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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange
Act of 1934.
For The Fiscal Year Ended: December 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
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Commission File Number: 0-26330
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ASTEA INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
Delaware 23-2119058
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
455 Business Center Drive, Horsham, Pennsylvania 19044
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 682-2500
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g)
of the Act: Common Stock, $.01 par value
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
-- --
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of April 20, 2001 (based on the closing price of $1.10 as quoted
by Nasdaq National Market as of such date) was approximately $8,622,000.
As of April 20, 2001, 14,629,987 shares of the registrant's Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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TABLE OF CONTENTS
Page
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PART I
Item 1. Business 3
Item 2. Properties 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for Registrant's Common Equity and Related 11
Stockholder Matters
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial 14
Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 25
Item 8. Financial Statements and Supplementary Data 26
Item 9. Changes in and Disagreements with Accountants on 47
Accounting and Financial Disclosure
PART III
Item 10. Directors and Officers of the Registrant 47
Item 11. Executive Compensation 48
Item 12. Security Ownership of Certain Beneficial Owners and 52
Management
Item 13. Certain Relationships and Related Transactions 53
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports 54
on Form 8-K
Signature Page 57
2
PART I
Item 1. Business.
General
Astea International Inc. ("Astea" or 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 which are service centric-i.e.- field service and customer support
are considered mission critical aspects of business operations. The Company's
solutions have demonstrated quantifiable cost efficiency and service
improvements in large enterprise environments that require sophisticated
management of inventory, field and customer support resources. The Company's
principal product offerings-ServiceAlliance(R) and DISPATCH-1(R) deliver
powerful functionality that enables organizations with a high degree of field
service and customer support requirements to improve customer satisfaction,
build customer loyalty, and increase the profitability of customer service by
increasing revenue opportunities while diminishing costs. Astea's software has
been licensed to approximately 510 companies worldwide, distributed across a
variety of industries, including telecommunications, information technology,
healthcare, process and control technologies, and white goods. Astea expects
that sales of licenses and services related to DISPATCH-1 will be made only to
current customers and marketing efforts for that product are limited to the
current customer base. The Company's external sales and marketing efforts,
therefore, focus solely on ServiceAlliance.
ServiceAlliance, the Company's newest software solution, draws on the best
practices and functionality of DISPATCH-1, one of the field service industry's
leading customer service applications. First introduced in 1997, ServiceAlliance
is a client/server application designed to leverage the rapid technology
advances that continue to characterize the software industry. With
ServiceAlliance, the Company reformulated the complex and powerful functionality
of its original DISPATCH-1 product into an intuitive, configurable, modular and
open software design. The result is a tightly integrated, highly configurable
software solution that can be implemented more quickly and at lower cost than
DISPATCH-1, and it is able to interface more easily with other key business
systems. This combination is key to ServiceAlliance's ability to deliver a
faster overall return on investment to Astea's customers. Accordingly,
ServiceAlliance has a broader market appeal, since it cost effectively delivers
to organizations of any size the functionality and capabilities once affordable
only to Fortune 500 companies. In December 1999, the Company also introduced
SalesAlliance(TM) a software solution which integrates with Service Alliance and
is designed to automate the sales process for businesses that sell services.
To implement its products, Astea provides its clients with an array of
professional consulting services, training and customer support services.
Astea's experienced and knowledgeable staff members have the expertise necessary
for Astea to provide a comprehensive field service and customer support
solution. They also serve as an internal source of industry expertise, a
critical factor in the ongoing product development and enhancement process which
ensures that Astea's products address the evolving business requirements of its
customers.
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 offices in the
United Kingdom, the Netherlands, France, Australia and Israel. Distributor
agreements help to extend the Company's sales, marketing, and support presence
to Japan, Taiwan, South Africa, India, Hong Kong and Malaysia. In 1999, the
Company entered into distributor agreements to serve Korea and Thailand. In
addition, The Company entered strategic partnerships with Sage Software, Inc.
("Sage") and Template Software, Inc. ("Template"), both targeted at
standardizing ServiceAlliance's capabilities to integrate with other software
applications, thereby reducing the cost of integrating ServiceAlliance. The
partnership with Sage links ServiceAlliance with Sage's leading middle-market
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financial products, Acuity(R) and MAS 90(R). Packaged ServiceAlliance/Acuity and
ServiceAlliance/MAS 90 solutions can now be offered by Sage's network of over
4,000 resellers and Astea's direct sales channel. The partnership with Template,
a leader in enterprise application integration (EAI) technology, is designed to
accelerate development of solutions that cost-effectively integrate
ServiceAlliance with financial, ERP and MRP systems, including products from
companies such as SAP AG ("SAP") and Oracle Systems Corp. ("Oracle").
During 1998, the Company sold its Bendata, Inc. ("Bendata") and Abalon AB
("Abalon") subsidiaries. Unless otherwise indicated, the descriptions herein of
the Company and its business and financial condition excludes Bendata, Abalon
and their products. See Note 3 of the Notes to the Consolidated Financial
Statements.
Current Product Offerings
ServiceAlliance
ServiceAlliance is the Company's newest service and support management
software solution. As of December 31, 2000, ServiceAlliance had been licensed to
over 145 customers worldwide. The Company is encouraged by the initial market
acceptance of ServiceAlliance, which is being implemented in businesses
worldwide. See "Certain Factors that May Affect Future Results--Uncertain Market
Acceptance of ServiceAlliance; Decreased Revenues from DISPATCH-1."
ServiceAlliance is a modularly designed, client/server-based field service
and customer support software solution. Functionally, the product is composed of
six discrete modules that utilize a shared database and centralized functional
core of common tables and processes. ServiceAlliance provides a universal view
of customer information, which facilitates the tracking and management of
customers anywhere in the customer life cycle. With ServiceAlliance, users can
update the status of customer requests as services are performed, maintaining
customer status automatically and eliminating confusion regarding call status.
Screen graphics for every service function have a consistent look to accelerate
user familiarity. Integration lets users move from one step to another with
maximum efficiency and minimum chance of error. Source code modifications are
generally unnecessary.
The standard ServiceAlliance product includes AllianceFieldService(R),
AllianceCustomerSupport(R), AllianceOrders(R), AllianceRepair(R),
AllianceLogistics(R), and AllianceContracts(R). Together, they address essential
elements in the customer life cycle, including field dispatch and scheduling,
external help desk (customer or engineer) support, inventory and logistics
management (from the time of request through allocation and shipment); contract
management and billing (including price books), and sales to service integration
(quotations and work orders). In addition to these core modules, optional add-on
modules are available to meet specific customer needs. Through
AllianceStudio(R), customers also have access to a set of application-specific
configuration tools that allow them to tailor ServiceAlliance to meet the needs
of their specific business environment, which in turn facilitates rapid
deployment of the product. In 2000, the capabilities of ServiceAlliance were
expanded with two new software releases, versions 5.0 and new system options for
on-line analytical processing; integrated project management; and pan European,
forms-based, GSM and SMS data communications.
Astea also sells a number of optional products designed to extend the
boundaries of a service organization including SalesAlliance, AllianceLink(R),
AllianceMobile(R), AllianceProjects(R), and AllianceWeb(R). SalesAlliance is an
Enterprise Sales Force Automation (E-SFA) software designed to automate the
sales process for businesses that sell services. SalesAlliance integrates with
ServiceAlliance, enabling field sales to share the same CRM database used to
manage front and back office customer service operations. SalesAlliance offers
capabilities found in other SFA applications including field connectivity and
synchronization with remote data bases, but is also focused on increasing
revenue through service-related sales opportunities such as maintenance
contracts, add-on equipment and spare parts. SalesAlliance enables
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executives to implement a uniform sales process across the enterprise, and
leverage standardized sales and service data to improve service revenue, sales
planning, forecasting, reporting and analysis with decision-making based on a
more comprehensive view of total business operations.
AllianceProjects unifies all aspects of project management within the same
ServiceAlliance solution used for call center, field service, repair depot,
logistics, billing and management analysis. With AllianceWeb, an organization's
customers can access a variety of self-service functions through the Internet,
such as viewing order status, creating or updating orders, reporting meter
readings, viewing and editing their own customer profile, and searching for
information regarding products, parts, and technical support information.
AllianceMobile introduced a new support paradigm for field service agents,
enabling real-time access to time sensitive information such as parts
inventories and schedules. Utilizing widely available, low-cost unlimited
Internet access, organizations can now deploy secure, browser-based access to
the ServiceAlliance system.
ServiceAlliance was designed to interface with other "best of breed"
products. Inherent product compatibility with a variety of other products, such
as paging, search engines, electronic mail, and Internet tools, extends the
application's functionality. A new automation tool, ActiveX automation, makes it
easy to connect to other applications that conform to that standard. In
addition, AllianceLink(R) interface products help clients integrate rapidly with
more complex and sophisticated products, such as complex staff scheduling
products, optimized parts planning and forecasting, financial systems and
case-based reasoning tools.
Supported environments for ServiceAlliance include: ClientsWindows 95/98
and Windows NT and Networks TCP/IP. ServiceAlliance operates with Oracle,
Sybase, and Microsoft SQL Server databases.
eCRM Product Offering
The Company plans to extend its ServiceAlliance product by producing and
marketing a comprehensive suite of e-CRM products. The e-CRM suite will consist
of three portals that give access to eight new e-CRM products for users of the
Company's AllianceEnterprise(TM) suite. The new products will be released in
stages expected to begin in the summer of 2001 and will have capabilities for
customer self-service, self-sales and mobile employees. Other products to follow
as part of the e-CRM suite will add capabilities for channel management and
suppliers of goods and services, and will be enabled with an XML-based B2B
server for unattended e-Business. An e-CRM server platform will be used for the
new products that conduct the e-Business transactions.
DISPATCH-1
The Company's original standard product, DISPATCH-1 which was introduced in
1986 typically has been adopted by larger Fortune 1,000 companies. Astea
currently supports approximately 82 DISPATCH-1 customers on active maintenance.
In 2000, approximately 57% of the Company's total revenues derived from license,
maintenance and professional service fees related to DISPATCH-1, compared to 72%
in 1999. See "Certain Factors that May Affect Future Results--Uncertain Market
Acceptance of ServiceAlliance; Decreased Revenues from DISPATCH-1." While
ServiceAlliance is the successor to DISPATCH-1 and offers a broader CRM
solution, DISPATCH-1 remains deployed in a variety of large enterprise
environments and supports thousands of users in multinational locations. Support
of these installations is a key component of the Company's plans and DISPATCH-1
is expected to be a significant continuing source of licensing, service and
maintenance revenues to Astea for the foreseeable future in the form of
additional users on current licenses, addition of optional modules, and ongoing
maintenance fees.
The Company's original customer service product, DISPATCH-1, is one of the
most widely installed field service solutions in the world. DISPATCH-1 helps
organizations with complex and geographically dispersed field service operations
automate and manage call center operations among customers,
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headquarters, branch offices and the field. Version 8.0 of DISPATCH-1 is Year
2000 compliant, supports both Internet and graphical desktop interfaces, and is
interfaced to a number of complementary third-party products designed to extend
its functionality. Other versions of DISPATCH-1 are also Year 2000 compliant.
DISPATCH-1 has been deployed in a wide variety of large enterprise environments,
and can support thousands of users in both single and multi-country situations.
In select engagements, the Company has significantly customized and enhanced
DISPATCH-1 to specifically address the needs of a few very large product
deployments, generating an ongoing but decreasing level of professional services
and consulting revenues, as well as product maintenance revenues.
Professional Services and Customer Support Services
Astea offers a range of specialized professional and customer support
services to assist its clients in using its products effectively. These services
include business process consulting, implementation planning, project
management, customization, education and training, technical support and ongoing
software maintenance. Astea believes that its professional services capabilities
allow its clients to deploy the Company's products quickly and efficiently.
Together, professional services and customer support comprised approximately 67%
and 66% of the Company's total revenues in both 2000 and 1999, respectively.
Professional Services
As of December 31, 2000, the professional services group consisted of 42
professional services personnel, 25 of which are headquartered in the United
States and 17 of which are based in five offices internationally in the United
Kingdom, the Netherlands, France, Israel and Australia. An initial professional
services engagement for ServiceAlliance typically is between one and four months
and such engagements usually lasted between six and 18 months for DISPATCH-1.
For most of Astea's clients appropriate teams are assembled from the Company's
worldwide offices to perform the required services. Due to the more complex
nature of Astea's DISPATCH-1 offering, customers that licensed these programs
typically purchased a higher volume of professional services than customers of
ServiceAlliance.
Astea's typical professional services engagement includes planning,
prototyping and implementation of Astea's products within the client's
organization. During the initial planning phase of the engagement, Astea's
professional services personnel work closely with representatives of the client
to prepare a detailed project plan that includes a timetable, resource
requirements, milestones, in-house training programs, onsite business process
training and demonstrations of Astea's product capabilities within the client's
organization. The next, most critical phase of the Astea professional services
personnel engagement is the prototyping phase, in which Astea works closely with
representatives of the client to configure Astea's software functionality to the
client's specific business process requirements. During the prototyping phase,
Astea's professional services personnel design the technology infrastructure,
define and document business processes and establish the order of product
deployment. The critical element of the prototyping phase is a detailed analysis
of the client's business processes and needs. The final phase in the
professional services engagement is the implementation phase, in which Astea's
professional services personnel work with the client to develop detailed data
mapping, conversions, interfaces and other technical and business processes
necessary to integrate Astea's software into the client's computing environment.
Ultimately, education plans are developed and executed to provide the client
with the process and system knowledge necessary to effectively utilize the
software and fully implement the Astea solution. Professional services are
charged on an hourly or per diem basis and are billed, pursuant to customer work
orders, usually on a monthly basis.
Customer Support
The Company's customer support group provides Astea's clients with
telephone and on-line technical support, as well as product enhancements,
updates and new releases. Astea's customer support group is deployed to provide
support for Astea's clients in all regions of Astea's worldwide operations,
6
providing local client representatives with real-time support usually spoken in
their native languages by Astea and distributor personnel familiar with local
business customs and practices. Typically, customer support fees are established
as a fixed percentage of license fees and are invoiced to clients on an annual
basis after the conclusion of the warranty period, which is normally 90 days.
Astea's customer support representatives are located in one office in the United
States, three offices in Europe, one office in Israel and one office in
Australia. As of December 31, 2000, the Company's worldwide customer support
group consisted of 27 representatives, 18 located in the United States and 9
based internationally.
Customers
The Company estimates that it has sold approximately 510 licenses to
customers ranging from small, rapidly growing companies to large, multinational
corporations with geographically dispersed operations and remote offices. More
than 145 licenses were sold for ServiceAlliance and the remainder for
DISPATCH-1. The broad applicability of the Company's products is demonstrated by
the wide range of companies across many markets and industries that use one or
more of Astea's products, including telecommunications, computers and
electronics, office equipment, medical systems, building systems and controls,
and third-party service and support organizations. In 2000 no single customer
accounted for 10% or more of the Company's revenues. In 1999 and 1998, Storage
Technology Corporation accounted for 18% and 15% of the Company's revenues,
respectively. In 1999, this customer accounted for 12% of the Company's revenues
excluding one-time revenues from the sales of source code. In 1999 and 1998, NCR
Corporation accounted for 16% and 11% of the Company's revenues, respectively.
In 1999, this customer accounted for 11% of the Company's revenues excluding
one-time revenues from the sales of source code. These sales of source code were
part of the Company's plan to redirect its resources toward ServiceAlliance as
well as a decision by the customers to bring DISPATCH-1 support and maintenance
in-house.
Sales and Marketing
Astea markets its products and services through a multi-tiered sales
structure comprised of direct sales and telesales operations, and through
relationships with resellers and international distributors. The Company is
attempting to broaden its reseller network by seeking to establish a nationwide
indirect distribution channel targeted at the mid-market tier. The Company's
sales organization consisted of 27 personnel on December 31, 2000 complemented
by a coordinated marketing effort of the Company's marketing group, which
consisted of 9 personnel on December 31, 2000. See "Certain Factors that May
Affect Future Results--Need to Expand Indirect Sales."
