_____________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996
---------------------------
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______________________ to _______________________
Commission File Number 0-26330
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ASTEA INTERNATIONAL INC.
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(Exact name of registrant as specified in its charter)
Delaware 23-2119058
- --------------------------------------- ---------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
100 Highpoint Drive, Chalfont, PA 18914
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (215) 822-8888
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N/A
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 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 last 90 days. Yes [X] No [_]
As of May 6, 1996 there were 12,748,000 shares of Common Stock outstanding,
par value $.01 per share.
_______________________________________________________________________________
ASTEA INTERNATIONAL INC.
FORM 10Q
QUARTERLY REPORT
INDEX
PAGE NO.
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Facing Sheet 1
Index 2
PART I - FINANCIAL INFORMATION
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ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Unaudited Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS 11
ITEM 2. CHANGES IN SECURITIES 11
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11
ITEM 5. OTHER INFORMATION 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 12
EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE 13
PART I. - FINANCIAL INFORMATION
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ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
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ASTEA INTERNATIONAL INC.
------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
ASSETS March 31, December 31,
------
1996 1995
------------- --------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 6,124,000 $ 4,021,000
Investments available for sale 26,261,000 30,822,000
Receivables, net of reserves 19,077,000 21,560,000
Prepaid expenses and other 2,056,000 1,917,000
Prepaid income taxes 1,217,000 -----
Deferred income taxes 907,000 1,194,000
------------- -------------
Total current assets 55,642,000 59,514,000
Property and Equipment Net 6,105,000 5,822,000
Capitalized Software Net 1,802,000 1,713,000
Goodwill, Net 2,330,000 2,321,000
------------- -------------
Total assets $ 65,879,000 $ 69,370,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Line of credit $ 650,000 $ 1,200,000
Current portion of obligations under capital
leases 99,000 97,000
Accounts payable and accrued expenses 7,779,000 9,613,000
Deferred revenues 6,469,000 7,872,000
------------- -------------
Total current liabilities 14,997,000 18,782,000
Deferred Income Taxes 424,000 136,000
Noncurrent Portion of Obligations Under Capital Leases 2,504,000 2,532,000
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued ----- -----
Common stock, $.01 par value, 25,000,000 shares
authorized, 12,648,000 shares on March 31, 1996
and 12,404,000 shares at December 31, 1995
Issued and outstanding 126,000 124,000
Additional paid-in capital 47,674,000 45,600,000
Deferred compensation (345,000) (388,000)
Cumulative translation adjustment (176,000) (115,000)
Retained earnings 675,000 2,699,000
------------- -------------
Total liabilities and stockholders' equity $ 69,879,000 $ 69,370,000
============= =============
The accompanying notes are an integral part of these statements.
ASTEA INTERNATIONAL INC.
------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(Unaudited)
Three Months
Ended March 31,
---------------------------
1996 1995
-------------- ------------
Revenues:
Software license fees $ 7,488,000 $ 4,207,000
Services and maintenance 7,399,000 4,875,000
----------- -----------
Total revenues 14,887,000 9,082,000
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Costs and expenses:
Cost of software licenses fees 774,000 685,000
Cost of services and maintenance 4,575,000 3,189,000
Product development 1,619,000 796,000
Sales and marketing 4,586,000 2,464,000
General and administrative 1,913,000 1,359,000
Expenses related to pooling transaction 3,416,000 -----
------------ -----------
Total costs and expenses 16,883,000 8,493,000
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Income (loss) from operations (1,996,000) 589,000
Net interest income (expense) 280,000 (135,000)
------------ -----------
Income (loss) before income taxes (1,716,000) 454,000
Provision for income taxes 308,000 14,000
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Net income (loss) ($ 2,024,000) $ 440,000
============= ===========
Pro forma data (Note 4)
Pro forma income before income taxes $ 1,700,000 $ 454,000
Pro forma income taxes 646,000 205,000
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Pro forma net income $ 1,054,000 $ 249,000
============ ===========
Pro forma net income per share $ .08 $ .03
============ ===========
Weighted average shares outstanding 13,542,000 9,539,000
============ ===========
The accompanying notes are an integral part of these statements.
