<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 June 30, 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 August 11, 1998, 13,535,301 shares of the registrant's Common Stock, par
value $.01 per share, were outstanding.
<PAGE>
ASTEA INTERNATIONAL INC.
FORM 10-Q
QUARTERLY REPORT
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
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 12
PART II - OTHER INFORMATION
- ---------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
ITEM 5. OTHER INFORMATION 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURES 14
EXHIBIT 27 FINANCIAL DATA SCHEDULE 15
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
ASTEA INTERNATIONAL INC.
-------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, December 31,
1998 1997
---------------------- ----------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,024,000 $ 8,745,000
Investments available for sale 1,953,000 1,359,000
Receivables, net of reserves of $2,163,000 and $2,286,000 13,635,000 18,069,000
Prepaid expenses and other 2,744,000 2,709,000
Deferred income taxes 2,274,000 2,274,000
---------------------- ----------------------
Total current assets 26,630,000 33,156,000
Property and equipment, net 3,530,000 3,958,000
Capitalized software development costs, net 3,773,000 3,556,000
Goodwill, net 1,041,000 1,103,000
---------------------- ----------------------
Total assets $ 34,974,000 $ 41,773,000
====================== ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ 1,463,000 $ 914,000
Current portion of long-term debt 1,054,000 1,085,000
Accounts payable and accrued expenses 10,260,000 13,749,000
Deferred revenues 10,142,000 9,608,000
---------------------- ----------------------
Total current liabilities 22,919,000 25,356,000
Deferred income taxes 1,352,000 1,352,000
Long-term debt 1,143,000 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, 13,520,000 and 13,361,000 issued and
outstanding 135,000 134,000
Additional paid-in capital 49,726,000 49,585,000
Deferred compensation (55,000) (43,000)
Cumulative currency translation adjustment (816,000) (745,000)
Accumulated deficit (39,430,000) (35,502,000)
---------------------- ----------------------
Total stockholders' equity 9,560,000 13,429,000
---------------------- ----------------------
Total liabilities and stockholders' equity $ 34,974,000 $ 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 Six Months
Ended June 30, Ended June 30,
--------------------------- ----------------------------
1998 1997 1998 1997
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Software license fees $ 5,439,000 $ 4,988,000 $ 9,291,000 $ 10,086,000
Services and maintenance 9,370,000 9,568,000 18,878,000 18,265,000
------------- ------------- ------------- --------------
Total revenues 14,809,000 14,556,000 28,169,000 28,351,000
------------- ------------- ------------- --------------
Costs and expenses:
Cost of software license fees 1,059,000 874,000 1,745,000 2,206,000
(Note 2)
Cost of services and maintenance 6,545,000 6,086,000 12,929,000 12,749,000
Product development 1,823,000 2,339,000 3,768,000 5,274,000
Sales and marketing 5,590,000 5,057,000 10,336,000 10,815,000
General and administrative (Notes 2 and 2,316,000 2,074,000 4,185,000 10,469,000
3)
Restructuring charge (Note 2) (800,000) - (800,000) 5,328,000
------------- ------------- ------------- --------------
Total costs and expenses 16,533,000 16,430,000 32,163,000 46,841,000
------------- ------------- ------------- --------------
Operating loss (1,724,000) (1,874,000) (3,994,000) (18,490,000)
Net interest income (expense) 22,000 (15,000) 66,000 (63,000)
------------- ------------- ------------- --------------
Loss before income tax (1,702,000) (1,889,000) (3,928,000) (18,553,000)
Income tax - - - -
Net loss ($1,702,000) ($1,889,000) ($3,928,000) ($18,553,000)
============= ============= ============= ==============
Basic and diluted net loss per share $(.13) $(.14) $(.29) $(1.41)
============= ============= ============= ==============
Share outstanding used in computing basic
and diluted net loss per share 13,457,000 13,234,000 13,417,000 13,179,000
============= ============= ============= ==============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
ASTEA INTERNATIONAL INC.
