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, 1998
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 May 8, 1998, 6,730,965 shares of the issuer's common stock
were outstanding.
This report contains 14 pages. There is 1 exhibit.
<PAGE> 2
CATALYST INTERNATIONAL, INC.
FORM 10-QSB
INDEX
Page No.
PART I. Financial Information
Item 1. Financial Statements:
Balance Sheets - March 31, 1998
and December 31, 1997 . . . . . . . . . . . 3
Statements of Operations - Three months
ended March 31, 1998 and 1997 . . . . . . . 5
Statements of Cash Flows - Three months
ended March 31, 1998 and 1997 . . . . . . . 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 . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . 14
<PAGE> 3
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
<TABLE>
<CAPTION>
CATALYST INTERNATIONAL, INC.
Balance Sheets
(in thousands)
ASSETS
March 31, Dec. 31,
1998 1997
(unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 4,664 $ 4,256
Accounts receivable 7,769 8,108
Revenues in excess of billings 891 349
Prepaid and other expenses 666 579
------- -------
Total Current Assets 13,990 13,292
Equipment and Leasehold Improvements:
Computer hardware and software 4,637 4,492
Office equipment 2,306 2,288
Leasehold improvements 862 862
------- -------
7,805 7,642
Less accumulated depreciation 3,550 3,242
------- -------
Total Equipment and
Leasehold Improvements 4,255 4,400
------- -------
Total Assets $18,245 $17,692
======= =======
</TABLE>
See accompanying notes
<PAGE> 4
<TABLE>
<CAPTION>
CATALYST INTERNATIONAL, INC.
Balance Sheets
(in thousands, except per share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, Dec. 31,
1998 1997
(unaudited)
<S> <C> <C>
Current Liabilities:
Accounts payable $ 1,473 $ 1,921
Accrued liabilities 1,828 1,818
Deferred services and maintenance 3,527 2,662
Current portion of long-term debt 196 218
------- -------
Total Current Liabilities 7,024 6,619
Noncurrent Liabilities:
Long-term debt 466 443
Deferred services and maintenance 155 329
Deferred rent 300 304
------ -------
Total Non-Current Liabilities 921 1,076
------ -------
Total Liabilities 7,945 7,695
Stockholders' Equity:
Preferred Stock, $.01 par value;
2,000,000 shares authorized; none
issued or outstanding - -
Common stock, $.10 par value;
25,000,000 shares authorized;
shares issued: 8,630,910 in 1998
and 8,622,029 in 1997 863 862
Additional paid-in capital 31,122 31,112
Accumulated deficit (12,633) (12,925)
Treasury stock, at cost: 1,966,090 shares
of common stock in 1998 and 1997 (9,052) (9,052)
------- -------
Total Stockholders' Equity 10,300 9,997
------- -------
Total Liabilities and Stockholders' Equity $18,245 $17,692
======= =======
</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,
------------------
1998 1997
---- ----
<S> <C> <C>
Revenues:
Software license fees $2,107 $1,296
Services and maintenance 5,123 2,825
Hardware and other 235 2
----- -----
Total Revenues 7,465 4,123
Operating Expenses:
Cost of software license fees 32 97
Cost of services and maintenance 3,724 2,896
Cost of hardware and other 208 -
Product development 698 943
Sales and marketing 1,424 1,249
General and administrative 1,118 1,267
----- -----
Total Operating Expenses 7,204 6,452
----- -----
Income (loss) from operations 261 (2,329)
Other income 31 74
----- -----
Net income (loss) $ 292 $(2,255)
====== ======
Net income (loss) per share $ 0.04 $(0.34)
Shares used in computing net income
(loss) per share 6,988 6,591
</TABLE>
See accompanying notes
<PAGE> 6
<TABLE>
<CAPTION>
CATALYST INTERNATIONAL, INC.
