United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 September 30, 1997, 6,647,341 shares of the issuer's common
stock were outstanding.
This report contains 16 pages. There are 2 exhibits.
<PAGE>
Page 2
CATALYST INTERNATIONAL, INC.
FORM 10-QSB
INDEX
Page No.
PART I. Financial Information
Item 1. Financial Statements:
Balance Sheets - September 30, 1997 and
December 31, 1996 ............................ 3
Statements of Operations - Three months
ended September 30, 1997 and 1996 ............ 5
Statements of Operations - Nine months
ended September 30, 1997 and 1996 ............ 6
Statements of Cash Flows - Nine months
ended September 30, 1997 and 1996 ........... 7
Notes to Financial Statements................... 8
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 ............... 15
Signatures ..................................... 16
<PAGE>
Page 3
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
<TABLE>
<CAPTION>
CATALYST INTERNATIONAL, INC.
Balance Sheets
(in thousands)
ASSETS
Sept. 30, Dec. 31,
1997 1996
(unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 4,501 $ 9,321
Accounts receivable 7,666 5,979
Software revenues in excess of billings 134 -
Prepaid and other assets 469 621
------- -------
Total Current Assets 12,770 15,921
Equipment and Leasehold Improvements:
Computer hardware and software 3,972 3,406
Office equipment 2,264 2,194
Leasehold improvements 861 780
------- -------
7,097 6,380
Less accumulated depreciation 2,931 2,138
------- -------
Total Equipment and
Leasehold Improvements 4,166 4,242
Other Assets:
Capitalized software development costs - 36
------- -------
Total Other Assets - 36
------- -------
Total Assets $16,936 $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
Sept. 30, Dec. 31,
1997 1996
(unaudited)
<S> <C> <C>
Current Liabilities:
Accounts payable $ 961 $ 1,044
Accrued liabilities 1,619 1,023
Reserve for restructuring and
Severance costs 115 597
Deferred software license fees - 13
Deferred services and maintenance 3,672 1,663
Redemption price of common stock - 1,073
Current portion of long-term debt 60 51
------ -------
Total Current Liabilities 6,427 5,464
Noncurrent Liabilities:
Long-term debt 151 132
Deferred service and maintenance 196 132
Deferred rent 310 324
------ -------
Total Non-Current Liabilities 657 588
------ -------
Total Liabilities 7,084 6,052
Stockholders' Equity:
Common stock, $.10 Par Value;
25,000,000 shares authorized; 861 850
shares issued: 8,613,431 in 1997
and 8,501,217 in 1996
Additional paid-in capital 31,116 31,075
Accumulated deficit (13,073) (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 Stockholder's Equity 9,852 14,147
------- -------
Total Liabilities and Stockholder's Equity $16,936 $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
September 30,
1997 1996
<S> <C> <C>
Revenues:
Software license fees $1,775 $1,309
Services and maintenance 4,118 3,374
Hardware and other 259 -
------ ------
Total Revenues 6,152 4,683
Operating Expenses:
Cost of license fees 5 73
Cost of services and maintenance 3,700 2,862
Cost of hardware and other 230 -
Product development 568 1,114
Sales and marketing 1,405 1,204
General and administrative 933 1,131
------ ------
Total Operating Expenses 6,841 6,384
------ ------
Loss from operations (689) (1,701)
Other income 52 223
------ ------
Loss before provision for income taxes (637) (1,478)
Benefit from income taxes - (240)
------ ------
Net loss $ (637) ($1,238)
====== ======
Net loss per share $(0.10) $(0.15)
Shares used in computing net loss
per share 6,644 8,119
</TABLE>
See accompanying notes
<PAGE>
Page 6
<TABLE>
<CAPTION>
CATALYST INTERNATIONAL, INC.
Statements of Operations
(in thousands, except per share amounts)
(unaudited)
Nine Months Ended
September 30,
1997 1996
<S> <C> <C>
Revenues:
Software license fees $ 4,819 $ 7,170
Services and maintenance 10,112 10,009
Hardware and other 375 111
------ ------
Total Revenues 15,306 17,290
Operating Expenses:
Cost of license fees 290 190
Cost of services and maintenance 9,959 8,815
Cost of hardware and other 230 -
Product development 2,125 3,119
Sales and marketing 4,024 3,691
General and administrative 3,204 2,366
Write-off of purchased research
and development - 2,002
------ ------
Total Operating Expenses 19,832 20,183
------ ------
Loss from operations (4,526) (2,893)
Other income 180 717
------ ------
Net loss $(4,346) $(2,176)
====== ======
Net loss per share $ (0.66) $ (0.27)
Shares used in computing net loss per share 6,623 8,132
</TABLE>
See accompanying notes
<PAGE>
Page 7
<TABLE>
<CAPTION>
CATALYST INTERNATIONAL, INC.
