================================================================================
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 June 30, 2002
--------------------------------
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 August 12, 2002, 14,604,030 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 (Unaudited)
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosure About Market Risk 13
PART II - OTHER INFORMATION
- ----------------------------
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
PART I - FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
ASTEA INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2002 2001
(Unaudited)
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 4,547,000 $ 4,071,000
Investments available for sale 1,000,000 2,987,000
Receivables, net of reserves of $884,000 and $955,000 6,755,000 7,343,000
Prepaid expenses and other 779,000 822,000
------------ ------------
Total current assets 13,081,000 15,223,000
Property and equipment, net 529,000 617,000
Capitalized software, net 1,302,000 1,412,000
Other assets 597,000 763,000
------------ ------------
Total assets $ 15,509,000 $ 18,015,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ -- $ 34,000
Accounts payable and accrued expenses 3,167,000 3,627,000
Deferred revenues 3,949,000 4,249,000
------------ ------------
Total current liabilities 7,116,000 7,910,000
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued -- --
Common stock, $.01 par value, 25,000,000 shares
authorized, 14,825,000 outstanding 148,000 148,000
Additional paid-in capital 22,674,000 22,674,000
Cumulative translation adjustment (1,115,000) (1,256,000)
Accumulated deficit (13,097,000) (11,239,000)
Less: treasury stock at cost, 221,000 and 227,000 shares (217,000) (222,000)
------------ ------------
Total stockholders' equity 8,393,000 10,105,000
------------ ------------
Total liabilities and stockholders' equity $ 15,509,000 $ 18,015,000
============ ============
See accompanying notes to the consolidated financial statements.
3
ASTEA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Six Months
Ended June 30, Ended June 30,
------------------------------------ --- -----------------------------------
2002 2001 2002 2001
--------------- ----------------- -------------- ---------------
(Unaudited) (Unaudited)
Revenues:
Software license fees $ 710,000 $ 1,487,000 $ 2,177,000 $ 3,768,000
Services and maintenance 2,592,000 2,899,000 5,079,000 5,617,000
------------ ------------ ------------ ------------
Total revenues 3,302,000 4,386,000 7,256,000 9,385,000
------------ ------------ ------------ ------------
Costs and expenses:
Cost of software license fees 320,000 373,000 596,000 602,000
Cost of services and maintenance 1,687,000 1,655,000 3,319,000 3,501,000
Product development 502,000 669,000 942,000 1,252,000
Sales and marketing 1,572,000 1,383,000 2,831,000 2,822,000
General and administrative 659,000 584,000 1,288,000 1,424,000
------------ ------------ ------------ ------------
Total costs and expenses 4,740,000 4,664,000 8,976,000 9,601,000
------------ ------------ ------------ ------------
Loss from operations
before interest and taxes (1,438,000) (278,000) (1,720,000) (216,000)
Net interest income 26,000 82,000 64,000 189,000
------------ ------------ ------------ ------------
Loss before income tax (1,412,000) (196,000) (1,656,000) (27,000)
Income tax expense (150,000) -- (200,000) --
------------ ------------ ------------ ------------
Net loss $ (1,562,000) $ (196,000) $ (1,856,000) $ (27,000)
============ ============ ============ ============
Basic and diluted net loss per share $ (0.11) $ (0.01) $ (0.13) $ -
============ ============ ============ ============
Shares outstanding used in
computing basic and diluted net
loss per share 14,602,000 14,661,000 14,602,000 14,657,000
============ ============ ============ ============
See accompanying notes to the consolidated financial statements.
