- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD FROM
_________ to ___________.
COMMISSION FILE NUMBER 0-25526
--------------
C-ATS SOFTWARE INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0185283
---------------------------------------- -----------------------
(State of incorporation) (I.R.S. Employer
Identification Number)
1870 EMBARCADERO ROAD
PALO ALTO, CALIFORNIA 94303
---------------------------------------- -----------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (650) 321-3000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
-----------------------------
(Title of Each 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 in this form, and no disclosure
will 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
----
The aggregate market value of the voting stock held by non-affiliates as
of March 2, 1998 was approximately $17,000,000 (based upon the last sale
price for shares of the Registrants Common Stock as reported on the NASDAQ
National market).
As of March 2, 1998 the number of shares of common stock of the
Registrant outstanding was 6,855,874.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into the parts of
Form 10-K indicated: (1) C-ATS Software Inc.'s Annual Report to Stockholders
for the fiscal year ended December 31, 1997 for Parts I, II and IV; and (2)
Proxy Statement for Annual Meeting to be held on May 20, 1998 for Part III.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PART I
ITEM 1: BUSINESS
THIS ITEM CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THE RESULTS ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT
OF CERTAIN FACTORS SET FORTH IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS REPORT.
A. BACKGROUND
Organizations face financial risks from changes in interest and foreign
exchange rates, changes in the commodity and equity markets, credit exposure
and liquidity. The risk exposure has increased with the globalization of the
world's economy and other factors. To help organizations manage these risks,
the financial industry has developed a variety of specialized financial
contracts, such as swaps, options, caps, floors, swaptions and futures,
collectively known as "derivative instruments." Interest rate swaps, for
example, allow a company to insure against unfavorable movements in interest
rates by exchanging variable interest rate exposure for a fixed interest
rate.
The need to manage financial risk has led to the development of software
products that serve the established market for derivatives risk management
and the markets for firm-wide or enterprise risk management.
C-ATS Software Inc., a Delaware corporation (the "Company" or "C-ATS")
is a supplier of client/server software products for financial risk
management. Since its inception in 1986, the Company has provided capital
markets software for derivatives risk management. In late 1994, the Company
introduced C-ATALYST, an enhanced version of its product family which
includes GLOBAL RISK MANAGER, a product for portfolio risk management. In
1996, the Company acquired LOR/Geske Bock Associates, Inc. ("LORGB" or
LOR/Geske Bock"), a provider of integrated market
and credit risk management software, and introduced an enhanced version of
its CARMA product line. These products serve the established market for
derivatives risk management and the growing market for enterprise risk
management. At the end of 1997, the Company's products were licensed to
leading financial institutions around the globe, including more than a third
of the world's 50 largest commercial banks.
C-ATS' C-ATALYST product line is used in derivatives risk management to
provide "front office" software for structuring, pricing, trading and
simulating complex derivative instruments such as swaps, options, caps,
floors, swaptions and futures, and "back office" software for processing,
settlement, accounting and reporting. C-ATS' GLOBAL RISK MANAGER supports
risk management of individual portfolios by allowing users to value their
portfolios and to analyze the sensitivity of those portfolios to interest
rates, foreign exchange rates and other risks. The Company's clients use
these products on UNIX workstations and on personal computers.
C-ATS' CARMA product line is a portfolio simulation system designed to
provide multiple market, credit, and liquidity risk measurement methodologies
within one consistent, integrated solution. CARMA enables financial
institutions to measure and control the change in value of financial
instruments, including complex derivative instruments, and to measure the
firm-wide
2
exposure to market and credit risk. The software assists with the
determination of capital requirements and regulatory reporting of Value at
Risk (VaR) using both Monte Carlo and historical simulation techniques. In
addition, CARMA provides user-defined scenario analyses to realistically
forecast the effects on a portfolio subjected to a combination of multiple
types of financial risks. Users can graphically visualize the results of the
potential effects of any component on the entire portfolio in order to
understand more fully how to manage the risks involved.
The Company typically licenses its software products to clients for
one-year renewable terms. Beginning the fourth quarter of 1997, the Company
has begun offering multiyear (typically 5-year) term licenses for its
software products. With this new licensing model the Company will recognize
substantial revenues upon delivery of the products. In addition there may be
additional maintenance revenues, recognized ratably as such services are
provided.
