<PAGE>
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange
Act Of 1934
For the quarterly period ended June 30, 1996
------------------
[ ] Transition Report Pursuant To Section 13 or 15(d) Of The Securities Exchange
Act Of 1934
For the transition period from to
--------------- ----------------
Commission File Number 0-26330
-----------------------------------------
Astea International Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-2119058
- --------------------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Highpoint Drive, Chalfont, PA 18914
- ----------------------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (215) 822-8888
-------------------
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the last 90 days. Yes [x] No [_]
As of August 7, 1996 there were 13,027,000 shares of common stock outstanding,
par value $.01 per share.
_______________________________________________________________________________
<PAGE>
ASTEA INTERNATIONAL INC.
FORM 10Q
QUARTERLY REPORT
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Facing Sheet 1
Index 2
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Consolidated Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 5
Notes to unaudited consolidated financial statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters To A Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 18
Exhibit 11 Computation of Earnings Per Share 19
Exhibit 27 Financial Data Schedule 20
</TABLE>
<PAGE>
PART I. - FINANCIAL INFORMATION
- -------------------------------
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
ASTEA INTERNATIONAL INC.
------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
ASSETS June 30, December 31,
------ 1996 1995
--------------- ----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,512,000 $ 4,021,000
Investments available for sale 16,606,000 30,822,000
Receivables, net of reserves 19,276,000 21,560,000
Prepaid expenses and other 1,898,000 1,917,000
Prepaid income taxes 1,917,000 ----
Deferred income taxes 3,022,000 1,194,000
----------------------------------
Total current assets 45,231,000 59,514,000
Property and equipment - net 6,771,000 5,822,000
Capitalized software - net 3,094,000 1,713,000
Goodwill - net 2,854,000 2,321,000
----------------------------------
Total assets $ 57,950,000 $69,370,000
==================================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Line of credit $ 980,000 $ 1,200,000
Current portion of obligations under
capital leases 99,000 97,000
Accounts payable and accrued expenses 10,334,000 9,613,000
Deferred revenues 6,899,000 7,872,000
----------------------------------
Total current liabilities 18,312,000 18,782,000
Deferred income taxes 424,000 136,000
Noncurrent portion of obligations under
capital leases 2,477,000 2,532,000
Other noncurrent commitments 1,000,000 -----
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value,
5,000,000 shares authorized, none ----- -----
issued
Common stock, $.01 par value,
25,000,000 shares authorized,
13,025,000 issued and outstanding 130,000 124,000
Additional paid-in capital 52,661,000 45,600,000
Deferred compensation (302,000) (388,000)
Cumulative exchange difference (244,000) (115,000)
Retained earnings (16,508,000) 2,699,000
----------------------------------
Total liabilities and
stockholders' equity $ 57,950,000 $69,370,000
==================================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
ASTEA INTERNATIONAL INC.
------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
--------------------------- ---------------------------
1996 1995 1996 1995
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Software license fees $ 3,881,000 $ 8,145,000 $ 11,369,000 $12,352,000
Services and maintenance 7,610,000 5,435,000 15,009,000 10,310,000
-----------------------------------------------------------
Total revenues 11,491,000 13,580,000 26,378,000 22,662,000
-----------------------------------------------------------
Costs and expenses:
Cost of software licenses fees 856,000 1,100,000 1,630,000 1,785,000
Cost of services and maintenance 5,234,000 3,862,000 9,809,000 7,051,000
Product development 2,202,000 859,000 3,821,000 1,655,000
Sales and marketing 5,447,000 3,652,000 10,033,000 6,116,000
General and administrative 3,431,000 1,605,000 5,344,000 2,964,000
Expenses related to pooling transaction ------- ------- 3,416,000 -------
Charge for purchased research and
development 13,810,000 ------- 13,810,000 -------
-----------------------------------------------------------
Total costs and expenses 30,980,000 11,078,000 47,863,000 19,571,000
-----------------------------------------------------------
Income (loss) from operations (19,489,000) 2,502,000 (21,485,000) 3,091,000
Net interest income (expense) 229,000 (176,000) 509,000 (311,000)
-----------------------------------------------------------
Income (loss) before income taxes (19,260,000) 2,326,000 (20,976,000) 2,780,000
Provision for income taxes (2,077,000) 41,000 (1,769,000) 55,000
-----------------------------------------------------------
Net income (loss) ($17,183,000) $ 2,285,000 ($19,207,000) $ 2,725,000
===========================================================
Net income (loss) per share $ (1.35) $ .23 $ (1.52) $ .27
===========================================================
Weighted average shares outstanding 12,738,000 10,001,000 12,644,000 10,001,000
===========================================================
Pro forma data (Note 5)
Pro forma income (loss) before
income taxes ($5,450,000) $ 2,326,000 ($3,750,000) $ 2,780,000
Pro forma income taxes (2,077,000) 896,000 (1,431,000) 1,101,000
-----------------------------------------------------------
Pro forma net income (loss) ($3,373,000) $ 1,430,000 ($2,319,000) $ 1,679,000
===========================================================
Pro forma net income (loss) per share $ (.26) $ .14 $ (.18) $ .17
===========================================================
Weighted average shares outstanding 12,738,000 10,001,000 12,644,000 10,001,000
===========================================================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
ASTEA INTERNATIONAL INC.
