================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------------------
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 2001
-----------------------------------
or
[ ] 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
ASTEA INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
Delaware 23-2119058
-------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
455 Business Center Drive, Horsham, PA 19044
------------------------------------------ ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 682-2500
---------------
N/A
------------------------------------------------------
(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 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
As of November 1, 2001, 14,824,887 shares of the registrant's Common Stock, par
value $.01 per share, were outstanding.
ASTEA INTERNATIONAL INC.
FORM 10-Q
QUARTERLY REPORT
INDEX
Page No.
Facing Sheet 1
Index 2
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets (Unaudited) 3
Consolidated Statements of Operations (Unaudited) 4
Consolidated Statements of Cash Flows (Unaudited) 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosure About Market Risk 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
PART I - FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
ASTEA INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2001 2000
---- ----
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 5,367,000 $ 5,208,000
Investments available for sale 2,978,000 3,506,000
Receivables, net of reserves of $816,000 and $1,600,000 4,832,000 7,885,000
Prepaid expenses and other 1,309,000 1,778,000
Deferred income taxes 668,000 668,000
------------------- -------------------
Total current assets 15,154,000 19,045,000
Property and equipment, net 703,000 996,000
Capitalized software development costs, net 1,462,000 1,612,000
------------------- -------------------
Total assets $ 17,319,000 $ 21,653,000
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 65,000 $ 138,000
Accounts payable and accrued expenses 3,341,000 4,731,000
Deferred revenues 2,662,000 4,508,000
------------------- -------------------
Total current liabilities 6,068,000 9,377,000
Deferred income taxes 298,000 298,000
Long-term debt - 23,000
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares - -
authorized, none issued
Common stock, $.01 par value, 25,000,000 shares 148,000 148,000
authorized, 14,825,000 issued and
outstanding
Less treasury stock, at cost, 233,000 and 3,900 common shares (231,000) (3,000)
Additional paid-in capital 22,674,000 22,671,000
Cumulative currency translation adjustment (1,335,000) (1,145,000)
Accumulated deficit (10,303,000) (9,716,000)
------------------- -------------------
Total stockholders' equity 10,953,000 11,955,000
------------------- -------------------
Total liabilities and stockholders' equity $ 17,319,000 $ 21,653,000
=================== ===================
The accompanying notes are an integral part of these consolidated statements.
3
ASTEA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------------------- ---------------------------------
2001 2000 2001 2000
---- ---- ----- ----
Revenues:
Software license fees $ 777,000 $ 2,183,000 $ 4,546,000 $ 5,774,000
Services and maintenance 2,673,000 2,843,000 8,289,000 10,823,000
----------------- --------------- ---------------- ----------------
Total revenues 3,450,000 5,026,000 12,835,000 16,597,000
----------------- --------------- ---------------- ----------------
Costs and expenses:
Cost of software license fees 245,000 193,000 847,000 949,000
Cost of services and maintenance 1,414,000 2,181,000 4,915,000 8,438,000
Product development 779,000 494,000 2,032,000 2,018,000
Sales and marketing 1,206,000 1,399,000 4,027,000 5,312,000
General and administrative 439,000 1,216,000 1,863,000 2,917,000
Restructuring charge (Note 3) - - - 1,101,000
----------------- --------------- ---------------- ----------------
Total costs and expenses 4,083,000 5,483,000 13,684,000 20,735,000
----------------- --------------- ---------------- ----------------
Operating loss from continuing operations (633,000) (457,000) (849,000) (4,138,000)
Interest income, net 73,000 170,000 262,000 1,384,000
----------------- --------------- ---------------- ----------------
Loss from continuing operations (560,000) (287,000) (587,000) (2,754,000)
Gain on disposal of discontinued operations, net - 293,000 - 293,000
----------------- --------------- ---------------- ----------------
Net (loss) income $ (560,000) $ 6,000 $ (587,000) $ (2,461,000)
================= =============== ================ ================
Basic and diluted loss per share:
Continuing operations $ (0.04) $ - $ (0.04) $ (0.19)
Gain on sale of discontinued operations - - - .02
----------------- --------------- ---------------- ----------------
Net loss $ ( 0.04) $ 0.00 $ (0.04) $ (0.17)
================= =============== ================ ================
Share outstanding used in computing basic earnings
(loss) per share
14,612,000 14,821,000 14,640,000 14,486,000
================= =============== ================ ================
The accompanying notes are an integral part of these consolidated statements.
