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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 2001
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934.
For the transition period from to
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Commission File Number: 0-26330
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 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 25, 2002 (based on the closing price of $.80 as quoted by
Nasdaq National Market as of such date) was approximately $4,459,000.
As of March 25, 2002, 14,601,530 shares of the registrant's Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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TABLE OF CONTENTS
Page
PART I
Item 1. Business 3
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
PART II
Item 5. Market for Registrant's Common Equity and Related 12
Stockholder Matters
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial 15
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 48
Accounting and Financial Disclosure
PART III
Item 10. Directors and Officers of the Registrant 48
Item 11. Executive Compensation 49
Item 12. Security Ownership of Certain Beneficial Owners and 52
Management
Item 13. Certain Relationships and Related Transactions 53
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports 54
on Form 8-K
Signature Page 57
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PART I
Item 1. Business.
General
Astea International Inc. ("Astea" or the "Company") develops, markets
and supports Customer Relationship Management ("CRM") software solutions, which
are licensed to companies that sell and service equipment, or sell and deliver
professional services. Companies invest in Astea's CRM solutions to automate
sales and service business processes and thereby increase competitive
advantages, top-line revenue growth and profitability through better management
of information, people, assets and cash flows. Astea's products and services are
primarily used in industries such as information technology, healthcare,
industrial controls and instrumentation, retail systems, office automation,
imaging systems, facilities management and telecommunications. An eclectic group
of other industries, all with equipment sales and service requirements, are also
represented in Astea's customer base. Astea's focus on enterprise solutions for
organizations that sell and service equipment is a unique CRM industry
differentiator that draws upon the Company's industry experience and core
expertise.
Founded in 1979, Astea is known throughout the CRM industry, largely
from its history as a dominant provider of software solutions for field service
management and depot repair. With its new AllianceEnterprise CRM Suite
introduced in 2001, Astea has grown its product portfolio to also include
integrated management applications for sales and marketing, multi-channel
customer contact centers, and professional services automation.
AllianceEnterprise includes a variety of mobile wireless and web portal
capabilities and features such as online collaboration to involve mobile
employees, business partners and customers in an enterprise's more efficient
management of workforce, assets and business relationships.
AllianceEnterprise includes re-engineered versions of service modules
that were initially introduced as ServiceAlliance(R) in 1997 and a re-engineered
version of its sales force automation product that was initially introduced as
SalesAlliance in 1999. ServiceAlliance and SalesAlliance were the Company's
initial offerings in client-server technology following a long and
highly-successful history with its DISPATCH-1(R) legacy system solutions.
AllianceEnterprise Suite offerings are currently being engineered for
client-server, thin-client and web portal applications using existing and
emerging Microsoft technologies such as COM+, Microsoft ComPlus Transactions,
Microsoft Message Queuing (MSMQ), Internet Information Server (IIS) and
Microsoft.NET Enterprise Servers including Windows 2000 Server, SQL Server and
BizTalk Server.
Astea's software has been licensed to approximately 547 companies
worldwide. Customers range from mid-size organizations to large, multinational
corporations with geographically dispersed locations around the globe. The
Company markets and supports its products through a worldwide network of direct
and indirect sales and services offices with corporate headquarters in the
United States and regional headquarters in the United Kingdom and Australia.
Sales partners include distributors (value-added resellers, system integrators
and sales agents) and OEM partners.
In addition to its own product development that is conducted at Company
facilities in the United States and Israel, Astea participates in partnerships
with complementary technology companies to reduce time-to-market with new
product capabilities and continually increase its value proposition to
customers. The Company's product strategies are developed from the collective
feedback from its customers, industry consultants, technology partners and sales
partners in addition to its internal product management and development. Astea
also works with its active user community who closely advise and participate in
ongoing product development efforts.
Astea provides customers with an array of professional consulting,
training and customer support services to implement its products, integrate them
with other corporate systems such as back-office financial and ERP applications,
and maintain the Astea software over its installed life cycle. The Company's
best
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practices experience in service and sales management, distribution, logistics,
finance, mobile technologies, Internet applications and enterprise systems
integration are made available to customers during their assessments of where
and how their business processes can be improved.
The Company's sales and marketing efforts are almost exclusively
focused on the new AllianceEnterprise Suite products. Marketing and sales of
licenses and services related to DISPATCH-1 are limited to existing DISPATCH-1
customers.
Astea continues to support approximately 56 DISPATCH-1 customers on
maintenance contracts and offers a migration path to AllianceEnterprise with the
introduction of the Company's integrated DISPATCH-1 to AllianceEnterprise
Conversion (iDAC) program in 2001. The iDAC program enables long-time Astea
users to leverage their previous investments in DISPATCH-1 and economically
deploy the latest and far superior AllianceEnterprise CRM technologies.
Current Product Offerings
AllianceEnterprise Suite
AllianceEnterprise Suite products, introduced in 2001, are designed to
increase business efficiencies by collapsing multiple, interdependent business
processes into an a consolidated shared enterprise system. AllianceEnterprise
automates front-office sales and service processes, integrates with back-office
financial and ERP applications, and enables real-time information sharing among
local, remote and mobile employees, customers and business partners. Customers'
return on investment in AllianceEnterprise is obtained from better utilization
of employees and material resources, improved sales execution and new revenue
generation, improved service delivery and revenue recovery, and stronger
relationships with customers and partners.
AllianceEnterprise is an international product with multi-lingual and
multi-currency capabilities. As of December 31, 2001 AllianceEnterprise
solutions have been licensed to over 175 customers worldwide, which includes
licensees of ServiceAlliance between 1997 and 2001 and SalesAlliance between
1999 and 2001. Market acceptance of AllianceEnterprise by marquee companies
increased in 2001 and the company is aggressively pursuing opportunities for
larger system implementations with mid-size to large enterprises on a worldwide
basis. See "Certain Factors that May Affect Future Results--Uncertain Market
Acceptance of AllianceEnterprise; Decreased Revenues from DISPATCH-1."
From the broadest perspective, AllianceEnterprise offers four
functional applications branded "iSalesMarketing," "iContactCenter," "iService,"
and "iProfessionalServices." These are supported by a series of "Alliance
Applications" modules for fundamental business requirements such as managing
price books, customer and supplier contracts and warranties, inventory and
logistics, sales order processing and customer billing. The Suite includes a
wide variety of wireless mobile CRM options, branded "AllianceEveryWareUR," for
remote connectivity with laptops, PDAs, mobile phones and pagers.
AllianceEnterprise users customers can mix and match mobile CRM solutions to
precise sales and service requirements, IT preferences and corporate cultures.
The Suite also offers value-added options for capabilities such as integrated
computer telephony integration ("Alliance CTI"), Internet portals for customers,
satellite offices and business partners ("Alliance CustomerPortal" and "Alliance
Mobile" Service Web), and web-based service parts planning and forecasting.
AllianceEnterprise iSalesMarketing improves equipment and service sales
processes by uniting top-down sales and marketing direction with bottom-up field
sales force automation and histories of existing customer data on an integrated
enterprise platform accessible from PCs, laptops and PDA devices. Marketing
campaigns, lead development, sales pipeline monitoring, sales proposal
generation,
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online collaboration for collaborative team selling, and easier processing of
booked orders for faster revenue recognition are some of this module's
comprehensive "lead-to-close" sales management capabilities.
AllianceEnterprise iContactCenter enables customer service departments
to implement integrated strategies to serve customers by phone, fax, email and
the Internet. Aside from more efficient service and higher levels of customer
satisfaction and retention, objectives are to reduce service costs through
parameters such as shorter call handling times, improved first-call resolution
rates to avoid repeat calls or unnecessary field service, and otherwise control
service overhead. iContactCenter supports information desks, service hotlines,
centralized field service dispatch, repair depots, and inside sales including
merchandise returns, exchanges and trade-ins. iContactCenter installations can
be enhanced with Alliance CTI, which automatically presents customer records as
calls are handled, and the Alliance CustomerPortal, which integrates online
customer self-service.
AllianceEnterprise iService delivers a robust set of automated
capabilities for organizations to improve management of field service activities
and for field employees to more efficiently complete and document assignments,
manage vehicle assets, capture expenses and generate revenue through add-on
sales during a customer contact. The software supports all field service
categories including equipment installations, break/fix, planned maintenance and
meter reading. AllianceEnterprise can also be integrated with equipment fault
detection and diagnostic systems for fully automated solutions that initiate and
prioritize service requests and dispatch assignments to field employees PDAs
without human intervention.
AllianceEnterprise iProfessionalServices provides an end-to-end
solution for organizations such as IT consulting companies to sell, manage and
bill professional services engagements that can extend for days, weeks, months
and years. AllianceEnterprise's capabilities to share sales, project management,
and post-project service data across the enterprise enable professional services
organizations to operate with less overhead, better cash flow, higher
profitability, and increase business with more competitive bids.
The fully integrative AllianceEnterprise products automate business
processes within and among departments and facilitate one-time data entry and
data sharing to maximize efficiency and minimize chances for human error. Anyone
within a user organization who has contact with a customer has the ability to
update the status of customer records, which ensures "one view of a customer"
and eliminates any disparity or confusion in business data among marketing,
sales, customer service and field service. This includes information entered
remotely by mobile employees and by customers over the Internet.
AllianceEnterprise "synchronizes" all customer-facing activities to operate as a
cohesive unit.
AllianceEnterprise Alliance EveryWareUR integrates mobile and remote
employees into the enterprise CRM solution. The Alliance EveryWareUR mobile
suite offers a choice of mobile technologies (untethered wireless applications
with synchronized client databases and/or direct-connect real-time wireless
applications), a choice of mobile device types (laptops, PDAs, mobile phones and
pagers), and a choice of functional applications for sales, service and
management. Customers can mix and match technologies, device types, and
applications to address sales and service needs and IT support preferences.
AllianceEnterprise Internet/Intranet Portals in 2001 supported
unattended eBusiness transactions for customer/partner self-service and
self-sales ("Alliance Customer Portal") and remote service employee/partner
system access ("Alliance Mobile" Service Web). An expanded, dedicated "Alliance
PartnerPortal" for channel management and suppliers of goods and services is
planned for release in 2002.
AllianceEnterprise "iStudio" configuration tools allow modification of
user interfaces and system behavior to highly-specific business environments. A
customer can control how AllianceEnterprise automates workflows as well as the
system's intuitiveness and "look and feel" to employees, and thereby maximize
AllianceEnterprise's usability, effectiveness and benefits to the organization.
iStudio also improves AllianceEnterprise's total cost of ownership by helping to
reduce implementation time and cost, and subsequently by enabling customers to
update system performance as their business needs change.