4
ASTEA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months
Ended June 30,
---------------------------------
2002 2001
(Unaudited)
---------------------------------
Cash flows from operating activities:
Net loss $(1,856,000) $ (27,000)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Depreciation and amortization 621,000 738,000
Changes in operating assets and liabilities:
Receivables 736,000 1,666,000
Prepaid expenses and other 37,000 225,000
Other assets 165,000 --
Accounts payable and accrued expenses (427,000) (983,000)
Deferred revenues (315,000) (1,411,000)
----------- -----------
Net cash (used in) provided by operating activities (1,039,000) 208,000
----------- -----------
Cash flows from investing activities:
Sales (purchases) of short-term investments 1,988,000 (510,000)
Purchases of property and equipment (113,000) (114,000)
Capitalized software development costs (308,000) (300,000)
----------- -----------
Net cash provided by (used in) investing activities 1,567,000 (924,000)
----------- -----------
Cash flows from financing activities:
Proceeds from exercise of stock options and employee
stock purchase plan 3,000 3,000
Net repayments of long-term debt (34,000) (68,000)
Purchases of treasury stock -- (210,000)
----------- -----------
Net cash used in financing activities (31,000) (275,000)
----------- -----------
Effect of exchange rate changes on cash and cash equivalents (21,000) 40,000
----------- -----------
Net increase (decrease) in cash and cash equivalents 476,000 (951,000)
Cash and cash equivalents balance, beginning of period 4,071,000 5,208,000
----------- -----------
Cash and cash equivalents balance, end of period $ 4,547,000 $ 4,257,000
=========== ===========
See accompanying notes to the consolidated financial statements.
5
Item 1. CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ASTEA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
----------------------
The consolidated financial statements at June 30, 2002 and for the three and six
month periods ended June 30, 2002 and 2001 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 2001 Annual
Report on Form 10-K which are hereby incorporated by reference in this quarterly
report on Form 10-Q. Results of operations and cash flows for the six months
ended June 30, 2002 are not necessarily indicative of the results that may be
expected for the full year.
2. RESTRUCTURING CHARGES
---------------------
During the fourth quarter of 2001, the Company recorded a restructuring charge
of $409,000 in connection with severance costs to downsize the Company's
employment rolls ($211,000) and eliminate excess office space ($198,000). During
the first six months of 2002, the Company made payments of $229,000 related to
the 2001 Restructuring Plan, including severance obligations of $139,000 and
lease obligations of $90,000. During the second quarter of 2002, the Company
evaluated its restructuring accrual based on the then current facts and
determined that $55,000 related to severance costs was not needed for the
purposes of the 2001 plan and, accordingly, the accrual was reversed. As of June
30, 2002, $125,000 of restructuring charges remains outstanding.
3. INCOME TAX EXPENSE
------------------
The Company accounts for income taxes in accordance with SFAS No. 109
"Accounting for Income Taxes" which requires that deferred tax assets and
liabilities be recognized using enacted tax rates for the effect of temporary
differences between the book and tax basis of recorded assets and liabilities.
SFAS No. 109 also requires that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some portion or all of the deferred
tax asset will not be realized.
The realizability of the deferred tax assets is evaluated quarterly by assessing
the valuation allowance and by adjusting the amount of the allowance, if
necessary. The factors used to assess the likelihood of realization are the
forecast of future taxable income and available tax planning strategies that
could be implemented to realize the net deferred tax asset. During the six
months ended June 30, 2002, the Company recorded a tax expense of $200,000 to
increase its valuation allowance related to its net deferred tax asset based on
an assessment of what portion of the asset is more likely than not to be
realized, in accordance with FSAS No. 109. The Company will review this
provision periodically in the future as circumstances change.
6
4. STOCKHOLDERS' EQUITY/COMPREHENSIVE LOSS
---------------------------------------
The reconciliation of stockholders' equity and comprehensive loss from December
31, 2001 to June 30, 2002 is summarized as follows:
Cumulative
Currency
Common Additional Translation Accumulated Treasury Comprehensive
Stock Paid-In Adjustment Deficit Stock Income (Loss)
----- -------- ---------- ------- ----- -------------
Capital
Balance at December 31, 2001 $148,000 $22,674,000 $(1,256,000) $(11,239,000) $(222,000) $ -
Issuance of common stock
Under employee stock
Purchase plan - - (2,000) 5,000 -
Cumulative translation
Adjustment - - 141,000 - - 141,000
Net loss for the period - - - (1,856,000) - (1,856,000)
------------ ---------------- -------------- ---------------- --------------- ----------------
Balance at June 30, 2002 $148,000 $22,674,000 $(1,115,000) $(13,097,000) $(217,000) $ (1,715,000)
============ ================ ============== ================ =============== ================
5. MAJOR CUSTOMERS
---------------
In the second quarter of 2002, the Company had one customer that accounted for
11% of its total revenues. In the second quarter of 2001, the Company did not
have any customers that accounted for 10% or more of its total revenues. For the
first six months of 2002 and 2001, there were no customers that accounted for
10% of total revenues.