4
ASTEA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months
Ended September 30,
---------------------------------
2001 2000
---------------- ---------------
Cash flows from operating activities:
Net loss $ (587,000) $ (2,461,000)
Adjustments to reconcile net loss to net cash (provided by) used in
operating activities:
Gain on sale of discontinued operations -- (293,000)
Depreciation and amortization 1,087,000 1,163,000
Variable option compensation benefit -- (224,000)
Loss on sale of investments -- 27,000
Other -- 9,000
Changes in operating assets and liabilities: --
Receivables 2,883,000 2,334,000
Prepaid expenses and other 415,000 (204,000)
Accounts payable and accrued expenses (1,340,000) (2,761,000)
Deferred revenues (1,867,000) (950,000)
------------ ------------
Net cash (provided by) used in operating activities
of continuing operations 591,000 (3,360,000)
------------ ------------
Cash flows from investing activities:
Sales of investments available for sale 528,000 31,885,000
Purchases of property and equipment (230,000) (587,000)
Capitalized software development costs (450,000) (550,000)
Proceeds from the sale of discontinued operations -- 143,000
------------ ------------
Net cash (used in) provided by investing activities (152,000) 30,891,000
------------ ------------
Cash flows from financing activities:
Proceeds from exercise of stock options and employee stock
purchase plan 3,000 1,024,000
Net repayments of long-term debt (97,000) (255,000)
Purchases of treasury stock (228,000) --
Dividend distribution -- (30,376,000)
------------ ------------
Net cash used in financing activities (322,000) (29,607,000)
------------ ------------
Effect of exchange rate changes on cash and cash equivalents 42,000 131,000
------------ ------------
Net (decrease) increase in cash and cash equivalents 159,000 (1,945,000)
Cash and cash equivalents balance, beginning of period 5,208,000 6,158,000
------------ ------------
Cash and cash equivalents balance, end of period $ 5,367,000 $ 4,213,000
============ ============
The accompanying notes are an integral part of these statements.
5
Item 1. CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ASTEA INTERNATIONAL INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements at September 30, 2001 and for the three
and nine month periods ended September 30, 2001 and 2000 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 2000 Annual
Report on Form 10-K/A which are hereby incorporated by reference in this
quarterly report on Form 10-Q. Results of operations and cash flows for the nine
months ended September 30, 2001 are not necessarily indicative of the results
that may be expected for the full year.
2. DISCONTINUED OPERATIONS
In September and December 1998, the Company completed the sales of its Bendata,
Inc. and Abalon AB subsidiaries, respectively. Bendata and Abalon had been
accounted for as discontinued operations. A portion of the original sales price
of Bendata and Abalon , had been held in escrow to cover the potential cost of
unforeseen liabilities realized by the purchaser. During the quarter ended
September 30, 2000, all outstanding issues between the Company and the buyers
had been resolved. Accordingly, the company reported a gain of $293,000 in its
results for the quarter ending September 30, 2000.
3. RESTRUCTURING CHARGES
During the second quarter of 2000, the Company recorded a restructuring charge
of $1,101,000 for actions aimed at reducing costs and consolidating its
development activities primarily in its service automation product line. The
charge includes severance payments relating to foreign and domestic operations
of $1,069,000, buy-out payments of $137,000 for various leased equipment and
$177,000 for the termination of certain office facilities, offset by $282,000 of
excess restructuring charges from December, 1999. Since the restructuring was
announced, the Company has aggressively closed and consolidated excess capacity.