------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
-----------------------------------------
1998 1997
-------------------- -------------------
Cash flows from operating activities:
<S> <C> <C>
Net loss $(3,928,000) $(18,553,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,813,000 1,853,000
Goodwill write-down - 2,058,000
Write-off of fixed assets - 485,000
Write-off of capitalized software - 453,000
Other (433,000) 11,000
Changes in operating assets and liabilities:
Receivables 4,371,000 7,588,000
Prepaid expenses and other (66,000) 155,000
Restructuring charge, net (1,195,000) 3,371,000
Accounts payable and accrued expenses (2,259,000) 1,788,000
Deferred revenues 508,000 664,000
-------------------- -------------------
Net cash used in operating activities (1,189,000) (127,000)
-------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales (purchases) of investments available for sale (594,000) 2,619,000
Purchases of property and equipment (673,000) (607,000)
Capitalized software development costs (400,000) (400,000)
-------------------- -------------------
Net cash provided by (used in) investing activities (1,667,000) 1,612,000
-------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on line of credit 549,000 (901,000)
Proceeds from exercise of stock options and employee stock purchase 106,000 110,000
plan
Net repayments of long-term debt (524,000) (64,000)
-------------------- -------------------
Net cash provided by (used in) financing activities 131,000 (855,000)
-------------------- -------------------
Effect of exchange rate changes on cash and cash equivalents 4,000 35,000
-------------------- -------------------
Net increase (decrease) in cash and cash equivalents (2,721,000) 665,000
Cash and cash equivalents balance, beginning of period 8,745,000 3,334,000
-------------------- -------------------
Cash and cash equivalents balance, end of period $ 6,024,000 $ 3,999,000
==================== ===================
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 June 30, 1998 and for the three and six
month periods ended June 30, 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. Since the
restructuring was announced, the Company aggressively continued to close and
consolidate excess capacity. Through June 1998, these payments totaled
$3,854,000, including severance of $1,147,000, office-closing costs and
unutilized lease expense of $2,253,000 and other consolidation costs of
$454,000. During the second quarter of 1998, the Company based upon current
facts, evaluated its restructuring accrual and determined that $800,000 was not
needed and, accordingly the accrual was adjusted. This excess restructuring
accrual related to lower than expected office closing costs.
As of June 30, 1998, the balance of the accrued restructuring charge of $674,000
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 June 30, 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 - 38,000 (38,000) - -
fair market value
Amortization of deferred
compensation - - 26,000 - -
Exercise of options 1,000 103,000 - - -
Cumulative currency
translation - - - (71,000) - (71,000)
adjustment
Net Loss - - - - (3,928,000) (3,928,000)
-------------------------------------------------------------------------------------
Balance at June 30, 1998 $135,000 $49,726,000 $(55,000) $(816,000) $(39,430,000) $(3,999,000)
=====================================================================================
</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 and Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998.
The Company develops, licenses, implements and supports a suite of client/server
and host-based applications for the Customer Management Solutions (CMS) 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 June 30, 1998 and 1997
- -------------------------------------------------------
Revenues
- --------
Revenues increased $253,000, or 2%, to $14,809,000 for the three months ended
June 30, 1998 from $14,556,000 for the three months ended June 30, 1997.
Software license fee revenues increased $451,000, or 9%, from the same period
last year. Services and maintenance fees for the three months ended June 30,
1998 amounted to $9,370,000, a 2% decrease from the same quarter in 1997.
The Company's international operations contributed $5,369,000 of revenues in the
second quarter of 1998 compared to $5,581,000 in the second quarter of 1997.
This represents a 4% decrease from the same period last
7
<PAGE>
year and 36% of total revenues in the second quarter 1998. The international
decline was due to a decrease of revenue from the Sales Automation product line
(Abalon) in Sweden.
Software license fee revenues increased 9% to $5,439,000 in the second quarter
of 1998 from $4,988,000 in the second quarter of 1997. Support Automation
(HEAT) product line license fee revenues increased $803,000 or 30% from
$2,669,000 in the second quarter of 1997 to $3,472,000 in the second quarter of
1998. HEAT licenses contributed 64% of total license revenues in the second
quarter of 1998 compared to 54% of total license revenues in the second quarter
of 1997. License fee revenues for DISPATCH-1, within the Service Automation
product line, increased $316,000 or 28% from $1,131,000 in the second quarter of
1997 to $1,447,000 in the second quarter of 1998. ServiceAlliance, which was
introduced in August, 1997, license fee revenues were $150,000 for the second
quarter of 1998. License fees from the Sales Automation (Abalon) product line
decreased $509,000 or 60% to $338,000 from $847,000 in the second quarter of
1997.