5
AllianceEnterprise iLinks are a family of enterprise application
integration products that interface AllianceEnterprise to back-office systems,
such as financial and ERP applications, and other third-party enterprise
applications, such as wireless data transmission services and equipment
diagnostic systems. iLinks improves AllianceEnterprise's total cost of ownership
by making all AllianceEnterprise components accessible to other applications
through an open, well-defined, synchronous and asynchronous applications
programming interface (API) that is XML based.
DISPATCH-1
The Company's original flagship product, DISPATCH-1, which was
introduced in 1986 typically has been adopted by larger Fortune 1000 companies.
Astea currently supports approximately 56 DISPATCH-1 customers on active
maintenance. In 2001, approximately 35% of the Company's total revenues were
derived from license, maintenance and professional service fees related to
DISPATCH-1, compared to 57% in 2000. See "Certain Factors that May Affect Future
Results--Uncertain Market Acceptance of AllianceEnterprise; Decreased Revenues
from DISPATCH-1."
While AllianceEnterprise 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 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 supports both Internet and
graphical desktop interfaces, and is interfaced to a number of complementary
third-party products designed to extend its functionality. DISPATCH-1 has been
deployed in a wide variety of large enterprise environments. 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.
integrated DISPATCH-1 to AllianceEnterprise Conversion (iDAC)
Astea offers a formal migration program (iDAC) for DISPATCH-1 customers
to convert to AllianceEnterprise economically and thereby leverage their earlier
CRM investments with the Company into the far superior and expanded
AllianceEnterprise technology applications. The iDAC program includes
professional services, training and gap analyses on AllianceEnterprise's
expanded capabilities, project planning, software-to-business process
optimization, standardized file conversion routines, and AllianceEnterprise life
cycle support.
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
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comprised approximately 63% of the Company's total revenues in 2001 and 67% of
the Company's total revenues in 2000.
Professional Services
An initial professional services engagement for AllianceEnterprise
typically is between one and four months. Such engagements usually lasted
between six and 18 months for DISPATCH-1. For most of Astea's clients, teams are
assembled from the Company's worldwide offices to perform the required services.
Due to the more complex nature of the DISPATCH-1 legacy system solutions,
customers that licensed these programs typically purchased a higher volume of
professional services than customers need to purchase for AllianceEnterprise.
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
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 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.
Customer Support
The Company's customer support organization provides customers with
telephone and online technical support, as well as product enhancements, updates
and new software releases. All regions of the Company's worldwide operations are
supported by local representatives. Support is provided in real-time and usually
spoken in native languages by the Company's personnel or a distributor's
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 one office in the United States, two offices in Europe, one office in
Israel and one office in Australia.
Customers
The Company estimates that it has sold approximately 547 licenses to
customers ranging from small, rapidly growing companies to large, multinational
corporations with geographically dispersed operations and remote offices. More
than 175 licenses have been sold for AllianceEnterprise 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 customers in information technology,
healthcare, industrial controls and instrumentation, retail systems, office
automation, imaging systems, facilities management, telecommunications, and
other industries with
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equipment sales and service requirements. In 2001, one customer accounted for
11% of the Company's revenues. In 2000, no customer accounted for 10% or more of
the Company's revenues. In 1999, two customers accounted for 18% and 16% of the
Company's revenues.
Sales and Marketing
The Company markets its products through a worldwide network of direct
and indirect sales and services offices with corporate headquarters in the
United States and regional headquarters in the United Kingdom and Australia.
Sales partners include distributors (value-added resellers, system integrators
and sales agents) and OEM partners. The Company actively seeks to expand its
reseller network and establish an international indirect distribution channel
targeted at the mid-market tier. See "Certain Factors that May Affect Future
Results--Need to Expand Indirect Sales."
Astea's direct sales force employs a consultative approach to selling,
working closely with prospective clients to understand and define their 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.
who are engaged in outbound telemarketing and inbound enquiry response to a
variety of marketing vehicles, develops and qualifies sales leads prior to
referral to the direct sales staff. Additional prospects are identified and
qualified through the networking of direct sales staff and the Company's
management as part of daily business activities.
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. See "Certain Factors that
May Affect Future Results--Continued Dependence on Large Contracts May Result in
Lengthy Sales and Implementation Cycles."
Astea's corporate marketing department is responsible for product
marketing, lead generation and marketing communications, including the Company's
corporate website, dialogue with CRM industry analysts, trade conferences,
advertising, e-marketing, webinars, seminars, direct mail, product collateral
and public relations. Based on feedback from customers, analysts, business
partners and market data, the marketing department provides input and direction
for the Company's ongoing product development efforts and opportunities for
professional services. Leads developed from the variety of marketing
communications vehicles are routed through the Company's AllianceEnterprise
sales and marketing automation system. The Company also participates in an
annual conference for users of Astea's DISPATCH-1 and AllianceEnterprise
products. Conference participants attend training sessions, workshops and
presentations, and interact with other Astea product users, Astea management and
staff, and technology partners, providing important input for future product
direction.
Astea's international sales accounted for 33% of the Company's revenues
in 2001, 41% of the Company's revenues in 2000 and 32% in 1999. See "Certain
Factors that May Affect Future Results--Risks Associated with International
Sales" and Note 16 of the Notes to the Consolidated Financial Statements.
Product Development
Astea's product development strategy is to provide products that
perform with exceptional depth and breadth of functionality and are easy to
implement, use, and maintain. 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 hardware-platform-independent
as possible for client/server, thin-client and web environments, that can be
powered by multiple hardware platforms and operating systems. To accomplish
these goals, the Company uses widely accepted, commercially available
application development tools from Microsoft Corporation and Sybase, Inc. for
AllianceEnterprise and Progress Software Corporation for DISPATCH-1. These
software
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tools provide the Company's customers with the flexibility to deploy Astea's
products across a variety of hardware platforms, operating systems and
relational database management systems. The latest AllianceEnterprise products
are currently being engineered for existing and emerging Microsoft technologies
such as COM+, Microsoft ComPlus Transactions, Microsoft Message Queuing (MSMQ),
Internet Information Server (IIS) and Microsoft.NET Enterprise Servers including
Windows 2000 Server, SQL Server and BizTalk Server.
In addition to product development that is conducted at Company
facilities in the United States and Israel, Astea participates in partnerships
with complementary technology companies to reduce time-to-market with new
product capabilities and continually increase its value proposition to
customers. The Company also works with OEM partners who can integrate
AllianceEnterprise modules to complement and expand the capabilities of their
product offerings.
The Company's total expenses for product development for the years
ended December 31, 2001, 2000 and 1999, were $2,590,000, $2,744,000 and
$4,900,000, respectively; and these expenses amounted to 15%, 14% and 15% of
total revenues for 2001, 2000, and 1999, respectively. In addition, the Company
incurred capitalized software development costs of $600,000, $640,000 and
$800,000 in 2001, 2000 and 1999, 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 CD ROMs and by
e-mail. Included with the software products are security keys and documentation
available on CD ROM and hard copy. Historically, the Company has purchased media
and duplicating and printing services for its product packaging from outside
vendors.
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 and breadth of its
integrated product features and functions, including the adaptability and
scalability of its products to specific customer environments; the ability to
deploy complex systems locally, regionally, nationally and internationally;
product quality; ease-of-use; reliability and performance; breadth of
professional services; integration of Astea's offerings with other enterprise
applications; price; and the availability of Astea's products on popular
operating systems, relational databases, Internet and communications platforms.
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 information systems departments
of potential customers developing proprietary, custom software. In the CRM
marketplace, the Company competes against publicly-held companies and numerous
smaller, privately-held companies. The Company's competitors include Siebel
Systems, Inc. ("Siebel"), PeopleSoft Inc. ("PeopleSoft"), SAP AG ("SAP"), Oracle
Corporation ("Oracle"), Great Plains Software which was acquired by Microsoft
("Great Plains"), Clarify which was acquired by Amdocs Limited ("Clarify"),
Viryanet Ltd. ("Viryanet") 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."
9
Licenses and Intellectual Property
Astea considers its software proprietary and licenses its products to
its customers 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, consultants and 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, 2001, the Company, including its subsidiaries, had a
total of 140 full time employees worldwide, 66 in the United States, 19 in the
United Kingdom, six in the Netherlands, one in France, 33 in Israel, 14 in
Australia, and one in Japan. 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 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. In December 1997, the Company introduced
ServiceAlliance and in October 1999, SalesAlliance, which were subsequently
re-engineered into components of the AllianceEnterprise Suite introduced in
2001.
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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 half of such building to other tenants. The Company also
leases facilities for operational activities in Houten, the Netherlands, and
Tefen, Israel, and for sales and customer support activities in Cranfield,
England and St. Leonards, Australia. 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 12 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.
11
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:
2001 High Low
--------------------------------------------------------------------
First quarter 1.19 0.53
Second quarter 1.37 0.53
Third quarter 1.24 0.72
Fourth quarter 1.00 0.70
2000 High Low
--------------------------------------------------------------------
First quarter 7.38 3.88
Second quarter 3.63 2.09
Third quarter 1.94 .75
Fourth quarter 1.09 .44
As of March 25, 2002, there were approximately 70 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
25, 2002, the last reported sale price of the Common Stock on the Nasdaq
National Market was $.80 per share.
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. On June 30, 2000, the Company
paid its only dividend since its initial public offering. The dividend was $2.05
per share.
12
Item 6. Selected Financial Data.
Years ended December 31, 2001 2000 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
Statement of Income Data: (1)
Revenues:
Software license fees $ 6,384 $ 6,554 $11,312 $ 5,822 $ 9,213
Services and maintenance 10,717 13,381 21,723 23,119 22,948
------------------------------------------------------------------------------
Total revenues 17,101 19,935 33,035 28,941 32,161
------------------------------------------------------------------------------
Cost and Expenses:
Cost of software license fees (2) 1,224 1,199 2,240 1,957 2,749
Cost of services and maintenance 6,552 10,546 17,063 17,583 16,054
Product development 2,590 2,744 4,900 5,718 8,653
Sales and marketing 5,396 6,857 8,463 7,976 8,367
General and administrative (3) 2,837 4,066 4,478 5,297 11,127
Restructuring charge (4) 333 1,101 1,630 -800 5,328
------------------------------------------------------------------------------
Total costs and expenses 18,932 26,513 38,774 37,731 52,278
------------------------------------------------------------------------------
Loss from continuing operations
before interest and taxes -1,831 -6,578 -5,739 -8,790 -20,117
Net interest income 309 1,496 2,163 496 4
------------------------------------------------------------------------------
Loss from continuing
operations before income taxes -1,522 -5,082 -3,576 -8,294 -20,113
Benefit for income taxes - - - -803 -877
------------------------------------------------------------------------------
Loss from continuing operations -1,522 -5,082 -3,576 -7,491 -19,236
Gain on sale of discontinued operations,
net of taxes (1) - 293 - 43,339 -
(Loss) income from discontinued operations,
net of taxes (1) - - - -1,697 742
------------------------------------------------------------------------------
Net (loss) income $ -1,522 $ -4,789 $-3,576 $ 34,151 $ -18,494
==============================================================================
Basic and diluted (loss) earnings per share:
Continuing operations $ -0.1 $ -0.35 $ -0.26 $ -0.56 $ -1.45
Gain on sale of discontinued operations - 0.02 - 3.22 -
Discontinued operations - - - -0.13 0.05
------------------------------------------------------------------------------
$ -0.1 $ -0.33 $ -0.26 $ 2.53 $ -1.4
==============================================================================
Shares used in computing basic and diluted (loss)
earnings per share 14,631 14,570 13,899 13,478 13,252
Balance Sheet Data: (1)
Working capital $ 7,313 $ 9,668 $44,170 $ 45,542 $ 11,409
Total assets 18,015 21,653 58,634 63,613 30,525
Long-term debt, less current portion - 23 49 468 1,477
Accumulated deficit -11,239 -9,716 -4,927 -1,351 -35,502
Total stockholders' equity 10,105 11,955 46,617 49,017 13,429
(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) 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.