Statements of Cash Flows
(in thousands)
(unaudited)
Nine months ended
September 30,
1997 1996
<S> <C> <C>
Operating Activities:
Net loss ($4,346) ($2,176)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 851 652
Compensation expense on stock options 33 22
Write-off of purchased research and development - 2,002
Loss on disposal of equipment (21) -
Changes in operating assets and liabilities:
Accounts receivable (1,687) (1,426)
Prepaid and other expenses 151 (222)
Accounts payable (54) (556)
Accrued liabilities 596 (161)
Deferred services and maintenance 2,073 (692)
Deferred software license fees (147) (271)
Deferred rent (14) (15)
Restructuring costs (482) -
------ ------
Total adjustments 1,299 (667)
Net cash used in operating activities (3,047) (2,843)
Investing Activities:
Purchase of equipment and leasehold improvements (717) (1,527)
Purchase of Information Strategies, Inc. - (1,499)
------ -------
Net cash used in investing activities (717) (3,026)
Financing Activities:
Payments on long-term debt (1) (389)
Expenses related to initial public offering - (83)
Proceeds from stock options exercised 18 7
Purchase of treasury stock (1,073) (679)
------ -------
Net cash used in financing activities (1,056) (1,144)
------ -------
Net decrease in cash (4,820) (7,013)
Cash and cash equivalents at the beginning of period 9,321 23,613
------ -------
Cash and cash equivalents at the end of the period $4,501 $16,600
====== =======
</TABLE>
See accompanying notes
<PAGE>
Page 8
CATALYST INTERNATIONAL, INC.
Notes To Financial Statements
September 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 financial statements have been reclassified to conform with
the 1997 presentation. Operating results for the three month and
nine month periods ended September 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.
Item 2. Management's Discussion and Analysis or Plan of Operation
The following discussion contains statements which are qualified
by the phrases "the Company expects" or "the Company believes" or
which are otherwise stated as the Company's predictions for the
future. The Company's actual results may differ materially from
the results discussed in these forward-looking statements and are
<PAGE>
Page 9
based on many factors outside the Company's control. 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 third quarter of 1997 were
$6.2 million, which represented an increase of 31.4% over third
quarter 1996 total revenues of $4.7 million. For the first nine
months of 1997, total revenues were $15.3 million, representing a
decrease of 11.5% over 1996 total revenues of $17.3 million for
the same period. The increase in total revenues for the third
quarter is due, in part, to increased software license fee
revenue, renewed focus on third party hardware and software
sales, and renewals of maintenance agreements. The decrease in
revenues for the comparative nine month period is due to the
inclusion in 1996 of several "corporate-wide" licenses, on which
all license revenue was recognized immediately. Since no
"corporate-wide" licenses have been sold in 1997, there is no
revenue of this nature in the 1997 period.
International revenues were $887,000 in the third quarter of 1997
and $1.3 million in the third quarter of 1996 and represented
14.4% of total revenues for the third quarter of 1997 compared to
27.8% in the same period of 1996. Total international revenues
were $2.9 million and $3.6 million for the first nine months of
1997 and 1996, respectively. For the first nine months of 1997,
international revenues represented 18.9% of total revenues as
compared to 20.8% for the first nine months of 1996. This
decrease in international revenues as a percentage of total year
to date revenues is due, in general, to a decrease in
international license fee and modifications revenue caused in
part by project delays because of the uncertainty over certain
European elections this year as well as the European monetary
union.
<PAGE>
Page 10
Software License Fees
The third quarter of 1997 software license fee revenues of $1.8
million represented an increase of 35.6% over the third quarter
of 1996 software license fee revenues of $1.3 million. For the
first nine months of 1997, total software license fee revenues
were $4.8 million, a decrease of 32.8% compared to 1996 software
license revenues of $7.2 million for the same period. This was
due to no sales of "corporate-wide" licenses, plus a lengthening
of the implementation cycle. The Company began installing WMS
Release 7.0 during the third quarter of 1997 and believes that
the success level of the five installations completed in the
quarter indicated that the Company has a strong and stable new
product that should add directly to future license revenues.
