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, 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 June 30, 1997, 6,637,956 shares of the issuer's common
stock were outstanding.
This report contains 15 pages. There are 3 exhibits.
<PAGE>
Page 2
CATALYST INTERNATIONAL, INC.
FORM 10-QSB
INDEX
Page No.
PART I. Financial Information
Item 1. Financial Statements:
Balance Sheets - June 30, 1997
and December 31, 1996 . . . . . . . . . . . 3
Statements of Operations - Three months
ended June 30, 1997 and 1996 . . . . . . . . 5
Statements of Operations - Six months
ended June 30, 1997 and 1996 . . . . . . . . 6
Statements of Cash Flows - Six months
ended June 30, 1997 and 1996 . . . . . . . . 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 . . . . . . . 14
Signatures . . . . . . . . . . . . . . . . . . 15
<PAGE>
Page 3
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
<TABLE>
<CAPTION>
CATALYST INTERNATIONAL, INC.
Balance Sheets
(in thousands)
ASSETS
June 30, Dec. 31,
1997 1996
(unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 5,155 $ 9,321
Accounts receivable 6,739 5,979
Prepaid and other assets 401 621
------- -------
Total Current Assets 12,295 15,921
Equipment and Leasehold Improvements:
Computer hardware and software 3,774 3,406
Office equipment 2,262 2,194
Leasehold improvements 861 780
------- -------
6,897 6,380
Less accumulated depreciation 2,662 2,138
------- -------
Total Equipment and
Leasehold Improvements 4,235 4,242
Other Assets:
Capitalized software development costs - 36
------- -------
Total Other Assets - 36
------- -------
Total Assets $16,530 $20,199
======= =======
</TABLE>
See accompanying notes
<PAGE>
Page 4
<TABLE>
<CAPTION>
CATALYST INTERNATIONAL, INC.
Balance Sheets
(in thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, Dec. 31,
1997 1996
(unaudited)
<S> <C> <C>
Current Liabilities:
Accounts payable $ 788 $ 1,044
Accrued liabilities 967 1,023
Reserve for restructuring and
severance costs 156 597
Deferred software license fees 183 13
Deferred services and maintenance 2,977 1,663
Redemption price of common stock - 1,073
Current portion of long-term debt 53 51
------- -------
Total Current Liabilities 5,124 5,464
Noncurrent Liabilities:
Long-term debt 104 132
Deferred services and maintenance 514 132
Deferred rent 314 324
------ -------
Total Non-Current Liabilities 932 588
------ -------
Total Liabilities 6,056 6,052
Stockholders' Equity:
Common stock, $.10 par value;
25,000,000 shares authorized;
shares issued: 8,604,046 in 1997
and 8,501,217 in 1996 860 850
Additional paid-in capital 31,102 31,075
Accumulated deficit (12,436) (8,726)
Treasury stock, at cost: 1,966,090 shares
of common stock in 1997 and 600,632
shares in 1996 (9,052) (7,979)
Common stock to be redeemed for
treasury - (1,073)
------- -------
Total Stockholders' Equity 10,474 14,147
------- -------
Total Liabilities and Stockholders' Equity $16,530 $20,199
======= =======
</TABLE>
See accompanying notes
<PAGE>
Page 5
<TABLE>
<CAPTION>
CATALYST INTERNATIONAL, INC.
Statements of Operations
(in thousands, except per share amounts)
(unaudited)
Three Months Ended
June 30,
------------------
1997 1996
---- ----
<S> <C> <C>
Revenues:
Software license fees $ 1,812 $ 2,603
Services and maintenance 3,169 3,474
Hardware and other 52 110
------ ------
Total Revenues 5,033 6,187
Operating Expenses:
Cost of license fees 188 33
Cost of services and maintenance 3,363 3,059
Product development 615 1,051
Sales and marketing 1,371 1,288
General and administrative 1,004 665
Write-off of purchased research
and development - 2,002
------ ------
Total Operating Expenses 6,541 8,098
------ ------
Loss from operations (1,508) (1,911)
Other income 54 243
------ ------
Net loss $(1,454) (1,668)
====== ======
Net loss per share $ (0.22) $ (0.20)
Shares used in computing net loss
per share 6,633 8,519
</TABLE>
See accompanying notes
<PAGE>
Page 6
<TABLE>
<CAPTION>
CATALYST INTERNATIONAL, INC.
