United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-27138
CATALYST INTERNATIONAL, INC.
--------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 39-1415889
- ----------------------------------------------------------------
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
8989 North Deerwood Drive, Milwaukee, WI 53223
------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(414) 362-6800
--------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 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 11, 1999, 7,867,305 shares of the issuer's
common stock were outstanding.
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CATALYST INTERNATIONAL, INC.
FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 1999
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - September 30, 1999
and December 31, 1998. . . . . . . . . . . . . . . . 3
Statements of Operations - Three months ended
September 30, 1999 and 1998. . . . . . . . . . . . . 5
Statements of Operations - Nine months ended
September 30, 1999 and 1998. . . . . . . . . . . . . 6
Statements of Cash Flows - Nine months ended
September 30, 1999 and 1998. . . . . . . . . . . . . 7
Notes to Financial Statements. . . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . 9
PART II-OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . 20
Item 2. Changes in Securities and Use of Proceeds. . . . 21
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . 21
Signatures. . . . . . . . . . . . . . . . . . . . . . . . 22
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CATALYST INTERNATIONAL, INC.
Balance Sheets
(in thousands)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $19,473 $ 8,555
Accounts receivable 11,059 9,739
Revenues in excess of billings 489 -
Prepaid expenses 569 503
------- -------
Total Current Assets 31,590 18,797
Equipment and Leasehold Improvements:
Computer hardware and software 6,221 5,421
Office equipment 2,326 2,330
Leasehold improvements 880 872
------- -------
9,427 8,623
Less accumulated depreciation 5,522 4,533
------- -------
Total Equipment and
Leasehold Improvements 3,905 4,090
Purchased software and capitalized
software development costs - 1,025
Intangible assets, net of accumulated
amortization of $54 in 1998 - 559
Goodwill, net of accumulated amortization
of $44 in 1998 - 1,086
Total Assets $35,495 $25,557
======= =======
</TABLE>
See accompanying notes
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CATALYST INTERNATIONAL, INC.
Balance Sheets
(in thousands, except per share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(unaudited)
<S> <C> <C>
Current Liabilities:
Accounts payable $ 1,849 $ 1,744
Income taxes payable - 100
Accrued liabilities 2,310 2,235
Deferred software license fees - 342
Deferred services and post-contract
customer support 5,401 4,457
Current portion of long-term debt 364 388
------- -------
Total Current Liabilities 9,924 9,266
Noncurrent Liabilities:
Long-term debt 250 412
Deferred services and post-contract
customer support 137 191
Deferred rent 270 285
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: 8,918,000 in 1999
and 8,767,000 in 1998 892 877
Additional paid-in capital 42,510 32,743
Accumulated deficit (13,724) (9,846)
Treasury stock, at cost: 1,064,000
shares of common stock in 1999
and 1,823,000 shares in 1998 (4,764) (8,371)
------- -------
Total Stockholders' Equity 24,914 15,403
Total Liabilities and Stockholders' Equity $35,495 $25,557
======= ======
</TABLE>
See accompanying notes
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CATALYST INTERNATIONAL, INC.
Statements of Operations
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
September 30,
1999 1998
------- -------
<S> <C> <C>
Revenues:
Software license fees $ 650 $ 2,311
Services and post-contract
customer support 6,513 5,179
Hardware and other 1,727 1,329
------- -------
Total Revenues 8,890 8,819
Operating Expenses:
Cost of software license fees 69 187
Cost of services and post-contract
customer support 4,125 3,695
Cost of hardware and other 1,483 1,064
Product development 1,894 814
Sales and marketing 1,806 1,184
General and administrative 1,494 1,047
Restructuring and other charges 3,588 -
------- -------
Total Operating Expenses 14,459 7,991
------- -------
Income (loss) from operations (5,569) 828
Other income 128 57
------- -------
Net income (loss) $(5,441) $ 885
======= =======
Net income (loss) per share
Basic $ (0.74) $ 0.13
Diluted $ (0.74) $ 0.12
</TABLE>
See accompanying notes
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CATALYST INTERNATIONAL, INC.
Statements of Operations
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1999 1998
------- -------
<S> <C> <C>
Revenues:
Software license fees $ 6,705 $ 6,081
Services and post-contract
customer support 19,183 15,580
Hardware and other 5,238 2,445
------- -------
Total Revenues 31,126 24,106
Operating Expenses:
Cost of software license fees 449 347
Cost of services and post-contract
customer support 11,759 10,867
Cost of hardware and other 4,499 1,951
Product development 5,807 2,377
Sales and marketing 5,410 4,055
General and administrative 3,866 3,014
Restructuring and other charges 3,588 -
------- -------
Total Operating Expenses 35,378 22,611
------- -------
Income (loss) from operations (4,252) 1,495
Other income 373 129
------- -------
Net income (loss) $(3,879) $ 1,624
======= =======
Net income (loss) per share
Basic $ (0.55) $ 0.24
Diluted $ (0.55) $ 0.22
</TABLE>
See accompanying notes
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CATALYST INTERNATIONAL, INC.
Statements of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1999 1998
------- -------
<S> <C> <C>
Operating Activities:
Net income (loss) $(3,879) $ 1,624
Adjustments to reconcile net income (loss) to net
Cash provided by (used in) operating activities:
Depreciation and amortization 1,283 973
Compensation expense on stock options 342 19
Loss on disposal of fixed assets 28 -
Provision for restructuring and other charges 3,257 -
Changes in operating assets and liabilities:
Accounts receivable (1,345) (1,011)
Prepaid expenses (57) 112
Accounts payable 75 397
Accrued liabilities (203) (455)
Deferred services and post-contract
customer support 890 1,112
Revenues in excess of billings (831) (153)
Deferred rent (14) (14)
------- -------
Total adjustments 3,425 980
------- -------
Net cash provided by (used in) operating activities (454) 2,604
Investing Activities:
Purchase of equipment and leasehold improvements (796) (422)
Capitalization of software costs (566) 10
------- -------
Net cash used in investing activities (1,362) (412)
Financing Activities:
Payments on long-term debt (314) (185)
Proceeds from exercise of stock options 638 310
Net proceeds from sale of treasury stock 12,410 -
------- -------
Net cash provided by financing activities 12,734 125
------- -------
Net increase in cash 10,918 2,317
Cash and cash equivalents at the beginning of period 8,555 4,256
------- -------
Cash and cash equivalents at the end of the period $19,473 $ 6,573
======= =======
</TABLE>
Noncash investing and financing activities:
For the nine months ended September 30, 1999 and 1998, the
Company acquired $158,000 and $22,000, respectively, of computer
hardware under capital leases.