------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
------------------------------------
1996 1995
------------------ ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(19,207,000) $ 2,725,000
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities-
Depreciation and amortization 1,254,000 1,019,000
Tax benefit from exercise of
stock options 1,742,000 ---
Charge for purchased research and
development 13,810,000 ---
Other 30,000 27,000
Changes in operating assets and
liabilities, net of effect of
acquired businesses:
Receivables 2,674,000 208,000
Prepaid expenses and other 63,000 (203,000)
Prepaid income taxes (1,917,000) ---
Accounts payable and accrued
expenses (921,000) 694,000
Deferred income taxes (1,540,000) ---
Deferred revenues (952,000) (878,000)
------------------------------------
Net cash provided by (used
in) operating activities (4,964,000) 3,592,000
Cash flows from investing activities:
Sale of short-term investments, net 14,216,000 ---
Purchases of property and equipment (1,452,000) (876,000)
Capitalized software development costs (475,000) (328,000)
Repayments of notes receivable from
majority stockholder and his wife --- 217,000
Payment for acquired businesses, net of
cash acquired (8,550,000) (168,000)
------------------------------------
Net cash provided by (used
in) operating activities 3,739,000 (1,155,000)
Cash flows from financing activities:
Proceeds from exercise of stock options 525,000 ---
Net borrowings (repayments) on line of credit (550,000) 2,075,000
Repayments of long-term debt (49,000) (959,000)
Capital contribution --- 46,000
Repayments of notes receivable from majority
stockholder and his wife --- (266,000)
S Corporation distribution (200,000) (2,496,000)
------------------------------------
Net cash used in
financing activities (274,000) (1,600,000)
Effect of exchange rate changes on cash (10,000) 21,000
------------------------------------
Net increase (decrease) in cash and
cash equivalents (1,509,000) 858,000
Cash and cash equivalents balance,
beginning of period 4,021,000 1,119,000
------------------------------------
Cash and cash equivalents balance, end
of period $ 2,512,000 $ 1,977,000
====================================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Item 1. Financial Statements (Continued)
- ----------------------------------------
ASTEA INTERNATIONAL INC.
------------------------
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
1. BASIS OF PRESENTATION
---------------------
The consolidated financial statements at June 30, 1996 and for the three and six
month periods ended June 30, 1996 and 1995 of Astea International Inc. and
subsidiaries (the "Company") are unaudited and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial position and
operating results for the interim periods. The consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto, together with management's discussion and analysis of financial
condition and results of operations, contained in the Company's 1995 Annual
Report and Form 10-K which are hereby incorporated by reference in this report
on Form 10-Q.
2. BENDATA MERGER
--------------
On February 27, 1996, the Company completed a merger with Bendata Inc. and
Bendata UK LLC (collectively, "Bendata"). The Company exchanged 1,500,000 shares
of its common stock for all of Bendata's outstanding capital stock and ownership
interests in a merger accounted for as a pooling of interests. All financial
data has been restated to include Bendata for each period presented.
In connection with the Bendata merger, $3,416,000 of merger expenses ($2,609,000
after-tax) were incurred and charged to expense in the first quarter of 1996.
The merger expenses consisted of bonus payments made to Bendata non-shareholder
employees as well as legal, accounting and investment banking fees.
3. ABALON ACQUISITION
------------------
On June 28, 1996, the Company completed an acquisition of Abalon AB ("Abalon").
The Company exchanged cash of $8,550,000 and 233,236 shares of its common stock
for all of Abalon's outstanding capital stock in an acquisition accounted for as
a purchase transaction.