C-ATS markets its products and services through its direct sales and
service organizations located in New York, Tokyo, London, Hong Kong and its
headquarters and financial engineering facilities in Palo Alto and Los
Angeles, California, respectively. Those clients whose use of Company's
products has been publicly disclosed include Bank of Montreal, Cassa di
Risparmio di Torino, Credit Suisse, Dai-ichi Kangyo Bank, Daiwa America
Corp., IMI Bank, Kleinwort-Benson, Long-Term Capital Management, Merrill
Lynch, Bank of Tokyo-Mitsubishi and Tokai Bank, each of which represented
more than $100,000 of annual contract value in 1997. In 1997, 82% of the
Company's revenues were derived from international clients.
In the Fall of 1997, the Company formed a new division C-ATS Consulting
Services to provide professional services to its clients. These services
will typically include project management and product integration services.
Consulting revenues are recognized when the services have been performed.
B. PRODUCTS.
C-atalyst is a family of integrated application software products and
tools used for financial risk management. All of these products were either
introduced or enhanced in 1997.
The Company's clients use its products on UNIX workstations and on
personal computers. FiCAD is used on the NEXTSTEP-TM- operating system to
design new financial instruments and applications. The Company licenses its
products on a per site basis, with the price per site varying based on the
selection of products licensed, the number of authorized users at each site,
and the number of licensed sites.
The Company's products, once installed, generally must be integrated
with the client's internal information systems, especially in the case of
large enterprise-wide implementations. This integration can be costly,
time-consuming and require significant technical expertise, particularly when
multiple sites, a variety of internal systems and/or international locations
are involved.
3
The Company's products are summarized below in order of the date they were
first introduced:
ENTERPRISE RISK
DERIVATIVES MANAGEMENT
DATE DATE LAST RISK MARKET
INTRODUCED ENHANCED MANAGEMENT APPLICATIONS
---------- ----------- ------------- ------------
C-ATALYST PRODUCTS
SwapWare Plus . . . . . . . . . . . 1986 1997 X X
Market Data . . . . . . . . . . . . 1987 1997 X X
Global Risk Manager . . . . . . . . 1989 1997 X X
Data Tools. . . . . . . . . . . . . 1991 1997 X X
C-ATS Link. . . . . . . . . . . . 1991 1997 X X
SQL Mirror. . . . . . . . . . . . 1991 1997 X X
C-ATS-IQ Reports. . . . . . . . . 1995 1997 X X
Shadow Audit. . . . . . . . . . . 1991 1997 X X
Operations Manager-Accounting . . . 1991 1997 X
Operations Manager-
Cash Flow Organizer . . . . . . . 1991 1997 X
Options-CapWare . . . . . . . . . . 1992 1997 X X
Options-Strike. . . . . . . . . . . 1992 1997 X X
Futures and Bonds . . . . . . . . . 1992 1997 X X
C-ATS /GLI. . . . . . . . . . . . . 1997 1997 X X
C-ATS /FX . . . . . . . . . . . . . 1997 1997 X X
CARMA PRODUCTS
CARMA Explorer. . . . . . . . . . . 1996 1997 X
CARMA Risk Engine . . . . . . . . . 1993 1997 X
CARMA Connection. . . . . . . . . . 1996 1997 X
FiCAD. . . . . . . . . . . . . . . . . . 1995 1997 X X
PRODUCTS FOR DERIVATIVES RISK MANAGEMENT
SWAPWARE PLUS. SWAPWARE PLUS prices and models a broad spectrum of
swaps, from the simplest interest rate swap to complex currency and commodity
swaps and highly sophisticated structures and basis swaps. Through its cash
flow architecture and six-level hierarchy for reset computations, SWAPWARE
PLUS also models foreign exchange, debt and cash transactions, while
providing accurate portfolio revaluations and risk management support.
SWAPWARE was the Company's first product and is used by substantially all of
its clients.