See accompanying notes
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CATALYST INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
(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 Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for audited 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 1998
financial statements have been reclassified to conform to the
1999 presentation. Operating results for the three- and nine-
month periods ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the year
ended December 31, 1999. For further information, refer to the
audited financial statements and footnotes thereto included in
the Catalyst International, Inc. (the "Company") Annual Report
on Form 10-K for the year ended December 31, 1998.
2. Net Income Per Share of Common Stock
The following table sets forth the computation of basic and
diluted earnings per share.
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<TABLE>
<CAPTION>
For the For the
Three Months Nine Months
ended ended
September 30, September 30,
1999 1998 1999 1998
----- ----- ----- -----
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Denominator
Denominator for basic earnings
per share - weighted average
common shares 7,320 6,780 7,093 6,723
Effect of dilutive securities -
stock options and warrants - 597 - 594
----- ----- ----- -----
Denominator for diluted earnings
per share - adjusted weighted
average common shares 7,320 7,377 7,093 7,317
===== ===== ===== =====
</TABLE>
3. Strategic Alliance with SAP America, Inc.
During the third quarter of 1999, the Company and SAP America,
Inc. announced that SAP America, Inc. acquired a 9.7% stake in
the Company and that the Company and SAP AG (the parent company
of SAP America, Inc.) have entered into an advanced strategic
alliance. In connection with the strategic alliance (the
"Alliance"), SAP America, Inc. acquired approximately 760,000
shares of the Company's common stock at a price of $17 per
share.
4. Restructuring and Other Charges
In the third quarter of fiscal 1999, the Company recorded a
restructuring charge aggregating $3.6 million related to the
discontinuance of the Windows NT(r) WMS product, as required under
the Alliance. The restructuring charge included $557,000
relating to the closing of the Orlando, Florida office and
termination of employees. In addition, the charge included a
$3.0 million non-cash charge for both the write-off of
capitalized software and other intangibles related to the
Windows NT(r) WMS product, the future value of which was impaired
by the restructuring actions. The Company expects that all
material restructuring actions will be completed by the end of
the fourth quarter of fiscal year 1999.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation
The following discussion contains forward-looking statements
that are subject to risks and uncertainties that could cause
actual results to differ materially from those anticipated by
such statements. These statements use words such as
"anticipate," "estimate," or "future," or may be identified as
"the Company expects" or "the Company believes" or otherwise
stated as the Company's predictions for the future. These
statements, as with any predictions of the future, involve
certain risk factors beyond the Company's control. The
Company's actual results may differ materially from the results
discussed in the forward-looking statements and any such
differences could have a material negative impact on the
Company's share price. Factors that might cause such a
difference include, but are not limited to, a decrease in demand
for the Company's products, delays in the timely availability of
new features and releases of the Company's products, a too rapid
increase in the Company's level of spending, actions taken by
competitors, technological changes, 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 revenues are derived from software license fees,
services and post-contract customer support ("PCS"), and
hardware sales and other. Total revenues for the third quarter
of 1999 were $8.9 million, which represented an increase of 1.0%
over the third quarter of 1998 total revenues of $8.8 million.
For the nine months ended September 30, 1999, total revenues
were $31.1 million, representing an increase of 29.4% over 1998
total revenues of $24.1 million for the same period. The
increase in total revenues for the nine-month period was due
primarily to a greater number of contracts signed, the
accompanying consulting and professional services resulting from
new and existing customers, and an increase in third party
hardware sales to customers. The Company believes its third
quarter results were greatly affected by the year 2000 slowdown
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in sales of application software packages. The Company expects
fourth quarter results to be in line with the third quarter.
International revenues were $1.2 million in the third quarter of
1999, representing 13.9% of total revenues, compared to
international revenues of $1.5 million, or 17.4% of total
revenues, in the third quarter of 1998. Total international
revenues were $6.0 million and $5.4 million for the nine months
ended September 30, 1999 and 1998, respectively. For the nine
months ended September 30, 1999, international revenues
represented 19.2% of total revenues compared to 22.3% in the
same period of 1998. This decrease in international revenues as
a percentage of total year-to-date revenues was due to the fewer
number of contracts signed in the period. The Company believes
that international license fee revenues will increase with the
presence of a new director of international sales.
Software License Fees
Software license fee revenues consist of revenues from software
license agreements for the Company's products, related add-on
products, and third party software. The third quarter of 1999
software license fee revenues of $650,000 represented a decrease
from third quarter of 1998 software license fee revenues of $2.3
million. This decrease was due to the lack of new customer
contracts signed in the third quarter of 1999. For the nine
months ended September 30, 1999, license fee revenues of $6.7
million increased by $624,000, or 10.3%, over 1998 license fee
revenues of $6.1 million for the same period. This was
attributable to increased sales of licenses requiring fewer
modifications and additional license sales to existing
customers.
The Company follows the software revenue recognition practices
set forth in Statement of Position 97-2, "Software Revenue
Recognition," issued by the American Institute of Certified
Public Accountants. For projects requiring "significant"
modifications (modifications costing more than 5% of the
software license fee) to the software, the Company uses contract
accounting procedures (based upon percentage of completion) to
recognize revenue, provided that such amounts are reasonably
collectable. Revenue for projects with no modifications or
modifications costing less than 5% of the software license fee
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are recognized upon reaching contract milestones, to the extent
that payment is fixed and determinable and payment is likely
within 120 days. Although the Company has seen a significant
slowdown in new contracts signed in the third quarter of 1999
and does not believe there will be a material increase in new
contracts signed in the fourth quarter of 1999, the Company does
believe that license fee revenues should increase in early 2000
due to increased worldwide sales and marketing efforts, the
introduction of new products, and efforts to deliver standard
packaged solutions that meet the requirements of its six
vertical markets (retail, consumer goods, motor vehicle and
parts, industrial technology, process goods, and Internet
fulfillment).
Services and PCS
Services and PCS revenues are derived from software
modifications, professional services, and PCS agreements.
Services and PCS revenues increased 25.8% to $6.5 million in the
third quarter of 1999, from $5.2 million in the third quarter of
1998. For the nine-month period ended September 30, 1999,
services and PCS revenues were $19.2 million, an increase of
$3.6 million, or 23.1%, over $15.6 million for the same period
in 1998. Services and PCS revenues increased in the third
quarter and year-to-date 1999 periods due to the combined effect
of an increased number of the Company's product implementations
at new customer sites, multi-site rollouts for existing
customers, upgrades to new releases of the Company's products,
and renewals of PCS agreements. The components of services and
PCS revenues as a percentage of total revenues in the third
quarter of 1999 were 18.8% for software modifications, 34.7% for
professional services, and 19.8% for PCS agreements compared
with 8.3%, 32.2%, and 18.1%, respectively, in the third quarter
of 1998.