Statements of Operations
(in thousands, except per share amounts)
(unaudited)
Six Months Ended
June 30,
------------------
1997 1996
---- ----
<S> <C> <C>
Revenues:
Software license fees $ 3,045 $ 5,861
Services and maintenance 5,994 6,635
Hardware and other 116 111
------ ------
Total Revenues 9,155 12,607
Operating Expenses:
Cost of license fees 285 117
Cost of services and maintenance 6,259 5,953
Product development 1,557 2,005
Sales and marketing 2,619 2,487
General and administrative 2,272 1,235
Write-off of purchased research
and development - 2,002
------ ------
Total Operating Expenses 12,992 13,799
------ ------
Loss from operations (3,837) (1,192)
Other income 128 495
------ ------
Loss before provision for income taxes (3,709) (697)
Provision for income taxes - 240
------ ------
Net loss $(3,709) (937)
====== ======
Net loss per share $ (0.56) $ (0.11)
Shares used in computing net loss
per share 6,612 8,480
</TABLE>
See accompanying notes
<PAGE>
Page 7
<TABLE>
<CAPTION>
CATALYST INTERNATIONAL, INC.
Statements of Cash Flows
(in thousands)
(unaudited)
Six months ended
June 30,
------------------
1997 1996
---- ----
<S> <C> <C>
Operating Activities:
Net loss $(3,709) $ (937)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 572 326
Compensation expense on stock options - 7
Write-off of purchased research and development - 2,002
Gain on disposal of equipment (12) -
Changes in operating assets and liabilities:
Accounts receivable (760) (1,342)
Prepaid expenses (52) (37)
Accounts payable (256) (259)
Deferred services and maintenance 1,696 132
Restructuring costs (441) -
Deferred rent (10) (10)
Deferred software license fees 170 (690)
Income taxes 272 133
Accrued liabilities (56) (301)
------- -------
Total adjustments 1,123 (39)
Net cash used in operating activities (2,586) (976)
Investing Activities:
Purchase of equipment and leasehold improvements (517) (1,119)
Purchase of Information Strategies, Inc. - (1,500)
------- -------
Net cash used in investing activities (517) (2,619)
Financing Activities:
Payments on long-term debt (26) (381)
Expenses related to initial public offering - (83)
Proceeds from stock options exercised 36 3
Purchase of treasury stock (1,073) 7
------- -------
Net cash used in financing activities (1,063) (455)
------- -------
Net decrease in cash (4,166) (4,050)
Cash and cash equivalents at beginning of period 9,321 23,613
------- -------
Cash and cash equivalents at end of period $ 5,155 $19,563
======= =======
</TABLE>
See accompanying notes
<PAGE>
Page 8
CATALYST INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 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 and June 30, 1997
financial statements have been reclassified to conform to the
1997 presentation. Operating results for the six month period
ended June 30, 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 Loss Per Share of Common Stock
Net 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 loss per share of common stock
is calculated using the "treasury stock method."
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-
<PAGE>
Page 9
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 second quarter of 1997 were
$5.0 million, which represented a decrease of 18.7% over second
quarter 1996 total revenues of $6.2 million. For the first six
months of 1997, total revenues were $9.2 million, or a decrease
of 27.4%, over 1996 total revenues of $12.6 million for the same
period. Revenues for the second quarter of 1997 increased over
the first quarter of 1997 revenues of $4.1 million by 22.1%, or
$911,000 due to new business in the quarter, increased focus on
third party software sales, and increased modifications revenues.
International revenues were $889,000 in the second quarter of
1997, which represented a decrease of 13.9% over second quarter
1996 international revenues of $1.0 million. International
revenues represented 17.7% of total revenues for the second
quarter of 1997 compared to 16.7% in the same period of 1996. The
decrease in international revenues from 1996 to 1997 is due to
fewer new international sales in the second quarter of 1997
compared to 1996.