Statements of Cash Flows
(in thousands)
(unaudited)
Three months ended
March 31,
------------------
1998 1997
---- ----
<S> <C> <C>
Operating Activities:
Net income (loss) $ 292 $(2,256)
Adjustments to reconcile net income (loss) to net
Cash provided by (used in) operating activities:
Depreciation and amortization 308 275
Compensation expense on stock options 6 -
Changes in operating assets and liabilities:
Accounts receivable 339 213
Prepaid and other expenses (87) (18)
Accounts payable (448) (408)
Accrued liabilities 10 (354)
Deferred services and maintenance 691 237
Revenues in excess of billings (542) 31
Deferred rent (4) (5)
Restructuring costs - (279)
Income taxes - (3)
------- -------
Total adjustments 273 (311)
------- -------
Net cash provided by (used in) operating activities 565 (2,567)
Investing Activities:
Purchase of equipment and leasehold improvements (148) (253)
------- -------
Net cash used in investing activities (148) (253)
Financing Activities:
Payments on long-term debt (14) (13)
Proceeds from exercise of stock options 5 21
Purchase of treasury stock - (1,073)
------- -------
Net cash used in financing activities (9) (1,065)
------- -------
Net increase (decrease) in cash 408 (3,885)
Cash and cash equivalents at the beginning of period 4,256 9,321
------- -------
Cash and cash equivalents at the end of the period $ 4,664 $ 5,436
======= =======
</TABLE>
Noncash investing and financing activities:
During the first quarter of 1998, the Company acquired $14,760 of
computer hardware under a capital lease.
See accompanying notes
<PAGE> 7
CATALYST INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
(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 period ended
March 31, 1998 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1998. 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,
1997.
2. Net Income (Loss) Per Share of Common Stock
The Company has presented net income (loss) per share in
accordance with Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share." The following table sets
forth the computation of basic and diluted earnings per share.
<PAGE> 8
<TABLE>
<CAPTION>
March 31,
1998 1997
---- ----
(in thousands)
<S> <C> <C>
DENOMINATOR
Denominator for basic earnings
per share - weighted average
common shares 6,660 6,591
Effect of diluted securities -
stock options and warrants 328 -
----- -----
Denominator for diluted earnings
per share - adjusted weighted
average common shares 6,988 6,591
===== =====
</TABLE>
In the first quarter of 1997, securities that could potentially
dilute basic earnings per share were not included in the
computation of diluted earnings per share because their impact
was antidilutive.
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, and could adversely
affect the Company's share price. 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.
<PAGE> 9
Total Revenues
The Company's total revenues for the first quarter of 1998 were
$7.5 million, which represented an increase of 81.1% over first
quarter 1997 total revenues of $4.1 million. The increase in
total revenues for the three month period is due primarily to an
increase in the number and size of projects sold, an increase in
the price the Company charged for its services and a greater base
of installed customers who provided services agreement revenues.
International revenues were $832,000 in the first quarter of
1998, which represented a decrease of 24.4% from first quarter
1997 international revenues of $1.1 million. International
revenues represented 11.1% of total revenues for the first
quarter of 1998 compared to 26.9% in the same period of 1997. The
decrease in international revenues from 1997 to 1998 is due to
the completion of several international projects in 1997. The
decrease in international revenues as a percentage of total year
to date revenues is due, in general, to the lower international
revenues in the period coupled with higher US revenues.
Software License Fees
The first quarter of 1998 software license fee revenues of $2.1
million represented an increase of 62.6% from the first quarter
of 1997 software license fee revenues of $1.3 million, and is
attributable to the increased number of low modification projects
closed in the first quarter of 1998 as well as a strong backlog
of projects from 1997.
Services and Maintenance
Services and maintenance revenues increased 81.3% to $5.1 million
in the first quarter of 1998, up from $2.8 million in the first
quarter of 1997. The components of services and maintenance
revenues as a percentage of total revenues in the first quarter
of 1998 were 18.3% for software modifications, 32.0% for
professional services and 18.3% for maintenance agreements
compared with 17.1%, 33.1% and 18.3%, respectively, in the first
quarter of 1997. Services and maintenance revenues increased in
<PAGE> 10
the first quarter due to the combined effect of an increased
number of Catalyst WMS implementations, rollouts of additional
sites, upgrades to new releases of Catalyst WMS, renewals of
maintenance agreements, and an increase in the Company's rate it
charges for services.
Hardware and Other
Hardware and other revenues increased to $235,000 in the first
quarter of 1998 from $2,000 during the same period of 1997. The
increase is due to the Company's decision to offer hardware
products in situations where customers want a turnkey solution.
Cost of Software License Fees
In the first quarter of 1998, cost of software license fees
decreased 67.0% to $32,000 from $97,000 in the same period of
1997. This cost represents third party software purchased and
resold by the Company, and the decrease was due to lower third
party software sales in the first quarter of 1998. This mix will
change from quarter to quarter.
Cost of Services and Maintenance
The cost of services and maintenance increased 28.6% to $3.7
million in the first quarter of 1998 from $2.9 million for the
first quarter of 1997. The cost of services and maintenance
increased due to the higher volume of service work delivered
during the period. As a percentage of the related sales, the
cost of services and maintenance declined from 102.5% of sales
for the first quarter of 1997 to 72.7% of sales for the current
quarter, reflecting the higher prices the Company charged for its
services as well as efficiencies realized in the current delivery
of these services. There were 167 employees in services and
maintenance at March 31, 1998 compared to 165 employees at March
31, 1997.