Software modifications are determined during the customer's
Conference Room Pilot (CRP) and consist of changes to the
software to facilitate specific functionality desired by a
customer. The Company believes that as the number of new
contracts increases, future modifications revenues as a
percentage of total revenues should decrease due to the
increased functionality of newer releases of the Company's
products.
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Professional services revenues are derived from training,
technical services, performance of the CRP, project management,
and implementation services. Revenue for professional services
is recognized based on the number of hours of work actually
performed. The increase in professional services revenue for
the third quarter of 1999 was due to an effort on the part of
the Company to sell upgrades, training, and other services to
existing customers. The Company believes that future
professional services revenues could decrease due to the lack of
new customer contracts signed in the third quarter of 1999.
Customers may enter into a one-year agreement for PCS at the
time they first license the products and, once the software is
installed and the warranty period has expired, pay for the first
year of PCS fees in advance. PCS revenues are recognized
ratably over the term of the PCS agreement. The increase in PCS
revenues was due primarily to growth in the installed customer
base for the Company's products and current customers renewing
their PCS agreements. The Company believes that PCS revenues
may increase in the future as more of the Company's products are
implemented, resulting in the execution of corresponding PCS
agreements and renewal of existing PCS agreements.
Hardware and Other
Hardware and other revenues consist of products that the Company
sold to its customers on behalf of hardware and other equipment
manufacturers. Hardware and other revenues consist of computer
hardware, radio frequency equipment, and printers. Hardware and
other revenues increased $398,000 to $1.7 million in the third
quarter of 1999 from $1.3 million during the same period in
1998. For the nine months ended September 30, 1999, hardware
and other revenues were $5.2 million as compared to $2.4 million
for the same period in 1998. Hardware sales represented 16.8%
of total revenues for the nine months ended September 30, 1999
compared to 10.1% for the same period in 1998. The increase in
hardware and other revenue was due to a continued desire by
certain customers for a turnkey solution.
Cost of Software License Fees
Cost of software license fees consists of the cost of third
party software products sold by the Company. In the third
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quarter of 1999, cost of software license fees decreased to
$69,000 from $187,000 in the third quarter of 1998 due to a
decrease in revenues from the sale of third party software.
Year-to-date cost of software license fees increased by 29.4% to
$449,000 in 1999 from $347,000 in 1998.
The Company expects to continue to expense the cost of
developing new releases of its primary product offering, the
Catalyst WMS for UNIX, and therefore anticipates that the cost
of software license fees for that product and related third
party software should remain approximately the same in the
future as a percentage of total software license fee revenues.
Cost of Services and PCS
Cost of services and PCS consists primarily of personnel and
related costs for the performance of software modifications,
professional services, and PCS. The cost of services and PCS
increased 11.6% to $4.1 million in the third quarter of 1999
from $3.7 million for the third quarter of 1998. However, as a
percentage of services and PCS revenues, the cost of services
and PCS decreased to 63.3% for the third quarter of 1999 from
71.3% for the third quarter of 1998, reflecting improvement and
efficiencies in the delivery of these services. Year-to-date
cost of services and PCS increased 8.2% to $11.8 million in
1999, from $10.9 million for the same period in 1998 and
decreased as a percent of related revenues to 61.3% at September
30, 1999 from 69.7% at September 30, 1998. The Company believes
that cost of services and PCS as a percentage of related
revenues could increase due to the potential decline in new
contracts mentioned in the Services and PCS section, above.
Cost of Hardware and Other
Cost of hardware and other consists primarily of the cost of
products sold by the Company on behalf of other manufacturers.
The Company does not inventory, service, or discount hardware
items, but makes them available to customers who desire a
turnkey solution. Cost of third party hardware in the third
quarter of 1999 was $1.5 million compared to $1.1 million for
the third quarter of 1998. For the nine-month period, cost of
third party hardware and other was $4.5 million, compared to
$2.0 million for the nine months ended September 30, 1998. The
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increase in cost for the quarter and the year is attributable to
the increase in sales of third party hardware.
Product Development
Product development costs include expenses associated with
research and development, including costs of engineering
personnel and related development expenses such as development
software tools, training, and documentation. Product
development expenses as a percentage of total revenues for the
third quarter of 1999 increased to 21.3% from 9.2% in the third
quarter of 1998. Actual product development expenses were $1.9
million in the third quarter of 1999 compared to $814,000 in the
third quarter of 1998, representing an increase of $1.1 million.
The increase in product development costs was primarily due to
the Company's current efforts to develop new products and
enhance its current product offerings, as well as develop new
features and functions in its key verticals. The Company
believes that product development costs should decrease as a
percentage of total revenues in the future. The Company
continues to expense all software development costs related to
its UNIX product as incurred.
Sales and Marketing
Sales and marketing expenses consist primarily of salaries and
commissions, marketing and promotional tools and expenses, and
travel expenses. Sales and marketing expenses as a percentage
of total revenues for the third quarter of 1999 increased to
20.3% from 13.4% in the third quarter of 1998. For the nine
months ended September 30, 1999, sales and marketing expenses as
a percentage of total revenues increased to 17.4% from 16.8% for
the same period in 1998. Although sales and marketing expenses
as a percentage of total revenues was relatively flat for the
nine-month period, there was an increase in the third quarter
expenses as a percentage of revenues due to the lower sales
volume.
Actual sales and marketing expenses increased to $1.8 million in
the third quarter of 1999 compared to $1.2 million in the third
quarter of 1998. For the nine months ended September 30, 1999,
actual sales and marketing expenses were $5.4 million, compared
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to $4.1 million for the same period in 1998, presenting an
increase of 33.4%. The increase in actual sales and marketing
expenses was primarily due to increased trade show and
promotional activities and the addition of sales and marketing
personnel.
General and Administrative
General and administrative expenses consist primarily of the
salaries of administrative, executive, finance, and quality
assurance personnel. Actual general and administrative expenses
increased to $1.5 million in the third quarter of 1999 from $1.0
million in the third quarter of 1998 due to legal expenses
incurred related to the formation of the Alliance, employee
procurement costs, and increases in reserve levels. Year-to-
date general and administrative expenses increased to $3.9
million from $3.0 million at September 30, 1998, an increase of
$852,000. The increase in 1999 year-to-date expenses was due to
the factors mentioned above as well as the second quarter one-
time charge to compensation expense for the former chief
financial officer.
