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, 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
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(Address of principal executive offices) (Zip Code)
(414) 362-6800 FAX (414) 377-6263
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(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 November 6, 1998, 7,026,611 shares of the issuer's common
stock were outstanding.
This report contains 20 pages. There is 1 exhibit.
<PAGE>
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CATALYST INTERNATIONAL, INC.
FORM 10-QSB
INDEX
Page No.
PART I. Financial Information
Item 1. Financial Statements:
Balance Sheets - September 30, 1998 and
December 31, 1997 ............................ 3
Statements of Operations - Three months
ended September 30, 1998 and 1997 ............ 5
Statements of Operations - Nine months
ended September 30, 1998 and 1997 ............ 6
Statements of Cash Flows - Nine months
ended September 30, 1998 and 1997 ........... 7
Notes to Financial Statements................... 8
Item 2. Management's Discussion and Analysis or
Plan of Operation ............................ 10
PART II. Other Information:
Item 2. Changes in Securities and Use of Proceeds....... 19
Item 6. Exhibits and Reports on Form 8-K ............... 19
Signatures ..................................... 20
<PAGE>
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PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
<TABLE>
<CAPTION>
CATALYST INTERNATIONAL, INC.
Balance Sheets
(in thousands)
ASSETS
Sept. 30, Dec. 31,
1998 1997
(unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 6,573 $ 4,256
Accounts receivable 9,198 8,108
Software revenues in excess of billings 502 349
Prepaid and other assets 475 579
------- -------
Total Current Assets 16,748 13,292
Equipment and Leasehold Improvements:
Computer hardware and software 4,870 4,492
Office equipment 2,323 2,288
Leasehold improvements 871 862
------- -------
8,064 7,642
Less accumulated depreciation 4,191 3,242
------- -------
Total Equipment and
Leasehold Improvements 3,873 4,400
Other Assets 2,142 -
------- -------
Total Assets $22,763 $17,692
======= =======
</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,
1998 1997
(unaudited)
<S> <C> <C>
Current Liabilities:
Accounts payable $2,537 $1,921
Accrued liabilities 1,758 1,818
Deferred services and maintenance 3,913 2,662
Current portion of long-term debt 194 218
------ ------
Total Current Liabilities 8,402 6,619
Noncurrent Liabilities:
Long-term debt 358 443
Deferred service and maintenance 190 329
Deferred rent 290 304
------ ------
Total Non-Current Liabilities 838 1,076
------ ------
Total Liabilities 9,240 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: 8,872,076 in 1998
and 8,613,431 in 1997 887 862
Additional paid-in capital 32,444 31,112
Accumulated deficit (11,301) (12,925)
Treasury stock, at cost: 1,851,392
and 1,966,090 shares of common stock
in 1998 and 1997, respectively (8,507) (9,052)
------- -------
Total Stockholders' Equity 13,523 9,997
------- -------
Total Liabilities and Stockholder's Equity $22,763 $17,692
======= =======
</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,
1998 1997
<S> <C> <C>
Revenues:
Software license fees $2,311 $1,775
Services and maintenance 5,179 4,118
Hardware and other 1,329 259
------ ------
Total Revenues 8,819 6,152
Operating Expenses:
Cost of license fees 187 5
Cost of services and maintenance 3,695 3,700
Cost of hardware and other 1,064 230
Product development 814 568
Sales and marketing 1,184 1,405
General and administrative 1,047 933
------ ------
Total Operating Expenses 7,991 6,841
------ ------
Income (loss) from operations 828 (689)
Other income 57 52
------ ------
Net income (loss) $ 885 $ (637)
====== ======
Net income (loss) per share
Basic $ 0.13 $(0.10)
Diluted $ 0.12 $(0.10)
</TABLE>
See accompanying notes
<PAGE>
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<TABLE>
<CAPTION>
CATALYST INTERNATIONAL, INC.
Statements of Operations
(in thousands, except per share amounts)
(unaudited)
Nine Months Ended
September 30,
1998 1997
<S> <C> <C>
Revenues:
Software license fees $ 6,081 $ 4,819
Services and maintenance 15,580 10,112
Hardware and other 2,445 375
------- -------
Total Revenues 24,106 15,306
Operating Expenses:
Cost of license fees 347 290
Cost of services and maintenance 10,867 9,959
Cost of hardware and other 1,951 230
Product development 2,377 2,125
Sales and marketing 4,055 4,024
General and administrative 3,014 3,204
------- -------
Total Operating Expenses 22,611 19,832
------- -------
Income (loss) from operations 1,495 (4,526)
Other income 129 180
------- -------
Net income (loss) $ 1,624 $(4,346)
======= =======
Net income (loss) per share
Basic $ 0.24 $ (0.66)
Diluted $ 0.22 $ (0.66)
</TABLE>
See accompanying notes
<PAGE>
Page 7
<TABLE>
<CAPTION>
CATALYST INTERNATIONAL, INC.
