<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, 1998
---------------------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934.
For the transition period from to
----------- ----------
Commission File Number: 0-26330
-------
ASTEA INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
DELAWARE 23-2119058
------------------------------ --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
455 BUSINESS CENTER DRIVE, HORSHAM, PA 19044
--------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 682-2500
---------------
N/A
---------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ----
As of May 11, 1998, 13,422,511 shares of the registrant's Common Stock, par
value $.01 per share, were outstanding.
<PAGE>
ASTEA INTERNATIONAL INC.
FORM 10Q
QUARTERLY REPORT
INDEX
Page No.
--------
Facing Sheet 1
Index 2
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets (Unaudited) 3
Consolidated Statements of Operations
(Unaudited) 4
Consolidated Statements of Cash Flows
(Unaudited) 5
Notes to Unaudited Consolidated Financial
Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 10
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS 10
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 10
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11
ITEM 5. OTHER INFORMATION 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 12
EXHIBIT 10.1 MODIFICATION AGREEMENT DATED APRIL 30, 1998 BY AND AMONG THE
COMPANY, PNC BANK, NATIONAL ASSOCIATION AND PNC LEASING CORP. 13
EXHIBIT 27 FINANCIAL DATA SCHEDULE 17
2
<PAGE>
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
ASTEA INTERNATIONAL INC.
-------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------------------- ----------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,650,000 $ 8,745,000
Investments available for sale 3,574,000 1,359,000
Receivables, net of reserves of $1,645,000 and $2,286,000 15,221,000 18,069,000
Prepaid expenses and other 2,818,000 2,709,000
Deferred income taxes 2,274,000 2,274,000
-----------------------------------------------
Total current assets 29,537,000 33,156,000
Property and equipment, net 3,851,000 3,958,000
Capitalized software development costs, net 3,480,000 3,556,000
Goodwill, net 1,071,000 1,103,000
Total assets $ 37,939,000 $ 41,773,000
===============================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ 819,000 $ 914,000
Current portion of long-term debt 985,000 1,085,000
Accounts payable and accrued expenses 12,307,000 13,749,000
Deferred revenues 9,666,000 9,608,000
-----------------------------------------------
Total current liabilities 23,777,000 25,356,000
Deferred income taxes 1,352,000 1,352,000
Long-term debt 1,648,000 1,636,000
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued - -
Common stock, $.01 par value, 25,000,000 shares
authorized, 13,408,000 and 13,361,000 issued and
outstanding 134,000 134,000
Additional paid-in capital 49,684,000 49,585,000
Deferred compensation (68,000) (43,000)
Cumulative currency translation adjustment (860,000) (745,000)
Accumulated deficit (37,728,000) (35,502,000)
Total stockholders' equity 11,162,000 13,429,000
Total liabilities and stockholders' equity $ 37,939,000 $ 41,773,000
===============================================
The accompanying notes are an integral part of these statements.
</TABLE>
3
<PAGE>
ASTEA INTERNATIONAL INC.
------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-------------------------------------------
1998 1997
-------------------------------------------
<S> <C> <C>
Revenues:
Software license fees $ 3,852,000 $ 5,098,000
Services and maintenance 9,508,000 8,697,000
-------------------------------------------
Total revenues 13,360,000 13,795,000
-------------------------------------------
Costs and expenses:
Cost of software license fees (Note 2) 686,000 1,332,000
Cost of services and maintenance 6,384,000 6,663,000
Product development 1,945,000 2,935,000
Sales and marketing 4,746,000 5,758,000
General and administrative (Notes 2 and 3) 1,869,000 8,395,000
Restructuring charge (Note 2) - 5,328,000
-------------------------------------------
Total costs and expenses 15,630,000 30,411,000
Loss from operations (2,270,000) (16,616,000)
Net interest income (expense) 44,000 (48,000)
-------------------------------------------
Loss before income taxes (2,226,000) (16,664,000)
Income tax (benefit) - -
Net loss $(2,226,000) $(16,664,000)
===========================================
Basic and diluted loss per share $(.17) $(1.26)
===========================================
Shares used in computing basic and diluted loss per
share 13,376,000 13,176,000
===========================================
The accompanying notes are an integral part of these statements.