Astea's direct sales force employs a consultative approach to selling
ServiceAlliance and DISPATCH-1, working closely with prospective clients to
understand and define their customers' needs and determine how such needs can be
addressed by the Company's products. These clients typically represent the mid-
to high-end of the CRM software market. A prospect development organization
comprised of telemarketing representatives develops and qualifies sales leads
prior to referral to the direct sales staff. See "Certain Factors that May
Affect Future Results--Continued Dependence on Large Contracts May Result in
Lengthy Sales and Implementation Cycles." The modular structure of Astea's
software and its ongoing product development efforts provide opportunities for
incremental sales of product modules and consulting services to existing
accounts.
Astea's corporate marketing department is responsible for product
marketing, lead generation and marketing communications, including advertising
and public relations. Based on client feedback and market data, product
marketing provides input and direction for the Company's ongoing product
development efforts and professional services marketing. Leads developed from
marketing are routed through the Company's sales and marketing automation
system. The Company also participates in an annual conference organized and
sponsored by ADONUS, Inc., an independent user group comprised of Astea's
DISPATCH-1 and ServiceAlliance clients. Conference participants attend training
sessions, workshops and presentations, and
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interact with other Astea product users and Astea management and staff,
providing important input for future product direction.
Astea's international sales accounted for 41% of the Company's revenues in
2000, 32% in 1999, and 28% in 1997. See "Certain Factors that May Affect Future
Results--Risks Associated with International Sales" and Note 16 of the Notes to
the Consolidated Financial Statements.
Product Development
Astea's product development strategy is to provide products that are easy
to implement, use, and maintain. Its products are designed to be flexible,
modular and scalable, so that they can be implemented incrementally in phases
and expanded to satisfy the evolving information requirements of Astea's clients
and their customers. Each product is also designed to be as platform-
hardware-independent as possible, using popular client/server environments,
multiple hardware platforms and operating systems. To accomplish these goals,
the Company uses widely accepted, commercially available application development
tools from Progress Software Corporation in the case of DISPATCH-1 and Sybase,
Inc. and Microsoft Corporation, in the case of ServiceAlliance and the Company's
planned eCRM product. These software tools provide the Company's clients with
the flexibility to deploy Astea's products across a variety of hardware
platforms, operating systems, client/server configurations and relational
database management systems.
As of December 31, 2000, the Company's product development staff consisted
of 26 employees. The Company's total expenses for product development for the
years ended December 31, 2000, 1999 and 1998, were $2,744,000, $4,900,000, and
$5,718,000, respectively; these expenses represented 14%, 15%, and 20% of total
revenues for 2000, 1999, and 1998, respectively. In addition, the Company
capitalized software development costs of $640,000, $800,000, and $1,233,000 in
2000, 1999 and 1998, respectively. The Company anticipates that it will continue
to commit substantial resources to product development in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Certain Factors that May Affect Future Results--Need for
Development of New Products."
Manufacturing
The Company's software products are distributed on standard magnetic disks,
tapes and CD ROMs. Included with the software products are security keys and
documentation available on CD ROM and in print. Historically, the Company has
purchased diskettes, tapes, and duplicating and printing services from outside
vendors. The Company has been able to obtain adequate supplies of all components
and materials in a timely manner from existing and alternate sources of supply.
Competition
The CRM software market is intensely competitive and subject to rapid
change. To maintain or increase its position in the industry, the Company will
need to continually enhance its current product offerings, introduce new
products and features and maintain its professional services capabilities. The
Company currently competes on the basis of the depth of its product features and
functions, including the adaptability and scalability of its products; the
ability to deploy complex systems both locally and internationally; product
quality, ease-of-use, reliability and performance; breadth of professional
services; integration of Astea's offerings with other enterprise and
client/server applications; price; and the availability of Astea's products on
popular operating systems, relational databases, the Internet and communications
platforms.
Competitors vary in size, scope and breadth of the products and services
offered. The Company encounters competition generally from a number of sources,
including other software companies, third-party professional services
organizations that develop custom software, and management information systems
departments of potential customers developing proprietary, custom software. In
the field service and
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customer support marketplace, the Company competes against publicly-held
companies and numerous smaller, privately-held companies. The Company's
competitors include SAP, Oracle, Great Plains Software, Inc., Nortel Networks
Inc. ("Formally Clarify"), PeopleSoft Inc. ("PeopleSoft") and a number of
smaller privately-held companies. See "Certain Factors that May Affect Future
Results--Competition in the Customer Relationship Management Software Market Is
Intense."
Licenses and Intellectual Property
Astea considers its software proprietary and licenses its products to its
customers generally under written license agreements. The Company also employs
an encryption system that restricts a user's access to source code to further
protect the Company's intellectual property. Because the Company's products
allow customers to customize their applications without altering the source
code, the source code for the Company's products is typically neither licensed
nor provided to customers. The Company does, however, license source code from
time to time and maintains certain third-party source code escrow arrangements.
See "Customers" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
The Company seeks to protect its products through a combination of
copyright, trademark, trade secret and fair business practice laws. The Company
also requires employees and consultants or third parties to sign nondisclosure
agreements. Despite these precautions, it may be possible for unauthorized
parties to copy certain portions of the Company's products or reverse engineer
or obtain and use information that the Company regards as proprietary. The
Company presently has no patents or patent applications pending. See "Certain
Factors that May Affect Future Results--Risks of Dependence on Proprietary
Technology."
Because the software development industry is characterized by rapid
technological change, Astea believes that factors such as the technological and
creative skills of its personnel, new product developments, frequent product
enhancements, and reliable product maintenance are more important to
establishing and maintaining a technology leadership position than current legal
protections.
Employees
As of December 31, 2000, the Company, including its subsidiaries, had a
total of 154 full time employees worldwide, 80 in the United States, 18 in the
United Kingdom, 8 in the Netherlands, 5 in France, 28 in Israel, 14 in
Australia, and one in Japan. Of the total, 36 were employed in sales and
marketing, 26 in product development, 69 in professional services and customer
support and 23 in administration and finance. The Company's future performance
depends, in significant part, upon the continued service of its key technical
and management personnel and its continuing ability to attract and retain highly
qualified and motivated personnel in all areas of its operations. See "Certain
Factors that May Affect Future Results--Dependence on Key Personnel; Competition
for Employees." None of the Company's employees is represented by a labor union.
The Company has not experienced any work stoppages and considers its relations
with its employees to be good.
Corporate History
The Company was incorporated in Pennsylvania in 1979 under the name Applied
System Technologies, Inc. In 1992, the Company changed its name to Astea
International Inc. Until 1986, the Company operated principally as a software
consulting firm, providing professional software consulting services on a fee
for service and on a project basis. In 1986, the Company introduced its
DISPATCH-1 product. In November 1991, the Company's sole stockholder acquired
the outstanding stock of The DATA Group Corporation ("Data Group"), a provider
of field service software and related professional services for the mainframe
computing environment. Data Group was merged into the Company in January 1994.
In February 1995, the Company and its sole stockholder acquired the outstanding
stock of Astea Service & Distribution Systems BV ("Astea BV"), the Company's
distributor of DISPATCH-1 and related services in
9
Europe. In May 1995, the Company reincorporated in Delaware. In July 1995, the
Company completed its initial public offering of Common Stock. In February 1996,
the Company merged with Bendata, Inc. In June 1996, the Company acquired Abalon
AB. In September 1998 (effective July 1, 1998), the Company sold Bendata, Inc.
In December 1998, the Company sold Abalon AB.
Item 2. Properties.
The Company's headquarters are located in a leased facility of
approximately 51,000 square feet in Horsham, Pennsylvania; the Company has
subleased approximately half of such building to other tenants. The Company also
leases facilities for operational activities in Houten, the Netherlands; and
Tefen, Israel; and for sales and customer support activities in Cranfield,
England; Paris, France; Tokyo, Japan; and St. Leonards, Australia. The Company
believes that suitable additional or alternative office space will be available
in the future on commercially reasonable terms as needed.
Item 3. 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. In addition,
since the Company enters into a number of large contracts requiring the complex
installation of software products and the implementation of considerable
professional services over several quarterly periods, the Company is from time
to time engaged in discussions and deliberations with customers regarding the
adequacy and timeliness of the installation or service, product functionality
and features desired by the customer and additional work and product
requirements that were not anticipated at the commencement of the project. These
deliberations sometimes result in changes in services required, upward or
downward price adjustments, or reworking of contract terms. The Company from
time to time will reserve funds for contingencies under contract deliberations.
The Company is not a party to any material legal proceedings, the adverse
outcome of which, in management's opinion, would have a material adverse effect
on the Company's business, financial condition or results of operations. See
Note 12 of the Notes to the Consolidated Financial Statements.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report, through the solicitation of
proxies or otherwise.
10
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "ATEA." The following table sets forth the high and low closing sale
prices for the Common Stock as reported by the Nasdaq National Market for the
past two fiscal years:
2000 High Low
--------------------- ------------- -----------------
First quarter 7.38 3.88
Second quarter 3.63 2.09
Third quarter 1.94 .75
Fourth quarter 1.09 .44
1999 High Low
--------------------- ------------- -----------------
First quarter $3.56 $1.78
Second quarter 3.56 2.50
Third quarter 3.00 2.38
Fourth quarter 6.00 2.00
As of March 23, 2001, there were approximately 71 holders of record of the
Company's Common Stock. (Because "holders of record" include only stockholders
listed with the Company's transfer agent and exclude stockholders listed
separately with financial nominees, this number does not accurately reflect the
actual number of beneficial owners of the Company's Common Stock, of which the
Company estimates there were more than 2,700 on such date.) On March 23, 2001,
the last reported sale price of the Common Stock on the Nasdaq National Market
was $.9375 per share.
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. On June 30, 2000, the Company paid its
only dividend since its initial public offering. The dividend was $2.05 per
share to stockholders of record at June 15, 2000.
11
Item 6. Selected Financial Data.
Years ended December 31, 2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
Statement of Income Data: (1)
Revenues:
Software license fees $ 6,554 $ 11,312 $ 5,822 $ 9,213 $ 15,792
Services and maintenance 13,381 21,723 23,119 22,948 26,010
-------------------------------------------------------------
Total revenues 19,935 33,035 28,941 32,161 41,802
-------------------------------------------------------------
Cost and Expenses:
Cost of software license fees (2) 1,199 2,240 1,957 2,749 2,462
Cost of services and maintenance 10,546 17,063 17,583 16,054 18,908
Product development 2,744 4,900 5,718 8,653 6,628
Sales and marketing 6,857 8,463 7,976 8,367 14,053
General and administrative (3) 4,066 4,478 5,297 11,127 7,524
Restructuring charge (4) 1,101 1,630 (800) 5,328 --
-------------------------------------------------------------
Total costs and expenses 26,513 38,774 37,731 52,731 49,575
Loss from continuing operations
before interest and taxes (6,578) (5,739) (8,790) (20,117) (7,773)
Net interest income 1,496 2,163 496 4 632
-------------------------------------------------------------
Loss from continuing
operations before income taxes (5,082) (3,576) (8,294) (20,113) (7,141)
Benefit for income taxes -- -- (803) (877) (2,355)
-------------------------------------------------------------
Loss from continuing operations (5,082) (3,576) (7,491) (19,236) (4,786)
Gain on sale of discontinued operations,
net of taxes (1) 293 -- 43,339 -- --
(Loss) income from discontinued operations,
net of taxes (1) -- -- (1,697) 742 (14,921)
-------------------------------------------------------------
Net (loss) income $ (4,789) $ (3,576) $ 34,151 $(18,494) $(19,707)
=============================================================
Basic and diluted (loss) earnings per share:
Continuing operations $ (0.35) $ (0.26) $ (0.56) $ (1.45) $ (0.37)
Gain on sale of discontinued operations 0.02 -- 3.22 -- --
Discontinued operations (0.13) 0.05 (1.16)
-------------------------------------------------------------
$ (0.33) $ (0.26) $ 2.53 $ (1.40) $ (1.53)
=============================================================
Shares used in computing basic and diluted (loss)
earnings per share 14,570 13,899 13,478 13,252 12,844
Balance Sheet Data: (1)
Working capital $ 9,668 $ 44,170 $ 45,542 $ 11,409 $ 24,748
Total assets 21,653 58,634 63,613 30,525 49,795
Long-term debt, less current portion 23 49 468 1,477 3,609
Accumulated deficit (9,716) (4,927) (1,351) (35,502) (17,008)
Total stockholders' equity 11,955 46,617 49,017 13,429 31,617
(1) The Company sold Bendata in September 1998 (effective July 1, 1998) and
sold Abalon in December 1998. The results of Bendata and Abalon have been
treated as discontinued for all periods presented. See Note 3 of the Notes
to the Consolidated Financial Statements.
(2) Included in cost of software license fees in the first quarter of 1997 is a
write-off of $453,000 of capitalized software development costs related to
the Company's support automation product,
12
PowerHelp, and to older versions of certain service automation modules
which are no longer marketed by the Company. See Note 4 of the Notes to the
Consolidated Financial Statements.
(3) A one-time accrual for consulting fees of $304,000 is included in the
fourth quarter of 1999 general and administrative expense. See Note 16 of
the Notes to the Consolidated Financial Statements. As a result of the
restructuring during the first quarter of 1997, the Company recorded a
goodwill impairment charge of $2,058,000 which is included in general and
administrative expense. This charge related to the 1995 acquisition of
Astea BV. See Note 4 of the Notes to the Consolidated Financial Statements.
(4) Included in the second quarter of 2000 is a restructuring charge of
$1,101,000, which includes severance costs, an office closing, and other
actions aimed at reducing operating expenses. The fourth quarter of 1999
contains a restructuring charge of $1,630,000 due to reduced DISPATCH-1
development and billable service activity and includes severance payments,
the write-off of capitalized software for certain DISPATCH-1 modules which
will no longer be sold and reserves to settle DISPATCH-1 contractual
obligations. Included in the first quarter of 1997 is a restructuring
charge of $5,328,000 which includes severance costs, office closing costs
and other consolidation costs. In the second quarter of 1998, $800,000 was
reversed due to lower than expected costs. See Note 4 of the Notes to the
Consolidated Financial Statements.
13
Item 7. 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 in this Annual Report on
Form 10-K.
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's principal product offerings - ServiceAlliance and DISPATCH-1 - deliver
powerful functionality that enables organizations with a high degree of field
service and customer support requirements to improve customer satisfaction,
build customer loyalty, and decrease the cost of customer service by increasing
revenue opportunities while diminishing costs. Astea's software is used by
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 maintains offices in the United States, Australia, the Netherlands,
France, the United Kingdom, Japan and Israel.
The Company generates revenues from two sources: software license fees for
its software products, and services and maintenance revenues from professional
services, which includes consulting, implementation, training and maintenance
related to those products.
Software license fees accounted for 33% of the Company's total revenues in
2000. Sales of ServiceAlliance accounted for 17% of total revenues and sales of
DISPATCH-1 accounted for 16% of total revenues. Software license fee revenues
also include some fees from the sublicensing of third-party software, primarily
relational database licenses. Typically, customers pay a license fee for the
software based on the number of licensed users. Depending on the contract terms
and conditions, software license fees are recognized as revenue upon delivery of
the product if no significant vendor obligations remain and collection of the
resulting receivable is deemed probable. If significant vendor obligations exist
at delivery or if the product is subject to uncertain customer acceptance,
revenue is deferred until no significant obligations remain or acceptance has
occurred.
The remaining component of the Company's revenues consists principally of
fees derived from professional services associated with the implementation and
deployment of the Company's software products and maintenance fees for ongoing
customer support, primarily external customer technical support services and
product enhancements. Professional services (including training) are charged on
an hourly or daily basis and billed on a regular basis pursuant to customer work
orders. Training services may also be charged on a per-attendee basis with a
minimum daily charge. Out-of-pocket expenses incurred by company personnel
performing professional services are typically reimbursed by the customer. The
Company recognizes revenue from professional services as the services are
performed. Maintenance fees are typically paid to the Company under agreements
entered into at the time of the initial software license. Maintenance revenue,
which is invoiced annually upon the expiration of the warranty period, is
recognized ratably over the term of the agreement, which is usually twelve
months.