In connection with the Abalon acquisition, the Company recorded a one time
charge of $13,810,000 related to the fair value of incomplete research and
development. Due to the timing of the acquisition, which closed on June 28,
1996, there are no results of operations related to Abalon included in the
Company's June 1996 statement of income.
<PAGE>
4. INCOME TAXES
------------
During the first quarter of 1995, and the period from January 1, 1996 to
February 27, 1996 in the case of Bendata only, the Company was taxed under
subchapter S of the Internal Revenue Code; therefore, income taxes include a
provision for certain states which do not recognize S-corporation status. Income
taxes for the first quarter of 1996 include a charge of $575,000 for the
reinstatement of a deferred income tax liability for Bendata caused by the
termination of Bendata's S-corporation status as a result of the merger
discussed in note 2. Excluding this charge, the Company would have recorded an
income tax benefit of $2,344,000, or an effective tax rate of 11.2% for the six
months ended June 30, 1996. This income tax benefit was reduced due to the non-
deductibility of certain merger expenses, and charges for purchased research and
development, or an effective tax rate of 27.4%.
5. PRO FORMA INFORMATION
---------------------
Pro Forma Income Statement
- --------------------------
Pro forma information for the three months and six months ended June 30, 1996
excludes from income before income taxes the one-time charge for the purchase of
research and development costs of $13,810,000 related to Abalon and for the six
months ended June 30, 1996 the merger expenses of $3,416,000 ($2,609,000 after-
tax) and the one-time income tax charge of $575,000 due to the conversion of
Bendata from an S corporation to a C corporation as a result of the merger.
The pro forma income taxes for the periods ended June 30, 1996 and 1995
reflected above were calculated as if the Company and Bendata were C
corporations for the periods presented using the criteria established under
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
Pro Forma Net Income Per Share
- ------------------------------
Pro forma net income per share was calculated by dividing pro forma net income
by the weighted average number of shares of common stock outstanding, including
the 1,500,000 shares of common stock issued in the Bendata merger for the
respective periods. These shares were adjusted for the dilutive effect of common
stock equivalents, which consist of issued but unexercised stock options, using
the treasury stock method. Pursuant to the requirements of the Securities and
Exchange Commission, common stock equivalents issued by the Company during the
12 months immediately preceding the initial public offering of the Company's
common stock in August 1995 (the "Offering") have been included in the
calculation of the shares used in computing pro forma net income per share for
the three and six month periods ended June 30, 1995 as if they were outstanding
for all periods presented (using the treasury stock method and the average fair
market price of such common stock).
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
-------------
Overview
- --------
This document contains various forward-looking statements and information that
are based on management's beliefs as well as assumptions made by and information
currently available to management. Such statements are subject to various risks
and uncertainties which could cause actual results to vary materially from those
projected. 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
the Company's Registration Statement on Form S-1 filed under the Securities Act
of 1933, and in its other SEC filings, including its quarterly reports on Form
10-Q for 1995 and 1996, and its Annual Report on Form 10-K for 1995, each of
which are incorporated by reference herein.
The Company develops, markets, implements and supports a suite of customer
interaction software applications for client/server and host-based computing
environments that permit organizations of various sizes across a wide range of
industries to automate and integrate field service, customer support and sales
automation functions. The Company maintains operations in the United States,
Australia, New Zealand, the Netherlands, Germany, France, the United Kingdom
Sweden and Israel.
Results of Operations
- ---------------------
Comparison of Three Months Ended June 30, 1996 and 1995
- -------------------------------------------------------
Revenues
- --------
Total revenues decreased $2,089,000 or 15% to $11,491,000 in the three months
ended June 30, 1996 from $13,580,000 in the three months ended June 30, 1995.
The decrease in software license fees was partially offset by increases in
professional services and maintenance fees which amounted to $7,610,000 or a 40%
increase over the same quarter in 1995. The Company's international operations
contributed $3,498,000 in the second quarter of 1996 compared to $1,574,000 in
the second quarter of 1995. This represents a 122% increase over the same period
last year and 30% of the total revenues in the period. Bendata total revenue for
the three months ended June 30, 1996 was $3,522,000 compared to $2,730,000 for
the three months ended June 30, 1995, increasing 29% over the prior period and
accounting for 31% of the total revenues in the second quarter of 1996.
