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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange
Act of 1934.
For The Fiscal Year Ended: December 31, 1999
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
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ASTEA INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
Delaware 23-2119058
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
455 Business Center Drive, Horsham, Pennsylvania 19044
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 682-2500
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
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par value
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
-
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 20, 2000 (based on the closing price of $4.875 as quoted
by Nasdaq National Market as of such date) was approximately $36,328,261.
As of March 20, 2000, 14,251,948 shares of the registrant's Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 18, 2000 are incorporated by reference into Part
III of this Annual Report on Form 10-K.
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TABLE OF CONTENTS
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PART I
Item 1. Business 3
Item 2. Properties 15
Item 3. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
PART II
Item 5. Market for Registrant's Common Equity and Related 17
Stockholder Matters
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of Financial 20
Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 26
Item 8. Financial Statements and Supplementary Data 27
Item 9. Changes in and Disagreements with Accountants on 49
Accounting and Financial Disclosure
PART III
Item 10. Directors and Officers of the Registrant 49
Item 11. Executive Compensation 49
Item 12. Security Ownership of Certain Beneficial Owners and 49
Management
Item 13. Certain Relationships and Related Transactions 49
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports 50
on Form 8-K
Signature Page 53
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PART I
Item 1. Business.
General
Astea International Inc. ("Astea" or the "Company") develops, markets
and supports front-office solutions for the Customer Relationship Management
("CRM") software market. Astea's applications are designed specifically for
organizations which are service centric-i.e.- field service and customer support
are considered mission critical aspects of business operations. The Company's
solutions have demonstrated quantifiable cost efficiency and service
improvements in large enterprise environments that require sophisticated
management of inventory, field and customer support resources. The Company's
principal product offerings-ServiceAlliance(R) and DISPATCH-1(R) deliver
powerful functionality that enables organizations with a high degree of field
service and customer support requirements to improve customer satisfaction,
build customer loyalty, and increase the profitability of customer service by
increasing revenue opportunities while diminishing costs. Astea's software has
been licensed to approximately 450 companies worldwide, distributed across a
variety of industries, including telecommunications, information technology,
healthcare, process and control technologies, and white goods. Astea expects
that sales of licenses and services related to DISPATCH-1 will be made only to
current customers and marketing efforts for that product are limited to the
current customer base. The Company's external sales and marketing efforts,
therefore, focus solely on ServiceAlliance.
ServiceAlliance, the Company's newest software solution, draws on the
best practices and functionality of DISPATCH-1, one of the field service
industry's leading customer service applications. First introduced in 1997,
ServiceAlliance is a Year 2000 compliant, client/server application designed to
leverage the rapid technology advances that continue to characterize the
software industry. With ServiceAlliance, the Company reformulated the complex
and powerful functionality of its original DISPATCH-1 product into an intuitive,
configurable, modular and open software design. The result is a tightly
integrated, highly configurable software solution that can be implemented more
quickly and at lower cost than DISPATCH-1, and it is able to interface more
easily with other key business systems. This combination is key to
ServiceAlliance's ability to deliver a faster overall return on investment to
Astea's customers. Accordingly, ServiceAlliance has a broader market appeal,
since it cost effectively delivers to organizations of any size the
functionality and capabilities once affordable only to Fortune 500 companies. In
December 1999, the Company also introduced SalesAlliance(TM) a software solution
which integrates with Service Alliance and is designed to automate the sales
process for businesses that sell services.
To implement its products, Astea provides its clients with an array of
professional consulting services, training and customer support services.
Astea's experienced and knowledgeable staff members have the expertise necessary
for Astea to provide a comprehensive field service and customer support
solution. They also serve as an internal source of industry expertise, a
critical factor in the ongoing product development and enhancement process which
ensures that Astea's products address the evolving business requirements of its
customers.
The Company markets its products both domestically and internationally
through offices in the United States and overseas, as well as through resellers
and system integrators. Internationally, the company maintains offices in the
United Kingdom, the Netherlands, France, Japan, Australia, New Zealand, and
Israel. Distributor agreements help to extend the Company's sales, marketing,
and support presence to Japan, Taiwan, South Africa, India, Hong Kong and
Malaysia. In 1999, the Company entered into distributor agreements to serve
Korea and Thailand. In addition, The Company entered strategic partnerships with
Sage Software, Inc. ("Sage") and Template Software, Inc. ("Template"), both
targeted at standardizing ServiceAlliance's capabilities to integrate with other
software applications, thereby reducing the cost of integrating ServiceAlliance.
The partnership with Sage links ServiceAlliance with Sage's leading
middle-market financial
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products, Acuity(R) and MAS 90(R). Packaged ServiceAlliance/Acuity and
ServiceAlliance/MAS 90 solutions can now be offered by Sage's network of over
4,000 resellers and Astea's direct sales channel. The partnership with Template,
a leader in enterprise application integration (EAI) technology, is designed to
accelerate development of solutions that cost-effectively integrate
ServiceAlliance with financial, ERP and MRP systems, including products from
companies such as SAP AG ("SAP") and Oracle Systems Corp. ("Oracle").
During 1998, the Company sold its Bendata, Inc. ("Bendata") and Abalon
AB ("Abalon") subsidiaries. Unless otherwise indicated, the descriptions herein
of the Company and its business and financial condition excludes Bendata, Abalon
and their products. See Note 3 of the Notes to the Consolidated Financial
Statements.
Current Product Offerings
ServiceAlliance
ServiceAlliance is the Company's newest service and support management
software solution. As of December 31, 1999, ServiceAlliance had been licensed to
over 90 customers worldwide. The Company is encouraged by the initial market
acceptance of ServiceAlliance, which is being implemented in businesses
worldwide. See "Certain Factors that May Affect Future Results--Uncertain Market
Acceptance of ServiceAlliance; Decreased Revenues from DISPATCH-1."
ServiceAlliance is a modularly designed, client/server-based field
service and customer support software solution. Functionally, the product is
composed of six discrete modules that utilize a shared database and centralized
functional core of common tables and processes. ServiceAlliance provides a
universal view of customer information, which facilitates the tracking and
management of customers anywhere in the customer life cycle. With
ServiceAlliance, users can update the status of customer requests as services
are performed, maintaining customer status automatically and eliminating
confusion regarding call status. Screen graphics for every service function have
a consistent look to accelerate user familiarity. Integration lets users move
from one step to another with maximum efficiency and minimum chance of error.
Source code modifications are generally unnecessary.
The standard ServiceAlliance product includes AllianceFieldService(R),
AllianceCustomerSupport(R), AllianceOrders(R), AllianceRepair(R),
AllianceLogistics(R), and AllianceContracts(R). Together, they address essential
elements in the customer life cycle, including field dispatch and scheduling,
external help desk (customer or engineer) support, inventory and logistics
management (from the time of request through allocation and shipment); contract
management and billing (including price books), and sales to service integration
(quotations and work orders). In addition to these core modules, optional add-on
modules are available to meet specific customer needs. Through
AllianceStudio(R), customers also have access to a set of application-specific
configuration tools that allow them to tailor ServiceAlliance to meet the needs
of their specific business environment, which in turn facilitates rapid
deployment of the product. In 1999, the capabilities of ServiceAlliance were
expanded with two new software releases, versions 4.0 and 4.2, and new system
options for on-line analytical processing; integrated project management; and
pan European, forms-based, GSM data communications.
Astea also sells a number of optional products designed to extend the
boundaries of a service organization including SalesAlliance,
AllianceExecutive(R), AllianceLink(R), AllianceMobile(R), AllianceProjects(R),
AllianceTrainer(R) and AllianceWeb(R). SalesAlliance is an Enterprise Sales
Force Automation (E-SFA) software designed to automate the sales process for
businesses that sell services. SalesAlliance integrates with ServiceAlliance,
enabling field sales to share the same CRM database used to manage front and
back office customer service operations. SalesAlliance offers capabilities found
in other SFA applications including field connectivity and synchronization with
remote data bases, but is also focused on increasing revenue through
service-related sales opportunities such as maintenance contracts, add-on
equipment and spare parts. SalesAlliance enables executives to implement a
uniform sales process across the enterprise, and leverage
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standardized sales and service data to improve service revenue, sales planning,
forecasting, reporting and analysis with decision-making based on a more
comprehensive view of total business operations.
AllianceExecutive adds sophisticated on-line analytical processing
capabilities to analyze ServiceAlliance data. AllianceProjects unifies all
aspects of project management within the same ServiceAlliance solution used for
call center, field service, repair depot, logistics, billing and management
analysis. With AllianceWeb, an organization's customers can access a variety of
self-service functions through the Internet, such as viewing order status,
creating or updating orders, reporting meter readings, viewing and editing their
own customer profile, and searching for information regarding products, parts,
and technical support information. AllianceMobile introduced a new support
paradigm for field service agents, enabling real-time access to time sensitive
information such as parts inventories and schedules. Utilizing widely available,
low-cost unlimited Internet access, organizations can now deploy secure,
browser-based access to the ServiceAlliance system. AllianceTrainer delivers
on-demand, computer-based training for ServiceAlliance content at the end-user
desktop level. In addition to the more traditional computer-based training
concepts of interactive "teacher" and "demonstration" modes, AllianceTrainer
offers a "concurrent operation" mode. With concurrent operation, the application
guides an inexperienced operator through the actions necessary to accomplish a
specific ServiceAlliance task, executing the task in real-time. AllianceTrainer
is designed to reduce the software learning curve for high-turnover job
categories and infrequent or new users, and therefore to improve customer return
on investment by delivering better and faster end-user productivity.
ServiceAlliance was designed to interface with other "best of breed"
products. Inherent product compatibility with a variety of other products, such
as paging, search engines, electronic mail, and Internet tools, extends the
application's functionality. A new automation tool, ActiveX automation, makes it
easy to connect to other applications that conform to that standard. In
addition, AllianceLink(R) interface products help clients integrate rapidly with
more complex and sophisticated products, such as complex staff scheduling
products, optimized parts planning and forecasting, financial systems and
case-based reasoning tools.
Supported environments for ServiceAlliance include: ClientsWindows
95/98 and Windows NT and Networks TCP/IP. ServiceAlliance operates with Oracle,
Sybase, and Microsoft SQL Server databases.
eCRM Product Offering
The Company plans to extend its ServiceAlliance product by producing
and marketing a comprehensive suite of e-CRM products. The e-CRM suite will
consist of three portals that give access to eight new e-CRM products for users
of the Company's AllianceEnterprise(TM) suite. The new products will be released
in stages expected to begin in the summer of 2000 and will have capabilities for
customer self-service, self-sales and mobile employees. Other products to follow
as part of the e-CRM suite will add capabilities for channel management and
suppliers of goods and services, and will be enabled with an XML-based B2B
server for unattended e-Business. An e-CRM server platform will be used for the
new products that conduct the e-Business transactions.
DISPATCH-1
The Company's original standard product, DISPATCH-1 which was
introduced in 1986 typically has been adopted by larger Fortune 1,000 companies.
Astea currently supports approximately 120 DISPATCH-1 customers on active
maintenance. In 1999, approximately 72% of the Company's total revenues derived
from license, maintenance and professional service fees related to DISPATCH-1.
See "Certain Factors that May Affect Future Results--Uncertain Market Acceptance
of ServiceAlliance; Decreased Revenues from DISPATCH-1." While ServiceAlliance
is the successor to DISPATCH-1 and offers a broader CRM solution, DISPATCH-1
remains deployed in a variety of large enterprise environments and supports
thousands of users in multinational locations. Support of these installations is
a key component of the Company's plans and DISPATCH-1 is expected to be a
significant continuing source of licensing, service and maintenance revenues
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to Astea for the foreseeable future in the form of additional users on current
licenses, addition of optional modules, and ongoing maintenance fees.
The Company's original customer service product, DISPATCH-1, is one of
the most widely installed field service solutions in the world. DISPATCH-1 helps
organizations with complex and geographically dispersed field service operations
automate and manage call center operations among customers, headquarters, branch
offices and the field. Version 8.0 of DISPATCH-1 is Year 2000 compliant,
supports both Internet and graphical desktop interfaces, and is interfaced to a
number of complementary third-party products designed to extend its
functionality. Other versions of DISPATCH-1 are also Year 2000 compliant.
DISPATCH-1 has been deployed in a wide variety of large enterprise environments,
and can support thousands of users in both single and multi-country situations.
In select engagements, the Company has significantly customized and enhanced
DISPATCH-1 to specifically address the needs of a few very large product
deployments, generating an ongoing but decreasing level of professional services
and consulting revenues, as well as product maintenance revenues.
Professional Services and Customer Support Services
Astea offers a range of specialized professional and customer support
services to assist its clients in using its products effectively. These services
include business process consulting, implementation planning, project
management, customization, education and training, technical support and ongoing
software maintenance. Astea believes that its professional services capabilities
allow its clients to deploy the Company's products quickly and efficiently.
Together, professional services and customer support comprised approximately 66%
of the Company's total revenues in 1999, compared to 80% in 1998.
Professional Services
As of December 31, 1999, the professional services group consisted of
96 professional services personnel 66 of which are headquartered in two offices
in the United States and 30 of which are based in six offices internationally in
the United Kingdom, the Netherlands, France, Israel, Australia and New Zealand.
An initial professional services engagement for ServiceAlliance typically is
between one and four months and such engagements usually lasted between six and
18 months for DISPATCH-1. For most of Astea's clients appropriate teams are
assembled from the Company's worldwide offices to perform the required services.
Due to the more complex nature of Astea's DISPATCH-1 offering, customers that
licensed these programs typically purchased a higher volume of professional
services than customers of ServiceAlliance.
Astea's typical professional services engagement includes planning,
prototyping and implementation of Astea's products within the client's
organization. During the initial planning phase of the engagement, Astea's
professional services personnel work closely with representatives of the client
to prepare a detailed project plan that includes a timetable, resource
requirements, milestones, in-house training programs, onsite business process
training and demonstrations of Astea's product capabilities within the client's
organization. The next, most critical phase of the Astea professional services
personnel engagement is the prototyping phase, in which Astea works closely with
representatives of the client to configure Astea's software functionality to the
client's specific business process requirements. During the prototyping phase,
Astea's professional services personnel design the technology infrastructure,
define and document business processes and establish the order of product
deployment. The critical element of the prototyping phase is a detailed analysis
of the client's business processes and needs. The final phase in the
professional services engagement is the implementation phase, in which Astea's
professional services personnel work with the client to develop detailed data
mapping, conversions, interfaces, product customizations and other technical and
business processes necessary to integrate Astea's software into the client's
computing environment. Ultimately, education plans are developed and executed to
provide the client with the process and system knowledge necessary to
effectively utilize the software and fully implement the Astea solution.
Professional services are charged on an hourly or per diem basis and are billed,
pursuant to customer work orders, usually on a monthly basis.
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Customer Support
The Company's customer support group provides Astea's clients with
telephone and on-line technical support, as well as product enhancements,
updates and new releases. Astea's customer support group is deployed to provide
support for Astea's clients in all regions of Astea's worldwide operations,
providing local client representatives with real-time support usually spoken in
their native languages by Astea and distributor personnel familiar with local
business customs and practices. Typically, customer support fees are established
as a fixed percentage of license fees and are invoiced to clients on an annual
basis after the conclusion of the warranty period, which is normally 90 days.
Astea's customer support representatives are located in two offices in the
United States, three offices in Europe, one office in Israel and one office in
Australia. As of December 31, 1999, the Company's worldwide customer support
group consisted of 40 representatives, 27 located in the United States and 13
based internationally.
Customers
The Company estimates that it has sold approximately 450 licenses to
customers ranging from small, rapidly growing companies to large, multinational
corporations with geographically dispersed operations and remote offices. More
than 90 licenses were sold for ServiceAlliance and the remainder for DISPATCH-1.
The broad applicability of the Company's products is demonstrated by the wide
range of companies across many markets and industries that use one or more of
Astea's products, including telecommunications, computers and electronics,
office equipment, medical systems, building systems and controls, and
third-party service and support organizations. In 1999 and 1998, Storage
Technology Corporation accounted for 18% and 15% of the Company's revenues,
respectively. In 1999, this customer accounted for 12% of the Company's revenues
excluding one-time revenues from the sales of source code. In 1999, 1998 and
1997, NCR Corporation accounted for 16%, 11% and 17% of the Company's revenues,
respectively. In 1999, this customer accounted for 11% of the Company's revenues
excluding one-time revenues from the sales of source code. These sales of source
code were part of the Company's plan to redirect its resources toward
ServiceAlliance as well as a decision by the customers to bring DISPATCH-1
support and maintenance in-house.
Sales and Marketing
Astea markets its products and services through a multi-tiered sales
structure comprised of direct sales and telesales operations, and through
relationships with resellers and international distributors. The Company is
attempting to broaden its reseller network by seeking to establish a nationwide
indirect distribution channel targeted at the mid-market tier. The Company's
sales organization consisted of 24 personnel on December 31, 1999, complemented
by a coordinated marketing effort of the Company's marketing group, which
consisted of 14 personnel on December 31, 1999. See "Certain Factors that May
Affect Future Results--Need to Expand Indirect Sales."
Astea's direct sales force employs a consultative approach to selling
ServiceAlliance and DISPATCH-1, working closely with prospective clients to
understand and define their customers' needs and determine how such needs can be
addressed by the Company's products. These clients typically represent the mid-
to high-end of the CRM software market. A prospect development organization
comprised of telemarketing representatives develops and qualifies sales leads
prior to referral to the direct sales staff. See "Certain Factors that May
Affect Future Results--Continued Dependence on Large Contracts May Result in
Lengthy Sales and Implementation Cycles." The modular structure of Astea's
software and its ongoing product development efforts provide opportunities for
incremental sales of product modules and consulting services to existing
accounts.
Astea's corporate marketing department is responsible for product
marketing, lead generation and marketing communications, including advertising
and public relations. Based on client feedback and market
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data, product marketing provides input and direction for the Company's ongoing
product development efforts and professional services marketing. Leads developed
from marketing are routed through the Company's sales and marketing automation
system. The Company also participates in an annual conference organized and
sponsored by ADONUS, Inc., an independent user group comprised of Astea's
DISPATCH-1 and ServiceAlliance clients. Conference participants attend training
sessions, workshops and presentations, and interact with other Astea product
users and Astea management and staff, providing important input for future
product direction.
Astea's international sales accounted for 27% of the Company's revenues
in 1999, 32% in 1998, and 28% in 1997. See "Certain Factors that May Affect
Future Results--Risks Associated with International Sales" and Note 17 of the
Notes to the Consolidated Financial Statements.
Product Development
Astea's product development strategy is to provide products that are
easy to implement, use, and maintain. Its products are designed to be flexible,
modular and scalable, so that they can be implemented incrementally in phases
and expanded to satisfy the evolving information requirements of Astea's clients
and their customers. Each product is also designed to be as platform-
hardware-independent as possible, using popular client/server environments,
multiple hardware platforms and operating systems. To accomplish these goals,
the Company uses widely accepted, commercially available application development
tools from Progress Software Corporation in the case of DISPATCH-1 and Sybase,
Inc. and Microsoft Corporation, in the case of ServiceAlliance and the Company's
planned eCRM product. These software tools provide the Company's clients with
the flexibility to deploy Astea's products across a variety of hardware
platforms, operating systems, client/server configurations and relational
database management systems.
As of December 31, 1999, the Company's product development staff
consisted of 54 employees. The Company's total expenses for product development
for the years ended December 31, 1999, 1998, and 1997 were $4,900,000,
$5,718,000 and $8,653,000, respectively; these expenses represented 15%, 20%,
and 27% of total revenues for 1999, 1998, and 1997, respectively. In addition,
the Company capitalized software development costs of $800,000, $1,233,000, and
$950,000 in 1999, 1998, and 1997, respectively. The Company anticipates that it
will continue to commit substantial resources to product development in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Certain Factors that May Affect Future Results--Need
for Development of New Products."
Manufacturing
The Company's software products are distributed on standard magnetic
disks, tapes and CD ROMs. Included with the software products are security keys
and documentation available on CD ROM and in print. Historically, the Company
has purchased diskettes, tapes, and duplicating and printing services from
outside vendors. The Company has been able to obtain adequate supplies of all
components and materials in a timely manner from existing and alternate sources
of supply.
Competition
The CRM software market is intensely competitive and subject to rapid
change. To maintain or increase its position in the industry, the Company will
need to continually enhance its current product offerings, introduce new
products and features and maintain its professional services capabilities. The
Company currently competes on the basis of the depth of its product features and
functions, including the adaptability and scalability of its products; the
ability to deploy complex systems both locally and internationally; product
quality, ease-of-use, reliability and performance; breadth of professional
services; integration of Astea's offerings with other enterprise and
client/server applications; price; and the availability of Astea's products on
popular operating systems, relational databases, the Internet and communications
platforms.
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Competitors vary in size, scope and breadth of the products and
services offered. The Company encounters competition generally from a number of
sources, including other software companies, third-party professional services
organizations that develop custom software, and management information systems
departments of potential customers developing proprietary, custom software. In
the field service and customer support marketplace, the Company competes against
publicly-held companies and numerous smaller, privately-held companies. The
Company's competitors include SAP, Oracle, Great Plains Software, Inc., Clarify
Inc. ("Clarify"), PeopleSoft Inc. ("PeopleSoft") and a number of smaller
privately-held companies. See "Certain Factors that May Affect Future
Results--Competition in the Customer Relationship Management Software Market Is
Intense."