Services and maintenance revenues decreased 2% to $9,370,000 in the second
quarter of 1998 from $9,568,000 in the second quarter of 1997. The decrease in
services and maintenance revenues is primarily attributable to the Sales
Automation and Service Automation product lines partially offset by an increase
in the Support Automation product line. The Sales Automation product line
(Abalon) service and maintenance revenues decreased $183,000 to $1,111,000, or
14%. The Service Automation product line (DISPATCH-1 and ServiceAlliance)
decreased 9% to $5,335,000 in the second quarter of 1998 from $5,862,000 in the
first quarter of 1997. The decrease in the Sales Automation and Service
Automation product lines service and maintenance revenues is a result of a
decrease in new licenses sold in prior quarters. The Support Automation product
line contributed services and maintenance revenues of $2,924,000, a 21% increase
over the same quarter in the prior year.
In the second 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 increased 21% to $1,059,000 in the second quarter
of 1998 from $874,000 in the second quarter of 1997. The software licenses
gross margin percentage was 81% in the second quarter of 1998 compared to 82% in
the second quarter of 1997. The slight decrease in adjusted gross margin was
attributable to increased software amortization expense in the second quarter of
1998.
Cost of services and maintenance increased 8% to $6,545,000 in the second
quarter of 1998 from $6,086,000 in the second quarter of 1997. The services and
maintenance gross margin percentage was 30% in the second quarter of 1998
compared to 36% in the second quarter of 1997. This decrease in services and
maintenance gross margin was primarily due to non-billable services performed in
the Sales Automation product line (Abalon).
Product Development
- -------------------
Product development expense decreased 22% to $1,823,000 in the second quarter of
1998 from $2,339,000 in the second quarter of 1997. Product development as a
percentage of revenues decreased to 12% in the second quarter of 1998 from 16%
in the second quarter of 1997. This decrease is a result of cost reductions
from the first quarter 1997 restructuring.
Sales and Marketing
- -------------------
Sales and marketing expense increased 11% to $5,590,000 in the second quarter of
1998 from $5,057,000 in the second quarter of 1997. This increase resulted from
the Company's increased emphasis on the sales and marketing organizations
primarily in the Service Automation and Support Automation product lines. As a
percentage of revenues, sales and marketing expenses increased to 38% from 35%
in the second quarter of 1997.
8
<PAGE>
General and Administrative
- --------------------------
General and administrative expenses increased 12% to $2,316,000 in the second
quarter of 1998 from $2,074,000 in the second quarter of 1997. The increase
primarily relates to a charge for the settlement of an outstanding customer
issue in the second quarter of 1998.
Restructuring Charge
- ---------------------
During the first quarter of 1997, the Company recorded a restructuring charge of
$5,328,000 for actions aimed at reducing costs primarily in its Service
Automation product line and enhancing the Company's performance by increasing
the focus on the Support Automation and Sales Automation product lines. Since
the restructuring was announced, the Company aggressively continued to close and
consolidate excess capacity. Through June 1998, these payments totaled
$3,854,000, including severance of $1,147,000, office-closing costs and
unutilized lease expense of $2,253,000 and other consolidation costs of
$454,000. During the second quarter of 1998, the Company, based upon current
facts, evaluated its restructuring accrual and determined that $800,000 was not
needed and, accordingly, the accrual was adjusted. This excess restructuring
accrual related to lower than expected office closing costs.
Net Interest Income (Expense)
- -----------------------------
Net interest income increased 247% to $22,000 of interest income in the second
quarter of 1998 from $15,000 of interest expense in the second 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.
Comparison of Six Months Ended June 30, 1998 and 1997
- -----------------------------------------------------
Revenues
- --------
Total revenues decreased $182,000, or 1%, to $28,169,000 for the six months
ended June 30, 1998 from $28,351,000 for the six months ended June 30, 1997.
This overall decrease was comprised of a decrease in software license fees of
$795,000 or 8% on a comparative six month basis partially offset by an increase
in professional services and maintenance of $613,000 or 3% over the same
comparative period. The Company's international operations contributed
$10,634,000 in the first six months of 1998 compared to $10,305,000 for the
first six months of 1997. This represents a 3% increase over the same period
last year and is 38% of total revenues in the period. Total revenues from the
HEAT product of the Support Automation product line for the six months ended
June 30, 1998 were $11,544,000, compared to $9,442,000 for the six months ended
June 30, 1997, increasing 22% over the prior period and accounting for 41% of
the total revenues in the first six months of 1998.