7
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 for the fiscal year ended December 31,
2001.
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.
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.
Critical Accounting Policies
Financial Reporting Release No. 60, which was recently released by the
Securities and Exchange Commission, requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
its financial statements. The significant accounting policies of Astea
International Inc. are described in Note 2 of the Notes to the Consolidated
Financial Statement of Operations Procedures in the Company's Annual Report on
Form 10-K. The significant accounting policies that the Company believes are the
most critical to aid in fully understanding its reported financial results
include the following:
Revenues
Revenue is recognized in accordance with Statement of Position (SOP) 97-2, which
provides guidelines on the recognition of software license fee revenue.
Principally, revenue may be recognized when persuasive evidence of an
arrangement exists, delivery has occurred, the license fee is fixed and
determinable and the collection of the fee is probable. The Company allocates a
portion of its software revenue to post-contract support activities or to other
services or products provided to the customer free of charge or at non-standard
discounts when provided in conjunction with the licensing arrangement. Amounts
allocated are based upon standard prices charged for those services or products.
Software license fees for resellers or other members of the indirect sales
channel are based on a fixed percentage of the Company's standard prices. The
Company recognizes software license revenue for such contracts based upon the
terms and conditions provided by the reseller to its customer.
Revenue from post-contract support is recognized ratably over the term of the
contract on a straight-line basis. Consulting and training service revenue is
generally recognized at the time the service is performed. Fees from licenses
sold together with consulting services are generally recognized upon shipment,
with the consulting fee recognized as the services are performed, provided that
the contract has been executed, delivery of the software has occurred, fees
8
are fixed and determinable and collection is probable. In instances where the
aforementioned criteria have not been met, both the license and the consulting
fees are recognized under the percentage of completion method of contract
accounting.
In limited instances, the Company will enter into contracts for which revenue is
recognized under contract accounting. The accounting for such arrangements
requires judgement, which impacts the timing of revenue recognition and
provision for estimated losses, if applicable.
Capitalized Software and Research Development Costs
Our policy on capitalized software costs determines the timing of our
recognition of certain development costs. In addition, this policy determines
whether the cost is classified as development expense or cost of software
license fees. Management is required to use professional judgement in
determining whether development costs meet the criteria for immediate expense or
capitalization.
Recent Accounting Standards
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections"
("SFAS 145"). The rescission of FASB No. 4, "Reporting Gains and Losses from
Extinguishment of Debt" applies to us. FASB No. 4 required that gains and losses
from extinguishments of debt were included in the determination of net income be
aggregated and, if material, classified as an extraordinary item, net of related
income tax effect. SFAS 145 is effective for our fiscal year beginning January
1, 2003. Effective January 1, 2003, pursuant to SFAS 145, the treatment of the
early extinguishments of debt will be included in "other expenses" in the
financial statements. Currently, the Company is assessing, but has not yet
determined, how the adoption of SFAS 145 will impact its financial position and
results of operations.
Results of Operations
Comparison of Three Months Ended June 30, 2002 and 2001
Revenues
Total revenues decreased $1,084,000, or 25%, to $3,302,000 for the three months
ended June 30, 2002 from $4,386,000 for the three months ended June 30, 2001.
Software license fee revenues decreased $777,000, or 52%, from the same period
last year. Services and maintenance fees for the three months ended June 30,
2002 amounted to $2,592,000, an 11% decrease from the same quarter in 2001.
The Company's international operations contributed $1,035,000 of revenues in the
second quarter of 2002, which was comparable to the $1,033,000 of total revenues
generated during the second quarter of 2001. The Company's revenues from
international operations amounted to 31.3% of the total revenue for the second
quarter in 2002 as compared to 23.6% of total revenues for the same quarter in
2001.