Licenses and Intellectual Property
Astea considers its software proprietary and licenses its products to
its customers generally under written license agreements. The Company also
employs an encryption system that restricts a user's access to source code to
further protect the Company's intellectual property. Because the Company's
products allow customers to customize their applications without altering the
source code, the source code for the Company's products is typically neither
licensed nor provided to customers. The Company does, however, license source
code from time to time and maintains certain third-party source code escrow
arrangements. See "Customers" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The Company seeks to protect its products through a combination of
copyright, trademark, trade secret and fair business practice laws. The Company
also requires employees and consultants or third parties to sign nondisclosure
agreements. Despite these precautions, it may be possible for unauthorized
parties to copy certain portions of the Company's products or reverse engineer
or obtain and use information that the Company regards as proprietary. The
Company presently has no patents or patent applications pending. See "Certain
Factors that May Affect Future Results--Risks of Dependence on Proprietary
Technology."
Because the software development industry is characterized by rapid
technological change, Astea believes that factors such as the technological and
creative skills of its personnel, new product developments, frequent product
enhancements, and reliable product maintenance are more important to
establishing and maintaining a technology leadership position than current legal
protections.
Employees
As of December 31, 1999, the Company, including its subsidiaries, had a
total of 256 full time employees worldwide, 149 in the United States, 12 in the
United Kingdom, 29 in the Netherlands, 7 in France, 35 in Israel, 22 in
Australia, one in New Zealand and one in Japan. Of the total, 38 were employed
in sales and marketing, 54 in product development, 136 in professional services
and customer support and 28 in administration and finance. The Company's future
performance depends, in significant part, upon the continued service of its key
technical and management personnel and its continuing ability to attract and
retain highly qualified and motivated personnel in all areas of its operations.
See "Certain Factors that May Affect Future Results--Dependence on Key
Personnel; Competition for Employees." None of the Company's employees is
represented by a labor union. The Company has not experienced any work stoppages
and considers its relations with its employees to be good.
Corporate History
The Company was incorporated in Pennsylvania in 1979 under the name
Applied System Technologies, Inc. In 1992, the Company changed its name to Astea
International Inc. Until 1986, the Company operated principally as a software
consulting firm, providing professional software consulting services on a fee
for service and on a project basis. In 1986, the Company introduced its
DISPATCH-1 product. In November 1991, the Company's sole stockholder acquired
the outstanding stock of The DATA Group Corporation ("Data Group"), a provider
of field service software and related professional services for the
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mainframe computing environment. Data Group was merged into the Company in
January 1994. In February 1995, the Company and its sole stockholder acquired
the outstanding stock of Astea Service & Distribution Systems BV ("Astea BV"),
the Company's distributor of DISPATCH-1 and related services in Europe. In May
1995, the Company reincorporated in Delaware. In July 1995, the Company
completed its initial public offering of Common Stock. In February 1996, the
Company merged with Bendata, Inc. In June 1996, the Company acquired Abalon AB.
In September 1998 (effective July 1, 1998), the Company sold Bendata, Inc. In
December 1998, the Company sold Abalon AB.
Item 2. Properties.
The Company's headquarters are located in a leased facility of
approximately 51,000 square feet in Horsham, Pennsylvania; the Company has
subleased approximately 9,000 square feet of such building to other tenants. The
Company also leases facilities for operational activities in Bedford,
Massachusetts; Houten, the Netherlands; and Tefen, Israel; and for sales and
customer support activities in Cranfield, England; Paris, France; Tokyo, Japan;
St. Leonards, Australia; and Auckland, New Zealand. The Company believes that
suitable additional or alternative office space will be available in the future
on commercially reasonable terms as needed.
Item 3. Legal Proceedings.
From time to time, the Company is involved in litigation relating to
claims arising out of its operations in the normal course of business. In
addition, since the Company enters into a number of large contracts requiring
the complex installation of software products and the implementation of
considerable professional services over several quarterly periods, the Company
is from time to time engaged in discussions and deliberations with customers
regarding the adequacy and timeliness of the installation or service, product
functionality and features desired by the customer and additional work and
product requirements that were not anticipated at the commencement of the
project. These deliberations sometimes result in changes in services required,
upward or downward price adjustments, or reworking of contract terms. The
Company from time to time will reserve funds for contingencies under contract
deliberations. The Company is not a party to any material legal proceedings, the
adverse outcome of which, in management's opinion, would have a material adverse
effect on the Company's business, financial condition or results of operations.
See Note 13 of the Notes to the Consolidated Financial Statements.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report, through the
solicitation of proxies or otherwise.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "ATEA." The following table sets forth the high and low closing sale
prices for the Common Stock as reported by the Nasdaq National Market for the
past two fiscal years:
1999 High Low
---- ---
First quarter $3.56 $1.78
Second quarter 3.56 2.50
Third quarter 3.00 2.38
Fourth quarter 6.00 2.00
1998:
First quarter $4.38 $1.81
Second quarter 3.50 1.94
Third quarter 2.97 1.63
Fourth quarter 2.03 1.41
As of March 20, 2000, there were approximately 83 holders of record of the
Company's Common Stock. (Because "holders of record" include only stockholders
listed with the Company's transfer agent and exclude stockholders listed
separately with financial nominees, this number does not accurately reflect the
actual number of beneficial owners of the Company's Common Stock, of which the
Company estimates there were more than 2,700 on such date.) On March 20, 2000,
the last reported sale price of the Common Stock on the Nasdaq National Market
was $4.875 per share.
The Company has not paid a dividend since its initial public offering. The
Board of Directors from time to time reviews the Company's forecasted operations
and financial condition to determine whether and when payment of a dividend or
dividends is appropriate.
11
<PAGE>
Item 6. Selected Financial Data
- -----------------------------------------
<TABLE>
<CAPTION>
Years ended December 31, 1999 1998 1997 1996 1995 (2)
- ----------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Income Data: (1)
Revenues:
Software license fees $ 11,312 $ 5,822 $ 9,213 $ 15,792 $ 22,659
Services and maintenance 21,723 23,119 22,948 26,010 20,357
------------------------------------------------------------------
Total revenues 33,035 28,941 32,161 41,802 43,016
------------------------------------------------------------------
Cost and Expenses:
Cost of software license fees (3) 2,240 1,957 2,749 2,462 2,733
Cost of services and maintenance 17,063 17,583 16,054 18,908 13,717
Product development 4,900 5,718 8,653 6,628 3,588
Sales and marketing 8,463 7,976 8,367 14,053 9,232
General and administrative (4) 4,478 5,297 11,127 7,524 5,449
Restructuring charge (5) 1,630 (800) 5,328 - -
------------------------------------------------------------------
Total costs and expenses 38,774 37,731 52,278 49,575 34,719
Income (loss) from continuing operations
before interest and taxes (5,739) (8,790) (20,117) (7,773) 8,297
Net interest income 2,163 496 4 632 283
------------------------------------------------------------------
Income (loss) from continuing
operations before income taxes (3,576) (8,294) (20,113) (7,141) 8,580
Provision (benefit) for income taxes (6) - (803) (877) (2,355) 1,883
------------------------------------------------------------------
Income (loss) from continuing operations (3,576) (7,491) (19,236) (4,786) 6,697
Gain on sale of discontinued operations,
net of taxes (1) - 43,339 - - -
Income (loss) from discontinued operations,
net of taxes (1) - (1,697) 742 (14,921) 50
------------------------------------------------------------------
Net income (loss) $ (3,576) $ 34,151 $ (18,494) $ (19,707) $ 6,747
==================================================================
Basic earnings (loss) per share:
Continuing operations $ (0.26) $ (0.56) $ (1.45) $ (0.37) $ 0.64
Gain on sale of discontinued operations - 3.22 - - -
Discontinued operations - (0.13) - (1.16) -
------------------------------------------------------------------
$ (0.26) $ 2.53 $ (1.40) $ (1.53) $ 0.64
==================================================================
Diluted earnings (loss) per share:
Continuing operations $ (0.26) $ (0.56) $ (1.45) $ (0.37) $ 0.59
Gain on sale of discontinued operations - 3.22 - - -
Discontinued operations - (0.13) 0.05 (1.16) -
------------------------------------------------------------------
$ (0.26) $ 2.53 $ (1.40) $ (1.53) $ 0.59
==================================================================
Shares used in computing basic earnings
(loss) per share 13,899 13,478 13,252 12,844 10,514
Shares used in computing diluted earnings
(Loss) per share 13,899 13,478 13,252 12,844 11,484
Pro Forma Data:
Historical income from continuing
operations before income taxes $ 8,580
Provisions for income taxes (6) 3,433
--------
Pro forma income from continuing
operations $ 5,147
--------
Pro forma basic earnings per share $ 0.49
========
Pro forma diluted earnings per share $ 0.45
========
Balance Sheet Data: (1)
Working capital $ 44,170 $ 45,542 $ 11,409 $ 24,748 $ 41,951
Total assets 58,634 63,613 30,525 49,795 64,889
Long-term debt, less current portion 49 468 1,477 3,609 2,532
Retained earnings (deficit) (4,927) (1,351) (35,502) (17,008) 2,699
Total stockholders' equity 46,617 49,017 13,429 31,617 47,920
</TABLE>
12
<PAGE>
(1) The Company sold Bendata in September 1998 (effective July 1, 1998) and
sold Abalon in December 1998. The results of Bendata and Abalon have been
treated as discontinued for all periods presented. See Note 3 of the Notes
to the Consolidated Financial Statements.
(2) In February 1995, the Company acquired Astea BV. The results of operations
after the acquisition date are included in the statement of income data.
(3) Included in cost of software license fees in the first quarter of 1997 is a
write-off of $453,000 of capitalized software development costs related to
the Company's support automation product, PowerHelp, and to older versions
of certain service automation modules which are no longer marketed by the
Company. See Note 4 of the Notes to the Consolidated Financial Statements.
(4) A one-time accrual for consulting fees of $304,000 is included in the
fourth quarter of 1999 general and administrative expense. See Note 16 of
the Notes to the Consolidated Financial Statements. As a result of the
restructuring during the first quarter of 1997, the Company recorded a
goodwill impairment charge of $2,058,000 which is included in general and
administrative expense. This charge related to the 1995 acquisition of
Astea BV. See Note 4 of the Notes to the Consolidated Financial Statements.
(5) Included in the fourth quarter of 1999 is a restructuring chare of
$1,630,000 due to reduced DISPATCH-1 development and billable service
activity and include severance payments, the write-off of capitalized
software for certain DISPATCH-1 modules which will no longer be sold and
reserves to settle DISPATCH-1 contractual obligations. Included in the
first quarter of 1997 is a restructuring charge of $5,328,000 which
includes severance costs, office closing costs and other consolidation
costs. In the second quarter of 1998, $800,000 was reversed due to lower
than expected costs. See Note 4 of the Notes to the Consolidated Financial
Statements.
(6) Until July 1995, Astea had operated as an S corporation for income tax
purposes since its inception in 1979. Therefore, the historical financial
statements before conversion to C corporation status do not include a
provision for federal and state income taxes for such years, except for
certain state income taxes imposed at the corporate level. Pro forma net
income has been computed as if the Company had been fully subject to
federal and state income taxes based on the tax laws in effect during the
respective years.
13
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
This document contains various forward-looking statements and information
that are based on management's beliefs as well as assumptions made by and
information currently available to management. Such statements are subject to
various risks and uncertainties which could cause actual results to vary
materially from those contained in such forward looking statements. Should one
or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated, expected or projected. Certain of these as well as other
risks and uncertainties are described in more detail in this Annual Report on
Form 10-K.
The Company develops, markets and supports front-office solutions for the
Customer Relationship Management ("CRM") software market. Astea's applications
are designed specifically for organizations for which field service and customer
support are considered mission critical aspects of business operations. The
Company's principal product offerings - ServiceAlliance and DISPATCH-1 - deliver
powerful functionality that enables organizations with a high degree of field
service and customer support requirements to improve customer satisfaction,
build customer loyalty, and decrease the cost of customer service by increasing
revenue opportunities while diminishing costs. Astea's software is used by
companies worldwide, distributed across a variety of industries that provide
maintenance and repair services, including telecommunications, information
technology, healthcare, process and control technologies, and white goods. The
Company maintains offices in the United States, Australia, New Zealand, the
Netherlands, France, the United Kingdom, Japan and Israel.
The Company generates revenues from two sources: software license fees for
its software products, and services and maintenance revenues from professional
services, which includes consulting, customization, implementation, training and
maintenance related to those products.
Software license fees accounted for 34% of the Company's total revenues in
1999. The sale of all the Company's rights to its PowerHelp product and non-
exclusive rights to use and modify the source code of DISPATCH-1 accounted for
14% of the Company's total revenue and remaining license fees for the Company's
software products accounted for 20%. Software license fee revenues also include
some fees from the sublicensing of third-party software, primarily relational
database licenses. Typically, customers pay a license fee for the software based
on the number of licensed users. Depending on the contract terms and conditions,
software license fees are recognized as revenue upon delivery of the product if
no significant vendor obligations remain and collection of the resulting
receivable is deemed probable. If significant vendor obligations exist at
delivery or if the product is subject to uncertain customer acceptance, revenue
is deferred until no significant obligations remain or acceptance has occurred.
The remaining component of the Company's revenues consists principally of
fees derived from professional services associated with the implementation and
deployment of the Company's software products and, maintenance fees for ongoing
customer support, primarily external customer technical support services and
product enhancements. Professional services (including training) are charged on
an hourly or daily basis and billed monthly pursuant to customer work orders.
Training services may also be charged on a per-attendee basis with a minimum
daily charge. Out-of-pocket expenses incurred by company personnel performing
professional services are typically reimbursed by the customer. The Company
recognizes revenue from professional services as the services are performed.
Maintenance fees are typically paid to the Company under agreements entered into
at the time of the initial software license. Maintenance revenue, which is
invoiced annually upon the expiration of the warranty period, is recognized
ratably over the term of the agreement, which is usually twelve months.
14
<PAGE>
Results of Continuing Operations
The following table sets forth, for the periods indicated, selected
financial data and the percentages of the Company's total revenues represented
by each line item presented for the periods presented:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Years ended December 31, 1999 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Software license fees 34.2 % 20.1 % 28.6 %
Services and maintenance 65.8 79.9 71.4
----------------------------------
Total revenues 100.0 100.0 100.0
----------------------------------
Costs and expenses:
Cost of software license fees 6.8 % 6.8 % 8.6 %
Cost of services and maintenance 51.7 60.7 49.9
Product development 14.8 19.8 26.9
Sales and marketing 25.6 27.6 26.0
General and administrative 13.6 18.3 34.6
Restructuring charge 4.9 (2.8) 16.6
----------------------------------
Total costs and expenses 117.4 % 130.4 % 162.6 %
----------------------------------
</TABLE>
Comparison of Years Ended December 31, 1999 and 1998
Revenues. Total revenues increased $4,094,000, or 14%, to $33,035,000 for
the year ended December 31, 1999 from $28,941,000 for the year ended December
31, 1998. Software license revenues in 1999 increased $5,490,000, or 94%, over
1998. Services and maintenance fees for 1999 amounted to $21,723,000, a 6%
decrease from 1998.
Software license fee revenues increased $5,490,000 or 94% to $11,312,000 in
1999 from $5,822,000 in 1998. ServiceAlliance license fee revenues increased to
$4,174,000 in 1999 from $2,207,000 in 1998, an increase of 89% due to the
improving market penetration of our ServiceAlliance product line. PowerHelp,
which is no longer owned by Astea, had license revenues of $1,232,000, including
$1,100,000 of revenue from the sale of all of the Company's rights to PowerHelp
to a distributor in December 1999, compared to $133,000 in 1998. The Company
will receive no additional PowerHelp revenues in the future. License fee
revenues for DISPATCH-1 increased $2,424,000 or 70% from $3,482,000 in 1998 to
$5,906,000 in 1999 primarily as a result of the sale of DISPATCH-1 source code
revenue amounting to $3,386,000.
Total services and maintenance revenues decreased $1,396,000 or 6% to
$21,723,000 in 1999 from $23,119,000 in 1998. The decrease in service and
maintenance revenues is attributable to a decrease in DISPATCH-1 and PowerHelp
revenues partially offset by an increase in ServiceAlliance revenues.
ServiceAlliance service and maintenance revenues increased to $3,857,000 in 1999
from $1,154,000 in 1998 due to the growing ServiceAlliance customer base.
DISPATCH-1 service and maintenance revenues decreased 18% or $3,862,000 to
$17,824,000 in 1999 from $21,686,000 in 1998 due to an ongoing decrease in the
number of customers under service and maintenance contracts. As a result of the
DISPATCH-1 source code sales and decreasing demand for DISPATCH-1, the decrease
in service and maintenance revenue is expected to continue in 2000. PowerHelp
service and maintenance revenues were $42,000 in 1999 compared to $279,000 in
1998.
In 1999, the Company had two DISPATCH-1 customers that accounted for 18%
and 15% of revenues, respectively. In 1998, the same two DISPATCH-1 customers,
accounted for 16% and 11% of total revenues, respectively. The Company does not
expect to receive significant revenue from these two customers in the future
because they purchased source code in 1999.
15
<PAGE>
Costs of Revenues. Costs of software license fee revenues increased 14%, or
$283,000, to $2,240,000 in 1999 from $1,957,000 in 1998. Included in the cost of
software license fees is the fixed cost of capitalized software amortization.
Capitalized software amortization was $1,508,000 and $1,108,000 in 1999 and
1998, respectively. The increase in cost of third-party license software license
fees was due to increased capital software amortization costs offset by a
decrease in direct costs. The software licenses gross margin percentage was 80%
in 1999 compared to 66% in 1998. The increase in gross margin was attributable
to increased license fee revenues.
The costs of services and maintenance revenues decreased 3%, or $520,000,
to $17,063,000 in 1999 from $17,583,000 in 1998. The service and maintenance
gross margin percentage decreased to 21% in 1999 from 24% in 1998. The lower
margin was attributable to the decrease in utilization of service professionals.
Product Development. Product development expenses decreased 14%, or
$818,000, to $4,900,000 in 1999 from $5,718,000 in 1998. Product development as
a percentage of total revenue decreased to 15% in 1999 compared to 20% in 1998.
The Company's total product development costs, including capitalized software
development costs were $5,700,000 or 17% of revenues in 1999 compared to
$6,951,000 or 24% of revenues in 1998, a decrease of $1,251,000 or 18%. The
decrease in product development expenses is primarily attributable to reduced
third party consultant costs and no development costs in 1999 related to the
Company's development project Greenshark. During the second quarter of 1998, the
Company completed the specifications of its Greenshark development tool project.
At that time, the Company determined that due to the scope of this project,
third party development tools would be used in the Company's future development
activities and incurred no further Greenshark development expenditures. The
capitalized portions of total product development costs were $800,000 and
$1,233,000 in 1999 and 1998, respectively.
Sales and Marketing. Sales and marketing expenses increased 6%, or
$487,000, to $8,463,000 in 1999 from $7,976,000 in 1998. The increase resulted
from the Company's continuing effort to increase market share, expand its
presence through both direct and indirect channels and increased commission
expense due to increased license revenues. Sales and marketing expense as a
percentage of total revenues decreased 26% in 1999 from 28% in 1998.
General and Administrative. General and administrative expenses decreased
15%, or $819,000, to $4,478,000 in 1999 from $5,297,000 in 1998. As a percentage
of total revenues, general and administrative expenses decreased to 14% in 1999
compared to 18% in 1998. This decrease primarily relates to the Company's
ongoing cost containment efforts. Included in 1999 general and administrative
expenses, is a one-time accrual of $304,000 for consulting fees. Without this
one-time charge general and administrative expenses would have decre ased
$1,123,000 or 21%.
Restructuring Charge. During the second quarter of 1998, the Company, based
upon then current facts, evaluated its 1997 restructuring accrual and determined
that $800,000 was not needed and, accordingly, the accrual was adjusted. This
excess related to lower than expected office-closing costs. During the fourth
quarter of 1999, the Company recorded a second restructuring charge of
$1,630,000 in connection with the wind-down of DISPATCH-1 development and
billable service activity. The 1999 restructuring charge includes severance of
$677,000, write-off of DISPATCH-1 capitalized software that is no longer viable
for $457,000 and other consolidation costs of $496,000.
Net Interest Income. Net interest income increased $1,667,000, to
$2,163,000 in 1999 from $496,000 in 1998. This increase was primarily
attributable to the higher cash balances due to the proceeds from the sales of
Bendata in September 1998 and Abalon in December 1998.
International Operations. Total revenue from the Company's international
operations declined by $510,000, or 5% to $8,807,000 in 1999 from $9,317,000 in
1998. The decrease in revenue from international operations was primarily
attributable to the reductions in license and service revenues from DISPATCH-1
due
16
<PAGE>
to decreasing demand offset by an increase in revenue from the ServiceAlliance
product. International operations resulted in a $645,000 loss for 1999 compared
to a loss of $934,000 in 1998.
Comparison of Years Ended December 31, 1998 and 1997
Revenues. Total revenues decreased $3,220,000, or 10%, to $28,941,000 for
the year ended December 31, 1998 from $32,161,000 for the year ended December
31, 1997. This decrease is primarily due to the decreasing demand within the
DISPATCH-1 product line which decreased $4,779,000 or 16% in 1998 to $25,168,000
from $29,947,000 in 1997. The decrease in DISPATCH-1 product line revenues was
offset by a $2,433,000 increase in ServiceAlliance product line revenue to
$3,361,000 in 1998 from $928,000 in 1997. The Company's international operations
contributed $9,317,000 in 1998 compared to $9,107,000 in 1997.