ASTEA INTERNATIONAL INC.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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(Unaudited)
For the Three Months
Ended March 31,
-------------------------------
1996 1995
--------------- --------------
Cash flows from operating activities:
Net income (loss) $ (2,024,000) $ 440,000
Adjustments to reconcile net income (loss) to cash
provided by operating activities-
Depreciation and amortization 559,000 550,000
Tax benefit from exercise of stock options 1,742,000 ---
Other 25,000 27,000
Changes in operating assets and liabilities,
net of effect of acquired business-
Receivables 2,312,000 2,020,000
Prepaid expenses and other (143,000) (190,000)
Prepaid income taxes (1,217,000) ----
Accounts payable and accrued expenses (1,836,000) (923,000)
Deferred income taxes 575,000 ---
Deferred revenues (1,403,000) 2,424,000
--------------- --------------
Net cash provided by (used in) operating activities (1,410,000) 4,348,000
Cash flows from investing activities:
Sale of short-term investments, net 4,561,000 ---
Purchases of property and equipment (598,000) (247,000)
Capitalized software development costs (224,000) (187,000)
Repayments of notes receivable from sole stockholder and
his wife ---- 217,000
Payment for acquired business, net of cash acquired ---- (168,000)
--------------- --------------
Net cash provided by (used in) investing activities 3,739,000 (385,000)
Cash flows from financing activities:
Proceeds from exercise of stock options 334,000 ---
Net borrowings (repayments) on line of credit (550,000) 616,000
Repayments of debt (26,000) (69,000)
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Net cash provided by (used in) financing activities (242,000) 547,000
--------------- --------------
Effect of exchange rate changes on cash 16,000 (43,000)
--------------- --------------
Net increase in cash and cash equivalents 2,103,000 4,467,000
Cash and cash equivalents balance, beginning of period 4,021,000 1,119,000
--------------- --------------
Cash and cash equivalents balance, end of period $ 6,124,000 $ 5,586,000
=============== ==============
The accompanying notes are an integral part of these statements.
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
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ASTEA INTERNATIONAL INC.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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1. BASIS OF PRESENTATION
---------------------
The consolidated financial statements at March 31, 1996 and for the three month
period ended March 31, 1996 and 1995 of Astea International Inc. and
subsidiaries (the "Company") are unaudited and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial position and
operating results for the interim periods. The consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto, together with management's discussion and analysis
of financial condition and results of operations, contained in the Company's
1995 Annual Report and Form 10-K are hereby incorporated by reference in this
report on Form 10-Q.
2. BENDATA MERGER
--------------
On February 27, 1996, the Company completed a merger with Bendata Inc.
("Bendata"). The Company exchanged 1,500,000 shares of its common stock for all
of Bendata's outstanding capital stock in a merger accounted for as a pooling
of interest. All financial data has been restated to include Bendata for each
period presented.
In connection with the Bendata merger, $3,416,000 of merger expenses ($2,609,000
after-tax) were incurred and charged to expense in the first quarter of 1996.
The merger expenses consisted of bonus payments made to Bendata non-shareholder
employees as well as legal, accounting and investment banking fees.
3. INCOME TAXES
------------
During the first quarter of 1995, and the period from January 1, 1996 to
February 27, 1996 in the case of Bendata only, the Company was taxed under
subchapter S of the Internal Revenue Code; therefore, income taxes includes a
provision for certain states which do not recognize S-corporation status.
Income taxes for the first quarter of 1996 includes a charge of $575,000 for the
reinstatement of a deferred income tax liability for Bendata caused by the
termination of Bendata's S-corporation status as a result of the merger.
Excluding this charge, the Company would have recorded an income tax benefit of
$267,000, or an effective tax rate of 15.5%. This income tax benefit was
reduced due to the non-deductibility of certain merger expenses, or an effective
tax rate of 27.9%.