As of September 30, 2001 the Company had completed the restructuring at the cost
reserved on June 30, 2000.
4. STOCKHOLDERS' EQUITY/COMPREHENSIVE INCOME (LOSS)
The reconciliation of stockholders' equity and comprehensive loss from December
31, 2000 to September 30, 2001 is summarized as follows:
Cumulative
Currency
Common Treasury Additional Translation Accumulated Comprehensive
Stock Stock Paid-In Capital Adjustment Deficit Loss
Balance at December 31, 2000 $148,000 $ (3,000) $22,671,000 $(1,145,000) $(9,716,000) $ -
Exercise of options - - 3,000 - - -
Purchase of treasury stock (228,000) - - - -
Cumulative translation
adjustment - - - (190,000) - (190,000)
Net loss for the period - - - - (587,000) (587,000)
---------------------------------------------------------------------------------------
Balance at September 30, 2001 $148,000 $(231,000) $22,674,000 $(1,335,000) $(10,303,000) $(777,000)
=======================================================================================
6
5. MAJOR CUSTOMERS
In the third quarter of 2001, the Company did not have any customers that
accounted for 10% or more of its total revenues. In the third quarter of 2000,
two customers each accounted for 12% of its total revenues. For the first nine
months of 2001, the Company had no major customers. In the first nine months of
2000, the Company had one customer that accounted for 10% of total revenues.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
This document contains various forward-looking statements and information that
are based on management's beliefs, assumptions made by management and
information currently available to management. Such statements are subject to
various risks and uncertainties, which could cause actual results to vary
materially from those contained in such forward-looking statements. Should one
or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated, expected or projected. Certain of these, as well as
other risks and uncertainties, are described in more detail herein and in the
Company's Annual Report on Form 10-K/A for the fiscal year ended December 31,
2000.
The Company develops, markets and supports Customer Relationship Management
(CRM) software solutions for companies that sell and service capital equipment.
Clients include Fortune 500 to mid-size companies that automate equipment sales
and service business processes to increase competitive advantages, top-line
revenue growth, profitability, and customer loyalty. The Company supports a
global client base with a worldwide sales and service network that conducts
business through Company facilities in the United States, United Kingdom,
Australia, the Netherlands, and Israel.
Over the past year, the Company has been in the process of making the transition
from a field service software provider to a provider of comprehensive suite of
CRM solutions. In addition to field service, the CRM suite also streamlines and
automates processes for managing sales and marketing, multi-channel customer
contact centers and professional services. The Company continues to focus on
companies in industries that sell and service equipment.
The Company continues to make a significant investment in product development in
support of the transition. As economic conditions throughout the world continue
to deteriorate, the Company diligently monitors costs and manages them
aggressively. The Company believes that its investment in development along with
its continued commitment to marketing its CRM suite will favorably position the
Company when economic conditions improve in the future.
Results of Operations
Comparison of Three Months Ended September 30, 2001 and 2000
Continuing Operations
Revenues
Revenues decreased $1,576,000, or 31%, to $3,450,000 for the three months ended
September 30, 2001 from $5,026,000 for the three months ended September 30,
2000. The global downturn in economic conditions has negatively impacted the
Company due to the worldwide reduction in capital spending for new business
software. Software license fee revenues decreased $1,406,000, or 64%, from the
same period last year. Services and maintenance fees for the three months ended
September 30, 2001 amounted to $2,673,000, a 6% decrease from the same quarter
in 2000. In addition there were miscellaneous revenues of $46,000 in the third
quarter of 2000 included in service and maintenance fees.
The Company's international operations contributed $1,144,000 of revenues in the
third quarter compared to $2,340,000 in the third quarter of 2000, which
represents a 51% decrease. The decline in revenues can be attributed to the
7
global slowdown in capital spending and the Company's transitioning its flagship
customer service product to a newer technology.