Statements of Cash Flows
(in thousands)
(unaudited)
Nine months ended
September 30,
1998 1997
<S> <C> <C>
Operating Activities:
Net income (loss) $ 1,624 $(4,346)
Adjustments to reconcile net income (loss)
to net cash provided by (used by)
operating activities:
Depreciation and amortization 973 851
Compensation expense on stock options 19 33
Loss on disposal of equipment - (21)
Changes in operating assets and liabilities:
Accounts receivable (1,011) (1,687)
Prepaid and other expenses 112 151
Accounts payable 397 (54)
Accrued liabilities (455) 596
Deferred services and maintenance 1,112 2,073
Deferred software license fees (153) (147)
Deferred rent (14) (14)
Restructuring costs - (482)
------ -----
Total adjustments 980 1,299
Net cash provided by (used in) operating activities 2,604 (3,047)
Investing Activities:
Purchase of equipment and leasehold improvements (422) (717)
Other 10 -
------ -----
Net cash used in investing activities (412) (717)
Financing Activities:
Payments on long-term debt (185) (1)
Proceeds from stock options exercised 310 18
Purchase of treasury stock - (1,073)
------ -----
Net cash provided by (used in)financing activities 125 (1,056)
------ -----
Net increase (decrease) in cash 2,317 (4,820)
Cash and cash equivalents at the beginning of period 4,256 9,321
------ -----
Cash and cash equivalents at the end of the period $6,573 $4,501
====== ======
</TABLE>
See accompanying notes
<PAGE>
Page 8
CATALYST INTERNATIONAL, INC.
Notes To Financial Statements
September 30, 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 and nine month
periods ended September 30, 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 information
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> 9
<TABLE>
<CAPTION>
For the For the
Three Months Nine Months
ended Sept. 30, ended Sept. 30,
1998 1997 1998 1997
---- ---- ---- ----
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Denominator
- -----------
Denominator for basic earnings
per share - weighted average
common shares 6,780 6,644 6,723 6,623
Effect of diluted securities -
stock options and warrants 597 - 594 -
----- ----- ----- -----
Denominator for diluted
earnings per share -
adjusted weighted average
common shares 7,377 6,644 7,317 6,623
</TABLE>
3. Acquisition of Kearney Systems, Inc. (KSI)
During the third quarter of 1998, the Company acquired all of the
outstanding shares of KSI, a business with an NT based warehouse
management system. The acquisition was accounted for as a
purchase and, accordingly, the purchase price has been allocated
to assets purchased and liabilities assumed based upon fair
values at the date of acquisition. The results of operations of
the acquired business have been included in the Company's
consolidated financial statements from its acquisition date. Pro
forma results of operations have not been presented because the
efforts of this organization were not significant. Aggregate
consideration for this acquisition was approximately $1.6
million, consisting of 143,372 shares of the Company's common
stock held in treasury, of which 28,674, or 20%, are held in
escrow.
<PAGE>
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Item 2. Management's Discussion and Analysis or Plan of Operation
The following discussion contains statements which are identified
by use of 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 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.
Total Revenues
The Company's total revenues for the third quarter of 1998 were
$8.8 million, which represented an increase of 43.4% over
third quarter 1997 total revenues of $6.2 million. For the first
nine months of 1998, total revenues were $24.1 million,
representing an increase of 57.5% over 1997 total revenues of
$15.3 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 increase in revenues for the comparative nine
month period is due to the increased level of new business,
higher prices being charged for services and a longer base of
installed customers renewing support agreements.
International revenues were $1.0 million, representing 11.5% of
total revenues, for the third quarter of 1998 compared to
revenues of $887,000, representing 14.4% of total revenue, for
the same period of 1997. Total international revenues were $3.6
million and $2.9 million for the first nine months of 1998 and
1997, respectively. For the first nine months of 1998,
international revenues represented 15.1% of total revenues as
compared to 18.9% for the first nine months of 1997. This
decrease in international revenues as a percentage of total
year to date revenues is due to the lower level of total sales in
1997, since the dollar value of international revenues are up
<PAGE>
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28% on a year to date basis.