4. PRO FORMA INFORMATION
---------------------
Pro Forma Income Statement
- --------------------------
Pro forma information for the three months ended March 31, 1996 excludes from
income before income taxes the merger expenses of $3,416,000 ($2,609,000 after-
tax) and the one-time income tax charge of $575,000 due to the conversion of
Bendata from an S corporation to a C corporation as a result of the merger.
The pro forma income taxes for the periods ended March 31, 1996 and 1995
reflected above were calculated as if the Company and Bendata were C
corporations for the periods presented using the criteria established under
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
Pro Forma Net Income Per Share
- ------------------------------
Pro forma net income per share was calculated by dividing pro forma net income
by the weighted average number of shares of common stock outstanding, including
the 1,500,000 shares of common stock issued in the Bendata merger for the
respective periods. These shares were adjusted for the dilutive effect of
common stock equivalents, which consist of issued but unexercised stock options,
using the treasury stock method. Pursuant to the requirements of the Securities
and Exchange Commission, common stock equivalents issued by the Company during
the 12 months immediately preceding the Offering have been included in the
calculation of the shares used in computing pro forma net income per share for
the three month period ended March 31, 1995 as if they were outstanding for all
periods presented (using the treasury stock method and the average fair market
price).
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATIONS
---------------------
Overview
- --------
The Company develops, markets, implements and supports a suite of customer
interaction software applications for client/server and host-based computing
environments that permit organizations of various sizes across a wide range of
industries to automate and integrate field service and customer support
functions. The Company maintains operations in the United States, Australia,
New Zealand, the Netherlands, Germany, France, the United Kingdom and Israel.
Results of Operations
- ---------------------
Comparison of Three Months Ended March 31, 1996 and 1995
- --------------------------------------------------------
Revenues
- --------
Total revenues increased $5,805,000 or 64% to $14,887,000 in the three months
ended March 31, 1996 from $9,082,000 in the three months ended March 31, 1995
primarily as a result of increases in both software license fees and the
performance of professional services and maintenance associated with those
licenses. The Company's European operation (Astea B.V.), which was acquired by
the Company in February 1995, contributed $1,584,000 in the first quarter of
1996 compared to $764,000 in the first quarter of 1995. This increase represents
14% of the total increase in revenues in the period. Bendata total revenue for
the three months ended March 31, 1996 was $3,435,000 compared to $1,756,000 for
the three months ended March 31, 1995, accounting for 29% of the increase in
total revenues over the first quarter of 1995.
Software license revenues increased $3,281,000 or 78% to $7,488,000 in the first
quarter of 1996 from $4,207,000 in the first quarter of 1995. This increase was
attributable to higher revenues associated with DISPATCH-1, PowerHelp and
Bendata's HEAT products, which resulted primarily from the hiring of additional
sales personnel, increased marketing activities, and increased demand generally
in the customer software interaction marketplace. Software license revenues for
DISPATCH-1. PowerHelp and HEAT increased by 50%, 461% and 122% during the first
quarter of 1996 compared to the first quarter of 1995. Bendata license revenue
was $2,192,000 in the first quarter of 1996, compared to $987,000 in the first
quarter of 1995 or 37% of the increase.
Services and maintenance revenues increased $2,524,000 or 52% to $7,399,000 in
the first quarter of 1996 from $4,875,000 in the first quarter of 1995. Astea
B.V. contributed revenues of $1,070,000 in the first quarter of 1996 compared to
$431,000 in the first quarter of 1995, an increase of $639,000 or 25% of the
total increase. Bendata contributed revenues of $1,243,000 in the first quarter
of 1996 compared to $769,000 in the first quarter of 1995, an increase of
$474,000 or 19% of the total increase over the same quarter in the prior year.
The remaining increase was primarily associated with the Company's growing
customer base and the complexity of license installations which require
additional professional services and support.