14
Results of Continuing Operations
The following table sets forth, for the periods indicated, selected
financial data and the percentages of the Company's total revenues represented
by each line item presented for the periods presented:
Years ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------------------------
Revenues:
Software license fees 33.0 % 34.2 % 20.1 %
Services and maintenance 67.0 65.8 79.9
-----------------------------------------
Total revenues 100.0 100.0 100.0
-----------------------------------------
Costs and expenses:
Cost of software license fees 6.0 % 6.8 % 6.8 %
Cost of services and maintenance 52.8 51.7 60.7
Product development 13.7 14.8 19.8
Sales and marketing 34.3 25.6 27.6
General and administrative 20.4 13.6 18.3
Restructuring charge 5.5 4.9 (2.8)
-----------------------------------------
Total costs and expenses 132.7 % 117.4 % 130.4 %
-----------------------------------------
Comparison of Years Ended December 31, 2000 and 1999
Revenues. Total revenues decreased $13,100,000, or 40%, to $19,935,000 for
the year ended December 31, 2000 from $33,035,000 for the year ended December
31, 1999. Software license revenues decreased by $4,758,000 or 42% in 2000,
compared to 1999. Services and maintenance fees for 2000 amounted to
$13,381,000, a 38% decrease from 1999.
Software license fee revenues decreased $4,758,000 or 42% to $6,554,000 in
2000 from $11,312,000 in 1999. ServiceAlliance license fee revenues decreased to
$3,414,000 in 2000 from $4,174,000 in 1999, a decrease of 18% due to a
re-engineering of the Company's sales model to focus on mid to upper market size
customers, which is consistent with the install base of the Company's legacy
product, DISPATCH-1. The Company's PowerHelp product is no longer owned by
Astea.. In 1999, it had license revenues of $1,232,000, including $1,100,000 of
revenue from the sale of all of the Company's rights to PowerHelp to a
distributor in December 1999. License fee revenues for DISPATCH-1 decreased
$2,766,000 or 47% from $5,906,000 in 1999 to $3,140,000 in 2000 primarily as a
result of the sale in 1999 of DISPATCH-1 source code revenue amounting to
$3,386,000.
Total services and maintenance revenues decreased $8,342,000 or 38% to
$13,381,000 in 2000 from $21,723,000 in 1999. The decrease in service and
maintenance revenues is attributable to a decrease in DISPATCH-1 revenues
partially offset by an increase in ServiceAlliance revenues. ServiceAlliance
service and maintenance revenues increased to $4,991,000 in 2000 from $3,857,000
in 1999 due to the growing ServiceAlliance customer base. DISPATCH-1 service and
maintenance revenues decreased 53% or $9,434,000 to $8,390,000 in 2000 from
$17,824,000 in 1999 due to an ongoing decrease in the number of customers under
service and maintenance contracts and the completion of two significant
long-term projects. As a result of the DISPATCH-1 source code sales and
decreasing demand for DISPATCH-1, the decrease in service and maintenance
revenue is expected to continue in 2001.
In 2000, the Company had no significant customers that accounted for 10% or
more of its revenues. In 1999, two DISPATCH-1 customers accounted for 18% and
15% of total revenues. The Company did not generate significant revenue from
these two customers in 2000, because they purchased source code in 1999.
15
Costs of Revenues. Costs of software license fee revenues decreased 46%, or
$1,041,000, to $1,199,000 in 2000 from $2,240,000 in 1999. Included in the cost
of software license fees is the fixed cost of capitalized software amortization.
Capitalized software amortization was $800,000 and $1,508,000 in 2000 and 1999,
respectively. The decrease in cost of software license fees was due to decreased
capitalized software amortization costs and a decrease in direct costs due to
lower revenues. The software licenses gross margin percentage was 82% in 2000
compared to 80% in 1999. The increase in gross margin was principally
attributable to decreased amortization of capitalized software.
The costs of services and maintenance revenues decreased 38%, or
$6,517,000, to $10,546,000 in 2000 from $17,063,000 in 1999. The service and
maintenance gross margin percentage remained consistent at 21% in 2000 and 1999.
Product Development. Product development expenses decreased 44%, or
$2,156,000, to $2,744,000 in 2000 from $4,900,000 in 1999. Product development
as a percentage of total revenue decreased to 14% in 2000 compared to 15% in
1999. The Company's total product development costs, including capitalized
software development costs were $3,384,000 or 17% of revenues in 2000 compared
to $5,700,000, which was also 17% of revenues in 1999, a decrease of $2,316,000
or 41%. The decrease in product development expenses is primarily attributable
to reduced third party consultant costs and the elimination of development costs
in 2000 related to DISPATCH-1. The Company has focused its development effort
exclusively on the upgrade of ServiceAlliance.
Sales and Marketing. Sales and marketing expenses decreased 19%, or
$1,606,000, to $6,857,000 in 2000 from $8,463,000 in 1999. The decrease resulted
from the Company's cost restructuring effort. However, the Company is making a
concentrated effort to increase market share and expand its presence through
both direct and indirect channels. Sales and marketing expense as a percentage
of total revenues increased to 34% in 2000 from 26% in 1999.
General and Administrative. General and administrative expenses decreased
9%, or $412,000, to $4,066,000 in 2000 from $4,478,000 in 1999. As a percentage
of total revenues, general and administrative expenses increased to 20% in 2000
compared to 14% in 1999. This increase primarily relates to increases in the
allowance for uncollectible accounts and professional fees. Included in 1999
general and administrative expenses, is a one-time accrual of $304,000 for
consulting fees. Without this one-time charge general and administrative
expenses would have been $4,174,000.
Restructuring Charge. During the second quarter of 2000, the Company
recorded a restructuring charge of $1,101,000 in connection with the closing of
one of its offices, relocation of other offices to smaller facilities,
termination fees related to operating leases and severance costs related to
downsizing the Company's employment roles. During the fourth quarter of 1999,
the Company also recorded a restructuring charge of $1,630,000 in connection
with the wind-down of DISPATCH-1 development and billable service activity. The
1999 restructuring charge includes severance of $677,000, write-off of
DISPATCH-1 capitalized software that is no longer viable for $457,000 and other
consolidation costs of $496,000. (See Note 4 of the Notes to Consolidated
Financial Statements).
Net Interest Income. Net interest income decreased $667,000, to $1,496,000
in 2000 from $2,163,000 in 1999. This decrease was primarily attributable to the
reduction in cash balances resulting from the special dividend of $2.05 per
share, totaling $30,376,000, paid June 30, 2000 to shareholders of record as of
June 15, 2000.
International Operations. Total revenue from the Company's international
operations declined by $644,000, or 7% to $8,163 ,000 in 2000 from $8,807,000 in
1999. The decrease in revenue from international operations was primarily
attributable to the reductions in service revenues from DISPATCH-1 due to
decreasing demand offset by an increase in revenue from the sale of DISPATCH-1
source code and
16
sales of ServiceAlliance licenses and services. International operations
resulted in a $819,000 loss for 2000 compared to a loss of $645,000 in 1999.
Comparison of Years Ended December 31, 1999 and 1998
Revenues. Total revenues increased $4,094,000, or 14%, to $33,035,000 for
the year ended December 31, 1999 from $28,941,000 for the year ended December
31, 1998. Software license revenues in 1999 increased $5,490,000, or 94%, over
1998. Services and maintenance fees for 1999 amounted to $21,723,000, a 6%
decrease from 1998.
Software license fee revenues increased $5,490,000 or 94% to $11,312,000 in
1999 from $5,822,000 in 1998. ServiceAlliance license fee revenues increased to
$4,174,000 in 1999 from $2,207,000 in 1998, an increase of 89% due to the
improving market penetration of our ServiceAlliance product line. PowerHelp,
which is no longer owned by Astea, had license revenues of $1,232,000, including
$1,100,000 of revenue from the sale of all of the Company's rights to PowerHelp
to a distributor in December 1999, compared to $133,000 in 1998. The Company
will receive no additional PowerHelp revenues in the future. License fee
revenues for DISPATCH-1 increased $2,424,000 or 70% from $3,482,000 in 1998 to
$5,906,000 in 1999 primarily as a result of the sale of DISPATCH-1 source code
revenue amounting to $3,386,000.
Total services and maintenance revenues decreased $1,396,000 or 6% to
$21,723,000 in 1999 from $23,119,000 in 1998. The decrease in service and
maintenance revenues is attributable to a decrease in DISPATCH-1 and PowerHelp
revenues partially offset by an increase in ServiceAlliance revenues.
ServiceAlliance service and maintenance revenues increased to $3,857,000 in 1999
from $1,154,000 in 1998 due to the growing ServiceAlliance customer base.
DISPATCH-1 service and maintenance revenues decreased 18% or $3,862,000 to
$17,824,000 in 1999 from $21,686,000 in 1998 due to an ongoing decrease in the
number of customers under service and maintenance contracts. As a result of the
DISPATCH-1 source code sales and decreasing demand for DISPATCH-1, the decrease
in service and maintenance revenue is expected to continue in 2000. PowerHelp
service and maintenance revenues were $42,000 in 1999 compared to $279,000 in
1998.
In 1999, the Company had two DISPATCH-1 customers that accounted for 18%
and 15% of revenues, respectively. In 1998, the same two DISPATCH-1 customers
accounted for 16% and 11% of total revenues, respectively. The Company does not
expect to receive significant revenue from these two customers in the future
because they purchased source code in 1999.
Costs of Revenues. Costs of software license fee revenues increased 14%, or
$283,000, to $2,240,000 in 1999 from $1,957,000 in 1998. Included in the cost of
software license fees is the fixed cost of capitalized software amortization.
Capitalized software amortization was $1,508,000 and $1,108,000 in 1999 and
1998, respectively. The increase in cost of third-party license software license
fees was due to increased capital software amortization costs offset by a
decrease in direct costs. The software licenses gross margin percentage was 80%
in 1999 compared to 66% in 1998. The increase in gross margin was attributable
to increased license fee revenues.
The costs of services and maintenance revenues decreased 3%, or $520,000,
to $17,063,000 in 1999 from $17,583,000 in 1998. The service and maintenance
gross margin percentage decreased to 21% in 1999 from 24% in 1998. The lower
margin was attributable to the decrease in utilization of service professionals.
Product Development. Product development expenses decreased 14%, or
$818,000, to $4,900,000 in 1999 from $5,718,000 in 1998. Product development as
a percentage of total revenue decreased to 15% in 1999 compared to 20% in 1998.
The Company's total product development costs, including capitalized software
development costs were $5,700,000 or 17% of revenues in 1999 compared to
$6,951,000 or 24% of revenues in 1998, a decrease of $1,251,000 or 18%. The
decrease in product development expenses is primarily attributable to reduced
third party consultant costs and no development costs in 1999 related to the
17
Company's development project Greenshark. During the second quarter of 1998, the
Company completed the specifications of its Greenshark development tool project.
At that time, the Company determined that due to the scope of this project,
third party development tools would be used in the Company's future development
activities and incurred no further Greenshark development expenditures. The
capitalized portions of total product development costs were $800,000 and
$1,233,000 in 1999 and 1998, respectively.
Sales and Marketing. Sales and marketing expenses increased 6%, or
$487,000, to $8,463,000 in 1999 from $7,976,000 in 1998. The increase resulted
from the Company's continuing effort to increase market share, expand its
presence through both direct and indirect channels and increased commission
expense due to increased license revenues. Sales and marketing expense as a
percentage of total revenues decreased 26% in 1999 from 28% in 1998.
General and Administrative. General and administrative expenses decreased
15%, or $819,000, to $4,478,000 in 1999 from $5,297,000 in 1998. As a percentage
of total revenues, general and administrative expenses decreased to 14% in 1999
compared to 18% in 1998. This decrease primarily relates to the Company's
ongoing cost containment efforts. Included in 1999 general and administrative
expenses, is a one-time accrual of $304,000 for consulting fees. Without this
one-time charge general and administrative expenses would have decreased
$1,123,000 or 21%.
Restructuring Charge. During the second quarter of 1998, the Company, based
upon then current facts, evaluated its 1997 restructuring accrual and determined
that $800,000 was not needed and, accordingly, the accrual was adjusted. This
excess related to lower than expected office-closing costs. During the fourth
quarter of 1999, the Company recorded a second restructuring charge of
$1,630,000 in connection with the wind-down of DISPATCH-1 development and
billable service activity. The 1999 restructuring charge includes severance of
$677,000, write-off of DISPATCH-1 capitalized software that is no longer viable
for $457,000 and other consolidation costs of $496,000.
Net Interest Income. Net interest income increased $1,667,000, to
$2,163,000 in 1999 from $496,000 in 1998. This increase was primarily
attributable to the higher cash balances due to the proceeds from the sales of
Bendata in September 1998 and Abalon in December 1998.
International Operations. Total revenue from the Company's international
operations declined by $510,000, or 5% to $8,807,000 in 1999 from $9,317,000 in
1998. The decrease in revenue from international operations was primarily
attributable to the reductions in license and service revenues from DISPATCH-1
due to decreasing demand offset by an increase in revenue from the
ServiceAlliance product. International operations resulted in a $645,000 loss
for 1999 compared to a loss of $934,000 in 1998.
18
Liquidity and Capital Resources
Net cash used in operating activities was $4,387,000 for the year ended
December 31, 2000 compared to $686,000 for the year ended December 31, 1999.
This increased use of cash was primarily attributable to an increased net loss,
lower amortization of capitalized software, increased prepaid expenses, and an
increase in payments of accounts payable, accrued expenses and accrued
restructuring, offset by a decrease in accounts receivable.
The Company generated $33,017,000 of cash from investing activities in 2000
compared to using $7,340,000 in 1999. The increase was attributable to the sale
of investments available for sale in 2000 compared to purchases of investments
available for sale in 1999, partially reduced by proceeds in 1999 from the sale
of discontinued operations.
The Company used $29,650,000 in financing activities for the year ended
December 31, 2000 compared to using $141,000 for the year ended December 31,
1999. The increase in cash used was principally attributable to the payment of a
special dividend of $2.05 per share, or $30,376,000, which was paid on June 30,
2000 to shareholders of record at June 15, 2000.
At December 31, 2000, the Company had a working capital ratio of
approximately 2.03:1, with cash and investments available for sale of
$8,714,000. 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. On June 30, 2000, the Company paid a dividend of $2.05 per share to
shareholders of record as of June 15, 2000. The Company does not anticipate that
its operations or financial condition will be affected materially by inflation.
Discontinued Operations
During 1998, the Company divested its Bendata and Abalon subsidiaries. The
closing of the Bendata sale was effective as of July 1, 1998, and the closing of
the Abalon sale was effective December 31, 1998. Through Bendata, the Company
had offered the HEAT family of software applications for the internal help desk
automation market. (HEAT is a trademark of Bendata, Inc.) Through Abalon, the
Company had offered the Abalon suite of sales and marketing applications built
around a central customer database. The Company's management concluded that
these past acquisitions did not contribute synergistically to a strong market
focus. Additionally, Astea could not provide adequate investment across multiple
products and markets to establish or maintain strong market positions, while
supporting the aggressive investment necessary to maintain or improve its core
market position. To better ensure long-term success, the Company elected to
maintain a clear and distinct market focus on field service and support, which
leverages its inherent industry expertise and knowledge. The Bendata and Abalon
operations have been treated as discontinued operations for financial reporting
purposes. Accordingly, the operating results and assets and liabilities of these
businesses have been reflected separately from continuing operations. During
1998, the Company recorded a gain on the sale of Bendata of $34,267,000, net of
taxes of $4,138,000, and a gain on the sale of Abalon of $9,072,000, including a
tax benefit of $1,201,000. See Note 3 of the Notes to the Consolidated Financial
Statements.
For the year ended December 31, 1998, the discontinued operations generated
revenues of $18,095,000. The discontinued operations generated a net loss of
$1,697,000 in 1998.
19
Certain Factors That May Affect Future Results
The Company does not provide forecasts of its future financial performance.
From time to time, however, information provided by the Company or statements
made by its employees may contain "forward looking" information that involves
risks and uncertainties. In particular, statements contained in this Annual
Report on Form 10-K that are not historical fact may constitute forward looking
statements and are made under the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. The Company's actual results of
operations and financial condition have varied and may in the future vary
significantly from those stated in any forward looking statements. Factors that
may cause such differences include, but are not limited to, the risks,
uncertainties and other information discussed within this Annual Report on Form
10-K, as well as the accuracy of the Company's internal estimates of revenue and
operating expense levels.