Services and Maintenance
Services and maintenance revenues increased 22.1% to $4.1 million
in the third quarter of 1997, up from $3.4 million in the third
quarter of 1996. The components of services and maintenance
revenues as a percentage of total revenues in the third quarter
of 1997 were 27.5% for software modifications, 22.1% for
professional services and 17.4% for maintenance agreements
compared with 36.2%, 21.0% and 14.9%, respectively, in the third
quarter of 1996. For the first nine months of 1997, total
services and maintenance revenues were $10.1 million,
representing a 1.0% increase over the first nine months of 1996
service and maintenance revenues of $10.0 million. Services and
maintenance revenues increased in the third quarter and year to
date periods due primarily to implementations of the Catalyst WMS
and renewals of maintenance agreements.
Hardware and Other
Total hardware and other revenue for the third quarter were
$259,000 for 1997 and zero for 1996. For the first nine months
of 1997, total hardware and other revenues were $375,000, as
compared to $111,000 for the same period in 1996. The increase
in hardware and other revenue is primarily due to an increased
focus on the resale of hardware to meet certain customers'
demand.
<PAGE>
Page 11
Cost of Software License Fees
In the third quarter of 1997 cost of software license fees
decreased 93.2% to $5,000 in 1997 from $73,000 in the same period
of 1996. For the first nine months of 1997, total cost of
software license fees was $290,000, an increase of 52.6% from
total cost of software license fees of $190,000 for the first
nine months of 1996. Total cost of software license fees
decreased in the third quarter due to a reversal of an accrual no
longer needed. However, cost of software license fees has
increased year to date due to the Company's increased sales of
third party software, which has lower margins. The Company
continues to expense all software development costs as product
development expenditures as incurred.
Cost of Services and Maintenance
In the third quarter of 1997 cost of services and maintenance
increased 29.3% to $3.7 million in 1997 from $2.9 million in the
third quarter of 1996. For the first nine months of 1997, total
cost of services and maintenance was $10.0 million, representing
a 13.0% increase over total cost of services and maintenance of
$8.8 million for the first nine months of 1996. The cost of
services and maintenance has increased in 1997 due to increased
salaries, the increased cost of consultants, and accruals made
for certain project costs. The number of employees in services
and maintenance decreased to 164 at September 30, 1997 from 171
at September 30, 1996.
Product Development
Product development expenses as a percentage of total revenues
for the third quarter of 1997 decreased to 9.2% from 23.8% in the
third quarter of 1996. For the first nine months of 1997,
product development expenses as a percentage of total revenues
decreased to 13.9% from 18.0% for the same period in 1996.
Actual product development expenses were $568,000 in the third
quarter of 1997 compared to $1.1 million in the third quarter of
1996. For the first nine months of 1997, actual product
development expenses were $2.1 million, compared to $3.1 million
for the same period in 1996, representing a decrease of 31.9%.
<PAGE>
Page 12
The decrease in product development costs when compared with the
same period in 1996 is primarily due to the discontinuation of
operations in Dallas, Texas as of December 31, 1996, along with
reductions in employee headcount in product development areas no
longer considered relevant to the Company's strategic product
direction. The product development staff consisted of 28 and 72
employees at September 30, 1997 and September 30, 1996,
respectively.
Sales and Marketing
Sales and marketing expenses as a percentage of total revenues
for the third quarter of 1997 decreased to 22.8% from 25.7% in
the third quarter of 1996. For the first nine months of 1997,
sales and marketing expenses as a percentage of total revenues
increased to 26.3% from 21.3% for the same period in 1996.
Actual sales and marketing expenses increased 16.7% in the third
quarter of 1997 to $1.4 million from $1.2 million in the third
quarter of 1996. For the first nine months of 1997, actual sales
and marketing expenses were $4.0 million, compared with $3.7
million for the same period in 1996, representing an increase of
9.0%. The increase in actual sales and marketing expenses in the
third quarter and year to date periods is due to increased
participation in trade shows and increased activity in sales and
marketing abroad. The number of sales and marketing employees
was 28 at September 30, 1996 compared to 26 at September 30,
1997.
General and Administrative
General and administrative expenses as a percentage of total
revenues for the third quarter of 1997 decreased to 15.2% from
24.2% in the third quarter of 1996. For the first nine months of
1997, general and administrative expenses as a percentage of
total revenues increased to 20.9% from 13.7% in the same period
in 1996. Actual general and administrative expenses decreased
17.5% to $933,000 in the third quarter of 1997 from $1.1 million
in the third quarter of 1996. For the first nine months of 1997,
actual general and administrative expenses were $3.2 million,
compared to $2.4 million for the same period in 1996,
representing an increase of 35.4%. There were 22 and 25
<PAGE>
Page 13
employees in general and administrative roles at September 30,
1997 and September 30, 1996, respectively. The decrease in
general and administrative expenses for the third quarter of 1997
is due to a change in internal department classifications in
1996. The increase in 1997 year to date expenses is due to an
increase in the allowance for doubtful accounts, additional
expense related to a sales tax audit, expenses related to the
early-1997 reorganization, increased costs of employee
procurement, as well as expenses related to operations abroad.
