================================================================================
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 March 31, 2000
-----------------------------
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 May 10, 2000, 14,287,080 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 10
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 10
Item 2. Changes in Securities and Use of Proceeds 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
Exhibit 27 Financial Data Schedule
2
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------
ASTEA INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2000 1999
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 11,119,000 $ 6,158,000
Investments available for sale 30,997,000 37,907,000
Receivables, net of reserves of $1,201,000 and $1,047,000 8,303,000 9,287,000
Prepaid expenses and other 2,142,000 1,632,000
Deferred income taxes 856,000 856,000
------------ ------------
Total current assets 53,417,000 55,840,000
Property and equipment, net 1,117,000 1,022,000
Capitalized software development costs, net 1,772,000 1,772,000
------------ ------------
Total assets $ 56,306,000 58,634,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 72,000 $ 410,000
Accounts payable and accrued expenses 7,022,000 7,707,000
Deferred revenues 3,217,000 3,553,000
------------ ------------
Total current liabilities 10,311,000 11,670,000
Deferred income taxes 298,000 298,000
Long-term debt 29,000 49,000
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued -- --
Common stock, $.01 par value, 25,000,000 shares
authorized, 14,260,730 and 14,136,000 issued and
outstanding 143,000 141,000
Additional paid-in capital 52,210,000 52,242,000
Deferred compensation -- --
Cumulative currency translation adjustment (959,000) (839,000)
Accumulated deficit (5,726,000) (4,927,000)
------------ ------------
Total stockholders' equity 45,668,000 46,617,000
------------ ------------
Total liabilities and stockholders' equity $ 56,306,000 $ 58,634,000
============ ============
The accompanying notes are an integral part of these statements.
3
ASTEA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months
Ended March 31,
2000 1999
------------ ------------
Revenues:
Software license fees $ 1,292,000 $ 1,952,000
Services and maintenance 4,298,000 5,786,000
------------ ------------
Total revenues 5,590,000 7,738,000
------------ ------------
Costs and expenses:
Cost of software license fees 326,000 724,000
Cost of services and maintenance 3,230,000 4,770,000
Product development 691,000 1,329,000
Sales and marketing 1,854,000 2,409,000
General and administrative 901,000 907,000
------------ ------------
Total costs and expenses 7,002,000 10,139,000
------------ ------------
Loss from operations (1,412,000) (2,401,000)
Net interest income 613,000 615,000
------------ ------------
Loss before income taxes (799,000) (1,786,000)
Income tax benefit -- 376,000
------------ ------------
Net loss $ (799,000) $ (1,410,000)
============ ============
Basic and diluted net loss per share $ (0.06) $ (0.10)
============ ============
Shares outstanding used in computing basic and diluted
net loss per share 14,231,000 13,688,000
============ ============
The accompanying notes are an integral part of these statements.
4
ASTEA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months
Ended March 31,
2000 1999
------------ ------------
Cash flows from operating activities:
Net loss $ (799,000) $ (1,410,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 401,000 666,000
Variable option compensation benefit (183,000) --
Other 7,000 6,000
Changes in operating assets and liabilities:
Receivables 942,000 713,000
Prepaid expenses and other (507,000) (380,000)
Accounts payable and accrued expenses (798,000) (1,842,000)
Deferred revenues (334,000) 312,000
------------ ------------
Net cash used in operating activities (1,271,000) (1,935,000)
------------ ------------
Cash flows from investing activities:
Sale (purchases) of investments available for sale 6,910,000 (4,709,000)
Purchases of property and equipment (299,000) (88,000)
Capitalized software development costs (200,000) (200,000)
------------ ------------
Net cash provided by (used in) investing activities 6,411,000 (4,997,000)
------------ ------------
Cash flows from financing activities:
Proceeds from exercise of stock options and employee stock
purchase plan 145,000 764,000
Net repayments of long-term debt (358,000) (747,000)
------------ ------------
Net cash (used in) provided by financing activities (213,000) 17,000
------------ ------------
Effect of exchange rate changes on cash and cash equivalents 34,000 13,000
------------ ------------
Net increase (decrease) in cash and cash equivalents 4,961,000 (6,902,000)
Cash and cash equivalents balance, beginning of period 6,158,000 14,291,000
------------ ------------
Cash and cash equivalents balance, end of period $ 11,119,000 $ 7,389,000
============ ============
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 March 31, 2000 and for the three month
periods ended March 31, 2000 and 1999 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 1999 Annual
Report on Form 10-K which are hereby incorporated by reference in this quarterly
report on Form 10-Q.