Software license fee revenues decreased $3,391,000 or 37% to $5,822,000 in
1998 from $9,213,000 in 1997. License fee revenues for DISPATCH-1 decreased
$4,104,000 or 54% from $7,586,000 in 1997 to $3,482,000 in 1998 due to
decreasing demand for this product. For ServiceAlliance, which was introduced in
August 1997, license fee revenues were $2,207,000 in 1998 compared to $896,000
in 1997, an increase of 146%. PowerHelp, which is no longer directly marketed by
Astea, had license revenues of $133,000 in 1998 compared to $731,000 in 1997.
Total services and maintenance revenues increased $171,000 or 1% to
$23,119,000 in 1998 from $22,948,000 in 1997. The increase in service and
maintenance revenues is attributable to an increase in ServiceAlliance offset by
a decrease in DISPATCH-1 and PowerHelp revenues. ServiceAlliance service and
maintenance revenues increased to $1,154,000 in 1998 from $32,000 in 1997 due to
increases in new licenses sold in prior periods. DISPATCH-1 service and
maintenance revenues decreased 3% or $675,000 to $21,686,000 in 1998 from
$22,361,000 in 1997, due to the decrease in new licenses sold in prior periods.
PowerHelp service and maintenance revenues were $279,000 in 1998 compared to
$555,000 in 1997.
In 1998, the Company had two customers which accounted for 15% and 11% of
total revenues, respectively. In 1997, one customer accounted for 17% of total
revenues.
Costs of Revenues. Costs of software license fee revenues decreased 29%, or
$792,000, to $1,957,000 in 1998 from $2,749,000 in 1997. The software license
gross margin decreased by 4% to 66% in 1998 from 70% in 1997. The combination of
lower software license revenue and fixed costs of capitalized software
amortization are the causes of the lower software license gross margin.
Amortization of capitalized software increased 11%, or $984,000, to $1,108,000
in 1998 from $577,000 in 1997. The 1997 amortization includes a write-off of
$453,000 of net capitalized software costs.
The costs of services and maintenance revenues increased 10%, or
$1,529,000, to $17,583,000 in 1998 from $16,054,000 in 1997. The service and
maintenance gross margin percentage decreased to 24% in 1998 from 30% in 1997.
The lower margins were attributable to the start-up costs associated with
ServiceAlliance, the Company's newest product offering. ServiceAlliance was
commercially released in August 1997.
Product Development. Product development expenses decreased 34%, or
$2,935,000, to $5,718,000 in 1998 from $8,653,000 in 1997. Product development
as a percentage of total revenue decreased to 20% in 1998 compared to 27% in
1997. The Company's total product development costs, including capitalized
software development costs were $6,951,000 or 24% of revenues in 1998 compared
to $9,603,000 or 30% of revenues in 1997, a decrease of $2,652,000 or 28%.
During the second quarter of 1998, the Company completed the specifications of
its Greenshark development tool project. At that time, the Company determined
that due to the scope of this project, third-party development tools would be
used in the Company's future development activities and incurred no further
Greenshark development expenditures. In addition, the decrease in development
expense in 1998 relates to reduced charges for third-party consultants and
reduced salary expense and related benefits. The capitalized portions of total
product development costs were $1,233,000 in 1998 compared to $950,000 in 1997.
17
<PAGE>
Sales and Marketing. Sales and marketing expenses decreased 5%, or
$391,000, to $7,976,000 in 1998 from $8,367,000 in 1997. The decrease primarily
relates to lower commissions as a result of lower license revenue in 1998
compared to 1997. Sales and marketing expense as a percentage of total revenues
increased 28% in 1998 from 26% in 1997.
General and Administrative. General and administrative expenses decreased
52%, or $5,830,000, to $5,297,000 in 1998 from $11,127,000 in 1997. As a
percentage of total revenues, general and administrative expenses decreased to
18% in 1998 compared to 35% in 1997. This decrease primarily relates to non-
recurring charges of $5,131,000 in 1997. These charges include $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 and stock options related to the
settlement of claims by a stockholder and other contingencies. Excluding the
non-recurring charges recorded in the first quarter of 1997, general and
administrative expenses decreased $699,000, or 12%, as a result of efficiencies
from the first quarter 1997 restructuring.
Restructuring Charge. 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. Since the restructuring was
announced, the Company aggressively continued to close and consolidate excess
capacity. Through December 1998, these payments totaled $4,376,000, including
severance of $1,240,000, office-closing costs and unutilized lease expense of
$2,398,000 and other consolidation costs of $738,000. During the second quarter
of 1998, the Company, based upon then current facts, evaluated its restructuring
accrual and determined that $800,000 was not needed and, accordingly, the
accrual was adjusted. This excess related to lower than expected office-closing
costs.
Net Interest Income. Net interest income increased $492,000, to $496,000 in
1998 from $4,000 in 1997. This increase was primarily attributable to the cash
received due to the sale of Bendata in September 1998.
International Operations. Total revenue from the Company's international
operations grew by $210,000, or 2% to $9,317,000 in 1998 from $9,107,000 in
1997. The increase in revenue from international operations was primarily
attributable to the introduction of ServiceAlliance in the third quarter of
1997, offset by reductions in DISPATCH-1 and PowerHelp due to decreasing demand.
International operations resulted in a $934,000 loss for 1998 compared to a loss
of $5,170,000 in 1997. The 1997 loss includes $4,022,000 of non-recurring
charges. These charges include $2,058,000 for the write-off of Astea BV goodwill
and $1,964,000 charge for restructuring the Company's international operations.
18
<PAGE>
Liquidity and Capital Resources
Net cash used in operating activities was $689,000 for the year ended
December 31, 1999 compared to $8,525,000 for the year ended December 31, 1998.
This decreased use of cash was primarily attributable to a decreased net loss
from continuing operations, increased collection of receivables, a decrease in
deferred income tax asset, a decrease in prepaid expenses, a decrease in
payments for accounts payable and accrued expenses offset by an increase in
accrued restructuring.
The Company used $7,337,000 of cash from investing activities in 1999
compared to providing $18,216,000 in 1998. The decrease was attributable to the
higher proceeds from sale of discontinued operations in 1998, offset by less
purchases of investments available for sale in 1999.
The Company used $141,000 in financing activities for the year ended
December 31, 1999 compared to providing $263,000 for the year ended December 31,
1998. The increase in cash used was attributable to a tax benefit from the
exercise of stock options realized in 1998 offset by increased proceeds from the
exercise of options and employee stock purchase plan and less repayments of
long-term debt in 1999.
At December 31, 1999, the Company had a working capital ratio of
approximately 4.78:1, with cash and investments available for sale of
$44,065,000. The Company believes that it has adequate cash resources to make
the investments necessary to maintain or improve its current position and to
sustain its continuing operations for the foreseeable future. The Board of
Directors from time to time reviews the Company's forecasted operations and
financial condition to determine whether and when payment of a dividend or
dividends is appropriate. The Company does not anticipate that its operations or
financial condition will be affected materially by inflation.
Discontinued Operations
During 1998, the Company divested its Bendata and Abalon subsidiaries. The
closing of the Bendata sale was effective as of July 1, 1998, and the closing of
the Abalon sale was effective December 31, 1998. Through Bendata, the Company
had offered the HEAT family of software applications for the internal help desk
automation market. (HEAT is a trademark of Bendata, Inc.) Through Abalon, the
Company had offered the Abalon suite of sales and marketing applications built
around a central customer database. The Company's management concluded that
these past acquisitions did not contribute synergistically to a strong market
focus. Additionally, Astea could not provide adequate investment across multiple
products and markets to establish or maintain strong market positions, while
supporting the aggressive investment necessary to maintain or improve its core
market position. To better ensure long-term success, the Company elected to
maintain a clear and distinct market focus on field service and support, which
leverages its inherent industry expertise and knowledge. The Bendata and Abalon
operations have been treated as discontinued operations for financial reporting
purposes. Accordingly, the operating results and assets and liabilities of these
businesses have been reflected separately from continuing operations. During
1998, the Company recorded a gain on the sale of Bendata of $34,267,000, net of
taxes of $4,138,000, and a gain on the sale of Abalon of $9,072,000, including a
tax benefit of $1,201,000. See Note 3 of the Notes to the Consolidated Financial
Statements.
For the years ended December 31, 1998 and 1997, the discontinued operations
generated revenues of $18,095,000 and $28,773,000, respectively. The
discontinued operations generated a net loss of $1,697,000 in 1998 and net
income of $742,000 in 1997.
19
<PAGE>
Certain Factors That May Affect Future Results
The Company does not provide forecasts of its future financial performance.
From time to time, however, information provided by the Company or statements
made by its employees may contain "forward looking" information that involves
risks and uncertainties. In particular, statements contained in this Annual
Report on Form 10-K that are not historical fact may constitute forward looking
statements and are made under the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. The Company's actual results of
operations and financial condition have varied and may in the future vary
significantly from those stated in any forward looking statements. Factors that
may cause such differences include, but are not limited to, the risks,
uncertainties and other information discussed within this Annual Report on Form
10-K, as well as the accuracy of the Company's internal estimates of revenue and
operating expense levels.
The following discussion of the Company's risk factors should be read in
conjunction with the financial statements and related notes thereto set forth
elsewhere in this report. The following factors, among others, could cause
actual results to differ materially from those set forth in forward looking
statements contained or incorporated by reference in this report and presented
by management from time to time. Such factors, among others, may have a material
adverse effect upon the Company's business, results of operations and financial
conditions:
Uncertain Market Acceptance of ServiceAlliance; Decreased Revenues from
DISPATCH-1. In each of 1999, 1998, and 1997, more than 72%, 86%, and 93%,
respectively, of the Company's total revenues was derived from the licensing of
DISPATCH-1 and the provision of professional services in connection with the
implementation, deployment and maintenance of DISPATCH-1 installations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company originally introduced ServiceAlliance in August 1997 in
order to target a market segment in which DISPATCH-1 was not cost-effective or
attractive. Subsequent, rapid changes in technology have now positioned
ServiceAlliance to supercede DISPATCH-1 as the company's flagship brand. As a
result, the probability that DISPATCH-1 will be sold to new customers is small.
Sales to existing customers comprised 100% of DISPATCH-1 license revenue in
1999. DISPATCH-1 revenues have declined in each of the last two fiscal years and
that trend is expected to continue and accelerate.
While the Company has licensed ServiceAlliance to over 90 companies worldwide in
1997 through 1999, revenues from sales of ServiceAlliance alone are not yet
sufficient to support the expenses of the Company. The Company's future success
will depend mainly on its ability to increase licenses of ServiceAlliance and
other offerings, on developing new products and product enhancements to
complement its existing field service and customer support offerings, on its
ability to continue support and maintenance revenues from DISPATCH-1, and on its
ability to reduce its operating expenses. Any failure of the Company's products
to achieve or sustain market acceptance, or of the Company to sustain its
current position in the field service software market, would have a material
adverse effect on the Company's business and results of operations. There can be
no assurance that the Company will be able to increase demand for
ServiceAlliance, obtain an acceptable level of support and maintenance revenues
from DISPATCH-1, or to lower its expenses, thereby avoiding future losses.
Need for Development of New Products. The Company's future success will
depend upon its ability to enhance its current products and develop and
introduce new products, including its planned eCRM products, on a timely basis
that keep pace with technological developments, industry standards and the
increasingly sophisticated needs of its customers, including developments within
the client/server and object-oriented computing environments. Such developments
may require, from time to time, substantial capital investments by the Company
in product development and testing. The Company intends to continue its
commitment to research and development and its efforts to develop new products
and product enhancements. There can be no assurance that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction and marketing of new products and product enhancements; that new
products and product enhancements will meet the requirements of the marketplace
and achieve market acceptance; or that
20
<PAGE>
the Company's current or future products will conform to industry requirements.
Furthermore, reallocation of resources by the Company, such as the diversion of
research and development personnel to development of a particular feature for a
potential or existing customer, can delay new products and certain product
enhancements. If the Company is unable to develop and introduce new products or
enhancements of existing products in a timely manner in response to changing
market conditions or customer requirements, the Company's business, operating
results and financial condition will be materially adversely effected.
Competition in the Customer Relationship Management Software Market Is
Intense. The CRM software market is intensely competitive. The Company's
competitors include large public companies primarily providing CRM solutions
such as Oracle, PeopleSoft and Siebel, as well as traditional enterprise
resource planning software providers such as SAP, that are developing field
service and customer support capabilities. In addition, a number of smaller,
privately-held companies generally focus only on discrete areas of the CRM
software marketplace. Because the barriers to entry in the CRM software market
are relatively low, new competitors may emerge with products that are superior
to the Company's products or that achieve greater market acceptance. Some of the
Company's existing and potential competitors have greater financial, technical,
marketing and distribution resources than the Company has. Moreover, the CRM
industry is currently experiencing significant consolidation, as larger public
companies seek to enter the CRM market through acquisitions. The Company expects
that competition will increase as a result of software industry consolidations.
As a result, some of the Company's competitors may be able to respond more
quickly to new or emerging technologies and changes in customer requirements, or
to devote greater resources to the development and distribution of their
products. Increased competition is likely to result in price reductions, reduced
gross margins and loss of market share. There can be no assurance that the
Company will be able to compete successfully against current and future
competitors or that competitive pressures faced by the Company will not
adversely affect its business and results of operations.
Continued Dependence on Large Contracts May Result in Lengthy Sales and
Implementation Cycles. The sale and implementation of the Company's products
generally involve a significant commitment of resources by prospective
customers. While ServiceAlliance requires a less substantial commitment than
does DISPATCH-1, the purchase and implementation of ServiceAlliance still
require a substantial commitment. As a result, the Company's sales process often
is subject to delays associated with lengthy approval processes attendant to
significant capital expenditures, definition of special customer implementation
requirements, and extensive contract negotiations with the customer. The sales
cycle varies substantially from customer to customer and typically lasts between
four and nine months. During this time the Company may devote significant time
and resources to a prospective customer, including costs associated with
multiple site visits, product demonstrations and feasibility studies. The
Company may experience a number of significant delays over which the Company has
no control. Because the costs associated with the sale of the product are fixed
in current periods, timing differences between incurring costs and recognition
of revenue associated with a particular project may result. Moreover, in the
event of any downturn in any existing or potential customer's business or the
economy in general, purchases of the Company's products may be deferred or
canceled.
In addition, following the initial sale, the implementation of our
products typically involves several months of customer training and integration
of the product with the customer's other existing systems. A successful
implementation requires a close working relationship between the customer and
members of the Company's professional service organization. Occasionally, delays
result from a customer's lack of attention to the implementation project for
reasons unrelated to the Company's performance. When the Company has provided
consulting services to implement certain larger projects, some customers have in
the past delayed payment of a portion of license fees until implementation was
complete and in some cases have disputed the consulting fees charged for
implementation. There can be no assurance the Company will not experience
additional delays or disputes regarding payment in the future, particularly if
the Company receives orders for large, complex installations. Some of the
Company's customers have adopted the Company's software on an incremental basis.
There can be no assurance that the Company's customers will expand usage of the
Company's software on an enterprise-wide basis or implement new software
products introduced by the Company. The failure of the Company's software to
perform according to customer expectations or otherwise
21
<PAGE>
to be deployed on an enterprise-wide basis could have a material adverse effect
on the ability of the Company to collect revenues or to increase revenues from
new as well as existing customers. The Company believes that period-to-period
comparisons of its results of operations should not be relied upon as any
indication of future performance.
Reduced Product Offerings after Sales of Bendata and Abalon. During
1998, the Company divested its Bendata and Abalon subsidiaries. Through Bendata,
the Company had offered the HEAT family of software applications for the help
desk automation market. Through Abalon, the Company had offered the Abalon suite
of sales and marketing applications built around a central customer database.
Through these strategic dispositions, the Company has refocused its efforts and
resources on the field service and customer support segment of the CRM software
market, which is the Company's core competency. While the Company's current
products offer help desk and sales automation functionality, the Company
currently does not offer stand-alone products in the help desk and sales and
marketing automation segments of the CRM software market. As a result, the
Company's product lines are now less diversified than when the Abalon and HEAT
products were offered. This could impede the Company's ability to compete
against other companies in the CRM software market that offer a wider range of
products and further increases the Company's reliance on DISPATCH-1 and
ServiceAlliance. Any failure of the Company's remaining products to achieve or
sustain market acceptance would have a material adverse effect on the Company's
business and results of operations.
Fluctuations in Quarterly Operating Results May Be Significant. The
Company's quarterly operating results have in the past varied significantly and
are likely to vary significantly in the future, depending on factors such as the
size and timing of revenue from significant orders, the recognition of revenue
from such orders, the timing of new product releases and market acceptance of
these new releases, the level of product and price competition, and the
seasonality of its business. As a result of the application of the revenue
recognition rules applicable to the Company's licenses under generally accepted
accounting principles, the Company's license revenues may be recognized in
periods after those in which the respective licenses were signed. In addition,
the Company's quarterly operating results are dependent on factors such as
budgeting cycles of its customers, customer order deferrals in anticipation of
enhancements or new products, the impact of acquisitions of competitors, the
cancellation of licenses or maintenance agreements, product life cycles,
software bugs and other product quality problems, personnel changes, changes in
Company strategy, investments to develop sales distribution channels, changes in
the level of operating expenses and general domestic and international economic
and political conditions, among others.
The Company has generally had stronger demand for its products during
the quarters ending in June and December and weaker demand in the quarter ending
in March. The Company anticipates that it may also experience relatively weaker
demand in the quarter ending in September. Moreover, the Company has generally
recorded most of its total quarterly license revenues in the third month of the
quarter, with a concentration of these revenues in the last half of that third
month. This concentration of license revenues is influenced by customer
tendencies to make significant capital expenditures at the end of a fiscal
quarter. The Company expects these revenue patterns to continue for the
foreseeable future. Thus, the Company's results of operations may vary
seasonally in accordance with licensing activity or otherwise, and will also
depend upon its recognition of revenue from such licenses from time to time.
There can be no assurance that the Company will be profitable or avoid losses in
any future period, and the Company believes that period-to-period comparisons of
its results of operations are not necessarily meaningful and should not be
relied upon as any indication of future performance.
Rapid Technological Change. The CRM software market is subject to rapid
technological change, frequent new product introductions and evolving
technologies and industry standards that can quickly render existing products
and services obsolete. While the Company is not aware of any emerging products
that are likely to render its existing products obsolete, there can be no
assurance that the Company's products could not suffer such obsolescence.
Because of the rapid pace of technological change in the application software
industry, the Company's current market position in field service and customer
support automation or other markets that it may enter could be eroded rapidly by
product advancements. The Company's application
22
<PAGE>
environment relies primarily on software development tools from Progress
Software Corporation, in the case of DISPATCH-1, and Microsoft Corporation and
PowerSoft Corporation, a subsidiary of Sybase, Inc., in the case of
ServiceAlliance. If alternative software development tools were to be designed
and generally accepted by the marketplace, the Company could be at a competitive
disadvantage relative to companies employing such alternative developmental
tools, possibly resulting in material harm to the Company's financial condition
and results of operation.
Need to Expand Indirect Sales. The Company has historically sold its
products through its direct sales force and a limited number of distributors.
The Company's ability to achieve significant revenue growth in the future will
depend in large part on its success in establishing relationships with
distributors, resellers and systems integrators. The Company is currently
investing, and plans to continue to invest, significant resources to expand its
domestic and international direct sales force and develop distribution
relationships with certain third party distributors, resellers and systems
integrators. The Company's distributors also sell or can potentially sell
products offered by the Company's competitors. There can be no assurance that
the Company will be able to retain or attract a sufficient number of its
existing or future third party distribution partners or that such partners will
recommend, or continue to recommend, the Company's products. The inability to
establish or maintain successful relationships with distributors, resellers or
systems integrators could have a material adverse effect on the Company's
business, operating results or financial condition. Any failure by the Company
to maintain and train its direct sales force and expand other distribution
channels would materially adversely affect the Company's business, operating
results and financial condition.
Risks Associated with International Sales. Astea's international sales
accounted for 27% of the Company's revenues in 1999, 32% in 1998, and 28% in
1997. The Company expects that international sales will continue to be a
significant component of its business. International sales are subject to a
variety of significant risks, including difficulties in establishing and
managing international distribution channels and in translating products into
foreign languages. International operations also may encounter difficulties in
collecting accounts receivable, staffing and managing personnel and enforcing
intellectual property rights. Other factors that can also adversely affect
international operations include fluctuations in the value of foreign currencies
and currency exchange rates, changes in import/export duties and quotas,
introduction of tariff or non-tariff barriers, potentially adverse tax
consequences, possible recessionary environments in economies outside the United
States, changes in the market for business software as a result of currency
unification in Europe, and economic or political changes in international
markets. The current economic difficulties in several Asian countries could have
an adverse impact on the Company's international operations in future periods.
In addition, the Company's international revenues may also be affected to a
great extent by seasonal fluctuations resulting from lower sales that typically
occur during the summer months in Europe and other parts of the world.
Year 2000 Risks. The "Year 2000 Risk" refers to the potential for
system and processing failures of date-related data as a result of
computer-controlled systems using two digits rather than four to define the
applicable year. For example, computer programs that have time-sensitive
software may recognize a date represented as "00" as the year 1900 rather than
the Year 2000. This could result in a system failure or miscalculations causing
disruptions with internal administrative and operational software, software
developed by the Company, software integrated in the Company's products, and
third-party systems to which the Company's products interface. Most reports to
date, including reports on the Company's software indicate that computer systems
are functioning normally and the compliance and remediation work accomplished
leading up to 2000 was effective to prevent any problems. Computer experts have
warned, however, that there may still be residual consequences of the change in
centuries.
To date, the Company has experienced only minor problems related to the
software it produces, which were easily remedied. Astea has not experienced any
Year 2000 issues with any of its internal systems or products, and it does not
expect to experience any in the future. To date, it has not experienced any Year
2000 issues related to any of its key third party suppliers, distributors and
customers nor does it expect to experience any in the future.