</TABLE>
4
<PAGE>
ASTEA INTERNATIONAL INC.
------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-----------------------------------------
1998 1997
-----------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,226,000) $(16,664,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 868,000 936,000
Restructuring charge - 5,328,000
Goodwill write-down - 2,058,000
Write-off of capitalized software - 453,000
Other - 11,000
Changes in operating assets and liabilities:
Receivables 2,826,000 4,570,000
Prepaid expenses and other (135,000) (14,000)
Accounts payable and accrued expenses (1,464,000) 3,136,000
Deferred revenues 10,000 (84,000)
-----------------------------------------
Net cash used in operating activities (121,000) (270,000)
-----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales (purchases) of investments available for sale (2,215,000) 764,000
Purchases of property and equipment (440,000) (240,000)
Capitalized software development costs (200,000) (200,000)
-----------------------------------------
Net cash provided by (used in) investing activities (2,855,000) 324,000
-----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments on line of credit (95,000) (363,000)
Proceeds from exercise of stock options and employee stock purchase
plan 62,000 96,000
Net repayments of long-term debt (88,000) (54,000)
-----------------------------------------
Net cash used in financing activities (121,000) (321,000)
-----------------------------------------
Effect of exchange rate changes on cash and cash equivalents 2,000 31,000
-----------------------------------------
Net decrease in cash and cash equivalents (3,095,000) (236,000)
Cash and cash equivalents balance, beginning of period 8,745,000 3,334,000
-----------------------------------------
Cash and cash equivalents balance, end of period $ 5,650,000 $ 3,098,000
=========================================
The accompanying notes are an integral part of these statements.
</TABLE>
5
<PAGE>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------
ASTEA INTERNATIONAL INC.
------------------------
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
1. BASIS OF PRESENTATION
----------------------
The consolidated financial statements at March 31, 1998 and for the three month
periods ended March 31, 1998 and 1997 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
1997 Annual Report on Form 10-K which are hereby incorporated by reference in
this quarterly report on Form 10-Q.
2. 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 and consolidating its development
activities primarily in its service automation product line. These costs
included accruals for severance costs of $1,713,000, office-closing costs and
unutilized lease expense of $3,136,000 and other consolidation costs of
$479,000.
As of March 31, 1998, the balance of accrued restructuring charge of $1,704,000
is required for longer term real and personal property leases and severance
commitments payable through June 1999.
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 Service and Distribution System BV ("Astea BV"), which experienced a
deterioration in its operations. In 1997, as a result of the restructuring of
its operation, the Company closed certain locations which were part of Astea BV.
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 one
of the Company's support automation products, PowerHelp, and to older versions
of certain service automation modules which are no longer marketed by the
Company.
3. CHARGES FOR CONTINGENCIES
-------------------------
Included in the first quarter of 1997 general and administrative expense are
charges for contingencies of $3,073,000. These charges include a reserve for
failure to deliver a commercial release of a software product under beta
development, a settlement of a dispute in cash, note payable and stock options
with a stockholder and other legal contingencies.
6
<PAGE>
4. STOCKHOLDERS' EQUITY/COMPREHENSIVE LOSS
---------------------------------------
The reconciliation of Stockholders' Equity and Comprehensive Loss from December
31, 1997 to March 31, 1998 is summarized as follows:
<TABLE>
<CAPTION>
CUMULATIVE
ADDITIONAL CURRENCY
COMMON PAID-IN DEFERRED TRANSLATION ACCUMULATED COMPREHENSIVE
STOCK CAPITAL COMPENSATION ADJUSTMENT DEFICIT LOSS
---------- ----------- -------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, $134,000 $49,585,000 $(43,000) $(745,000) $(35,502,000)
1997
Grant of stock options
below fair market value - 38,000 (38,000) - -
Amortization of deferred
compensation - - 13,000 - -
Exercise of employee
options and warrants - 61,000 - - -
Cumulative currency
translation adjustment - - - (115,000) - (115,000)
Net Loss - - - - (2,226,000) (2,226,000)
-----------------------------------------------------------------------------------------
Balance at March 31, 1998 $134,000 $49,684,000 $(68,000) $(860,000) $(37,728,000) $(2,341,000)
=========================================================================================
</TABLE>
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 1997.