MARKET DATA. MARKET DATA provides the market and pricing data for
C-ATALYST software applications and can be used with applications developed
with FiCAD. MARKET DATA is a tool for inputing currency and interest rates as
well as bonds and futures prices, forward, equity and commodity prices, swap
spreads and money market rates needed to generate par, zero, synthetic
blended curves, and other price data. MARKET DATA contains a central archive
for international market prices and yields, multiple instrument support and a
historical database. In addition, MARKET DATA constructs open, flexible
yield curves which allow for user-definition.
4
DATA TOOLS. DATA TOOLS is a set of data import and export utilities,
including a real-time data feed, tools to generate reports and protect
information, and an audit trail to increase control and includes the
following modules: C-ATS Link, SQL Mirror, C-ATS-IQ Reports and Shadow Audit.
OPERATIONS MANAGER-ACCOUNTING. ACCOUNTING works with SWAPWARE PLUS,
OPTIONS, and FUTURES AND BONDS to generate profit and loss statements.
Accounting can also be used to automate payment processing, counterparty
notifications and regulatory reports.
OPERATIONS MANAGER-CASH FLOW ORGANIZER. CASH FLOW ORGANIZER works with
SWAPWARE PLUS, OPTIONS, and FUTURES AND BONDS to define complex quote, reset
and fixing structures, and calculate and process bulk resets, rate fixings
and rate reset notifications.
OPTIONS-CAPWARE. CAPWARE prices and models an extensive selection of
options, including fixed and variable rate caps, floors and forward rate
agreements (FRAs). CAPWARE utilizes the Black-Scholes options pricing models.
OPTIONS-STRIKE. STRIKE prices and models "swaptions" (options to
execute a swap) and bond options. STRIKE also supports receiver and payor
swaptions, swap cancellations and puts and calls on fixed-income securities.
STRIKE utilizes the Black-Scholes, Black-Commodity and Hull-White options
pricing models.
FUTURES AND BONDS. FUTURES AND BONDS prices and models an array of
futures contracts, as well as a broad range of government and corporate bonds
and Eurobonds across international markets. FUTURES AND BONDS employs bond
definition characteristics that combine a flexible modeling capacity with
coverage of most major bond markets.
C-ATS/GLI. C-ATS/GENERAL LEDGER INTERFACE (GLI) is an open tool which
creates a complete accounting record for the C-ATALYST portfolio, and allows
the transfer of this information automatically to the general ledger.
C-ATS/GLI includes manual and system generated entries, a multi-currency
trial balance and a detail report.
C-ATS/FX. C-ATS/FX is a foreign exchange trading, marketing, risk
management and back office module. C-ATS/FX prices spots, forwards, and an
array of exotic options including Asian options, lookbacks, single and double
barriers. It also has extensive graphing capabilities for payout and
sensitivity analysis.
FiCAD. FiCAD is an object-oriented Financial CAD system which uses
advanced visual programming techniques. FiCAD enables users to design, model
and deploy new financial instruments that the user can logically define.
FiCAD is analogous to the mechanical CAD products and electronic design
automation ("EDA") products provided by independent software vendors for other
industries. With EDA, an engineer describes logic networks with graphic
symbols, and the software program automatically generates the layout for
semiconductor chips. FiCAD enables users to link together various financial
objects to describe a new financial instrument, and FiCAD automatically
creates the new application; there is no need to write traditional text-based
source code. As a result, the Company believes that new instruments can be
created much more rapidly than is possible with conventional techniques.
FiCAD allows its clients to extend the functionality of the C-ATALYST product
line in advance of new releases. GLOBAL RISK MANAGER and FiCAD, are also used
in derivatives risk management.
5
PRODUCTS FOR ENTERPRISE RISK MANAGEMENT
GLOBAL RISK MANAGER. GLOBAL RISK MANAGER can be used both for
derivatives risk management and for firm-wide risk management. GLOBAL RISK
MANAGER allows the user to link standard and custom financial instruments to
evaluate risk levels for a single transaction or an entire portfolio. In
addition to evaluating interest rate and foreign exchange risks, GLOBAL RISK
MANAGER also evaluates new types of risk defined by users. GLOBAL RISK
MANAGER utilizes mathematical and database analysis techniques, accurate
mark-to-market and hedging capabilities and risk scenario analysis. GLOBAL
RISK MANAGER permits users to define their sensitivity to interest rates,
foreign exchange rates, delta, gamma/convexity, theta, vega and duration.