Software license fee revenues decreased 64% to $777,000 in the third quarter of
2001 from $2,183,000 in the third quarter of 2000. The decrease is attributable
to a decline in DISPATCH-1 revenues of $553,000 and a 56% decline in
AllianceEnterprise licenses of $853,000. DISPATCH-1 license fee revenue
decreased $553,000 or 83% from $666,000 in the third quarter of 2000 compared to
$113,000 in the third quarter of 2001. Most of the DISPATCH-1 sales in the third
quarter of 2000 were sales of source code. As expected, current sales of
DISPATCH-1 accounted for only 15% of total software license fee revenues in the
third quarter of 2001 compared to 31% of total license fee revenues in the third
quarter of 2000. The Company is confident that projections for the CRM market
will hold true to form allowing the Company to capitalize in the future on its
investment in product development through increased software license sales.
Services and maintenance revenues decreased 6% to $2,674,000 in the third
quarter of 2001 from $2,843,000 in the third quarter of 2000. The decrease
primarily relates to maintenance revenues from DISPATCH-1, which decreased
$308,000 to $873,000 from $1,181,000 in the third quarter of 2000. Most of the
decline is attributable to the sale of DISPATCH-1 source code in prior periods
which provides those customers the ability to perform all service and
maintenance work which they previously required the use of Astea staff. Service
and maintenance revenues from ServiceAlliance increased by $112,000 or 9% to
$1,306,000 in the third quarter of 2001 from $1,194,000 in the third quarter of
2000.
Costs of Revenues
Cost of software license fees increased 27% to $245,000 in the third quarter of
2001 from $193,000 in the third quarter of 2000. Included in the cost of
software license fees is the fixed cost of capitalized software amortization.
Capitalized software amortization was $200,000 in both the third quarters of
2001 and 2000. The increase in the cost of software license fees represents
additional third party software costs attributable to certain products sold. The
software licenses gross margin percentage was 68% in the third quarter of 2001
compared to 91% in the third quarter of 2000. The decrease in gross margin was
attributable to the cost of third party software costs and the fixed cost of
capitalized software amortization, which was proportionately higher related to
the lower level of license sales in 2001.
Cost of services and maintenance decreased 35% to $1,414,000 in the third
quarter of 2001 from $2,181,000 in the third quarter of 2000. The services and
maintenance gross margin percentage was 47% and 23% in the third quarter of 2001
and 2000, respectively. The increase in gross margin was attributable to
improved utilization of personnel in the third quarter of 2001 and significant
cost reductions, primarily in personnel costs from last year.
Product Development
Product development expense increased 58% to $779,000 in the third quarter of
2001 from $494,000 in the third quarter of 2000. Although the Company has
terminated all development activities related to its legacy system, DISPATCH-1,
product development as a percentage of revenues increased to 23% in the third
quarter of 2001 from 10% in the third quarter of 2000 The increase reflects the
Company's commitment to expanding and improving the capabilities of its
AllianceEnterprise Suite of CRM software products. The Company is developing its
software using Microsoft and Internet technologies to integrate and automate
business processes for managing equipment sales and service delivery.
Sales and Marketing
Sales and marketing expense decreased 14% to $1,206,000 in the third quarter of
2001 from $1,399,000 in the third quarter of 2000. The reduction is primarily
the result of lower sales commissions due to lower sales. As a percentage of
revenues, sales and marketing expenses increased to 35% in 2001 compared to 28%
in the third quarter of 2000. This increase in the percentage reflects the
Company's marketing efforts of supporting the transition of the flagship product
to a newer technology.
8
General and Administrative
General and administrative expenses decreased 64% to $439,000 in the third
quarter of 2001 from $1,216,000 in the third quarter of 2000. The decrease
primarily relates to a favorable ruling in an arbitration case which resulted in
the reversal of an accrued expense of $250,000 as well as savings from a 20%
reduction in personnel headcount, lower rent expense at certain locations and
lower telephone expense.