General and administrative expenses as a percentage of total
revenues for the third quarter of 1999 increased to 16.8% from
11.9% in the third quarter of 1998. For the nine months ended
September 30, 1999, general and administrative expenses as a
percentage of total revenues decreased slightly to 12.4% from
12.5% in the same period in 1998. The Company expects that
general and administrative expenses may increase in the future,
but should continue to decrease as a percentage of total
revenues.
Restructuring and Other Charges
During the third quarter of 1999, the Company initiated a
restructuring plan to discontinue development of its Windows NT(r)
WMS product and close its Orlando, Florida office. The
restructuring plan was put in place due to the Alliance, which
was announced in the third quarter of 1999. Because of the
Alliance, the Company has made significant management changes
and plans to further expand its marketing efforts to increase
exposure of its UNIX WMS products and services.
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Restructuring charges as of September 30, 1999 amounted to $3.6
million and included severance payments made to seven employees;
office lease and equipment lease cancellations; write-off of
intangible assets, including purchased software and capitalized
software development costs, assembled workforce, customer list,
and goodwill; and other miscellaneous expenses.
Other Income and Expense
Included in other income and expense for the third quarter of
1999 was $155,000 of interest income on investments and $69,000
interest expense on equipment leases. Other income and expenses
also consisted of a foreign currency translation gain of
$42,000. This compares to $71,000 of interest income and
$14,000 of interest and other expense in the third quarter of
1998. For the nine months ended September 30, 1999, interest
income on equipment leases was $380,000. Other income and
expense included a foreign currency translation gain of $70,000
and other expenses of $77,000. For the same period in 1998,
interest income was $166,000 and was offset by $37,000 of
interest expense. The increase in interest income in 1999 was
due to increased cash levels as a result of the sale of treasury
stock to SAP America, Inc. in the third quarter of 1999. The
increase in interest expense in 1999 compared to 1998 was due to
new computer equipment lease transactions in 1999.
Income Tax Expense
No federal and state tax expense was recorded for the quarters
or nine-month periods ended September 30, 1999 and 1998 due to
the Company's federal and state net operating loss position. No
deferred tax expense was recorded in the quarters ended
September 30, 1999 and 1998 as the Company continues to have a
substantial net operating loss carryforward. The Company
recorded a valuation allowance to reserve for the net deferred
tax assets.
Liquidity and Capital Resources
Net cash used in operating activities was $454,000 for the nine
months ended September 30, 1999, compared to $2.6 million
provided by operating activities for the nine months ended
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September 30, 1998. The decrease during this period was due
primarily to the net loss of $3.9 million.
Cash used in investing activities increased to $1.4 million
during the nine months ended September 30, 1999 from $412,000
during the nine months ended September 30, 1998 due to increased
equipment and leasehold improvement purchases as well as
capitalized software costs.
Financing activities generated cash of $12.7 million for the
nine months ended September 30, 1999 compared to $125,000 for
the same period in 1998. The increase in net cash provided by
financing activities in 1999 was primarily due to the proceeds
from the sale of treasury stock to SAP America, Inc.
As of September 30, 1999, the Company had $19.5 million in cash
and cash equivalents, which consisted primarily of money market
funds and commercial paper. In addition, the Company signed a
$5.0 million line of credit (the "Revolving Credit Facility"),
which superseded a $1.0 million line of credit, with Bank One,
Milwaukee, Wisconsin in October 1999. The Revolving Credit
Facility bears interest at the prime rate subject to changes
found in the Revolving Credit Facility agreement and expires in
October 2000. As of September 30, 1999, there were no amounts
outstanding under the Revolving Credit Facility, nor have there
been any borrowings on the new line since it was signed. Except
for the increase in the line of credit, no significant terms
were changed in the Revolving Credit Facility.
Accounts receivable were $11.1 million as of September 30, 1999.
This compares to $9.7 million at December 31, 1998 and $9.2
million as of September 30, 1998. The increase from the
December 31, and September 30, 1998 balances was due to a longer
than anticipated collection cycle at September 30, 1999 compared
to December 31 and September 30, 1998. At September 30, 1999,
the Company had reserves for doubtful accounts of $788,000 and
believes it has adequately provided for any risks known or
anticipated at this time.
Longer term cash requirements, other than normal operating
expenses, are anticipated for the development of new software
products and enhancement of existing products, and the financing
of anticipated growth. The Company believes that its existing
<PAGE>
Page 18
cash, cash equivalents, and available line of credit, along with
anticipated cash generated from operations, should be sufficient
to satisfy its cash requirements for at least the next 12
months.
The Company has never paid cash dividends on its common stock.
The Company's policy has been to retain cash from operations to
provide funds for the operation and expansion of its business.
Accordingly, the Company does not anticipate paying cash
dividends in the foreseeable future.
Impact of Year 2000
The Year 2000 issue is the result of computer programs 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, the Catalyst WMS for
UNIX, is written to store the year in the database using four
digits to allow data entry in an unambiguous manner and to
process program functions in four digits. The Company has
certified that its most recent product offerings are capable of
processing date-related data in four digits. The Company has
extensively tested these products and has not to date found any
material errors which could affect Year 2000 processing.
However, due to the fact that the Company's products are
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 Company's products which, in turn, may lead to
claims against the Company. The potential for and outcome of
such claims and impact on the Company cannot be estimated at
this time.
In mid-1997, the Company began a proactive program of offering
to its existing customers assistance in assessing whether the
customer's fully integrated system is Year 2000 compliant and
<PAGE>
Page 19
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 third party software and hardware products, their
entire system should be reviewed for compliance. While certain
customers have retained the Company to perform an assessment of
and/or a coordination of the remediation work for their entire
system, other customers have advised the Company that it has
performed its own assessment/renovation.
With respect to the Company's internal computer systems and
equipment, the Company has conducted 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; (iv) testing
of all remediated systems; and (v) developing a contingency
plan. The Company has completed phases (i), (ii), and (iii) of
this plan and is actively engaged in completing the remaining
phases. The Company expects to complete all phases of its
readiness plan before year-end.
In addition to assessing its internal systems, the Company has
surveyed its material service providers, suppliers, and critical
business partners to assess their Year 2000 readiness. While
many of the material service providers, suppliers, and critical
business partners have responded to this survey, not all have
provided assurance of their Y2K 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 therefrom cannot be determined at this time.
To date, the Company has expended approximately $275,000 in
conjunction with its Year 2000 readiness plan. The Company
expects that the cost of completing this Year 2000 readiness
<PAGE>
Page 20
plan, including replacement of all necessary computer systems,
will not exceed an additional $75,000.
The Company has limited the scope of its risk assessment to
those factors upon which it can reasonably be expected to have
an influence. The Company has made the assumption that
government agencies, utility companies, and national
telecommunication providers will continue to operate. The lack
of such services could have a material impact on the Company's
ability to operate; however, 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
amount of potential liability or loss of revenue to the Company
cannot be reasonably estimated at this time.