GLOBAL RISK MANAGER also manages funds liquidity.
GLOBAL RISK MANAGER links to the various position-keeping systems that
the client uses for different portions of its portfolio. These may include
C-ATALYST products such as SWAPWARE PLUS or other systems developed
internally or licensed from third parties.
CARMA. CARMA simulates a financial institution's exposure to market and
credit risk using multiple methodologies. Through Monte Carlo simulation or
historical simulation, CARMA measures and reports the financial institution's
exposure to changes in market prices and counterparty defaults. The system
is designed to comply with the standards for measurement of exposure to
market risk promulgated by the Bank for International Settlements (BIS).
CARMA became part of the Company's product line through the acquisition of
LOR/Geske Bock in February 1996. The Company has substantially enhanced
CARMA and released version 2.16 in 1997.
C. CLIENTS, MARKETING, SALES AND SERVICE
The Company's products are licensed to leading financial institutions
around the globe. These clients operate in a number of industries and include
more than a third of the world's 50 largest commercial and investment banks,
as well as securities firms, fund managers, and large industrial corporations
and insurance companies.
Those clients whose use of Company products has been publicly disclosed
include Bank of Montreal, Cassa di Risparmio di Torino, Credit Suisse,
Dai-ichi Kangyo Bank, Daiwa America Corp., IMI Bank, Kleinwort-Benson,
Long-Term Capital Management, Merrill Lynch, Bank of Tokyo-Mitsubishi, and
Tokai Bank, each of which represented more than $100,000 of annual contract
value in 1997. In 1997, 82% of the Company's revenues were derived from
international clients.
C-ATS employs a direct sales force and client services organization
located in New York, Tokyo, Hong Kong, and London. In support of its sales
force, the Company uses a variety of means to promote its software products
to potential clients, including advertising, articles in key publications,
direct mail, participation in major industry trade shows, and seminars.
Additionally, the Company is an associate member of the International Swaps
and Derivatives Association.
The Company previously did not utilize value-added resellers or other
third-party distributors. During 1997, the Company began evaluation of using
such services and commenced a relationship with two such parties. This
program is new and there are not yet conclusive results. The Company may
expand such efforts in 1998.
The Company's client services personnel provide pre-sale assistance in
applications engineering, product installation and client training, both on
the clients' premises and in classrooms, and provide post-sale service and
support in problem diagnosis. Product licenses also entitle clients to
6
receive updates and minor enhancements. The Company typically supports prior
versions of its products for a reasonable period to allow clients to upgrade
at the time they deem most convenient for their installation. The Company
provides certain professional services to clients on a contract basis,
including financial engineering support, additional client training and
assistance in the generation of client-specific reports, database
integration, and system optimization. The Company also conducts periodic
client satisfaction surveys.
In the Fall of 1997, the Company formed a new division C-ATS Consulting
Services to provide a wide variety of services to ensure client success in
implementing risk management solutions. By leveraging project experiences
gained through delivering complete enterprise-wide risk management solutions,
this group provides clients with services specifically targeted at lowering
implementation risks.
C-ATS Consulting Services is responsible for CARMA implementation
projects globally for C-ATS Software. The group began providing its clients
with generic enterprise risk management implementation project plan
templates, integration tools and additional integration assistance and advice
in 1997 and is currently engaged in several ongoing risk management projects.
The operations in Tokyo and London are conducted by wholly-owned
subsidiaries incorporated in Japan and the United Kingdom, respectively. The
subsidiaries conduct sales representative activities under the direction of
the parent company. The subsidiaries also conduct some client training and
share responsibility with the parent for performing certain other client
service activities, although all software engineering is performed by the
parent company. All license agreements are entered into between the parent
company and the clients. All clients pay their license and service fees
directly to the parent company in U.S. dollars. All parent company revenues
are recognized as either domestic or export sales. Subsidiary revenues
consist solely of payments from the parent company for services performed for
the benefit of the parent company at a rate of cost plus 10%.
