<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997
--------------------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934.
For the transition period from to
------- -------
Commission File Number: 0-26330
-------
ASTEA INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
DELAWARE 23-2119058
-------------- --------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
455 BUSINESS CENTER DRIVE, HORSHAM, PENNSYLVANIA 19044
- ------------------------------------------------ ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 682-2500
--------------
N/A
- ---------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _____
---
As of May 9, 1997, 13,228,419 shares of the registrant's Common Stock, par value
$.01 per share, were outstanding.
<PAGE>
ASTEA INTERNATIONAL INC.
FORM 10Q
QUARTERLY REPORT
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Facing Sheet 1
Index 2
PART I - FINANCIAL INFORMATION
- ---------------------------------------------
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Unaudited Condensed finan 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
PART II - OTHER INFORMATION
- ---------------------------------------------
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 2. CHANGES IN SECURITIES 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
ITEM 5. OTHER INFORMATION 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE 14
EXHIBIT 27 FINANCIAL DATA SCHEDULE 15
</TABLE>
2
<PAGE>
PART I. - FINANCIAL INFORMATION
- -------------------------------
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
ASTEA INTERNATIONAL INC.
-------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
-----------------------------
<S> <C> <C>
ASSETS
- ----------------------------------------
Current assets:
Cash and cash equivalents $ 3,098,000 $ 3,334,000
Investments available for sale 8,230,000 8,994,000
Receivables, net of reserves of
$1,901,000 and $1,681,000 19,328,000 24,187,000
Prepaid expenses and other 2,284,000 2,279,000
Income tax refund receivable 1,516,000 1,516,000
Deferred income taxes 1,869,000 1,869,000
-----------------------------
Total current assets 36,325,000 42,179,000
Property and equipment, net 7,005,000 8,117,000
Capitalized software development costs,
net 3,561,000 4,022,000
Goodwill, net 1,227,000 3,373,000
-----------------------------
Total assets $ 48,118,000 $ 57,691,000
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------
Current liabilities:
Line of credit $ 1,315,000 $ 1,678,000
Current portion of long-term debt 542,000 525,000
Accounts payable and accrued expenses 10,407,000 10,861,000
Accrued restructuring charge 4,499,000 -
Accrued reserves for contingencies 3,086,000 215,000
Deferred revenues 8,057,000 8,140,000
-----------------------------
Total current liabilities 27,906,000 21,419,000
Deferred income taxes 947,000 947,000
Long-term debt 3,751,000 3,708,000
Stockholders' equity:
Preferred stock, $.01 par value,
5,000,000 shares
authorized, none issued - -
Common stock, $.01 par value,
25,000,000 shares authorized,
13,211,000 shares at March 31, 1997
and 13,106,000 shares at
December 31,1996 issued and
outstanding 132,000 131,000
Additional paid-in capital 49,591,000 49,097,000
Deferred compensation (98,000) (160,000)
Cumulative translation adjustment (439,000) (443,000)
Accumulated deficit (33,672,000) (17,008,000)
-------------------------
Total stockholders' equity 15,514,000 31,617,000
-------------------------
Total liabilities and
stockholders' equity $ 48,118,000 $ 57,691,000
=============================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
3
<PAGE>
ASTEA INTERNATIONAL INC.
-------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
------------------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION> THREE MONTHS
ENDED MARCH 31,
------------------------------
1997 1996
------------------------------
<S> <C> <C>
Revenues:
- ----------------------------------------
Software license fees $ 5,098,000 $ 7,488,000
Services and maintenance 8,697,000 7,399,000
------------------------------
Total revenues 13,795,000 14,887,000
------------------------------
Costs and expenses:
Cost of software license fees
(Note 4) 1,332,000 774,000
Cost of services and maintenance 6,663,000 4,575,000
Product development 2,935,000 1,619,000
Sales and marketing 5,758,000 4,586,000
General and administrative (Notes
3 and 5) 8,395,000 1,913,000
Expenses related to Bendata
merger transaction (Note 6) - 3,416,000
Restructuring charge (Note 2) 5,328,000 -
------------------------------
Total costs and expenses 30,411,000 16,883,000
Operating loss (16,616,000) (1,996,000)
Net interest income (expense) (48,000) 280,000
------------------------------
Loss before income taxes (16,664,000) (1,716,000)
Income taxes - 308,000
------------------------------
Net loss $(16,664,000) $(2,024,000)
==============================
Net loss per share $(1.26) $(.16)
==============================
Weighted average shares outstanding 13,176,000 13,484,000
==============================
Pro forma data (Note 8):
Pro forma income (loss) before
income taxes $(16,664,000) $ 1,700,000
Pro forma income taxes - 646,000
------------------------------
Pro forma net income (loss) $(16,664,000) $ 1,054,000
==============================
Pro forma net income (loss) per
share $(1.26) $.08
==============================
Weighted average shares outstanding 13,176,000 13,542,000
==============================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
4
<PAGE>
ASTEA INTERNATIONAL INC.