2. STOCKHOLDERS' EQUITY/COMPREHENSIVE LOSS
The reconciliation of Stockholders' Equity and comprehensive loss from December
31, 1999 to March 31, 2000 is summarized as follows:
Cumulative
Additional Currency
Common Paid-In Translation Accumulated Comprehensive
Stock Capital Adjustment Deficit Loss
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1999 $ 141,000 $ 52,242,000 $ (839,000) $ (4,927,000) $ --
Exercise of stock options 2,000 151,000 -- -- --
Compensation benefit in
connection with variable
stock options -- (183,000) -- -- --
Cumulative
translation adjustment -- -- (120,000) -- (120,000)
Net loss -- -- -- (799,000) (799,000)
------------ ------------ ------------ ------------ ------------
Balance at March 31, 1999 $ 143,000 $ 52,210,000 $ (959,000) $ (5,726,000) $ (919,000)
============ ============ ============ ============ ============
3. MAJOR CUSTOMERS
The Company had one customer that accounted for 11% of revenues in the first
quarter of 2000 and 15% of revenues in the first quarter of 1999. In addition,
the Company had another customer that accounted for 12% of revenues in the first
quarter of 1999.
6
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 as well as assumptions made by 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, 1999.
The Company develops, markets and supports front-office solutions for the
Customer Relationship Management ("CRM") software market. Astea's applications
are designed specifically for organizations for which field service and customer
support are considered mission critical aspects of business operations. The
Company licenses its products to companies worldwide, distributed across a
variety of industries that provide maintenance and repair services, including
telecommunications, information technology, healthcare, process and control
technologies and white goods. The Company markets its products both domestically
and internationally, through offices in the United States and overseas, as well
as through resellers and system integrators. Internationally, the Company
maintains operations in Canada, Australia, New Zealand, the Netherlands, France,
the United Kingdom and Israel.
Results of Operations
Comparison of Three Months Ended March 31, 2000 and 1999
Continuing Operations
Revenues
Revenues decreased $2,148,000, or 28%, to $5,590,000 for the three months ended
March 31, 2000 from $7,738,000 for the three months ended March 31, 1999.
Software license fee revenues decreased $660,000, or 34%, from the same period
last year. Services and maintenance fees for the three months ended March 31,
2000 amounted to $4,298,000, a 26% decrease from the same quarter in 1999.
The Company's international operations contributed $1,816,000 of revenues in the
first quarter of 2000 compared to $2,406,000 in the first quarter of 1999. This
represents a 25% decrease from the same period last year and 32% of total
revenues in the first quarter 2000.
Software license fee revenues decreased 34% to $1,292,000 in the first quarter
of 2000 from $1,952,000 in the first quarter of 1999. The decrease is
attributable to ServiceAlliance license revenues that decreased $482,000 or 43%,
to $650,000 in the first quarter of 2000 from $1,132,000 in the first quarter of
1999. The decrease also relates to a decrease in DISPATCH-1 license fee revenue,
which decreased $80,000 or 11% from $722,000 in the first quarter of 1999 due to
decreasing demand for this product. DISPATCH-1 accounted for 50% of total
software license fee revenues in the first quarter of 2000 compared to 37% of
total license fee revenues in the first quarter of 1999.
Services and maintenance revenues decreased 26% to $4,298,000 in the first
quarter of 2000 from $5,786,000 in the first quarter of 1999. The decrease
primarily relates to service and maintenance revenues from DISPATCH-1 which
decreased $2,365,000 to $2,768,000 from $5,133,000 in the first quarter of 1999.
The decrease in DISPATCH-1 service and maintenance revenue is due to the
anticipated decline in demand for these services including the decrease in
service and maintenance revenue from two major customers that purchased
DISPATCH-1 source code in 1999. The decrease in DISPATCH-1 service and
maintenance revenues was partially offset by an increase in ServiceAlliance
service and maintenance revenues, which increased $889,000 or 139% from $641,000
in the first quarter of 1999 to $1,530,000 in the first quarter of 2000.
7
The Company had one customer that accounted for 11% of revenues in the first
quarter of 2000 and 15% of revenues in the first quarter of 1999. In addition,
the Company had another customer that accounted for 12% of revenues in the first
quarter of 1999.
Costs of Revenues
Cost of software license fees decreased 55% to $326,000 in the first quarter of
2000 from $724,000 in the first quarter of 1999. Included in the cost of
software license fees is the fixed cost of capitalized software amortization.
Capitalized software amortization was $200,000 in the first quarter of 2000 and
$368,000 in the first quarter of 1999. The cost of software license fees
decreased due to decreased capitalized software amortization and third party
product costs. The software licenses gross margin percentage was 75% in the
first quarter of 2000 compared to 63% in the first quarter of 1999. This
increase in gross margin was attributable to the decrease in demand for
DISPATCH-1, which has a higher cost of sale than ServiceAlliance, and lower
capitalized software amortization.