(3) A one-time accrual for consulting fees of $304,000 is included in the
fourth quarter of 1999 general and administrative expense. See Note 15 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
13
of $2,058,000 which is included in general and administrative expense. This
charge related to the 1995 acquisition of Astea BV.
(4) Included in the fourth quarter of 2001 is a restructuring charge of
$409,000 which includes cost of consolidating office space and severance of
certain personnel. The second quarter of 2000 contains a restructuring
charge of $1,101,000, which includes severance costs, there was an office
closing, and other actions aimed at reducing operating expenses. The fourth
quarter of 1999 contains a restructuring charge of $1,630,000 due to
reduced DISPATCH-1 development and billable service activity and includes
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 restructuring
costs. See Note 4 of the Notes to the Consolidated Financial Statements.
14
PART II
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 Customer Relationship
Management ("CRM") software solutions, which are licensed to companies that sell
and service equipment, or sell and deliver professional services. The Company's
principal product offering, the AllianceEnterprise CRM Suite, integrates and
automates sales and service business processes and thereby increases competitive
advantages, top-line revenue growth and profitability through better management
of information, people, assets and cash flows. AllianceEnterprise offers
substantially broader and far superior capabilities over the Company's
predecessor product, DISPATCH-1, which was designed for only field service and
customer support management applications.
The Company's products and services are primarily used in industries
such as information technology, healthcare, industrial controls and
instrumentation, retail systems, office automation, imaging systems, facilities
management and telecommunications. An eclectic group of other industries, all
with equipment sales and service requirements, are also represented in Astea's
customer base. The Company maintains offices in the United States, United
Kingdom, Australia, Israel and the Netherlands.
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, implementation, training and
maintenance related to those products.
Software license fees accounted for 37% of the Company's total revenues
in 2001. Sales of AllianceEnterprise accounted for 34% of total revenues and
add-on sales to existing DISPATCH-1 users accounted for 3% of total revenues.
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 the time of 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 on a regular basis 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
15
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.
Critical Accounting Policies
Financial Reporting Release No. 60, which was recently released by the
Securities and Exchange Commission, requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
its financial statements. The significant accounting policies of Astea
International Inc. are described in Note 2 of the Notes to the Consolidated
Financial Statement of Operations Procedures. The significant accounting
policies that the Company believes are the most critical to aid in fully
understanding its reported financial results include the following:
Revenues
In accordance with Statement of Operations Procedures (SOP) 97-2, provides
guidelines on the recognition of software license fee revenue. Principally,
revenue may be recognized when persuasive evidence of an arrangement exists,
delivery has occurred, the license fee is fixed and determinable and the
collection of the fee is probable. The Company allocates a portion of its
software revenue to post-contract support activities or to other services or
products provided to the customer free of charge or at non-standard discounts
when provided in conjunction with the licensing arrangement. Amounts allocated
are based upon standard prices charged for those services or products. Software
license fees for resellers or other members of the indirect sales channel are
based on a fixed percentage of the Company's standard prices. The Company
recognizes software license revenue for such contracts based upon the terms and
conditions provided by the reseller to its customer.
Revenue from post-contract support is recognized ratably over the term of the
contract on a straight-line basis. Consulting and training service revenue is
generally recognized at the time the service is performed. Fees from licenses
sold together with consulting services are generally recognized upon shipment,
provided that the contract has been executed, delivery of the software has
occurred, fees are fixed and determinable and collection is probable. In
instances where the aforementioned criteria have not been met, both the license
and the consulting fees are recognized under the percentage of completion method
of contract accounting.
In limited instances, the Company will enter into contracts for which revenue is
recognized under contract accounting. The accounting for such arrangements
requires judgement, which impacts the timing of revenue recognition and
provision for estimated losses, if applicable.
Capitalized software research and development costs
Our policy on capitalized software costs determines the timing of our
recognition of certain development costs. In addition, this policy determines
whether the cost is classified as development expense or cost of license fees.
Management is required to use professional judgment in determining whether
development costs meet the criteria for immediate expense or capitalization.
16
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:
Years ended December 31, 2001 2000 1999
- --------------------------------------------------------------------------
Revenues:
Software license fees 37.3 % 33.0 % 34.2 %
Services and maintenance 62.7 67.0 65.8
---------------------------------
Total revenues 100.0 % 100.0 % 100.0 %
---------------------------------
Costs and expenses:
Cost of software license fees 7.2 % 6.0 % 6.8 %
Cost of services and maintenance 38.3 52.8 51.7
Product development 15.1 13.7 14.8
Sales and marketing 31.6 34.3 25.6
General and administrative 16.6 20.4 13.6
Restructuring charge 1.9 5.5 4.9
---------------------------------
Total costs and expenses 110.7 % 132.7 % 117.4 %
---------------------------------
Comparison of Years Ended December 31, 2001 and 2000
Revenues. Total revenues decreased $2,834,000, or 14%, to $17,101,000
for the year ended December 31, 2001 from $19,935,000 for the year ended
December 31, 2000. Software license revenues decreased by 3% in 2001, compared
to 2000. Services and maintenance fees for 2001 amounted to $10,717,000, a 20%
decrease from 2000.
Software license fee revenues decreased $170,000 or 3% to $6,384,000 in
2001 from $6,554,000 in 2000. AllianceEnterprise license fee revenues increased
to $5,888,000 in 2001 from $3,414,000 in 2000, an increase of 72% which reflects
the growing acceptance of the AllianceEnterprise CRM suite of software products.
License fee revenues for DISPATCH-1 decreased $2,644,000 or 84% from $3,140,000
in 2000 to $496,000 in 2001 primarily due to the Company's planned movement from
its legacy software to the AllianceEnterprise CRM suite.
Total services and maintenance revenues decreased $2,664,000 or 20% to
$10,717,000 in 2001 from $13,381,000 in 2000. The decrease in service and
maintenance revenues is attributable to a decrease in DISPATCH-1 revenues
partially offset by an increase in AllianceEnterprise revenues.
AllianceEnterprise service and maintenance revenues increased to $5,203,000 in
2001 from $4,991,000 in 2000 due to the growing AllianceEnterprise customer
base. DISPATCH-1 service and maintenance revenues decreased 34% or $2,876,000 to
$5,514,000 in 2001 from $8,390,000 in 2000 due to an ongoing decrease in the
number of customers under service and maintenance contracts and the completion
of two significant long-term projects in the first quarter of 2000. As a result
of the DISPATCH-1 source code sales in 2000, which enables the users to
customize the software, and decreasing demand for DISPATCH-1, the decrease in
service and maintenance revenue is expected to continue in 2002.
In 2001, the Company had one significant customer that accounted for
11% of its revenues. In 2000, no customer accounted for more than 10% of its
revenues.
Costs of Revenues. Costs of software license fee revenues increased 2%,
or $25,000, to $1,224,000 in 2001 from $1,199,000 in 2000. Included in the cost
of software license fees is the fixed cost of capitalized software amortization.
Capitalized software amortization was $800,000 in both 2001 and 2000. The small
increase in cost of software license fees was due to costs of miscellaneous
hardware included in a license sale. The software licenses gross margin
percentage was 81% in 2001 compared to 82% in 2000. The
17
decrease in gross margin percentage was attributable to the cost of items resold
to customers, principally third party software and hardware.
The costs of services and maintenance revenues decreased 38%, or
$3,994,000, to $6,552,000 in 2001 from $10,546,000 in 2000. The service and
maintenance gross margin percentage increased to 39% in 2001 from 21% in 2000.
The improvement in gross margin is attributable to improved personnel
utilization and the elimination of certain redundant positions in 2000. The
gross margin improvement is also a result of the decrease in third party
maintenance costs associated with the decline in DISPATCH-1 maintenance
revenues.
Product Development. Product development expenses decreased 6%, or
$154,000, to $2,590,000 in 2001 from $2,744,000 in 2000. Product development as
a percentage of total revenue increased to 15% in 2001 compared to 14% in 2000.
The Company's total product development costs, including capitalized software
development costs were $3,190,000 or 19% of revenues in 2001 compared to
$3,384,000, which was 17% of revenues in 2000, a decrease of $194,000 or 6%. The
decrease in product development expenses is primarily attributable to reduced
third party consultant costs. The Company has focused its development effort
exclusively on the upgrade of the AllianceEnterprise suite of products. In 2002,
the Company expects to pay similar development costs as incurred in 2001.
Sales and Marketing. Sales and marketing expenses decreased 21%, or
$1,461,000, to $5,396,000 in 2001 from $6,857,000 in 2000. The decrease resulted
primarily from the Company's cost restructuring efforts that occurred in the
middle of 2000 as well as lower commissions as a result of lower total revenues
in 2001. However, the Company continues to make a concentrated effort to
increase market share and expand its presence through both direct and indirect
channels. Sales and marketing expense as a percentage of total revenues
decreased to 32% in 2001 from 34% in 2000.
General and Administrative. General and administrative expenses
decreased 30%, or $1,229,000, to $2,837,000 in 2001 from $4,066,000 in 2000. As
a percentage of total revenues, general and administrative expenses decreased to
17% in 2001 compared to 20% in 2000. This decrease primarily results from the
restructuring that occurred in 2000, minimal legal activity in 2001 as compared
to 2000 which resulted in lower legal costs, as well as a favorable outcome on
an arbitration case which resulted in the reversal of a $250,000 accrual.
Restructuring Charge. At the end of December, 2001, the Company
recorded a restructuring charge of $409,000 in connection with severance costs
to downsize the Company's employment roles and eliminate excess office space.