23
<PAGE>
The Company does not believe that it has material exposure to the Year
2000 issue with respect to its own products and information systems.
ServiceAlliance and certain later recent releases of DISPATCH-1 (versions 8.0,
6.0j and 6.2g) are designed to accurately calculate, compare and sequence date
and time data between the twentieth and twenty-first centuries. Non-information
technology systems that use embedded technology, such as microcontrollers, may
also face Year 2000 risks. The Company believes, however, that it does not have
a material Year 2000 risk related to non-information technology systems or its
major vendors' systems (insofar as they relate to the Company's business).
The Company estimates that the expenses and capital expenditures
associated with achieving Year 2000 compliance were less than $100,000.
The law regarding liability for Year 2000 problems is evolving rapidly
and could become more friendly to users of software with alleged Year 2000
deficiencies. The Company limits its contractual warrantees on Year 2000
compliance to objective performance standards that the Company has tested, and
the Company makes no warrantees for nonconformance if the Company's software
products are combined with other software or data that are not conducive to
accurately calculating, comparing or sequencing date and time data between the
twentieth and twenty-first centuries. Nonetheless, there can be no assurance
that some of the Company's customers will not assert legal claims against the
Company based on Year 2000 theories of liability. While the Company believes
that such claims would be precluded by its contracts, if such a claim were
upheld in court, the resulting expense to the Company and diversion of
management and development time could have a material adverse effect on the
Company's operations and financial condition.
Dependence on Key Personnel; Competition for Employees. The future
success of the Company will depend in large part on its ability to attract and
retain talented and qualified employees, including skilled management personnel.
The Company's future success also depends on its continuing ability to attract
and retain highly qualified technical, sales and managerial personnel.
Competition for key personnel is intense, particularly so in recent years. From
time to time the Company has experienced difficulty in recruiting and retaining
talented and qualified employees. There can be no assurance that the Company can
retain its key technical, sales and managerial employees or that it can attract,
assimilate or retain other highly qualified technical, sales and managerial
personnel in the future. The inability of the Company to hire talented personnel
or the loss of key employees could have a material adverse effect on the
Company's business and results of operations.
Concentration of Ownership. Zack B. Bergreen, the Company's Chairman of
the Board, as of March 20, 2000, beneficially owned approximately 48% of the
outstanding Common Stock of the Company. As a result, Mr. Bergreen exercises
significant control over the Company through his ability to influence and
control the election of directors and all other matters that require action by
the Company's stockholders. Under certain circumstances, Mr. Bergreen could
prevent or delay a change of control of the Company which may be favored by a
significant portion of the Company's other stockholders, or cause a change of
control not favored by the majority of the Company's other stockholders. Mr.
Bergreen's ability under certain circumstances to influence, cause or delay a
change in control of the Company also may have an adverse effect on the market
price of the Company's Common Stock.
Risks of Dependence on Proprietary Technology. The Company's success is
heavily dependent upon proprietary technology. The Company's products are
licensed to customers under signed license agreements containing, among other
terms, provisions protecting against the unauthorized use, copying and transfer
of the licensed program. In addition, the Company relies on a combination of
trade secret, copyright and trademark laws and non-disclosure agreements to
protect its proprietary rights in its products and technology. Policing
unauthorized use of the Company's software is difficult and, while the Company
is unable to determine the extent to which piracy of its software products
exists, software piracy can be expected to be a persistent problem. In addition,
the laws of some foreign countries do not protect the Company's proprietary
rights to the same extent, as do the laws of the United States. There can be no
assurance that
24
<PAGE>
measures taken by the Company will be adequate to protect the Company's
proprietary technology or that the Company's competitors will not independently
develop technologies that are substantially equivalent or superior to the
Company's technologies. Moreover, although the Company believes that its
products and technologies do not infringe on any existing proprietary rights of
others, and although there are no pending lawsuits against the Company regarding
infringement of any existing patents or other intellectual property rights or
any notices that the Company is infringing the intellectual property rights of
others, there can be no assurance that such infringement claims will not be
asserted by third parties in the future. Any such situations can have a material
adverse effect on the Company's business and results of operations.
Risk of Product Defects; Failure to Meet Performance Criteria. The
Company's field service and customer support software is intended for use in
enterprise-wide applications that may be critical to a customer's business. As a
result, the Company's customers and potential customers typically have demanding
requirements for installation and deployment. Software products as complex as
those offered by the Company may contain errors or failures, particularly when
software must be customized for a particular licensee, when new products are
first introduced or when new versions are released. Although the Company
conducts extensive product testing during product development, the Company has
at times delayed commercial release of software until problems were corrected
and, in some cases, has provided enhancements to correct errors in released
software. The Company could, in the future, lose revenues as a result of
software errors or defects. There can be no assurance that, despite testing by
the Company and by current and potential customers, errors will not be found in
software, customizations or releases after commencement of commercial shipments,
resulting in loss or delay of revenue or delay in market acceptance, diversion
of development resources or increased service and warranty costs, any of which
could have a material adverse effect upon the Company's business, operating
results and financial condition.
Burdens of Customization. Certain of the Company's clients request
customization of DISPATCH-1 or ServiceAlliance products to address unique
characteristics of their businesses or computing environments. The Company's
commitment to customization could place a burden on the Company's client support
resources or delay the delivery or installation of products which, in turn,
could materially adversely affect the Company's relationship with significant
clients or otherwise adversely affect its business and results of operations. In
addition, the Company could incur penalties or reductions in revenues for
failures to develop or timely deliver new products or product enhancements under
development agreements and other arrangements with customers.
Possible Volatility of Stock Price. The market price of the Common
Stock has in the past been, and may continue to be, subject to significant
fluctuations in response to, and may be adversely affected by, variations in
quarterly operating results, changes in earnings estimates by analysts,
developments in the software industry, adverse earnings or other financial
announcements of the Company's customers and general stock market conditions as
well as other factors. In addition, the stock market can experience extreme
price and volume fluctuations from time to time which may bear no meaningful
relationship to the Company's performance.
25
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's investment portfolio. The Company does not
have any derivative financial instruments in its portfolio. The Company places
its investments in instruments that meet high credit quality standards. The
Company is adverse to principal loss and ensures the safety and preservation of
its invested funds by limiting default risk, market risk and reinvestment risk.
As of December 31, 1999, the Company's investments consisted of U.S. government
agencies securities, commercial paper and corporate bonds. The Company does not
expect any material loss with respect to its investment portfolio.
Foreign Currency Risk
The Company does not use foreign currency forward exchange contracts or
purchased currency options to hedge local currency cash flows or for trading
purposes. All sales arrangements with international customers are denominated in
foreign currency. The Company does not expect any material loss with respect to
foreign currency risk.
26
<PAGE>
Item 8. Financial Statements and Supplementary Data.
Report of Independent Public Accountants
To Astea International Inc.:
We have audited the accompanying consolidated balance sheets of Astea
International Inc. (a Delaware corporation) and subsidiaries as of December 31,
1999 and 1998, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1999. These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Astea International
Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II, Valuation and Qualifying
Accounts, is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
\s\ Arthur Andersen LLP
-----------------------
Arthur Andersen LLP
Philadelphia, PA
February 11, 2000
27
<PAGE>
ASTEA INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1999 1998
----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,158,000 $ 14,291,000
Investments available for sale 37,907,000 22,603,000
Notes and escrow receivable - 9,407,000
Receivables, net of reserves of $1,047,000 and $768,000 9,287,000 9,347,000
Prepaid expenses and other 1,632,000 2,097,000
Deferred income taxes 856,000 1,462,000
--------------------------------------
Total current assets 55,840,000 59,207,000
Property and equipment, net 1,022,000 1,469,000
Capitalized software development costs, net 1,772,000 2,937,000
--------------------------------------
Total assets $ 58,634,000 $ 63,613,000
======================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 410,000 $ 887,000
Accounts payable and accrued expenses 7,707,000 8,673,000
Deferred revenues 3,553,000 4,105,000
--------------------------------------
Total current liabilities 11,670,000 13,665,000
Deferred income taxes 298,000 463,000
Long-term debt 49,000 468,000
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued - -
Common stock, $.01 par value, 25,000,000 shares
authorized, 14,136,000 and 13,540,000 shares issued and
outstanding 141,000 135,000
Additional paid-in capital 52,242,000 51,098,000
Deferred compensation - (29,000)
Cumulative translation adjustment (839,000) (836,000)
Accumulated deficit (4,927,000) (1,351,000)
--------------------------------------
Total stockholders' equity 46,617,000 49,017,000
--------------------------------------
Total liabilities and stockholders' equity $ 58,634,000 $ 63,613,000
======================================
</TABLE>
The accompanying notes are an integral part of these statements.
28
<PAGE>
ASTEA INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Software license fees $11,312,000 $ 5,822,000 $ 9,213,000
Services and maintenance 21,723,000 23,119,000 22,948,000
----------------------------------------------
Total revenues 33,035,000 28,941,000 32,161,000
----------------------------------------------
Costs and expenses:
Cost of software license fees 2,240,000 1,957,000 2,749,000
Cost of services and maintenance 17,063,000 17,583,000 16,054,000
Product development 4,900,000 5,718,000 8,653,000
Sales and marketing 8,463,000 7,976,000 8,367,000
General and administrative 4,478,000 5,297,000 11,127,000
Restructuring charge 1,630,000 (800,000) 5,328,000
----------------------------------------------
Total costs and expenses 38,774,000 37,731,000 52,278,000
Loss from continuing operations before interest and (5,739,000) (8,790,000) (20,117,000)
Interest income 2,215,000 688,000 343,000
Interest expense (52,000) (192,000) (339,000)
----------------------------------------------
Loss from continuing operations before income taxes (3,576,000) (8,294,000) (20,113,000)
Income tax benefit - 803,000 877,000
----------------------------------------------
Loss from continuing operations (3,576,000) (7,491,000) (19,236,000)
Gain on sale of discontinued operations, net of taxes - 43,339,000 -
Income (loss) from discontinued operations, net of taxes - (1,697,000) 742,000
----------------------------------------------
Net income (loss) (3,576,000) $ 34,151,000 $(18,494,000)
==============================================
Basic and diluted earnings (loss) per share:
Continuing operations $ (0.26) $ (0.56) $ (1.45)
Gain on sale of discontinued operations - 3.22 -
Discontinued operations - (0.13) 0.05
----------------------------------------------
Net income (loss) $ (0.26) $ 2.53 $ (1.40)
==============================================
Shares used in computing basic and diluted
(loss) per share 13,899,000 13,478,000 13,252,000
==============================================
</TABLE>
The accompanying notes are an integral part of these statements.
29
<PAGE>
ASTEA INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Cumulative Retained Total
Preferred Common Paid-in Deferred Translation Earnings Stockholders' Comprehensive
Stock Stock Capital Compensation Adjustment (Deficit) Equity Income (Loss)
----- ----- ------- ------------ ---------- --------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 $ - $131,000 $49,097,000 $(160,000) $(443,000) $(17,008,000) $31,617,000 $(20,035,000)
Issuance of common stock in
dispute settlement (See
Note 13) - 1,000 202,000 - - - 203,000
Grant of stock options in
dispute settlement (See
Note 13) - - 157,000 - - - 157,000
Exercise of stock options - 2,000 96,000 - - - 98,000
Amortization of deferred
compensation - - - 57,000 - - 57,000
Cancellation of options granted - - (60,000) (60,000) - - -
Issuance of common stock under
employee stock purchase plan - - 93,000 - - - 93,000
Cumulative translation
adjustment - - - - (302,000) - (302,000) (302,000)
Net loss - - - - - (18,494,000) (18,494,000) (18,494,000)
----------------------------------------------------------------------------------------------------
Balance, December 31, 1997 - 134,000 49,585,000 (43,000) (745,000) (35,502,000) 13,429,000 (18,796,000)
Exercise of stock options - 1,000 93,000 - - - 94,000
Tax benefit from exercise
of stock options - - 1,335,000 - - - 1,335,000
Amortization of deferred
compensation - - - 52,000 - - 52,000
Grant of stock options
below fair market value - - 38,000 (38,000) - - -
Issuance of common stock
under employee stock
purchase plan - - 41,000 - - - 41,000
Stock issued to Board of
Directors in lieu of cash
payments - - 6,000 - - - 6,000
Cumulative translation
adjustment - - - - (91,000) - (91,000) (91,000)
Net income - - - - - 34,151,000 34,151,000 34,151,000
------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 - 135,000 51,098,000 (29,000) (836,000) (1,351,000) 49,017,000 34,060,000
Exercise of stock options - 6,000 1,132,000 - - - 1,138,000
Adjustment of tax benefit
from exercise of
stock options - - (411,000) - - - (411,000)
Amortization of deferred
compensation - - - 21,000 - - -
Cancellation of options
granted - - (69,000) 69,000 - - -
Grant of stock options
below fair market value - - 61,000 (61,000) - - -
Compensation charged in
connection with variable
stock options - - 387,000 - - - 387,000
Issuance of common stock
under employee stock
purchase plan - - 28,000 - - - 28,000
Stock issued to Board of
Directors in lie of cash
payments - - 16,000 - - - 16,000
Cumulative translation
adjustment - - - - (3,000) - (3,000)
Net loss - - - - - (3,576,000) (3,576,000) (3,576,000)
------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $ - $141,000 $52,242,000 $ - (839,000) (4,927,000) 46,617,000 (3,579,000)
======================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
30
<PAGE>
ASTEA INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (3,576,000) $ 34,151,000 $ (18,494,000)
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Compensation charged in connection with variable
stock options 387,000 - -
Gain on sale of discontinued business - (43,339,000) -
Loss (Gain) on operations of discontinued - 1,697,000 (742,000)
Goodwill write-down - - 2,058,000
Expense related to stock, stock options and
debt issued in dispute - - 1,522,000
Write-off of capitalized software - - 453,000
Non-cash restructuring charges - - 832,000
Depreciation and amortization 2,454,000 2,388,000 2,216,000
Amortization of deferred compensation 21,000 52,000 57,000
Other 16,000 (427,000) 29,000
Changes in operating assets and liabilities:
Receivables 149,000 (236,000) 6,915,000
Prepaid expenses and other 471,000 (705,000) (37,000)
Income tax refund receivable - - 1,516,000
Accounts payable and accrued expenses (1,970,000) 1,152,000 (734,000)
Accrued restructuring 1,451,000 (1,716,000) 1,868,000
Deferred revenues (530,000) (109,000) (504,000)
Deferred income taxes 441,000 (1,433,000) 1,451,000
------------------------------------------------
Net cash used in operating activities (686,000) (8,525,000) $ (1,594,000)
------------------------------------------------
Net cash (used in) provided by discontinued operations - (2,054,000) 288,000
------------------------------------------------
Cash flows from investing activities:
Net (purchases) sales of investments available for sale (15,304,000) (21,244,000) 7,635,000
Purchases of property and equipment (512,000) (831,000) (277,000)
Capitalized software development costs (800,000) (800,000) (950,000)
Proceeds from sale of discontinued operations 9,276,000 41,091,000 -
------------------------------------------------
Net cash (used in) provided by investing activities (7,340,000) 18,216,000 6,408,000
------------------------------------------------
Cash flows from financing activities:
Net repayments on line of credit - - (500,000)
Proceeds from exercise of stock options and
employee stock options plan 1,166,000 135,000 189,000
Net repayments of long-term debt (896,000) (1,207,000) (631,000)
Tax (expense) benefit from exercise of stock options (411,000) 1,335,000 -
------------------------------------------------
Net cash (used in) provided by financing activities (141,000) 263,000 (942,000)
------------------------------------------------
Effect of exchange rate changes on cash and cash
Equivalents 34,000 (5,000) 51,000
------------------------------------------------
Net (decrease) increase in cash and cash equivalents (8,133,000) 7,895,000 4,211,000
Cash and cash equivalents balance, beginning of year 14,291,000 6,396,000 2,185,000
------------------------------------------------
Cash and cash equivalents balance, end of year $ 6,158,000 $ 14,291,000 $ 6,396,000
================================================
</TABLE>
The accompanying notes are an integral part of these statements.
31
<PAGE>
ASTEA INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Company Background
Astea International Inc. (the "Company" or "Astea") develops,
markets, and supports front-office solutions for the Customer Relationship
Management ("CRM") software market. Astea's applications are designed
specifically for organizations for which field service and customer support
are considered mission critical assets of business operations. The Company
licenses its products to companies worldwide, distributed across a variety
of industries that provide maintenance and repair services, including
telecommunications, information technology, healthcare, process and control
technologies and white goods.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of
Astea International Inc. and its wholly owned subsidiaries and branches.
The financial statements reflect the elimination of all significant
intercompany accounts and transactions.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Revenue Recognition
The Company licenses software under noncancellable license
agreements. License fee revenues are recognized when a noncancellable
license agreement is in force, the product has been shipped, the license
fee is fixed or determinable and collectibility is reasonably assured. If
the fee is not fixed or determinable, revenue is recognized as payments
become due from the customer. If collectibility is not considered probable,
revenue is recognized when the fee is collected. If the payment of the
license fee is coincident to services, which are deemed to be essential to
the transaction, the license fee is deferred and recognized using contract
accounting over the period during which the services are performed. The
Company's software licensing agreements provide for customer support. The
portion of the license fee associated with customer support is unbundled
from the license fee and is recognized ratably over the warranty period
(generally 90 days) as maintenance revenue. The Company's revenue
recognition policy is in accordance with the American Institute of
Certified Public Accountants' Statement of Position No. 97-2, "Software
Revenue Recognition."
Services revenues, which include consulting, implementation and
training, are recognized as performed. Maintenance revenues are recognized
ratably over the terms of the maintenance agreements.
32
<PAGE>
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with
an original maturity of three months or less to be cash equivalents.
Investments Available for Sale
Pursuant to Statement of Financial Accounting Standards (SFAS) No.
115, "Accounting for Certain Investments in Debt and Equity Securities,"
the Company determines the appropriate classification of debt and equity
securities at the time of purchase and re-evaluates such designation as of
each balance sheet date. As of December 31, 1999 and 1998, all short-term
investments have been classified as available-for-sale. Available-for-sale
securities are carried at fair value, based on quoted market prices, with
unrealized gains and losses, net of tax, reported as a separate component
of stockholders' equity. As of December 31, 1999 and 1998, unrealized
losses and gains were not material to the financial statements. Realized
gains and losses, computed using specific identification, and declines in
value determined to be permanent are recognized in the consolidated
statements of income.
Property and Equipment
Property and equipment are recorded at cost. Property and
equipment capitalized under capital leases are recorded at the present
value of the minimum lease payments due over the lease term. Depreciation
and amortization are provided using the straight-line method over the
estimated useful lives of the related assets or the lease term, whichever
is shorter. Gains and losses on disposal are recognized in the year of the
disposition. Expenditures for repairs and maintenance are charged to
expense as incurred and significant renewals and betterments are
capitalized.
Capitalized Software Development Costs
The Company capitalizes software development costs in accordance
with SFAS No. 86, "Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed." The Company capitalizes software
development costs subsequent to the establishment of technological
feasibility through the products availability for general release. Costs
incurred prior to the establishment of technological feasibility are
charged to product development expense. Development costs associated with
product enhancements that extend the original product's life or
significantly improve the original product's marketability are also
capitalized once technological feasibility has been established. Software
development costs are amortized on a product-by-product basis over the
greater of the ratio of current revenues to total anticipated revenues or
on a straight-line basis over the estimated useful lives of the products
(three to four years), beginning with the initial release to customers. The
Company continually evaluates whether events or circumstances have occurred
that indicate that the remaining useful life of the capitalized software
development costs should be revised or that the remaining balance of such
assets may not be recoverable. The Company evaluates the recoverability of
capitalized software based on the estimated future revenues of each
product. During 1999 and 1997, the Company wrote-off capitalized software
development costs for products that were no longer marketed by the Company
(See Note 4). As of December 31, 1999, management believes that no
revisions to the remaining useful lives or write-downs of capitalized
software development costs are required.
33
<PAGE>
Goodwill
In February 1995, the Company acquired all of the issued and
outstanding shares of Astea Service and Distribution System BV ("Astea BV")
for $1,760,000. The excess of the purchase price over the fair value of the
net assets acquired of $2,628,000 was recorded as goodwill and was being
amortized on a straight-line basis over 10 years. In 1997, the Company
wrote-off the remaining value of goodwill related to Astea BV, which was
$2,058,000 (goodwill of $2,628,000 and related accumulated amortization of
$570,000) (See Note 4).
Major Customers
In 1999, the Company had two customers that accounted for 18% and
16% of revenues, respectively. In 1998, the same two customers, accounted
for 15% and 11% of total revenues, respectively. In 1997, the Company had
one customer which accounted for 17% of total revenues. The Company does
not expect to receive significant revenue from these customers in the
future because they purchased source code in 1999.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentration of credit risk consist principally of investments available
for sale and trade receivables. The Company does not require collateral
from its customers.
Supplemental Cash Flow Information
For the years ended December 31, 1999, 1998 and 1997, the Company
paid interest of $43,000, $258,000 and $424,000, respectively (of which
$242,000 was paid in 1997 to the majority stockholder and his wife (See
Note 16)); federal income taxes of zero, $425,000 and zero, respectively;
and state income taxes of zero, $70,000 and zero, respectively. In 1999 and
1997, the Company received refunds of federal income taxes of $161,000 and
$1,516,000, respectively. In 1999, the Company received a refund of state
income taxes of $70,000.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No.
109, "Accounting for Income Taxes," the objective of which is to recognize
the amount of current and deferred income taxes payable or refundable at
the date of the financial statements as a result of all events that have
been recognized in the financial statements as measured by enacted tax
laws.