-------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
------------------------------
1997 1996
------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(16,664,000) $(2,024,000)
Adjustments to reconcile net loss to
net cash used in
operating activities:
Depreciation and amortization 936,000 559,000
Restructuring charge 5,328,000 -
Goodwill write-down 2,058,000 -
Write-off of capitalized
software 453,000 -
Expense related to grant of
stock options to be issued
in dispute settlement 436,000 -
Tax benefit from exercise of
stock options - 1,742,000
Other 11,000 25,000
Changes in operating assets and
liabilities -
Receivables 4,570,000 2,312,000
Prepaid expenses and other (14,000) (143,000)
Prepaid income taxes - (1,217,000)
Accounts payable and
accrued expenses 2,700,000 (1,836,000)
Deferred income taxes - 575,000
Deferred revenues (84,000) (1,403,000)
------------------------
Net cash used in operating activities (270,000) (1,410,000)
------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of short-term
investments, net 764,000 4,561,000
Purchases of property and
equipment (240,000) (598,000)
Capitalized software
development costs (200,000) (224,000)
-----------------------
Net cash provided by investing
activities 324,000 3,739,000
-----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments on line of
credit (363,000) (550,000)
Proceeds from exercise of
stock options 96,000 334,000
Net repayments of long-term
debt (54,000) (26,000)
-------------------------
Net cash used in financing activities (321,000) (242,000)
-------------------------
Effect of exchange rate changes on
cash and cash equivalents 31,000 16,000
-------------------------
Net increase (decrease) in cash and
cash equivalents (236,000) 2,103,000
Cash and cash equivalents balance,
beginning of period 3,334,000 4,021,000
---------------------------
Cash and cash equivalents balance, end
of period $ 3,098,000 $ 6,124,000
===========================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
5
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
ASTEA INTERNATIONAL INC.
-------------------------
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
-------------------------------------------------
1. BASIS OF PRESENTATION
1. BASIS OF PRESENTATION
---------------------
The consolidated financial statements at March 31, 1997 and for the three month
period ended March 31, 1997 and 1996 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
1996 Annual Report and Form 10-K which are hereby incorporated by reference in
this report on Form 10-Q.
2. RESTRUCTURING CHARGE
--------------------
During the first quarter of 1997, the Company recorded a restructuring charge of
$5,328,000 for actions aimed at reducing costs in its Service Automation product
line and enhancing the Company's strategy by increasing the focus on the Support
and Sales Automation product lines. These costs include accruals for severance
costs of $1,925,000, office closing costs and unutilized lease expense of
$2,928,000 and other consolidation costs of $475,000.
When the restructuring is complete, total headcount will be reduced by
approximately 20% of the workforce. In addition, the Company has and will
continue to streamline the marketing and the development organizations and
consolidate office space. It is currently anticipated that accrual will be
utilized by the end of calender 1997, except for amounts related to longer term
real and personal property leases and severance commitments.
3. GOODWILL IMPAIRMENT
-------------------
As a result of the restructuring, during the first quarter of 1997, the Company
recognized a goodwill impairment charge of $2,058,000 included in general and
administrative expense related to the 1995 acquisition of Astea BV. This charge
is due to the closings of the France and Germany locations, and the scale down
of operations in Holland.
4. CAPITALIZED SOFTWARE WRITE-OFF
------------------------------
Included in cost of software license fees in the first quarter of 1997 is a
write-off of $453,000 of capitalized software related to PowerHelp and older
versions of certain Service Automation modules which will no longer be marketed.
5. ACCRUED RESERVES FOR CONTINGENCIES
----------------------------------
March 31, 1997 accrued reserves for contingencies consists of a reserve for
failure to deliver a commercial release of a software product under beta
development of $1,526,000, a settlement with a former owner of Bendata of
$844,000 and $716,000 of other contingencies.