Additionally, the Company reversed $76,000 of restructuring costs relating to
the 2000 restructuring plan determined to be no longer needed (See Note 4 in the
Notes to the Consolidated Financial Statements). During the second quarter of
2000, the Company also recorded a restructuring charge of $1,101,000 in
connection with the closing of one of its offices, relocation of other offices
to smaller facilities, termination fees related to operating leases and
severance costs related to downsizing the Company's employment roles.
Net Interest Income. Net interest income decreased $1,187,000, to
$309,000 in 2001 from $1,496,000 in 2000. This decrease was primarily
attributable to significantly lower interest rates paid in 2001 on invested cash
and the reduction in cash balances resulting from the special dividend of $2.05
per share, totaling $30,376,000, paid June 30, 2000.
International Operations. Total revenue from the Company's
international operations declined by $2,536,000, or 31% to $5,627,000 in 2001
from $8,163,000 in 2000. The decrease in revenue from international operations
was primarily attributable to the reductions in license revenues from DISPATCH-1
due to sales of source code in 2000. The source code sales also contributed to a
reduction in international maintenance revenues on DISPATCH-1. Revenues from
sales of AllianceEnterprise licenses, services and maintenance were similar to
those in 2000. International operations resulted in net income of $226,000 for
18
2001 compared to a loss of $819,000 in 2000. The increase in income resulted
primarily from the restructuring charge, which took place during the second
quarter of 2000, the elimination of certain redundant costs and increase sales
activity in Japan during 2001.
Comparison of Years Ended December 31, 2000 and 1999
Revenues. Total revenues decreased $13,100,000, or 40%, to $19,935,000
for the year ended December 31, 2000 from $33,035,000 for the year ended
December 31, 1999. Software license revenues decreased by 42% in 2000, compared
to 1999. Services and maintenance fees for 2000 amounted to $13,381,000, a 38%
decrease from 1999.
Software license fee revenues decreased $4,758,000 to $6,554,000 in
2000 from $11,312,000 in 1999. AllianceEnterprise license fee revenues decreased
to $3,414,000 in 2000 from $4,174,000 in 1999, a decrease of 18% due to
re-engineering of the Company's sales model to focus on mid to upper market size
customers, which is consistent with the install base of the Company's legacy
product, DISPATCH-1. The Company's PowerHelp product is no longer owned by the
Company. In 1999, PowerHelp contributed 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. The Company will receive no
additional PowerHelp revenues in the future. License fee revenues for DISPATCH-1
decreased $2,766,000 or 47% from $5,906,000 in 1999 to $3,140,000 in 2000
primarily as a result of the sale of DISPATCH-1 source code revenue amounting to
$3,386,000.
Total services and maintenance revenues decreased $8,342,000 or 38% to
$13,381,000 in 2000 from $21,723,000 in 1999. The decrease in service and
maintenance revenues is attributable to a decrease in DISPATCH-1 revenues
partially offset by an increase in AllianceEnterprise revenues.
AllianceEnterprise service and maintenance revenues increased to $4,991,000 in
2000 from $3,857,000 in 1999 due to the growing AllianceEnterprise customer
base. DISPATCH-1 service and maintenance revenues decreased 53% or $9,434,000 to
$8,390,000 in 2000 from $17,824,000 in 1999 due to an ongoing decrease in the
number of customers under service and maintenance contracts and the completion
of two significant long-term projects.
In 2000, the Company had no significant customers that accounted for
10% or more of its revenues. In 1999, two DISPATCH-1 customers that accounted
for 18% and 15% of 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.
Costs of Revenues. Costs of software license fee revenues decreased
46%, or $1,041,000, to $1,199,000 in 2000 from $2,240,000 in 1999. Included in
the cost of software license fees is the fixed cost of capitalized software
amortization. Capitalized software amortization was $800,000 and $1,508,000 in
2000 and 1999, respectively. The decrease in cost of software license fees was
due to decreased capitalized software amortization costs and a decrease in
direct costs due to lower license revenues. The software licenses gross margin
percentage was 82% in 2000 compared to 80% in 1999. The increase in gross margin
was principally attributable to decreased amortization of capitalized software.
The costs of services and maintenance revenues decreased 38%, or
$6,517,000, to $10,546,000 in 2000 from $17,063,000 in 1999. The service and
maintenance gross margin percentage remained constant at 21% in both 2000
and1999. The decrease in costs is attributed to the relative decrease in
revenues as well as a decrease in third party maintenance expense.
Product Development. Product development expenses decreased 44%, or
$2,156,000, to $2,744,000 in 2000 from $4,900,000 in 1999. Product development
as a percentage of total revenue decreased to 14% in 2000 compared to 15% in
1999. The Company's total product development costs, including capitalized
software development costs were $3,384,000 or 17% of revenues in 2000 compared
to $5,700,000, which was also 17% of 1999 revenues, a decrease of $2,316,000 or
41%. The decrease in product development
19
expenses is primarily attributable to reduced third party consultant costs and
the elimination of development costs in 2000 related to DISPATCH-1. The Company
has focused its development effort exclusively on the upgrade of
AllianceEnterprise.
Sales and Marketing. Sales and marketing expenses decreased 19%, or
$1,606,000, to $6,857,000 in 2000 from $8,463,000 in 1999. The decrease resulted
from the Company's cost restructuring effort. However, the Company is making a
concentrated effort to increase market share and expand its presence through
both direct and indirect channels. Sales and marketing expense as a percentage
of total revenues increased to 34% in 2000 from 26% in 1999.
General and Administrative. General and administrative expenses
decreased 9%, or $412,000, to $4,066,000 in 2000 from $4,478,000 in 1999. As a
percentage of total revenues, general and administrative expenses increased to
20% in 2000 compared to 14% in 1999. The increase primarily relates to increases
in the allowance for uncollectible accounts and professional fees. 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 been $ 4,174,000.
Restructuring Charge. During the second quarter of 2000, the Company,
recorded a restructuring charge of $1,101,000 in connection with the closing of
one of its offices, relocation of other offices to smaller facilities,
termination fees related to equipment operating leases and severance costs
related to downsizing the Company's employment roles. During the fourth quarter
of 1999, the Company also recorded a 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. (See Note 4 of the Notes to
Consolidated Financial Statements).
Net Interest Income. Net interest income decreased $667,000, to
$1,496,000 in 2000 from $2,163,000 in 1999. This decrease was primarily
attributable to the reduction in cash balances resulting from the special
dividend of $2.05 per share, totaling $30,376,000, paid June 30, 2000.
International Operations. Total revenue from the Company's
international operations declined by $644,000, or 7% to $8,163,000 in 2000 from
$8,807,000 in 1999. The decrease in revenue from international operations was
primarily attributable to the reductions in service revenues from DISPATCH-1 due
to decreasing demand offset by an increase in revenue from the sale of
DISPATCH-1 source code and sales of AllianceEnterprise licenses and services.
International operations resulted in a $819,000 loss for 2000 compared to a loss
of $645,000 in 1999. The increase in loss is primarily due to the restructuring
charge which occurred in 2000.
Liquidity and Capital Resources
Net cash used in operating activities was $439,000 for the year ended
December 31, 2001 compared to $4,387,000 for the year ended December 31, 2000.
This decreased use of cash was primarily attributable to a $3,267,000 reduction
in the net loss, a $565,000 decrease in prepaid expenses and a $1,185,000 net
increase in accrued restructuring costs, partially offset by lower depreciation
and amortization of $121,000, a lower reduction of $832,000 in accounts
receivable, less a decrease in accounts payable of $909,000 and a small net
decrease in deferred revenues of $1,183,000 compared to a large increase last
year.
The Company used $325,000 of cash for investing activities in 2001
compared to generating $33,017,000 in 2000. The change from last year was
primarily attributable to the sale of $34,373,000 of investments in 2000
compared to selling $519,000 of investments in 2001. Capital expenditures were
$244,000 in 2001 compared to $716,000 in 2000. Capitalized software costs were
$600,000 in 2001 compared to $640,000 in 2000.
20
The Company used $343,000 in financing activities for the year ended
December 31, 2001 compared to using $29,650,000 for the year ended December 31,
2000. The decrease in cash used for financing activities was principally
attributable to the June 30, 2000 payment of a special dividend of $2.05 per
share, or $30,376,000. During the year ended December 31, 2001, the Company
purchased 223,000 shares of treasury stock for $223,000.
At December 31, 2001, the Company had a working capital ratio of
approximately 2.0:1, with cash and investments available for sale of $7,058,000.
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.
On June 30, 2000, the Company paid a dividend of $2.05 per share. The Company
does not plan any significant capital expenditures in 2002. In addition, it does
not anticipate that its operations or financial condition will be affected
materially by inflation.
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 AllianceEnterprise; Decreased Revenues
from DISPATCH-1. In each of 2001, 2000 and 1999, more than 35%, 58%, and 72%,
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 the
AllianceEnterprise Suite, introduced in 2001 and which includes the
AllianceEnterprise functionality, to supercede DISPATCH-1 as the company's
flagship product. As a result, there are no sales planned or anticipated for
DISPATCH-1 to new customers. Sales to existing customers comprised 100% of
DISPATCH-1 license revenue in 2001 and 2000. DISPATCH-1 revenues have declined
in each of the last three fiscal years and that trend is expected to continue
and accelerate.
While the Company has licensed AllianceEnterprise to over 182 companies
worldwide in 1998 through 2001, revenues from sales of AllianceEnterprise 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 the
AllianceEnterprise Suite offerings, on developing new products and product
enhancements to complement its existing product offerings, on its ability to
continue support and maintenance revenues from DISPATCH-1, and on its ability to
control its operating expenses. Any failure of the Company's products to achieve
or
21
sustain market acceptance, or of the Company to sustain its current position in
the Customer Relationship Management 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
AllianceEnterprise, 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 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, thin-client 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 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 such as Oracle, PeopleSoft and
Siebel, as well as traditional enterprise resource planning (ERP) software
providers such as SAP that are developing CRM 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 does the
Company. 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 AllianceEnterprise requires a less substantial commitment than
does DISPATCH-1, the purchase and implementation of AllianceEnterprise still
requires 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
22
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 the
Company's products typically involves several months of integration of the
product with the customer's other existing systems and customer training. 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 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.
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
23
not suffer such obsolescence. Because of the rapid pace of technological change
in the application software industry, the Company's current market position
could be eroded rapidly by product advancements. The Company's application
environment relies primarily on software development tools from Microsoft
Corporation and PowerSoft Corporation, a subsidiary of Sybase, Inc., in the case
of AllianceEnterprise, and Progress Software Corporation, in the case of
DISPATCH-1. 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
(value-added resellers, system integrators and sales agents). 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 and OEM
partners. 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. 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 and OEM partners 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 33% of the Company's revenues in 2001, 41% in 2000, and 27% in
1999. 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.