Software License Fees
The second quarter of 1997 software license fee revenues of $1.8
million represented a decrease of 30.4% from the second quarter
of 1996 software license fee revenues of $2.6 million. Second
quarter of 1997 license fee revenue increased by 39.7% over the
first quarter of 1997 license fee revenues of $1.3 million.
Services and Maintenance
Services and maintenance revenues decreased 8.8% to $3.2 million
<PAGE>
Page 10
in the second quarter of 1997, down from $3.5 million in the
second quarter of 1996. The components of services and
maintenance revenues as a percentage of total services and
maintenance revenues in the second quarter of 1997 were 34.5% for
software modifications, 38.3% for professional services and 27.2%
for maintenance agreements compared with 50.2%, 31.2% and 18.6%,
respectively, in the second quarter of 1996. Second quarter
services and maintenance revenues increased over the first
quarter of 1997 of$2.8 million by 12.2%, or $344,000. The
Company believes that the increase in professional services and
maintenance revenue as a percentage of total services and
maintenance revenues is attributable to the large number of
implementations of the Catalyst WMS in the second quarter. The
decrease in modification revenues as a percentage of total
services and maintenance revenues is due to fewer modifications
to the Catalyst WMS performed during second quarter of 1997
versus 1996. The Company expects this trend to continue as
future sales lead to implementations of the Catalyst WMS with
fewer modifications.
Hardware and Other
Hardware and other revenues have not been a material percentage
of total revenues in recent periods; however, this may change in
future periods due to the Company's decision to sell selected
hardware items later this year to meet certain customers' demand
for a "turn key" solution. The Company does not expect to
inventory hardware but, rather, expects to sell hardware on a
commission-only basis when margins so warrant.
Cost of Software License Fees
In the second quarter of 1997, cost of software license fees
increased by over 450% to $188,000 from $33,000 in the same
period of 1996. Year to date cost of software license fees
increased 143.6% from $117,000 in 1996 to $285,000 in 1997.
This increase in cost of software license fees results
from the Company's increased focus on sales of third party
database software. The Company expects this cost to remain
relatively consistent in future periods.
<PAGE>
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Cost of Services and Maintenance
Cost of services and maintenance increased by $304,000, or 9.9%,
in the second quarter of 1997 compared to the second quarter of
1996. Part of that increase resulted from a $100,000 accrual for
estimated future project costs, a new accoutning practice in the
second quarter of 1997. Without this accrual, cost of services
and maintenance for the second quarter of 1997 would have been
$3.3 million, an increase of 6.7% over the same period of 1996.
Year to date cost of services and maintenance increased 5.1%, or
$306,000, to $6.3 million in 1997, from $6.0 million for the same
period of 1996. There were 166 employees in services and
maintenance at June 30, 1997 compared to 170 employees at June
30, 1996.
Product Development
Product development expenses as a percentage of total revenues
for the second quarter of 1997 decreased to 12.2% from 17.0% in
the second quarter of 1996. Actual product development expenses
were $615,000 in the second quarter of 1997 compared to $1.1
million in the second quarter of 1996, representing a decrease of
41.5%. The decrease in product development costs is due to a
smaller product development staff, resulting from the
reorganization which occurred in the first quarter of 1997; this
may change in future periods as the Company continues to examine
its operations.
The Company continues to expense all software development costs
as product development expenditures as incurred; however, the
Company expects that this may change in future periods. In past
years, the Company produced new releases of Catalyst WMS on an
annual basis; the Company is presently transitioning to a point
release development philosophy, which could lengthen the
release cycle of Catalyst WMS and require the Company to
capitalize development costs in future periods. The product
development staff consisted of 30 employees at June 30, 1997 and
52 employees at June 30, 1996.
Sales and Marketing
Sales and marketing expenses as a percentage of total revenues
for the second quarter of 1997 increased to 27.2% from 20.8% in
<PAGE>
Page 12
the second quarter of 1996. Actual sales and marketing expenses
were $1.4 million for the second quarter of 1997 and $1.3 million
for the second quarter of 1996. The increase in sales and
marketing expenses as a percentage of total revenues in the
second quarter of 1997 is due to lower revenues in the current
quarter. There were 33 and 32 sales and marketing employees at
June 30, 1997 and June 30, 1996, respectively.