The information contained herein, as well as all information
previously filed by the Company regarding its Year 2000
readiness, are designated as Year 2000 readiness disclosures as
defined by the Year 2000 Information and Readiness Disclosure
Act.
Economic and Monetary Union in Europe (EMU)
EMU refers to the movement toward economic and monetary union in
Europe with the ultimate goal of introducing a single currency
called the euro. While the European monetary union will have
profound financial and political implications, the Company
believes that the formation of EMU will not impact the Company's
earnings in any material way.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On October 8, 1999, a former customer (the "Claimant")
instituted arbitration proceedings against the Company with the
American Arbitration Association in Milwaukee, Wisconsin. The
Claimant attempts to revoke its 1998 acceptance of the Company's
software product and alleges that the Company breached its
<PAGE>
Page 21
warranty obligations under the Agreement. Claimant seeks relief
in the form of monetary damages in an amount not less than
$1,944,887. Management believes that the allegations of the
Claimant are without merit and intends to vigorously defend
against them.
The costs associated with defending the above legal proceeding
and the potential outcome cannot be determined at this time and
accordingly, no estimate for such costs have been included in
the accompanying Financial Statements.
Item 2. Changes in Securities and Use of Proceeds
On August 31, 1999, the Company sold 759,485 shares of common
stock to SAP America, Inc. for $17 per share. No general
solicitation was involved; however, the Company incurred
approximately $530,000 of consulting, legal, and other expenses
in connection with the transaction. The purchaser's parent
company, SAP AG, and the Company have entered into an advanced
strategic alliance. The sale was exempt from registration under
the Securities Act pursuant to Section 4(2) thereof.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Number Description
------ ---------------------------------
<S> <C>
4 Bank One Revolving Line of Credit
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
On September 19, 1999, the Company filed a Current Report on
Form 8-K with respect to Item 5, for an August 31, 1999 event.
<PAGE>
Page 22
SIGNATURES
Pursuant the requirements of the Securities Exchange Act of
1934, the registrant had duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CATALYST INTERNATIONAL, INC.
Dated: November 15, 1999 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 15, 1999 By: /s/ Timothy Sherlock
------------------------------
Timothy Sherlock
Vice President, Finance and
Chief Financial Officer
Signing on behalf of the
registrant and as principal
financial officer.
<PAGE>
<PAGE>
Exhibit 4
Bank One Revolving Line of Credit
<PAGE>
Page 1
PROMISSORY NOTE
Borrower: CATALYST INTERNATIONAL, INC.
8989 NORTH DEERWOOD DRIVE
MILWAUKEE, WI 53223
Lender: Bank One, Wisconsin
Downtown Milwaukee
111 East Wisconsin Ave.
Milwaukee, WI 53202
- -----------------------------------------------------------------------------
Principal Amount: $5,000,000.00
Date of Note: October 22, 1999
PROMISE TO PAY. For value received, CATALYST INTERNATIONAL, INC. ("Borrower")
promises to pay to Bank One, Wisconsin ("Lender"), or order, in lawful money
of the United States of America, the principal amount of Five Million &
00/100 Dollars ($5,000,000.00) ("Total Principal Amount") or so much as may
be outstanding, together with interest on the unpaid outstanding principal
balance from the date advanced until paid in full.
PAYMENT. This Note shall be payable as follows: interest shall be due and
payable monthly as it accrues, commencing on November 22, 1999 and continuing
on the same day of each month thereafter during the term of this Note, and
the outstanding principal balance of this Note, together with all accrued but
unpaid interest, shall be due and payable on October 22, 2000. The annual
interest rate for this Note is computed on a 366/360 basis; that is, by
applying the ratio of the annual interest rate over a year of 360 days,
multiplied by the outstanding principal balance, multiplied by the actual
number of days the principal balance is outstanding. Borrower will pay Lender
at the address designated by Lender from time to time in writing. If any
payment of principal of or interest on this Note shall become due on a day
which is not a Business Day, such payment shall be made on the next
succeeding Business Day. As used herein, the term "Business Day" shall mean
any day other than a Saturday, Sunday or any other day on which Lender is
closed. Unless otherwise agreed to in writing, or otherwise required by
applicable law, payments will be applied first to accrued, unpaid interest,
then to principal, and any remaining amount to any unpaid collection costs,
late charges and other charges, provided, however, upon delinquency or other
default. Lender reserves the right to apply payments among principal
interest, late charges, collection costs, and other charges at its
discretion. The books and records of Lender shall be prima facie evidence of
all outstanding principal of and accrued but unpaid interest on this Note. If
this Note is governed by or is executed in connection with a loan agreement,
this Note 1s subject to the terms and provisions thereof.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to
fluctuation based upon the Prime Rate of interest in effect from time to time
(the "Index") (which rate may not be the lowest, best or most favorable rate
of interest which Lender may charge on loans to its customers). "Prime Rate"
shall mean the rate announced from time to time by Lender as Its prime rate.
Each change in the rate to be charged on this Note will become effective
without notice on the same day as the Index changes. Except as otherwise
provided herein, the unpaid principal balance of this Note will accrue
interest at a rate per annum which will from time to time be equal to the sum
of the Index, minus 0.600%. NOTICE: Under no circumstances will the interest
rate on this Note be more than the maximum rate allowed by applicable law.
<PAGE>
Page 2
PREPAYMENT. Borrower may pay without fee all or a portion of the principal
amount owed hereunder earlier than it is due. All prepayments shall be
applied to the indebtedness owing hereunder in such order and manner as
Lender may from time to time determine in its sole discretion.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment or $26.00, whichever is greater.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment of principal or interest when due under
this Note or any other indebtedness owing now or hereafter by Borrower to
Lender; (b) failure of Borrower or any other party to comply with or perform
any term, obligation, covenant or condition contained in this Note or in any
other promissory note, credit agreement, loan agreement, guaranty, security
agreement, mortgage, deed of trust or any other instrument, agreement or
document, whether now or hereafter existing, executed in connection with this
Note (the Note and all such other Instruments, agreements, and documents
shall be collectively known herein as the "Related Documents"); (c) any
representation or statement made or furnished to Lender herein, in any of the
Related Documents or in connection with any of the foregoing is false or
misleading in any material respect; (d) Borrower or any other party liable
for the payment of this Note, whether as maker, endorser, guarantor, surety
or otherwise, becomes insolvent or bankrupt, has a receiver or trustee
appointed for any part of its property, makes an assignment for the benefit
of its creditors, or any proceeding is commenced either by any such party or
against it under any bankruptcy or insolvency laws; (e) the occurrence of any
event of default specified in any of the other Related Documents or in any
other agreement now or hereafter arising between Borrower and Lender; (f) the
occurrence of any event which permits the acceleration of the maturity of any
indebtedness owing now or hereafter by Borrower to any third party; (g) the
liquidation, termination, dissolution, death or legal incapacity of Borrower
or any other party liable for the payment of this Note, whether as maker,
endorser, guarantor, surety, or otherwise; or (h) Lender deems itself
insecure by in good faith believing the prospect of payment or performance
hereunder or under any of the Related Documents is impaired.