The following discussion of the Company's risk factors should be read in
conjunction with the financial statements and related notes thereto set forth
elsewhere in this report. The following factors, among others, could cause
actual results to differ materially from those set forth in forward looking
statements contained or incorporated by reference in this report and presented
by management from time to time. Such factors, among others, may have a material
adverse effect upon the Company's business, results of operations and financial
conditions:
Uncertain Market Acceptance of ServiceAlliance; Decreased Revenues from
DISPATCH-1. In each of 2000, 1999, and 1998, more than 58%, 72%, and 86%,
respectively, of the Company's total revenues was derived from the licensing of
DISPATCH-1 and the provision of professional services in connection with the
implementation, deployment and maintenance of DISPATCH-1 installations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company originally introduced ServiceAlliance in August 1997 in
order to target a market segment in which DISPATCH-1 was not cost-effective or
attractive. Subsequent, rapid changes in technology have now positioned
ServiceAlliance to supercede DISPATCH-1 as the company's flagship brand. As a
result, the probability that DISPATCH-1 will be sold to new customers is small.
Sales to existing customers comprised 100% of DISPATCH-1 license revenue in
2000. DISPATCH-1 revenues have declined in each of the last three fiscal years
and that trend is expected to continue and accelerate.
While the Company has licensed ServiceAlliance to over 145 companies
worldwide in 1998 through 2000, revenues from sales of ServiceAlliance alone are
not yet sufficient to support the expenses of the Company. The Company's future
success will depend mainly on its ability to increase licenses of
ServiceAlliance and other offerings, on developing new products and product
enhancements to complement its existing field service and customer support
offerings, on its ability to continue support and maintenance revenues from
DISPATCH-1, and on its ability to reduce its operating expenses. Any failure of
the Company's products to achieve or sustain market acceptance, or of the
Company to sustain its current position in the field service software market,
would have a material adverse effect on the Company's business and results of
operations. There can be no assurance that the Company will be able to increase
demand for ServiceAlliance, obtain an acceptable level of support and
maintenance revenues from DISPATCH-1, or to lower its expenses, thereby avoiding
future losses.
Need for Development of New Products. The Company's future success will
depend upon its ability to enhance its current products and develop and
introduce new products, including its planned eCRM products, on a timely basis
that keep pace with technological developments, industry standards and the
increasingly sophisticated needs of its customers, including developments within
the client/server and object-oriented computing environments. Such developments
may require, from time to time, substantial capital investments by the Company
in product development and testing. The Company intends to continue its
commitment to research and development and its efforts to develop new products
and product enhancements. There can be no assurance that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction and marketing of new products and product enhancements; that new
20
products and product enhancements will meet the requirements of the marketplace
and achieve market acceptance; or that the Company's current or future products
will conform to industry requirements. Furthermore, reallocation of resources by
the Company, such as the diversion of research and development personnel to
development of a particular feature for a potential or existing customer, can
delay new products and certain product enhancements. If the Company is unable to
develop and introduce new products or enhancements of existing products in a
timely manner in response to changing market conditions or customer
requirements, the Company's business, operating results and financial condition
will be materially adversely effected.
Competition in the Customer Relationship Management Software Market Is
Intense. The CRM software market is intensely competitive. The Company's
competitors include large public companies primarily providing CRM solutions
such as Oracle, PeopleSoft and Siebel, as well as traditional enterprise
resource planning software providers such as SAP, that are developing field
service and customer support capabilities. In addition, a number of smaller,
privately-held companies generally focus only on discrete areas of the CRM
software marketplace. Because the barriers to entry in the CRM software market
are relatively low, new competitors may emerge with products that are superior
to the Company's products or that achieve greater market acceptance. Some of the
Company's existing and potential competitors have greater financial, technical,
marketing and distribution resources than the Company has. Moreover, the CRM
industry is currently experiencing significant consolidation, as larger public
companies seek to enter the CRM market through acquisitions. The Company expects
that competition will increase as a result of software industry consolidations.
As a result, some of the Company's competitors may be able to respond more
quickly to new or emerging technologies and changes in customer requirements, or
to devote greater resources to the development and distribution of their
products. Increased competition is likely to result in price reductions, reduced
gross margins and loss of market share. There can be no assurance that the
Company will be able to compete successfully against current and future
competitors or that competitive pressures faced by the Company will not
adversely affect its business and results of operations.
Continued Dependence on Large Contracts May Result in Lengthy Sales and
Implementation Cycles. The sale and implementation of the Company's products
generally involve a significant commitment of resources by prospective
customers. While ServiceAlliance requires a less substantial commitment than
does DISPATCH-1, the purchase and implementation of ServiceAlliance still
requires a substantial commitment. As a result, the Company's sales process
often is subject to delays associated with lengthy approval processes attendant
to significant capital expenditures, definition of special customer
implementation requirements, and extensive contract negotiations with the
customer. The sales cycle varies substantially from customer to customer and
typically lasts between four and nine months. During this time the Company may
devote significant time and resources to a prospective customer, including costs
associated with multiple site visits, product demonstrations and feasibility
studies. The Company may experience a number of significant delays over which
the Company has no control. Because the costs associated with the sale of the
product are fixed in current periods, timing differences between incurring costs
and recognition of revenue associated with a particular project may result.
Moreover, in the event of any downturn in any existing or potential customer's
business or the economy in general, purchases of the Company's products may be
deferred or canceled.
In addition, following the initial sale, the implementation of our products
typically involves several months of customer training and integration of the
product with the customer's other existing systems. A successful implementation
requires a close working relationship between the customer and members of the
Company's professional service organization. Occasionally, delays result from a
customer's lack of attention to the implementation project for reasons unrelated
to the Company's performance. When the Company has provided consulting services
to implement certain larger projects, some customers have in the past delayed
payment of a portion of license fees until implementation was complete and in
some cases have disputed the consulting fees charged for implementation. There
can be no assurance the Company will not experience additional delays or
disputes regarding payment in the future, particularly if the Company receives
orders for large, complex installations. Some of the Company's customers have
adopted the Company's software on an
21
incremental basis. There can be no assurance that the Company's customers will
expand usage of the Company's software on an enterprise-wide basis or implement
new software products introduced by the Company. The failure of the Company's
software to perform according to customer expectations or otherwise to be
deployed on an enterprise-wide basis could have a material adverse effect on the
ability of the Company to collect revenues or to increase revenues from new as
well as existing customers. The Company believes that period-to-period
comparisons of its results of operations should not be relied upon as any
indication of future performance.
Reduced Product Offerings after Sales of Bendata and Abalon. During 1998,
the Company divested its Bendata and Abalon subsidiaries. Through Bendata, the
Company had offered the HEAT family of software applications for the help desk
automation market. Through Abalon, the Company had offered the Abalon suite of
sales and marketing applications built around a central customer database.
Through these strategic dispositions, the Company has refocused its efforts and
resources on the field service and customer support segment of the CRM software
market, which is the Company's core competency. While the Company's current
products offer help desk and sales automation functionality, the Company
currently does not offer stand-alone products in the help desk and sales and
marketing automation segments of the CRM software market. As a result, the
Company's product lines are now less diversified than when the Abalon and HEAT
products were offered. This could impede the Company's ability to compete
against other companies in the CRM software market that offer a wider range of
products and further increases the Company's reliance on DISPATCH-1 and
ServiceAlliance. Any failure of the Company's remaining products to achieve or
sustain market acceptance would have a material adverse effect on the Company's
business and results of operations.
Fluctuations in Quarterly Operating Results May Be Significant. The
Company's quarterly operating results have in the past varied significantly and
are likely to vary significantly in the future, depending on factors such as the
size and timing of revenue from significant orders, the recognition of revenue
from such orders, the timing of new product releases and market acceptance of
these new releases, the level of product and price competition, and the
seasonality of its business. As a result of the application of the revenue
recognition rules applicable to the Company's licenses under generally accepted
accounting principles, the Company's license revenues may be recognized in
periods after those in which the respective licenses were signed. In addition,
the Company's quarterly operating results are dependent on factors such as
budgeting cycles of its customers, customer order deferrals in anticipation of
enhancements or new products, the impact of acquisitions of competitors, the
cancellation of licenses or maintenance agreements, product life cycles,
software bugs and other product quality problems, personnel changes, changes in
Company strategy, investments to develop sales distribution channels, changes in
the level of operating expenses and general domestic and international economic
and political conditions, among others.
The Company has generally had stronger demand for its products during the
quarters ending in June and December and weaker demand in the quarter ending in
March. The Company anticipates that it may also experience relatively weaker
demand in the quarter ending in September. Moreover, the Company has generally
recorded most of its total quarterly license revenues in the third month of the
quarter, with a concentration of these revenues in the last half of that third
month. This concentration of license revenues is influenced by customer
tendencies to make significant capital expenditures at the end of a fiscal
quarter. The Company expects these revenue patterns to continue for the
foreseeable future. Thus, the Company's results of operations may vary
seasonally in accordance with licensing activity or otherwise, and will also
depend upon its recognition of revenue from such licenses from time to time.
There can be no assurance that the Company will be profitable or avoid losses in
any future period, and the Company believes that period-to-period comparisons of
its results of operations are not necessarily meaningful and should not be
relied upon as any indication of future performance.
Rapid Technological Change. The CRM software market is subject to rapid
technological change, frequent new product introductions and evolving
technologies and industry standards that can quickly render existing products
and services obsolete. While the Company is not aware of any emerging products
that are
22
likely to render its existing products obsolete, there can be no assurance that
the Company's products could not suffer such obsolescence. Because of the rapid
pace of technological change in the application software industry, the Company's
current market position in field service and customer support automation or
other markets that it may enter could be eroded rapidly by product advancements.
The Company's application environment relies primarily on software development
tools from Progress Software Corporation, in the case of DISPATCH-1, and
Microsoft Corporation and PowerSoft Corporation, a subsidiary of Sybase, Inc.,
in the case of ServiceAlliance. If alternative software development tools were
to be designed and generally accepted by the marketplace, the Company could be
at a competitive disadvantage relative to companies employing such alternative
developmental tools, possibly resulting in material harm to the Company's
financial condition and results of operation.
Need to Expand Indirect Sales. The Company has historically sold its
products through its direct sales force and a limited number of distributors.
The Company's ability to achieve significant revenue growth in the future will
depend in large part on its success in establishing relationships with
distributors, resellers and systems integrators. The Company is currently
investing, and plans to continue to invest, significant resources to expand its
domestic and international direct sales force and develop distribution
relationships with certain third party distributors, resellers and systems
integrators. The Company's distributors also sell or can potentially sell
products offered by the Company's competitors. There can be no assurance that
the Company will be able to retain or attract a sufficient number of its
existing or future third party distribution partners or that such partners will
recommend, or continue to recommend, the Company's products. The inability to
establish or maintain successful relationships with distributors, resellers or
systems integrators could have a material adverse effect on the Company's
business, operating results or financial condition. Any failure by the Company
to maintain and train its direct sales force and expand other distribution
channels would materially adversely affect the Company's business, operating
results and financial condition.
Risks Associated with International Sales. Astea's international sales
accounted for 41% of the Company's revenues in 2000, 27% in 1999, and 32% in
1998. The Company expects that international sales will continue to be a
significant component of its business. International sales are subject to a
variety of significant risks, including difficulties in establishing and
managing international distribution channels and in translating products into
foreign languages. International operations also may encounter difficulties in
collecting accounts receivable, staffing and managing personnel and enforcing
intellectual property rights. Other factors that can also adversely affect
international operations include fluctuations in the value of foreign currencies
and currency exchange rates, changes in import/export duties and quotas,
introduction of tariff or non-tariff barriers, potentially adverse tax
consequences, possible recessionary environments in economies outside the United
States, changes in the market for business software as a result of currency
unification in Europe, and economic or political changes in international
markets. The current economic difficulties in several Asian countries could have
an adverse impact on the Company's international operations in future periods.
In addition, the Company's international revenues may also be affected to a
great extent by seasonal fluctuations resulting from lower sales that typically
occur during the summer months in Europe and other parts of the world.
Dependence on Key Personnel; Competition for Employees. The future success
of the Company will depend in large part on its ability to attract and retain
talented and qualified employees, including skilled management personnel. The
Company's future success also depends on its continuing ability to attract and
retain highly qualified technical, sales and managerial personnel. Competition
for key personnel is intense, particularly so in recent years. From time to time
the Company has experienced difficulty in recruiting and retaining talented and
qualified employees. There can be no assurance that the Company can retain its
key technical, sales and managerial employees or that it can attract, assimilate
or retain other highly qualified technical, sales and managerial personnel in
the future. The inability of the Company to hire talented personnel or the loss
of key employees could have a material adverse effect on the Company's business
and results of operations.
23
Concentration of Ownership. Zack B. Bergreen, the Company's Chief Executive
Officer and Chairman of the Board, as of March 20, 2001, beneficially owned
approximately 48% of the outstanding Common Stock of the Company. As a result,
Mr. Bergreen exercises significant control over the Company through his ability
to influence and control the election of directors and all other matters that
require action by the Company's stockholders. Under certain circumstances, Mr.
Bergreen could prevent or delay a change of control of the Company which may be
favored by a significant portion of the Company's other stockholders, or cause a
change of control not favored by the majority of the Company's other
stockholders. Mr. Bergreen's ability under certain circumstances to influence,
cause or delay a change in control of the Company also may have an adverse
effect on the market price of the Company's Common Stock.
Risks of Dependence on Proprietary Technology. The Company's success is
heavily dependent upon proprietary technology. The Company's products are
licensed to customers under signed license agreements containing, among other
terms, provisions protecting against the unauthorized use, copying and transfer
of the licensed program. In addition, the Company relies on a combination of
trade secret, copyright and trademark laws and non-disclosure agreements to
protect its proprietary rights in its products and technology. Policing
unauthorized use of the Company's software is difficult and, while the Company
is unable to determine the extent to which piracy of its software products
exists, software piracy can be expected to be a persistent problem. In addition,
the laws of some foreign countries do not protect the Company's proprietary
rights to the same extent, as do the laws of the United States. There can be no
assurance that measures taken by the Company will be adequate to protect the
Company's proprietary technology or that the Company's competitors will not
independently develop technologies that are substantially equivalent or superior
to the Company's technologies. Moreover, although the Company believes that its
products and technologies do not infringe on any existing proprietary rights of
others, and although there are no pending lawsuits against the Company regarding
infringement of any existing patents or other intellectual property rights or
any notices that the Company is infringing the intellectual property rights of
others, there can be no assurance that such infringement claims will not be
asserted by third parties in the future. Any such situations can have a material
adverse effect on the Company's business and results of operations.
Risk of Product Defects; Failure to Meet Performance Criteria. The
Company's field service and customer support software is intended for use in
enterprise-wide applications that may be critical to a customer's business. As a
result, the Company's customers and potential customers typically have demanding
requirements for installation and deployment. Software products as complex as
those offered by the Company may contain errors or failures, particularly when
software must be customized for a particular licensee, when new products are
first introduced or when new versions are released. Although the Company
conducts extensive product testing during product development, the Company has
at times delayed commercial release of software until problems were corrected
and, in some cases, has provided enhancements to correct errors in released
software. The Company could, in the future, lose revenues as a result of
software errors or defects. There can be no assurance that, despite testing by
the Company and by current and potential customers, errors will not be found in
software, customizations or releases after commencement of commercial shipments,
resulting in loss or delay of revenue or delay in market acceptance, diversion
of development resources or increased service and warranty costs, any of which
could have a material adverse effect upon the Company's business, operating
results and financial condition.
Burdens of Customization. Certain of the Company's clients request
customization of DISPATCH-1 or ServiceAlliance products to address unique
characteristics of their businesses or computing environments. The Company's
commitment to customization could place a burden on the Company's client support
resources or delay the delivery or installation of products which, in turn,
could materially adversely affect the Company's relationship with significant
clients or otherwise adversely affect its business and results of operations. In
addition, the Company could incur penalties or reductions in revenues for
failures to develop or timely deliver new products or product enhancements under
development agreements and other arrangements with customers.
24
Possible Volatility of Stock Price. The market price of the Common Stock
has in the past been, and may continue to 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. In addition, the stock market can experience extreme
price and volume fluctuations from time to time which may bear no meaningful
relationship to the Company's performance.
Item 7A. Quantitative and Qualitative Disclosures 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 funds by limiting default risk, market risk and reinvestment risk. As
of December 31, 2000, the Company's investments consisted of U.S. government
agency securities, commercial paper and corporate and municipal 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.
25
Item 8. Financial Statements and Supplementary Data.