General and Administrative
General and administrative expenses as a percentage of total
revenues for the second quarter of 1997 increased to 19.9% from
10.7% in the second quarter of 1996. Actual general and
administrative expenses increased 50.9% to $1.0 million in the
second quarter of 1997 from $665,000 in the second quarter of
1996. Included in general and administrative expenses is
$200,000 attributable to a reserve for doubtful accounts and
$67,000 attributable to one-time miscellaneous charges. Without
these charges, second quarter 1997 general and administrative
expenses would have been $737,000, or a 10.8% increase over the
same period of 1996 expenses of $665,000. There were 21 and 19
employees in general and administrative roles at June 30, 1997
and June 30, 1996, respectively.
Other Income and Expense
Interest income for the second quarter of 1997 was $62,000,
offset by $8,000 of interest and other expenses compared to
$290,000 of interest income offset by $47,000 of interest and
other expenses in the second quarter of 1996. The decrease in
interest income was due to lower cash levels in the second
quarter of 1997 compared to the second quarter of 1996; the
reduction in cash levels year over year is due, in part, to the
repurchase by the Company of its stock during teh year to year
to year period, teh cost of which exceeded $8.75 million.
Income Tax Expense
No federal or state tax expense was recorded for the quarter or
six month period ended June 30, 1997 due to the Company's federal
and state net operating loss position. No deferred tax expense
has been recorded in the quarter or six month period ended June
30, 1997 as the Company continues to record a valuation allowance
to reserve in full for the net deferred tax assets.
<PAGE>
Page 13
Liquidity and Capital Resources
The Company experienced a net decrease in cash and cash
equivalents of $4.2 million in the first half of 1997 compared to
a net decrease of $4.1 million for the same period of 1996. In
1997, cash of $1.1 million was used to repurchase approximately
226,000 shares of the Company's common stock from its former
president and chief executive officer.
Cash and cash equivalents at the end of the second quarter of
1997 were $5.2 million, compared to $5.4 million at the end of
the first quarter of 1997.
The $5.2 million in cash and cash equivalents at June 30, 1997
included short-term investments, which consisted primarily of
money market funds and commercial paper with maturities of less
than three months. 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, 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, 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>
Page 14
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 second quarter of
1997.
<PAGE>
Page 15
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 __, 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: August __, 1997 By: /s/ Thomas G. Hickinbotham
--------------------------
Thomas G. Hickinbotham
Vice President Finance and
Administration, 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
June 30,
------------------
1997 1996
---- ----
Average shares outstanding 6,633 8,152
Net effect of conversion of
options and warrants (a) - 367
----- -----
Total 6,633 8,519
===== =====
Net loss ($1,454) ($1,668)
===== =====
Net loss per share ($ 0.22) ($ 0.20)
===== =====
- - -----------------------
(a) Computed using the "treasury stock" method.
<PAGE>
Exhibit 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(amounts in thousands, except per share amounts)
Six months ended
June 30,
------------------
1997 1996
---- ----
Average shares outstanding 6,612 8,138
Net effect of conversion of
options and warrants (a) - 342
----- -----
Total 6,612 8,480
===== =====
Net loss ($3,709) ($ 937)
===== =====
Net loss per share ($ 0.56) ($ 0.11)
===== =====
- - -----------------------
(a) Computed using the "treasury stock" method.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 5155
<SECURITIES> 0
<RECEIVABLES> 7143
<ALLOWANCES> 404
<INVENTORY> 0
<CURRENT-ASSETS> 12295
<PP&E> 6897
<DEPRECIATION> 2662
<TOTAL-ASSETS> 16530
<CURRENT-LIABILITIES> 5124
<BONDS> 0
0
0
<COMMON> 860
<OTHER-SE> 31102
<TOTAL-LIABILITY-AND-EQUITY> 16530
<SALES> 9155
<TOTAL-REVENUES> 9155
<CGS> 8101
<TOTAL-COSTS> 12992
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> (3709)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3709)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3709)
<EPS-PRIMARY> (0.56)
<EPS-DILUTED> 0
</TABLE>