Software license fee revenues decreased 8% to $9,291,000 in the first six months
of 1998 from $10,086,000 in the first six months of 1997. License fee revenues
for the DISPATCH-1, within the Service Automation product line, decreased
$337,000 or 13% from $2,648,000 in the first six months of 1997 to $2,311,000 in
the first six months of 1998 due to decreasing demand for this product. License
fees from the Sales Automation (Abalon) product line decreased $950,000 or 58%
to $685,000 in the first six months of 1998 from $1,635,000 in the first six
months of 1997. Support Automation (HEAT) product line license fee revenues
increased $429,000 or 8% from $5,322,000 in the first six months of 1997 to
$5,751,000 in the first six months of 1998. ServiceAlliance, which was
introduced in August 1997, license fee revenues were $440,000 in the first six
months of 1998.
Total services and maintenance revenues increased 3% to $18,878,000 in the first
six months of 1998 from $18,265,000 in the first six months of 1997. The
increase in service and maintenance revenues is primarily attributable to the
Sales Automation and Support Automation product lines offset by a decrease in
the Service Automation product line. The Support Automation product line
contributed services and maintenance revenues of $5,979,000, a 33% increase over
the first six months of 1997. The Sales Automation product line (Abalon)
services and maintenance revenues increased $427,000 or 21% from $2,048,000 in
the first six months of 1997 to $2,475,000 in the first six months of 1998.
Service Automation product line (DISPATCH-1 and ServiceAlliance)
9
<PAGE>
service and maintenance revenues decreased 11% to $10,424,000 in the first six
months of 1998, this decrease is a result of a decrease in new licenses sold in
prior periods.
In the first six months of 1998 and 1997, the Company had no customers which
accounted for greater than 10% of total revenues.
Costs of Revenues
- -----------------
Costs of software license fees decreased 21% to $1,745,000 in the first six
months of 1998 from $2,206,000 in the first six months of 1997. The software
licenses gross margin percentage was 81% in the six months ended June 30, 1998
compared to 78% in the six months ended June 30, 1997. This increase in gross
margin was primarily due to the write-off of capitalized software in the first
quarter of 1997 relating to products and versions which will no longer be
marketed in conjunction with the Company's restructuring of its product lines,
partially offset by higher capitalized software amortization.
Costs of services and maintenance increased 1% to $12,929,000 in the first six
months of 1998 from $12,749,000 in the first six months of 1997. The services
and maintenance gross margin percentage was 32% in the six months ended June 30,
1998 compared to 30% in the six months ended June 30, 1997.
Product Development
- -------------------
Product development expense decreased 29% to $3,768,000 in the first six months
of 1998 from $5,274,000 in the first six months of 1997. Product development as
a percentage of revenue decreased to 13% in the first six months of 1998
compared to 19% in the first six months of 1997. This decrease is a result of
cost reductions as a result of the first quarter 1997 restructuring.
Sales and Marketing
- -------------------
Sales and marketing expenses decreased 4% to $10,336,000 in the first six months
of 1998 from $10,815,000 in the first six months of 1997. As a percentage of
revenues, sales and marketing expenses decreased to 37% in the first six months
of 1998 from 38% in the first six months of 1997.
General and Administrative
- --------------------------
General and administrative expenses decreased 60% to $4,185,000 in the first six
months of 1998 from $10,469,000 in the first six months 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
dispute with a stockholder and other contingencies. Excluding the one-time
charges recorded in the first quarter of 1997, general and administrative
expenses decreased $1,153,000 due to the Company's restructuring and cost
containment efforts, reductions in charges for 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 205% to $66,000 of interest income in the first
half of 1998 from $63,000 of interest expense in the first half 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 $1,189,000 for the six months ended
June 30, 1998 compared to $127,000 for the six months ended June 30, 1997. This
increase was primarily attributable to reduced collection of accounts
10
<PAGE>
receivable, increases in payments of accounts payable, accrued expenses,
restructuring charge and non-cash goodwill write down, offset by reduced net
loss.