Software license fee revenues decreased 52% to $3,881,000 in the second quarter
of 1996 from $8,145,000 in the second quarter of 1995. The decrease in software
license fees resulted from several DISPATCH-1 orders which did not close during
the second quarter of 1996 as anticipated. The second quarter of 1996 compared
to the second quarter of 1995 percentage variances in license revenues for
DISPATCH-1, PowerHelp and HEAT were (91%), 778% and 12% respectively.
International operations accounted for $1,538,000 of license revenues in the
second quarter of 1996 compared to $518,000 in the second quarter of 1995, an
increase of 197%. Bendata license revenue amounted to $2,198,000 in the second
quarter of 1996, a 12% increase over the same period last year.
<PAGE>
Services and maintenance revenues increased 40% to $7,610,000 in the second
quarter of 1996 from $5,435,000 in the second quarter of 1995. International
operations contributed services and maintenance revenues of $1,960,000, an 86%
increase over the second quarter of 1995. Bendata contributed services and
maintenance revenues of $1,324,000, an increase of $551,000 or 71% over the same
quarter in the prior year. These increases are primarily attributable to the
growth of the Company's customer base as compared to prior periods, and the
increasing complexity of license installations which require additional
professional services and support.
In the second quarter of 1996, the Company had no customers which accounted for
greater than 10% of total revenues. In the second quarter of 1995, the Company
had two customers which accounted for 37% and 15% respectively of total
revenues.
Costs of Revenues
- -----------------
Cost of software license fees decreased 22% to $856,000 in the second quarter of
1996 from $1,100,000 in the second quarter of 1995. The decrease was primarily
due to the decrease in license fees payable to third parties in connection with
decreased licenses of the Company's software. Cost of software license fees as a
percentage of software license fee revenues increased to 22% in the second
quarter of 1996 from 14% in the second quarter of 1995. This increase was
primarily attributable to the lower volume of third party software licenses
required to support the software licenses sold, while the amortization of
capitalized software remained constant.
Costs of services and maintenance increased 36% to $5,234,000 in the second
quarter of 1996 from $3,862,000 in the second quarter of 1995. The increase was
primarily due to increased personnel costs for service and support attendant to
increasing obligations under consulting and maintenance agreements arising
during prior periods and the expansion of the Company's international
operations. Cost of services and maintenance as a percentage of service and
maintenance revenues decreased to 69% for the second quarter of 1996 from 71%
for the second quarter of 1995. This decrease in costs of services and
maintenance as a percentage of service and maintenance revenues was primarily a
result of the Company's international operations becoming more efficient and
performing at higher productivity levels.
Product Development
- -------------------
Product development expense increased 156% to $2,202,000 in the second quarter
of 1996 from $859,000 in the second quarter of 1995. Product development as a
percentage of revenue increased to 19% in the second quarter of 1996 from 6% in
the first quarter of 1995. This increase as a percentage of revenue is partially
due to the lower overall revenue volume in the second quarter but primarily
represented a planned effort on the part of the Company to place greater
emphasis on product development expenditures. The Company expects that product
development expenses will continue to grow as an absolute dollar amount in the
future as new and existing products are developed and enhanced.
<PAGE>
Sales and Marketing
- -------------------
Sales and marketing expense increased 49% to $5,447,000 in the second quarter of
1996 from $3,652,000 in the second quarter of 1995. As a percentage of revenues,
sales and marketing expenses increased to 47% due to the lower overall revenue
volume in the second quarter of 1996 from 27% in the second quarter of 1995. The
increase in absolute dollars was attributable to the Company's continued efforts
to expand the Company's sales and marketing efforts, including the hiring of
additional sales and marketing personnel and increased advertising and marketing
expenditures.
General and Administrative
- --------------------------
General and administrative expenses increased 114% to $3,431,000 in the second
quarter of 1996 from $1,605,000 in the second quarter of 1995. As a percentage
of revenues, general and administrative costs increased to 30% in the second
quarter of 1996 from 12% in the second quarter of 1995 due to the lower overall
revenue volume in the second quarter and a one time precautionary reserve made
by the Company to address a customer satisfaction issue.
International Operating Income
- ------------------------------
International operating results for the second quarter of 1996 amounted to a
loss of $1,548,000 compared to a loss of $689,000 in the second quarter of 1995.
This increase in the loss incurred from period to period was primarily due to
two factors. The first relates to the license revenue shortfall in the second
quarter of 1996, in which various license agreements failed to close as
anticipated. The second factor relates to a significant increase in product
development expenditures by the Company's Israeli operations which are primarily
engaged in product development activities for the Company. Such expenditures
increased by over $500,000 in the second quarter of 1996 over the second quarter
of 1995.
