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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 2000 or
[_] Transition Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ________ to ________
Commission File Number 0-27138
CATALYST INTERNATIONAL, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 39-1415889
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(State or Other Jurisdiction I.R.S. Employer
of Incorporation or Organization) Identification No.
8989 North Deerwood Drive, Milwaukee, Wisconsin 53223
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(Address of Principal Executive Offices) (Zip Code)
(414) 362-6800
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant
to Section 12(b) of the Act: None
Securities registered pursuant
to Section 12(g) of the Act: Common Stock, $0.10 par value
-----------------------------------------
(Title of class)
Indicate by check mark whether the registrant: (1) has 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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X]
As of March 26, 2001, the aggregate market value of the registrant's common
stock held by non-affiliates was $19,846,132 (based upon the closing price of
the registrant's common stock on The Nasdaq Stock Market(r) on that date).
As of March 26, 2001, the number of shares outstanding of the registrant's
common stock was 8,043,607.
Documents Incorporated By Reference:
* Portions of the 2000 Annual Report to Shareholders are incorporated by
reference into Parts II and IV.
* Portions of the definitive Proxy Statement dated March 26, 2001 to be
delivered to shareholders in connection with the Annual Meeting of
Shareholders to be held April 24, 2001 are incorporated by reference
into Part III.
CATALYST INTERNATIONAL, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
INDEX
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 9
Item 4. Submission of Matters to a Vote of Security Holders. . . . . 9
PART II
Item 5. Market for Registrant's Common Equity and Related
Security Holder Matters. . . . . . . . . . . . . . . . . . . 9
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . 10
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk. . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 8. Financial Statements and Supplementary Data. . . . . . . . . 11
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . . . . . . 11
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . 11
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . 13
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . 13
Item 13. Certain Relationships and Related Transactions . . . . . . . 13
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . 13
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
PART I
Item 1. Business
GENERAL
Catalyst International, Inc. was incorporated in Delaware in 1982 and
develops, markets and supports supply chain execution solutions (SCE). Our
primary product, CatalystComplete(TM) is a collaborative effort between
Catalyst and our supply chain software partners. CatalystComplete is a
modular software solution made up of five key components providing our
customers with critical fulfillment activities, real-time information about
those operations, and supply chain integration. The flagship product
Catalyst(R) WMS manages inventory, space, people, and equipment by
controlling all aspects of warehouse operations, from receiving and storing
(putaway) to order selection (picking), loading, and shipping. The
complementary products provide warehouse automation, add-on warehouse
functionality, supply chain collaboration, and supply chain communication.
Catalyst also provides related services, including software modification and
configuration, post-contract customer support (PCS), project management,
rapid prototyping, training, and implementation support. CatalystComplete is
an information-rich, user-configurable software solution that accelerates
growth and facilitates positive business change. We believe organizations
that have implemented Catalyst software have realized increases in customer
satisfaction, space utilization, and warehouse efficiency, faster turnaround
times, reduced labor costs, and enhanced supply chain management.
With the rapid pace of change and increasing customer demands, supply chain
execution is critical to a company's success. Distribution and fulfillment
activities are key to maintaining customer satisfaction and loyalty. The
ability to fill customer orders on time, accurately, and as expected is not
only essential; it can become the source of a considerable competitive
advantage. These conditions have led many businesses to seek improvements in
their supply chains, including investments in software solutions that manage
distribution and fulfillment activities.
Today's business environment places huge demands on distribution operations.
Internet fulfillment, traditional distribution, or some combination of both
requires the movement of goods at unprecedented levels of efficiency and
accuracy. It also requires real-time information and reporting about those
activities. CatalystComplete provides the operations necessary to support
supply chain execution, generates crucial information about those operations,
and supports the supply chain visibility needed to improve collaboration
within key components of the supply chain.
Since Catalyst's inception in 1979, we have focused our resources on the
development and enhancement of advanced warehouse management software
solutions. Today, with an expanded focus on supply chain execution, we
continue to benefit from this dedication. Catalyst WMS remains at the center
of our CatalystComplete solution; delivered within a collaborative framework
and in concert with our supply chain software partners.
Our dedication to warehouse management has allowed us to set many standards
for today's WMS software. Our history of innovations includes the industry's
first standard software package, first Web-based WMS, first certified WMS
interface to SAP, first ISO 9001 certified WMS vendor, and first WMS vendor
to introduce a business-to-business (B2B) information exchange based on the
execution of orders.
CatalystComplete meets the needs of five markets: motor vehicle and parts,
retail, consumer-packaged goods, industrial technology, and process goods.
Catalyst software can be rapidly configured to meet the needs of individual
customers by utilizing three key attributes: a standard WMS product;
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standard interfaces to supply chain software, automation technologies, and
add-on products; and a standard implementation methodology.
Catalyst WMS operates in an open system environment allowing customers to use
various UNIX operating systems that work on multiple hardware platforms.
Catalyst makes every effort to sell the standard software package to new
customers, reducing the need for modifications and custom developed systems.