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 continue to attract
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 Chief
Executive Officer and Chairman of the Board, as of March 25, 2002, beneficially
owned approximately 47% of the outstanding Common Stock of the Company. As a
result, Mr. Bergreen exercises significant control over the Company
24
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 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 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 AllianceEnterprise 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
25
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.
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, 2001, the Company's investments consisted of U.S. government
agency securities, commercial paper and corporate and municipal 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
Item 8. Financial Statements and Supplementary Data.
Report of Independent Certified Public Accountants
To Astea International Inc.:
We have audited the accompanying consolidated balance sheet of
Astea International Inc. and subsidiaries as of December 31, 2001, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Astea
International Inc. and subsidiaries as of December 31, 2001, and the results of
their operations and their cash flows for the year then ended, in conformity
with accounting principles generally accepted in the United States of America.
\s\BDO Seidman LLP
---------------------
BDO Seidman LLP
Philadelphia, PA
March 4, 2002
27
Report of Independent Public Accountants
To Astea International Inc.:
We have audited the accompanying consolidated balance sheet of
Astea International Inc. (a Delaware corporation) and subsidiaries as of
December 31, 2000, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the two years in the period
ended December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
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
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Astea
International Inc. and subsidiaries as of December 31, 2000, and the results of
their operations and their cash flows for each of the two years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States.
\s\Arthur Andersen LLP
--------------------------
Arthur Andersen LLP
Philadelphia, PA
March 10, 2001
28
ASTEA INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2001 2000
------------------------------------------------------------- ------------------ -------------------
ASSETS
Current assets:
Cash and cash equivalents $ 4,071,000 $ 5,208,000
Investments available for sale
2,987,000 3,506,000
Receivables, net of reserves of $955,000 and $1,600,000
7,343,000 7,885,000
Prepaid expenses and other 822,000 1,778,000
Deferred income taxes - 668,000
------------------ -------------------
Total current assets 19,045,000
15,223,000
Property and equipment, net
617,000 996,000
Capitalized software development costs, net 1,412,000 1,612,000
Other assets 763,000 -
------------------ -------------------
Total assets $18,015,000 $21,653,000
================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 34,000 $ 138,000
Accounts payable and accrued expenses 3,627,000 4,731,000
Deferred revenues 4,249,000 4,508,000
------------------ -------------------
Total current liabilities 7,910,000 9,377,000
Deferred income taxes - 298,000
Long-term debt
- 23,000
Commitments and Contingencies (Note 12)
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued - -
Common stock, $.01 par value, 25,000,000 shares
authorized, 14,825,000 and 14,821,000 shares issued 148,000 148,000
Additional paid-in capital 22,674,000 22,671,000
Cumulative translation adjustment (1,256,000) (1,145,000)
Accumulated deficit (11,239,000) (9,716,000)
Less: Treasury stock at cost, 227,000 and 3,900 shares (222,000) (3,000)
------------------ -------------------
Total stockholders' equity 10,105,000 11,955,000
------------------ -------------------
Total liabilities and stockholders' equity $ 18,015,000 $ 21,653,000
================== ===================
See accompanying notes to the consolidated financial statements.
29
ASTEA INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------
Revenues:
Software license fees $ 6,384,000 $ 6,554,000 $ 11,312,000
Services and maintenance 10,717,000 13,381,000 21,723,000
---------------------------------------------------------------
Total revenues 17,101,000 19,935,000 33,035,000
---------------------------------------------------------------
Costs and expenses:
Cost of software license fees 1,224,000 1,199,000 2,240,000
Cost of services and maintenance 6,552,000 10,546,000 17,063,000
Product development 2,590,000 2,744,000 4,900,000
Sales and marketing 5,396,000 6,857,000 8,463,000
General and administrative 2,837,000 4,066,000 4,478,000
Restructuring charges 333,000 1,101,000 1,630,000
---------------------------------------------------------------
Total costs and expenses 18,932,000 26,513,000 38,774,000
---------------------------------------------------------------
Loss from operations before interest and taxes
(1,831,000) (6,578,000) (5,739,000)
Interest income
318,000 1,512,000 2,215,000
Interest expense (9,000) (16,000) (52,000)
---------------------------------------------------------------
Loss from continuing operations (1,522,000) (5,082,000) (3,576,000)
Gain on sale of discontinued operations, net of taxes -- 293,000 --
---------------------------------------------------------------
Net loss $ (1,522,000) $ (4,789,000) $ (3,576,000)
===============================================================
Basic and diluted net loss per share:
Continuing operations $ (0.10) $ (0.35) $ (0.26)
Gain on sale of discontinued operations -- .02 --
---------------------------------------------------------------
Net loss $ (0.10) $ (0.33) $ (0.26)
===============================================================
Weighted average shares used in computing basic and
diluted net loss per share 14,631,000 14,570,000 13,899,000
===============================================================
See accompanying notes to the consolidated financial statements.
30
ASTEA INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Cumulative Total
Common Paid-in Deferred Translation Accumulated Treasury Stockholders' Comprehensive
Stock Capital Compensation Adjustment Deficit Stock Equity Loss
--------------------------------------------------------------------------------------------------------
Balance, January 1, 1999 $135,000 $51,098,000 $(29,000) $(836,000) $(1,351,000) - $49,017,000
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 - - - 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 lieu of cash payments - 16,000 - - - - 16,000
Currency translation
adjustment - - - (3,000) - - (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)
==============
Exercise of stock options 6,000 998,000 - - - - 1,004,000 -
Issuance of common stock
under employee stock
purchase plan 1,000 22,000 - - - - 23,000 -
Stock issued to
Board of Directors
in lieu of cash payment - 9,000 - - - - 9,000 -
Variable stock option
benefit - (224,000) - - - - (224,000) -
Cash dividend to
stockholders - (30,376,000) - - - - (30,376,000) -
Currency translation
adjustment - - - (306,000) - - (306,000) $(306,000)
Purchases of treasury
stock - - - - - (3,000) (3,000) -
Net loss - - - - (4,789,000) - (4,789,000) (4,789,000)
--------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 148,000 22,671,000 - (1,145,000) (9,716,000) (3,000) 11,955,000 $(5,095,000)
==============
Issuance of common stock
under employee stock
purchase plan 3,000 - (1,000) 4,000 6,000
Purchases of treasury
stock - (223,000) (223,000)
Currency translation
adjustment - (111,000) - (111,000) $(111,000)
Net loss - (1,522,000) - (1,522,000) (1,522,000)
--------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 $148,000 $22,674,000 $ - $(1,256,000) $(11,239,000)$(222,000) $10,105,000 $(1,633,000)
========================================================================================================
See accompanying notes to the consolidated financial statements.
31
ASTEA INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $ (1,522,000) $ (4,789,000) $ (3,576,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Compensation (benefit) charge in connection with
Variable stock options -- (224,000) 387,000
Gain on sale of discontinued business -- (149,000) --
Loss on sale of investments -- 28,000 --
Depreciation and amortization 1,421,000 1,532,000 2,454,000
Amortization of deferred compensation -- -- 21,000
Other Long-Term Assets (763,000) -- --
Deferred income taxes
370,000 188,000 441,000
Other -- 9,000 16,000
Changes in operating assets and liabilities:
Receivables 460,000 1,292,000 149,000
Prepaid expenses and other 976,000 (152,000) 471,000
Accounts payable and accrued expenses (1,522,000) (2,262,000) (1,970,000)
Accrued restructuring 409,000 (775,000) 1,451,000
Deferred revenues (268,000) 915,000 (530,000)
--------------------------------------------------------------
Net cash used in operating activities (439,000) (4,387,000) (686,000)
--------------------------------------------------------------
Cash flows from investing activities:
Net sales (purchases) of investments available for sale 519,000 34,373,000 (15,304,000)
Purchases of property and equipment (244,000) (716,000) (512,000)
Capitalized software development costs (600,000) (640,000) (800,000)
Proceeds from sale of discontinued operations -- -- 9,276,000
--------------------------------------------------------------
Net cash (used in) provided by investing activities (325,000) 33,017,000 (7,340,000)
--------------------------------------------------------------
Cash flows from financing activities:
Proceeds from exercise of stock options and employee
stock purchase plan 6,000 1,027,000 1,166,000
Cash dividend to stockholders -- (30,376,000) --
Net repayments of long-term debt (126,000) (298,000) (896,000)
Tax expense from exercise of stock options -- -- (411,000)
Purchases of treasury stock (223,000) (3,000) --
--------------------------------------------------------------
Net cash used in financing activities (343,000) (29,650,000) (141,000)
--------------------------------------------------------------
Effect of exchange rate changes on cash and cash
Equivalents (30,000) 70,000 34,000
--------------------------------------------------------------
Net decrease in cash and cash equivalents (1,137,000) (950,000) (8,133,000)
Cash and cash equivalents balance, beginning of year 5,208,000 6,158,000 14,291,000
--------------------------------------------------------------
Cash and cash equivalents balance, end of year $ 4,071,000 $ 5,208,000 $ 6,158,000
=============================================================
See accompanying notes to the consolidated financial statements.
32
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 aspects 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.
The Company has incurred losses from continuing operations for the
past six years and has used available cash and cash equivalents to support
its operating activities. In addition, during 2000 the Company distributed
$30.4 million of cash to its stockholders. Management believes that its
current cash and cash equivalents on hand and future operating cash flows
will be sufficient to fund operations for a reasonable period of time
beyond 2002. To the extent that future operating cash flows, revenues and
decreased expenses are not realized, the Company's results of operations
and financial condition could be materially and adversely affected, which
may impact the Company's viability. The accompanying consolidated financial
statements have been prepared on a going concern basis, which contemplates
the realization of assets and the satisfaction of liabilities in the normal
course of business.
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 noncancelable perpetual
license agreements. License fee revenues are recognized when a
noncancelable license agreement is executed, the product has been shipped,
the license fee is determined to be 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
functionality of the software, 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 that begins after the warranty period. The portion of the license
fee associated with
33
customer support during the warranty period 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.
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, 2001 and 2000, 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, 2001 and 2000, 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 operations.
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 product's 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, the Company wrote-off capitalized software
development costs for products that were no longer marketed by the Company
(See Note 4). As of
34
December 31, 2001, management believes that no revisions to the remaining
useful lives or write-downs of capitalized software development costs are
required.
Major Customers
In 2001, the Company had one customer which represented 11% of
revenue. In 2000, the Company had no significant customers which
represented 10% of revenues. In 1999, the Company had two customers that
accounted for 18% and 16% of revenues, respectively. These same customers
represented less than 1% and 11% of receivables, respectively, at December
31, 1999.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
credit risk consist of cash equivalents and accounts receivable. The
Company's policy is to limit the amount of credit exposure to any one
financial institution and place investments with financial institutions
evaluated as being creditworthy, or in short-term money market and tax-free
bond funds which are exposed to minimal interest rate and credit risk.