Net Interest Income
- -------------------
Net interest income increased 230% to $229,000 in the second quarter of 1996
from $176,000 of interest expense in the second quarter of 1995. This increase
was primarily attributable to interest income earned on the proceeds from the
Offering.
Comparison of Six Months Ended June 30, 1996 and 1995
- -----------------------------------------------------
Revenues
- --------
Total revenues increased $3,716,000 or 16% to $26,378,000 in the six months
ended June 30, 1996 from $22,662,000 in the six months ended June 30, 1995. This
overall increase was comprised of a decrease in software license fees of
$983,000 or 8% on a comparative six month basis versus an increase in
professional services and maintenance of $4,699,000 or 46% over the same
comparative period. The Company's international operations, including Astea B.V.
which was acquired by the Company in February 1995, contributed $6,710,000 in
the first six months of 1996 compared to $2,679,000 in the first six months of
1995. This represents a 150% increase over the same period last year and 25% of
total revenues in the period. Total Bendata revenue for the six months ended
June 30, 1996 was $6,957,000 compared to $4,486,000 for the six
<PAGE>
months ended June 30, 1995, increasing 55% over the prior period and accounting
for 26% of the total revenues in the first six months of 1996.
Software license fee revenues decreased 8% to $11,369,000 in the first six
months of 1996 from $12,352,000 in the first six months of 1995. The decrease in
software license fees on a six month basis primarily resulted from anticipated
DISPATCH-1 license fee transactions not closing in the second quarter of 1996.
The first six months of 1996 compared to the first six months of 1995 percent
variances in software license revenues for DISPATCH-1, PowerHelp and HEAT
products were (43%), 631% and 49% respectively. International operations
accounted for $3,022,000 of software license fee revenues in the first six
months of 1996 compared to $993,000 in the first six months of 1995, an increase
of 204%. Bendata license revenue amounted to $4,390,000 in the first six months
of 1996, representing a 49% increase over the same period last year.
Total services and maintenance revenues increased 46% to $15,009,000 in the
first six months of 1996 from $10,310,000 in the first six months of 1995.
International operations contributed services and maintenance revenues of
$3,689,000, an increase of 119% over the first six months of 1995. Bendata
contributed services and maintenance revenues of $2,567,000, an increase of
$1,025,000 or 67% over the first six months of 1995. The increases result from
the overall expansion of professional services and maintenance associated with
the growth of the Company's customer base compared to prior periods, and the
increasing complexity of software license installations which require additional
professional services and support.
In the first six months of 1996, the Company had no customers which accounted
for greater than 10% of total revenues. In the first six months of 1995, the
Company had two customers which accounted for 23% and 13% respectively of total
revenues.
Costs of Revenues
- -----------------
Costs of software license fees decrease 9% to $1,630,000 in the first six months
of 1996 from $1,785,000 in the first six months of 1995. Cost of software
license fees as a percentage of software license fee revenue decreased to 14%
for the first six months of 1996 from 15% for the first six months of 1995. This
decrease was primarily due to the decrease in license fees payable to third
parties in connection with the lower software license sales in the second
quarter of 1996.
Costs of services and maintenance increased 39% to $9,809,000 in the first six
months of 1996 from $7,051,000 in the first six months of 1995. This increase
was primarily due to increased personnel costs for service and support attendant
to increasing obligations under consulting and maintenance agreements arising
during prior periods and the expansion of the Company's international
operations. Costs of services and maintenance as a percentage of service and
maintenance revenues decreased to 65% for the first six months of 1996 compared
to 68% in the first six months of 1995. This decrease in costs of services and
maintenance as a percentage of service and maintenance revenues was primarily a
result of the Company's international operations becoming more efficient and
performing at higher productivity levels.
<PAGE>
Product Development
- -------------------
Product development expense increased 131% to $3,821,000 in the first six months
of 1996 from $1,655,000 in the first six months of 1995. Product development as
a percentage of revenue increased to 15% in the first half of 1996 compared to
7% in the first half of 1995. This increase as a percentage of revenue is
partially due to the lower overall revenue volume in the first six months of
1996, but primarily represented a planned effort on the part of the Company to
place greater emphasis on product development expenditures. The Company expects
that product development expenses will continue to grow as an absolute dollar
amount in the future as new and existing products are developed and enhanced.