Total international operations contributed $3,212,000 or 22% of total revenues
in the first quarter of 1996, compared to $1,105,000 or 12% of total revenues in
the first quarter of 1995. This increase of $2,107,000 was primarily in Europe
which accounted for $1,515,000 or 72% of the increase in the first quarter of
1996 over the same quarter in 1995.
In the first quarter of 1995, the Company had one customer which accounted for
13% of total revenues. In the first quarter of 1996, the Company had no
customers which accounted for greater than 10% of total revenues.
Costs of Revenues
- -----------------
Cost of software license fees increased $89,000 or 13% to $774,000 in the first
quarter of 1996 from $685,000 in the first quarter of 1995. The increase is
primarily due to the increase in license fees and royalties payable to third
parties in connection with increased licenses of the Company's software. Cost of
software license fees as a percentage of software license fee revenues decreased
to 10% in the first quarter of 1996 from 16% in the first quarter of 1995. This
decrease was primarily attributable to the mix of third party software licenses
required to support the software licenses sold.
Costs of services and maintenance increased $1,386,000 or 43% to $4,575,000 in
the first quarter of 1996 from $3,189,000 in the first quarter of 1995. The
increase was primarily due to increased personnel costs for service and support
attendant to the Company's increased software license revenues and the expansion
of the Company's international operations. Cost of services and maintenance as a
percentage of service and maintenance revenues decreased to 62% for the first
quarter of 1996 from 65% for the first quarter of 1995.
Product Development
- -------------------
Product development expense increased $823,000 or 103% to $1,619,000 in the
first quarter of 1996 from $796,000 in the first quarter of 1995. Product
development as a percentage of revenues increased to 11% in the first quarter of
1996 from 9% in the first quarter of 1995. The Company expects that product
development expenses will continue to grow as an absolute dollar amount in the
future as new products are developed and enhanced. The company's total product
development costs, including capitalized software development costs were
$1,844,000 or 12% of revenues for the first quarter of 1996 compared to $984,000
or 11% of revenues for 1995, an increase of 87%. The capitalized portions of
total product development expenses were $225,000 or 12% in the first quarter
of 1996 and $188,000 or 19% in the first quarter of 1995. This increase is
primarily a result of the hiring of additional development personnel.
Sales and Marketing
- -------------------
Sales and marketing expense increased $2,122,000 or 86% to $4,586,000 in the
first quarter of 1996 from $2,464,000 in the first quarter of 1995. This
increase resulted from the hiring of additional sales and marketing personnel
and the expansion of international operations. As a percentage of revenues,
sales and marketing expenses increased to 31% in the first quarter of 1996 from
27% in the first quarter of 1995. Sales and marketing expense related to the
Company's international operations including Astea BV and Bendata UK was
$1,181,000 in the first quarter of 1996 compared to $257,000 in the first
quarter of 1995.
General and Administrative
- --------------------------
General and administrative expenses increased $554,000 or 41% to $1,913,000 in
the first quarter of 1996 from $1,359,000 in the first quarter of 1995. As a
percentage of revenues, general and administrative costs have decreased to 13%
in the first quarter of 1996 from 15% in the first quarter of 1995. This
decrease in general and administrative expenses as a percentage of revenues
represents increased operating efficiency within the administrative functions.
Net Interest Income
- -------------------
Net interest income was $280,000 in the first quarter of 1996 as compared to
$135,000 of interest expense in the first quarter of 1995. This increase was
primarily attributable to interest income earned on the proceeds from the
Company's initial public offering.
Merger Costs
- ------------
Costs of $3,416,000 ($2,609,000 after-tax) associated with the Bendata
merger were charged to expense in the first quarter of 1996. These costs were
comprised of one time payments to non-shareholder employees for their investment
banking, legal and accounting fees.
Variability of Quarterly Results
- --------------------------------
The results of operations for the three month period ended March 31, 1996 are
not necessarily indicative of the results of operations for the year ending
December 31, 1996.