6. 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 have been restated to include Bendata for each period presented.
6
<PAGE>
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.
7. INCOME TAXES
------------
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 6. Excluding this charge, the Company would have recorded an
income tax benefit of $267,000, or reflecting an effective tax rate of
15.5%. THIS INCOME TAX BENEFIT WAS REDUCED DUE TO THE NON-DEDUCTIBILITY OF
CERTAIN MERGER EXPENSES.
8. PRO FORMA INFORMATION
---------------------
Pro Forma Income Statement
- --------------------------
Pro forma information for the first quarter of 1996 excludes from income the
one-time charge for 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 first quarter of 1996 were calculated as if
Bendata was a C corporation for the period using the criteria established under
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
Pro Forma Net Loss 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. For the three months ended March 31, 1996, 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.
9. NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------
Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings per
Share," which supersedes APB Opinion No. 15, "Earnings per Share," was issued in
February 1997. SFAS 128 requires dual presentation of basic and diluted
earnings per share (EPS) for complex capital structures on the face of the
income statement. Basic EPS is computed by dividing income 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, such as stock options. SFAS 128 is required to be adopted
for year-end 1997; earlier application is not permitted. The Company does not
expect the basic or diluted EPS measured under SFAS 128 to be materially
different than the primary or fully-diluted EPS measured under APB No. 15.
Statement of Financial Accounting Standards No. 129, "Disclosure of Information
about Capital Structure," was issued in February 1997. The Company does not
expect it to result in any substantive change in its disclosure.
7
<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
contained in such forward - looking statements. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, estimated,
expected or projected. Certain of these as well as other risks and
uncertainties are described in more detail herein and in the Company's Annual
Report on Form 10-K for 1996.
The Company develops, licenses, 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, the United Kingdom, Sweden and Israel.
The Company's 1997 and 1996 financial results include the results of Bendata,
Inc. ("Bendata"), which merged with Astea in February 1996 and was accounted for
as a pooling of interests. Astea's 1997 first quarter results include the
results of Abalon AB, which Astea acquired in June 1996 and accounted for as a
purchase transaction. Abalon AB was not part of Astea in the first quarter of
1996.
Results of Operations
- ---------------------
Comparison of Three Months Ended March 31, 1997 and 1996
- --------------------------------------------------------
Restructuring and Other Charges
- -------------------------------
During the first quarter of 1997, the Company recorded a restructuring charge of
$5,328,000 for actions aimed at reducing costs in its Service Automation product
line and enhancing the Company's strategy by increasing the focus on the Support
and Sales Automation product lines. These costs include accruals for severance
costs of $1,925,000, office closing costs and unutilized lease space of
$2,928,000 and other consolidation costs of $475,000. When the restructuring is
complete, total headcount will be reduced by approximately 20% of the workforce.
Included in the first quarter of 1997 general and administrative expense are
charges of $5,686,000. These charges include a $2,058,000 write-off of Astea BV
goodwill, a reserve for failure to deliver a commercial release of a software
product under beta development of $1,293,000, a settlement of cash and stock
options with a former owner of Bendata totaling $1,280,000, other legal
contingencies of $500,000 and a $555,000 increase in the reserve for bad debts.
Included in cost of software license fees in the first quarter of 1997 is a
write-off of $453,000 of capitalized software related to PowerHelp and older
versions of certain Service Automation modules.
Revenues
- --------
Revenues decreased $1,092,000 or 7% to $13,795,000 for the three months ended
March 31, 1997 from $14,887,000 for the three months ended March 31, 1996.
Software license fee revenues decreased $2,390,000 or 32% over the same period
last year. Professional services and maintenance fees amounted to $8,697,000 or
an 18% increase over the same quarter in 1996. The increase in service and
maintenance revenues was not able to absorb the decrease in software license
fees.
The Company's international operations contributed $4,725,000 of revenues in the
first quarter of 1997 compared to $3,212,000 in the first quarter of 1996. This
represents a 47% increase over the same period last year and 34% of total
8
<PAGE>
revenues in the period. The increase is primarily attributable to the Company's
acquisition of Abalon AB in the second quarter of 1997. Abalon's total revenues
for the three months ended March 31, 1997 were $1,489,000.