Sales and Marketing
- -------------------
Sales and marketing expenses increased 64% to $10,033,000 in the first six
months of 1996 from $6,116,000 in the first six months of 1995. As a percentage
of revenues, sales and marketing expenses increased to 38% in the first six
months of 1996 compared to 27% in the first six months of 1995. The increase in
absolute dollars was attributable to the Company's continued efforts to expand
the Company's sales and marketing efforts, including the hiring of additional
sales and marketing personnel and increased advertising and marketing
expenditures.
General and Administrative
- --------------------------
General and administrative expenses increased 80% to $5,344,000 in the first six
months of 1996 compared to $2,964,000 in the first six months of 1995. As a
percentage of revenues, general and administrative expenses increased to 20% in
the first six months of 1996 compared to 13% in the first six months of 1995 due
to the lower overall revenue volume in the first six months of 1996 and a one
time precautionary reserve made by the Company to address a customer
satisfaction issue.
International Operating Income
- ------------------------------
International operating results for the first six months of 1996 amounted to a
loss of $2,325,000 compared to a loss of $1,024,000 for the first six months of
1995. The increase in the international operations loss was primarily
attributable to two factors. The first relates to the license revenue shortfall
realized in the second quarter, in which various license transactions failed to
close as anticipated. The second factor relates to a significant increase in
product development expenditure by the Company's Israeli operations which are
primarily engaged in product development activities for the Company. Such
expenditures increased by $739,000 in the first six months of 1996 over the
first six months of 1995.
Net Interest Income
- -------------------
Net interest income increased 264% to $509,000 in the first six months of 1996
from $311,000 of net interest expense in the first six months of 1995. This
increase was primarily attributable to interest income earned on the proceeds
from the Offering.
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Company has historically financed its operations through cash generated by
operations. Net cash provided (used) by operating activities was $(4,964,000)
during the six months ended June 30, 1996 compared to $3,592,000 during the six
months ended June 30, 1995. This decrease was primarily attributable to the
Company's net loss offset by the non-cash charge of $13,810,000 arising from the
Abalon acquisition and increases in deferred income taxes and prepaid taxes,
partially offset by a reduction in receivables and tax benefit from the exercise
of stock options.
The Company provided $3,739,000 of cash in investing activities in the first six
months of 1996 compared to a use of $(1,155,000) in the first six months of
1995. The increase was primarily attributable to the sale of short-term
investments offset by payments for acquired businesses, purchases of property
and equipment and capitalized software development costs.
The Company utilized $274,000 from financing activities during the six months
ended June 30, 1996. These funds were used to paydown the line of credit, S
corporation distribution, and repayments of debt, partially offset by the
proceeds from the exercise of stock options. During the six months ended June
30, 1995, the Company utilized $1,600,000 due to S corporation distribution,
repayment of debt and repayment of notes receivable from the sole stockholder
and his wife, offset by net borrowings on the line of credit.
Through June 30, 1996, the Company maintained a line of credit with a maximum
borrowing availability thereunder of $5,000,000. The line of credit bears
interest at the lending bank's prime rate. Borrowings under the line of credit
are secured by the Company's receivables, contract rights and equipment. The
line of credit expired on June 30, 1996. There was no outstanding balance under
this line as of December 31, 1995 and June 30, 1996.
Bendata has a revolving line of credit with a bank for borrowings up to
$1,750,000, with interest at the bank's prime rate plus 1% (9.75% at December
31, 1995 and 9.0% at June 30, 1996). Availability of borrowings under the line
is limited to 80% of eligible accounts receivable, as defined. Borrowings under
the revolving line of credit are secured by a first security interest on
substantially all of Bendata's assets. The line expires on April 15, 1997. The
line requires Bendata to maintain certain financial and nonfinancial covenants,
as defined. Bendata did not comply with certain covenants at December 31, 1995
and accordingly had received waivers and amendments with respect to such
covenants from its bank. The outstanding balance as of December 31, 1995 and
June 30, 1996 was $1,200,000 and $650,000.
On June 28, 1996, the Company acquired the net assets of Abalon, including an
outstanding line of credit of $330,000 at June 30, 1996.
The Company is expanding its corporate facilities during the third quarter of
1996. This expansion is not expected to have a material effect on cashflow or
operating results.
<PAGE>
Variability of Quarterly Results and Potential Risks Inherent in the Business
- -----------------------------------------------------------------------------
The results of operations for the three and six month periods ended June 30,
1996 are not necessarily indicative of the results of operations for the year
ending December 31, 1996. The Company's operations are subject to a number of
risks, which are described in more detail in the Company's prior SEC filings.