Restructuring Charge
During the second quarter of 2000, the Company recorded a restructuring charge
of $1,101,000 for actions aimed at reducing costs and consolidating its
development activities. The charge includes severance payments relating to
foreign and domestic operations of $1,069,000, buy-out payments of $137,000 for
various leased equipment and $177,000 for the termination of certain office
facilities, offset by $282,000 of excess restructuring charges from December,
1999. Since the restructuring was announced, the Company aggressively continued
to close and consolidate excess capacity. By September 30, 2001 the Company had
completed paying all costs related to the restructuring.
Interest Income, net
Net interest income decreased $97,000 to $73,000 in the third quarter of 2001
from $170,000 in the third quarter of 2000. The decrease of interest income is
primarily attributable to reduced returns on marketable securities resulting
from the decreases in interest rates that have occurred over the last year.
International Operations
Total revenue from the Company's international operations decreased by
$1,196,000, or 51%, to $1,144,000 in third quarter of 2001 from $2,340,000 in
the same quarter in 2000. The decrease in revenue from international operations
was primarily attributable to lower sales of licenses in Europe and
Asia/Pacific. International operations generated net income of $11,000 for the
third quarter ended September 30, 2001 compared to net income of $55,000 in the
same quarter in 2000. The decline in revenues can be attributed to the global
slowdown in capital spending as well as the Company's transitioning its flagship
customer service product to a newer technology. Offsetting the decrease in
revenues was a significant decrease in operating expenses, primarily in
personnel costs, rent and other third party software.
Comparison of Nine Months Ended September 30, 2001 and 2000
Continuing Operations
Revenues
Revenues decreased $3,762,000, or 23%, to $12,835,000 for the nine months ended
September 30, 2001 from $16,597,000 for the nine months ended September 30,
2000. The global downturn in economic conditions has negatively impacted the
Company due to the worldwide reduction in capital spending for new business
software. Software license fee revenues decreased $1,228,000, or 21%, from the
same period last year. Services and maintenance fees for the nine months ended
September 30, 2001 amounted to $8,289,000, a 23% decrease from the same nine
months in 2000.
The Company's international operations contributed $3,702,000 of revenues in the
first nine months of 2001 compared to $6,998,000 in the first nine months of
2000. This represents a 47% decrease from the same period last year and 29% of
total revenues in the first nine months of 2001.
Software license fee revenues decreased 21% to $4,546,000 in the first nine
months of 2001 from $5,774,000 in the first nine months of 2000. The decrease is
attributable to a decline in sales of DISPATCH-1 of $2,275,000, partially offset
by the continued market acceptance of AllianceEnterprise. AllianceEnterprise
license revenues increased $1,048,000, or 34%, to $4,114,000 in the first nine
months of 2001 from $3,066,000 in the first nine months of 2000. The increase in
ServiceAlliance license revenue was offset by a decrease in DISPATCH-1 license
fee revenue, which decreased 84% from $2,707,000 in the first nine months of
2000 to $432,000 in the first nine months of 2001due to the Company's planned
phase out of its legacy product. DISPATCH-1 accounted for 10% of total software
9
license fee revenues in the first nine months of 2001 compared to 47% of total
license fee revenues in the first nine months of 2000.
Services and maintenance revenues decreased 23% to $8,289,000 in the first nine
months of 2001 from $10,823,000 in the nine months of 2000. The decrease
primarily relates to service and maintenance revenues from DISPATCH-1, which
decreased $2,631,000 to $4,196,000 from $6,827,000 in the first nine months of
2000. Service and maintenance revenues from AllianceEnterprise increased 4% to
$4,090,000 in the first nine months of 2001 from $3,944,000 in the first nine
months of 2000.
Costs of Revenues
Cost of software license fees decreased 11% to $847,000 in the first nine months
of 2001 from $949,000 in the first nine months of 2000. The decrease in the cost
of software license fees represents lower third party software costs
attributable to the mix of products sold in conjunction with the company's
products in the first nine months of 2001. The software licenses gross margin
percentage was 81% in the first nine months of 2001 compared to 84% in the first
nine months of 2000. This decrease in gross margin was attributable to the mix
of software licenses sold.