Catalyst WMS interfaces with several supply chain software applications, such
as manufacturing resource planning systems (MRP), enterprise resource
planning systems (ERP) (such as SAP, Baan, and Oracle), and supply chain
planning (SCP) systems (such as Manugistics). The software supports a wide
range of automation technology interfaces, such as radio frequency-based
scanning and data collection devices, bar coding devices, voice recognition
devices, and material handling equipment (such as conveyors, sorters, and
carousels). Catalyst WMS also interfaces with several add-on products that
deliver specific functionality including shipping management, warehouse
optimization, and warehouse simulation.
The Catalyst WMS implementation methodology is known as the "CIMPL" process-
Catalyst Implementation Management and Planning. The CIMPL process consists
of training, business scenario development, configuration of the software, a
Conference Room Pilot (CRP), project management, and implementation support
services. The CRP is a critical element of the Catalyst approach that allows
our customers to work hands-on with configured software in a practice
environment at our headquarters. The CRP enables Catalyst and our customers
to model warehouse management operations, prototype and validate customer
business requirements, and resolve operating issues prior to live
implementation.
We believe that CatalystComplete benefits our customers by delivering both a
return on investment and a return on information. The return on investment
is achieved through enhancing operational efficiencies and improved capital
utilization. Catalyst software improves the operational efficiency of
warehouses by increasing labor productivity through efficient employee
scheduling, reduction of downtime, and by streamlining product flow. The
advanced features of our solution improve capital utilization by lowering
inventory levels, increasing inventory turns and warehouse efficiencies, and
improving space utilization. CatalystComplete also provides a return on
information through improved customer service, enhanced customer
satisfaction, and shortened delivery times. Our software improves customer
service and generates faster turnaround on customer orders.
During the third quarter of 1999, Catalyst and SAP AG, a leading supplier of
enterprise software solutions, entered into an advanced strategic alliance.
In connection with this alliance, SAP America, Inc., a subsidiary of SAP AG,
acquired, at the time of purchase, a 9.7% stake in Catalyst.
In the second quarter of 2000, Catalyst-Exchange.com, Inc., a wholly owned
subsidiary of Catalyst International, was established. Catalyst-
Exchange.com, a B2B information hub, was designed to serve as a portal to
retailers, consumer goods companies, and common carriers. It was intended to
focus on the execution of orders and facilitate the sharing of accurate
shipping information throughout the supply chain. Catalyst-Exchange.com
would also provide a community of more than 42,000 companies with the ability
to dynamically communicate without the high network costs associated with
Electronic Data Interchange (EDI), significantly lowering their supply chain
costs.
On February 5, 2001, Catalyst entered into an extended strategic partnership
and joint development agreement with Kewill Systems plc and Kewill E
Commerce, Inc. (Kewill). Under the terms of the agreement, the Company will
market, integrate, and license the Kewill.Ship(tm) suite of shipping automation
applications and Kewill's e-fulfillment applications in the Catalyst product
suite. In addition,
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Kewill has acquired all of the rights to the Catalyst-Exchange.com technology
to enhance its Kewill.Net offering. The companies also agreed to a joint
development of applications for Knowledge Management and Vendor Quality
Management (VQM-II).
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 "anticipates," "believes," "estimates," "expects," or "future,"
or are otherwise stated as Catalyst's predictions for the future. These
statements, as with any predictions of the future, involve certain risk
factors beyond Catalyst's control. Catalyst'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 Catalyst's
share price. Factors that might cause such a difference include, but are not
limited to, a decrease in demand for Catalyst's products, delays in the
timely availability of new features and releases of Catalyst's products, a
too-rapid increase in Catalyst's level of spending, actions taken by
competitors, technological changes, those herein identified, those discussed
in Catalyst's Registration Statement on Form SB filed with the Securities and
Exchange Commission (SEC), and other factors identified from time to time as
risks in Catalyst's reports filed with the SEC.
STRATEGY
Catalyst's objective is to provide supply chain execution software and
services that support business growth and help companies manage change. To
achieve this objective, we have adopted the following strategies:
OFFER ADVANCED WAREHOUSE MANAGEMENT SOLUTIONS. Catalyst intends to continue
to focus resources on offering user configurable, information-rich standard
solutions which capture best practice methodologies used in warehouse
operations. We believe we are well positioned in the market because our
standard solution allows us to leverage our software over a broad customer
base and reduce implementation time significantly relative to custom-
developed solutions.
OFFER COLLABORATIVE SOFTWARE SOLUTIONS. Catalyst intends to continue to
collaborate with leading supply chain software providers to provide solutions
that seamlessly integrate, share critical data, and provide visibility into
the supply chain.
EXPAND ON STRATEGIC ALLIANCES. Catalyst intends to provide expanded
capabilities to our software solution through key strategic alliances. We
have not only relied on our own innovations and internal capabilities, but
the technology, skills and knowledge of other leading vendors in the supply
chain industry. Many components of CatalystComplete are made available
through our supply chain software partners.
Catalyst entered into an alliance with SAP AG, a leading supplier of
enterprise software solutions in September 1999. Understanding the mission
critical role warehousing and distribution play in a company's ability to
compete and differentiate themselves, SAP named Catalyst as SAP's preferred
solution to meet the high-volume, complex environments of today's warehouse.