Concentration of credit risk, with respect to accounts receivable, is
limited due to the Company's credit evaluation process. The Company does
not require collateral from its customers. The Company's receivables
consist principally of amounts due form companies that sell and service
equipment or sell and deliver professional services. Historically, the
Company has not incurred any significant credit-related losses.
Fair Value of Financial Instruments
The carrying values of cash, cash equivalents, investments
available for sale, accounts receivable, accounts payable and accrued
expenses approximate the respective fair values.
Supplemental Cash Flow Information
For the years ended December 31, 2001, 2000 and 1999, the Company
paid interest of $9,000, $16,000 and $43,000, respectively. In 1999, the
Company received refunds of income taxes of $231,000.
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 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.
35
Net Income (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
operations. Basic EPS is computed by dividing net income (loss) 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 1,588,000, 1,129,000,
and 1,878,000 shares of common stock with an average exercise prices per
share of $1.72, $2.64, and $2.33, were outstanding as of December 31, 2001,
2000, and 1999, respectively, but were excluded from the diluted loss per
common share calculation as the inclusion of these options would have been
antidilutive.
Comprehensive Income (Loss)
In 1998, the Company adopted SFAS No. 130 "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and presentation
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 in the
accompanying Consolidated Statements of Stockholders' Equity.
Reclassifications
Certain reclassifications of prior year amounts have been made to
conform to the current year presentation.
Recent Accounting Standards or Accounting Pronouncements
In June 2001, SFAS No. 141, "Business Combinations" and SFAS No.
142, "Goodwill and Other Intangible Assets" were issued. SFAS 142 addresses
financial accounting and reporting for acquired goodwill and other
intangible assets. It requires, among other things, that companies no
longer amortize goodwill, but instead test goodwill for impairment at least
annually. SFAS 142 is required to be applied for fiscal years beginning
after December 15, 2001. Currently, the Company has no recorded goodwill
and will assess how the adoption of SFAS 141 and SFAS 142 will impact its
financial position and results of operations in any future acquisitions.
In August 2001, the FASB issued SFAS Statement No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." The new
guidance resolves significant implementation issues related to SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of". SFAS 144 is effective for fiscal years beginning
after December 14, 2001. Currently, the Company is assessing but has not
determined how the adoption of SFAS 144 will impact its financial position
or results of operations.
In November 2001, the FASB issued EITF 01-103, "Income Statement
Characterization of Reimbursements Received for "Out-of-Pocket" Expenses
Incurred." The new guidance requires that billings for out-of-pocket
expenses that are reimbursed by the customer are to be included in revenues
with the corresponding expense included in cost of sales. EITF 01-103 is
required to be applied for fiscal years beginning after December 15, 2001.
During fiscal years 2001, 2000 and 1999, the Company billed $256,000,
$382,000 and $786,000, respectively, of reimbursable expenses to customers.
This activity is currently reflected in cost of services and maintenance
net of expenses. For fiscal year 2002 and
36
thereafter, the Company will adopt this new guidance and restate all prior
periods presented to reflect the appropriate reclassifications.
3. Discontinued Operations
In September, 1998, the Company sold one of its subsidiaries,
Bendata, Inc. Included in the accounting in the year of the sale were
reserves for additional expenses expected to be incurred. As expenses
related to the sale were paid, they were charged against the reserve.
During 2000 it was determined that all expenses related to the sale had
been paid in full. As a result, there was an excess in the reserve of
$91,000. This overaccrual was reversed in 2000 and included in gain from
discontinued operations.
On December 31, 1998, Astea completed the sale of Abalon AB,
another of its subsidiaries. Part of the sales proceeds were deposited into
escrow to cover costs expected to be incurred by the purchaser. In
September 2000, the unused balance of the escrow account, $144,000, was
distributed and included in gain from discontinued operations. In addition,
excess reserves for expected expenses related to the sale of $58,000 were
also reversed in 2000 and included in the gain from discontinued
operations.
4. Restructuring and Other Charges
During the fourth quarter of 2001, the Company recorded a
restructuring charge of $409,000 in connection with severance costs to
downsize the Company's employment roles ($211,000) and eliminate excess
office space ($198,000). As of December 31, 2001, this entire balance
remained outstanding.
During the second quarter of 2000, the Company recorded a
restructuring charge of $1,101,000. In addition, $290,000 of unused
reserves from the 1999 restructuring discussed below were reclassified to
cover expected expenses of the 2000 restructuring. These charges resulted
from closing an office in the U.S., reducing office space in other cities,
contractual obligations on operating leases and severance costs related to
the reduction of personnel. For the year ended December 31, 2000, the
Company made payments of $1,269,000 related to the 2000 restructuring plan,
including lease terminations and buy-outs of $314,000, severance payments
of $944,000 and other costs of $11,000. During the fourth quarter of 2001,
the Company evaluated its restructuring accrual based on the then current
facts and determined that $76,000 was not needed for the purposes of the
2000 plan and, accordingly, the accrual was reversed. During 2001, the
Company made payments of $46,000 related to the 2000 restructuring plan
which satisfied outstanding severance obligations.
During the fourth quarter of 1999, the Company recorded a
restructuring charge of $1,630,000. These charges are the result of the
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 2000, expenses incurred relating to the 1999 restructuring
plan totaled $1,090,000 including $434,000 in severance payments and
DISPATCH-1 capital software write-offs of $656,000. During the second
quarter of 2000, the Company evaluated its restructuring accrual based on
the then current facts and determined that $290,000 was not needed for the
purposes of the 1999 restructuring plan and, accordingly, the accrual was
carried forward and allocated to the 2000 restructuring plan. During 2001,
the Company made payments of $250,000 relating to an outstanding severance
obligation and contractual obligations to DISPATCH-1 customers.
During the fourth quarter of 1999, the Company accrued a one-time
consulting fee of $304,000 (See Note 15).
37
5. Investments Available for Sale
December 31, 2001 2000
------------------------------------------------- ------------------ -----------------
U.S. Government Agencies Securities $ 1,989,000 $ 2,500,000
Corporate and Municipal Bonds 998,000 1,006,000
------------------ -----------------
$ 2,987,000 $ 3,506,000
================== =================
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, 2001, 2000 and 1999 were zero,
$28,000, and zero, respectively.
6. Receivables
December 31, 2001 2000
------------------------------------------- ----------------- -----------------
Billed receivables $ 4,663,000 $ 7,103,000
Unbilled receivables 2,680,000 782,000
----------------- -----------------
$ 7,343,000 $ 7,885,000
================= =================
Billed receivables represent billings for the Company's products
and services to end users and value added resellers. Billed and unbilled
receivables 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.
For the years ended December 31, 2001, 2000 and 1999, the Company
recorded bad debt expense of $648,000, $889,000, and $708,000 and
write-offs of $1,293,000, $336,000, and $429,000.
7. Property and Equipment
December 31,
Useful Life 2001 2000
Computers and related
equipment 3 $ 3,323,000 $ 4,469,000
Furniture and fixtures 10 469,000 482,000
Equipment under capital leases 3 988,000 988,000
Leasehold improvements Lease term 112,000 106,000
Office equipment 3-7 428,000 423,000
---------------- ------------------
5,320,000 6,468,000
Less: Accumulated
depreciation and amortization (4,703,000) (5,472,000)
---------------- ------------------
$ 617,000 $ 996,000
================ ==================
Depreciation and amortization expense for the years ended December
31, 2001, 2000 and 1999 was $769,000, $732,000 and $946,000, 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 under capital lease
is $988,000 as of December 31, 2001 and 2000. Accumulated amortization on
equipment under capital lease as of December 31, 2001 and 2000 was $925,000
and $881,000, respectively.
38
8. Capitalized Software Development Costs
December 31, 2001 2000
--------------------------------------------------- -------------------- -------------------
Capitalized software development costs $ 3,698,000 $ 3,098,000
Less: Accumulated amortization (2,286,000) (1,486,000)
-------------------- -------------------
$ 1,412,000 $ 1,612,000
==================== ===================
The Company capitalized software development costs for the years
ended December 31, 2001, 2000 and 1999 of $600,000, $640,000 and $800,000,
respectively. Amortization of software development costs for the years
ended December 31, 2001, 2000 and 1999 was $800,000, $800,000, $1,508,000,
respectively. The Company wrote-off capitalized software development costs
of $3,783,000 in 1999 and related accumulated amortization of $3,326,000.
9. Other Assets
December 31, 2001 2000
---------------------------------------------------- ------------------- --------------------
Cash surrender value of life insurance
policies $ 563,000 $ -
Deferred tax asset 200,000 -
------------------- --------------------
$ 763,000 $ -
=================== ====================
10. Accounts Payable and Accrued Expenses
December 31, 2001 2000
---------------------------------------------------- ------------------- --------------------
Accounts payable $ 1,023,000 $ 941,000
Accrued compensation and related benefits 1,223,000 959,000
Accrued restructuring (See Note 4) 409,000 372,000
Accrued litigation - 339,000
Income taxes payable 70,000 431,000
Accrued professional services 101,000 674,000
Other accrued liabilities 801,000 1,015,000
------------------- --------------------
$ 3,627,000 $4,731,000
=================== ====================
39
11. Income Taxes
The provision (benefit) for income taxes is as follows:
Years ended December 31, 2001 2000 1999
------------------------------------------------------------------------------------------------------
Current:
Federal $ (170,000) $ (188,000) $ (226,000)
State -- -- --
Foreign -- -- --
-----------------------------------------------------------------
(170,000) (188,000) (226,000)
Deferred:
Federal -- (1,448,000) (459,000)
State -- -- --
Foreign -- -- --
-----------------------------------------------------------------
-- (1,448,000) (459,000)
-----------------------------------------------------------------
(170,000) (1,636,000) (685,000)
Increase in valuation allowances 170,000 1,636,000 685,000
-----------------------------------------------------------------
$ - $ - $ -
=================================================================
Continuing Operations $ -- $ (100,000) $ --
Discontinued Operations:
Income from discontinued
operations -- -- --
Gain on sale of discontinued
operations -- 100,000 --
-----------------------------------------------------------------
$ - $ - $ -
=================================================================
The approximate income tax effect of each type of temporary
difference is as follows:
December 31, 2001 2000
-----------------------------------------------------------------------------------------
Deferred income tax assets:
Revenue recognition $ 23,000 $ 255,000
Accruals and reserves not
currently deductible for tax 487,000 1,012,000
Benefit of net operating loss carryforward 3,367,000 2,317,000
Depreciation 174,000 140,000
Alternative minimum tax 370,000 370,000
Capital loss carryforward 10,000 --
------------------------------------
4,431,000 4,094,000
Deferred income tax liabilities:
Capitalized software development costs (523,000) (597,000)
------------------------------------
3,908,000 3,497,000
------------------------------------
Valuation reserve (3,708,000) (3,127,000)
------------------------------------
Net deferred income tax asset $ 200,000 $ 370,000
====================================
The Company has provided a valuation allowance for a substantial
majority of its net deferred tax asset based on an 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, 2000 relates to
alternative minimum tax credits, which have an indefinite carryforward
period.