Software License Fees
Third quarter 1998 software license fee revenues of $2.3 million
represented an increase of 30.2% over third quarter 1997 software
license fee revenues of $1.8 million. For the first nine months
of 1998, total software license fee revenues were $6.1 million,
an increase of 26.2% compared to 1997 software license revenues
of $4.8 million for the same period. The revenue increase is the
result of the overall increased level of business recorded by the
Company.
Services and Maintenance
Services and maintenance revenues increased 25.8% to $5.2 million
in the third quarter of 1998, up from $4.1 million in the third
quarter of 1997. The components of services and maintenance
revenues as a percentage of total revenues in the third quarter
of 1998 were 14.2% for software modifications, 55.0% for
professional services and 30.8% for maintenance agreements
compared with 27.5%, 22.1% and 17.4%, respectively, in the third
quarter of 1997. For the first nine months of 1998,
total services and maintenance revenues were $15.6 million,
representing a 54.1% increase over the first nine months of 1997
service and maintenance revenues of $10.1 million. Services and
maintenance revenues increased in the third quarter and
year to date periods due primarily to the increased level of
business recorded by the Company, the increased rates being
charged for its services and a larger base of installed customers
now on maintenance contracts.
Hardware and Other
Total hardware and other revenue for the third quarter were
$1.3 million and $259,000 for 1997. For the first nine months of
1998, total hardware and other revenues were $2.4 million as
<PAGE>
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compared to $375,000 for the same period in 1997. The increase
in hardware and other revenue is primarily due to an increased
focus on the resale of hardware to meet certain customers'
demand.
Cost of Software License Fees
In the third quarter of 1998, cost of software license fees
increased to $187,000 in 1998 from $5,000 in the same
period of 1997. For the first nine months of 1998, total cost of
software license fees was $347,000, an increase of 19.7% from
total cost of software license fees of $290,000 for the first
nine months of 1997. Total cost of software license fees
increased in the third quarter of 1998 due to the higher license
fee revenues coupled with a higher mix of third party software,
which has a higher cost.
Cost of Services and Maintenance
The cost of services and maintenance remained constant at $3.7
million in the third quarters of 1998 and 1997. For the first
nine months of 1998, total cost of services and maintenance was
$10.9 million, representing a 9.1% increase over total cost
of services and maintenance of $10.0 million for the first nine
months of 1997. The cost of services and maintenance has
increased in 1998 due to increased revenues. The number of
employees in services and maintenance increased to 177 at
September 30, 1998 from 164 at September 30, 1997 due to the
increased level of work being performed.
Product Development
Product development expenses as a percentage of total revenues
for the third quarters of 1998 and 1997 remained constant at
9.2%. Actual product development expenses were $814,000 in the
third quarter of 1998 compared to $568,000 in the third quarter
of 1997. For the first nine months of 1998, product development
<PAGE>
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expenses as a percentage of total revenues decreased to 9.9% from
13.9% for the same period in 1997. For the first nine months of
1998, actual product development expenses were $2.4 million,
compared to $2.1 million for the same period in 1997,
representing an increase of 11.9%.
The increase in product development costs when compared with
the same period in 1997 is primarily due to more focus on the
Company's new NT product and continued efforts to improve the
Company's existing WMS product. The product development staff
consisted of 33 and 28 employees at September 30, 1998 and
September 30, 1997, respectively.
Sales and Marketing
Sales and marketing expenses as a percentage of total revenues
for the third quarter of 1998 decreased to 13.4% from 22.8% in
the third quarter of 1997. For the first nine months of 1998,
sales and marketing expenses as a percentage of total revenues
decreased to 16.8% from 26.3% for the same period in 1997.
Actual sales and marketing expenses decreased 15.7% in the third
quarter of 1998 to $1.2 million from $1.4 million in the third
quarter of 1997. For the first nine months of 1998, actual sales
and marketing expenses were $4.1 million, compared with $4.0
million for the same period in 1997, representing an increase of
1.0%. The decrease in actual sales and marketing expenses in the
third quarter reflects the closing of several of the Company's
foreign sales offices, and their replacements with Value Added
Resellers (VARs). The VAR relationship works to the Company's
benefit because the Company is not responsible for the VAR's
costs. The number of sales and marketing employees was 30 at
September 30, 1998 and 26 at September 30, 1997.
General and Administrative
General and administrative expenses as a percentage of total
revenues for the third quarter of 1998 decreased to 11.9% from
15.2% in the third quarter of 1997. For the first nine months of
<PAGE>
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1997, general and administrative expenses as a percentage of
total revenues decreased to 12.5% from 20.9% in the same period
in 1997. Actual general and administrative expenses increased
12.2% to $1.0 million in the third quarter of 1998 from $933,000
in the third quarter of 1997. For the first nine months of 1998,
actual general and administrative expenses were $3.0 million,
compared to $3.2 million for the same period in 1997,
representing a decrease of 5.9%. The increase in general and
administrative expenses for the third quarter of 1998 is due to
management bonuses. The decrease in general and administrative
expenses on a year-to-date basis is the result of better expense
controls on the part of the Company. There were 21 and 22
employees in general and administrative roles at September 30,
1998 and September 30, 1997, respectively.