The partnership secures a long term collaborative relationship focused on
providing supply chain excellence.
To provide a complete solution for our customers, Catalyst and SAP initiated
several joint programs setting a new standard for integration. These include
the joint development of the SAP advanced interface for integrating Catalyst
WMS and SAP's Logistics Execution System (LES) with R/3 and mySAP.com, the
designation of Catalyst as the principal service provider for implementation
and modification of SAP's LES, and having Catalyst serve as the primary North
American support center for
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SAP's LES. We believe our customers will benefit from the complementary
expertise of the two companies and that we are well positioned to extend our
market presence.
PROVIDE SUPERIOR SYSTEM IMPLEMENTATION. Catalyst believes that the
efficiencies of our implementation processes allow us to increase sales to
prospective customers seeking standard, configurable software solutions and
to gain market share relative to our competitors. We plan to continue to
improve our differentiated implementation processes by further refining the
CIMPL and Rapid Deployment (a scaled down version of CIMPL) methodologies and
CRP process in order to address the needs of different sized warehouses and
distribution centers and to shorten and simplify the implementation process.
DEVELOP ADDITIONAL MARKETS. Catalyst has customers in several different
industries, falling into five major vertical market categories including
retail, consumer goods, motor vehicle and parts, industrial technology, and
process goods. We support the needs of various distribution models including
traditional distribution, Internet fulfillment, and a combination of both.
We believe the expertise we have developed in each of these markets through
our customer base provides us with a significant competitive advantage in
selling to prospective customers where similar functionality is required.
EXPAND WORLDWIDE DISTRIBUTION. Catalyst's London office was established in
1994 to sell, service, and support Catalyst WMS in international markets. We
plan to continue to increase our international business through an aggressive
effort to recruit and manage Value Added Resellers (VARs) in selected foreign
markets. These VARs work together with both of our offices in obtaining
agreements for global, multi-site installations with multi-national
customers. Our software is currently available in English, French, Italian,
Portuguese, German, and Spanish.
LEVERAGE STANDARD TECHNOLOGY. Catalyst WMS is designed to operate in an open
system environment enabling our customers to use various UNIX and NT
operating systems, operate on multiple hardware platforms, and inter-operate
with many third-party software applications, such as MRP, ERP, supply chain
planning systems, and automation technologies. We intend to continue to
utilize our industry, customer, and supplier relationships to keep abreast of
emerging standards, protocols, and applications programming interfaces as
such trends are introduced and gain market acceptance.
PRODUCTS
CatalystComplete is designed to meet the dynamic needs of supply chain
execution. It is a modular software solution made up of five key components
offering customers critical fulfillment activities, real-time information on
operations, and supply chain integration. This includes managing an entire
warehouse operation, incorporating automation technologies, interoperating
with other key elements of the supply chain and communicating critical data
about those operations.
Catalyst WMS, our flagship product, remains at the center of our
CatalystComplete solution; delivered within a collaborative framework and in
concert with our supply chain software partners. Catalyst WMS is a scaleable
warehouse management system. Information-rich and user-friendly, our software
manages everything in a distribution center from equipment and inventory to
personnel and space. The software provides the fulfillment activities that
keep distribution operations running smoothly and productively, and generates
critical information about the effectiveness of those operations.
Catalyst WMS provides all the basic functions and benefits expected in WMS
software, plus the industry specific features needed for effective supply
chain management in specific industries. Our software serves the needs of
several specific markets: retail, consumer-packaged goods, industrial
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technology, process goods and motor vehicle and parts. We continue to enhance
this software solution with new releases and interim point releases
incorporating new features and functionality that help our customers remain
competitive in their industries.
The remaining components of CatalystComplete provide the following:
* CatalystCompanion-warehouse value-add
* CatalystConnect- warehouse automation
* CatalystCollaborate-supply chain integration
* CatalystCommunicate-supply chain visibility
Catalyst introduced two CatalystCompanion products in April 2000: CatSim and
the Vendor Quality Management I module.
CatSim is an engineering tool that allows customers to experiment with
proposed warehouse changes. Through simulation, CatSim offers customers a
graphic real-time view of their warehouse and distribution center operations.
Able to simulate both current and future envisioned environments, it
interfaces with the Catalyst WMS to create a baseline for prospective changes
in warehouse operations. Users can simulate the reconfiguration of warehouse
layout, equipment, orders, items, staffing, methods and procedures, and
immediately view the results.
Designed to reduce risk and cut costs, CatSim enables users to gauge the
impact of retooling functions prior to making financial or logistical
commitments to real world operations. It provides an accurate barometer that
enables users to:
* Fine-tune warehouse operations, layout, equipment, and strategies;
* Respond to business changes quickly and easily;
* Improve the quality and consistency of project justifications;
* Design phased introductions by determining the effects of intermediate
steps to operations;
* Establish benchmarks for the measurement and comparison of departments,
shifts and/or workgroups; and
* Test alternative designs for new distribution centers or upgraded
equipment.