Software license fee revenues decreased 52% to $710,000 in the second quarter of
2002 from $1,487,000 in the second quarter of 2001. The decrease is
substantially attributable to a decline in AllianceEnterprise license revenues,
which decreased $656,000 or 48%, to $710,000 in the second quarter of 2002 from
$1,366,000 in the second quarter of 2001. There were no sales of DISPATCH-1 in
the second quarter of 2002 compared to $121,000 of license fee revenues in the
second quarter of 2001. AllianceEnterprise license revenue represents 100% of
total software license fee revenues in the second quarter of 2002, up from 92%
in the second quarter of 2001.
Services and maintenance revenues decreased 11% to $2,592,000 in the second
quarter of 2002 from $2,899,000 in the second quarter of 2001. The decrease
relates to service and maintenance revenues from DISPATCH-1, which decreased
$474,000 to $941,000 from $1,415,000 in the second quarter of 2001. Partially
offsetting this decline was an 11% increase in AllianceEnterprise services and
maintenance from $1,484,000 in the second quarter of 2001 to $1,651,000 in the
second quarter of 2002.
9
Costs of Revenues
Cost of software license fees decreased 14% to $320,000 in the second quarter of
2002 from $373,000 in the second quarter of 2001. 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 second quarter of
2002 and 2001. The decrease in the cost of software license fees represents
decreased third party software costs attributable to the mix of products sold in
conjunction with the Company's products in the second quarter of 2002. The
software licenses gross margin percentage was 55% in the second quarter of 2002
compared to 75% in the second quarter of 2001. This decrease in gross margin was
primarily attributable to lower software license sales.
Cost of services and maintenance increased 2% to $1,687,000 in the second
quarter of 2002 from $1,655,000 in the second quarter of 2001. The services and
maintenance gross margin percentage was 35% in the second quarter of 2002
compared to 43% in the second quarter of 2001. The decrease in services and
maintenance gross margin was primarily due to lower utilization of service
professionals.
Product Development
Product development expense decreased 25% to $502,000 in the second quarter of
2002 from $669,000 in the second quarter of 2001. The decrease is primarily due
to the strengthening of the U.S. dollar. Product development as a percentage of
revenues, however, remained unchanged at 15% in the second quarter of 2002 as
compared to the second quarter of 2001.
Sales and Marketing
Sales and marketing expense increased 14% to $1,572,000 in the second quarter of
2002 from $1,383,000 in the second quarter of 2001. This increase is principally
due to certain hiring costs of sales and marketing personnel that occurred in
the second quarter of 2002 as well as increased costs associated with the
development of an aggressive marketing campaign to introduce new products which
are expected to generate sales in future periods. As a percentage of revenues,
sales and marketing expenses increased to 48% in 2002 from 32% in the second
quarter of 2001.
General and Administrative
General and administrative expenses increased 13% to $659,000 during the second
quarter of 2002 from $584,000 in the second quarter of 2001. As a percentage of
revenue, general and administrative costs increased to 20% in the second quarter
of 2002 from 13% in the second quarter of 2001. The increase in expenses relates
primarily to the weakening of the U.S. dollar against certain major
international currencies during the second quarter of 2002.
Net Interest Income
Net interest income decreased $56,000 to $26,000 in the second quarter of 2002
from $82,000 in the second quarter of 2001. The decrease of interest income is
generally attributable to less cash on hand than in 2001 as well as an overall
reduction in interest rates paid on invested cash.
International Operations
Total revenue from the Company's international operations remained relatively
unchanged during the second quarter of 2002 at $1,035,000 compared to $1,033,000
for the second quarter of 2001. International operations generated a net loss of
$454,000 for the second quarter ended June 30, 2002 compared to a net gain of
$147,000 in the same quarter in 2001. The declining results are primarily
attributable to increased costs relating to the hiring of personnel as well as
additional costs on marketing campaigns expected to generate sales in future
periods.