The Company develops, licenses, implements and supports a suite of client/server
and host-based applications for the Technology Enabled Relationship Management
("TERM") Software Market that permit organizations of various sizes across a
wide range of industries to automate field service, customer support and sales
and marketing functions. The Company maintains operations in the United States,
Australia, New Zealand, the Netherlands, France, the United Kingdom, Sweden and
Israel.
Results of Operations
- ---------------------
Comparison of Three Months Ended March 31, 1998 and 1997
- --------------------------------------------------------
Revenues
- --------
Revenues decreased $435,000, or 3%, to $13,360,000 for the three months ended
March 31, 1998 from $13,795,000 for the three months ended March 31, 1997.
Software license fee revenues decreased $1,246,000, or 24%, from the same period
last year. Services and maintenance fees for the three months ended March 31,
1998 amounted to $9,508,000, a 9% increase over the same quarter in 1997.
7
<PAGE>
The Company's international operations contributed $5,265,000 of revenues in the
first quarter of 1998 compared to $4,724,000 in the first quarter of 1997. This
represents an 11% increase from the same period last year and 39% of total
revenues in the first quarter 1998. International revenue growth for the first
quarter of 1998 was primarily attributable to the Company's European operations.
Software license fee revenues decreased 24% to $3,852,000 in the first quarter
of 1998 from $5,098,000 in the first quarter of 1997. The decrease in software
license fee revenues was due to reduced revenue in all product lines except
ServiceAlliance, which was introduced in August of 1997. ServiceAlliance license
fee revenues were $213,000 for the first quarter of 1998. License fee revenues
for DISPATCH-1, within the Service Automation product line, decreased $553,000
or 36% from $1,517,000 in the first quarter of 1997 to $964,000 in the first
quarter of 1998 due to decreasing demand for this product. License fees from
the Sales Automation (Abalon) product line decreased $464,000 or 59% to $324,000
from $788,000 in the first quarter of 1997. Support Automation (HEAT) product
line license fee revenues decreased $374,000 or 14% from $2,653,000 in the first
quarter of 1997 to $2,279,000 in the first quarter of 1998. Heat licenses made
up 59% of total license revenues in the first quarter of 1998 compared to 52% of
total license revenues in the first quarter of 1997.
Services and maintenance revenues increased 9% to $9,508,000 in the first
quarter of 1998 from $8,697,000 in the first quarter of 1997. The increase in
services and maintenance revenues is primarily attributable to the Sales
Automation and Support Automation product lines offset by decreases in the
Service Automation product line. The Sales Automation product line (Abalon)
service and maintenance revenues increased $610,000 to $1,364,000, or 81%. The
Support Automation product line contributed services and maintenance revenues of
$2,939,000, a 55% increase over the same quarter in the prior year. The
increases in Sales Automation and Support Automation product line service and
maintenance revenue is primarily attributable to the continued growth of these
customer bases as compared to prior periods. The Service Automation product line
(DISPATCH-1 and ServiceAlliance) services and maintenance revenues decreased 13%
to $5,106,000 in the first quarter of 1998, reflecting a decrease in new
licenses sold in prior periods.
In the first quarter of 1998 and 1997, none of the company's customers accounted
for more than 10% of total revenues.
COSTS OF REVENUES
- -----------------
Cost of software license fees decreased 48% to $686,000 in the first quarter of
1998 from $1,332,000 in the first quarter of 1997. The software licenses gross
margin percentage was 82% in the first quarter of 1998 compared to 74% in the
first quarter of 1997. Included in the first quarter of 1997 cost of software
license fees is $453,000 for the write-off of capitalized software development
costs related to product versions that will no longer be marketed in conjunction
with the company's restructuring of its product lines. Excluding this write-
off, the software licenses gross margin percentage would have been 83% in the
first quarter of 1997. The slight decrease in adjusted gross margin was
attributable to increased software amortization expense in the first quarter of
1998.
Cost of services and maintenance decreased 4% to $6,384,000 in the first quarter
of 1998 from $6,663,000 in the first quarter of 1997. The services and
maintenance gross margin percentage was 33% in the first quarter of 1998
compared to 23% in the first quarter of 1997. This increase in services and
maintenance gross margin was primarily due to cost reductions in the service
automation product line as a result of the first quarter 1997 restructuring.