The Vendor Quality Management I (VQM-I) module will help retailers save time
and improve warehouse productivity, significantly enhancing their business
operations. VQM-I provides users a real-time tool that identifies specific
shipment discrepancies and frequency of issues, which can then be
communicated to the vendor to head-off future problems. A new class of
software, the system should reduce vendor charge-backs, improve relationships
between retailers and vendors, and reduce costs by verifying the accuracy of
vendor Advanced Shipment Notice (ASN) data.
This dynamic information exchange is necessary to keep pace with the
industry's needs. VQM-I replaces more error-prone paper-based audits with an
electronic auditing procedure to certify vendors' ASN process and continually
monitor the accuracy of ASN data against actual shipment and carton contents.
The audits uncover vendor compliance issues, identifying the causes and
frequency of violations. Results can be used to keep vendors updated on how
well their ASN program is working, so errors can be eliminated before they
turn into charge-back issues.
The information set forth on page 14 of the 2000 Annual Report to
Shareholders under the caption "Total Revenues" is incorporated herein by
reference and is filed herewith as Exhibit 13.1.
Page 5
SERVICES AND PCS
In addition to the sale of WMS products, Catalyst offers certain services and
PCS agreements to our customers. These services include software
modification and configuration, project management, rapid prototyping,
training, and implementation support. Customers are charged for services
based on a standard fee for each person-day.
As a software provider, we recognize the importance of offering quality
service and support to our customers. Catalyst has several groups
responsible for offering services and PCS to ensure customer satisfaction;
these groups include Professional Services, Product Distribution, Customer
Strategic Solutions, Customer Education and Training, and Customer Support.
Professional Services offers the CIMPL and Rapid Deployment processes, which
typically last four to eight months. Implementations for no-modification
jobs can be even faster. Using the Rapid Deployment process, we successfully
installed our Catalyst WMS software in less than eight weeks in a customer's
Internet fulfillment center. As a principal SAP LES integrator,
Professional Services will be able to utilize its focus on SAP LES and
warehouse management to participate in TeamSAP(TM) projects along with SAP
and other SAP implementation partners, increasing implementation success and
long-term serviceability for SAP LES.
Product Distribution is responsible for managing and installing operating
systems, hardware, networks, communication links, and relational database
management systems (RDBMS)
Customer Strategic Solutions addresses meeting the post-implementation needs
of our customers. This includes the sale of additional enhancements to
subsequent WMS sites, resale of hardware, providing consulting services, as
well as providing possible upgrades for Catalyst WMS.
Customer Education and Training provides education and training on the use,
administration, and configuration of our WMS product. Our approach employs a
mixture of "train the trainer" and "train the user." Typically, customer
employees that include representatives from operations and information
systems participate in the training. We provide in-depth documentation,
structured training classes, and hands-on training for our software.
Catalyst University offers a series of continuing education courses for
current customers, VARs, and other partners.
Customer Support is offered 24-hours per day, seven days per week, 365 days
per year. PCS agreements are typically sold to customers for a one-year term
at the time they initially license Catalyst WMS and are available for newly
installed software or for renewal on an on-going basis for an existing
installation. PCS agreements allow the customer, following installation of
the WMS software, to receive 24-hour per day, 7-day per week assistance with
the operation of the software and to obtain on-line support. PCS is a
service that may be purchased at the customer's option.
To support the consistent delivery of quality installations, Catalyst
developed a world-class customer service center called the Supply Chain
Execution Competency Center (SCE Competency Center). Opened in 1999, the SCE
Competency Center supports both SAP LES and Catalyst WMS. As the main
customer support center for implementations of SAP LES and Catalyst WMS, the
SCE Competency Center provides customer training, customer consulting, and
product customization services. Under the alliance, we deploy our world-
class service organization to implement and provide primary support for all
customer and TeamSAP partner requests, including a 24x7 hot line,
implementation services, and on-site support for SAP LES in North America.
Page 6
CUSTOMERS
In the year ended December 31, 2000, Catalyst had no customers that accounted
for more than 10% of total revenues. Catalyst does not believe that the loss
of any single customer would have a material adverse effect upon its
business, results of operations, or financial condition.
Catalyst has historically relied on five key vertical markets for a
substantial portion of revenues. We do not, however, intend to focus solely
on these markets for future sales and do not anticipate that we will depend
on any single market for a substantial portion of our sales.
SALES AND MARKETING
Catalyst markets and sells our software and services in North America and
Europe through direct sales and channel partner organizations. We are
currently exporting our products to Australia, Brazil, Canada, France,
Germany, Guatemala, Holland, Italy, Mexico, Saudi Arabia, Spain, and the
United Kingdom. Our London office is responsible for the sales, support, and
service of the WMS software in certain international markets.
In Italy and France, Catalyst utilizes the sales assistance of VARs to sell
and assist in implementation and support of our WMS product. We plan to
continue strengthening our presence in other countries though our
relationships with supply chain participants and enterprise software vendors
and by developing close relationships with system integrators in those
countries.
The Company operates in one industry segment. There were no sales to
individual customers that exceeded 10% of revenues in 2000 or 1998. Sales to
one customer in 1999 totaled 10% of revenues.