Report of Independent Public Accountants
To Astea International Inc.:
We have audited the accompanying consolidated balance sheets of Astea
International Inc. (a Delaware corporation) and subsidiaries as of December 31,
2000 and 1999, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Astea
International Inc. and subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.
\s\ Arthur Andersen LLP
Arthur Andersen LLP
Philadelphia, PA
March 10, 2001
26
ASTEA INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2000 1999
------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 5,208,000 $ 6,158,000
Investments available for sale 3,506,000 37,907,000
Receivables, net of reserves of $1,600,000 and
$1,047,000 7,885,000 9,287,000
Prepaid expenses and other 1,778,000 1,632,000
Deferred income taxes 668,000 856,000
------------------ -------------------
Total current assets 19,045,000 55,840,000
Property and equipment, net 996,000 1,022,000
Capitalized software development costs, net 1,612,000 1,772,000
------------------ -------------------
Total assets $ 21,653,000 $ 58,634,000
================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 138,000 $ 410,000
Accounts payable and accrued expenses 4,731,000 7,707,000
Deferred revenues 4,508,000 3,553,000
------------------ -------------------
Total current liabilities 9,377,000 11,670,000
Deferred income taxes 298,000 298,000
Long-term debt 23,000 49,000
Commitments and Contingencies (Note 12)
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued - -
Common stock, $.01 par value, 25,000,000 shares
authorized, 14,821,000 and 14,136,000 shares issued 148,000 141,000
Less: treasury stock at cost, 3,900 shares (3,000) -
Additional paid-in capital 22,671,000 52,242,000
Cumulative translation adjustment (1,145,000) (839,000)
Accumulated deficit (9,716,000) (4,927,000)
------------------ -------------------
Total stockholders' equity 11,955,000 46,617,000
------------------ -------------------
Total liabilities and stockholders' equity $ 21,653,000 $ 58,634,000
================== ===================
The accompanying notes are an integral part of these statements.
27
ASTEA INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------
Revenues:
Software license fees $ 6,554,000 $ 11,312,000 $ 5,822,000
Services and maintenance 13,381,000 21,723,000 23,119,000
-----------------------------------------------------
Total revenues 19,935,000 33,035,000 28,941,000
-----------------------------------------------------
Costs and expenses:
Cost of software license fees 1,199,000 2,240,000 1,957,000
Cost of services and maintenance 10,546,000 17,063,000 17,583,000
Product development 2,744,000 4,900,000 5,718,000
Sales and marketing 6,857,000 8,463,000 7,976,000
General and administrative 4,066,000 4,478,000 5,297,000
Restructuring charges 1,101,000 1,630,000 (800,000)
-----------------------------------------------------
Total costs and expenses 26,513,000 38,774,000 37,731,000
-----------------------------------------------------
Loss from continuing operations before interest and taxes (6,578,000) (5,739,000) (8,790,000)
Interest income 1,512,000 2,215,000 688,000
Interest expense (16,000) (52,000) (192,000)
-----------------------------------------------------
Loss from continuing operations before income taxes (5,082,000) (3,576,000) (8,294,000)
Income tax benefit - - 803,000
-----------------------------------------------------
Loss from continuing operations (5,082,000) (3,576,000) (7,491,000)
Gain on sale of discontinued operations, net of taxes 293,000 - 43,339,000
Loss from discontinued operations, net of taxes - - (1,697,000)
-----------------------------------------------------
Net (loss) income $ (4,789,000) $ (3,576,000) $34,151,000
=====================================================
Basic and diluted net (loss) income per share:
Continuing operations $ (0.35) $ (0.26) $ (0.56)
Gain on sale of discontinued operations .02 - 3.22
Discontinued operations - - (0.13)
-----------------------------------------------------
Net (loss) income $ (0.33) $ (0.26) $ 2.53
=====================================================
Shares used in computing basic and diluted net (loss)
income per share 14,570,000 13,899,000 13,478,000
=====================================================
The accompanying notes are an integral part of these statements.
28
ASTEA INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Cumulative
Common Paid-in Deferred Translation
Stock Capital Compensation Adjustment
----- ------- ------------ ----------
Balance, January 1, 1998 $ 134,000 $ 49,585,000 $ (43,000) $ (745,000)
Exercise of stock options 1,000 93,000 -- --
Tax benefit from exercise of
stock options -- 1,335,000 -- --
Amortization of deferred
compensation -- -- 52,000 --
Grant of stock options below
fair market value -- 38,000 (38,000) --
Issuance of common stock under
employee stock purchase plan -- 41,000 -- --
Stock issued to Board of
Directors in lieu of cash payments -- 6,000 -- --
Currency translation adjustment -- -- -- (91,000)
Net income -- -- -- --
-----------------------------------------------------
Balance, December 31, 1998 135,000 51,098,000 (29,000) (836,000)
Exercise of stock options 6,000 1,132,000 -- --
Adjustment of tax benefit from
exercise of stock options -- (411,000) -- --
Amortization of deferred
Compensation -- -- 21,000 --
Cancellation of options
granted -- (69,000) 69,000 --
Grant of stock options below
Fair market value -- 61,000 (61,000) --
Compensation charged in
Connection with variable stock
Options -- 387,000 -- --
Issuance of common stock under
employee stock purchase plan -- 28,000 -- --
Stock issued to Board of Directors
in lieu of cash payments -- 16,000 -- --
Currency translation adjustment -- -- -- (3,000)
Net loss -- -- -- --
-----------------------------------------------------
Balance, December 31, 1999 141,000 52,242,000 -- (839,000)
Exercise of stock options 6,000 998,000 -- --
Issuance of common stock under
Employee stock purchase plan 1,000 22,000 -- --
Stock issued to Board of Directors
in lieu of cash payment -- 9,000 -- --
Variable stock option benefit -- (224,000) -- --
Cash dividend to stockholders -- (30,376,000) -- --
Currency translation adjustment -- -- -- (306,000)
Purchases of treasury stock -- -- -- --
Net loss -- -- -- --
-----------------------------------------------------
Balance, December 31, 2000 $ 148,000 $22,671,000 $ -- $ (1,145,000)
=====================================================
Accu- Total
mulated Treasury Stockholders Comprehensive
Deficit Stock Equity Income (Loss)
------- ----- ------ -------------
Balance, January 1, 1998 $(35,502,000) $ -- $ 13,429,000
Exercise of stock options -- -- 94,000
Tax benefit from exercise of
stock options -- -- 1,335,000
Amortization of deferred
compensation -- -- 52,000
Grant of stock options below
fair market value -- -- --
Issuance of common stock under
employee stock purchase plan -- -- 41,000
Stock issued to Board of
Directors in lieu of cash payments -- -- 6,000
Currency translation adjustment -- -- (91,000) $ (91,000)
Net income 34,151,000 -- 34,151,000 34,151,000
---------------------------------------------------------
Balance, December 31, 1998 (1,351,000) -- 49,017,000 $ 34,060,000
=============
Exercise of stock options -- -- 1,138,000
Adjustment of tax benefit from
exercise of stock options -- -- (411,000)
Amortization of deferred
Compensation -- -- 21,000
Cancellation of options
granted -- -- --
Grant of stock options below
Fair market value -- -- --
Compensation charged in
Connection with variable stock
Options -- -- 387,000
Issuance of common stock under
employee stock purchase plan -- -- 28,000
Stock issued to Board of Directors
in lieu of cash payments -- -- 16,000
Currency translation adjustment -- -- (3,000) $ (3,000)
Net loss (3,576,000) -- (3,576,000) (3,579,000)
---------------------------------------------------------
Balance, December 31, 1999 (4,927,000) -- 46,617,000 $(3,579,000)
=============
Exercise of stock options -- -- 1,004,000
Issuance of common stock under
Employee stock purchase plan -- -- 23,000
Stock issued to Board of Directors
in lieu of cash payment -- -- 9,000
Variable stock option benefit -- -- (224,000)
Cash dividend to shareholders -- -- (30,376,000)
Currency translation adjustment -- -- (306,000) $ (306,000)
Purchases of treasury stock -- (3,000) (3,000) --
Net loss (4,789,000) -- (4,789,000) (4,789,000)
---------------------------------------------------------
Balance, December 31, 2000 $ (9,716,000) $ (3,000) $ 11,955,000 $(5,095,000)
=========================================================
The accompanying notes are an integral part of these statements
29
ASTEA INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net (loss) income $ (4,789,000) $ (3,576,000) $ 34,151,000
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Compensation charge (benefit) in connection with
Variable stock options (224,000) 387,000 --
Gain on sale of discontinued business (149,000) -- (43,339,000)
Loss on operations of discontinued business -- -- 1,697,000
Loss on sale of investments 28,000 -- --
Depreciation and amortization 1,532,000 2,454,000 2,388,000
Amortization of deferred compensation -- 21,000 52,000
Other 9,000 16,000 (427,000)
Changes in operating assets and liabilities:
Receivables 1,292,000 149,000 (236,000)
Prepaid expenses and other (152,000) 471,000 (705,000)
Accounts payable and accrued expenses (2,262,000) (1,970,000) 1,152,000
Accrued restructuring (775,000) 1,451,000 (1,716,000)
Deferred revenues 915,000 (530,000) (109,000)
Deferred income taxes 188,000 441,000 (1,433,000)
------------ ------------ ------------
Net cash used in operating activities (4,387,000) (686,000) (8,525,000)
------------ ------------ ------------
Net cash used in discontinued operations -- -- (2,054,000)
------------ ------------ ------------
Cash flows from investing activities:
Net sales (purchases)of investments available for sale 34,373,000 (15,304,000) (21,244,000)
Purchases of property and equipment (716,000) (512,000) (831,000)
Capitalized software development costs (640,000) (800,000) (800,000)
Proceeds from sale of discontinued operations -- 9,276,000 41,091,000
------------ ------------ ------------
Net cash provided by (used in) investing activities 33,017,000 (7,340,000) 18,216,000
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from exercise of stock options and employee
stock purchase plan 1,027,000 1,166,000 135,000
Cash dividend to stockholders (30,376,000) -- --
Net repayments of long-term debt (298,000) (896,000) (1,207,000)
Tax (expense) benefit from exercise of stock options -- (411,000) 1,335,000
Purchases of treasury stock (3,000) -- --
------------ ------------ ------------
Net cash (used in) provided by financing activities (29,650,000) (141,000) 263,000
------------ ------------ ------------
Effect of exchange rate changes on cash and cash
Equivalents 70,000 34,000 (5,000)
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (950,000) (8,133,000) 7,895,000
Cash and cash equivalents balance, beginning of year 6,158,000 14,291,000 6,396,000
------------ ------------ ------------
Cash and cash equivalents balance, end of year $ 5,208,000 $ 6,158,000 $ 14,291,000
============ ============ ============
The accompanying notes are an integral part of these statements.
30
ASTEA INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Company Background
Astea International Inc. (the "Company" or "Astea") 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 has incurred losses from continuing operations for the past
five years and has used cash and cash equivalents to support its operating
activities. In addition, during 2000 the Company distributed $30.4 million of
cash to its stockholders. Management believes that its current cash and cash
equivalents on hand and future operating cash flows will be sufficient to fund
operations for a reasonable period of time beyond 2001. To the extent that
future operating cash flows, revenues and decreased expenses are not realized,
the Company's results of operations and financial condition could be materially
and adversely affected, which may impact the Company's viability. The
accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Astea
International Inc. and its wholly owned subsidiaries and branches. The financial
statements reflect the elimination of all significant intercompany accounts and
transactions.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company licenses software under noncancellable perpetual license
agreements. License fee revenues are recognized when a noncancellable license
agreement is executed, the product has been shipped, the license fee is
determined to be fixed or determinable and collectibility is reasonably assured.
If the fee is not fixed or determinable, revenue is recognized as payments
become due from the customer. If collectibility is not considered probable,
revenue is recognized when the fee is collected. If the payment of the license
fee is coincident to services, which are deemed to be essential to the
functionality of the software, the license fee is deferred and recognized using
contract accounting over the period during which the services are performed. The
Company's software licensing agreements provide for customer support that begins
after the warranty period. The portion
31
of the license fee associated with customer support during the warranty period
is unbundled from the license fee and is recognized ratably over the warranty
period (generally 90 days) as maintenance revenue. The Company's revenue
recognition policy is in accordance with the American Institute of Certified
Public Accountants' Statement of Position No. 97-2, "Software Revenue
Recognition."
Services revenues, which include consulting, implementation and training,
are recognized as performed. Maintenance revenues are recognized ratably over
the terms of the maintenance agreements.
Staff Accounting Bulletin No. 101 "Revenue Recognition"
In December 1999, the Securities and Exchange Commission (SEC) staff issued
Staff Accounting Bulletin No. 101 Revenue Recognition" (SAB 101). SAB 101
summarizes the staff's views in applying generally accepted accounting
principles to revenue recognition. Management believes that the Company's
current revenue recognition policy conforms to the guidance in SAB 101.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Investments Available for Sale
Pursuant to Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," the Company
determines the appropriate classification of debt and equity securities at the
time of purchase and re-evaluates such designation as of each balance sheet
date. As of December 31, 2000 and 1999, all short-term investments have been
classified as available-for-sale. Available-for-sale securities are carried at
fair value, based on quoted market prices, with unrealized gains and losses, net
of tax, reported as a separate component of stockholders' equity. As of December
31, 2000 and 1999, unrealized losses and gains were not material to the
financial statements. Realized gains and losses, computed using specific
identification, and declines in value determined to be permanent are recognized
in the consolidated statements of operations.
Property and Equipment
Property and equipment are recorded at cost. Property and equipment
capitalized under capital leases are recorded at the present value of the
minimum lease payments due over the lease term. Depreciation and amortization
are provided using the straight-line method over the estimated useful lives of
the related assets or the lease term, whichever is shorter. Gains and losses on
disposal are recognized in the year of the disposition. Expenditures for repairs
and maintenance are charged to expense as incurred and significant renewals and
betterments are capitalized.
Capitalized Software Development Costs
The Company capitalizes software development costs in accordance with SFAS
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed." The Company capitalizes software development costs
subsequent to the establishment of technological feasibility through the
product's availability for general release. Costs incurred prior to the
establishment of technological feasibility are charged to product development
expense. Development costs associated with product enhancements that extend the
original product's life or significantly improve the original product's
marketability are also capitalized once technological feasibility has been
established. Software development costs are amortized on a product-by-product
basis over the greater of the ratio of current revenues to total anticipated
revenues or on a straight-line basis over the estimated useful lives of the
products (three to four years), beginning with the initial release to customers.
The Company continually evaluates whether events or circumstances have occurred
that indicate that the remaining useful life of the capitalized software
development costs should be revised or that the remaining balance of such assets
may not be recoverable. The Company evaluates the recoverability of capitalized
software based on the estimated future revenues of each product. During 1999,
the Company wrote-off capitalized software development costs for products that
were
32
no longer marketed by the Company (See Note 4). As of December 31, 2000,
management believes that no revisions to the remaining useful lives or
write-downs of capitalized software development costs are required.
Major Customers
In 2000, the Company had no significant customers which represented at
least 10% of revenues. In 1999, the Company had two customers that accounted for
18% and 16% of revenues, respectively. In 1998, the same two customers accounted
for 15% and 11% of total revenues, respectively.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of investments available for sale and trade
receivables. The Company does not require collateral from its customers.
Fair Value of Financial Instruments
The carrying values of cash, cash equivalents, investments available for
sale, accounts receivable, accounts payable and accrued expenses approximate the
respective fair values. None of our debt instruments that were outstanding as of
December 31, 2000 have readily ascertainable market values; however, the
carrying values approximate the respective fair values.
Supplemental Cash Flow Information
For the years ended December 31, 2000, 1999 and 1998, the Company paid
interest of $16,000, $43,000 and $258,000, respectively; and in 1998, the
Company paid income taxes of $495,000. In 1999, the Company received refunds of
income taxes of $231,000.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," the objective of which is to recognize the amount
of current and deferred income taxes payable or refundable at the date of the
financial statements as a result of all events that have been recognized in the
financial statements as measured by enacted tax laws.
Currency Translation
The accounts of the international subsidiaries and branch operations are
translated in accordance with SFAS No. 52, "Foreign Currency Translation," which
requires that assets and liabilities of international operations be translated
using the exchange rate in effect at the balance sheet date. The results of
operations are translated at average exchange rates during the year. The effects
of exchange rate fluctuations in translating assets and liabilities of
international operations into U.S. dollars are accumulated and reflected as a
currency translation adjustment in the accompanying consolidated statements of
stockholders' equity. Transaction gains and losses are included in net loss.