D. TECHNOLOGY
FINANCIAL TECHNOLOGIES, VALUE AT RISK. VALUE AT RISK has become an
industry standard for risk management and regulatory reporting. Value at Risk
represents the amount of money a portfolio may lose in a given period of time
at a specified probability level. This amount varies based on the instruments
in a portfolio, changes in market prices and volatilities. A firm's Value at
Risk is calculated using estimates of likely price fluctuations of its
portfolio. The Company's products can be used to perform the simulations
necessary to support Value at Risk analysis. This calculation can be
performed on a departmental or enterprise basis.
CASH FLOW ARCHITECTURE. In 1986, the Company introduced SWAPWARE, which
it believes was the first commercially available product that defined
financial instruments using cash flow architecture. The Company subsequently
enhanced its cash flow architecture by adding capability for six-level
hierarchical reset computations. This architecture can be used to calculate
the cash flows for a wide range of instruments across international markets,
and is fully integrated with the Company's products' pricing and risk
management functions.
COMPUTER TECHNOLOGIES, RELATIONAL AND OBJECT-ORIENTED DATABASES. The
C-ATALYST line of software applications read and write information from the
C-ATS database, the Sybase relational database and the Oracle relational
database. The component architecture of the Company's C-ATALYST and CARMA
product lines interoperate using, Orbix, CORBA-compliant middleware from
market leader, Iona Technologies Ltd.
7
E. COMPETITION
The market for financial risk management software is intensely
competitive and is characterized by rapid technological change and frequent
introduction of new products and features. The Company competes generally on
the basis of product features and functions, product architecture, price, the
speed and accuracy of the product processing capability, client service, the
availability of sufficiently trained technical staff, and the vendor
financial stability. In order to maintain or improve its position in this
industry, the Company must continue to enhance its current products and
develop new products in a timely fashion. Because of the complexity of the
Company's products, from time to time development efforts have taken longer
than expected, causing delays in new products and enhancement releases, and
this may occur in the future. Any such delays could have a material adverse
effect on the Company's business, operating results or financial condition.
A major source of competition for the Company's products are
applications that are internally developed by the financial institutions
which are its potential clients. Many of these organizations have substantial
internal development resources with the capability to develop specific
products for their needs. Many of these organizations also value the ability
to control the source code for their software systems. The Company does not
typically make its source code available. The Company believes that its
products offer a number of advantages over internally developed alternatives,
including more rapid time-to-market, lower cost and more systematic and
complete reliability testing.
There are a significant number of independent commercial competitors for
the Company's products. In 1997, the competitive landscape was characterized
by significant consolidation by some of the larger competitors, these include
the recent merger of SunGard Data Systems Inc. with Infinity Financial
Technologies, Inc. and Renaissance Software, Inc., Misys Plc Group's
Midas-Kapiti International and Summit Systems, Inc. merger as well as ACT
Group plc., are much larger than the Company and have longer operating
histories and significantly greater financial, technical, sales and marketing
and other resources, greater name recognition and a larger installed client
base.
Other competitors offer products that support more financial instruments
or have more features than the Company's products, some offer more
customization services, some offer source code and programming tools for
internal application development. Many of the Company's existing competitors
could in the future introduce new products with more features and lower
prices than the Company's product offerings. Furthermore, if the market for
financial risk management software products continues to grow, a number of
additional companies with significantly greater resources than the Company
could attempt to establish or increase their presence in this market by
acquiring or forming strategic alliances with competitors of the Company, as
evidenced in 1997, or by developing and introducing products specifically
designed for these markets.
Despite this intensely competitive environment, the Company believes
that it competes favorably in its markets on the basis of product
functionality, price, performance characteristics, ease of product use, sales
and marketing expertise, financial stability, client support services and
corporate reputation.
F. PROPRIETARY RIGHTS
The Company relies on a combination of copyright, patent rights, trade
secret and trademark laws, license agreements and software security measures
to protect its proprietary technology and software products. The Company has
applied for a U.S. patent for its financial CAD technology. The Company's
patent application seeks protection for an object-oriented system for
creating, structuring,
8
manipulating and evaluating financial instruments. However, there can be no
assurance that the patent will be granted.
Despite these precautions, it may be possible for a third party to
independently develop the same or similar technology or otherwise obtain
access to the Company's proprietary technology. In addition, the Company
does not currently possess, and has not applied for, any foreign patents.