LENDER'S RIGHTS. Upon default, Lender may at its option, without further
notice or demand (i) declare the entire unpaid principal balance on this
Note, all accrued unpaid interest and all other costs and expenses for which
Borrower is responsible for under this Note and any other Related Document
immediately due, (ii) refuse to advance any additional amounts under this
Note, (iii) foreclose all liens securing payment hereof, (iv) pursue any
other rights, remedies and recourses available to the Lender, including
without limitation, any such rights, remedies or recourses under the Related
Documents, at law or in equity, or (v) pursue any combination of the
foregoing. Upon default, including failure to pay upon final maturity.
Lender, at its option, may also, if permitted under applicable law, do one or
both of the following: (a) increase the variable interest rate on this Note
3.000 percentage points, and (b) add any unpaid accrued interest to principal
and such sum will bear interest therefrom until paid at the rate provided in
this Note (including any increased rate). The interest rate will not exceed
the maximum rate permitted by applicable law. Lender may hire an attorney to
help collect this Note if Borrower does not pay and Borrower will pay
<PAGE>
Page 3
Lender's reasonable attorneys' fees and all other costs of collection, unless
prohibited by applicable law. This Note has been delivered to Lender and
accepted by Lender in the State of Wisconsin. Subject to the provisions on
arbitration, this Note shall be governed by and construed in accordance with
the laws of the State of Wisconsin without regard to any conflict of laws or
provisions thereof.
PURPOSE. Borrower agrees that no advances under this Note shall be used for
personal, family, or household purposes and that all advances hereunder shall
be used solely for business, commercial, agricultural or other similar
purposes.
JURY WAIVER. THE BORROWER AND LENDER (BY ITS ACCEPTANCE HEREOF) HEREBY
VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO
HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON
CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG THE BORROWER AND LENDER ARISING
OUT OF OR IN ANY WAY RELATED TO THIS NOTE, ANY RELATED DOCUMENT OR ANY
RELATIONSHIP BETWEEN LENDER AND BORROWER. THIS PROVISION IS A MATERIAL
INDUCEMENT TO LENDER TO PROVIDE THE FINANCING EVIDENCED BY THIS NOTE.
BORROWER OR LENDER MAY FILE A COPY OF THIS NOTE WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF BORROWER AND LENDER TO THE WAIVER OF THEIR RIGHT
TO TRIAL BY JURY.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $26.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Unless a lien would be prohibited by law or would render a
nontaxable account taxable. Borrower grants to Lenders contractual security
interest in. and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's
accounts with Lender (whether checking, savings, or any other account),
including without limitation all accounts held jointly with someone else and
all accounts Borrower may open in the future. Borrower authorizes Lender, to
the extent permitted by applicable law, to charge or setoff all sums owing on
this Note against any and all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Borrower may
request advances and make payments hereunder from time to time, provided that
it is understood and agreed that the aggregate principal amount outstanding
from time to time hereunder shall not at any time exceed Total Principal
Amount. The unpaid principal balance of this Note shall increase and decrease
with each new advance or payment hereunder as the case may be. Subject to the
terms hereof, Borrower may borrow, repay and reborrow hereunder. Advances
under this Note, as well as directions for payment from Borrower's accounts,
may be requested orally or in writing by grower or by an authorized person.
Lender may, but need not, require that all oral requests be confirmed in
writing. Borrower agrees to be liable for all sums either: (a) advanced in
accordance with the instructions of an authorized person or (b) credited to
any of Borrower's accounts with Lender.
ARBITRATION. Lender and Borrower agree that upon the written demand of either
party, whether made before or after the institution of any legal proceedings,
<PAGE>
Page 4
but prior to the rendering of any judgment in that proceeding, all disputes,
claims and controversies between them, whether individual joint or class
action in nature, arising from this Note, any Related Document or otherwise,
including without limitation contract disputes and tort claims shall be
resolved by binding arbitration pursuant to the Commercial Rules of the
American Arbitration Association ("AAA"). Any arbitration proceeding held
pursuant to this arbitration provision shall be conducted in the city nearest
the Borrower's address having an AAA regional office, or at any other place
selected by mutual agreement of the parties. No act to take or dispose of any
collateral shall constitute a waiver of this arbitration agreement or be
prohibited by this arbitration agreement. This arbitration provision shall
not limit the right of either party during any dispute, claim or controversy
to seek, use, and employ ancillary, or preliminary rights and/or remedies,
judicial or otherwise, for the purposes of realizing upon, preserving,
protecting, foreclosing upon or proceeding under forcible entry and detainer
for possession of, any real or personal property, and any such action shall
not be deemed an election of remedies. Such remedies include, without
limitation, obtaining injunctive relief or a temporary restraining order.
Invoking a power of sale under any deed of trust or mortgage, obtaining a
writ of attachment or imposition of a receivership, or exercising any rights
relating to personal property. Including exercising the right of set-off, or
taking or disposing of such property with or without judicial process
pursuant to the Uniform Commercial Code. Any disputes, claims, or
controversies concerning the lawfulness or reasonableness of an act, or
exercise of any right or remedy, concerning any collateral, including any
claim to rescind, reform, or otherwise modify any agreement relating to the
collateral, shall also be arbitrated; provided, however that no arbitrator
shall have the right or the power to enjoin or restrain any act of either
party. Judgment upon any award rendered by any arbitrator may be entered in
any court having jurisdiction. The statute of limitations, estoppel, waiver,
laches and similar doctrines which would otherwise be applicable in an action
brought by a party shall be applicable in any arbitration proceeding, and the
commencement of an arbitration proceeding shall be deemed the commencement of
any action for these purposes. The Federal Arbitration Act (Title 9 of the
United States Code) shall apply to the construction, interpretation, and
enforcement of this arbitration provision.
RENEWAL AND EXTENSION. This Note is given in replacement, renewal and/or
extension of, but not extinguishing the indebtedness evidenced by, that
promissory note dated November 16, 1998 executed by Borrower in the original
principal amount of $1,000,000.00, and is not a novation thereof. All
interest evidenced by the note being replaced, renewed, and/or extended by
this instrument shall continue to be due and payable until paid.