Currency Translation
The accounts of the international subsidiaries and branch
operations are translated in accordance with SFAS No. 52, "Foreign Currency
Translation," which requires that assets and liabilities of international
operations be translated using the exchange rate in effect at the balance
sheet date. The results of operations are translated at average exchange
rates during the year. The effects of exchange rate fluctuations in
translating assets and liabilities of international operations into U.S.
dollars are accumulated and reflected as a cumulative currency translation
adjustment in the accompanying consolidated statements of stockholders'
equity. Transaction gains and losses are included in net loss. There are no
material transaction gains or losses in the accompanying consolidated
financial statements for the periods presented.
34
<PAGE>
Earnings (Loss) Per Share
The Company presents earnings per share in accordance with SFAS
No. 128, "Earnings per Share." Pursuant to SFAS No. 128, dual presentation of
basic and diluted earnings per share ("EPS") is required for companies with
complex capital structures on the face of the statements of income. Basic EPS is
computed by dividing net 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. Options to purchase
1,879,000, 2,025,000, and 1,980,000 shares of common stock with an average
exercise prices per share of $2.33, $2.16, and $2.62 were outstanding as of
December 31, 1999, 1998 and 1997, respectively, but were excluded from the
diluted loss per common share calculation as the inclusion of these options
would have an antidilutive effect.
Comprehensive Income (Loss)
In 1998, the Company adopted SFAS No. 130 "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and presentati of
comprehensive income (loss) and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. This statement
also requires that all components of comprehensive income (loss) are displayed
with the same prominence as other financial statements. Comprehensive income
(loss) consists of net income (loss) and foreign currency translation
adjustments. The adoption of SFAS No. 130 had no impact on total stockholders'
equity and is presented on the accompanying Consolidated Statements of
Stockholders' Equity. Prior year financial statements have been reclassified to
conform with the provisions established in SFAS No. 130.
Staff Accounting Bulletin No. 101 "Revenue Recognition"
In December 1999, the Securities and Exchange Comm staff issued
Staff Accounting Bulletin No. 101 Revenue Recognition" (SAB 101). SAB 101
summarizes the staff's views in applying general accepted accounting principles
to revenue recognition. Management believes that the Company's current revenue
recognition policy conforms to the guidance in SAB 101.
35
<PAGE>
3. Discontinued Operations
Bendata
On February 27, 1996, the Company completed a merger with Bendata, Inc.
and Bendata UK Limited LLC, (collectively "Bendata"). Bendata develops
markets and supports the HEAT family of software applications for the
internal help desk automation market. On September 4, 1998, the Company
completed the sale of the capital stock of Bendata, which was accounted for
as if it were effective on July 1, 1998. Effective on October 1, 1998, the
Company's Australian branch ceased marketing and supporting HEAT and
transferred existing HEAT customers to the buyer of Bendata. In
consideration for the sale of Bendata, Astea received $35,000,000 in cash
and a promissory note in the principal amount of $8,303,000 which was paid
in September, 1999. During the year ended December 31, 1998, the Company
recorded a gain of $34,267,000, net of taxes of $4,138,000.
Abalon
On June 28, 1996, the Company acquired all of the outstanding
shares of Bebalon AB, the sole shareholder of E.L.G. Data AB, which was the
sole shareholder of Astea International AB, formerly Abalon AB
(collectively "Abalon") in a transaction accounted for under the purchase
method of accounting. On December 31, 1998, Astea completed the sale of all
of the capital stock of Abalon. In consideration for the sale of Abalon,
the Company received $9,500,000 in cash, of which $1,100,000 was deposited
in escrow. In August 1999, the Company received $928,000 from escrow.
During the year ended December 31, 1998, the Company recorded a gain of
$9,072,000, including a tax benefit of $1,201,000.
Bendata and Abalon are being accounted for as discontinued
operations. The accompanying Consolidated Financial Statements reflect the
operating results and balance sheet items of the discontinued operations,
as well as the related transaction gains, separately from continuing
operations.
36
<PAGE>
Income (loss) from discontinued operations in the accompanying
consolidated statements of income is as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997
<S> <C> <C>
Revenues:
Bendata $ 11,880,000 $20,935,000
Abalon 6,215,000 7,838,000
-----------------------------
Total $ 18,095,000 $28,773,000
=============================
Income (loss) before income taxes:
Bendata $ 1,293,000 $ 2,078,000
Abalon (2,844,000) (447,000)
-----------------------------
Total (1,551,000) 1,631,000
Income taxes:
Bendata 146,000 877,000
Abalon - 12,000
-----------------------------
Total 146,000 889,000
Net income (loss):
Bendata 1,147,000 1,201,000
Abalon (2,844,000) (459,000)
-----------------------------
Total $ (1,697,000) $ 742,000
=============================
</TABLE>
37
<PAGE>
4. Restructuring and Other Charges
During the fourth quarter of 1999, the Company recorded a
restructuring charge of $1,630,000. These charges are the result of he
wind-down of the Company's DISPATCH-1 product line. This wind-down has
resulted in the reduction of DISPATCH-1 development and billable service
activities. The charge includes severance payments, the write-off of
capitalized software for certain DISPATCH-1 modules which will no longer be
sold and reserves for contractual obligations to DISPATCH-1 customers.
Through December 1999, these charges totaled $484,000, including $27,000 of
severance payments and a $457,000 write-off of certain DISPATCH-1
capitalized software development costs.
As of December 31, 1999, the balance of the accrued restructuring
charge of $1,146,000 is required for severance commitments and contractual
obligations to DISPATCH-1 customers payable through September 2000 (See
Note 10).
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
December 1999, these charges totaled $4,528,000, including severance of
$1,240,000, office-closing costs and unutilized lease expense of $2,550,000
and other consolidation costs of $738,000. During the second quarter of
1998, the Company evaluated its restructuring accrual based upon then
current facts and determined that $800,000 was not needed and, accordingly,
the accrual was adjusted. This excess related to lower than expected
office-closing costs.
During the fourth quarter of 1999, the Company accrued a one-time
consulting fee of $304,000 (See Note 16).
As a result of the restructuring, during the first quarter of
1997, the Company recorded a goodwill impairment charge of $2,058,000,
which is included in general and administrative expense. This charge
related to the 1995 acquisition of Astea BV, 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 the Company's PowerHelp product, and to older versions of
DISPATCH-1 modules which are no longer marketed by the Company.
5. Cash and Cash Equivalents
<TABLE>
<CAPTION>
December 31, 1999 1998
--------------------------------------------------------------------------------------
<S> <C> <C>
Cash and money market accounts $4,253,000 $ 11,089,000
Commercial Paper 1,905,000 3,202,000
------------------------------------
$6,158,000 $ 14,291,000
====================================
</TABLE>
6. Investments Available for Sale
<TABLE>
<CAPTION>
December 31, 1999 1998
--------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Government Agencies Securities $ 9,343,000 $ 10,010,000
Corporate and Municipal Bonds 28,564,000 12,593,000
------------------------------------
$ 37,907,000 $ 22,603,000
====================================
</TABLE>
38
<PAGE>
All investments available for sale have maturities of less than
twelve months from the respective balance sheet date. Losses on sales of
securities for the years ended December 31, 1999 and 1998 were zero, and in
1997 a loss of $24,000 was recorded, and has been included in interest
expense in the accompanying consolidated statements of income.
7. Receivables
<TABLE>
<CAPTION>
December 31, 1999 1998
-------------------------------------------------------------------------------
<S> <C> <C>
Billed receivables $ 6,982,000 $7,876,000
Unbilled receivables 1,747,000 743,000
Royalties receivable 558,000 728,000
-----------------------------------
$ 9,287,000 $9,347,000
===================================
</TABLE>
Billed receivables represent billings for the Company's products
and services to end users, while royalties' receivable represents billings
to the Company's value added resellers. Receivables and value added
resellers are shown net of reserves for estimated uncollectible amounts.
Unbilled receivables represent contractual amounts due within one year
under software licenses, which are not yet billable.
8. Property and Equipment
<TABLE>
<CAPTION>
Useful Life/ December 31,
LeaseTerm 1999 1998
--------- ---- ----
<S> <C> <C> <C>
Computers and related equipment 3 $ 4,664,000 $ 4,325,000
Furniture and fixtures 10 268,000 140,000
Equipment under capital leases 3 865,000 865,000
Leasehold improvements 15 114,000 114,000
Office equipment 3-7 484,000 429,000
Other 5 - 23,000
------------------------------
6,395,000 5,896,000
Less: Accumulated depreciation
and amortization (5,373,000) (4,427,000)
------------------------------
$ 1,022,000 $ 1,469,000
==============================
</TABLE>
Depreciation expense for the years ended December 31, 1999, 1998
and 1997 was $946,000, $1,280,000 and $1,574,000, respectively.
Equipment under capital leases includes telephone systems,
computers and related equipment. Title to the property is owned by the
financing companies. The gross book value of equipment securing these
leases is $865,000 as of December 31, 1999 and 1998. Accumulated
amortization on assets under capital leases as of December 31, 1999 and
1998 was $857,000 and $637,000, respectively.
39
<PAGE>
9. Capitalized Software Development Costs
<TABLE>
<CAPTION>
December 31, 1999 1998
-------------------------------------------------------------------------------------------
<S> <C> <C>
Capitalized software development costs $ 2,458,000 $ 5,441,000
Less: Accumulated amortization (686,000) (2,504,000)
---------------------------------------
$ 1,772,000 $ 2,937,000
=======================================
</TABLE>
The Company capitalized software development costs for the years
ended December 31, 1999, 1998, and 1997 of $800,000, $1,233,000, and
$950,000, respectively. Included in 1998 capitalized software development
costs is $433,000 of third party software received in exchange for the
Company's software products. Amortization of software development costs for
the years ended December 31, 1999, 1998 and 1997 was $1,508,000,
$1,108,000, and $577,000, respectively. The Company wrote-off capitalized
software development costs of $3,783,000 in 1999 and $723,000 in 1997 and
related accumulated amortization of $3,326,000 in 1999 and $270,000 in 1997
(See Note 4).
10. Accounts Payable and Accrued Expenses
<TABLE>
<CAPTION>
December 31, 1999 1998
---------------------------------------------------------------------------------------------
<S> <C> <C>
Accounts payable $ 2,693,000 $ 4,234,000
Accrued compensation and related benefits 2,102,000 2,037,000
Accrued disposal costs 149,000 1,030,000
Accrued restructuring (See Note 4) 1,146,000 152,000
Other accrued liabilities 1,617,000 1,220,000
----------------------------------------
$ 7,707,000 $ 8,673,000
========================================
</TABLE>
11. Debt
<TABLE>
<CAPTION>
December 31, 1999 1998
---------------------------------------------------------------------------------------------
<S> <C> <C>
Capitalized lease obligations (See Note 13) $ 459,000 $ 652,000
Note payable to stockholder (See Note 13) - 703,000
-------------------------------------
459,000 1,355,000
Less: Current portion (410,000) (887,000)
-------------------------------------
$ 49,000 $ 468,000
=====================================
</TABLE>
The $703,000 note payable to stockholder was repaid in January
1999.
During 1999, the Company obtained a line of credit with a maximum
borrowing ability of $5,000,000. The line of credit bears interest at the
lending bank's prime rate (8.5% at December 31, 1999). Borrowings under the
line are secured by the Company's assets. The line expires on September 29,
2000. During 1999, the line of credit was not used. As of December 31, 1999
the Company was not in compliance with certain debt covenants and has
received a waiver.
See Note 13 for maturity of capital lease obligations.
40
<PAGE>
12. Income Taxes
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
Years ended December 31, 1999 1998 1997
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ (226,000) $ 6,291,000 $ (2,834,000)
State - 389,000 -
Foreign - - (2,540,000)
-----------------------------------------------------
(226,000) 6,680,000 (5,374,000)
Deferred:
Federal (459,000) 855,000 1,132,000
State - - -
Foreign - - -
-----------------------------------------------------
(459,000) 855,000 1,132,000
-----------------------------------------------------
(685,000) 7,535,000 (4,242,000)
Increase/(decrease) in
valuation allowance 685,000 (5,255,000) 4,254,000
-----------------------------------------------------
$ - $ 2,280,000 $ 12,000
=====================================================
Continuing Operations $ - $ (803,000) $ (877,000)
Discontinued Operations:
Income from discontinued operations $ - 899,000
Gain on sale of discontinued
operations - 2,937,000 -
-----------------------------------------------------
$ - $ 2,280,000 $ 12,000
=====================================================
</TABLE>
41
<PAGE>
The approximate income tax effect of each type of temporary
difference is as follows:
<TABLE>
<CAPTION>
December 31, 1999 1998
---------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Revenue recognition $ 352,000 $ 790,000
Accruals and reserves not
currently deductible for tax 1,329,000 672,000
Benefit of operating loss carryforward 320,000 129,000
Deferred compensation 59,000 62,000
Depreciation methods 131,000 120,000
Alternative minimum tax 370,000 295,000
Variable option 144,000 -
-------------------------------
2,705,000 2,068,000
Deferred income tax liabilities:
Capitalized software development costs (656,000) (940,000)
-------------------------------
(656,000) (940,000)
Valuation reserve (1,491,000) (129,000)
-------------------------------
Net deferred income tax asset (liability) $ 558,000 $ 999,000
===============================
</TABLE>
In 1999 and 998, the Company recorded a valuation allowance
against its net deferred asset balance. This valuation allowance was
determined by management based on its current assessment of what portion of
the asset is more likely than not to be realized. The amount of the
deferred tax considered realizable as of December 31, 1999, however, could
be adjusted as estimates of future taxable income change.
42
<PAGE>
The reconciliation of the statutory federal income tax rate to the
Company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
Years ended December 31, 1999 1998 1997
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory tax rate (34.0)% (34.0)% (34.0)%
Adjustment of valuation reserve 19.4 22.0 22.2
Net operating losses from foreign
subsidiaries not benefited 15.2 1.2 7.6
State income taxes, net of federal tax
benefit - (1.7) -
Nondeductible expenses (0.3) 8.1 0.4
Other (0.3) (5.3) (0.6)
-----------------------------------------
Effective income tax rate - % (9.7)% (4.4)%
=========================================
</TABLE>
As of December 31, 1999, the Company had a net operating loss
carryforward for United States federal income tax purposes of approximately
$8,000,000. Included in the aggregate net operating loss carryforward is
$7,055,000 of tax deductions related to equity transactions, the benefit of
which will be credited to stockholders' equity, if and when realized after
the other tax deductions in the carryforwards have been realized. The net
operating loss carryforward began to expire in 2000.
13. Commitments and Contingencies
The Company leases facilities and equipment under noncancelable
operating leases and equipment under noncancelable capital leases. Interest
rates on the capital leases range from 9.0% to 9.2%.
Rent expense under all operating leases for the years ended
December 31, 1999, 1998 and 1997 was $1,946,000, $1,892,000, and
$1,800,000, respectively.
Future minimum lease payments under the Company's leases as of
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Operating Leases Capital Leases
---------------- --------------
<S> <C> <C>
2000 $ 1,894,000 $ 488,000
2001 1,686,000 27,000
2002 1,216,000 -
2003 309,000 -
2004 277,000
Thereafter -
---------------------------------------
Total minimum lease payments $ 5,381,000 $ 515,000
=======================================
Less: Amount representing interest (56,000)
---------------
Present value of future minimum lease
payments 459,000
Less: Current portion (410,000)
---------------
$ 49,000
===============
</TABLE>
43
<PAGE>
In September 1997, the Company settled a dispute with a customer
regarding the implementation of the Company's software products. In
conjunction with the settlement, the Company issued 81,000 shares of common
stock, paid $300,000 in October 1997 and entered into a non-interest
bearing promissory note for $337,000 which was paid in April 1998.
In connection with the 1997 settlement of a dispute and to avoid
potential litigation with a stockholder, the Company entered into an
agreement with a stockholder which provided, among other items, a
$1,000,000 non-interest bearing promissory note payable in twenty equal
quarterly installments through June 30, 2002 (present value of $825,000), a
non-qualified stock option grant to purchase 90,000 shares of the Company's
common stock with a fair value of $157,000 and a $300,000 cash payment made
on October 1, 1997. The Company did not make the December 31, 1998 payment
on time and the entire remaining balance of the note became due. The
Company paid approximately $703,000 in January 1999 to satisfy the note
payable.
The Company is from time to time involved in certain legal actions
and customer disputes arising in the ordinary course of business. In the
Company's opinion, the outcome of such actions will not have a material
adverse effect on the Company's financial position or results of
operations.
14. Profit Sharing Plan/Savings Plan
The Company maintains a voluntary profit sharing plan, including a
Section 401(k) feature, covering all qualified and eligible employees.
Company contributions to the profit sharing plan are determined at the
discretion of the Board of Directors. Effective July 1, 1998, the Company
began matching 25% of eligible employees' contributions to the 401(k) plan
up to a maximum of 1.5% of each employee's compensation. The Company
expensed approximately $127,000 and $51,000 for the year ended December 31,
1999 and 1998, respectively.
15. Equity Plans
Stock Option Plans
The Company has Stock Option Plans (the "Plans") under which
incentive and non-qualified stock options may be granted to its employees,
officers, directors and others. Generally, incentive stock options are
granted at fair value, become exercisable over a four-year period, and are
subject to the employee's continued employment. Non-qualified options are
granted at exercise prices determined by the Board of Directors and vest
over varying periods. A summary of the status of the Company's stock
options as of December 31, 1999, 1998 and 1997 and changes during the years
then ended is as follows:
44
<PAGE>
<TABLE>
<CAPTION>
OPTIONS
OPTIONS OUTSTANDING EXERCISABLE
--------------------------------------------------------------
Shares Wtd. Avg. Wtd. Avg.
Available Exercise Exercise
for Grant Shares Price Shares Price
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 188,000 1,859,000 4.93 590,000 $2.79
Authorized 500,000 - -
Granted at market (1,539,000) 1,539,000 2.68
Granted outside Plan at market - 721,000 3.35
Cancelled 1,556,000 (1,556,000) 5.28
Cancelled outside Plan - (433,000) 5.12
Exercised - (150,000) 0.65
------------------------------------------------------------------------------
Balance, December 31, 1997 705,000 1,980,000 2.62 774,000 $2.25
Authorized 500,000 - -
Granted at market (1,887,000) 1,887,000 1.93
Granted at below market (300,000) 300,000 1.88
Granted outside Plan at market - 261,000 1.69
Cancelled 1,798,000 (1,798,000) 2.37
Cancelled outside Plan - (453,000) 2.39
Exercised - (152,000) .62
-----------------------------------------------------------------------------
Balance, December 31, 1998 816,000 2,025,000 2.16 991,000 $2.29
Authorized
Granted at below market (572,000) 572,000 3.24
Granted at market (413,000) 413,000 2.48
Granted outside Plan at market - 9,000 -
Cancelled 563,000 (563,000) 2.50
Cancelled outside Plan - (9,000) 1.69
Exercised - (569,000) 1.73
------------------------------------------------------------------------------
Balance, December 31, 1999 394,000 1,878,000 2.33 702,000 2.08
==============================================================================
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- --------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.21 - $ 1.41 137,000 3.46 $0.28 135,000 $0.26
1.69 - 1.69 666,000 7.58 1.69 406,000 1.69
1.72 - 2.41 213,000 11.37 2.26 30,000 1.72
2.50 - 15.00 862,000 9.29 3.17 131,000 5.28
--------- -------
0.21 - 15.00 1,878,000 8.49 2.33 702,000 2.08
========= =======
</TABLE>
In July 1996, the Company repriced all outstanding non-officer
employee options to $7.75, the fair market value on the new grant date. In
October 1996, the Company repriced certain outstanding officer options to
the current fair market value of $5.50. In April 1997, the Company repriced
all outstanding employee options to $2.52, the fair market value on the new
grant date. In September 1998, the Company repriced all outstanding
employee options to $1.69, the fair market value on the new grant date.
Options granted to directors under the 1995 Director Plan were not
repriced. This third repricing of these cause intrinsic value to be
remeasured at the end of each reporting period. The resultant change in
each period will be a charge or reduction in expense for that period. The
ultimate value of the option will be determined upon exercise of the option
or other settlement of the option. As of December 31, 1999, the Company has
recorded a cumulative charge to expense of $387,000.
45
<PAGE>
The Company accounts for options and the employee stock purchase plan
under Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees," under which deferred compensation expense has
been recorded for options granted with exercise prices below fair value.
The deferred compensation is charged to expense ratably over the vesting
period. Had compensation cost for the Company's stock options and employee
stock purchase plan been determined consistent with SFAS No. 123,
"Accounting for Stock-Based Compensation," the Company's net income (loss)
and basic and diluted earnings (loss) per share would have been:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) - as reported $ (3,576,000) $ 34,151,000 $(18,494,000)
Net income (loss) - pro forma $ (4,000,000) $ 32,151,000 $(22,103,000)
Basic and diluted earnings (loss)
per share - as reported $ (0.26) $ 2.53 $ (1.40)
Basic and diluted earnings (loss)
per share - pro forma $ (0.29) $ 2.39 $ (1.67)
</TABLE>
The resulting effect on pro forma net income (loss) and net income
(loss) per share disclosed for 1999, 1998 and 1997 is not likely to be
representative of the effects on net income (loss) and net income (loss)
per share on a pro forma basis in future years, because 1999, 1998 and 1997
pro forma results include the impact of only three, two and one years,
respectively, of grants and related vesting, while subsequent years will
include additional years of grants and vesting.