Moreover, the Company cannot be certain that others will not independently
develop substantially equivalent or superseding proprietary technology, or
that an equivalent product will not be marketed in competition with the
Company's products, thereby substantially reducing the value of the Company's
proprietary rights. There can be no assurance that any confidentiality
agreements between the Company and its employees will provide meaningful
protection for the Company's proprietary information in the event of any
unauthorized use or disclosure of such proprietary information. Although most
all of the Company's software product license agreements with its clients
protect the Company's proprietary information under the laws and jurisdiction
of the State of California where significant case law exists to protect such
information, the local laws of certain countries in which the Company's
products are licensed do not protect the Company's products and intellectual
property rights to the same extent. The Company believes that, due to the
rapid pace of innovation within the industry, factors such as the
technological and creative expertise of its personnel, the quality of its
products, the quality of its technical support and training courses, and the
frequency of its software product enhancements are more important to
establishing and maintaining a technology leadership position within the
industry than the various legal protections for its products and technology.
G. EMPLOYEES
As of December 31, 1997, the Company and its subsidiaries had a total of
110 employees, including 40 in product development, 53 in sales, marketing
and client services, and 17 in finance and administration. None of the
Company's employees are represented by a labor union. The Company has
experienced no work stoppages and believes that its employee relationships
are good.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information with regard to executive
officers of the Company (ages are as of December 31, 1997):
NAME AGE POSITION
- ----------------- --- -------------------------------------------------------
Rod A. Beckstrom 36 Chief Executive Officer and Chairman of the Board
David Gilbert 51 President and Chief Operating Officer
James E. Graber 53 Vice President of Finance and Chief Financial Officer
Robert L. Geske 52 Vice President of Research and Development and Director
Finn Christensen 33 Vice President of Marketing
Amos Barzilay 43 Vice President of Capital Markets/Treasury
Jill Kulick 50 Vice President of Human Resources
Rod A. Beckstrom has served as Chief Executive Officer and Chairman of
the Board of the Company since founding the Company in 1985.
David Gilbert has served as President and Chief Operating Officer of the
Company since August 1996. From January 1996 to July 1996, he served as Vice
President of Risk Management of
9
the Company. From 1988 to December 1995, he served as the Senior Vice
President of Logica, Inc., a financial services company.
James E. Graber has served as Vice President of Finance and Chief
Financial Officer of the Company since November 1997. From June 1991 to
November 1997, he served as the principal financial consultant at Graber
Associates, a financial consulting company.
Robert L. Geske has served as Vice President of Research and Development
and director of the Company since February 1996. From 1986 to its
acquisition by the Company in February 1996, Mr. Geske served as Chairman of
the Board and Chief Executive Officer of LOR/Geske Bock Associates, Inc. Mr.
Geske has also served as Professor of Finance at the University of California
at Los Angeles since July 1977.
Finn Christensen has served as Vice President of Marketing since
February 1996. From March 1992 to January 1996, he served as Principal of
Risk Management and Derivatives Trading Systems at Fusion Systems Group,
Inc., a financial services company.
Amos Barzilay has served as Vice President of Capital Markets/Treasury
since March 1996. From January 1994 to February 1996, he served as Director
of Industry Marketing at Informix Corporation, a database software company.
From April 1991 to December 1993, Mr. Barzilay served as Vice President of
Application at Syntelligence Systems, Inc., a financial services company.
Jill Kulick has served as Vice President of Human Resources since July
1997. From 1994 to June 1997, she served as Vice President, Human Resources
Officer at Bank of America, N.A.
ITEM 2. PROPERTIES
C-ATS leases approximately 30,000 square feet of leased office space in
Palo Alto, California. This lease expires in April 2001. In addition, the
Company and its subsidiaries lease office space in New York, London, Tokyo
and Hong Kong. The Company believes that its current and proposed facilities
are adequate to meet its needs for the foreseeable future. The Company
believes that it can acquire additional space, if needed, on acceptable
terms.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not have any submissions of matters to a vote of security
holders during the fourth quarter of 1997.