International revenues accounted for 15%, 19% and 19% of total revenues in
2000, 1999 and 1998, respectively. Revenues by geographic area were as
follows:
Years Ended December 31, 2000 1999 1998
------------ ------------ ------------
United States $ 35,671,261 $ 32,988,868 $ 27,376,159
United Kingdom 2,581,446 2,580,679 2,252,045
France 1,105,902 * *
Canada * 1,276,174 2,041,276
Holland * 1,834,100 1,024,019
Countries in which revenues
did not exceed $1 million 2,651,849 1,880,339 1,219,102
------------ ------------ ------------
$ 42,010,458 $ 40,560,160 $ 33,912,601
*Revenues did not exceed $1 million.
To support our sales force, we conduct comprehensive marketing programs which
include direct mail, public relations, advertising, seminars, trade shows,
joint programs with vendors and consultants, and ongoing customer
communication programs. Our sales cycle begins with the generation of a
sales lead or the receipt of a request for proposal (RFP) from a prospective
customer, which is typically followed by the qualification of the lead or
prospect, an analysis of the customer's needs, response to the RFP, one or
more presentations or product demonstrations, a visit to a similar or
representative warehouse running our WMS product, contract negotiation, and
commitment.
Catalyst believes that, with over 20 years of experience in the warehouse
management software business, our software is established, proven, and
accepted in the marketplace. We further believe that the level of expertise
found throughout our organization includes some of the best in the industry
in
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design, development, and implementation support. Catalyst has created a
team of employees, vendors, and consultants who are experts and leaders in
their respective fields, which allows us to provide our customers with a
strong resource of products and knowledge. This resource should help our
customers stay competitive in their respective industries.
As of December 31, 2000, the sales and marketing organization was based in
Catalyst's headquarters in Milwaukee, Wisconsin, in the London office, and in
territory sales offices located throughout the United States.
PROPRIETARY RIGHTS AND LICENSES
Catalyst relies on a combination of copyright, trademark and trade secret
laws, confidentiality procedures, license agreements, and other contractual
provisions to protect our proprietary information. We have no patents or
patent applications pending. Due to the rapid pace of change in the computer
software industry, we believe that trade secret and copyright protection are
less significant in affecting our business, results of our operations, or
financial condition than factors such as the knowledge, ability and
experience of our employees, frequent product enhancements and timeliness and
quality of support services. Catalyst typically grants the right to use the
WMS software under a perpetual license, which is generally non-transferable
and solely for the customer's internal operations at designated sites. Under
the terms of our license agreements, Catalyst generally owns all
modifications to our software that are developed and implemented for a
customer.
Catalyst is not aware that our CatalystComplete products, trademarks, or
other proprietary rights infringe the property rights of third parties. As
the number of software products in the industry increases and the
functionality of these products further overlap, we believe that software
developers may become increasingly subject to infringement claims. Any such
infringement claims, with or without merit, could be time consuming and
result in costly litigation or damages.
PRODUCT DEVELOPMENT
Catalyst offers a collaborative information-rich software product that
provides complete supply chain execution functionality for supply chains
worldwide. We intend to continue to introduce new products, upgrade the
functionality of our existing products, and establish partnerships to support
this strategy. We work closely with our customers and prospective customers
to understand their requirements and to design enhancements and new products
that meet their needs. All product development is performed by our employees
or by contract personnel under our control. Product development costs were
$5.3 million in 2000, $7.6 million in 1999, and $3.4 million in 1998.
COMPETITION
The supply chain execution software industry continues to be highly
fragmented with a number of competitors. Catalyst's competitors, including
publicly and privately held companies, focus either on warehouse management
software or supply chain execution, or offer a comprehensive software
solution of which warehouse management is a part. The competitive factors
affecting the market for our software and services include: corporate and
product reputation, features and functionality, vertical market expertise,
customer configurability, effective and timely implementation, availability
of products on open computer platforms, ability to interface with existing
equipment and systems, ability to support radio frequency and bar code
technology, quality of support services, real-time capabilities, RDBMS
technology, scalability, international capabilities, documentation and
training, product quality, performance, and price. Catalyst believes that we
compete effectively with respect to these factors, but there can be no
assurance that we will continue to do so.
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EMPLOYEES
As of December 31, 2000, Catalyst had 305 full-time employees worldwide, none
of whom were represented by any collective bargaining organization. We have
never experienced a work stoppage and consider relations with our employees
to be good.
Item 2. Properties
Catalyst's corporate headquarters is approximately 62,000 square feet of
leased office space in Milwaukee, Wisconsin. The term of the lease expires
in January 2006, but Catalyst has the option to extend such term for an
additional ten-year period. We lease approximately 6,500 square fee of
additional office space in Milwaukee, Wisconsin. The term of the lease
expires in January 2006. Finally, we lease approximately 6,000 square feet
of office space in London, England, pursuant to a lease that expires in 2003.
We believe that these existing facilities should be adequate for our needs
through 2001.