Software license fee revenues decreased 32% to $5,098,000 in the first quarter
of 1997 from $7,488,000 in the first quarter of 1996. The Service Automation
product line (DISPATCH-1) revenues experienced a decline of 68% due to declining
demand, and the Support product line (HEAT and PowerHelp) revenues had an
overall decrease of 1%. PowerHelp license fee revenues decreased 77% while HEAT
software license fee revenues increased 21%. The increase in the HEAT product
line was due primarily to new customers which reflects the expansion of the
customer help desk market and increased sales and marketing efforts over the
first quarter of 1996. As part of the Company's restructuring, the Company will
begin de-emphasizing its PowerHelp product line in favor of its HEAT product
line. The Sales Automation product line (Abalon), which was acquired in June
1996, had $735,000 of software license fee revenues in the first quarter of
1997.
Services and maintenance revenues increased 18% to $8,697,000 in the first
quarter of 1997 from $7,399,000 in the first quarter of 1996. HEAT contributed
services and maintenance revenues of $1,919,000 or 54% over the same quarter in
the prior year. These increases are primarily attributable to the growth of
HEAT's customer base as compared to prior periods. International operations
contributed services and maintenance revenues of $2,959,000, a 73% increase
over the first quarter of 1996. This increase in international revenue was
primarily due to greater HEAT service and maintenance revenues and the Abalon
acquisition which had $754,000 in service and maintenance revenues in the first
quarter on 1997.
In the first quarter of 1997 and 1996, the Company had no customers which
accounted for more than 10% of total revenues.
Costs of Revenues
- -----------------
Cost of software license fees increased 72% to $1,332,000 in the first quarter
of 1997 from $774,000 in the first quarter of 1996, for reasons explained below.
Included in the first quarter of 1997 cost of software license fees is $453,000
of capitalized software which was written off in conjunction with the Company's
restructuring of its product lines for old versions which will no longer be
sold. Excluding this write-off for modules which will no longer be sold, cost
of software license fees as a percentage of software license fee revenues
increased to 17% in the first quarter of 1997 from 10% in the first quarter of
1996 due to higher capitalized software amortization accompanied by a
decrease in amortization of costs related to license revenues.
Costs of services and maintenance increased 46% to $6,663,000 in the first
quarter of 1997 from $4,575,000 in the first quarter of 1996. The increase was
primarily due to increased personnel costs for services and support maintenance
and the acquisition of Abalon AB in the second quarter of 1996 which had
$718,000 in cost of service and maintenance in the first quarter of 1997 or 34%
of the increase. Cost of services and maintenance as a percentage of services
and maintenance revenues increased to 77% for the first quarter of 1997 from 62%
for the first quarter of 1996. This increase in costs of services and
maintenance was primarily in the service automation product line due to the
Company's ongoing effort to address customer satisfaction issues.
Product Development
- -------------------
Product development expense increased 81% to $2,935,000 in the first quarter of
1997 from $1,619,000 in the first quarter of 1996. Product development as a
percentage of revenues increased to 21% in the first quarter of 1997 from 11% in
the first quarter of 1996. This increase as a percentage of revenue represents
the Company's greater emphasis on product development. The Company's major
development efforts in the first quarter 1997 were working towards the
integration of the Company's three product lines, of which two products, Abalon
and HEAT, were acquired during 1996, and the development of the Company's new
product offerings for the Service Automation product line. The Company will
continue to invest in product development which is necessary to maintain a
competitive in the customer interaction software market.
Sales and Marketing
- -------------------
Sales and marketing expense increased 26% to $5,758,000 in the first quarter of
1997 from $4,586,000 in the first quarter of 1996. As a percentage of revenues,
sales and marketing expenses increased to 42% from 31% in the first quarter of
1996. The increase was attributable to the Company's continued efforts to
expand the Company's sales and marketing efforts, including the hiring of
additional sales personnel, increased advertising and marketing expenditures and
the acquisition of Abalon in the second quarter of 1996.