40
The reconciliation of the statutory federal income tax rate to the
Company's effective income tax rate is as follows:
Years ended December 31, 2001 2000 1999
------------------------------------------------ -------------- ------------ ----------
Federal statutory tax rate (34.0)% (34.0)% (34.0)%
Adjustment of valuation reserve 8.7 24.0 19.4
Net operating income from foreign
subsidiaries non-taxable 24.8 -- --
Net operating losses from foreign
subsidiaries not benefited .2 7.2 15.2
State income taxes, net of federal tax
benefit -- (3.0) --
Nondeductible expenses .3 8.8 (0.3)
Other -- (3.0) (0.3)
-------------- --------------- ---------------
Effective income tax rate - % -% - %
============== =============== ===============
As of December 31, 2001, the Company had a net operating loss
carryforward for United States federal income tax purposes of approximately
$17,600,000. Included in the aggregate net operating loss carryforward is
$7,761,000 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 begins to expire in 2016.
The Company does not provide for federal income taxes or tax
benefits on the undistributed earnings or losses of its international
subsidiaries because earnings are reinvested and, in the opinion of
management, will continue to be reinvested indefinitely. At December 31,
2001, the Company had not provided federal income taxes on cumulative
earnings of individual international subsidiaries of $1,020,000 ($480,000
earned during 2001). Should these earnings be distributed in the form of
dividends or otherwise, the Company would be subject to both U.S. income
taxes and withholding taxes in various international jurisdictions.
Determination of the related amount of unrecognized deferred U.S. income
tax liability is not practicable because of the complexities associated
with its hypothetical calculation. As noted above, the Company has
significant net operating loss carryforwards for U.S. federal income taxes
purposes which are available to offset the potential tax liability if the
earnings were to be distributed.
12. 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, 2001, 2000 and 1999 was $1,002,000, $1,396,000 and $1,946,000,
respectively.
41
Future minimum lease payments under the Company's leases as of
December 31, 2001 are as follows:
Operating Leases Capital Leases
2002 $ 991,000 $ 45,000
2003 235,000 -
2004 170,000 -
2005 27,000 -
2006 2,000
-
Thereafter -
-
----------------------------------------------
Total minimum lease payments $ 1,425,000 $ 45,000
==============================================
Less: Amount representing interest (11,000)
-----------------------
Present value of future
minimum 34,000
lease payments
Less: Current portion (34,000)
-----------------------
$ -
=======================
Future minimum operating lease payments have not been reduced by
future minimum sublease rentals of $211,000 in 2002.
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.
13. 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 $33,000, $133,000, and $127,000 for the years ended
December 31, 2001, 2000, and 1999, respectively.
42
14. 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, 2001, 2000 and 1999 and changes during the years
then ended is as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
Shares Wtd. Avg. Wtd. Avg.
Available Exercise Exercise
for Grant Shares Price Shares Price
---------------- --------------- ----------------- ------------ --------------
Balance, January 1, 1999 816,000 2,025,000 $ 2.16 991,000 $ 2.29
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 1.73
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
Granted at market (780,000) 780,000 2.37
Cancelled 849,000 (849,000) 2.89
Cancelled outside Plan - (9,000) 1.69
Exercised - (671,000) 1.49
---------------- --------------- ----------------- ------------ --------------
Balance, December 31, 2000 463,000 1,129,000 2.64 256,000 4.20
Authorized 1,400,000 - -
Granted at market or above (661,000) 661,000 1.00
Cancelled 199,000 (199,000) 4.51
Cancelled outside of plan - (3,000) 1.69
Expired (13,000) - -
---------------- --------------- ----------------- ------------ --------------
Balance, December 31, 2001 1,388,000 1,588,000 $1.72 408,000 $ 2.44
================ =============== ================= ============ ==============
The following table summarizes information about stock options
outstanding at December 31, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- --------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Price Exercisable Exercise Price
Prices Life (yrs)
- -------------------------------------------------------------------------------------------------------------------------
$ 0.81 - $0.97 843,000 6.92 $0.92 106,000 $0.90
1.06 - 1.69 368,000 8.58 1.39 77,000 1.69
2.50 - 6.25 377,000 7.15 3.81 225,000 3.42
- -------------------------------------------------------------------------------------------------------------------------
$ 0.81 - $6.25 1,588,000 7.36 $1.72 408,000 $2.44
=========================================================================================================================
In September 1998, the Company repriced all outstanding employee
options (not including those issued under the Director Plan) to $1.69, the
fair market value on the new grant date. As this reduction in exercise
price represented the third repricing of these options, variable plan
accounting was triggered requiring intrinsic value to be remeasured at the
end of each reporting period. The resultant change in each period was
charged or deducted from expense for that period. The ultimate value of the
options was determined upon exercise or other settlement of the option. As
of December 31, 1999, the Company had recorded a cumulative charge to
expense of $387,000. During 2000, all options were exercised or terminated
and the final cumulative charge to expense was adjusted to $163,000.
43
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 in 1999 and prior 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 net income (loss) per share would
have been:
2001 2000 1999
---------------------- ----------------------- ------------------
Net loss - as reported $ (1,522,000) $ (4,789,000) $ (3,576,000)
Net loss - pro forma $ (1,908,000) $ (5,137,000) $ (4,000,000)
Basic and diluted loss
per share - as reported $ (0.10) $ (0.33) $ (0.26)
Basic and diluted loss
per share - pro forma $ (0.13) $ (0.35) $ (0.29)
The weighted average fair value of those options granted during
the years ended December 31, 2001, 2000 and 1999 was estimated as $0.71,
$1.60 and $1.87, 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
5.45%, 6.35% and 5.72% for 2001, 2000 and 1999 grants, respectively; an
expected life of six years; volatility of 85%; and a dividend yield of zero
for 2001, 2000 and 1999 grants.
The weighted average fair value of the employee purchase rights
granted in 2001, 2000 and 1999 was $0.34, $0.71 and $0.78, 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 5.53%, 6.26% and 4.58% for 2001, 2000 and 1999, respectively; an
expected life of six months; volatility of 85%; and a dividend yield of
zero for 2001, 2000 and 1999.
Dividend Distribution
On June 30, 2000, the Company paid a dividend of $2.05, or
$30,376,000.
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 2001, 2000 and 1999, shares
purchased were 8,145, 11,207 and 20,216, respectively. At December 31,
2001, there were 161,581 shares available for future purchases.
15. Related Party Transactions
In 2001, 2000 and 1999, the Company paid premiums on behalf of the
majority stockholder and his wife of $69,600, $69,600 and $75,000,
respectively, under split dollar life insurance policies.
44
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 received 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 consulting services during the fourth quarter of 1999.
In May 2000, the Company's majority stockholder and Chairman
resumed his previous duties as President and Chief Executive Officer.
45
16. Geographic Segment Data
The Company operates in one business segment. The following table
presents information about the Company's operations by geographic area:
Year ended December 31, 2001 2000 1999
-------------------------------------------------------------------------------------------------------------------
Revenues:
Software license fees
United States
Domestic $ 3,470,000 $ 2,193,000 $ 7,831,000
Export 209,000 62,000 982,000
-------------------------------------------------------------------
Total United States
software license fees 3,679,000 2,255,000 8,813,000
Europe 1,625,000 3,010,000 1,334,000
Other foreign 1,080,000 1,289,000 1,165,000
-------------------------------------------------------------------
Total foreign software
license fees 2,705,000 4,299,000 2,499,000
-------------------------------------------------------------------
Total software 6,384,000 6,554,000 11,312,000
license fees
Services and maintenance
United States
Domestic 7,444,000 9,011,000 13,968,000
Export 351,000 506,000 1,447,000
-------------------------------------------------------------------
Total United States
service and
maintenance revenue 7,795,000 9,517,000 15,415,000
-------------------------------------------------------------------
Europe 2,104,000 2,749,000 5,008,000
Other foreign 818,000 1,115,000 1,300,000
-------------------------------------------------------------------
Total foreign service and
maintenance revenue 2,922,000 3,864,000 6,308,000
-------------------------------------------------------------------
Total service and
maintenance revenue 10,717,000 13,381,000 21,723,000
-------------------------------------------------------------------
Total revenue $ 17,101,000 $ 19,935,000 $ 33,035,000
===================================================================
Income (loss) from continuing
Operations
United States $ (1,748,000) $ (3,970,000) $ (2,128,000)
Europe (908,000) (1,287,000) (1,673,000)
Other foreign 1,134,000 468,000 225,000
-------------------------------------------------------------------
Total loss from continuing
operations $ (1,522,000) $ (4,789,000) $ (3,576,000)
===================================================================
Identifiable assets
United States $ 13,274,000 $ 16,002,000 $ 53,753,000
Europe 3,240,000 4,112,000 3,161,000
Other foreign 1,501,000 1,539,000 1,720,000
-------------------------------------------------------------------
Total assets $ 18,015,000 $ 21,653,000 $ 58,634,000
===================================================================
46
17. Selected Consolidated Quarterly Financial Data (Unaudited)
2001 Quarter Ended Dec 31, Sep 30, Jun 30, Mar 31,
------------------------------------------ ----------------- ------------------- ----------------- -------------------
Revenues $ 4,266,000 $ 3,450,000 $ 4,386,000 $ 4,999,000
Gross profit 2,252,000 1,791,000 2,358,000 2,924,000
Net (loss) income (935,000) (560,000) (196,000) 169,000
Basic and diluted net (loss) income
per share (0.06) (0.04) (0.01) 0.01
Shares used in computing basic
and diluted net (loss) income per 14,616 14,612 14,661 14,698
share (in thousands)
2000 Quarter Ended Dec 31, Sep 30, Jun 30, Mar 31,
------------------------------------------ ----------------- ------------------- ----------------- -------------------
Revenues $ 3,339,000 $ 5,026,000 $ 5,980,000 $ 5,590,000
Gross profit 979,000 2,652,000 2,525,000 2,034,000
Loss from continuing operations (2,329,000) (287,000) (1,667,000) (799,000)
Gain on sale of discontinued
Operations - 293,000 - -
----------------- ------------------- ----------------- -------------------
Net (loss) income (2,329,000) 6,000 (1,667,000) (799,000)
Basic and diluted loss per share
Continuing operations (0.16) (0.02) (0.12) (0.06)
Gain on sale of discontinued
operations - 0.02 - -
----------------- ------------------- ----------------- -------------------
Net loss (0.16) - (0.12) (0.06)
Shares used in computing basic
and diluted net loss per share 14,821 14,821 14,373 14,231
(in thousands)
47
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
On June 11, 2001, the Company engaged the accounting firm of BDO Seidman,
LLP as independent public accountants for the fiscal year ended December 31,
2001 replacing Arthur Andersen as the current auditors. As of December 2001,
there are no changes in and disagreements with BDO Seidman, LLP nor Arthur
Andersen, LLP on accounting and financial disclosures.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Directors and the executive officers of the Company, their ages,
business experience and the positions currently held by each such person with
the Company are listed below.