Item 3. Legal Proceedings
On October 8, 1999, a former customer (Claimant) instituted arbitration
proceedings against Catalyst with the American Arbitration Association in
Milwaukee, Wisconsin. The Claimant attempts to revoke its acceptance of
Catalyst's software product and alleges that Catalyst breached its warranty
obligations under its agreement with Catalyst. Claimant seeks relief in the
form of monetary damages in an amount not less than $1,944,887. Catalyst
believes that the allegations of the Claimant are without merit and is in the
process of vigorously defending itself against them as the arbitration
proceedings are currently pending. The potential outcome for this legal
proceeding cannot be determined at this time.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of 2000.
PART II
Item 5. Market for Registrant's Common Equity and Related Security Holder
Matters
Catalyst's common stock is quoted on the Nasdaq National Market under the
symbol CLYS.
As of March 26, 2001, there were 8,043,607 shares of Catalyst's common stock
outstanding held by 124 shareholders of record and approximately 1,530
beneficial owners.
The following table represents the high and low price information for
Catalyst's common stock for each quarterly period within the two most recent
fiscal years.
2000 1999
------------------ -------------------
High Low High Low
------- ------- ------- -------
Quarters ended March 31, $15.375 $11.500 $18.875 $ 9.938
Quarters ended June 30, 12.500 6.000 21.000 10.000
Quarters ended September 30, 8.625 4.375 21.625 10.250
Quarters ended December 31, 5.000 3.500 15.500 7.250
Source: The Nasdaq National Market.
Page 9
Prices listed above are determined by the over-the-counter market and as
such, over-the-counter market quotations reflect inter-dealer prices, without
retail mark-up or commission, and may not necessarily represent actual
transactions.
Catalyst has never paid cash dividends on its common stock. Catalyst's
policy has been to retain cash from operations to provide funds for the
operation and expansion of its business. Accordingly, Catalyst does not
anticipate paying cash dividends in the foreseeable future.
Item 6. Selected Financial Data
SELECTED FINANCIAL DATA
(In thousands, except per share data)
Years Ended December 31, 2000 1999 1998 1997 1996
---- ---- ---- ---- ----
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Software license $ 8,451 $ 7,575 $ 8,741 $ 7,007 $ 8,132
Services and post-contract
customer support 28,222 25,599 21,890 14,637 12,902
Hardware 5,337 7,386 3,282 881 132
------- ------- ------- ------- -------
Total revenues 42,010 40,560 33,913 22,525 21,166
Cost of revenues:
Software license 797 606 525 524 288
Services and post-contract
customer support 16,632 14,921 14,583 13,745 12,371
Hardware 4,361 6,260 2,759 766 -
------- ------- ------- ------- -------
Total cost of revenues 21,790 21,787 17,867 15,035 12,659
------- ------- ------- ------- -------
Gross margin 20,220 18,773 16,046 7,490 8,507
Operating expenses:
Product development 5,301 7,638 3,412 2,731 4,470
Sales and marketing 9,254 7,159 5,494 5,291 5,079
General and administrative 4,793 6,574 4,177 3,975 4,287
Write-off of purchased research
and development - - - - 2,002
Restructuring and other charges - 3,588 - - 597
------- ------- ------- ------- -------
Total operating expenses 19,348 24,959 13,083 11,997 16,435
------- ------- ------- ------- -------
Income (loss) from operations 872 (6,186) 2,963 (4,507) (7,928)
Other income, net 891 573 217 308 867
------- ------- ------- ------- -------
Income (loss) before provision
for income taxes 1,763 (5,613) 3,180 (4,199) (7,061)
------- ------- ------- ------- -------
Provision for income taxes - - 100 - -
Net income (loss) $ 1,763 $(5,613)$ 3,080 $(4,199)$(7,061)
======= ======= ======= ======= =======
Net income (loss) per share -
diluted $ 0.21 $ (0.77)$ 0.42 $ (0.63)$ (0.88)
======= ======= ======= ======= =======
Shares used in computing diluted net
income (loss) per share 8,452 7,288 7,383 6,630 7,996
======= ======= ======= ======= =======
Page 10
BALANCE SHEET DATA:
Cash and cash equivalents $21,201 $21,169 $ 8,555 $ 4,256 $ 9,321
Working capital 19,773 20,388 9,530 6,673 10,457
Total assets 38,605 35,563 25,557 17,692 20,199
Long-term debt, less current portion 166 181 412 443 132
Total shareholders' equity 25,645 23,281 15,403 9,997 14,147
------- ------- ------- ------- -------
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information set forth on pages 12 through 18 of the 2000 Annual Report to
Shareholders are incorporated herein by reference and are filed herewith as
Exhibit 13.1.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Catalyst does not believe it has material exposure to market risk with
respect to any of its investments; Catalyst does not utilize market rate
sensitive instruments for trading or other purposes. The information set
forth on page 24 of the 2000 Annual Report to Shareholders under the caption,
"Cash and Cash Equivalents," is incorporated herein by reference and is filed
herewith as Exhibit 13.2.
Item 8. Financial Statements and Supplementary Data
The financial statement set forth under the caption "Quarterly Results" on
page 18 of the 2000 Annual Report to Shareholders is incorporated herein by
reference and is filed herewith as Exhibit 13.1.
The following financial statements for Catalyst and the independent auditors'
report set forth on pages 19 through 32 of the 2000 Annual Report to
Shareholders are incorporated herein by reference and is filed herewith as
Exhibit 13.2.