Risks which are peculiar to the Company on a quarterly basis, and which may vary
from quarter to quarter, include but are not limited to the following:
The Company's quarterly operating results have in the past varied and may in the
future vary significantly depending on factors such as the size, timing and
recognition of revenue from significant orders, the timing of new product
releases and product enhancements, and market acceptance of these new releases
and enhancements, increases in operating expenses, and seasonality of its
business. There can be no assurance that the Company will be successful in
remaining profitable or avoiding losses in any future period. The Company
believes that revenue derived from current and future large customers will
continue to represent a significant proportion of its total revenues. The loss
of, or reduced demand for products or related services from, any of the
Company's major customers could have a material adverse effect on the Company's
business and results of operations.
The purchase of client/server enterprise software such as DISPATCH -1 also
involves a significant commitment of capital, with attendant delays frequently
associated with large capital expenditures and implementation procedures within
an organization. For these and other reasons, the sales cycle associated with
the purchase of client/server enterprise software, and consequently purchases of
the Company's products, are typically lengthy and subject to a number of
significant risks, including customers' budgetary constraints and internal
acceptance reviews, over which the Company has little or no control. The
Company's growth in software license fees has also constrained its available
resources of technical support personnel to service and support existing and new
installations. The Company believes that the Company's quarterly revenues,
expenses and operating results are likely to vary significantly in the future,
that period-to-period comparisons of its results of operations are not
necessarily meaningful and that, in any event, such comparisons should not be
relied upon as indicators of future performance.
International sales for the Company's products and services have increased
substantially over the prior period. International sales are subject to a
variety of risks, including difficulties in establishing and managing
international operations and in translating products into foreign languages.
International operations also encounter difficulties in collecting accounts
receivable, staffing and managing personnel. 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, potential instability, and possible recessionary environments
in economies outside the United States. As the Company increases its
international sales, its total revenues may also be affected to a greater extent
by seasonal fluctuations resulting from lower sales that typically occur during
the summer months in Europe and other parts of the world.
The Company acquired its Bendata subsidiary in March of 1996 and acquired its
Abalon subsidiary in June of 1996. The successful integration of the Company's
business with the
<PAGE>
businesses of Bendata and Abalon is important for the future financial
performance of the combined company. Because Bendata's and Abalon's products are
primarily targeted to different segments of the customer interaction software
market than that served by the Company in the past, the process of integration
may require adaptation in the Company's operating methods and strategies. In
addition, failure of the Company to integrate adequately certain key employees
of Bendata and Abalon into the Company's business could have an adverse effect
on the Company's business and results of operations. Acquisitions, including the
Company's recent acquisitions of Bendata and Abalon, involve a number of
potential risks, including difficulties in the assimilation of the acquired
company's products, operations and key personnel. Once integrated, acquired
operations may not achieve levels of revenues, profitability or productivity
comparable to those historically achieved by the Company's existing operations,
or otherwise perform as expected.
The market price of the common stock could be subject to significant
fluctuations in response to, and may be adversely affected by, variations in
quarterly operating results, changes in earnings estimates by analysts,
developments in the software industry, adverse earnings or other financial
announcements of the Company's customers and general stock market conditions as
well as other factors. In addition, the stock market has experienced extreme
price and volume fluctuations from time to time which have, in certain
circumstances, borne no meaningful relationship to performance.
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
- ------------------------------
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. The Company is
not involved in any legal proceedings which would, in management's opinion, have
a material adverse effect on the Company's business or results of operations.
Item 2. Changes in Securities
- ----------------------------------
There have been no changes in securities during the quarter ended June 30, 1996.
Item 3. Defaults Upon Senior Securities
- --------------------------------------------
There have been no defaults by the Company on any Senior Securities during the
quarter ended June 30, 1996.
Item 4. Submission of Matters to a Vote of Security Holders
- ----------------------------------------------------------------
The following matters were submitted to a vote of security holders at the Annual
Meeting of Stockholders held on May 16, 1996, pursuant to the Notice of Annual
Meeting of Stockholders dated April 18, 1996.