9
<PAGE>
General and Administrative
- --------------------------
General and administrative expenses increased 339% to $8,395,000 in the first
quarter of 1997 from $1,913,000 in the first quarter of 1996. Included in the
first quarter of 1997 general and administrative expenses are charges of
$5,686,000. These charges include a $2,058,000 write-off of Astea BV goodwill, a
reserve for failure to deliver a commercial release of a software product under
beta development of $1,293,000, a settlement of cash and stock options with a
former owner of Bendata of $1,280,000, other legal contingencies of $500,000 and
a $555,000 increase in the reserve for bad debts. Without these charges, general
and administrative expenses would have increased 42% from the first quarter of
1996 due to increased headcount and related costs, as well as, the acquisition
of Abalon in the second quarter of 1996.
International Operating Loss
- ----------------------------
International operating loss for the first quarter of 1997 amounted to
$8,226,000 compared to a loss of $777,000 in the first quarter of 1996. This
increase in the loss from period to period was due to a restructuring charge of
$2,985,000, write-off of goodwill of $2,058,000, greater emphasis on product
development in Israel, a decline in service automation related revenues,
$910,000 loss from Abalon which was not included in the first quarter of 1996,
as well as increased headcount and their related costs. Much of the Abalon loss
resulted from increased development costs which were not specific to the Abalon
operation but related to corporate wide research and development initiatives.
Net Interest Income/(Expense)
- -----------------------------
Net interest income decreased 117% to $48,000 of interest expense in the
first quarter of 1997 from $280,000 of interest income in the first quarter
of 1996. This decrease was primarily attributable to the decrease in the
Company's short-term investment due to acquisitions and working capital as it
drew down on its cash supply in 1996, which resulted in less interest income.
This decrease in investable proceeds was primarily used for
acquisitions.
Liquidity and Capital Resources
- --------------------------------
Net cash used in operating activities was $270,000 for the three months ended
March 31, 1997 compared to $1,410,000 for the three months ended March 31, 1996.
This decrease was primarily attributable to the Company's higher net loss,
decrease in accounts receivable and increase in accounts payable; partially
offset by non-cash charges for the restructuring and the write-off of goodwill.
The Company provided $324,000 of cash from investing activities in the first
three months of 1997 compared to $3,739,000 in the first three months of 1996.
The decrease was primarily attributable to the sale of short-term investments in
the first quarter of 1996 which proceeds were used for Bendata merger expenses.
The Company utilized $321,000 from financing activities during the three months
ended March 31, 1997 compared to $242,000 in the first three months of 1996.
The Company maintains 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 (8.5% at March 31 1997 and 8.25% at December 31, 1996).
Borrowings under the line of credit are secured by a security interest in the
Company's receivables, contract rights, general intangibles and equipment. The
outstanding balances as of March 31, 1997 and December 31, 1996 were $300,000
and $500,000, respectively, which were subsequently paid down. The line expires
on June 30, 1997. The Company is currently in default of certain covenants
which are being reviewed by the bank. The Company is in the process of
negotiating the renewal of this line.
As of March 31, 1997, Bendata had a revolving line of credit with a bank for
borrowings up to $1,750,000, with interest at the bank's prime rate plus .75%
(9.25% at March 31, 1997 and 9.0% at December 31, 1996). Availability of
borrowings under the line was limited to 80% of eligible accounts receivable, as
defined. Borrowings under the revolving line of credit were secured by a first
security interest in all of Bendata's receivables, inventory, general
intangibles and equipment. The line expired on April 15, 1997. The Company is
currently negotiating to renew the line of credit. The line required (as a
renegotiated line will require) Bendata to maintain certain financial and
nonfinancial covenants, as defined. The outstanding balances were zero as of
March 31, 1997 and December 31, 1996.
On June 28, 1996, the Company acquired the capital stock of Abalon AB. Abalon AB
has a revolving line of credit for up to 8,000,000 SEK or $1,161,000 with a
1,000,000 SEK or $145,000 overdraft provision. As of March 31, 1997 and
December 31, 1996, Abalon's borrowing on it's revolving line of credit was
$1,015,000 and $1,178,000, respectively. The revolving line of credit bears
interest at the bank's prime rate plus 2.4% (6.6% at March 31 1997 and December
31, 1996). Borrowings under the revolving line of credit are secured by a first
10
<PAGE>
security interest in all of Abalon AB's receivables, inventory, general
intangibles and equipment. The line expires on December 31, 1997.
Variability of Quarterly Results and Potential Risks Inherent in the Business
- -----------------------------------------------------------------------------
The Company's operations are subject to a number of risks, which are described
in more detail in the Company's prior SEC filings. Risks which are peculiar to
the Company on a quarterly basis, and which may vary from quarter to quarter,
include but are not limited to the following:
- - 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.