Other Income and Expense
Interest income for the third quarter of 1997 was $60,000 which
was offset by $8,000 of interest and other expenses compared to
$225,000 of interest income offset by $2,000 of interest and
other expenses in the third quarter of 1996. For the first nine
months of 1997, interest and other income was $200,000 which was
offset by $20,000 of interest expense, while in the first nine
months of 1996 interest income of $777,000 was offset by $60,000
of interest expense. The decrease in interest income was due to
lower cash levels in the third quarter of 1997 compared to the
third quarter of 1996.
Income Tax Expense
A tax benefit of $240,000 was recorded in the third quarter of
1996 to reverse prior federal and state tax expenses recorded in
the first quarter of 1996 when the Company was profitable. Since
the Company was operating at a loss for the first nine months of
1996, the previously recorded tax expense was reversed.
No federal or state tax expense was recorded for the quarter or
nine month period ended September 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 nine month period
ended September 30, 1997 as the Company continues to record a
valuation allowance to reserve in full for the net deferred tax
assets.
<PAGE>
Page 14
Liquidity and Capital Resources
The Company experienced a net decrease in cash and cash
equivalents of $4.8 million in the first nine months of 1997
compared to a net decrease of $7.0 million for the same period of
1996.
Cash and cash equivalents at the end of the third quarter of 1997
were $4.5 million, compared to $5.2 million at the end of the
second quarter of 1997 and $5.4 million at the end of the first
quarter of 1997. In the first quarter of 1997, $1.1 million of
cash was used to repurchase approximately 226,000 shares of the
Company's common stock from its former president and chief
executive officer.
The $4.5 million in cash and cash equivalents at September 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 $1.0 million. As of September 30, 1997, there
were no amounts outstanding under the Revolving Credit Facility.
Longer term cash requirements, other than normal operating
expenses, are anticipated for the development of new software
products and enhancement of existing products, the financing of
anticipated growth, and possible acquisition of software products
or technologies complementary to the Company's business. The
Company believes that its existing cash, cash equivalents, short-
term investments and available line of credit, along with
anticipated cash generated from operations will be sufficient to
satisfy its cash requirements for at least the next 12 months.
<PAGE>
Page 15
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the third quarter of
1997.
<PAGE>
Page 16
SIGNATURES
In accordance with the requirement of the Securities Exchange Act
of 1934, as amended, the registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly
authorized.
CATALYST INTERNATIONAL, INC.
Dated: November 17, 1997 By: /s/ Sean P. McGowan
----------------------------
Sean P. McGowan
President and Chief Executive
Officer
Signing on behalf of the
registrant and as principal
executive officer.
Dated: November 17, 1997 By: /s/ Thomas G. Hickinbotham
----------------------------
Thomas G. Hickinbotham
Vice President and Chief
Financial Officer
Signing on behalf of the
registrant and as principal
financial officer.
<PAGE>
Page 17
Exhibit 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(amounts in thousands, except per share amounts)
<TABLE>
Three months ended
September 30,
1997 1996
<S> <C> <C>
Average shares outstanding 6,644 8,119
===== =====
Net loss ($ 637) ($1,238)
===== =====
Net loss per share ($ 0.10) ($ 0.15)
===== =====
</TABLE>
<PAGE>
Page 18
Exhibit 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(amounts in thousands, except per share amounts)
<TABLE>
Nine months ended
September 30,
1997 1996
<S> <C> <C>
Average shares outstanding 6,623 8,132
===== =====
Net loss ($4,346) ($2,176)
===== =====
Net loss per share ($ 0.66) ($ 0.27)
===== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 4501
<SECURITIES> 0
<RECEIVABLES> 7666
<ALLOWANCES> 400
<INVENTORY> 0
<CURRENT-ASSETS> 12636
<PP&E> 7097
<DEPRECIATION> 2931
<TOTAL-ASSETS> 16802
<CURRENT-LIABILITIES> 6291
<BONDS> 0
0
0
<COMMON> 361
<OTHER-SE> 8991
<TOTAL-LIABILITY-AND-EQUITY> 16802
<SALES> 15306
<TOTAL-REVENUES> 15306
<CGS> 10479
<TOTAL-COSTS> 19832
<OTHER-EXPENSES> (191)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12
<INCOME-PRETAX> (4346)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4346)
<EPS-PRIMARY> (.66)
<EPS-DILUTED> (.66)
</TABLE>