There are no material transaction gains or losses in the accompanying
consolidated financial statements for the periods presented.
33
Net Income (Loss) Per Share
The Company presents earnings per share in accordance with SFAS No. 128,
"Earnings per Share." Pursuant to SFAS No. 128, dual presentation of basic and
diluted earnings per share ("EPS") is required for companies with complex
capital structures on the face of the statements of operations. Basic EPS is
computed by dividing net income (loss) by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
from the exercise or conversion of securities into common stock. Options to
purchase 1,129,000, 1,878,000, and 2,025,000 shares of common stock with an
average exercise prices per share of $2.64, $2.33, and $2.16, were outstanding
as of December 31, 2000, 1999, and 1998, respectively, but were excluded from
the diluted loss per common share calculation as the inclusion of these options
would have been antidilutive.
Comprehensive Income (Loss)
In 1998, the Company adopted SFAS No. 130 "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and presentation of
comprehensive income (loss) and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. This statement
also requires that all components of comprehensive income (loss) are displayed
with the same prominence as other financial statements. Comprehensive income
(loss) consists of net income (loss) and foreign currency translation
adjustments. The adoption of SFAS No. 130 had no impact on total stockholders'
equity and is presented in the accompanying Consolidated Statements of
Stockholders' Equity.
Reclassifications
Certain reclassifications of prior year amounts have been made to conform
to the current year presentation.
3. Discontinued Operations
Bendata
On February 27, 1996, the Company completed a merger with Bendata, Inc. and
Bendata UK Limited LLC, (collectively "Bendata"). Bendata develops markets and
supports the HEAT family of software applications for the internal help desk
automation market. On September 4, 1998, the Company completed the sale of the
capital stock of Bendata, which was accounted for as if it were effective on
July 1, 1998. Effective on October 1, 1998, the Company's Australian branch
ceased marketing and supporting HEAT and transferred existing HEAT customers to
the buyer of Bendata. In consideration for the sale of Bendata, Astea received
$35,000,000 in cash and a promissory note in the principal amount of $8,303,000
which was paid in September, 1999. During the year ended December 31, 1998, the
Company recorded a gain of $34,267,000, net of taxes of $4,138,000.
34
Included in the accounting in the year of the sale were reserves for
additional expenses expected to be incurred. As expenses related to the sale
were paid, they were charged against the reserve. During 2000 it was determined
that all expenses related to the sale had been paid in full. As a result there
was excess in the reserve of $91,000. This overaccrual was reversed in 2000 and
included in gain from discontinued operations.
Abalon
On June 28, 1996, the Company acquired all of the outstanding shares of
Bebalon AB, the sole shareholder of E.L.G. Data AB, which was the sole
shareholder of Astea International AB, formerly Abalon AB (collectively
"Abalon") in a transaction accounted for under the purchase method of
accounting. On December 31, 1998, Astea completed the sale of all of the capital
stock of Abalon. In consideration for the sale of Abalon, the Company received
$9,500,000 in cash, of which $1,100,000 was deposited in escrow. In August 1999,
the Company received $928,000 from escrow. During the year ended December 31,
1998, the Company recorded a gain of $9,072,000, including a tax benefit of
$1,201,000. The remaining balance of the escrow account, $144,000, was
distributed in September 2000 and included in gain from discontinued operations.
In addition, unused excess reserves for additional expenses related to the sale
of $58,000 were also reversed in 2000 and included in the gain from discontinued
operations.
Bendata and Abalon are being accounted for as discontinued operations. The
accompanying Consolidated Financial Statements reflect the operating results and
balance sheet items of the discontinued operations, as well as the related
transaction gains, separately from continuing operations.
Income (loss) from discontinued operations in the accompanying consolidated
statements of income is as follows:
Year Ended December 31, 1998
----------------------------------------------------------------------
Revenues:
Bendata $ 11,880,000
Abalon 6,215,000
-------------------
Total $ 18,095,000
===================
Income (loss) before income taxes:
Bendata $ 1,293,000
Abalon (2,844,000)
-------------------
Total (1,551,000)
Income taxes:
Bendata 146,000
Abalon -
-------------------
Total 146,000
Net income (loss):
Bendata 1,147,000
Abalon (2,844,000)
-------------------
Total $ (1,697,000)
===================
35
4. Restructuring and Other Charges 2000
During the second quarter of 2000, the Company recorded a restructuring
charge of $1,101,000. In addition, $290,000 of unused reserves from the 1999
restructuring discussed below were reclassified to cover expected expenses of
the 2000 restructuring. These charges resulted from closing an office in the
U.S., reducing office space in other cities, contractual obligations on
operating leases and severance costs related to the reduction of personnel. For
the year ended December 31, 2000, the Company made payments of $1,269,000
related to the 2000 restructuring plan, including lease terminations and buy-
outs of $314,000, severance payments of $944,000 and other costs of $11,000. As
of December 31, 2000, accrued restructuring costs relating to the 2000
restructuring plan consist of $122,000 relating to an outstanding severance
obligation.
During the fourth quarter of 1999, the Company recorded a restructuring
charge of $1,630,000. These charges are the result of the wind-down of the
Company's DISPATCH-1 product line. This wind-down has resulted in the reduction
of DISPATCH-1 development and billable service activities. The charge includes
severance payments, the write-off of capitalized software for certain DISPATCH-1
modules which will no longer be sold and reserves for contractual obligations to
DISPATCH-1 customers. Through December 2000, charges incurred relating to the
1999 restructuring plan totaled $1,090,000 including $434,000 in severance
payments and DISPATCH-1 capital software write-offs of $656,000. During the
second quarter of 2000, the Company evaluated its restructuring accrual based on
the then current facts and determined that $290,000 was not needed for the
purposes of the 1999 restructuring plan and, accordingly, the accrual was
carried forward and allocated to the 2000 restructuring plan. As of December 31,
2000, accrued restructuring costs relating to the 1999 restructuring plan
consist of $250,000 relating to an outstanding severance obligation and
contractural obligations to DISPATCH-1 customers.
During the first quarter of 1997, the Company recorded a restructuring
charge of $5,328,000 for actions aimed at reducing costs and consolidating its
development activities primarily in its service automation product line. In the
second quarter of 1998, the Company evaluated its restructuring accrual based
upon then current facts and determined that $800,000 was not needed and,
accordingly, the accrual was adjusted. This excess related to lower than
expected office-closing costs. Total charges incurred were $4,528,000, including
severance of $1,240,000, office-closing costs and unutilized lease expense of
$2,550,000 and other consolidation costs of $738,000.
During the fourth quarter of 1999, the Company accrued a one-time
consulting fee of $304,000 (See Note 15).
5. Cash and Cash Equivalents
December 31, 2000 1999
---------------------------------------------------------------------------------------
Cash and money market accounts $5,208,000 $4,253,000
Commercial Paper - 1,905,000
------------------------------------
$5,208,000 $6,158,000
====================================
36
6. Investments Available for Sale
December 31, 2000 1999
--------------------------------------------------------------------------------------
U.S. Government Agencies Securities $ 2,500,000 $ 9,343,000
Corporate and Municipal Bonds 1,006,000 28,564,000
------------------------------------
$ 3,506,000 $ 37,907,000
====================================
All investments available for sale have maturities of less than twelve
months from the respective balance sheet date. Losses on sales of securities for
the years ended December 31, 2000, 1999 and 1998 were $28,000, zero, and zero,
respectively.
7. Receivables
December 31, 2000 1999
------------------------------------------- ----------------- -----------------
Billed receivables $ 7,103,000 $ 7,540,000
Unbilled receivables 782,000 1,747,000
----------------- -----------------
$ 7,885,000 $ 9,287,000
================= =================
Billed receivables represent billings for the Company's products and
services to end users and value added resellers. Billed and unbilled receivables
are shown net of reserves for estimated uncollectible amounts. Unbilled
receivables represent contractual amounts due within one year under software
licenses, which are not yet billable.
For the years ended December 31, 2000, 1999 and 1998 the Company recorded
bad debt expense of $889,000, $708,000 and $1,257,000 and write-offs of
$336,000, $429,000 and $1,713,000.
8. Property and Equipment
December 31,
Useful Life 2000 1999
----------- ---- ----
Computers and related equipment 3 $ 4,469,000 $ 4,664,000
Furniture and fixtures 10 482,000 268,000
Equipment under capital leases 3 998,000 865,000
Leasehold improvements Lease term 106,000 114,000
Office equipment 3-7 423,000 484,000
----------------- -----------------
6,478,000 6,395,000
Less: Accumulated depreciation
and amortization (5,482,000) (5,373,000)
----------------- -----------------
$ 996,000 $ 1,022,000
================= =================
Depreciation expense for the years ended December 31, 2000, 1999 and 1998
was $732,000, $946,000 and $1,280,000, respectively.
Equipment under capital leases includes telephone systems, computers and
related equipment. Title to the property is owned by the financing companies.
The gross book value of equipment under capital lease is $998,000 and $865,000
as of December 31, 2000 and 1999, respectively. Accumulated amortization on
equipment under capital lease as of December 31, 2000 and 1999 was $891,000 and
$857,000, respectively.
37
9. Capitalized Software Development Costs
December 31, 2000 1999
--------------------------------------------------- ------------------- -------------------
Capitalized software development costs $ 3,098,000 $2,458,000
Less: Accumulated amortization (1,486,000) (686,000)
------------------- -------------------
$ 1,612,000 $1,772,000
=================== ===================
The Company capitalized software development costs for the years ended
December 31, 2000, 1999 and 1998 of $640,000, $800,000, and $1,233,000,
respectively. Included in 1998 capitalized software development costs is
$433,000 of third party software received in exchange for the Company's software
products. Amortization of software development costs for the years ended
December 31, 2000, 1999 and 1998 was $800,000, $1,508,000 and $1,108,000,
respectively. The Company wrote-off capitalized software development costs of
$3,783,000 in 1999 and related accumulated amortization of $3,326,000.
10. Accounts Payable and Accrued Expenses
December 31, 2000 1999
---------------------------------------------------- ------------------- --------------------
Accounts payable $ 941,000 $ 2,693,000
Accrued compensation and related benefits 959,000 2,102,000
Accrued disposal costs - 149,000
Accrued restructuring (See Note 4) 372,000 1,146,000
Accrued litigation 339,000 480,000
Other accrued liabilities 2,120,000 1,137,000
------------------- --------------------
$4,731,000 $7,707,000
=================== ====================
38
11. Income Taxes
The provision (benefit) for income taxes is as follows:
Years ended December 31, 2000 1999 1998
-------------------------------------------- -------------------- -------------------- --------------------
Current:
Federal $ (188,000) $ (226,000) $ 6,291,000
State - - 389,000
Foreign - - -
-------------------- -------------------- --------------------
(188,000) (226,000) 6,680,000
Deferred:
Federal (1,448,000) (459,000) 855,000
State - - -
Foreign - - -
-------------------- -------------------- --------------------
(1,448,000) (459,000) 855,000
-------------------- -------------------- --------------------
(1,636,000) (685,000) 7,535,000
Increase (decrease) in
valuation allowances 1,636,000 685,000 (5,255,000)
-------------------- -------------------- --------------------
- - 2,280,000
==================== ==================== ====================
Continuing Operations $ (100,000) - $ (803,000)
Discontinued Operations:
Income from discontinued
operations - - 146,000
Gain on sale of discontinued
operations 100,000 - 2,937,000
-------------------- -------------------- --------------------
$ - $ - $ 2,280,000
==================== ==================== ====================
39
The approximate income tax effect of each type of temporary difference is
as follows:
December 31, 2000 1999
-------------------------------------------------------- ------------------ -------------------
Deferred income tax assets:
Revenue recognition $ 255,000 $ 352,000
Accruals and reserves not
currently deductible for tax 1,012,000 1,329,000
Benefit of net operating loss carryforward 2,317,000 320,000
Deferred compensation - 59,000
Depreciation 140,000 131,000
Alternative minimum tax 370,000 370,000
Variable option - 144,000
------------------ -------------------
4,094,000 2,705,000
Deferred income tax liabilities:
Capitalized software development costs (597,000) (656,000)
------------------ -------------------
3,497,000 2,049,000
------------------ -------------------
Valuation reserve (3,127,000) (1,491,000)
------------------ -------------------
Net deferred income tax asset $ 370,000 $ 558,000
================== ===================
The Company has provided a valuation allowance for a substantial majority
of its net deferred tax asset based on an assessment of what portion of the
asset is more likely than not to be realized. The amount of the deferred tax
considered realizable as of December 31, 2000 relates to alternative minimum tax
credits, which have an indefinite carryforward period.
The reconciliation of the statutory federal income tax rate to the
Company's effective income tax rate is as follows:
Years ended December 31, 2000 1999 1998
------------------------------------------------------------------------------------------
Federal statutory tax rate (34.0)% (34.0)% (34.0)%
Adjustment of valuation reserve 24.0 19.4 22.0
Net operating losses from foreign
subsidiaries not benefited 7.2 15.2 1.2
State income taxes, net of federal tax
benefit (3.0) - (1.7)
Nondeductible expenses 8.8 (0.3) 8.1
Other (3.0) (0.3) (5.3)
---------------------------------------
Effective income tax rate - % - % (9.7)%
=======================================
As of December 31, 2000, the Company had a net operating loss carryforward
for United States federal income tax purposes of approximately $14,300,000.
Included in the aggregate net operating loss carryforward is $7,532,000 of tax
deductions related to equity transactions, the benefit of which will be credited
to stockholders' equity, if and when realized after the other tax deductions in
the carryforwards have been realized. The net operating loss carryforward began
to expire in 2000.
40
12. Commitments and Contingencies
The Company leases facilities and equipment under noncancelable operating
leases and equipment under noncancelable capital leases. Interest rates on the
capital leases range from 9.0% to 9.2%.
Rent expense under all operating leases for the years ended December 31,
2000, 1999 and 1998 was $1,396,000, $1,946,000, and $1,892,000, respectively.
Future minimum lease payments under the Company's leases as of December 31,
2000 are as follows:
Operating Leases Capital Leases
----------------------------------------------------
2001 $ 1,097,000 $ 152,000
2002 811,000 23,000
2003 228,000 -
2004 174,000 -
2005 56,000 -
Thereafter - -
----------------------------------------------------
Total minimum lease payments $ 2,366,000 $ 175,000
====================================================
Less: Amount representing interest (14,000)
-------------------------
Present value of future minimum lease payments 161,000
Less: Current portion (138,000)
-------------------------
$ 23,000
=========================
Future minimum operating lease payments have not been reduced by future
minimum sublease rentals of $233,000 and $207,000 in 2001 and 2002,
respectively.
In connection with the 1997 settlement of a dispute and to avoid potential
litigation with a stockholder, the Company entered into an agreement with a
stockholder which provided, among other items, a $1,000,000 non-interest bearing
promissory note payable in twenty equal quarterly installments through June 30,
2002 (present value of $825,000), a non-qualified stock option grant to purchase
90,000 shares of the Company's common stock with a fair value of $157,000 and a
$300,000 cash payment made on October 1, 1997. The Company did not make the
December 31, 1998 payment on time and the entire remaining balance of the note
became due. The Company paid approximately $703,000 in January 1999 to satisfy
the note payable.
The Company is from time to time involved in certain legal actions and
customer disputes arising in the ordinary course of business. In the Company's
opinion, the outcome of such actions will not have a material adverse effect on
the Company's financial position or results of operations.
13. Profit Sharing Plan/Savings Plan
The Company maintains a voluntary profit sharing plan, including a Section
401(k) feature, covering all qualified and eligible employees. Company
contributions to the profit sharing plan are determined at the discretion of the
Board of Directors. Effective July 1, 1998, the Company began matching 25% of
eligible employees' contributions to the 401(k) plan up to a maximum of 1.5% of
each employee's compensation. The Company expensed approximately $133,000,
$127,000 and $51,000 for the years ended December 31, 2000, 1999, and 1998,
respectively.