- - The Company's future success will depend in part on its ability to reduce its
reliance on revenues generated by DISPATCH-1 and increasing licenses of HEAT
and Abalon products and other offerings, and developing new products and
product enhancements to complement its existing field service and customer
support offerings.
- - The customer interaction software market is intensely competitive. In the
field service marketplace, the Company's principal competition comes from
numerous small, privately-held companies. In the external customer support
market, certain competitors of the Company are more established and benefit
from greater market or "brand name" recognition. Because the barriers to
entry in the customer interaction software market are relatively low, new
competitors may emerge with products that are superior to the Company's
products in performance, functionality or ease-of-use, or that achieve
greater market acceptance. Increased competition is likely to result in price
reductions, reduced gross margins and loss of market share, any of which
could materially adversely affect the Company's business and results of
operations. There can be no assurance that future competition will not have a
material adverse effect on the Company's business and results of operations.
- - International sales for the Company's products and services, and the
Company's expenses related to these sales, 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 merged with Bendata in February of 1996 and acquired its Abalon
subsidiary in June of 1996. The successful integration of the Company's
business with the 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.
- - 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. 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.
11
<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 March 31,
1997.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- ----------------------------------------
There have been no defaults by the Company on any Senior Securities during the
quarter ended March 31,
1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
No matters were submitted to a vote of the Company's stockholders during the
quarter ended March 31, 1997, through the solicitation of proxies or otherwise.
ITEM 5. OTHER INFORMATION
- ---------------------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(A) Exhibits
(11) Statements regarding computation of per share earnings
(27) Financial Data Schedule
(B) Reports on Form 8-K
None
12
<PAGE>
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 15th day of May,
1997.
ASTEA INTERNATIONAL INC.
By: /s/ Zack B. Bergreen
------------------------
Zack B. Bergreen
Chairman, President and
Chief Executive Officer
By:/s/Leonard W. von Vital
------------------------
Leonard W. von Vital
Vice President and Chief Financial Officer
(Principal Financial and Chief
Accounting Officer)
13
<PAGE>
EXHIBIT 11.1
Computation of Historical and Pro Forma Net Income (Loss) Per Common Share
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1997 1996
---------- ---------
<S> <C> <C>
Net loss $(16,664) $(2,024)
----------------------
Net loss per share (1.26) (.16)
----------------------
Weighted average shares outstanding 13,176 13,542
======================
Pro forma net income (loss) (16,664) 1,054
----------------------
Weighted average number of
common equivalent shares
Common stock 13,176 12,484
----------------------
Stock options (treasury stock
method) - 1,058
----------------------
Weighted average shares outstanding 13,176 13,542
----------------------
Pro forma net income (loss) per
share $ (1.26) $ 0.08
======================
</TABLE>
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> MAR-31-1997 MAR-31-1996
<CASH> 3,098,000 3,334,000
<SECURITIES> 8,230,000 8,994,000
<RECEIVABLES> 21,229,000 25,868,000
<ALLOWANCES> 1,901,000 1,681,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 36,325,000 42,179,000
<PP&E> 12,131,000 13,052,000
<DEPRECIATION> 5,126,000 4,935,000
<TOTAL-ASSETS> 48,118,000 57,691,000
<CURRENT-LIABILITIES> 27,906,000 21,419,000
<BONDS> 0 0
0 0
0 0
<COMMON> 132,000 131,000
<OTHER-SE> 15,919,000 32,089,000
<TOTAL-LIABILITY-AND-EQUITY> 48,118,000 57,691,000
<SALES> 5,098,000 7,488,000
<TOTAL-REVENUES> 13,795,000 14,887,000
<CGS> 1,332,000 774,000
<TOTAL-COSTS> 7,995,000 5,349,000
<OTHER-EXPENSES> 21,631,000 11,474,000
<LOSS-PROVISION> 785,000 60,000
<INTEREST-EXPENSE> 48,000 (280,000)
<INCOME-PRETAX> (16,664,000) (1,716,000)
<INCOME-TAX> 0 308,000
<INCOME-CONTINUING> (16,664,000) (2,024,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (16,664,000) (2,024,000)
<EPS-PRIMARY> (1.26) (.16)
<EPS-DILUTED> 0 0
</TABLE>