Other Income and Expense
Interest income for the third quarter of 1998 was $71,000 which
was offset by $14,000 of interest and other expenses compared to
$60,000 of interest income offset by $8,000 of interest and
other expenses in the third quarter of 1997. For the first nine
months of 1998, interest and other income was $166,000 which was
offset by $37,000 of interest and other expense, while in the
first nine months of 1997 interest income of $200,000 was offset
by $20,000 of interest expense. The decrease in interest income
in 1998 was due to lower interest rates in 1998 compared to 1997.
The increase in interest expenses in 1998 was the result of new
leases the Company entered into in late 1997 when the Company
upgraded much of its computer equipment.
Income Tax Expense
No federal or state tax expense was recorded for the quarter or
nine month period ended September 30, 1998 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, 1998 as the Company continues to record a
valuation allowance to reserve in full for the net deferred tax
<PAGE>
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assets.
Liquidity and Capital Resources
Net cash provided by operating activities was $2.6 million for
the nine months ended September 30, 1998, compared to $3.0
million used during the same period in 1997. The increase in
net cash provided by operations in the first nine months of 1998
from the first nine months of 1997 is due primarily to the
Company's return to profitable operations and better management
of its working capital.
The decrease in cash used in investing activities to $412,000
during the nine months ended September 30, 1998 from $717,000
during the nine months ended September 30, 1997 was due to the
Company's decision to lease new computer equipment in 1998 rather
than buy it.
Financing activities generated cash of $125,000 in the first
nine months of 1998 compared to $1.1 million used in the first
nine months of 1997. The cash used in the first nine months of
1997 for financing activities was due primarily to the Company's
repurchase of shares of its stock held by its former chief
executive officer. As of September 30, 1998, the Company had
$6.6 million in cash, cash equivalents and short-term investments,
which consisted 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 September 30, 1998, there were no amounts outstanding under
the Revolving Credit Facility.
Accounts receivable was $9.2 million as of September 30, 1998.
This compares to $8.1 million at December 31, 1997 and $7.7
million as of September 30, 1997. The increase in receivables
over the September 30, 1997 and December 31, 1997 balances is due
to the increase in sales over the previous periods. At September
30, 1998, the Company has reserves for doubtful accounts of
<PAGE>
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$463,000 and believes it has adequately provided for any risks.
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.
Impact of Year 2000
The Year 2000 issue is the result of computer programs being
written using two digits rather than four to define the
applicable year. Any of the Company's computer programs, either
internal or sold to customers, that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process
transactions, send invoices, or engage in normal business
activities.
The Company's primary software offering, Catalyst WMS, is
written to store the year in the database using four digits to
allow data entry in an unambiguous manner with four digits, and
to process program functions in four digits. The Company has
certified that its most recent product offerings, Release 7.0
and later releases of Catalyst WMS, are Year 2000 compliant.
The Company has extensively tested these Releases and have not
to date found any errors which could affect Year 2000
compliance. Due to the fact that the Catalyst WMS has always
been intrinsically compliant, by use of four digit coding, the
Company does not expect problems with the Year 2000 compliance
of prior releases of the Catalyst WMS. However, due to the fact
that the Catalyst WMS is integrated with different combinations
of third party software and hardware products, any Year 2000
problem occurring within these third party software and hardware
products may impact the operation of the Catalyst WMS which, in
<PAGE>
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turn, may lead to lawsuits against the Company. The potential
for and outcome of such lawsuits and impact on the Company
cannot be estimated at this time.
In mid-1997, the Company began a proactive program by offering
to its existing customers assistance in assessing whether the
customer's fully integrated system is Year 2000 compliant and
coordinating the remediation of non-compliant systems. The
Company has contacted all customers with pre-release 7.0 of the
Catalyst WMS and notified them that, because their systems
interface with other third party software and hardware products,
their entire system should be reviewed for compliance before a
serious problem occurs. This effort is still ongoing. To date,
several customers have elected to have the Company perform the
assessment and the coordination of the remediation work.