41
14. Equity Plans
Stock Option Plans
The Company has Stock Option Plans (the "Plans") under which incentive and
non-qualified stock options may be granted to its employees, officers, directors
and others. Generally, incentive stock options are granted at fair value, become
exercisable over a four-year period, and are subject to the employee's continued
employment. Non-qualified options are granted at exercise prices determined by
the Board of Directors and vest over varying periods. A summary of the status of
the Company's stock options as of December 31, 2000, 1999 and 1998 and changes
during the years then ended is as follows:
OPTIONS
OPTIONS OUTSTANDING EXERCISABLE
------------------- -----------
Shares Wtd. Avg. Wtd. Avg.
Available Exercise Exercise
for Grant Shares Price Shares Price
------------------------------------------------------------------------------
Balance, January 1, 1998 705,000 1,980,000 $2.62 774,000 $ 2.25
Authorized 500,000 - -
Granted at market (1,887,000) 1,887,000 1.93
Granted at below market (300,000) 300,000 1.88
Granted outside Plan at
market - 261,000 1.69
Cancelled 1,798,000 (1,798,000) 2.37
Cancelled outside Plan - (453,000) 2.39
Exercised - (152,000) .62
------------------------------------------------------------------------------
Balance, December 31, 1998 816,000 2,025,000 2.16 991,000 2.29
Granted at below market (572,000) 572,000 3.24
Granted at market (413,000) 413,000 2.48
Granted outside Plan at
market - 9,000 1.73
Cancelled 563,000 (563,000) 2.50
Cancelled outside Plan - (9,000) 1.69
Exercised - (569,000) 1.73
------------------------------------------------------------------------------
Balance, December 31, 1999 394,000 1,878,000 2.33 702,000 2.08
Granted at market (780,000) 780,000 2.37
Cancelled 849,000 (849,000) 2.89
Cancelled outside Plan - (9,000) 1.69
Exercised - (671,000) 1.49
------------------------------------------------------------------------------
Balance, December 31, 2000 463,000 1,129,000 $ 2.64 256,000 $ 4.20
==============================================================================
The following table summarizes information about stock options outstanding
at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- --------------------------------
Weighted
Average
Range of Remaining Weighted Weighted
Exercise Number Contractual Average Number Average
Prices Outstanding Life (yrs) Exercise Price Exercisable Exercise Price
------ ----------- ---------- -------------- ----------- --------------
$ 0.81 - $0.97 390,000 9.73 $0.89 4,000 $0.97
1.69 - 1.69 250,000 8.82 1.69 25,000 1.69
2.50 - 15.00 489,000 7.36 4.51 227,000 4.53
--------- ----------- ----------- ---- ----- ------- ----
$ 0.81 - $15.00 1,129,000 8.46 $2.64 256,000 $4.20
========= =======
In September 1998, the Company repriced all outstanding employee options
(not including those issued under the Director Plan) to $1.69, the fair market
value on the new grant date. As this reduction in exercise price represented the
third repricing of these options, variable plan accounting was triggered
requiring intrinsic value to be remeasured at the end of each reporting period.
The resultant change in each period was charged or deducted from expense for
that period. The ultimate
42
value of the options was determined upon exercise or other settlement of the
option. As of December 31, 1999, the Company had recorded a cumulative charge to
expense of $387,000. During 2000, all options were exercised or terminated and
the final cumulative charge to expense was adjusted to $163,000.
The Company accounts for options and the employee stock purchase plan under
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees," under which deferred compensation expense has been recorded in
1998 and prior for options granted with exercise prices below fair value. The
deferred compensation is charged to expense ratably over the vesting period. Had
compensation cost for the Company's stock options and employee stock purchase
plan been determined consistent with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net income (loss) and basic and diluted net income
(loss) per share would have been:
2000 1999 1998
---------------------- ----------------------- -----------------------
Net income (loss) - as reported $ (4,789,000) $ (3,576,000) $ 34,151,000
Net income (loss) - pro forma $ (5,137,000) $ (4,000,000) $ 32,151,000
Basic and diluted earnings (loss)
per share - as reported $ (0.33) $ (0.26) $ 2.53
Basic and diluted earnings (loss)
per share - pro forma $ (0.35) $ (0.29) $ 2.39
The weighted average fair value of those options granted during the years
ended December 31, 2000, 1999 and 1998 was estimated as $1.60, $1.87, and $1.16,
respectively. The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions: risk-free interest rate of 6.35%, 5.72% and 5.05% for 2000,
1999 and 1998 grants, respectively; an expected life of six years; volatility of
85%; and a dividend yield of zero for 2000, 1999 and 1998 grants.
The weighted average fair value of the employee purchase rights granted in
2000, 1999 and 1998 was $0.71, $0.78 and $0.76, respectively. The fair value of
the purchase rights was estimated using the Black-Scholes model with the
following weighted average assumptions: risk-free interest rate of 6.26%, 4.58%
and 5.09% for 2000, 1999 and 1998, respectively; an expected life of six months;
volatility of 85%; and a dividend yield of zero for 2000, 1999 and 1998.
Dividend Distribution
On June 30, 2000, the Company paid a dividend of $2.05, or $30,376,000, to
shareholders of record as of June 15, 2000.
Employee Stock Purchase Plan
In May 1995, the Company adopted an employee stock purchase plan (the
"ESPP") which allows full-time employees with one year of service the
opportunity to purchase shares of the Company's common stock through payroll
deductions at the end of bi-annual purchase periods. The purchase price is the
lower of 85% of the average market price on the first or last day of the
purchase periods. An employee may purchase up to a maximum of 500 shares or 10%
of the employee's base salary, whichever is less, provided that the employee's
ownership of the Company's stock is less than 5% as defined in the ESPP.
Pursuant to the ESPP, 250,000 shares of common stock were reserved for issuance.
During 2000, 1999 and 1998, shares purchased were 11,207, 20,216 and 20,819,
respectively. At December 31, 2000, there were 173,401 shares available for
future purchases.
43
15. Related Party Transactions
In 2000, 1999, and 1998, the Company paid premiums on behalf of the
majority stockholder and his wife of $69,600, $75,000, and $70,000,
respectively, under split dollar life insurance policies.
On December 31, 1999, the Company's majority stockholder and Chairman (the
"stockholder") ceased active employment with the Company. He was engaged as a
consultant for the period from January 1, 2000 until December 31, 2000. Under
the terms of the consulting agreement, the stockholder received annual
compensation of $354,000, split dollar life insurance benefits and
indemnification for tax liabilities during the Company's S-corporation status.
The Company charged to expense $304,000 deemed to be severance during the fourth
quarter of 1999.
In May 2000, the Company's majority stockholder and Chairman resumed his
previous duties as President and Chief Executive Officer.
44
16. Geographic Segment Data
The Company operates in one business segment. The following table presents
information about the Company's operations by geographic area:
Year ended December 31, 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
Revenues:
Software license fees
United States
Domestic $ 2,193,000 $ 7,831,000 $ 2,963,000
Export 62,000 982,000 161,000
-------------------------------------------------------------------
Total United States
software license fees 2,255,000 8,813,000 3,124,000
Europe 3,010,000 1,334,000 2,382,000
Other foreign 1,289,000 1,165,000 316,000
-------------------------------------------------------------------
Total foreign software
license fees 4,299,000 2,499,000 2,698,000
-------------------------------------------------------------------
Total software license fees 6,554,000 11,312,000 5,822,000
Services and maintenance
United States
Domestic 9,011,000 13,968,000 15,153,000
Export 506,000 1,447,000 1,347,000
-------------------------------------------------------------------
Total United States
service and
maintenance revenue 9,517,000 15,415,000 16,500,000
-------------------------------------------------------------------
Europe 2,749,000 5,008,000 5,042,000
Other foreign 1,115,000 1,300,000 1,577,000
-------------------------------------------------------------------
Total foreign service and
maintenance revenue 3,864,000 6,308,000 6,619,000
-------------------------------------------------------------------
Total service and
maintenance revenue 13,381,000 21,723,000 23,119,000
-------------------------------------------------------------------
Total revenue $ 19,935,000 $ 33,035,000 $ 28,941,000
===================================================================
Income (loss) from continuing
operations before interest and taxes
United States $ (5,980,000) $ (5,094,000) $ (7,856,000)
Europe (1,042,000) (868,000) (339,000)
Other foreign 444,000 223,000 (595,000)
-------------------------------------------------------------------
Total income (loss) from
continuing operations
before interest and taxes $ (6,578,000) $ (5,739,000) $ (8,790,000)
===================================================================
Identifiable assets
United States $ 16,002,000 $ 53,753,000 $ 57,784,000
Europe 4,112,000 3,161,000 4,012,000
Other foreign 1,539,000 1,720,000 1,817,000
-------------------------------------------------------------------
Total assets $ 21,653,000 $ 58,634,000 $ 63,613,000
===================================================================
45
17. Selected Consolidated Quarterly Financial Data (Unaudited)
2000 Quarter Ended Dec 31, Sep 30, Jun 30, Mar 31,
- ------------------------------------------------------------------------------------------
Revenues $ 3,339,000 $5,026,000 $ 5,980,000 $5,590,000
Loss from continuing operations (2,329,000) (287,000) (1,667,000) (799,000)
Gain on sale of discontinued
operations -- 293,000 -- --
----------------------------------------------------
Net (loss) income (2,329,000) 6,000 (1,667,000) (799,000)
Basic and diluted loss per share
Continuing operations (0.16) (0.02) (0.12) (0.06)
Gain on sale of discontinued
operations -- 0.02 -- --
----------------------------------------------------
Net loss (0.16) -- (0.12) (0.06)
Shares used in computing basic
and diluted loss per share 14,821 14,821 14,373 14,231
1999 Quarter Ended Dec 31, Sep 30, Jun 30, Mar 31,
- ------------------------------------------------------------------------------------------
Revenues $ 9,253,000 $8,155,000 $ 7,889,000 $7,738,000
Net (loss) income (1,785,000) 68,000 (449,000) (1,410,000)
Basic and diluted net loss per
share (0.13) 0.00 (0.03) (0.10)
Shares used in computing basic
and diluted net loss per share 13,981 13,944 13,919 13,688
46
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Directors and the executive officers of the Company, their ages,
business experience and the positions currently held by each such person with
the Company are listed below.
Zack B. Bergreen, 56, founded the Company in November 1979. From November
1979 to January 1998, he served as President, Treasurer and Director of the
Company. In April 1995, he was elected Chief Executive Officer and Chairman of
the Board of Directors. From January 1998 through August 1999 Mr. Bergreen
served as Chairman of the Board and Chief Executive Officer. Mr. Bergreen has
served as Chairman of the Board since August 1999, when Bruce R. Rusch was
elected President and Chief Executive Officer. Following the resignation of Mr.
Rusch on May 30, 2000, Mr. Bergreen resumed the positions of President and Chief
Executive Officer, and on June 27, 2000, was elected as Secretary. Mr. Bergreen
holds Bachelor of Science and Master of Science degrees in Electrical
Engineering from the University of Maryland.
Bernard M. Goldsmith, 57, joined the Company's Board of Directors in April
1999 and is a member of the Audit Committee. He currently serves as Managing
Director of Updata Capital, Inc. He is also Manager of Fallen Angel Capital,
LLC, which is the general partner of Fallen Angel Equity Fund, L.P., which
currently beneficially owns more than 5% of the shares of Common Stock of the
Company. Mr. Goldsmith also serves on the boards of directors of Compuware
Corporation, Dendrite International, Inc. and several private companies. Mr.
Goldsmith has a B.A. in business administration from Rutgers University.
Adrian A. Peters, 52, joined the Company's Board of Directors in June 2000
and is a member of the Audit Committee. He is the President of Boston Partners
and also serves as President and Chief Executive Officer of Omtool Ltd. From
August 1996 to January 1997, he served as the President and Chief Executive
Officer of Computron Software. From 1986 through 1995, he held various
management postions for Siemens AG, including President and Chief Executive
Officer of Siemens Nixdorf USA from 1992 through 1995, President and Chief
Executive Officer of Siemens Nixdorf Southern Africa from 1990 through 1992, and
President and General Manager of Siemens Data in South Africa from 1988 through
1990. Prior to that he worked at Arthur Anderson and IBM. Mr. Peters received
Bachelor of Science as well as Engineering degrees from the University of
Stellenbosch in South Africa.
Isidore Sobkowski, 44, joined the Company's Board of Directors in June 2000
and is a member of the Audit Committee. He currently serves as the President and
Chief Executive Officer of PrimeCloud, Inc. From 1994 through 1998, he served as
the President and Chief Executive Officer at Professional Help Desk, and upon
its acquisition by Computer Associates, served from 1998 through 2000 as a
Division Vice President at Computer Associates. From 1984 through 1994, he
served as President and Chief Executive Officer of Knowledge Associates, Ltd.
Mr. Sobkowski received a Bachelor of Science in Computer Science from City
College of New York in 1978 and a Master of Science in Computer Science from
City College of New York in 1982.
Rick Etskovitz, 46, joined the Company in June 2000 when he was elected
Chief Financial Officer and Treasurer. He is a certified public accountant and
shareholder of a local accounting firm. From 1986 through 1993, he worked with
the Company as the engagement partner with its independent accounting firm. Mr.
Etskovitz received his Bachelor of Science degree from the Pennsylvania State
University in 1976 and his
47
Masters of Business Administration Degree from the Wharton Graduate School at
the University of Pennsylvania in 1980.
Jacques Cormier, 53, joined the Company in 1995 as Managing Director of the
Asia/Pacific operations based in Sydney, Australia. Mr Cormier relocated to the
United States in June 2000 to assume the responsibilities of Vice President of
Customer Services, managing Customer Support, Professional Services and
Customizations. From 1992 Mr. Cormier was a Director of Qantel Business Systems
Australia Pty Ltd, a systems integrator of complete business solutions,
responsible for marketing, product management, professional services and
customer support. Before transferring to Australia in 1992, Mr. Cormier had the
product management responsibility of the ERP products manufactured by Qantel
Corporation, a manufacturer of hardware and software for small/medium businesses
located near San Francisco. Mr. Cormier has been an active member of APICS
(American Production and Inventory Control Society) for many years, authoring a
course and a book on the essentials of managing manufacturing operations.
Jim Kirby, 36, joined the Company in January, 2000 as Vice President of
Sales for the Americas based in Horsham, Pennsylvania. Mr. Kirby is responsible
for the leadership, direction and management of the Company's direct and
indirect sales channels and pre-sales organization in North, Central and South
America. Mr. Kirby moved to Astea from Base Ten System, Inc., an application
software development company, where he was vice president and general manager
responsible for North American sales, marketing, professional services and
customer support. Previously, he held various leadership and management
positions during a 13-year tenure with Honeywell, Inc. Mr. Kirby is a graduate
of Villanova University.
Section 16(a) of the Exchange Act requires the Company's Directors,
executive officers and holders of more than 10% of the Company's Common Stock
(collectively, "Reporting Persons") to file with the Commission initial reports
of ownership and reports of changes in ownership of Common Stock of the Company.
Such persons are required by regulations of the Commission to furnish the
Company with copies of all such filings. Based on its review of the copies of
such filings received by it with respect to the fiscal year ended December 31,
2000 and written representations from certain Reporting Persons, the Company
believes that all Reporting Persons complied with all Section 16(a) filing
requirements in the fiscal year ended December 31, 2000.
Item 11. Executive Compensation.
The following table sets forth information concerning the compensation for
services in all capacities to the Company for the fiscal years ended December
31, 2000, 1999, and 1998, of the following persons (i) each person who served as
Chief Executive Officer during the year ended December 31, 2000, (ii) the only
other executive officer of the Company in office at December 31, 2000 who earned
more than $100,000 in salary and bonus in fiscal 2000 (collectively, the "Named
Executive Officers"), and (iii) one former executive officer of the Company who
was not employed by the Company on December 31, 2000, but otherwise would have
been named an executive officer.