The Company used $1,667,000 of cash in investing activities in the first six
months of 1998 compared to providing $1,612,000 of cash in the first six 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 provided $131,000 from financing activities during the six months
ended June 30, 1998 compared to a use of $855,000 in the first six months of
1997. This increase is due to borrowings on the line of credit offset by
increased payments on long term debt.
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 June 30, 1998 the borrowing base was
$1,604,000. The line of credit bears interest at the lending bank's prime rate
(8.5% at June 30, 1998 and December 31, 1997). Borrowings under the line of
credit are fully secured by the Company's assets. The outstanding balances as
of June 30, 1998 and December 31, 1997 were $600,000 and $0, respectively. The
line expires on December 31, 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 June 30, 1998
and December 31, 1997, Astea International AB's borrowing on its revolving line
of credit was $863,000 and $914,000, respectively. The revolving line of credit
bears interest at the bank's prime rate plus 2.4% (6.8% at June 30, 1998 and
December 31, 1997). Borrowings under the revolving line of credit are secured by
a second security interest in all of Astea International AB's assets. The line
expires on December 31, 1998.
At June 30, 1998, the Company had a working capital ratio of approximately
1.2:1, with cash and investments available for sale of $7,977,000. 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 to develop new products and product enhancements to complement
its existing field service, sales automation and customer support offerings.
* The Customer Management Solutions (CMS) 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
11
<PAGE>
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 June 30, 1998.
As of June 30, 1998, the Company has used $41,654,000 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 distributions paid to the majority stockholder,
$6,709,000 for purchases and installation of property and equipment, $1,953,000
of temporary investments, $2,168,000 for repayment of indebtedness and
$9,677,000 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 June 30, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
At the Annual Meeting of Stockholders held on May 14, 1998, pursuant to the
Notice of Annual Meeting of Stockholders dated April XX, 1998, the following
actions were taken:
1. The proposal to elect the following nominees as directors, to hold office
until the 1999 Annual Meeting of Stockholders 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 12,247,807 97,284 -
Henry H. Greer 12,268,983 76,108 -
Joseph J. Kroger 12,270,958 74,133 -
Charles D. LaMotta 12,268,808 76,283 -
Bruce R. Rusch 12,271,183 73,908 -
</TABLE>
2. The proposal to approve the Company's 1998 Stock Option Plan was approved
(10,662,460 shares in favor; 1,562,169 shares against; and 32,825 shares
abstaining).
3. Certain amendments to the Company's 1995 Non-Employee Director Stock Option
Plan (11,997,258 shares in favor 314,751 shares against; and 33,082 shares
abstaining.)
4. The proposal to appoint Arthur Andersen LLP as independent auditors for the
Company for the fiscal year ending December 31, 1998 was approved (12,287,131
shares in favor; 35,160 shares against; and 22,800 shares abstaining).
12
<PAGE>
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
(27) Financial Data Schedule
(B) Reports on Form 8-K
None.
13
<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 13th day of
August, 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)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 6,024,000 8,745,000
<SECURITIES> 1,953,000 1,359,000
<RECEIVABLES> 15,798,000 20,355,000
<ALLOWANCES> 2,163,000 2,286,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 26,630,000 33,156,000
<PP&E> 9,559,000 8,886,000
<DEPRECIATION> 6,029,000 4,928,000
<TOTAL-ASSETS> 34,794,000 41,773,000
<CURRENT-LIABILITIES> 22,919,000 25,356,000
<BONDS> 0 0
0 0
0 0
<COMMON> 135,000 134,000
<OTHER-SE> 10,296,000 14,083,000
<TOTAL-LIABILITY-AND-EQUITY> 35,774,000 41,773,000
<SALES> 9,291,000 10,086,000
<TOTAL-REVENUES> 28,169,000 28,351,000
<CGS> 1,745,000 2,206,000
<TOTAL-COSTS> 14,674,000 14,955,000
<OTHER-EXPENSES> 16,592,000 30,992,000
<LOSS-PROVISION> 897,000 894,000
<INTEREST-EXPENSE> (66,000) 63,000
<INCOME-PRETAX> (3,928,000) (18,553,000)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,928,000) (18,553,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,928,000) (18,553,000)
<EPS-PRIMARY> (.29) (1.41)
<EPS-DILUTED> (.29) (1.41)
</TABLE>