10
Comparison of Six Months Ended June 30, 2002 and 2001
Revenues
Revenues decreased $2,129,000, or 23%, to $7,256,000 for the six months ended
June 30, 2002 from $9,385,000 for the six months ended June 30, 2001. Software
license fee revenues decreased $1,591,000, or 42%, from the same period last
year. Services and maintenance fees for the six months ended June 30, 2002
amounted to $5,079,000, a 10% decrease from the same six months in 2001.
The Company's international operations contributed $2,236,000 of revenues in the
first six months of 2002 compared to $2,831,000 in the first six months of 2001.
This represents a 21% decrease from the same period last year and 31% of total
revenues in the first six months of 2002. The decline is due primarily to the
reduction in DISPATCH-1 sales which resulted from the planned phase-out of the
Company's legacy product, DISPATCH-1, as well as the general economic slow-down
that is occurring throughout the world.
Software license fee revenues decreased 42% to $2,177,000 in the first six
months of 2002 from $3,768,000 in the first six months of 2001.
AllianceEnterprise license revenues decreased $1,451,000, or 42%, to $1,999,000
in the first six months of 2002 from $3,450,000 in the first six months of 2001.
DISPATCH-1 license fee revenue decreased $140,000 or 44% from $318,000 in the
first six months of 2001 to $178,000 in the first six months of 2002 due to
decreasing demand for this product. DISPATCH-1 accounted for 8% of total
software license fee revenues in both the first six months of 2002 and 2001. The
decline in DISPATCH-1 license revenues reflects the Company's efforts to
transition to the next generation of software, AllianceEnterprise.
Services and maintenance revenues decreased 10% to $5,079,000 in the first six
months of 2002 from $5,617,000 in the six months of 2001. The decrease primarily
relates to service and maintenance revenues from DISPATCH-1, which decreased
$827,000 to $2,003,000 from $2,830,000 in the first six months of 2001. However,
this decrease was partially offset by an increase in AllianceEnterprise service
and maintenance revenue, which increased by 10% to $3,076,000 during the first
six months of 2002 compared to $2,787,000 for the same period in 2001.
Costs of Revenues
Cost of software license fees decreased 1% to $596,000 in the first six months
of 2002 from $602,000 in the first six months of 2001. Included in the cost of
software license fees is the fixed cost of capitalized software amortization.
Capitalized software amortization was $418,000 and $400,000 in the first six
months of 2002 and 2001, respectively. The decrease in the cost of software
license fees represents decreased third party software costs attributable to the
mix of products sold in conjunction with the Company's products in the first six
months of 2002. The software licenses gross margin percentage was 73% in the
first six months of 2002 compared to 84% in the first six months of 2001. This
decrease in gross margin was attributable to the decrease in license sales.
Cost of services and maintenance decreased 5% to $3,319,000 in the first six
months of 2002 from $3,501,000 in the first six months of 2001. The services and
maintenance gross margin percentage was 35% and 38% in the first six months of
2002 and 2001, respectively. The decline in gross margin resulted from higher
costs incurred on third party software.
Product Development
Product development expense decreased 25% to $942,000 in the first six months of
2002 from $1,252,000 in the first six months of 2001. Product development as a
percentage of revenues was 13% in the first six months of both 2002 and 2001.
The decline in cost is the result of the strengthening of the U.S. dollar
relative to the Israel shekel, which is the location for most of the Company's
product development.
Sales and Marketing
Sales and marketing expense increased less than 1% to $2,831,000 in the first
six months of 2002 from $2,822,000 in the first six months of 2001. As a
percentage of revenues, sales and marketing expenses increased to 39% from 30%
in the first six months of 2001 due to lower sales during the first six months
of 2002 resulting from the worldwide economic slowdown.
11
General and Administrative
General and administrative expense decreased 10% to $1,288,000 in the first six
months of 2002 from $1,424,000 in the first six months of 2001. The decrease
primarily relates to the Company's ongoing cost containment efforts, principally
using less personnel and less office space.
Net Interest Income
Net interest income decreased $125,000 to $64,000 in the first six months of
2002 from $189,000 in the first six months of 2001. This decrease is primarily
attributable to less invested cash during 2002 as well as an overall reduction
in interest rates earned on marketable securities.