PRODUCT DEVELOPMENT
- -------------------
Product development expense decreased 34% to $1,945,000 in the first quarter of
1998 from $2,935,000 in the first quarter of 1997. Product development as a
percentage of revenues decreased to 15% in the first quarter of 1998 from 21% in
the first quarter of 1997. This decrease is a result of lower outside
consultant expenses and cost reductions as a result of the first quarter 1997
restructuring.
8
<PAGE>
SALES AND MARKETING
- -------------------
Sales and marketing expense decreased 18% to $4,746,000 in the first quarter of
1998 from $5,758,000 in the first quarter of 1997. This decrease was primarily
attributable to lower commission expense as a result of the decrease in license
revenue. as a percentage of revenues, sales and marketing expenses decreased to
36% from 42% in the first quarter of 1997.
GENERAL AND ADMINISTRATIVE
- --------------------------
General and administrative expenses decreased 78% to $1,869,000 in the first
quarter of 1998 from $8,395,000 in the first quarter of 1997. The decrease
primarily relates to non-recurring charges of $5,131,000 in the first quarter of
1997. These charges included $2,058,000 for the write-off of Astea BV goodwill
and $3,073,000 of contingency reserve for the possible failure to deliver a
commercial release of software product under a beta development agreement,
payment of cash, note payable and stock options related to the settlement of a
dispute with a stockholder and other contingencies. Excluding the one-time
charges recorded in the first quarter of 1997, general and administrative
expenses decreased $1,395,000 due to the Company's restructuring and cost
containment efforts, reductions in charges for bad debt reserves and a reduction
in goodwill amortization expense as a result of the write-off of Astea BV
goodwill.
NET INTEREST INCOME (EXPENSE)
- -----------------------------
Net interest income increased 192% to $44,000 of interest income in the first
quarter of 1998 from $48,000 of interest expense in the first quarter of 1997.
This increase was primarily attributable to the termination of the capital lease
obligation for the Company's former office headquarters, offset by the operating
cash requirements of the Company, which reduced its investments.
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------
Net cash used in operating activities was $121,000 for the three months ended
March 31, 1998 compared to $270,000 for the three months ended March 31, 1997.
This decrease was primarily attributable to the Company's reduced net loss,
offset by non-cash goodwill write down, restructuring charge, reduced collection
of accounts receivable, as well as increases in accounts payable and accrued
expenses.
The Company used $2,855,000 of cash in investing activities in the first three
months of 1998 compared to providing $324,000 of cash in the first three months
of 1997. The decrease was primarily attributable to the purchase of
investments available for sale and increased purchases of property and
equipment.
The Company used $121,000 for financing activities during the three months ended
March 31, 1998 compared to $321,000 in the first three months of 1997. This
decrease is due primarily to lower repayments on the line of credit.
The Company maintains a line of credit with a maximum borrowing availability of
$2,000,000. Maximum borrowings are limited to certain percentages of eligible
accounts receivable (as defined). At April 30, 1998 the borrowing base is
$1,722,000. The line of credit bears interest at the lending bank's prime rate
(8.5% at March 31, 1998 and December 31, 1997). Borrowings under the line of
credit are fully secured by the Company's assets. The outstanding balances as
of March 31, 1998 and December 31, 1997 were $0. The line expires on June 1,
1998.
The Company's Swedish subsidiary, Astea International AB, has a revolving line
of credit for up to 8,000,000 Swedish krona or $995,000. As of March 31, 1998
and December 31, 1997, Astea InternationaL AB's borrowing on its revolving line
of credit was $819,000 and $914,000, respectively. The revolving line of credit
bears interest at the bank's prime rate plus 2.4% (6.9% at March 31, 1998 and
December 31, 1997). Borrowings under the revolving line of credit are secured by
a first security interest in all of Astea International AB's assets. The line
expires on December 31, 1998.
9
<PAGE>
At March 31, 1998, the Company had a working capital ratio of approximately
1.2:1, with cash and investments available for sale of $9,224,000. The Company
may need access to additional funding during the next year to fund operations as
products are rolled out and other strategies progress towards realization. The
Company believes sufficient cash resources exist to support its immediate growth
strategies either through currently available cash, cash generated from future
operations, sale of assets or the ability of the Company to obtain additional
financing through private and or public debt or equity placements. The Company
does not anticipate that its operations will be affected materially by inflation
or economic conditions in East Asia.