* Report of Ernst & Young LLP, Independent Auditors
* Consolidated Statements of Operations for the years ended December 31,
2000, 1999, and 1998
* Consolidated Balance Sheets at December 31, 2000 and 1999
* Consolidated Statements of Shareholders' Equity for the years ended
December 31, 2000, 1999, and 1998
* Consolidated Statements of Cash Flows for the years ended December 31,
2000, 1999, and 1998
* Notes to Consolidated Financial Statements
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
Catalyst had no changes in or disagreements with its accountants on
accounting and financial disclosure in 2000.
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors:
Catalyst incorporates by reference herein the information contained under the
caption, "Election of Directors," on pages 2 through 3 of the Proxy Statement
for the 2001 Annual Meeting of Shareholders.
Page 11
Catalyst also incorporates by
reference herein the information contained under the caption, "Section 16(a)
Beneficial Ownership Reporting Compliance," on page 4 of the Proxy Statement
for the 2001 Annual Meeting of Shareholders.
Officers:
Lynne B. Briggs, 40, has served as Senior Vice President-Software Engineering
since December 1999. Prior thereto, Ms. Briggs served as Vice President-
Software Engineering since November 1998; as Director-Product Development
from September 1997 to November 1998; as Director-Application Design from
August 1996 to April 1997; and as a Project Manager from January 1996 to
August 1996. Ms. Briggs left Catalyst briefly and served as Director of
Staff Planning at Carson Pirie Scott from April 1997 to September 1997.
Judith K. Fearn, 39, has served as Vice President-European Operations since
December 1995. Prior thereto, Ms. Fearn served as Managing Director-United
Kingdom beginning in May 1994. Ms. Fearn has been a Director of Catalyst's
wholly owned subsidiary, Catalyst WMS International Limited, since May 1995.
Richard L. Gimbel, 50, has served as Vice President-Marketing since June
2000. Prior to joining Catalyst, Mr. Gimbel worked for J.D. Edwards June of
1996 to May of 2000. Mr. Gimbel held various director level positions in the
Marketing Department, most recently in the B2B Marketing Operations Group.
David L. Harney, 62, has served as Vice President-Research and Development
since December 1992 and as Vice President-Software Development from February
1991 to December 1992.
Douglas J. Kennedy, 37, has served as Vice President-Professional Services
since June 2000. From February 1999 to June 2000, Mr. Kennedy served as Vice
President-Professional Services-Customer Support; as Vice President-
Professional Services Organization; as Director-Retail Operations of the
Company from December 1995 to August 1996; and as a Project Manager from
November 1994 to November 1995.
David M. Kogut, 49, has served as Senior Vice President-Enterprise
Integration Application Product Marketing since November 2000. Since joining
Catalyst in October 1991, Mr. Kogut served successively as Senior Vice
President-SAP Alliance; Senior Vice President-Complementary Services; Senior
Vice President-Customer Satisfaction; Senior Vice President-Operations; Vice
President-Customer Service; Vice President-Marketing; and Vice President-
Systems Integration.
Sarah M. Oberhofer, 45, has served as Vice President-Human Resources since
July 2000. From September 1995 to June 2000, Ms. Oberhofer served as
Director-Human Resources at Catalyst.
Michael D. Pridavka, 38, has served as Vice President-North American Sales
since August 2000. Prior to joining Catalyst, Mr. Pridavka worked for
Rockwell Software from October 1994 to May 2000, where he was responsible for
worldwide software sales.
Timothy Sherlock, 48, has served as Vice President-Finance and Administration
and Chief Financial Officer since June 1999. Prior to joining the Company,
Mr. Sherlock served as Chief Financial Officer, Secretary, and Vice President
of Advanced Learning Systems from December 1997 to June 1999 and as
Controller from March 1996 to December 1997. Prior thereto, Mr. Sherlock
served as Controller of Decisionmark Corporation from May 1995 to February
1996.
Page 12
James G. Stowers, 57, is one of the cofounders of the Company and has served
as its Senior Vice President-Corporate Development since October 1999. Prior
thereto, Mr. Stowers served as Vice President-International Sales from April
1994 to October 1999; and as a Vice President of the Company with various
marketing, sales, and management responsibilities. Mr. Stowers was a
Director of the Company from August 1982 to November 1993.
Daniel A. Trew, 49, has served as Vice President-Product Strategy since
November 1998. From August 1997 to November 1998, Mr. Trew served as a
Product Manager in the Marketing Group and from January 1994 to August 1997,
as Director-Logistics Technology. Prior thereto, Mr. Trew served as a
consultant with IBM Consulting Services.
Item 11. Executive Compensation
Catalyst incorporates by reference herein the information contained under the
caption "Executive Compensation" on pages 6 through 8 of the Proxy Statement
for the 2001 Annual Meeting of Shareholders. Catalyst also incorporates by
reference herein the information contained under the caption, "Non-Employee
Director Compensation," on pages 3 through 4 of the Proxy Statement for the
2001 Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Catalyst incorporates by reference herein the information contained under the
caption "Security Ownership of Certain Beneficial Owners" on pages 5 through
6 of the Proxy Statement for the 2001 Annual Meeting of Shareholders.