1. The proposal to elect the following nominees as directors, to hold
office until the 1997 Annual Meeting and until their successors are elected and
qualified, was approved:
<TABLE>
<CAPTION>
Nominee Votes For Votes Withheld Abstained
-------- ---------- -------------- ---------
<S> <C> <C> <C>
Zack B. Bergreen 11,139,063 53,250 0
Joseph J. Kroger 11,139,063 53,250 0
Bruce R. Rusch 11,139,063 53,250 0
Reuben Wasserman 11,139,063 53,250 0
</TABLE>
2. The proposal to appoint Arthur Anderson & Co. as independent auditors
for the Company for the fiscal year ending December 31, 1996 was approved
(11,184,763 shares in favor; 1,550 shares against; and 6,000 shares abstaining.)
No other matters were submitted to a vote of the Company's stockholders
during the second quarter of the fiscal year covered by this report through the
solicitation of proxies or otherwise.
Item 5. Other Information
- ------------------------------
None
Item 6. Exhibits and Reports on Form 8-K
- ---------------------------------------------
(A) Exhibits
(11) Statement regarding computation of per share earnings
<PAGE>
(27) Financial Data Schedule
(B) Reports on Form 8-K
Amendment No. 1 to Current Report on Form 8-K/A was filed by the company on May
2, 1996 relating to the consummation by the Company on February 27, 1996 of a
merger with Bendata Inc. and Bendata UK LLC (collectively, "Bendata") pursuant
to which the Company issued 1,500,000 shares of common stock for all the issued
and outstanding capital stock and ownership interests of Bendata.
A Current Report on Form 8-K dated July 2, 1996 was filed by the Company
(subsequent to the quarter ended June 30, 1996) and Amendment No. 1 to Current
Report on Form 8-K/A will be filed by the Company by September 11, 1996 each
relating to the consummation by the Company on June 28, 1996 of an acquisition
of Abalon AB ("Abalon") pursuant to which the Company paid cash of $8,550,000
and issued 233,236 shares of common stock for all of the issued and outstanding
capital stock of Abalon.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
ASTEA INTERNATIONAL INC.
Date: August 14, 1996
By:/s/ Zack B. Bergreen
--------------------
Zack B. Bergreen
President and Chief Executive Officer
(Principal Executive Officer)
By:/s/ Leonard W. von Vital
------------------------
Leonard W. von Vital
Vice President and Chief Financial Officer
(Principal Financial and Chief
Accounting Officer)
<PAGE>
EXHIBIT 11
Computation of Historical and Pro Forma Net Income (loss) Per Common Share
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------------------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income (loss) ($17,183) $2,285 ($19,207) $2,725
========================================================
Weighted average number of common
equivalent shares:
Common stock 12,738 9,100 12,644 9,100
Stock options (treasury stock
method) --- 901 --- 901
--------------------------------------------------------
Pro forma weighted average shares
outstanding 12,738 10,001 12,644 10,001
========================================================
Net income (loss) per share $ (1.35) $ 0.23 $ (1.52) $(0.27)
========================================================
Pro forma net income (loss) (3,373) 1,430 (2,319) 1,679
========================================================
Pro forma net income (loss) per
share $ (0.26) $ 0.14 $ (0.18) $(0.17)
========================================================
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> JUN-30-1996 JUN-30-1995
<CASH> 2,512,000 4,021,000
<SECURITIES> 16,606,000 30,822,000
<RECEIVABLES> 21,090,000 22,940,000
<ALLOWANCES> 1,814,000 1,380,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 45,231,000 59,514,000
<PP&E> 10,520,000 8,815,000
<DEPRECIATION> 3,749,000 2,993,000
<TOTAL-ASSETS> 57,950,000 69,370,000
<CURRENT-LIABILITIES> 18,312,000 18,782,000
<BONDS> 0 0
0 0
0 0
<COMMON> 130,000 124,000
<OTHER-SE> 36,153,000 48,299,000
<TOTAL-LIABILITY-AND-EQUITY> 57,950,000 69,370,000
<SALES> 26,378,000 22,662,000
<TOTAL-REVENUES> 26,378,000 22,662,000
<CGS> 11,439,000 8,836,000
<TOTAL-COSTS> 11,439,000 8,836,000
<OTHER-EXPENSES> 35,214,000 10,632,000
<LOSS-PROVISION> 1,210,000 103,000
<INTEREST-EXPENSE> (509,000) 311,000
<INCOME-PRETAX> (20,976,000) 2,780,000
<INCOME-TAX> (1,769,000) 55,000
<INCOME-CONTINUING> (19,207,000) 2,725,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (19,207,000) 2,725,000
<EPS-PRIMARY> (.18) .17
<EPS-DILUTED> 0 0
</TABLE>