Cost of services and maintenance decreased 42% to $4,915,000 in the first nine
months of 2001 from $8,438,000 in the first nine months of 2000. The services
and maintenance gross margin percentage was 41% in the first nine months of 2001
compared to 22% in the first nine months of 2000. The decrease in services and
maintenance costs results from the reduction in revenues and improved
utilization of Company personnel.
Product Development
Product development expense increased 1% to $2,032,000 in the first nine months
of 2001 from $2,018,000 in the first nine months of 2000. Product development as
a percentage of revenues increased to 16% in the first nine months of 2001 from
12% in the first nine months of 2000, reflecting the Company's commitment to
expanding and improving the capabilities of its suite of software products. The
increase reflects the Company's commitment to expanding and improving the
capabilities of its AllianceEnterprise Suite of CRM software products. The
Company is developing its software using Microsoft and Internet technologies to
integrate and automate business processes for managing equipment sales and
service delivery.
Sales and Marketing
Sales and marketing expense decreased 24% to $4,027,000 in the first nine months
of 2001 from $5,312,000 in the first nine months of 2000. This decrease resulted
primarily from lower personnel costs associated with the Company's restructuring
and lower commission resulting from lower sales. As a percentage of revenues,
sales and marketing expenses decreased slightly from 32% in 2000 to 31% in 2001,
which is a reflection of the Company's continued effort to focus its marketing
effort on cost effective means to increase market share and expand its presence
through both direct and indirect channels.
General and Administrative
General and administrative expense decreased 36% to $1,863,000 in the first nine
months of 2001 from $2,917,000 in the first nine months of 2000. The decrease
resulted from cost savings realized from the restructuring which occurred at the
end of the second quarter in 2000, exchange gains recognized on the translation
of subsidiaries' financial statements to U.S. dollars in 2001 compared to losses
in 2000 as well as a favorable outcome on an arbitration case which resulted in
the reversal of a $250,000 accrued expense.
Interest Income, net
Net interest income decreased $1,122,000 to $262,000 in the first nine months of
2001 from $1,384,000 in the first nine months of 2000. The decrease is
attributable to both lower marketable securities, some of which were liquidated
in 2000 to pay a special dividend on June 30, 2000, and a lower interest rate
environment on the Company's remaining marketable securities.
10
International Operations
Total revenue from the Company's international operations decreased by
$3,296,000, or 47%, to $3,702,000 in first nine months of 2001 from $6,998,000
in the same nine months of 2000. The decrease in revenue from international
operations was primarily attributable to decreased license sales, principally
DISPATCH-1 due to decreasing demand. International operations resulted in a
$10,000 loss for the nine months ended September 30, 2001 as compared to a loss
of $697,000 for the nine months ended September 30, 2000.
Liquidity and Capital Resources
Net cash provided by operating activities was $591,000 for the nine months ended
September 30, 2001, compared to $3,360,000 of cash used for the nine months
ended September 30, 2000. The $3,951,000 improvement in operating cash flow was
primarily attributable to a lower net loss than last year, improved collections
of accounts receivable and lower payments of accounts payable, partially offset
by an increase in deferred revenues recognized.
The Company's investing activities used $152,000 of cash in the first nine
months of 2001 compared to generating $30,891,000 in the first nine months of
2000. The significant difference from last year was the liquidation of
investments in 2000 to fund the June 30, 2000 dividend payment of $30,376,000.
The Company used $322,000 for financing activities during the nine months ended
September 30, 2001 compared to using $29,607,000 in the first nine months of
2000. Most of the financing expenditures for the nine months ended September 30,
2001 were for the purchase of $229,000 of treasury stock. For the nine months
ended September 30, 2000, most of the use of cash was attributable to the June
30, 2000 dividend payment. This was partially offset by increased proceeds from
the exercise of stock options and employee stock purchase plan
At September 30, 2001, the Company had a working capital ratio of 2.5:1, with
cash and investments available for sale of $8,345,000. The Company believes that
it has adequate cash resources to make the investments necessary to maintain or
improve its current position and to sustain its continuing operations for the
foreseeable future. The Company does not anticipate that its operations or
financial condition will be affected materially by inflation.