Item 13. Certain Relationships and Related Transactions
Catalyst incorporates by reference herein the information contained under the
caption, "Certain Relationships and Related Transactions," on pages 9 through
10 of the Proxy Statement for the 2001 Annual Meeting of Shareholders.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Financial Statements and Schedules
The consolidated financial statements as set forth under Item 8 of this
report on Form 10-K and the Exhibit Listing as set forth under Item 14(c) of
this report on Form 10-K are incorporated herein by reference.
The following consolidated financial statement schedule of Catalyst
International, Inc. is included in Item 14(d): II. Valuation and Qualifying
Accounts.
All other financial statement schedules have been omitted since the required
information is not present or is not present in amounts sufficient to require
submission of the schedule, or because the information required is included
in the consolidated financial statements or the notes thereto.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of 2000.
Page 13
(c) Exhibit Listing
Number Description
3.1 Amended and Restated Certificate of Incorporation (1)
3.2 Amended and Restated By-Laws
10.1 1993 Stock Option Plan, as amended, of Catalyst USA, Inc.* (1)
10.2 1997 Director Stock Option Plan of Catalyst International, Inc.* (2)
10.3 Letter Agreement with Douglas B. Coder dated October 23, 1998*
10.4 Letter Agreement with Sean P. McGowan dated October 23, 1998*
10.5 Employment Agreement with James G. Stowers dated October 23, 1998*
10.6 Subscription Agreement among SAP America, Inc., SAP
Aktiengesellschaft and Catalyst International, Inc. dated August 31,
1999 (3)
10.7 Commercial Guaranty dated September 17, 1999
10.8 Letter Agreement with Sean P. McGowan dated September 17, 1999*
10.9 Letter Agreement with Douglas B. Coder dated December 3, 1999*
10.10 Letter Agreement with Timothy Sherlock dated December 29, 1999*
10.11 Letter Agreement with James G. Stowers dated May 30, 2000*
10.12 Letter Agreement with Richard L. Gimbel dated June 19, 2000*
10.13 Letter Agreement with Michael D. Pridavka dated October 13, 2000*
10.14 Letter Agreement with Lynne B. Briggs dated December 1, 2000*
10.15 Letter Agreement with David L. Harney dated December 1, 2000**
10.16 Letter Agreement with Douglas J. Kennedy dated December 1, 2000*
10.17 Letter Agreement with Sarah M. Oberhofer dated December 1, 2000*
10.18 Letter Agreement with Daniel A. Trew dated December 1, 2000*
13.1 Management's Discussion and Analysis incorporated by reference to
Pages 13 through 18 of the 2000 Annual Report to Shareholders
13.2 Report of Independent Auditors and Financial Statements incorporated
by reference to Pages 19 through 32 of the 2000 Annual Report to
Shareholders
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
- ----------
* Represents a management contract or compensation plan.
(1) Incorporated by reference to Registration Statement 33-97522C on Form
SB-2.
(2) Incorporated by reference to Exhibit 4.1 of Registration Statement 33-
97522C on Form S-8 dated September 26, 1997.
(3) Incorporated by reference to Exhibit 4 on Form 8-K dated September 20,
1999.
Pursuant to the requirements of Rule 14a-3(b)(10) of the Securities Act of
1934, as amended, Catalyst will, upon request and upon payment of a
reasonable fee not to exceed the rate at which such copies are available from
the Securities and Exchange Commission, furnish copies to its shareholders of
any Exhibits in the Exhibit Listing.
Page 14
(d) Financial Statement Schedule
Valuation and Qualifying Accounts
(in thousands)
Balance
Balance at Charged to Charged at
beginning costs and to other Deductions end of
Description of period expense accounts (additions) period
- ---------------------- ---------- ---------- -------- ----------- ------
Year ended
December 31, 2000
Allowance for
doubtful accounts $1,256 615 - 686 $1,185
Year ended
December 31, 1999
Allowance for
doubtful accounts $ 534 2,013 - 1,291 $1,256
Year ended
December 31, 1998
Allowance for
doubtful accounts $ 339 296 - 101 $ 534
Page 15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized, in the City of
Milwaukee, State of Wisconsin, on March 30, 2001.
Catalyst International, Inc.
By: /s/ Douglas B. Coder
---------------------------------
Douglas B. Coder
Chairman of the Board
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 30, 2001.
By: /s/ Timothy Sherlock
---------------------------------
Timothy Sherlock
Vice President-Finance and Administration,
Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Douglas B. Coder
- ---------------------------------
Douglas B. Coder
Chairman of the Board
(Principal Executive Officer)
/s/ Roy J. Carver, Jr
- ---------------------------------
Roy J. Carver, Jr.
Director
/s/ James F. Goughenour
- ---------------------------------
James F. Goughenour
Director
/s/ Sean P. McGowan
- ---------------------------------
Sean P. McGowan
Director
/s/ Terrence L. Mealy
- ---------------------------------
Terrence L. Mealy
Director
/s/ Elizabeth J. Reeves
- ---------------------------------
Elizabeth J. Reeves
Director
Page 16