10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock has been traded in the Nasdaq National Market
under the symbol CATX since the Company's initial public offering on March
20, 1995. No public trading market in the Company's common stock existed
prior to fiscal 1995. Additional information is set forth under the caption
"Stock Trading Information" on page 33 of the Company's 1997 Annual Report
to Stockholders (the "Annual Report") and such information is hereby
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
This information is set forth under the caption "Selected Consolidated
Financial Data" on page 2 of the Annual Report and such information is hereby
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This information is set forth under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" on pages 3
through 16 of the Annual Report and such information is hereby incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of the Company and the auditors'
report appearing on pages 17 through 34 of the Annual Report are hereby
incorporated herein by reference.
) Report of Independent Public Accountants
) Consolidated Balance Sheets as of December 31, 1997 and 1996
) Consolidated Statements of Operations for the years ended December 31,
1997, 1996, and 1995
) Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995
) Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996, and 1995
) Notes to Consolidated Financial Statements
The Company's 1997 Annual Report, except for those portions which are
expressly incorporated by reference in this filing, is furnished for the
information of the Securities and Exchange Commission and is not to be deemed
as filed as part of this Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
11
PART III
ITEM 10. DIRECTORS AND EXECUTIVES OFFICERS OF THE REGISTRANT
(a) Executive Officers - See the section entitled "Executive Officers of the
Registrant" in Part I hereof.
(b) Directors - The information required by this Item is incorporated by
reference to the section entitled "Nominees for Director" in the Company's
Proxy Statement for its 1998 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
Information contained in the Company's Proxy Statement for its 1998
Annual Meeting of Stockholders under the caption "Executive Compensation" is
hereby incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information contained in the Company's Proxy Statement for its 1998
Annual Meeting of Stockholders under the caption "Security Ownership of
Directors, Officers and Certain Beneficial Owners" is hereby incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information contained in the Company's Proxy Statement for its 1998
Annual Meeting of Stockholders under the caption "Certain Relationships and
Related Transactions" is hereby incorporated herein by reference.
12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT, SCHEDULES AND REPORTS ON
FORM 8-K
(A) DOCUMENTS FILED AS PART OF THIS REPORT:
1. FINANCIAL STATEMENTS:
The following financial statements of the Company included in Part II,
Item 8 of this Report on Form 10-K are hereby incorporated by reference from
its 1997 Annual Report to Stockholders, filed as Exhibit 13.1 to this Report
on Form 10-K.
Page(s) in 1997
Annual Report
---------------
Report of Independent Public Accountants 17
Consolidated Balance Sheets as of 18
December 31, 1997 and 1996
Consolidated Statements of Operations 19
for the years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity for 20
the years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows 21
for the years ended December 31, 1997,1996, and 1995
Notes to Consolidated Financial Statements 22-32
Stock Trading Information 33
2. FINANCIAL STATEMENT SCHEDULES:
The following financial statement schedules of the Company for the years
ended December 31, 1997, 1996 and 1995 is filed as part of this report and
should be read in conjunction with the Consolidated Financial Statements of
the Company:
Page in this
Form 10-K
------------
Report of Independent Accountants on Financial Statement Schedule S-1
Valuation and Qualifying Accounts S-2
All other financial statements and schedules not listed above are
omitted as the information is not required or is not material to require
submission of the schedule or because information is presented in the
consolidated financial statements or related notes.
13
3. EXHIBITS, EXHIBIT INDEX, AND FINANCIAL STATEMENT SCHEDULES:
EXHIBIT
NUMBER EXHIBIT TITLE
------ -----------------------------------------------------
3.1 Restated Certificate of Incorporation of Registrant,
as amended. (1)
3.2 Amended and Restated Bylaws of Registrant, as
amended on November 19, 1997.