48
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term
-------------------------------- Compensation
Securities
Underlying
Options All Other
Name and Principal Position Year Salary ($) Bonus ($) (# of shares) Compensation ($)
--------------------------- ---- ---------- --------- ------------- ----------------
Zack B. Bergreen 2000 $ 233,971 -- -- $ 242,897(1)
Chairman of the Board and Chief 1999 300,000 -- -- 74,800(2)
Executive Officer(2) 1998 300,000 -- -- 69,600(2)
Jim Kirby 2000 $ 158,125 $94,841 100,000 (3) --
Vice President, Sales, North America
Bruce R. Rusch 2000 $ 152,971 -- -- $ 280,400(4)
Former President and Chief Executive 1999 128,390(5) -- 500,000(5) --
Officer
John G. Phillips 2000 $ 80,686 -- -- $ 109,538(6)
Former Vice President and Chief 1999 147,000 -- -- --
Financial Officer 1998 134,375 $10,000 122,500(7) --
Charles D. LaMotta 1999 $ 143,787(8) $15,000 -- $112,500 (8)
Former President and 1998 179,487 75,000 600,000 (8) --
Chief Operating Officer (8)
R. Scott Sander 1999 $100,977 (9) $35,100 -- $ 35,000 (9)
Former Vice President, 1998 90,102 32,204 200,000 (9) --
Sales, North America (9)
(1) Includes premiums for term, split-dollar life insurance paid by the Company
on behalf of the Named Executive Officer, payout for consulting services
performed January 2000 through May 2000, and vacation payout.
(2) Includes premiums for term, split-dollar life insurance paid by the Company
on behalf of the Named Executive Officer.
(3) Represents an option to purchase 100,000 shares of Common Stock which was
awarded based on merit.
(4) Includes total severance payout of $150,000 as well as gain recognized on
the exercise of 41,664 non-qualified options during 2000.
(5) Mr. Rusch was granted options to purchase 500,000 shares of Common Stock in
July 1999 and was named President and Chief Executive Officer on August 9,
1999.
(6) Includes total severance payout of $75,600 as well as gain recognized on
the exercise of 18,750 non-qualified options during 2000.
(7) Represents an option granted in 1998 to purchase 25,000 shares of Common
Stock, which was repriced later in 1998 (and therefore counted twice for
purposes of this table) and other options to purchase 72,500 shares, which
were repriced in 1998. The Commission's regulations require that repriced
options be reported as new grants in the year of repricing.
(8) Represents an option granted in 1998 to purchase 300,000 shares of Common
Stock, which was repriced later in 1998 (and therefore counted twice for
purposes of this table). The Commission's regulations require that repriced
options be reported as new grants in the year of repricing. Mr. LaMotta
resigned from the Company in July 1999 and received $112,500 during 1999 as
severance.
(9) Represents an option granted in 1998 to purchase 100,000 shares of Common
Stock, which was repriced later in 1998 (and therefore counted twice for
purposes of this table). The Commission's regulations require that repriced
options be reported as new grants in the year of repricing. Mr. Sander
resigned from the Company in September 1999 and received $35,000 during
1999 as severance.
49
Option Grants in Last Fiscal Year
The following table sets forth each grant of stock options made during the
year ended December 31, 2000 to each of the Named Executive Officers:
Individual Grants
-----------------
Percent of
Total Potential Realizable Value at
Number of Options Assumed
Securities Granted to Annual Rates of Stock Price
Underlying Employees Exercise Appreciation for Option
Options In Fiscal Price Expiration Terms(2)
Name Granted (#) Year ($/Share)(1) Date 5%($) 10%($)
- ---- ----------- ---- ------------ ---- ----- ------
Rick Etskovitz 25,000(3) 3% $0.97 8/14/2010 $15,251 $ 38,648
Jacques Cormier 25,000(3) 3% $0.97 8/14/2010 $15,251 $ 38,648
Jim Kirby 100,000(4) 13% $0.97 8/14/2010 $61,003 $154,593
(1) The exercise price per share of each option was fixed by the Board of
Directors; the fair market value per share of Common stock at the date of
grant was $0.97 per share.
(2) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compounded rates of appreciation (5% and 10%)
on the market value of the Company's Common Stock on the date of option
grant over the term of the options. These numbers are calculated based on
rules promulgated by the Commission and do not reflect the Company's
estimate of future stock price growth. Actual gains, if any, on stock
option exercises and Common Stock holdings are dependent on the timing of
such exercise and the future performance of the Company's Common Stock.
There can be no assurance that the rates of appreciation assumed in this
table can be achieved or that the amounts reflected will be received by the
individual.
(3) Options to purchase 25,000 shares will vest in equal installments on each
of the first four anniversaries of the grant date.
(4) Options to purchase 100,000 shares were granted based on merit and will
vest in equal installments on each of the first four anniversaries of the
grant date.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
The following table sets forth, for each of the Named Executive Officers,
information with respect to the exercise of stock options during the year ended
December 31, 2000 and the year-end value of unexercised options:
Value of Unexercised
Shares Numbers of Unexercised In-the-Money Options
Acquired on Value Options at Year End at Year End
Name Exercise(#) Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- ----------- ------------------------- -------------------------
Zack B. Bergreen -- -- -- --
Rick Etskovitz -- -- 0/25,000 --
Jacques Cormier 19,500 $36,514 2,500/30,000 --
Jim Kirby -- -- 40,000/220,000 --
Employment Agreements and Severance Arrangements with Executive Officers
The Company has not entered into employment agreements with any of its
current Executive Officers. Board Interlocks and Insider Participation
50
No executive officer of the Company served as a member of the Board of
Directors, compensation committee, or other committee performing equivalent
functions, of another entity one of whose executive officers served as a
Director of the Company. Other than Mr. Bergreen and Mr. Rusch, no person who
served as a member of the Board was, during the fiscal year ended December 31,
2000, simultaneously an officer, employee or consultant of the Company or any of
its subsidiaries. Messrs. Bergreen and Rusch did not participate in any Company
determination of their own personal compensation matters.
Compensation of Directors
Directors who are not employees of the Company receive a fee of $1,000 for
attendance at each regular and special meeting of the Board of Directors, and
are also reimbursed for their reasonable out-of-pocket expenses incurred in
attending meetings. Non-Employee Directors may elect to receive, in lieu of the
foregoing cash compensation, unrestricted shares of Common Stock of the Company.
Shares of Common Stock in lieu of cash compensation are acquired at the fair
market value of the Common Stock on the last day of the calendar quarter during
which the cash compensation was earned and foregone. Non-employee Directors are
also eligible to receive annual stock option grants under the Company's 1995
Non-Employee Director Stock Option Plan. Directors who are employees are not
compensated for their service on the Board of Directors or any committee
thereof.
51
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth as of the March 31, 2001: (i) the name of each
person who, to the knowledge of the Company, owned beneficially more than 5% of
the shares of Common Stock of the Company outstanding at such date; (ii) the
name of each Director; and (iii) the name of each current executive officer of
the Company. The following table also sets forth as of March 31, 2001 the number
of shares owned by each of such persons and the percentage of the outstanding
shares represented thereby, and also sets forth such information for Directors,
nominees and executive officers as a group.
Name and Address Of Beneficial Owner Amount of Ownership(1) Percent of Class(2)
- ------------------------------------ ---------------------- --------------------
Zack B. Bergreen(3) 6,792,000 46.3%
c/o Astea International
455 Business Center Drive
Horsham, Pennsylvania 19044
Fallen Angel Equity Fund, L.P.(4) 2,182,500 14.9%
960 Holmdel Road
Holmdel, NJ 07733
Barry M. Goldsmith(5) 2,184,040 14.9%
Adrian Peters 0 *
Isadore Sobkowski 0 *
Rick Etskovitz 8,000 *
Jacques Cormier 19,500 *
Jim Kirby 0 *
All current directors, nominees and executive officers 9,003,540 61.4%
as a group (7 persons)(1)-(5)
* Less than 1% of the outstanding shares of Common Stock.
(1) Except as noted in the footnotes to this table, each person or entity named
in the table has sole voting and investment power with respect to all
shares of Common Stock owned, based upon information provided to the
Company by Directors, officers and principal stockholders. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission (the "Commission") and includes voting and investment
power with respect to shares of Common Stock subject to options currently
exercisable or exercisable within 60 days after the Record Date ("presently
exercisable stock options").
(2) Applicable percentage of ownership as of the Record Date is based upon
14,658,187 shares of Common Stock outstanding as of that date. Beneficial
ownership is determined in accordance with the rules of the Commission and
includes voting and investment power with respect to shares. Presently
exercisable stock options are deemed outstanding for computing the
percentage ownership of the person holding such options, but are not deemed
outstanding for computing the percentage of any other person.
(3) Includes 2,036,276 shares of Common Stock held by trusts of which Mr.
Bergreen and his wife are the only trustees, 271,342 shares held by trusts
with independent trustees, and 1,200,000 shares of Common Stock held by a
family limited partnership of which Mr. Bergreen is the sole general
partner.
(4) As reported on Schedule 13D and Form 4. Mr. Goldsmith is Manager of Fallen
Angel Capital, LLC, which is the general partner of Fallen Angel Equity
Fund, L.P.
(5) Represents 1,540 shares directly owned by Mr. Goldsmith and 2,182,500
shares held by Fallen Angel Equity Fund, L.P. as reported on Schedule 13D
and Form 4. Mr. Goldsmith is Manager of Fallen Angel Capital, LLC, which is
the general partner of Fallen Angel Equity Fund, L.P. Mr. Goldsmith
disclaims beneficial ownership of the shares of Common Stock held by Fallen
Angel Equity Fund, L.P.
52
Item 13. Certain Relationships and Related Transactions.
On December 31, 1999, Zack Bergreen ceased active employment with the
Company and was engaged as a consultant beginning January 1, 2000. During May
2000, Mr. Bergreen resumed his previous duties as President and Chief Executive
Officer thereby terminating the consulting agreement. See also Note 15 of the
Notes to the Consolidated Financial Statements of the Company appearing
elsewhere in this Annual report on Form 10-K.
53
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(1)(A) Consolidated Financial Statements.
i) Consolidated Balance Sheets at December 31, 2000 and 1999
ii) Consolidated Statements of Operations for the years ended
December 31, 2000, 1999, and 1998
iii) Consolidated Statements of Stockholders' Equity for the years
ended December 31, 2000, 1999, and 1998
iv) Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999, and 1998
v) Notes to the Consolidated Financial Statements
(a)(1)(B) Report of Independent Public Accountants.
(a)(2) Schedules.
a) Schedule II - Valuation and Qualifying Accounts
Schedule listed above has been omitted because the information
required to be set forth therein is not applicable or is shown in
the accompanying Financial Statements or notes thereto.
(a)(3) List of Exhibits.
The following exhibits are filed as part of and incorporated by reference
into this Annual Report on Form 10-K:
Exhibit No. Description
2.1 Stock Purchase Agreement, dated August 14, 1998, among the
Company, Ixchange Technology Holdings Limited, Network Data,
Inc., Bendata, Inc., Bendata (Europe) Limited LLC, and Bendata
Holding, Inc. (Incorporated herein by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K dated
September 4, 1998).
2.2 Stock Purchase Agreement, dated December 31, 1998, among the
Company, Network Data, Inc. and Industri-Matematik
International Corporation (Incorporated herein by reference to
Exhibit 2.1 to the Company's Current Report on Form 8-K dated
December 31, 1998).
3(i).1 Certificate of Incorporation of the Company (Incorporated
herein by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1, as amended (File No.
33-92778)).
3(ii).1 By-Laws of the Company (Incorporated herein by reference to
Exhibit 3.2 to the Company's Registration Statement on
Form S-1, as amended (File No. 33-92778)).
4.1 Specimen certificate representing the Common Stock
(Incorporated herein by Reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-1, as amended (File
No. 33-92778)).
10.1 1994 Amended Stock Option Plan (Incorporated herein by
reference to Exhibit 10.1 to the Company's Registration
Statement on Form S-1, as amended (File No. 33-92778)).
10.2 Form of Non-Qualified Stock Option Agreement under the 1994
Amended Stock
54
Option Plan (Incorporated herein by reference to Exhibit 10.2
to the Company's Registration Statement on Form S-1, as
amended (File No. 33-92778)).
10.3 Form of Incentive Stock Option Agreement under the 1994
Amended Stock Option Plan (Incorporated herein by reference to
Exhibit 10.3 to the Company's Registration Statement on Form
S-1, as amended (File No. 33-92778)).
10.4 1991 Amended Non-Qualified Stock Option Plan (Incorporated
herein by reference to Exhibit 10.4 to the Company's
Registration Statement on Form S-1, as amended (File No.
33-92778)).
10.5 Form of Non-Qualified Stock Option Agreement under the 1991
Amended Non- Qualified Stock Option Plan (Incorporated herein
by reference to Exhibit 10.5 to the Company's Registration
Statement on Form S-1, as amended (File No. 33-92778)).
10.6 1995 Employee Stock Purchase Plan (Incorporated herein by
reference to Exhibit 10.6 to the Company's Registration
Statement on Form S-1, as amended (File No. 33-92778)).
10.7 Amendment No. 1 to 1995 Employee Stock Purchase Plan
(Incorporated herein by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1997).
10.8 1995 Employee Stock Purchase Plan Enrollment/Authorization
Form (Incorporated herein by reference to Exhibit 4.7 to the
Company's Registration Statement on Form S-8, filed on
September 19, 1995 (File No. 33-97064)).
10.9 Amended and Restated 1995 Non-Employee Director Stock Option
Plan (Incorporated herein by reference to Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.10 Form of Non-Qualified Stock Option Agreement under the 1995
Non-Employee Director Stock Option Plan (Incorporated herein
by reference to Exhibit 4.5 to the Company's Registration
Statement on Form S-8, filed on September 19, 1995 (File No.
33-97064)).
10.11 1997 Stock Option Plan (Incorporated herein by reference to
Exhibit 10.10 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996).
10.12 Form of Non-Qualified Stock Option Agreement under the 1997
Stock Option Plan. (Incorporated herein by reference to
Exhibit 10.11 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996).
10.13 Form of Incentive Stock Option Agreement under the 1997 Stock
Option Plan (Incorporated herein by reference to Exhibit 10.12
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996).
10.14 1998 Stock Option Plan (Incorporated herein by reference to
Exhibit 10.14 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997).
10.15 Form of Non-Qualified Stock Option Agreement under the 1998
Stock Option Plan. (Incorporated herein by reference to
Exhibit 10.15 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997).
10.16 Form of Incentive Stock Option Agreement under the 1998 Stock
Option Plan. (Incorporated herein by reference to Exhibit
10.16 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997).
10.17 Loan and Security Agreement, dated August 1, 1999, between the
Company and Silicon Valley Bank (Incorporated herein by
reference to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30, 1999).
10.20 Modification Agreement dated April 30, 1998 by and among the
Company, PNC Bank, National Association and PNC Leasing Corp.
(Incorporated herein by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998).
10.22 Letter to John G. Phillips regarding severance terms
(Incorporated herein by reference to Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1999).
55
10.23 Letter to Bruce R. Rusch regarding employment terms.
(Incorporated herein by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999).
10.24 Letter to Howard P. Kamins regarding employment terms
(Incorporated herein by reference to Exhibit 10.24 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1999).
10.25 Consulting Agreement between the Company and Zack B. Bergreen
(Incorporated herein by reference to Exhibit 10.25 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1999).
10.26 Transfer of Rights Agreement regarding PowerHelp (Incorporated
herein by reference to Exhibit 10.26 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1999).
10.27 Guaranty in connection with Transfer of Rights Agreement
regarding PowerHelp (Incorporated herein by reference to
Exhibit 10.27 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1999).
10.28* Letter to Rick Etskovitz regarding employment terms.
21.1* Subsidiaries of the Registrant.
23.1* Consent of Arthur Andersen LLP.
24.1* Powers of Attorney (See the Signature Page).
----------
* Filed herewith
(b) Reports on Form 8-K.
The Company filed no current reports on Form 8-K, or amendments to
current reports on Form 8-K/A, during the fiscal quarter ended December 31,
2000.
(c) Exhibits.
The Company hereby files as part of this Annual Report on Form 10-K the
exhibits listed in Item 14(a)(3) set forth above.
56
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 27th day of April
2001.
ASTEA INTERNATIONAL INC.
By: /s/ Zack Bergreen
-------------------------------
Zack Bergreen
President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Zack Bergreen and Rick Etskovitz, jointly
and severally, his attorney-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to this Report on Form
10-K and to file same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorney-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/Zack Bergreen President and Chief Executive April 27, 2001
---------------- Officer (Principal Executive Officer)
Zack Bergreen
/s/Rick Etskovitz Vice President and Chief April 27, 2001
------------------ Financial Officer (Principal
Rick Etskovitz Financial and Accounting
Officer)
/s/ Barry M. Goldsmith Director April 27, 2001
---------------------------
Barry M. Goldsmith
/s/ Zack Bergreen Director April 27, 2001
------------------
Zack Bergreen