With respect to the Company's internal computer systems and
equipment, it is conducting a comprehensive review to ensure
that all such systems are, or prior to the end of 1999 will be,
Year 2000 compliant. The Company's Year 2000 readiness plan
includes the following phases: (i) conducting an inventory of
the Company's internal systems, including information technology
systems and non-information technology systems (which include
office and facilities' environment related systems) and the
systems acquired or to be acquired by the Company from third
parties; (ii) assessing and prioritizing any required
remediation; (iii) remediating any problems by repairing or, if
appropriate, replacing the non-compliant systems; (vi) testing
of all remediated systems for Year 2000 compliance; and (v)
developing contingency plans that may be employed in the event
that any system used by the Company is unexpectedly affected by
an unanticipated Year 2000 problem. The Company has completed
its inventory and assessment phases of this plan and is actively
engaged in completing the remaining phases. The Company
currently expects to complete all phases of this plan and that
all computer systems will be Year 2000 complaint before the end
of 1999.
In this quarter, the Company completed the acquisition of KSI
and is in the process of integrating the systems of KSI into the
<PAGE>
Page 18
Company's operations. These systems will be included in the
Company's Year 2000 readiness plan.
In addition to assessing its own systems, the Company has
initiated communication with all of its vendors, service
providers and third party business partners to assess their Year
2000 readiness. A significant percentage of these entities have
responded in writing to the Company's Year 2000 readiness
inquiries. The Company plans to continue assessment of its
vendors, service suppliers and third party business partners to
ensure Year 2000 readiness. Despite the Company's diligence,
there can be no guarantee that the non-compliant systems of
other entities which the Company relies upon in its day to day
operations will not have a material adverse impact on the
Company. The actual impact on the Company resulting from non-
compliance of these entities cannot be determined at this time.
To date, the Company has expended approximately $250,000 in
conjunction with its Year 2000 readiness plan. The Company
expects that the cost of completing this Year 2000 readiness
plan, including replacement of all necessary computer systems,
will not exceed an additional $100,000.
The Company has limited the scope of its risk assessment to
those factors which it can reasonably be expected to have an
influence upon. The Company has made the assumption that
government agencies, utility companies and national
telecommunication providers will continue to operate.
Obviously, the lack of such services could have a material
impact on the Company's ability to operate, but the Company has
little, if any, ability to influence such an outcome, or to make
alternative arrangements in advance for such services if they
are unavailable. Additionally, the Company believes that
disruptions in the economy generally resulting from Year 2000
issues could have a material adverse impact on the Company. The
Company could be subject to litigation for computer system
failures such as equipment shutdown or failure to properly date
business records. The amount of potential liability or loss of
revenue to the Company cannot be reasonably estimated at this
time.
<PAGE>
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The Company intends to develop contingency plans within the
second quarter of 1999 to address Year 2000 problems. The
Company believes that this is an appropriate time frame for
developing these contingency plans and that efforts prior to
that time should be focused on the remediation and testing
phases of the Company's Year 2000 readiness plan.
PART II. OTHER INFORMATION:
Item 2. Changes in Securities and Use of Proceeds.
On August 10, 1998, the Company issued 143,372 shares of its
common stock, $0.10 par value, to the shareholders of Kearney
Systems, Inc. ("KSI") pursuant to Section 4(2) of the Securities
Act of 1933, as amended, in exchange for all of the outstanding
stock of KSI. The Company issued its common stock pursuant to
Section 4(2) in reliance on the fact that the KSI shareholders
were sophisticated investors, had access to information regarding
the Company, understood the risks of owning the Company's common
stock, had the ability to bear the economic risk of owning the
Company's common stock and acquired the Company's stock with
investment intent, and that the limited number of individuals
received the Company's common stock in the KSI transaction.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
27 Financial Data Schedule
(b) Reports on Form 8-K
On August 10, 1998, the Company filed a Current Report on Form
8-K for the period ended August 10, 1998.
<PAGE>
Page 20
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 13, 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: November 13, 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>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the financial statements of the Company for the nine months ended
September 30, 1998 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 6573
<SECURITIES> 0
<RECEIVABLES> 9661
<ALLOWANCES> 463
<INVENTORY> 0
<CURRENT-ASSETS> 16748
<PP&E> 8064
<DEPRECIATION> 4191
<TOTAL-ASSETS> 22763
<CURRENT-LIABILITIES> 8402
<BONDS> 0
0
0
<COMMON> 875
<OTHER-SE> 12648
<TOTAL-LIABILITY-AND-EQUITY> 22763
<SALES> 24106
<TOTAL-REVENUES> 24106
<CGS> 13165
<TOTAL-COSTS> 22611
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41738
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1624
<EPS-PRIMARY> .24
<EPS-DILUTED> .22
</TABLE>