4.1 Form of Common Stock certificate. (1)
4.2 Amended Registration Rights Agreement dated
September 13, 1990 between Registrant and certain
investors named therein, as amended. (1)
10.1 Amended and Restated 1988 Incentive Stock Plan and
forms of Stock Option Agreement thereunder. (4)
10.2 1995 Director Option Plan and form of option
agreement thereunder. (1) (4)
10.3 1995 Employee Stock Purchase Plan and forms of
subscription agreement and election thereunder. (1) (4)
10.4 Amended and Restated 1995 Stock Plan and forms of
option and stock purchase right agreements
thereunder. (4)
10.5 Form of Indemnification Agreement entered into
between Registrant and its directors and officers. (1)
10.6 Registrant's 401(k) Plan. (1) (4)
10.7 Lease dated March 30, 1995 for facilities located
at 1870 Embarcadero Road, Palo Alto, California. (2)
10.8 Agreement and Plan of Reorganization by and among
C-ATS Software, Inc., C-ATS Sub, Inc., and
LOR/Geske Bock Associates, Inc. dated as of
January 30, 1997 and filed under Form 8-K on
February 13, 1996, as amended on April 10, 1996. (3)
11.1 Calculation of Earnings Per Share.
13.1 1997 Annual Report to Shareholders.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Accountants.
27.1 Financial Data Schedule for Fiscal Year Ended 1997.
27.2 Financial Data Schedule for Fiscal Year Ended 1995.
- ---------------
(1) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1 (File No. 33-89242) in the form
declared effective on March 20, 1995.
(2) Incorporated by reference to exhibits filed with the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.
(3) Incorporated by reference to exhibits filed with the Registrant's Form
8-K filed on February 13, 1996, as amended April 10, 1996.
(4) Management contract or compensatory plan or arrangement.
(b) REPORTS FILED UNDER FORM 8-K:
No reports on Form 8-K were filed during the 4th quarter of fiscal 1997.
(c) EXHIBITS:
See Item 14(a)(3) above.
(d) FINANCIAL STATEMENT SCHEDULES:
See Item 14(a)(2) above.
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
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 Palo
Alto, State of California, on this 31st day of March, 1998.
C-ATS SOFTWARE INC.
By: /s/ James E. Graber
-------------------------------------------
CHIEF FINANCIAL OFFICER AND TREASURER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints James E. Graber, his attorney-in-fact,
with the power of substitution, for him in any and all capacities, to sign
any amendments to this report on Form 10-K and to file the same, with
exhibits thereto other documents in connection therewith, with the Securities
and Exchange Commission, hereby ratifying and confirming all that said
attorney-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities and Exchange Act of 1934
this report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------- --------------------------------- --------------------
/s/ Rod A. Beckstrom Chief Executive Officer March 31, 1998
--------------------- and Director (Principal
Rod A. Beckstrom Executive Officer)
/s/ James E. Graber Chief Financial Officer and March 31, 1998
--------------------- Treasurer (Principal Financial
James E. Graber and Accounting Officer)
/s/ David Gilbert President, Chief Operating March 31, 1998
--------------------- Officer and Director
David Gilbert
/s/ Mario M. Rosati Director and Secretary March 31, 1998
---------------------
Mario M. Rosati
/s/ Robert Geske Director and Officer March 31, 1998
---------------------
Robert Geske
/s/ Manuel Correia Director March 31, 1998
---------------------
Manuel Correia
/s/ Mark P. Kalkus Director March 31, 1998
---------------------
Mark P. Kalkus
/s/ Andrew S. Rachleff Director March 31, 1998
---------------------
Andrew S. Rachleff
15
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
We have audited, in accordance with generally accepted auditing
standards, the financial statements included in C-ATS Software Inc.'s annual
report to shareholders, incorporated by reference in this Form 10-K, and have
issued our report thereon dated January 23, 1998. Our audit was made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. The schedule listed in the index above is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required
to be set forth therein in relation to the basic financial statements taken
as a whole.
ARTHUR ANDERSEN LLP
San Jose, California
January 23, 1998
S-1
Schedule II
C-ATS SOFTWARE INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
BALANCE AT ADDITIONS
BEGINNING OF CHARGED AGAINST BALANCE AT
DESCRIPTION YEAR REVENUE DEDUCTIONS END OF YEAR
- ------------------------------------------ ------------ --------------- ----------- --------------
Year ended December 31, 1995
Allowance for doubtful accounts. . . . . $100 $ 32 $ -- $132
Year ended December 31, 1996
Allowance for doubtful accounts. . . . . $132 $ -- $ 32 $100
Year ended December 31, 1997
Allowance for doubtful accounts. . . . . $100 $ 142 $ -- $242
S-2