The weighted average fair value of those options granted during the
years ended December 31, 1999, 1998 and 1997 was estimated as $1.87, $1.16,
and $1.84, respectively. The fair value of each option grant is estimated
on the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions: risk-free interest rate of 5.72%,
5.05% and 6.60% for 1999, 1998 and 1997 grants, respectively; an expected
life of six years; volatility of 85%; and a dividend yield of zero for
1999, 1998 and 1997 grants.
The weighted average fair value of the employee purchase rights
granted in 1999, 1998 and 1997 was $0.78, $0.76 and $1.51, respectively.
The fair value of the purchase rights was estimated using the Black-Scholes
model with the following weighted average assumptions: risk-free interest
rate of 4.58%, 5.09% and 6.10% for 1999, 1998 and 1997, respectively; an
expected life of six months; volatility of 85%; and a dividend yield of
zero for 1999, 1998 and 1997.
Employee Stock Purchase Plan
In May 1995, the Company adopted an employee stock purchase plan (the
"ESPP") which allows full-time employees with one year of service the
opportunity to purchase shares of the Company's common stock through
payroll deductions at the end of bi-annual purchase periods. The purchase
price is the lower of 85% of the average market price on the first or last
day of the purchase periods. An employee may purchase up to a maximum of
500 shares or 10% of the employee's base salary, whichever is less,
provided that the employee's ownership of the Company's stock is less than
5% as defined in the ESPP. Pursuant to the ESPP, 250,000 shares of common
stock were reserved for issuance. During 1999, 1998 and 1997, shares
purchased were 20,216, 20,819 and 24,357, respectively. At December 31,
1999, there were 184,608 shares available for future purchases.
46
<PAGE>
16. Related Party Transactions
The Company had leased certain of its office facilities from its
majority stockholder and his wife under a noncancelable capital lease which
had an original expiration date of 2009 and required annual lease payments
of $399,000. Payments of $283,000 for the year ended December 31, 1997 was
made by the Company under this lease. On September 17, 1997, the Company
entered into a lease termination agreement with the majority stockholder
and his wife, whereby the Company agreed to pay $583,000. During 1997, the
Company paid $272,000 of this amount, with the remainder of $311,000 paid
in February 1998. In conjunction with the lease termination, the Company
wrote-off the building under capital lease, net of accumulated amortization
and the capital lease obligation and recorded a net charge of $36,000 to
the restructuring accrual. In management's opinion, the terms of this
related party lease and the related lease termination were at least as
favorable to the Company as could have been obtained from an unaffiliated
third party.
In 1999, 1998, and 1997, the Company paid premiums on behalf of
the majority stockholder and his wife of $75,000, $70,000, and $52,000,
respectively, under split dollar life insurance policies.
On December 31, 1999, the Company's majority stockholder and
Chairman (the "stockholder") ceased active employment with the Company. He
was engaged as a consultant for the period from January 1, 2000 until
December 31, 2000. Under the terms of the consulting agreement, the
stockholder will receive annual compensation of $354,000, split dollar life
insurance benefits and indemnification for tax liabilities during the
Company's S-corporation status. The Company charged to expense $304,000
deemed to be severance during the fourth quarter of 1999. Prior to August
1995, the Company had elected to be taxed under subchapter S of the
Internal Revenue Code. As a result, the Company was not subject to federal
income taxes, and the taxable income of the Company was included in the
sole stockholder's tax return.
The stockholder will continue as Chairman of the Company and will
be compensated as a non-employee director in 2000.
47
<PAGE>
17. Geographic Segment Data
The Company operates in one business segment. The following table
presents information about the Company's operations by geographic area:
<TABLE>
<CAPTION>
Year ended December 31, 1999 1998 1997
--------------------------------------------------------------------------------------------------------------
<S> <S> <C> <C>
Revenues:
Software license fees
United States
Domestic $ 7,831,000 $ 2,963,000 $ 6,431,000
Export 982,000 161,000 410,000
----------------------------------------------------------
Total United States
software license fees 8,813,000 3,124,000 6,841,000
Europe 1,334,000 2,382,000 1,492,000
Other foreign 1,165,000 316,000 880,000
----------------------------------------------------------
Total foreign software
license fees 2,499,000 2,698,000 2,372,000
----------------------------------------------------------
Total software license fees 11,312,000 5,822,000 9,213,000
----------------------------------------------------------
Services and maintenance
United States
Domestic 13,968,000 15,153,000 14,869,000
Export 1,447,000 1,347,000 1,344,000
----------------------------------------------------------
Total United States
service and
maintenance revenue 15,415,000 16,500,000 16,213,000
----------------------------------------------------------
Europe 5,008,000 5,042,000 5,079,000
Other foreign 1,300,000 1,577,000 1,656,000
----------------------------------------------------------
Total service and
maintenance revenue 21,723,000 23,119,000 22,948,000
----------------------------------------------------------
Total revenue $ 33,035,000 $ 28,941,000 $ 32,161,000
==========================================================
Income (loss) from continuing operations
before interest and taxes
United States $ (5,094,000) $ (7,856,000) $ (14,947,000)
Europe (868,000) (339,000) (4,214,000)
Other foreign 223,000 (595,000) (956,000)
----------------------------------------------------------
Total income (loss) from
continuing operations
before interest and taxes $ (5,739,000) $ (8,790,000) $ (20,117,000)
==========================================================
Identifiable assets
United States $ 112,773,000 $ 114,862,000 $ 76,952,000
Europe 3,161,000 4,012,000 2,012,000
Other foreign 1,720,000 1,817,000 1,521,000
Discontinued operations 6,343,000
Eliminations (59,020,000) (57,078,000) (56,303,000)
----------------------------------------------------------
Total assets $ 58,634,000 $ 63,613,000 $ 30,525,000
==========================================================
</TABLE>
48
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information concerning the directors of the Company is incorporated
herein by reference to the information contained under the heading "Election of
Directors" in the registrant's definitive Proxy Statement for the Company's 2000
Annual Meeting of Stockholders to be held on May 18, 2000, which will be filed
with the Securities and Exchange Commission not later than April 30, 2000 (the
"Definitive Proxy Statement").
Certain information concerning directors and executive officers of the
registrant required by this item is incorporated herein by reference to the
information contained under the heading "Occupations of Directors and Executive
Officers" in the registrant's Definitive Proxy Statement.
The information concerning the compliance with Section 16(a) of the
Securities Exchange Act of 1934 required by this item is incorporated herein by
reference to the Definitive Proxy Statement under the heading "Section 16
Beneficial Ownership Reporting Compliance."
Item 11. Executive Compensation.
Information concerning executive compensation required by this item is
incorporated herein by reference to the information contained under the heading
"Compensation and Other Information Concerning Directors and Officers" in the
Definitive Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information concerning security ownership of certain beneficial owners
and management required by this item is incorporated herein by reference to the
information contained under the heading "Management and Principal Holders of
Voting Securities" in the Definitive Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
Information concerning certain relationships and related transactions
required by this item is incorporated herein by reference to the information
contained under the heading "Certain Relationships and Related Transactions" in
the Definitive Proxy Statement. See also Note 16 of the Notes to the
Consolidated Financial Statements of the Company appearing elsewhere in this
Annual Report on Form 10-K.
49
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(1)(A) Consolidated Financial Statements.
i) Consolidated Balance Sheets at December 31, 1999 and 1998
ii) Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997
iii) Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1999, 1998 and 1997
iv) Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997
v) Notes to the Consolidated Financial Statements
(a)(1)(B) Report of Independent Public Accountants.
(a)(2) Schedules.
a) Schedule II - Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the
information required to be set forth therein is not
applicable or is shown in the accompanying Financial
Statements or notes thereto.
(a)(3) List of Exhibits.
The following exhibits are filed as part of and incorporated by reference
into this Annual Report on Form 10-K:
Exhibit No. Description
2.1 Stock Purchase Agreement, dated August 14, 1998, among the
Company, Ixchange Technology Holdings Limited, Network
Data, Inc., Bendata, Inc., Bendata (Europe) Limited LLC,
and Bendata Holding, Inc. (Incorporated herein by reference
to Exhibit 10.1 to the Company's Current Report on Form 8-K
dated September 4, 1998).
2.2 Stock Purchase Agreement, dated December 31, 1998, among
the Company, Network Data, Inc. and Industri-Matematik
International Corporation (Incorporated herein by reference
to Exhibit 2.1 to the Company's Current Report on Form 8-K
dated December 31, 1998).
3(i).1 Certificate of Incorporation of the Company (Incorporated
herein by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1, as amended (File No.
33-92778)).
3(ii).1 By-Laws of the Company (Incorporated herein by reference to
Exhibit 3.2 to the Company's Registration Statement on Form
S-1, as amended (File No. 33-92778)).
4.1 Specimen certificate representing the Common Stock
(Incorporated herein by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-1, as amended
(File No. 33-92778)).
10.1 1994 Amended Stock Option Plan (Incorporated herein by
reference to Exhibit 10.1 to the Company's Registration
Statement on Form S-1, as amended (File No. 33-92778)).
10.2 Form of Non-Qualified Stock Option Agreement under the 1994
Amended Stock Option Plan (Incorporated herein by reference
to Exhibit 10.2 to the Company's Registration Statement on
Form S-1, as amended (File No. 33-92778)).
50
<PAGE>
10.3 Form of Incentive Stock Option Agreement under the 1994
Amended Stock Option Plan (Incorporated herein by reference
to Exhibit 10.3 to the Company's Registration Statement on
Form S-1, as amended (File No. 33-92778)).
10.4 1991 Amended Non-Qualified Stock Option Plan (Incorporated
herein by reference to Exhibit 10.4 to the Company's
Registration Statement on Form S-1, as amended (File No. 33-
92778)).
10.5 Form of Non-Qualified Stock Option Agreement under the 1991
Amended Non-Qualified Stock Option Plan (Incorporated herein
by reference to Exhibit 10.5 to the Company's Registration
Statement on Form S-1, as amended (File No. 33-92778)).
10.6 1995 Employee Stock Purchase Plan (Incorporated herein by
reference to Exhibit 10.6 to the Company's Registration
Statement on Form S-1, as amended (File No. 33-92778)).
10.7 Amendment No. 1 to 1995 Employee Stock Purchase Plan
(Incorporated herein by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1997).
10.8 1995 Employee Stock Purchase Plan Enrollment/Authorization
Form (Incorporated herein by reference to Exhibit 4.7 to the
Company's Registration Statement on Form S-8, filed on
September 19, 1995 (File No. 33-97064)).
10.9 Amended and Restated 1995 Non-Employee Director Stock Option
Plan (Incorporated herein by reference to Exhibit 10.9 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.10 Form of Non-Qualified Stock Option Agreement under the 1995
Non-Employee Director Stock Option Plan (Incorporated herein
by reference to Exhibit 4.5 to the Company's Registration
Statement on Form S-8, filed on September 19, 1995 (File No.
33-97064)).
10.11 1997 Stock Option Plan (Incorporated herein by reference to
Exhibit 10.10 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996).
10.12 Form of Non-Qualified Stock Option Agreement under the 1997
Stock Option Plan. (Incorporated herein by reference to
Exhibit 10.11 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996).
10.13 Form of Incentive Stock Option Agreement under the 1997
Stock Option Plan (Incorporated herein by reference to
Exhibit 10.12 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996).
10.14 1998 Stock Option Plan (Incorporated herein by reference to
Exhibit 10.14 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997).
10.15 Form of Non-Qualified Stock Option Agreement under the 1998
Stock Option Plan. (Incorporated herein by reference to
Exhibit 10.15 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997).
10.16 Form of Incentive Stock Option Agreement under the 1998
Stock Option Plan. (Incorporated herein by reference to
Exhibit 10.16 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997).
10.17 Agreement of Lease, dated July 12, 1996, between the Company
and C/N Horsham Towne Limited Partnership (Incorporated
herein by reference to Exhibit 10.17 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1996).
10.18 Loan and Security Agreement, dated August 1, 1999, between
the Company and Silicon Valley Bank (Incorporated herein by
reference to Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended September 30,
1999).
10.19 Modification Agreement dated as of June 30, 1997, by and
among the Company, PNC Bank, National Association, successor
by merger to Midlantic Bank, N.A. and PNC
51
<PAGE>
Leasing Corp. (Incorporated herein by reference to Exhibit
10.24 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997).
10.20 Cross Collateralization Agreement dated June 30, 1997, by
and among the Company, PNC Bank, National Association and
PNC Leasing Corp. (Incorporated herein by reference to
Exhibit 10.25 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997).
10.21 Modification Agreement dated April 30, 1998 by and among the
Company, PNC Bank, National Association and PNC Leasing
Corp. (Incorporated herein by reference to Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998).
10.22* Letter to John G. Phillips regarding severance terms.
10.23 Letter to Bruce R. Rusch regarding employment terms.
(Incorporated herein by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999).
10.24* Letter to Howard P. Kamins regarding employment terms.
10.25* Consulting Agreement between the Company and Zack B.
Bergreen.
10.26* Transfer of Rights Agreement regarding PowerHelp
10.27* Guaranty in connection with Transfer of Rights Agreement
regarding PowerHelp.
21.1* Subsidiaries of the Registrant.
23.1* Consent of Arthur Andersen LLP.
24.1* Powers of Attorney (See the Signature Page).
27.1* Financial Data Schedule.
______________________
* Filed herewith
(b) Reports on Form 8-K.
The Company filed no current reports on Form 8-K, or amendments to
current reports on Form 8-K/A, during the fiscal quarter ended December 31,
1999.
(c) Exhibits.
The Company hereby files as part of this Annual Report on Form 10-K the
exhibits listed in Item 14(a)(3) set forth above.
52
<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 27th day of March
2000.
ASTEA INTERNATIONAL INC.
By: /s/ Bruce R. Rusch
-----------------------------
Bruce R. Rusch
President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Bruce R. Rusch and John G. Phillips,
jointly and severally, his attorney-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-K and to file same, with exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorney-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Bruce R. Rusch President and Chief Executive March 27, 2000
-------------------
Bruce R. Rusch Officer (Principal Executive Officer)
/s/ John G. Phillips Vice President and Chief March 27, 2000
---------------------------
John G. Phillips Financial Officer (Principal
Financial and Accounting
Officer)
/s/ Barry M. Goldsmith Director March 27, 2000
---------------------------
Barry M. Goldsmith
/s/ Henry H. Greer Director March 27, 2000
---------------------------
Henry H. Greer
/s/ Bruce R. Rusch Director March 27, 2000
---------------------------
Bruce R. Rusch
</TABLE>
53
<PAGE>
SCHEDULE II
ASTEA INTERNATIONAL INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Other Balance at
Beginning Increases/ End of
Classification of Period Additions (1) Deductions (2) Decreases (3) Period
- -------------- --------- ------------- -------------- ------------ ------
<S> <C> <C> <C> <C> <C>
For the Year Ended
December 31, 1997
Reserve for estimated
uncollectible accounts $ 1,223,000 $ 1,055,000 $ (841,000) $ (213,000) $ 1,224,000
Reserve for
restructuring - $ 5,328,000 $ (2,083,000) $ (1,377,000) $ 1,868,000
For the Year Ended
December 31, 1998
Reserve for estimated
uncollectible accounts $ 1,224,000 $ 1,257,000 $ (1,974,000) $ 261,000 $ 768,000
Reserve for
restructuring $ 1,868,000 $ (800,000) $ (875,000) $ (41,000) $ 152,000
For the Year Ended
December 31, 1999
Reserve for estimated
uncollectible accounts $ 768,000 $ 708,000 $ (316,000) $ (113,000) $ 1,047,000
Reserve for
restructuring $ 152,000 $ 1,630,000 $ (179,000) $ (457,000) $ 1,146,000
</TABLE>
(1) Amounts represent charges and reductions to expenses and revenue.
(2) Amounts represent the write-off of receivables against reserve for
estimated uncollectible accounts and cash paid for restructuring
activities.
(3) Amounts represent recoveries of previously written-off receivables and
amounts reclassed from deferred revenues for changes in the reserve for
estimated uncollectible accounts and non-cash writedowns of property and
equipment for changes in the reserve for restructuring.
54
<PAGE>
Exhibit 10.22
[LOGO OF ASTEA INTERNATIONAL INC.]
December 1, 1999
PERSONAL AND CONFIDENTIAL
- -------------------------
John G. Phillips
109 Forest Trail Drive
Lansdale, PA 19446
Dear Jack:
As you and I have discussed, in consideration of your tenure with Astea
International Inc. (the "Company") and your agreement to continue your
employment with Company, the Company agrees that if at any time the Company
terminates your employment for any reason other than for "cause" (defined
below), the Company shall pay you the equivalent of six (6) months of your
salary and benefits, to be payable as if you were continuing as an employee.
"Cause" is defined as conduct, as determined by the Board of Directors,
involving one or more of the following: (i) gross misconduct that is materially
injurious to the Company; or (ii) the commission of an act of embezzlement,
fraud or deliberate disregard for the rules or policies of the Company which
results in material economic loss, damage or injury to the Company; or (iii) the
unauthorized disclosure of any trade secret or confidential information of the
Company; or (iv) the commission of an act that induces any customer or
prospective customer of the Company to break a contract with the Company or to
decline to do business with the Company; or (v) your conviction of a felony
involving any financial impropriety or which would materially interfere with
your ability to perform your duties or would otherwise be injurious to the
Company; or (vi) your failure to perform in a material respect your employment
obligations without good reason. In making such determination, the Board of
Directors shall act fairly and in utmost good faith. If your employment is
terminated for cause, you will be notified of this at the time of termination.
If this is consistent with your understanding of our agreement, please indicate
this by signing below.
Very truly yours,
Bruce R. Rusch
Chief Executive Officer
AGREED TO:
- ----------
___________________________
John G. Phillips
<PAGE>
Exhibit 10.24
November 12, 1999
Personal & Confidential
Mr. Howard Kamins
417 Fulton Street
Philadelphia, PA 19147
Dear Howard:
On behalf of Astea International Inc. ("Astea" or the "Company"), I am delighted
to take this opportunity to extend this offer of employment as Astea's Vice
President and General Counsel, reporting to me. You will be responsible for
developing, implementing and administering Astea's legal policies and
procedures, subject to my direction. Your employment will begin on December 13,
1999 and you will be based at Astea's headquarters in Horsham, Pennsylvania.
Your annual base salary will be $135,000 payable semi-monthly, less appropriate
federal, state and local taxes. Assuming satisfactory performance, this base
salary will be reviewed annually consistent with Astea's compensation policy in
effect from time to time. In addition, you will be eligible to receive
Incentive Compensation at a target rate of 30% per annum in accordance with
programs in place for senior management of Astea.
As an additional incentive, you will be eligible for an option grant to purchase
85,000 shares of Astea's common stock at the fair market value on the date of
grant. This grant will be evidenced by a separate stock option agreement on the
date of Board approval of the options, with vesting tied to the following
vesting schedule:
(a) Options to purchase 85,000 shares will vest in equal installments on
each of the first four anniversaries of the grant date.
Upon termination of your employment with Astea, you may exercise any vested
options for a period of 90 additional days. In the event of a change in control
of Astea, your options that have not vested will vest immediately.
In consideration for your agreement to begin employment with Astea International
Inc., the Company agrees that if at any time the Company terminates your
employment for any reason other than for "cause" (defined below), the Company
shall pay you the equivalent of four (4) months of your salary and benefits, to
be payable as if you were continuing as an employee. This compensation shall
continue for a period of four (4) months from your termination date or until you
commence employment elsewhere. If new employment is begun prior to the
expiration of the four-month period, you agree to promptly notify the Company.
<PAGE>
Howard Kamins
Page 2
November 12, 1999
"Cause" is defined as conduct, as determined by the Board of Directors,
involving one or more of the following: (i) gross misconduct that is materially
injurious to the Company; or (ii) commission of an act of embezzlement, fraud or
deliberate disregard of the rules or policies of the Company which results in
material economic loss, damage or injury of the Company; or (iii) the
unauthorized disclosure of any trade secret or confidential information of the
Company; or (iv) the commission of an act that induces any customer or
prospective customer of the Company to break a contract with the Company or to
decline to do business with the Company; or (v) your conviction of a felony
involving any financial impropriety or which would materially interfere with
your ability to perform your services or would otherwise be injurious to the
Company; or (vi) your failure to perform in a material respect your employment
obligations without good reason. In making such determination, the Board of
Directors shall act fairly and in utmost good faith. If your employment is
terminated for cause, you will be notified of this at the time of termination.
As an employee entrusted with confidential and sensitive information, Astea
requires that, upon your employment, you enter into a written agreement
containing noncompetitive covenants and restrictions on the use and ownership of
such information, as well as other terms and conditions. The agreement is
enclosed for your review.
Current Astea benefits include paid vacation days based upon length of
employment. In the first five years of your employment, you may accrue up to 15
days per year, accrued at a rate of 1.25 days per month. Thereafter, upon the
anniversary date of your employment, you will earn an additional paid vacation
day per year up to a maximum of 20 days per year. You will also be eligible to
receive other company paid benefits including holidays, earned sick days, and
certain personal absences.
Astea provides a progressive range of employee benefits including life
insurance, long-term disability insurance, a 40l(k) plan, profit sharing plan,
employee stock purchase plan, medical and dental plans and short-term disability
plans. You and your eligible dependents will qualify for these benefits
subject to the terms and conditions of the benefit programs. Please note that
the Astea benefits may change from time to time.
If you wish to accept Astea's offer of employment, please sign and return this
original letter to me, keeping a copy for yourself. Your signature below
indicates your acceptance of the terms of this offer, and represents and
warrants to Astea that there is no other agreement in effect which prohibits or
otherwise restricts your employment by Astea.
<PAGE>
Howard Kamins
November 12, 1999
Page 3
This letter does not constitute a contract of employment. It creates an
employment-at-will relationship that may be terminated at any time by either
party.