ADDITIONAL PROVISION REGARDING LATE CHARGES. In the 'Late Charge" provision
set forth above, the following language is hereby added after the word
"greater": " up to the maximum amount of One Thousand Five Hundred Dollars
($1,500.00) per late charge".
ADDITIONAL PROVISION. Additional terms and conditions of this Note are
contained in the Addendum dated as of the date of this Note, which is
attached hereto and to which reference is hereby made.
<PAGE>
Page 5
GENERAL PROVISIONS. This Note benefits the Lender and its successors and
assigns, and binds Borrower and Borrower's heirs, successors, assigns, and
representatives. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person
who signs, guarantees or endorses this Note, to the extent allowed by law,
waive presentment, demand for payment, protest and notice of dishonor. Upon
any change in the terms of this Note, and unless otherwise expressly stated
in writing, no party who signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released from liability. All such
parties agree that Lender may renew or extend (repeatedly and for any length
of time) this Note, or release any party or guarantor or collateral; or
impair, fail to realize upon or perfect Lender's security interest in the
collateral: and take any other action deemed necessary by Lender without the
consent of or notice to anyone. All such parties also agree that Lender may
modify this Note without the consent of or notice to anyone other than the
party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER
AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY
OF THE NOTE.
BORROWER:
CATALYST INTERNATIONAL, INC.
X /s/ Timothy Sherlock (SEAL)
------------------------------------
Authorized Signer
<PAGE>
Page 6
ADDENDUM
TO
PROMISSORY NOTE
IN THE
PRINCIPAL AMOUNT OF $5,000,000.00
This Addendum is executed with respect to the Promissory Note in the
original principal amount of $5,000,000.00 dated October 22, 1999, made by
Catalyst International, Inc., a Delaware corporation (referred to in this
Addendum as "Borrower"), payable to the order of Bank One, Wisconsin
("Lender"), and is hereby incorporated into and made a part of the Note.
Terms used in this Addendum with their initial letters capitalized are used
as defined in the Note, unless they are otherwise expressly defined herein.
1. The paragraphs in the Note having captions "VARIABLE INTEREST RATE"
and "PREPAYMENT," are hereby deleted in each of their respective entireties
and the following paragraphs are hereby substituted in lieu thereof:
VARIABLE INTEREST RATE. Subject to designation of a different interest
rate index by Borrower as provided below, the interest rate on this
Note is subject to fluctuation based upon the Prime Rate of interest in
effect from time to time (the "Index"). "Prime Rate" shall mean the
rate announced from time to time by Lender as its prime rate. Each
change in the variable interest rate to be charged on this Note will
become effective without notice on the same day as the Index changes.
Except as otherwise provided herein, the unpaid principal balance of
this Note will accrue interest at a rate per annum which will from time
to time be equal to the sum of the Index minus .500%. NOTICE: Under no
circumstances will the interest rate on this Note be more than the
maximum rate allowed by applicable law.
Interest Rate Options: The following interest rate options are
available under this Note:
(a) Default Option. The interest rate margin and Index
described in the "VARIABLE INTEREST RATE" paragraph above (the "Default
Option"). NOTICE: Under no circumstances will the interest rate on this
Note be more than the maximum rate allowed by applicable law.
(b) One Month LIBOR Rate.
The interest rate on this Note is subject to fluctuation based upon the
LIBOR Rate of interest in effect from time to time (the "One Month
Index"). "LIBOR Rate" shall mean the offered rate for U.S. Dollar
deposits of not less than $1,000,000.00 as of 11:00 A.M. City of London,
England time two London Business Days prior to the first date of each
Interest Period of this Note as shown on the display designated as
"British Bankers Assoc. Interest Settlement Rates" on the Telerate
System ("Telerate"), Page 3750 or Page 3740, or such other page or pages
as may replace such pages on Telerate for the purpose of displaying such
rate. Provided, however, that if such rate is not available on Telerate
then such offered rate shall be otherwise independently determined by
Lender from an alternate, substantially similar independent source
<PAGE>
Page 7
available to Lender or shall be calculated by Lender by a substantially
similar methodology as that theretofore used to determine such offered
rate in Telerate. "London Business Day" means any day other than a
Saturday, Sunday or a day on which banking institutions are generally
authorized or obligated by law or executive order to close in the City
of London, England. Each change in the rate to be charged on this Note
will become effective without notice on the commencement of each
Interest Period based upon the One Month Index then in effect. "Interest
Period" means each consecutive one month period (the first of which
shall commence on the date of this Note) effective as of the first day
of each Interest Period and ending on the last day of each Interest
Period, provided that if any Interest Period is scheduled to end on a
date for which there is no numerical equivalent to the date on which the
Interest Period commenced, then it shall end instead on the last day of
such calendar month. Except as otherwise provided herein, the unpaid
principal balance of this Note will accrue interest at a rate per annum
which will from time to time be equal to the sum of the One Month Index
plus 1.50%. NOTICE: Under no circumstances will the interest rate on
this Note be more than the maximum rate allowed by applicable law.
(c) Two Month LIBOR Rate.
The interest rate on this Note is subject to fluctuation based upon the
LIBOR Rate of interest in effect from time to time (the "Two Month
Index"). "LIBOR Rate" shall mean the offered rate for U.S. Dollar
deposits of not less than $1,000,000.00 as of 11:00 A.M. City of London,
England time two London Business Days prior to the first date of each
Interest Period of this Note as shown on the display designated as
"British Bankers Assoc. Interest Settlement Rates" on the Telerate
System ("Telerate"), Page 3750 or Page 3740, or such other page or pages
as may replace such pages on Telerate for the purpose of displaying such
rate. Provided, however, that if such rate is not available on Telerate
then such offered rate shall be otherwise independently determined by
Lender from an alternate, substantially similar independent source
available to Lender or shall be calculated by Lender by a substantially
similar methodology as that theretofore used to determine such offered
rate in Telerate. "London Business Day" means any day other than a
Saturday, Sunday or a day on which banking institutions are generally
authorized or obligated by law or executive order to close in the City
of London, England. Each change in the rate to be charged on this Note
will become effective without notice on the commencement of each
Interest Period based upon the Two Month Index then in effect. "Interest
Period" means each consecutive two month period (the first of which
shall commence on the date of this Note) effective as of the first day
of each Interest Period and ending on the last day of each Interest
Period, provided that if any Interest Period is scheduled to end on a
date for which there is no numerical equivalent to the date on which the
Interest Period commenced, then it shall end instead on the last day of
such calendar month. Except as otherwise provided herein, the unpaid
principal balance of this Note will accrue interest at a rate per annum
which will from time to time be equal to the sum of the Two Month Index
plus 1.50%. NOTICE: Under no circumstances will the interest rate on
this Note be more than the maximum rate allowed by applicable law.