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 increase
licenses of ServiceAlliance, HEAT and Abalon products and other new product
offerings, and developing new products and product enhancements to complement
its existing field service, sales automation and customer support offerings.
. The Technology Enabled Relationship Management (TERM) software market is
intensely competitive.
. International sales for the Company's products and services, and the
Company's expenses related to these sales, continue to be a substantial
component of the Company's operations. International sales are subject to a
variety of risks, including difficulties in establishing and managing
international operations and in translating products into foreign languages.
. The market price of the common stock could be subject to significant
fluctuations in response to, and may be adversely affected by, variations in
quarterly operating results, changes in earnings estimates by analysts,
developments in the software industry, adverse earnings or other financial
announcements of the Company's customers and general stock market conditions,
as well as other factors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- ------- ---------------------------------------------------------
Not Applicable.
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS
- ------- -----------------
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. The Company is
not involved in any legal proceedings which would, in management's opinion, have
a material adverse effect on the Company's business or results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
- ------- -----------------------------------------
There have been no changes in securities during the quarter ended March 31,
1998.
As of March 31, 1998, the Company has used $40,407,000 of the $42,057,000 net
proceeds from its initial public offering of common stock. The use of proceeds
includes $9,952,000 for the acquisition of Astea International AB, $3,416,000
for expenses incurred in connection with the merger with Bendata, Inc.,
$7,779,000 of S Corporation
10
<PAGE>
distributions paid to the majority stockholder, $6,476,000 for purchases and
installation of property and equipment, $3,574,000 of temporary investments,
$1,732,000 for repayment of indebtedness and $7,478,000 of working capital for
product development activities and general operations.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- ------- -------------------------------
There have been no defaults by the Company on any Senior Securities during the
quarter ended March 31, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
No matters were submitted to a vote of the Company's stockholders during the
first quarter of the fiscal year covered by this report through the solicitation
of proxies or otherwise.
ITEM 5. OTHER INFORMATION
- ------- -----------------
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(A) Exhibits
(10.1) Modification Agreement dated April 30, 1998 by and among the
Company, PNC Bank, National Association and PNC Leasing Corp.
(27) Financial Data Schedule
(B) Reports on Form 8-K
None.
11
<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 14th day of May,
1998.
ASTEA INTERNATIONAL INC.
By: /s/ Zack B. Bergreen
--------------------
Zack B. Bergreen
Chairman and Chief Executive Officer
(Principal Executive Officer)
By: /s/ John G. Phillips
--------------------
John G. Phillips
Vice President and Chief Financial Officer
(Principal Financial and Chief
Accounting Officer)
12
<PAGE>
Exhibit 10.1
MODIFICATION AGREEMENT
----------------------
THIS MODIFICATION AGREEMENT ("Modification Agreement") dated as of April
30, 1998, by and among ASTEA INTERNATIONAL INC. ("Borrower"), PNC BANK, NATIONAL
ASSOCIATION ("Bank") and PNC LEASING CORP. ("PNC").
BACKGROUND
Borrower and Bank entered into a certain Amended and Restated Loan and
Security Agreement dated as of April 24, 1995 (as amended to date, the "Loan
Agreement"), the terms of which are incorporated herein by reference. Borrower
and PNC have entered into a certain Master Lease Agreement ("Master Lease")
dated October 30, 1996, Lease No. 937, and, in connection therewith, have from
time to time executed various Schedules, and Supplements to Schedules (said
Master Lease, together with all Schedules and Supplements heretofore and
hereafter executed in connection therewith, being hereinafter collectively
referred to as the "Lease").
Bank, Borrower and PNC desire to effect certain modifications as
hereinafter set forth.
All modifications effected hereby are, unless expressly set forth to the
contrary and subject to fulfillment of all conditions hereinafter specified,
effective as of the date hereof.