I am looking forward to working with you and building the company, and am
confident that you will find the Astea environment to be challenging and
rewarding.
Sincerely,
Bruce R. Rusch
Chief Executive Officer
Astea International Inc.
Encl.
AGREED:
_______________________
Howard Kamins
<PAGE>
Exhibit 10.25
CONSULTING AGREEMENT
--------------------
THIS AGREEMENT (the "Agreement") made and entered into as of December ,
1999, between Astea International, Inc. (the "Company"), and Zack B. Bergreen
("Consultant").
WITNESSETH:
WHEREAS, Consultant is the Chairman of the Board of Directors of the
Company ("Chairman"), has previously served as its chief executive officer and
is currently an employee of the Company; and
WHEREAS, Consultant will voluntarily separate from active employment with
the Company, effective at the close of business on December 31, 1999 (the
"Separation Date"), and will continue thereafter as Chairman; and
WHEREAS, the Company desires to secure the further services of Consultant
in the capacity as a consultant to the Company; and
NOW, THEREFORE, in consideration of the parties' mutual promises and
agreements it is agreed as follows:
1. Engagement as Consultant. Consultant agrees to perform consulting
------------------------
services, as an independent contractor, as the Company requests and as agreed to
by Consultant, at times mutually agreeable to Consultant and the Company;
provided, however, that Consultant shall not be obligated to perform services to
the extent these services would interfere with Consultant's pursuit of other
business interests not inconsistent with the terms of this Agreement. The term
of this consulting engagement ("Consulting Term") shall commence on January 1,
2000 and will continue until December 31, 2000.
2. Compensation.
------------
A. Compensation. The Company shall pay Consultant compensation
------------
during the Consulting Term at an annual rate of $354,000, payable at the same
times as Consultant's compensation as an employee was payable immediately prior
to the Separation Date; provided, however, that upon the acquisition by a third
party, by merger, consolidation, purchase or otherwise, of the Company or of all
or substantially all of its assets or stock, the compensation payable during the
balance of the Consulting Term shall be immediately paid in a lump sum to
Consultant. As a member of the Company's Board of Directors, Consultant will
receive the same compensation as other non-employee Directors.
B. Expense Reimbursement. The Company will reimburse Consultant for
---------------------
all reasonable and customary out-of-pocket expenses incurred by him in
connection with his performance of services under this Agreement in accordance
with the Company's standard policies, practices and procedures. In addition, the
Company will provide
<PAGE>
to Consultant, during the Consulting Term, the same office and secretarial and
administrative support as it provided to him as an employee immediately prior to
the Separation Date.
C. Benefits. Except as set forth on Exhibit A hereto, the Company
--------
shall not be required to pay or provide any benefits to Consultant after the
Separation Date.
3. Mutual Release of Claims. Effective as of the Separation Date,
------------------------
Consultant hereby completely remises, releases, relinquishes, waives and forever
discharges the Company, its officers, directors, employees, attorneys,
accountants, agents, predecessors, successors (by merger or otherwise), assigns,
subsidiaries, affiliates and divisions of and from all manner of actions, causes
of action, suits, debts, dues, accounts, bonds, covenants, contracts,
agreements, judgments, claims, liabilities and demands whatsoever, in law or in
equity, known or unknown, in tort, contract, by statute, negligence (whether by
contribution or indemnification) or any other basis for relief, compensatory,
punitive or other damages, expenses (including attorneys' fees), reimbursements
or costs of any kind which Consultant ever had, now has or may have to the
extent arising out of or related to his employment with the Company and its
subsidiaries and affiliates or the termination of that employment; provided,
however, that nothing contained herein shall release the Company from its
obligations under this Agreement and its obligations to indemnify Consultant to
the fullest extent permitted by law for his acts and omissions on behalf of the
Company. Consultant agrees that he has executed this Release on his own behalf,
and also on behalf of his dependants, heirs, executors, legal representatives,
successors and assigns. This release includes, but is not limited to, a release
of any rights or claims he may have for, or pursuant to, the Pennsylvania Wage
Payment and Collection Law or any other state or local wage payment statute, the
Age Discrimination in Employment Act (ADEA), Title VII of the Civil Rights Act
of 1964, as amended, the Americans with Disabilities Act (ADA), the Employee
Retirement and Income Security Act (ERISA), any other federal, state or local
laws or regulations prohibiting employment discrimination, breach of any express
or implied contract, wrongful termination or any other tort claims, including
claims for attorneys' fees, whether based on common law, or otherwise.
Consultant understands, however, that by signing this Release, he does not waive
rights to: (a) claims arising under any applicable worker's compensation laws;
(b) any claims which the law states may not be waived; and (c) his vested
rights, if any, under the regular employment benefit plans of the Company, in
effect as of the date this Agreement.
The Company hereby completely remises, releases, relinquishes, waives
and forever discharges Consultant and his dependents, heirs, executors, agents,
legal representatives, successors and assigns, of and from all manner of
actions, causes of action, suits, debts, dues, accounts, bonds, covenants,
contracts, agreements, judgments, claims and demands whatsoever, in law or
equity, known or unknown, in tort, contract, by statute, negligence (whether by
contribution or indemnification) or any other basis for relief, compensatory,
punitive or other damages, expenses (including attorney's fees), reimbursements
or costs of any kind which the Company ever had, now has or may have to the
extent arising out of or related to his employment with the Company and its
subsidiaries and affiliates or the termination of that employment; provided
however, that nothing contained herein shall release Consultant from his
obligations under this Agreement. The Company agrees that it has executed this
Release on its
-2-
<PAGE>
own behalf, and also on behalf of its subsidiaries, affiliates, divisions,
successors (by merger or otherwise) and assigns.
4. Effect of Prior Agreements. This Agreement contains the entire
--------------------------
understanding between the parties hereto relating to Consultant's services to
the Company hereof and supersedes any other prior agreement regarding consulting
services between the Company and Consultant.
5. General Provisions.
------------------
A. Nonassignability. Neither this Agreement nor any right or
----------------
interest in it shall be subject, in any manner, to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance or charge, whether voluntary or
involuntary, by operation of law or otherwise, nor shall it in any way be
subject to Consultant's debts, contract, liabilities, engagements or torts, nor
shall it be subject to attachment or legal process for or against Consultant.
Any attempt to do so shall be void.
B. Taxes. The Company shall withhold all federal, state and local
-----
taxes that shall be required pursuant to any law or governmental regulation or
ruling from the amounts payable to Consultant under Paragraph 2 of this
Agreement.
6. Modification and Waiver.
-----------------------
A. Amendment of Agreement. This Agreement may not be modified or
----------------------
amended except by a written instrument signed by each of the parties.
B. Waiver. No term or condition of this Agreement shall be deemed
------
to have been waived, nor shall any provision of this Agreement be estopped from
enforcement, except by written instrument signed by the party charged with the
waiver or estoppel.
7. Notices. All notices or communications shall be in writing,
-------
addressed as follows:
To the Company:
Astea International
455 Business Center Drive
Horsham, PA 19044
Attention: Chief Executive Officer
To Consultant:
Zack B. Bergreen
P.O. Box 488
-3-
<PAGE>
Gwynedd Valley, PA 19437
All notices shall be conclusively deemed to be received and shall be effective,
(i) if sent by hand delivery, upon receipt, (ii) if sent by telecopy or
facsimile transmission, upon confirmation of receipt by the sender of such
transmission or (iii) if sent by registered or certified mail, on the fifth day
after the day on which the notice is mailed.
8. Governing Law. This Agreement has been executed and delivered in,
-------------
and its validity, interpretation, performance and enforcement shall be governed
by, the laws of the State of Pennsylvania.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
and its seal to be affixed by its duly authorized officer and Consultant has
signed this Agreement, as of the date above.
ASTEA INTERNATIONAL, INC.
By:_______________________________
CONSULTANT
__________________________________
Zack B. Bergreen
-4-
<PAGE>
EXHIBIT A
---------
Continuing Benefits
1. During the Consulting Term, and thereafter as long as the Consultant
is a member of the Board of Directors of the Company, the Consultant's split-
dollar arrangement and benefits arising out of a Split Dollar Agreement dated
December 17, 1993 between the Consultant and the Company and related documents
(collectively, the "Insurance Agreement") will remain in effect as if the
Consultant's employment with the Company had not terminated and notwithstanding
anything to the contrary contained in the Insurance Agreement.
2. Indemnification of the Consultant by the Company for any taxes,
interest or penalties arising out of the pending Internal Revenue Service audit
of the Company.
-5-
<PAGE>
Exhibit 10.26
Transfer of Rights Agreement
This Agreement is made between Vertical Solutions, Inc., an Ohio
corporation, with its principal offices at 4243 Hunt Road, Suite 201,
Cincinnati, OH 45242 ("VSI"), and Astea International Inc., a Delaware
corporation with its principal offices at 455 Business Center Drive, Horsham, PA
19044 ("Astea"), and is effective as of December 31,1999 ("Effective Date").
Whereas, VSI and Astea have acted as resellers of certain of each others
products pursuant to a PowerHelp Reseller and Support Assumption Agreement dated
July 24, 1997 and amended on March 9, 1998 and August 25, 1998, (as amended, the
"PowerHelp Agreement"); a Reseller and Development Agreement dated February 6,
1998 (the "RDA Agreement"); and a Reseller Agreement dated June 25, 1999,
including an undated Addendum, which modified such Reseller Agreement (as
amended, the "VSI Agreement');
Whereas Astea and VSI desire to restructure their relationship and
respective rights as follows: (i) Astea desires to sell to VSI all of its rights
in the Software Products, as defined in the PowerHelp Agreement, and VSI desires
to purchase such rights; (ii) VSI and Astea desire to terminate Astea's
relationship as a reseller pursuant to the RDA Agreement of software owned by
VSI and (iii) VSI and Astea desire to modify VSI's relationship as a reseller
pursuant to the VSI Agreement of software owned by Astea;
Therefore, VSI and Astea, intending to be legally bound, agree to the
following terms and conditions:
1. As of the Effective Date, Astea sells, transfers, assigns, and relinquishes
exclusively to VSI all of Astea's right, title, and interest in and to the
Software Products, including all intellectual property rights in the Software
Products, and in and to the "PowerHelp" trademark, (collectively, the "Assets").
The PowerHelp Agreement shall terminate as of the Effective Date.
2. VSI shall pay Astea the purchase price of $1.1 million for the Assets by
delivery of a Promissory Note (the "Note") in the form attached hereto providing
for five installments as follows: $275,000 by 1/6/00; $225,000 by 3/30/00;
$170,000 by 6/30/00; $210,000 by 9/30/00; and $220,000 by 12/30/00. VSI shall
still have the obligation to pay any unpaid amount of the aggregate royalties,
otherwise payable to Astea under Section 9 of the PowerHelp Agreement for sales
or licenses, that were accrued or should have been accrued on or before
September 30, 1999. The obligations of VSI under the Note shall be personally
guaranteed by Ron Wegmann, by execution of a written guarantee in a form
reasonably satisfactory to Astea and to Mr. Wegmann on or before January 10,
2000. In addition, Mr. Wegmann and VSI shall provide all reasonably requested
information and shall assist the auditors of Astea in reviewing the financial
condition and results of operation of VSI and Mr. Wegmann, subject to such
auditors signing an appropriate confidentiality agreement. All VSI obligations
for any other royalties under the PowerHelp Agreement shall terminate on the
Effective Date.
<PAGE>
3. Astea represents and warrants that (i) it has good and valid title to all
of the Assets; (ii) no third party has any marketing, distribution, or licensing
rights to the Assets, except for license rights granted to end users to use the
object code of the Software Products for their own internal use; and (iii) none
of the Assets is subject to any liens, charges, encumbrances or security
interests. The Assets are sold "as is" and "where is", except for the warranties
set forth in Section 3 (i)-(iii) of this Agreement, and Astea makes no
warranties, guarantees or representations of any kind whatsoever concerning any
of the Assets, whether express or implied, arising by law or otherwise,
including, but not limited to, any implied warranty of merchantability or
fitness for a particular purpose or any implied warranty arising from course of
performance, course of dealing or usage of trade, and VSI hereby waives all
warranties, guaranties, obligations, rights and remedies express or implied,
with respect to the Assets excepting only Astea's warranties set forth in
Section 3 (i)-(iii) of this Agreement.
4. Within ten days after the Effective Date, Astea shall deliver to VSI any
source code to the Software Products that Astea has not previously delivered to
VSI.
5. Astea acknowledges that, with the Execution of this Agreement, the Software
Products are trade secrets of VSI. Astea shall maintain the confidentiality of
the Software Products, and shall not use or disclose the Software Products,
except as specifically authorized by VSI in this Agreement or otherwise in
writing.
6. Astea shall promptly execute and deliver such further instruments and take
such further actions as may be necessary or desirable to effect the transfer of
the Assets as contemplated by this Agreement. If Astea reacquires its rights to
the Assets pursuant to its rights under the Note, VSI shall promptly execute and
deliver such further instruments and take such further actions as may be
necessary or desirable to effect the transfer of the Assets as contemplated by
the Note.
7. The VSI Agreement is amended effective on the Effective Date to extend its
term to December 31, 2001 and to provide that the Reseller Price as defined in
Section 4(a) of the VSI Agreement shall be equal to forty five percent (45%) of
the then current list price established by Astea for its products, services and
the associated annual maintenance fees.
8. The RDA Agreement shall be terminated as of the Effective Date. VSI
represents and warrants that it has not granted any sublicense pursuant to the
terms of the RDA Agreement.
9. The obligations of VSI and Astea pursuant to Sections 7.2, 8 and 10 of the
RDA Agreement shall survive the termination of the RDA Agreement and shall be
enforceable in accordance with their original terms.
10. Within ten days after the Effective Date, Astea will provide VSI with an
electronic copy of the human readable, source code for the current version of
Astea's proprietary ServiceAlliance(R) product to enable VSI to write
additional code for that product and its own software to enable
ServiceAlliance(R) to operate together with the
<PAGE>
Fieldcom(R) software. During the term of the VSI Agreement, Astea will also
provide VSI with Source Code for future versions of ServiceAlliance(R). "Source
Code," as used in this Agreement, shall mean the human-readable, source code
form of any version or release of Astea's ServiceAlliance(R) software product
that has already been delivered, or may in the future be delivered to VSI.
11. Astea hereby grants to VSI a limited, revocable, non-exclusive, non-
transferable right (a) to read and view the Source Code solely for VSI's
internal purposes and (b) to modify the Source Code only to enable
ServiceAlliance(R) to operate together with VSI's Fieldcom(R) software or for
other purposes with Astea's written permission in each instance. This Agreement
does not provide VSI with title to or ownership of the Source Code. VSI
acknowledges that the Source Code to be provided by Astea hereunder is a
commercially valuable, proprietary product of Astea and that its design and
development reflect the effort of skilled development experts and the investment
of considerable time and money. VSI acknowledges that the Source Code contains
substantial trade secrets of Astea, which Astea has entrusted to VSI in
confidence to use only as expressly authorized by this Agreement. VSI further
acknowledges that Astea claims and reserves all rights and benefits that are
afforded under federal and international copyright law in all software programs
comprising the Source Code as an unpublished work. Any copying, modification, or
distribution of the Source Code not expressly authorized by this Agreement or
otherwise by Astea in writing is strictly forbidden. This license shall
automatically terminate upon the termination of the VSI Agreement.
12. VSI shall not, at any time, disclose or disseminate the Source Code
(including any extract, copy, adaptation, or transcription thereof), or the
trade secrets embodied therein, whether in whole or in part, to any employee,
consultant, contractor, or other person who does not have a need to know and to
obtain access thereto in order to give effect to the rights granted to VSI under
this Agreement or is not legally bound to maintain the proprietary and
confidential nature of such materials and to limit use thereof and access
thereto as required by the terms of this Agreement. VSI shall take appropriate
action, by instruction, agreement, and otherwise, with any persons authorized to
have access to the Source Code, so as to enable VSI to fulfill the foregoing
obligations.
13. VSI acknowledges that it is impossible to measure fully, in money, the
injury that will be caused to Astea in the event of a breach or threatened
breach of any of the provisions of this Agreement. Astea shall be entitled to
injunctive relief to enforce the provisions of such sections hereof, without
prejudice to any other remedy that Astea may have at law or in equity.
14. At any reasonable time and from time to time at the sole discretion of
Astea, Astea shall be entitled to inspect VSI's work premises and interview
VSI's employees and consultants to ensure VSI's strict compliance with the terms
and conditions of this Limited Source Code License. Such inspections and
interviews shall be conducted so as to minimize the disruption to VSI's business
and the activities of VSI's employees and consultants.
<PAGE>
15. During the term of the VSI Agreement VSI and its President, Ron Wegmann,
shall refrain from, directly or indirectly, carrying on or participating in any
software business involving the development, distribution, licensing, sale of
any products that compete, on a stand-alone basis, with ServiceAlliance(R) as a
product providing integrated customer relationship management solutions
primarily in the field service market segment ("SEAL"). These restrictions shall
not apply to (a) stand-alone, help desk management products or software, (b) the
products comprising the Assets, or derivative works thereof, so long as they
function solely as stand-alone, help desk management products or software, and
are not competitive with SEAL (c) the Fieldcom(R) software, or derivative works
thereof so long as they are not competitive with SEAL . The parties agree that
the terms of this noncompetition provision are necessary for the reasonable and
proper protection of the business of Astea and that each and every restraint
contained herein is reasonable. VSI acknowledges and agrees that any violation
of this provision may have an immediate adverse and unfair effect on the
business as conducted by Astea and that Astea would not have entered into this
Agreement in the absence of such noncompetition provision. With respect to each
and every breach or violation or threatened breach or violation by VSI, Astea
shall be entitled to seek an injunction enjoining the commencement or
continuance of such activities, and, without notice to VSI may apply to any
court of competent jurisdiction for entry of an immediate restraining order or
injunction. The pursuit of such remedy at any time will not be deemed an
election of remedies or waiver of the right to pursue any other remedies.
16. This Agreement will be governed by and interpreted in accordance with the
laws of the Commonwealth of Pennsylvania, excluding principles relating to
conflicts of laws.
17. This Agreement, together with the Note attached to this Agreement,
constitutes the entire understanding between the parties with respect to the
subject matter of this Agreement and supersedes any and all other prior
understandings, statements, warranties, representations and agreements, oral or
written, relating to them. Any amendment to this Agreement must be in writing
and signed by both parties.
18. VSI will at all times cooperate promptly with Astea to enable Astea to
comply with the provisions of the United States Export Administration Act, War
Powers Act, or other law or Executive Order relating to control of exports or
transfer of technology, and the regulations of the United States Departments of
State, Commerce and Defense relating to them (in present form or as they may be
amended in the future).
19. Notices delivered under the terms of this Agreement will be in writing and
sent by prepaid certified mail, return receipt requested, or by a nationally
recognized overnight courier service to the respective addresses of the parties
set forth in the recitals to this Agreement. In the case of Astea, such notices
will be directed to the attention of the General Counsel; and, in your case,
such notices will be directed to the attention of the individual named below
executing this Agreement on your behalf. Notices will be effective on the date
received.
<PAGE>
20. No term or provision of this Agreement will be deemed waived and no breach
of this Agreement will be deemed consented to or excused, unless such waiver,
consent or excuse will be expressed in writing and signed by the party claimed
to have so waived, consented or excused such term or provision.
21. Those Sections of this Agreement that are, by their terms intended to
survive the termination of this Agreement, shall survive the termination of this
Agreement, including, without limitation, Sections 11-14.
22 Except for actions initiated by either party to this Agreement for
injunctive relief to enforce its rights or for the collection of any payments
due in the normal course of business, any dispute or claim arising in connection
with this Agreement or the performance or nonperformance of either party to this
Agreement will be submitted to arbitration under the then obtaining commercial
rules and regulations of the American Arbitration Association. The cost and
expenses of such arbitration will be borne by the parties equally unless the
determination by the panel of arbitrators includes an award of costs. Any
arbitration brought hereunder will be held in Philadelphia, Pennsylvania. The
decision and award of the panel of arbitrators will be final. Notwithstanding
the provisions of this Section, Astea will have the absolute right to limit,
terminate, revoke or cancel your right to use the Source Code upon the
occurrence of a material breach of any of the confidentiality of proprietary
rights provisions of this Agreement or your failure to pay amounts owed, and to
bring suit to enforce such rights.
23. All rights and remedies of the parties under this Agreement shall be
cumulative and none shall exclude or prejudice any other right or remedy
available to the parties under law or by virtue of the provisions of this
Agreement.
24. This Agreement may be executed in counterparts, each of which shall be
deemed an original.
IN WITNESS WHEREOF, the parties hereof have caused this Agreement to be executed
by a duly authorized officer as of the dates listed below.
Astea International, Inc. Vertical Solutions, Inc.
By:_______________________________ By:______________________________
Howard P. Kamins, Vice President Ronald W. Wegmann, President
and General Counsel
December 31, 1999 December 31, 1999
<PAGE>
PROMISSORY NOTE
---------------
$1,100,000 December 31, 1999
FOR VALUE RECEIVED, Vertical Solutions, Inc., an Ohio corporation,
with its principal offices at 4243 Hunt Road, Suite 201, Cincinnati, OH 45242
("Borrower") promises to pay to the order of Astea International Inc., a
Delaware corporation with its principal offices at 455 Business Center Drive,
Horsham, PA 19044 ("Lender") the principal sum of One Million One Hundred
Thousand Dollars ($1,100,000). After the occurrence of a Default which has not
been cured, all outstanding principal and interest on this Note shall accrue
interest at the rate of twenty percent (20%) per annum.