<PAGE>
Page 8
(d) Three Month LIBOR Rate.
The interest rate on this Note is subject to fluctuation based upon the
LIBOR Rate of interest in effect from time to time (the "Three Month
Index"). "LIBOR Rate" shall mean the offered rate for U.S. Dollar
deposits of not less than $1,000,000.00 as of 11:00 A.M. City of London,
England time two London Business Days prior to the first date of each
Interest Period of this Note as shown on the display designated as
"British Bankers Assoc. Interest Settlement Rates" on the Telerate
System ("Telerate"), Page 3750 or Page 3740, or such other page or pages
as may replace such pages on Telerate for the purpose of displaying such
rate. Provided, however, that if such rate is not available on Telerate
then such offered rate shall be otherwise independently determined by
Lender from an alternate, substantially similar independent source
available to Lender or shall be calculated by Lender by a substantially
similar methodology as that theretofore used to determine such offered
rate in Telerate. "London Business Day" means any day other than a
Saturday, Sunday or a day on which banking institutions are generally
authorized or obligated by law or executive order to close in the City
of London, England. Each change in the rate to be charged on this Note
will become effective without notice on the commencement of each
Interest Period based upon the Three Month Index then in effect.
"Interest Period" means each consecutive three month period (the first
of which shall commence on the date of this Note) effective as of the
first day of each Interest Period and ending on the last day of each
Interest Period, provided that if any Interest Period is scheduled to
end on a date for which there is no numerical equivalent to the date on
which the Interest Period commenced, then it shall end instead on the
last day of the third calendar month of such Interest Period. Except as
otherwise provided herein, the unpaid principal balance of this Note
will accrue interest at a rate per annum which will from time to time be
equal to the sum of the Three Month Index plus 1.50%. NOTICE: Under no
circumstances will the interest rate on this Note be more than the
maximum rate allowed by applicable law.
Adjustments in the interest rate due to changes in the maximum
nonusurious interest rate allowed (the "Highest Lawful Rate") shall be
made on the effective day of any change in the Highest Lawful Rate.
Provided Borrower is not in default under this Note, Borrower may
designate in advance which of the above interest rate indexes shall be
applicable to any loan advance under this Note. In the absence of any
such designation the interest rate option shall be the Default Option.
The unpaid principal balances under this Note may be converted (at the
end of an Interest Period) to another of the above interest rate
options, or continued for an additional interest period, when
applicable, as designated by Borrower in advance; in the absence of
sufficient advance designation as to conversion to or continuation of
LIBOR rate index, the rate shall be converted to the Default Option.
Notwithstanding the foregoing a LIBOR rate index may not be selected for
a loan or advance under the Note, nor any conversion to or continuation
of a LIBOR rate index be selected if the Interest Period thereof would
extend beyond the maturity of this Note.
<PAGE>
Page 9
Each loan or advance under this Note at conversion into or continuation
of a LIBOR rate index shall be in a minimum amount of $250,000.00.
PREPAYMENT.
Borrower may prepay all or any portion of the principal amount of this
Note bearing interest at a LIBOR Rate, provided that if Borrower makes
any such prepayment other than on the last day of an Interest Period,
Borrower shall pay all accrued interest on the principal amount prepaid
with such prepayment and, on demand, shall reimburse Lender and hold
Lender harmless from all losses and expenses incurred by Lender as a
result of such prepayment, including, without limitation, any losses and
expenses arising from the liquidation or reemployment of deposits
acquired to fund or maintain the principal amount prepaid. Such
reimbursement shall be calculated as though Lender funded the principal
amount prepaid through the purchase of U.S. Dollar deposits in the
London, England interbank market having a maturity corresponding to such
Interest Period and bearing an interest rate equal to the LIBOR Rate for
such Interest Period, whether in fact that is the case or not. Lender's
determination of the amount of such reimbursement shall be conclusive in
the absence of manifest error.
2. The paragraph of the Note having the caption "LENDER'S RIGHTS" is
hereby deleted in its entirety and the following paragraph is hereby
substituted in lieu thereof:
LENDER'S RIGHTS. Upon default, Lender may at its option, without
further notice or demand (i) declare the entire unpaid principal balance
on this Note, all accrued unpaid interest and all other costs and
expenses for which Borrower is responsible for under this Note and any
other Related Document immediately due, (ii) refuse to advance any
additional amounts under this Note, (iii) foreclose all liens securing
payment hereof, (iv) pursue any other rights, remedies and recourses
available to the Lender, including without limitation, any such rights,
remedies or recourses under the Related Documents, at law or in equity,
or (v) pursue any combination of the foregoing. Upon default, including
failure to pay upon final maturity, Lender, at its option, may also, if
permitted under applicable law, do one or both of the following: (a)
increase the interest rate or rates at which interest accrues on this
Note by three percent (3.00 %) above the otherwise applicable interest
rate or rates, and (b) add any unpaid accrued interest to principal and
such sum will bear interest therefrom until paid at the rate provided in
this Note (including any increased rate). The interest rate will not
exceed the maximum rate permitted by applicable law. This Note has been
delivered to Lender and is performable in Wisconsin. Courts within the
State of Wisconsin have jurisdiction over any dispute arising under or
pertaining to this Note and venue for such dispute shall be in Milwaukee
County, Wisconsin. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF WISCONSIN AND APPLICABLE
FEDERAL LAWS.
<PAGE>
Page 10
3. Except as expressly modified by this Addendum, all of the terms
and conditions of the Note continue unchanged and remain in full force and
effect.
Dated with effect as of the date of the Note.
CATALYST INTERNATIONAL, INC.
By: /s/ Timothy Sherlock
---------------------------
Title: Chief Financial Officer
BANK ONE, WISCONSIN
By: /s/Grant Chromy
---------------------------
Title: Officer
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
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<SECURITIES> 0
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<ALLOWANCES> 788
<INVENTORY> 0
<CURRENT-ASSETS> 31590
<PP&E> 3905
<DEPRECIATION> 5522
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<BONDS> 0
0
0
<COMMON> 892
<OTHER-SE> 24914
<TOTAL-LIABILITY-AND-EQUITY> 35495
<SALES> 31126
<TOTAL-REVENUES> 31126
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<TOTAL-COSTS> 35378
<OTHER-EXPENSES> (373)
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<INCOME-PRETAX> (4252)
<INCOME-TAX> 0
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<EPS-BASIC> (.55)
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