Variability of Quarterly Results and Potential Risks Inherent in the Business
The Company's operations are subject to a number of risks, which are described
in more detail in the Company's prior SEC filings. Risks which are unique to the
Company on a quarterly basis, and which may vary from quarter to quarter,
include but are not limited to the following:
o The Company's quarterly operating results have in the past varied and may
in the future vary significantly depending on factors such as the size,
timing and recognition of revenue from significant orders, the timing of
new product releases and product enhancements, and market acceptance of
these new releases and enhancements, increases in operating expenses, and
seasonality of its business.
o The Company's future success will depend in part on its ability to increase
licenses of ServiceAlliance and other new product offerings, and to develop
new products and product enhancements to complement its existing field
service offerings.
o The Customer Relationship Management (CRM) software market is intensely
competitive.
o International sales for the Company's products and services, and the
Company's expenses related to these sales, continue to be a substantial
component of the Company's operations. International sales are subject to a
variety of risks, including difficulties in establishing and managing
international operations and in translating products into foreign
languages.
o The market price of the common stock could be subject to significant
fluctuations in response to, and may be adversely affected by, variations
in quarterly operating results, developments in the software industry,
adverse earnings or other financial announcements of the Company's
customers and general stock market conditions, as well as other factors.
11
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Interest Rate Risk. The Company's exposure to market risk for changes
in interest rates relate primarily to the Company's investment portfolio. The
Company does not have any derivative financial instruments in its portfolio. The
Company places its investments in instruments that meet high credit quality
standards. The Company is adverse to principal loss and ensures the safety and
preservation of its invested funds by limiting default risk, market risk and
reinvestment risk. As of September 30, 2001, the Company's investments consisted
of U.S. government agencies securities, commercial paper and corporate bonds.
The Company does not expect any material loss with respect to its investment
portfolio.
Foreign Currency Risk. The Company does not use foreign currency
forward exchange contracts or purchased currency options to hedge local currency
cash flows or for trading purposes. All sales arrangements with international
customers are denominated in foreign currency. The Company does not expect any
material loss with respect to foreign currency risk.
12
PART II - OTHER INFORMATION
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 and Use of Proceeds
There have been no changes in securities during the quarter ended September
30,2001.
Item 3. Defaults Upon Senior Securities
There have been no defaults by the Company on any Senior Securities during the
quarter ended September 30, 2001.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders held on August 10, 2001, pursuant to the
Notice of Annual Meeting of Stockholders dated July 5, 2001, the following
actions were taken:
1. The proposal to elect Zack B. Bergreen, Barry M. Goldsmith, Adrian A. Peters
and Isidore Sobkowski as directors, to hold office until the 2002 Annual Meeting
of Stockholders and until their successors are elected and qualified, was
approved (13,834,510 shares in favor, 43,799 shares withheld and no shares
abstaining).
2. The proposal to adopt the 2001 Stock option Plan was approved (10,143,699
shares in favor; 186,996 shares against; and 27,873 shares abstaining).
3. The proposal to appoint BDO Seidman LLP as independent auditors for the
Company for the fiscal year ending December 31, 2001 was approved (13,832,874
shares in favor; 31,579 shares against; and 13,856 shares abstaining).
No other matters were submitted to a vote of the Company's stockholders during
the third quarter of the fiscal year covered by this report through the
solicitation of proxies or otherwise.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
(27) Financial Data Schedule
(B) Reports on Form 8-K
None.
13
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 this 13th day of
November 2001.
ASTEA INTERNATIONAL INC.
By: /s/Zack B. Bergreen
-------------------------------
Zack Bergreen
Chief Executive Officer
(Principal Executive Officer)
By: /s/Fredric Etskovitz
-------------------------------
Fredric Etskovitz
Chief Financial Officer
(Principal Financial and Chief
Accounting Officer)
14