
Net income (loss) per share ($ 0.34) $ 0.09
===== =====
- -----------------------
(a) Computed using the "treasury stock" method.
(b) Common stock equivalents and other potentially dilutive
securities were anti-dilutive in this period.
<PAGE> 15
Exhibit 27
ARTICLE 5 FINANCIAL DATA SCHEDULE
(amounts in thousands, except per share amounts)
Period type 3 mos.
Fiscal year end December 31, 1996
Period end March 31, 1997
Cash $ 5,436
Receivables 5,766
Allowances 399
Inventory -
Current assets 11,844
PP&E 6,633
Depreciation 2,393
Total assets 16,101
Current liabilities 3,658
Bonds -
Preferred mandatory -
Preferred -
Common 859
Other SE 11,053
Total liability and equity 16,101
Sales 4,123
Total revenues 4,123
CGS 1,129
Total costs 6,451
Other expenses (74)
Loss provision -
Interest expense 4
Income pretax (2,256)
Income tax -
Income continuing (2,256)
Discontinued -
Extraordinary -
Changes -
Net income (2,256)
EPS primary (0.34)
EPS diluted -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 5436
<SECURITIES> 6621
<RECEIVABLES> 5766
<ALLOWANCES> 399
<INVENTORY> 0
<CURRENT-ASSETS> 11844
<PP&E> 6633
<DEPRECIATION> 2393
<TOTAL-ASSETS> 16101
<CURRENT-LIABILITIES> 3658
<BONDS> 0
0
0
<COMMON> 859
<OTHER-SE> 11053
<TOTAL-LIABILITY-AND-EQUITY> 16101
<SALES> 4123
<TOTAL-REVENUES> 4123
<CGS> 1129
<TOTAL-COSTS> 6451
<OTHER-EXPENSES> (74)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> (2256)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2256)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2256)
<EPS-PRIMARY> (0.34)
<EPS-DILUTED> (0.11)
</TABLE>