Liquidity and Capital Resources
- -------------------------------
The Company has historically financed its operations through cash generated by
operations. Net cash used in operating activities was $1,410,000 during the
three months ended March 31, 1996 compared to $4,348,000 provided by operating
activities during the three months ended March 31, 1995. This decrease was
primarily attributable to the merger expenses of $3,416,000 related to the
Bendata transaction and decreases in deferred revenues.
Cash provided by investing activities was $3,739,000 in the first three months
of 1996 compared to $385,000 used in investing activities in the first three
months of 1995. The increase was primarily attributable to the sale of short-
term investments, which were primarily used to fund merger expenses, partially
offset by the purchases of property and equipment and capitalized software
development costs.
The Company utilized $242,000 from financing activities during the three months
ended March 31, 1996. These funds were used to paydown the line of credit and
debt, offset by the issuance of common stock upon the exercise of stock options.
The Company maintains a line of credit with a maximum borrowing availability
thereunder of $5,000,000. The line of credit bears interest at the lending
bank's prime rate. Borrowings under the line of credit are secured by the
Company's receivables, contract rights and equipment. The line of credit
expires on June 30, 1996 and is subject to renewal at that time. There was no
outstanding balance under this line as of December 31, 1995 and March 31, 1996.
Bendata has a revolving line of credit with a bank for borrowings up to
$1,750,000, with interest at the bank's prime rate plus 3/4% (9.5% at December
31, 1995 and 9.75% at March 31, 1996). Availability of borrowings under the line
is limited to 80% of eligible accounts receivable. Borrowings under the
revolving line of credit are secured by a first security interest on
substantially all the Company's assets and are guaranteed by a minority
Stockholder in Astea. The line expired on March 31, 1996. The line requires the
Company to maintain certain financial and nonfinancial covenants. The Company
did not comply with certain covenants at December 31, 1995 or March 31, 1996 and
accordingly had received waivers and amendments with respect to such covenants
from its bank. The outstanding balance as of December 31, 1995 and March 31,
1996 was $1,200,000 and $650,000.
The Company believes its current cash balances, cash flow from operations, if
any, and existing credit facilities will be sufficient to fund its working
capital requirements and planned capital expenditures for at least the next
twelve months.
The Company is planning to expand its corporate facilities during the second
half of 1996. This expansion is not expected to have a material effect on the
Company's cashflow or operating results.
PART II - OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
- ---------------------------
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. The Company is
not involved in any legal proceedings which would, in management's opinion, have
a material adverse effect on the Company's business or results of operations.
ITEM 2. CHANGES IN SECURITIES
- -------------------------------
There have been no changes in securities during the quarter ended March 31,
1996.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- ------------------------------------------
There have been no defaults by the Company on any Senior Securities during the
quarter ended March 31, 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------------------------------------------------------------
No matters were submitted to a vote of Security Holders during the quarter ended
March 31, 1996.
ITEM 5. OTHER INFORMATION
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None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
(a) Exhibit:
11. Computation of Pro Forma Income Per Common Share
(b) A Current Report on Form 8-K dated February 27, 1996 was filed by the
Company during the quarter ended March 31, 1996 and Amendment No. 1 to
Current Report on Form 8-K/A dated May 3, 1996 was filed by the Company on
May 3, 1996 each relating to the consummation by the Company on February 27,
1996 of a merger with Bendata, Inc. ("Bendata") pursuant to which the
Company issued 1,500,000 shares of Common Stock for all of the issued and
outstanding capital stock of Bendata and membership interests in Bendata
(UK) Limited LLC.
SIGNATURES
----------
Pursuant to the requirements 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.
ASTEA INTERNATIONAL INC.
Date: May 13, 1996
By:/s/Zack B. Bergreen
-------------------
Zack B. Bergreen
President and Chief Executive Officer
(Principal Executive Officer)
By:/s/Leonard W. von Vital
-----------------------
Leonard W. von Vital
Vice President and Chief Financial Officer
(Principal Financial and Chief
Accounting Officer)