<PAGE> 11
Product Development
Product development expenses as a percentage of total revenues
for the first quarter of 1998 decreased to 9.4% from 22.9% in
the first quarter of 1997. Actual product development expenses
were $698,000 in the first quarter of 1998, compared to $943,000
in the first quarter of 1997, representing a decrease of 26.0%.
The decrease in product development costs was 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
Company continues to expense all software development costs as
product development expenditures as incurred. The decrease in
product development as a percentage of revenues is also due to
the increase in revenues in 1998. The product development staff
consisted of 28 employees at March 31, 1998 and 55 employees at
March 31, 1997.
Sales and Marketing
Sales and marketing expenses as a percentage of total revenues
for the first quarter of 1998 decreased to 19.1% from 30.3% in
the first quarter of 1997. Actual sales and marketing expenses
increased to $1.4 million in the first quarter of 1998 from $1.2
million in the first quarter of 1997. The decrease in sales and
marketing expenses as a percentage of total revenues in the first
quarter of 1998 is due to the large increase in revenues over the
comparable quarter. The increase in actual sales and marketing
expense was primarily due to higher sales commissions in the
first quarter of 1998. There were 34 and 28 sales and marketing
employees at March 31, 1998 and March 31, 1997, respectively.
General and Administrative
General and administrative expenses as a percentage of total
revenues for the first quarter of 1998 decreased to 15.0% from
30.7% in the first quarter of 1997. Actual general and
administrative expenses decreased to $1.1 million in the first
quarter of 1998 from $1.3 million in the first quarter of 1997.
The decrease in general and administrative expenses as a
percentage of revenue is due to the higher level of revenues in
<PAGE> 12
1998. Actual expenses have also declined as a result of cost
control efforts. Expenses for the first quarter of 1998 include
a $150,000 reserve for the restructuring of the Company's
international offices. There were 20 and 26 employees in
general and administrative roles at March 31, 1998 and March 31,
1997, respectively.
Other Income and Expense
Interest income for the first quarter of 1998 was $35,000, offset
by $10,000 of interest on equipment leases and $6,000 of other
income compared to $78,000 of interest income offset by $4,000 of
interest expense in the first quarter of 1997. The decrease in
interest income was due to lower cash levels in the first quarter
of 1998 as the Company's operating cash needs increased from the
first quarter of 1997. Interest expense in the first quarter of
1998 has increased compared to the first quarter of 1997 due to
new computer equipment leases entered into in the second half of
1997.
Income Tax Expense
No federal and state tax expense was recorded for the quarter
ended March 31, 1998 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, 1998 as the Company
continues to record a valuation allowance to reserve for the net
deferred tax assets.
Liquidity and Capital Resources
Net cash provided by operating activities was $565,000 for the
three months ended March 31, 1998, compared to $2.6 million used
during the three months ended March 31, 1997. The increase in
net cash provided by operations in the first three months of 1998
from the first three months of 1997 is due primarily to the net
loss incurred for the quarter ended March 31, 1997, compared to
net income for the first quarter of 1998.
<PAGE> 13
The decrease in cash used for investing activities from $253,000
during the three months ended March 31, 1997 to $163,000 during
the three months ended March 31, 1998 was due to decreased
equipment and leasehold improvement purchases. This number is
decreasing because the Company upgraded much of its equipment
through capital leases during the second half of 1997.
Financing activities generated cash of $6,000 in the first three
months of 1998 compared to $1.1 million used in the first three
months of 1997. The cash used in the first quarter of 1997 for
financing activities was 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.
As of March 31, 1998, the Company had $4.7 million in cash, cash
equivalents and short-term investments, which consists 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, 1998, 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.
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the first quarter of
1998.
<PAGE> 14
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 , 1998 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: May , 1998 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.
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-12-1997
<PERIOD-END> MAR-31-1998
<CASH> 4664
<SECURITIES> 0
<RECEIVABLES> 7769
<ALLOWANCES> 250
<INVENTORY> 0
<CURRENT-ASSETS> 13990
<PP&E> 7805
<DEPRECIATION> 3550
<TOTAL-ASSETS> 18245
<CURRENT-LIABILITIES> 7024
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0
0
<COMMON> 863
<OTHER-SE> 9437
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<SALES> 7465
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</TABLE>