Cost of services and maintenance decreased 32% to $3,230,000 in the first
quarter of 2000 from $4,770,000 in the first quarter of 1999. The decrease in
cost of service and maintenance is primarily attributed to fewer service
personnel due to the decreasing demand for DISPATCH-1 services. The services and
maintenance gross margin percentage was 25% in the first quarter of 2000
compared to 18% in the first quarter of 1999. The increase in services and
maintenance gross margin was primarily due to increased utilization for
ServiceAlliance service professionals.
Product Development
Product development expense decreased 48% to $691,000 in the first quarter of
2000 from $1,329,000 in the first quarter of 1999. The decrease in product
development expenses is primarily attributable to fewer DISPATCH-1 development
personnel. Product development as a percentage of revenues decreased to 12% in
the first quarter of 2000 from 17% in the first quarter of 1999.
Sales and Marketing
Sales and marketing expense decreased 23% to $1,854,000 in the first quarter of
2000 from $2,409,000 in the first quarter of 1999. The decrease in sales and
marketing is attributable to reduced headcount and lower commission expense due
to reduced revenues. As a percentage of revenues, sales and marketing expenses
increased to 33% from 31% in the first quarter of 1999.
General and Administrative
General and administrative expenses decreased 1% to $901,000 in the first
quarter of 2000 from $907,000 in the first quarter of 1999.
Net Interest Income
Net interest income remained fairly consistent with prior year resulting in a
minor decrease to $613,000 from $615,000 recognized in the first quarter of
1999.
International Operations
Total revenue from the Company's international operations decreased by $590,000,
or 25%, to $1,816,000 in first quarter of 2000 from $2,406,000 in the same
quarter in 1999. The decrease in revenue from international operations was
primarily attributable to the decreasing demand for the DISPATCH-1 and lower
than anticipated ServiceAlliance revenues. International operations resulted in
a $436,000 loss for the first quarter ended March 31, 2000 compared to a loss of
$207,000 in the same quarter in 1999.
Liquidity and Capital Resources
Net cash used in operating activities was $1,271,000 for the three months ended
March 31, 2000 compared to $1,935,000 for the three months ended March 31, 1999.
This decrease in cash used was primarily attributable to a reduced net loss and
lower payments of accounts payable and accrued expenses offset by lower deferred
revenues.
8
The Company's investing activities provided $6,411,000 of cash in the first
three months of 2000 compared to the cash used of $4,997,000 in the first three
months of 1999. The increase in cash provided was primarily attributable to
increased sales of investments.
The Company used $213,000 of cash from financing activities during the three
months ended March 31, 2000 compared to cash provided of $17,000 in the first
three months of 1999. The increased use of cash is due to reduced proceeds from
the exercise of stock options and employee stock purchase plan offset by reduced
payments of long-term debt.
The Company maintains a line of credit with a maximum borrowing ability 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 assets. The
line expires on September 29, 2000. As of March 31, 2000, there were no amounts
outstanding on the line of credit. As of March 31, 2000, the Company was not in
compliance with certain debt covenants and has received a waiver.
At March 31, 2000, the Company had a working capital ratio of 5:1, with cash,
cash equivalents and investments available for sale of $42,116,000. 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 Board of Directors from time to time
reviews the Company's forecasted operations and financial condition to determine
whether and when payment of a dividend or dividends is appropriate. 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 ServiceAlliance and other new product offerings, and to develop
new products and product enhancements to complement its existing field
service, sales automation and customer support 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, changes in earnings estimates by analysts,
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 relates 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
9
funds by limiting default risk, market risk and reinvestment risk. As of March
31, 2000, 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.
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 March 31,
2000.
Item 3. Defaults Upon Senior Securities
There have been no defaults by the Company on any Senior Securities during the
quarter ended March 31, 2000.
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
first quarter of the fiscal year covered by this report through the solicitation
of proxies or otherwise.
Item 5. Other Information
One of the Company's directors, Henry H. Greer resigned from the Board of
Directors effective on April 26, 2000.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
(27) Financial Data Schedule
(B) Reports on Form 8-K
None.
10
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 10th day of May
2000.
ASTEA INTERNATIONAL INC.
By: /s/Bruce R. Rusch
---------------------
Bruce R. Rusch
Chief Executive Officer
(Principal Executive Officer)
By: /s/John G. Phillips
---------------------
John G. Phillips
Vice President and Chief Financial Officer
(Principal Financial and Chief
Accounting Officer)
11