International Operations
Total revenue from the Company's international operations declined by $595,000,
or 21%, to $2,236,000 in first six months of 2002 from $2,831,000 in the same
six months of 2001. The decrease in revenue from international operations was
primarily attributable to a decrease in total license revenue of $621,000.
Partially offsetting the license revenue decline was an increase in service and
maintenance revenue of $26,000. International operations resulted in a $703,000
loss for the six months ended June 30, 2002 as compared to income of $252,000
for the six months ended June 30, 2001.
Liquidity and Capital Resources
Net cash used in operating activities was $1,039,000 for the six months ended
June 30, 2002 compared to $208,000 provided by operations for the six months
ended June 30, 2001. The increased use of cash resulted primarily from the
decline in net earnings compared to the same period last year.
The Company generated $1,567,000 in investing activities during the first six
months of 2002 compared to using $924,000 of cash in the first six months of
2001. The increase in cash generated for investing activities resulted from the
sale of investments available for sale in 2002, which was used to fund
operations.
The Company used $31,000 for financing activities during the first six months of
2002 compared to using $275,000 during the six months ended June 30, 2001. The
decrease in cash used for investing activities is primarily due to the lack of
purchases of treasury stock during the first six months of 2002 compared to the
same period in 2001.
At June 30, 2002, the Company had a working capital ratio of 1.84:1, with cash
and investments available for sale of $5,547,000. The Company defines working
capital as the ratio of current assets to current liabilities. 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 peculiar 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 AllianceEnterprise and other new product offerings, and to
develop new products and product enhancements to complement its existing
field service offerings.
12
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.
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 June 30, 2002, the Company's investments consisted of
U.S. government agencies securities and commercial paper. 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.
13
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
- -------------------------------------------------
On June 13, 2002, the Company filed a registration statement on Form S-3, which
was declared effective on July 22,2002, to register restricted shares of common
stock purchased by individuals from Fallen Angel Equity Fund, L.P., which was
deemed an affiliate of the Company.
Effective July 26, 2002, the Company transferred the trading of its securities
from the Nasdaq National Market to the Nasdaq SmallCap Market. The transfer will
not affect the Company's trading symbol (ATEA) or how shares are bought and
sold.
Item 3. Defaults Upon Senior Securities
- ---------------------------------------
There have been no defaults by the Company on any Senior Securities during the
quarter ended June 30, 2002.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
No matters were submitted to a vote of the Company's stockholders during the
second quarter of the fiscal year covered by this report through the
solicitation of proxies or otherwise. The Annual Meeting of Stockholders of the
Company is scheduled for August 21, 2002.
Item 5. Other Information
- -------------------------
In accord with Section 10A(I)(2) of the Securities Exchange Act of 1934, as
added by Section 202 of the Sarbanes-Oxley Act of 2002, the Company is
responsible for listing the non-audit services approved in the Second Quarter by
the Company's Audit Committee to be performed by BDO Seidman, the Company's
external auditor. Non-audit services are defined in the law as services other
than those provided in connection with an audit or a review of the financial
statements of the Company. The non-audit services approved by the Audit
Committee in the Second Quarter are each considered by the Company to be
audit-related services which are closely related to the financial audit process.
Each of the services has been approved in accord with a pre-approval from the
Committee's Chairman pursuant to delegated authority by the Committee.
During the quarterly period covered by this filing, the Audit Committee approved
additional engagements of BDO Seidman for the following non-audit services: (1)
general tax services for federal, state and local tax filings; and (2) tax
matter consultations concerning sales and use taxes.
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(A) Exhibits
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 - President and Chief
Executive Officer
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 - Chief Financial
Officer
(B) Reports on Form 8-K
None.
14
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 August
2002.
ASTEA INTERNATIONAL INC.
By: /s/Zack Bergreen
--------------------------------
Zack Bergreen
Chief Executive Officer
(Principal Executive Officer)
By: /s/Fredric Etskovitz
--------------------------------
Fredric Etskovitz
Chief Financial Officer
(Principal Financial and
Chief
Accounting Officer)
15