NOW, THEREFORE, the parties, INTENDING TO BE LEGALLY BOUND, agree as
follows:
1. Financial Covenant Modification. Effective as of March 31, 1998,
-------------------------------
Section 6.01(B) of the Loan Agreement is hereby amended and restated in its
entirety as follows:
"(B) Borrower shall at all times comply with the following financial
ratios, determined in accordance with GAAP:
(1) Borrower shall maintain Tangible Net Worth of not less than $6,272,000
as of March 31, 1998, not less than $6,112,000 as of June 30, 1998 and not less
than $36,893,000 as of September 30, 1998 and thereafter.
(2) Borrower shall maintain Liquidity (as hereinafter defined) of not less
than $4,000,000 as of March 31, 1998 through and including September 29, 1998
and not less than $11,000,000 as of September 30, 1998 and thereafter.
"Liquidity" means for this purpose unencumbered cash or cash equivalents
acceptable to the Bank in its business judgment.
2. Release of Cash Collateral. Bank and PNC hereby release the
--------------------------
$2,000,000 cash collateral previously pledged to Bank and PNC by Network Data,
Inc. pursuant to Pledge Agreement dated __________, 1997.
3. Borrowing Base. Notwithstanding anything to the contrary set forth in
--------------
the Loan Agreement, in no event will the outstanding principal balance of the
Revolving Loan (including the face amount of all letters of credit) exceed the
lesser of the Revolving Credit Loan Limit (as defined in the Loan Agreement) or
the Borrowing Base (as hereinafter defined). Borrower shall deliver to Bank,
monthly on or before the 10th day of each calendar month, a Borrowing Base
certificate reflecting the Borrowing Base as of the end of the preceding
calendar month, certified by Borrower's chief financial officer. In the event
the outstanding principal balance of the Revolving Loan (including the face
amount of letters of credit) at any time exceeds the Borrowing Base, Borrower
will, within one (1) business day, reduce the principal balance of the Revolving
Loan by the amount of such excess. As used herein, "Borrowing Base" means 40%
of the net outstanding amount of Eligible Accounts (after deducting therefrom
all payments, adjustments and credits applicable thereto), and "Eligible
Accounts" shall have the meaning set forth in Annex I hereto.
13
<PAGE>
4. Reaffirmation. Borrower hereby ratifies and reaffirms all to its
-------------
obligations and liabilities to each of PNC and Bank and agrees that the same are
owing without offset, counterclaim or other defense of any nature. Borrower
specifically ratifies and reaffirms all confession of judgment and waiver of
jury trial provisions set forth in any document or instrument executed in
connection with or otherwise evidencing such obligations or liabilities.
Borrower specifically releases each of Bank and PNC, their respective
present and future officers, employees and legal counsel, from any and all
matter of claims, liabilities, suits, actions, causes of action and damages of
any kind or nature whatsoever, at law or in equity, which Borrower has arising
from or relating to any act or omission by Bank or PNC and/or any such officer,
employee or legal counsel, through and including the date hereof in connection
with the consideration, negotiation, consummation, administration and/or
enforcement of Borrower's liabilities and obligations to PNC or Bank, including
the Loan Agreement, the Lease and this Modification Agreement.
IN WITNESS WHEREOF, the parties have executed this Modification
Agreement on the date first above written.
ASTEA INTERNATIONAL INC
By: /s/ John G. Phillips
--------------------------
Attest: /s/Charles D. LaMotta
----------------------
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Joseph A. Serianni
--------------------------
PNC LEASING CORP.