The principal shall be payable in installments as follows: two hundred
and seventy five thousand dollars ($275,000) on or before January 6, 2000; two
hundred and twenty five thousand dollars ($225,000) on or before March 30, 2000;
one hundred and seventy thousand dollars ($170,000) on or before June 30, 2000;
two hundred and ten thousand dollars ($210,000) on or before September 30, 2000;
and two hundred and twenty thousand dollars ($220,000) on or before December 30,
2000. All outstanding principal and interest shall be payable on the maturity
date of December 30, 2000. All payments of principal, interest, and fees
hereunder shall be made by Borrower without defense, set off, or counterclaim
and in same day funds and delivered to Lender by wire transfer not later than
5:00 P.M. (New York time) on the date due at Lender's offices or such other
place as shall be designated in writing by Lender for such purpose.
Amounts outstanding under this Note may be prepaid in whole or in part
at any time without premium or penalty, with any such prepayments being applied
first to accrued and unpaid interest then to principal in the inverse order of
maturity.
The occurrence of any one or more of the following events shall be an
event of default ("Default") hereunder:
(a) Default shall be made in the payment of the principal of or
interest on this Note when and as the same shall become due and payable, whether
at a date fixed for payment, by acceleration or otherwise;
(b) The Borrower shall:
(i) admit in writing its inability to pay its debts generally as
they become due; (ii) file a petition in bankruptcy under the bankruptcy laws of
the United States of any other jurisdiction (as such laws are now or in the
future amended) or any admission seeking the relief therein provided; (iii) make
an assignment for the benefit of its creditors; (iv) consent to the filing or a
petition against it under said bankruptcy laws; or (v) be adjudicated a
bankrupt;
<PAGE>
(c) A court order shall be entered appointing a receiver or trustee
for all or a substantial part of the property of the Borrower, or
approving as filed in good faith a petition filed against the
Borrower under said bankruptcy laws.
If any of the events described in paragraph (a) - (c) occur, Borrower
shall have fifteen (15) days to cure the default by paying Lender all
outstanding principal and interest on the Note. If Borrower does not cure such
default within that 15 day period, Lender may retake possession of the Assets as
a liquidated damages penalty in addition to all other amounts, including without
limitation, principal and interest as otherwise payable hereunder.
In addition to other remedies of Lender as set forth in this Note
upon the occurrence of a Default, Lender may, without demand, by written notice
to Borrower, cause this Note to become immediately due and payable.
Borrower hereby waives presentment, demand for payment, notice of
dishonor, protest or notice of protest and any and all notices or demands and,
to the full extent permitted by law, the right to plead any statute of
limitations as a defense to any demand hereunder in connection with the
delivery, acceptance, performance, or default of this Note.
The liabilities and obligations of Borrower hereunder shall be
unconditional without regard to the liability or obligations of any other party
and shall not be in any manner affected by any indulgence whatsoever granted or
consented to by Lender, including, but not limited to, any extension of time,
renewal, waiver or other modification. Any failure of Lender to exercise any
right hereunder shall not be construed as a waiver of the right to exercise the
same or any other right at any time and from time to time thereafter.
This Note has been executed, delivered, and accepted by the parties and
will be deemed to have been made in Pennsylvania and will be interpreted and the
rights of the parties determined in accordance with the laws of the United
States of America applicable thereto and the internal laws of the Commonwealth
of Pennsylvania applicable to an agreement executed, delivered and performed
therein without giving effect to the choice-of-law rules thereof or any other
principle that could require the application of the substantive law of any other
jurisdiction.
This Note has been delivered in payment by the Borrower of the
purchase price for the software program PowerHelp Version 2.0, any other
standard, custom and undistributed versions of PowerHelp, and any service
management custom management modification modules for PowerHelp (the "Software
Products"), including all intellectual property rights in the Software Products,
and in and to the "PowerHelp" trademark (collectively, the "Assets"). The
Borrower hereby assigns and pledges to the Lender and grants to the Lender a
purchase money security interest in all of the Borrower's right, title and
interest in and to the Assets and all products and proceeds of
<PAGE>
the foregoing. Notwithstanding the foregoing, Lender shall have no security
interest in any derivative software products of the Assets. The Borrower shall
from time-to-time, at the expense of the Lender, promptly execute and deliver
all further instruments and documents (including financing or continuation
statements and amendments thereto) and take all further action that may be
necessary or desirable or that the Lender may request in order to perfect and
protect any security interest granted or purported to be granted hereby or
described herein or to enable the Lender to exercise and enforce its rights and
remedies hereunder with respect to any of the Assets.
The Borrower hereby irrevocably: (i) in any legal proceeding brought
in connection with this Note: (1) submits to the exclusive in personam
-----------
jurisdiction of any state or United States court of competent jurisdiction
sitting in or with jurisdiction in, the Commonwealth of Pennsylvania; (ii)
waives any objection that it may now or hereafter have to the venue of such
proceeding in any such court or that such proceeding was brought in an
inconvenient court; and (iii) agrees that nothing contained herein shall affect
Lender's right to effect service of process in any manner permitted by law. Any
and all actions at law or in equity relating to this Note and the indebtedness
shall be brought, and jurisdiction shall be had exclusively, in the courts of
the Commonwealth of Pennsylvania; or at the election of the holder hereof, the
United States District Court for the Eastern District of Pennsylvania. Borrower
consents in advance to service of process by mail to the address set forth in
this Note.
This Note may not be changed or amended orally but only by an
agreement in writing and signed by the party against whom enforcement of any
waiver, change, modification or discharge is sought.
This Note shall not be subject to any right of set-off, counterclaim,
defense, abatement, suspension, deferment or reduction and Borrower shall not
have the right to be released, relieved or discharged from this obligation and
liability under this Note for any reason whatsoever except by full payment.
After the occurrence of an Event of Default, the Lender may, in addition to
and not in derogation of any other remedies which the Lender may have, credit,
at any time and from time to time, against the unpaid principal of this Note and
interest accrued thereon any amounts due from the Lender, or any parent,
subsidiary or affiliate of the Lender, to the Borrower in such a manner and to
the extent permitted by applicable law.
If any provision of this Note is invalid and unenforceable then, to the
fullest extent permitted by law: (i) the other provisions hereof shall remain
in full force and effect in order to carry out the intentions of the parties
hereto as nearly as may be possible; (ii) the invalidity or unenforceability of
any provision hereof in any jurisdiction shall not affect the validity or
enforceability of any such provision in any other jurisdiction; and (iii) such
invalidity and unenforceability shall not affect any other provision hereof, but
this Note shall be construed as if such invalid or unenforceable provision had
never been contained herein.
<PAGE>
Nothing in this Note or otherwise shall require Borrower to pay any
interest, liquidated damages or any other charge which might be construed as
interest, in an amount which would subject Lender to any penalty or permit any
declaration of invalidity of the Note or any payments of principal or interest
made or to be made under the Note under any applicable usury or other law. In
the event any payment of interest or any other amount which might be construed
as interest pursuant to this Note or otherwise would subject Lender to such a
penalty or permit any such declaration of invalidity, then such payments of
interest, liquidated damages or other charges required to be made by the
Borrower shall not be greater than the highest amount which, if construed as
interest, would be authorized under applicable law without penalty or invalidity
and any amounts otherwise paid in excess of any lawful amount shall, for all
purposes, be deemed to have been a payment of principal hereunder.
Notwithstanding that the Obligations under this Note are secured, the
Obligations under this Note are and shall be deemed to be full recourse
obligations of the Borrower in all respects.
IN WITNESS WHEREOF, and intending to be legally bound hereby,
Borrower has executed this Note as an instrument under seal, and Lender has
received this Note on the day and year first above written.
Vertical Solutions, Inc.
By: ____________________________
Ron Wegmann, President
<PAGE>
Exhibit 10.27
THIS GUARANTY is made and entered into by Ronald W. Wegmann (the
"Guarantor"), for the benefit of Astea International Inc. ("Lender") in
connection with the purchase by Vertical Solutions, Inc. ("Borrower") of certain
assets from Lender pursuant to a Transfer of Rights Agreement dated December 31,
1999 (the "Transfer Agreement") with payment for such assets represented by a
Promissory Note dated December 31, 1999 in the original principal amount of
$1,100,000 (the "Note") between Lender and Borrower.
1. OBLIGOR. "Obligor" means Vertical Solutions, Inc.
2. OBLIGATIONS. The "Obligations" means all existing and hereafter
incurred or arising indebtedness, obligations and liabilities of Obligor to the
Lender, whether absolute or contingent, direct or indirect, and arising out of
or in connection with the Note or the Transfer Agreement, and includes, without
limitation, all matured and unmatured indebtedness, obligations and liabilities
of Obligor under or in connection with the Note or the Transfer Agreement,
including without limitation all interest, expenses, costs (including collection
costs) and fees (including reasonable attorney's fees and prepayment fees)
incurred, arising or accruing (whether prior or subsequent to the filing of any
bankruptcy petition by or against Obligor) under or in connection with any of
the foregoing.
3. UNCONDITIONAL GUARANTY. In consideration of any existing Obligations
and any Obligations which may hereafter arise or be incurred, Guarantor,
intending to be legally bound, absolutely and unconditionally guaranties to
Lender the Obligor's payment, performance and satisfaction when due (whether by
stated maturity, demand, acceleration or otherwise) of all Obligations. The
obligations of the Guarantor hereunder shall continue in full force and effect
irrespective of the validity, legality or enforceability of any agreements,
notes or documents pursuant to which any of the Obligations arise, or the
existence, value or condition of any collateral for any of the Obligations, or
of any other guaranty of the Obligations, or any other circumstance which might
otherwise constitute a legal or equitable discharge of a surety or guarantor.
4. COST OF ENFORCEMENT. Guarantor agrees to pay Lender all costs and
expenses (including reasonable attorney's fees) at any time incurred by Lender
in the enforcement of this Guaranty against such Guarantor.
5. PAYMENT BY GUARANTOR. If Obligor fails to make any payment of the
Obligations, payment by Guarantor is due upon demand by Lender and is payable in
immediately available funds in lawful money of the United States of America.
6. RELEASE OF GUARANTOR'S LIABILITY. Notwithstanding anything, including
the provisions of Paragraph 3 of this Guaranty, but subject to the provisions of
Paragraph 11 of this Guaranty, Guarantor shall be released of all liability
under this Guaranty upon the payment by Guarantor or Obligor, in cash, of the
amount of the Obligations.
1
<PAGE>
7. CONTINUING GUARANTY. This Guaranty shall continue in full force and
effect with respect to Guarantor and may not be revoked until all existing
Obligations and all Obligations hereafter incurred or arising have been paid,
performed and satisfied in full.
8. WAIVERS AND CONSENTS BY GUARANTOR. Guarantor unconditionally consents
to, and waives as a defense to liability hereunder, each of the following: (a)
any waiver, inaction, delay or lack of diligence by Lender in enforcing its
rights against Obligor or in any property, or the unenforceability of any such
rights, including any failure to perfect, protect or preserve any lien or
security interest which may be intended directly or indirectly to secure any of
the Obligations, and the absence of notice thereof to Guarantor, (b) the absence
of any notice of the incurrence or existence of any Obligation, (c) any action,
and the absence of notice thereof to Guarantor, taken by Lender or Obligor with
respect to any of the Obligations, including any release, subordination or
substitution of any collateral or release, termination, compromise, modification
or amendment of any instrument executed by or applicable to Obligor or of any
claim, right or remedy against Obligor or any property, (d) any impairment of
Guarantor's right to reimbursement by way of subrogation, indemnification or
contribution, (e) any other action taken or omitted by Lender in good faith with
respect to the Obligations, (f) the absence or inadequacy of any formalities of
every kind in connection with enforcement of the Obligations, including
presentment, demand, notice and protest, (g) the waiver of any rights of Lender
under or any action taken or omitted by Lender with respect to any other
guaranty of the Obligations and (h) all defenses arising out of suretyship.
9. OTHER AGREEMENTS BY GUARANTOR. Guarantor agrees that there shall be no
requirement that Lender document its acceptance of this Guaranty, evidence its
reliance thereon, or that Lender take any action against any person or any
property prior to taking action against Guarantor. Guarantor further agrees that
Lender's rights and remedies hereunder shall not be impaired or subject to any
stay, suspension or other delay as a result of Obligor's insolvency or as a
result of any proceeding applicable to Obligor or Obligor's property under any
bankruptcy or insolvency law. Guarantor also agrees that payments and other
reductions on the Obligations may be applied to such of the Obligations and in
such order as Lender may elect.
10. SUBROGATION AND SIMILAR RIGHTS. Guarantor will not exercise any rights
with respect to Lender or Obligor related to or acquired in connection with or
as a result of Guarantor's making of this Guaranty which Guarantor may acquire
by way of subrogation, indemnification or contribution, by reason of payment
made by Guarantor hereunder or otherwise, until after the date on which all of
the Obligations shall have been satisfied in full. Until such time any such
rights against Obligor shall be fully subordinate in lien and payment to any
claim in connection with the Obligations which Lender now or hereafter has
against Obligor. If any amount shall be paid to Guarantor on account of such
subrogation, indemnification or contribution at any time when all of the
Obligations and all other expenses guaranteed pursuant hereto shall not have
been paid in full, such amount shall be held in trust for the benefit of Lender,
shall be segregated from the other funds of Guarantor and shall forthwith be
paid over to
2
<PAGE>
Lender to be applied in whole or in part by Lender against the Obligations,
whether matured or unmatured, in such order as the Lender shall determine in its
sole discretion. If Guarantor shall make payment to the Lender of all or any
portion of the Obligations and all of the Obligations shall be paid in full,
Guarantor's right of subrogation shall be without recourse to and without any
implied warranties by Lender and shall remain fully subject and subordinate to
Lender's right to collect any other amounts which may thereafter become due to
the Lender by Obligor in connection with the Obligations.
11. REINSTATEMENT OF LIABILITY. If any claim is made upon the Lender for
repayment or recovery of any amount or amounts received by Lender in payment or
on account of any Obligations and Lender repays all or part of said amount by
reason of (a) any judgment, decree or order of any court or administrative body
having jurisdiction over the Lender or any of its property, or (b) any
settlement or compromise in good faith with any such claimant (including
Obligor), then and in such event Guarantor agrees that any such judgment,
decree, order, settlement or compromise shall be binding upon Guarantor,
notwithstanding any termination hereof or the cancellation of any note or other
instrument evidencing any Obligation, and Guarantor shall remain liable to the
Lender hereunder for the amount so repaid or recovered to the same extent as if
such amount had never originally been received by Lender.
12. SECURITY INTEREST. Guarantor hereby assigns to the Lender a security
interest in any balance or assets in any deposit or other account of Guarantor
in or with the Lender whenever and so long as any of the Obligations shall be
outstanding and unpaid, and agrees that the security interest hereby granted
shall be independent of the right of setoff.
13. FINANCIAL INFORMATION ON GUARANTOR. Guarantor hereby agrees to provide
the Lender with such information on the business affairs and financial condition
of Guarantor as the Lender from time to time may reasonably request. Guarantor
further agrees to notify the Lender of any change in the address of Guarantor.
In the event that Guarantor fails to comply with a request for information as
herein agreed, within thirty (30) days after receipt of the request, Guarantor
upon demand by the Lender agrees to purchase from the Lender without
representation, warranty or recourse the Obligations and to pay therefor the
unpaid principal amount of all such Obligations, including interest thereon to
the date of purchase.
14. EFFECT OF OTHER AGREEMENTS. The provisions of this Guaranty are
cumulative and concurrent with Lender's rights and remedies against Guarantor
under any existing or future agreement pertaining or evidencing any of the
Obligations. No such additional agreement shall be deemed a modification or
waiver hereof unless expressly so agreed by Lender in writing. If Lender holds
any other guaranty or surety agreement applicable to any of the Obligations, the
liability of Guarantor hereunder shall be joint and several with each party
obligated on such other guaranty or surety agreement, unless otherwise agreed by
Lender in writing.
15. GUARANTOR'S ADDRESS. Guarantor warrants and represents that the
address set forth on the signature page hereof is Guarantor's correct mailing
address and agrees
3
<PAGE>
immediately to notify Lender in the event of any change therein.
16. MISCELLANEOUS.
(a) No amendment of any provision of this Guaranty shall be effective
unless it is in writing and signed by Lender and Guarantor, and no waiver of any
provisions of this Guaranty, and no waiver or consent to any departure by any
Guarantor therefrom, shall be effective unless it is in writing and signed by
Lender, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
(b) Any provision of this Guaranty which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or affecting the validity or enforceability of such
provisions in any other jurisdiction.
(c) The obligations of Guarantor hereunder shall not be subject to any
counterclaim, setoff, deduction or defense based upon any related or unrelated
claim which Guarantor may now or hereafter have against Lender or any Obligor,
except payment of the Obligations.
(d) This Guaranty shall (i) be binding on each Guarantor, his or her
personal representatives, heirs, estate, successors, transferees and assigns,
and (ii) inure, together with all rights and remedies of Lender hereunder, to
the benefit of the Lender and its successors, transferees and assigns.
Notwithstanding the foregoing clause (i), none of the rights or obligations of
Guarantor hereunder may be assigned or otherwise transferred without the prior
written consent of the Lender.
(e) This Guaranty shall be governed by and construed in accordance
with the internal laws, and not the law of conflicts, of the Commonwealth of
Pennsylvania.
17. CONSENT TO JURISDICTION AND VENUE. IN ANY LEGAL PROCEEDING INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER ARISING OUT OF OR RELATED TO THIS GUARANTY OR
THE RELATIONSHIP EVIDENCED HEREBY, EACH UNDERSIGNED PARTY HEREBY IRREVOCABLY
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED
IN ANY COUNTY IN THE COMMONWEALTH OF PENNSYLVANIA WHERE LENDER MAINTAINS AN
OFFICE AND AGREES NOT TO RAISE ANY OBJECTION TO SUCH JURISDICTION OR TO THE
LAYING OR MAINTAINING OF THE VENUE OF ANY SUCH PROCEEDING IN SUCH COUNTY. EACH
UNDERSIGNED PARTY AGREES THAT SERVICE OF PROCESS IN ANY SUCH PROCEEDING MAY BE
DULY EFFECTED UPON IT, HIM OR HER BY MAILING A COPY THEREOF, BY REGISTERED MAIL,
POSTAGE PREPAID, TO SUCH UNDERSIGNED PARTY.
4
<PAGE>
18. WAIVER OF JURY TRIAL. EACH UNDERSIGNED PARTY HEREBY WAIVES, AND LENDER
BY ITS ACCEPTANCE HEREOF THEREBY WAIVES, TRIAL BY JURY IN ANY LEGAL PROCEEDING
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATED TO THIS GUARANTY OR
THE RELATIONSHIP EVIDENCED HEREBY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR
LENDER TO ENTER INTO, ACCEPT OR RELY UPON THIS GUARANTY.
IN WITNESS WHEREOF, Guarantor has executed this Guaranty under seal as of
the 31st day of December, 1999.
Witness:________________________ ____________________________
Ronald W. Wegmann
Address: _____________________
_____________________
5
<PAGE>
Exhibit 21.1
Subsidiaries of Astea International Inc.
----------------------------------------
December 31, 1999
Company Name Jurisdiction of Organization
- ------------ ----------------------------
Astea FSC Barbados
Astea GmbH Germany
Astea International (AUST) PTY LTD New South Wales
Astea Israel Ltd. Israel
Astea (UK) Limited England
Astea Sarl France
Astea Service and Distribution Systems B.V. Netherlands
Astea Technology Inc. Delaware
Group Technologies, Inc. Delaware
Network Data, Inc. Delaware
Virtual Service Corporation Delaware
55
<PAGE>
Exhibit 23.1
Consent of Independent Public Accountants
-----------------------------------------
To Astea International Inc.:
As independent public accountants, we hereby consent to the incorporation of our
report, included in this Form 10-K, into the Company's previously filed Form S-8
Registration Statement File Nos. 333-97064, 333-33825, 333-34865 and 333-61981
and Form S-3 Registration Statement File Nos. 333-11949 and 333-17459.
Arthur Andersen LLP
Philadelphia, PA
March 28, 2000
56
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRANT'S
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1999.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> OCT-01-1999 OCT-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 6,158,000 14,291,000
<SECURITIES> 37,907,000 22,603,000
<RECEIVABLES> 10,334,000 10,115,000
<ALLOWANCES> (1,047,000) (768,000)
<INVENTORY> 0 0
<CURRENT-ASSETS> 55,840,000 59,207,000
<PP&E> 6,395,000 5,896,000
<DEPRECIATION> (5,373,000) (4,427,000)
<TOTAL-ASSETS> 58,634,000 63,613,000
<CURRENT-LIABILITIES> (11,670,000) (13,665,000)
<BONDS> 0 0
0 0
0 0
<COMMON> (141,000) (135,000)
<OTHER-SE> (46,476,000) (48,882,000)
<TOTAL-LIABILITY-AND-EQUITY> (58,634,000) (63,613,000)
<SALES> 4,374,000 2,114,000
<TOTAL-REVENUES> 9,253,000 8,659,000
<CGS> 553,000 537,000
<TOTAL-COSTS> 3,893,000 4,786,000
<OTHER-EXPENSES> 6,776,000 5,281,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (1,409,000) (1,569,000)
<INCOME-TAX> (375,000) 371,000
<INCOME-CONTINUING> (1,784,000) (1,198,000)
<DISCONTINUED> 0 (547,000)
<EXTRAORDINARY> 0 9,437,000
<CHANGES> 0 0
<NET-INCOME> (1,784,000) 7,692,000
<EPS-BASIC> (0.13) 0.57
<EPS-DILUTED> (0.13) 0.57
</TABLE>