By:
--------------------------
14
<PAGE>
ANNEX I
"Eligible Account" shall mean an Account of Borrower which meets all
----------------
of the following requirements:
(A) The Account arose in the ordinary course of business of Borrower
from a bona fide absolute sale of Goods by Borrower (and not on consignment,
approval or sale-or-return basis or subject to any other repurchase or return
agreement), or for services performed by Borrower, and such Goods have been
shipped to the appropriate account debtor, or the services have actually been
performed for the appropriate account debtor;
(B) The Account is based upon an enforceable order or contract,
written or oral, for Goods shipped or services performed, and the same were
shipped or actually performed in accordance with the order or contract;
(C) The title of Borrower to the Account and, except as to the account
debtor, to any Goods is absolute and is lawfully in Borrower and subject to no
other assignment, claim, lien or security interest except that of Bank, and
Borrower has the right of assignment thereof and the power to grant to Bank a
security interest therein;
(D) The amount shown on the books or records of Borrower and on any
invoice or statement delivered to Bank in respect of the Account is owing to
Borrower, and no partial payment has been made thereon except as shown on such
books and records and disclosed to Bank;
(E) The Account is a valid and enforceable Account, representing an
undisputed indebtedness of an account debtor to Borrower, is not subject to any
claim or reduction, counter-claim, set-off, recoupment, or any claim for
credits, allowances or adjustments by the account debtor because of returned,
inferior or damaged Goods or unsatisfactory services, or for any other reason,
except for discounts customarily allowed by Borrower in the ordinary course of
its business for prompt payment;
(F) The account debtor has not returned or refused to retain any of
the goods, the sale of which gave rise to the Account, or the account debtor has
not, upon partial payment of amounts owing to Borrower, reserved the right to
return any of the Goods, the sale of which gave rise to the Account;
(G) The Account has been outstanding not more than 90 days from the
invoice date;
(H) The Account did not arise out of a contract with, or order from,
an account debtor that, by its terms, forbids or makes void or unenforceable the
assignment by Borrower to the Bank of the Account arising with respect thereto;
(I) Borrower has received no Instrument in payment of the Account, nor
any chattel Paper with respect to the Goods, the sale of which gave rise to the
Account, and, if any Instrument or Chattel Paper is at any time received,
Borrower will immediately notify Bank and, at the latter's request, endorse
and/or assign and deliver the same to Bank;
(J) Borrower has received no notice of the death of the account debtor
or a general partner thereof; nor of the dissolution, termination of existence,
insolvency, business failure or cessation, appointment of a receiver for all or
any part of the property of, assignment for the benefit of creditors by, or the
filing of a petition in bankruptcy or the commencement of any proceeding under
any bankruptcy or insolvency laws, now or hereafter enacted, by or against the
account debtor. Upon the receipt by Borrower of any such notice, it will
immediately notify the Bank thereof;
(K) The account debtor is not an Affiliate of Borrower.
(L) The Account is owing from an account debtor whose principal place
of business, executive offices and office from which its order was placed is
within the United States or Canada unless such Account is secured by a letter of
credit issued or confirmed by a domestic financial institution reasonably
acceptable to Bank;
15
<PAGE>
(M) The Account is not an account owing from an account debtor which
is a government (federal, state or local) or an agency or instrumentality of a
government, or if the Account is an account owing from an account debtor which a
government (federal, state or local) or an agency or instrumentality of a
government, all requirements necessary to fully assign all rights with respect
to such Account to Bank have been met or complied with, including the
requirements of the Federal Assignment of Claims Act, and such account debtor
shall have given all such consents, permissions or agreements as are necessary
to fully assign, and make payments on, such Account to Bank.
An Account which is at any time an Eligible Account, but which
subsequently fails to meet any of the foregoing, shall forthwith cease to be an
Eligible Account.
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 5,650,000 8,745,000
<SECURITIES> 3,574,000 1,359,000
<RECEIVABLES> 16,866,000 20,355,000
<ALLOWANCES> 1,645,000 2,286,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 29,537,000 33,156,000
<PP&E> 9,326,000 8,886,000
<DEPRECIATION> 5,475,000 4,928,000
<TOTAL-ASSETS> 37,939,000 41,773,000
<CURRENT-LIABILITIES> 23,777,000 25,356,000
<BONDS> 0 0
0 0
0 0
<COMMON> 134,000 134,000
<OTHER-SE> 11,956,000 14,083,000
<TOTAL-LIABILITY-AND-EQUITY> 37,939,000 41,773,000
<SALES> 3,852,000 5,098,000
<TOTAL-REVENUES> 13,360,000 13,795,000
<CGS> 686,000 1,332,000
<TOTAL-COSTS> 7,070,000 7,995,000
<OTHER-EXPENSES> 8,510,000 21,631,000
<LOSS-PROVISION> 50,000 785,000
<INTEREST-EXPENSE> (44,000) 48,000
<INCOME-PRETAX> (2,226,000) (16,664,000)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,226,000) (16,664,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,226,000) (16,664,000)
<EPS-PRIMARY> (.17) (1.26)
<EPS-DILUTED> (.17) (1.26)
</TABLE>