Zack B. Bergreen, 56, founded the Company in November 1979. From November
1979 to January 1998, he served as President, Treasurer and Director of the
Company. In April 1995, he was elected Chief Executive Officer and Chairman of
the Board of Directors. From January 1998 through August 1999 Mr. Bergreen
served as Chairman of the Board and Chief Executive Officer. Mr. Bergreen has
served as Chairman of the Board since August 1999, when Bruce R. Rusch was
elected President and Chief Executive Officer. Following the resignation of Mr.
Rusch on May 30, 2000, Mr. Bergreen resumed the positions of President and Chief
Executive Officer, and on June 27, 2000, was elected as Secretary. Mr. Bergreen
holds Bachelor of Science and Master of Science degrees in Electrical
Engineering from the University of Maryland.
Bernard M. Goldsmith, 58, joined the Company's Board of Directors in April
1999 and is a member of the Audit Committee. He currently serves as Managing
Director of Updata Capital, Inc. He is also Manager of Fallen Angel Capital,
LLC, which is the general partner of Fallen Angel Equity Fund, L.P., which
currently beneficially owns more than 5% of the shares of Common Stock of the
Company. Mr. Goldsmith also serves on the boards of directors of Compuware
Corporation, Dendrite International, Inc. and Frontstep, Inc. Mr. Goldsmith has
a B.A. in business administration from Rutgers University.
Adrian A. Peters, 52, joined the Company's Board of Directors in June 2000
and is a member of the Audit Committee. He is the President and founder of
Tellstone (previously Boston Partners), a firm that specializes as strategic
advisors to high-tech firms. From 1986 through 1995, he held various positions
as President and CEO of Siemens AG companies. Prior to that he held senior
positions at Federale, an investment firm, Arthur Andersen Consulting and IBM.
Mr. Peters studied science and engineering at the University of Stellenbosch in
South Africa as well as management at Harvard Business School.
Isidore Sobkowski, 45, joined the Company's Board of Directors in June 2000
and is a member of the Audit Committee. He currently serves as the President and
Chief Executive Officer of PrimeCloud, Inc. From 1994 through 1998, he served as
the President and Chief Executive Officer at Professional Help Desk, and upon
its acquisition by Computer Associates, served from 1998 through 2000 as a
Division Vice President at Computer Associates. From 1984 through 1994, he
served as President and Chief Executive Officer of Knowledge Associates, Ltd.
Mr. Sobkowski received a Bachelor of Science in Computer Science from City
College of New York in 1978 and a Master of Science in Computer Science from
City College of New York in 1982.
Rick Etskovitz, 47, joined the Company in June 2000 when he was elected
Chief Financial Officer and Treasurer. He is a certified public accountant and
shareholder of a local accounting firm. From 1986 through 1993, he worked with
the Company as the engagement partner with its independent accounting firm.
48
Mr. Etskovitz received his Bachelor of Science degree from the Pennsylvania
State University in 1976 and his Masters of Business Administration Degree from
the Wharton Graduate School at the University of Pennsylvania in 1980.
Jacques Cormier, 53, joined the Company in 1995 as Managing Director of the
Asia/Pacific operations based in Sydney, Australia. Mr Cormier relocated to the
United States in June 2000 to assume the responsibilities of Vice President of
Customer Services, managing Customer Support, Professional Services and
Customizations. From 1992 Mr. Cormier was a Director of Qantel Business Systems
Australia Pty Ltd, a systems integrator of complete business solutions,
responsible for marketing, product management, professional services and
customer support. Before transferring to Australia in 1992, Mr. Cormier had the
product management responsibility of the ERP products manufactured by Qantel
Corporation, a manufacturer of hardware and software for small/medium businesses
located near San Francisco. Mr. Cormier has been an active member of APICS
(American Production and Inventory Control Society) for many years, authoring a
course and a book on the essentials of managing manufacturing operations.
Jim Kirby, 36, joined the Company in January, 2000 as Vice President of
Sales and Marketing based in Horsham, Pennsylvania. Mr. Kirby is responsible for
the leadership, direction and management of the Company's marketing, direct and
indirect sales channels and pre-sales organization in the Americas. Mr. Kirby
moved to Astea from Base Ten System, Inc., an application software development
company, where he was vice president and general manager responsible for North
American sales, marketing, professional services and customer support.
Previously, he held various leadership and management positions during a 13-year
tenure with Honeywell, Inc. Mr. Kirby is a graduate of Villanova University.
Clark E. Fuss, Jr., 42, joined the Company in October 2000 as Director of
Professional Services and was promoted to Vice President of Customer Services in
September 2001 managing Professional Services, Custom Development and Life Cycle
Support. From March 1999 to October 2000 he served as Director of Client
Services at Access Technologies Group of Plymouth Meeting, PA., a web based
training developer. From December 1996 to February 1999 Mr. Fuss served as Vice
President of Operations for FYI Interactive of Bala Cynwyd, PA an interactive
call center providing audiotext and infotainment programs. Mr. Fuss has a B.A.
in Communications from Norfolk State University.
Section 16(a) of the Exchange Act requires the Company's Directors,
executive officers and holders of more than 10% of the Company's Common Stock
(collectively, "Reporting Persons") to file with the Commission initial reports
of ownership and reports of changes in ownership of Common Stock of the Company.
Such persons are required by regulations of the Commission to furnish the
Company with copies of all such filings. Based on its review of the copies of
such filings received by it with respect to the fiscal year ended December 31,
2001 and written representations from certain Reporting Persons, the Company
believes that all Reporting Persons complied with all Section 16(a) filing
requirements in the fiscal year ended December 31, 2001.
Item 11. Executive Compensation.
The following table sets forth information concerning the compensation for
services in all capacities to the Company for the fiscal years ended December
31, 2001, 2000, and 1999, of the following persons (i) each person who served as
Chief Executive Officer during the year ended December 31, 2001, (ii) the only
other executive officer of the Company in office at December 31, 2001 who earned
more than $100,000 in salary and bonus in fiscal 2001 (collectively, the "Named
Executive Officers"), and (iii) one former executive officer of the Company who
was not employed by the Company on December 31, 2001, but otherwise would have
been named an executive officer.
49
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
-------------------------------------------
Securities
Underlying
Options All Other
Name and Principal Position Year Salary ($) Bonus ($) (# of shares) Compensation ($)
--------------------------- ----- ----------- ---------- ------------- ----------------
Zack B. Bergreen 2001 $134,381 -- 400,000 (1) $ 69,600(2)
Chairman of the Board and Chief 2000 233,971 -- -- 242,897(3)
Executive Officer 1999 300,000 -- -- 74,800(2)
Rick Etskovitz 2001 $119,160 -- 25,000 (4) --
Chief Financial Officer 2000 55,538 25,000 (4)
Jim Kirby 2001 $238,860 -- -- --
Vice President, Sales, North America 2000 158,125 $94,841 100,000 (4)
Jacques Cormier 2001 $122,000 -- -- --
Vice President, Software Solutions 2000
Clark Fuss 2001 $102,502 -- 50,000 (4) --
Vice President, Customer Services
(1) Represents options to purchase shares of Common Stock, which was awarded as
compensation for a decrease taken in salary.
(2) Includes premiums for term, split-dollar life insurance paid by the Company
on behalf of the Named Executive Officer.
(3) Includes premiums for term, split-dollar life insurance paid by the Company
on behalf of the Named Executive Officer, payout for consulting services
performed January 2000 through May 2000, and vacation payout.
(4) Represents options to purchase shares of Common Stock, which was awarded
based on merit.
Option Grants in Last Fiscal Year
The following table sets forth each grant of stock options made during the
year ended December 31, 2001 to each of the Named Executive Officers:
Individual Grants
Percent of
Total Potential Realizable Value at
Number of Options Assumed
Securities Granted to Annual Rates of Stock Price
Underlying Employees Exercise Appreciation for Option
Options In Fiscal Price Expiration Terms(2)
Name Granted (#) Year ($/Share)(1) Date 5%($) 10%($)
- ---- ----------- ------ ------------ ---- ----- -------
Zack Bergreen 400,000(3) 61% $0.96 10/02/2006 $490,092 $618,436
Rick Etskovitz 25,000(4) 4% $1.14 05/11/2011 $46,425 $73,925
Clark Fuss 50,000(4) 8% $0.85 11/09/2011 $69,250 $110,250
(1) The exercise price per share of each option was fixed by the Board of
Directors.
(2) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compounded rates of appreciation (5% and 10%)
on the market value of the Company's Common Stock on the date of option
grant over the term of the options. These numbers are calculated based on
rules promulgated by the Commission and do not reflect the Company's
estimate of future stock price growth. Actual gains, if any, on stock
option exercises and Common Stock holdings are dependent on the timing of
such exercise and the future performance of
50
the Company's Common Stock. There can be no assurance that the rates of
appreciation assumed in this table can be achieved or that the amounts
reflected will be received by the individual.
(3) Options to purchase 400,000 shares were granted in compensation for a
decrease in salary during 2001. Options will vest in equal installments on
each of the first four anniversaries of the grant date. In accordance with
the Stock Option Plan, the exercise price is valued at 1.05% of market and
the expiration date is 5 years from the date of grant.
(4) Options to purchase shares will vest in equal installments on each of the
first four anniversaries of the grant date.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
The following table sets forth, for each of the Named Executive
Officers, information with respect to the exercise of stock options during the
year ended December 31, 2001 and the year-end value of unexercised options:
Value of Unexercised
Shares Numbers of Unexercised In-the-Money Options
Name Acquired on Value Options at Year End at Year End
Exercise(#) Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
Zack B. Bergreen -- -- 0/400,000 --
Rick Etskovitz -- -- 6,250/43,750 --
Jim Kirby -- -- 105,000/155,000 --
Jacques Cormier -- -- 11,250/21,250 --
Clark Fuss -- -- 1,250/53,750 --
Employment Agreements and Severance Arrangements with Executive Officers
The Company has not entered into employment agreements with any of its
current Executive Officers.
Board Interlocks and Insider Participation
No executive officer of the Company served as a member of the Board of
Directors, compensation committee, or other committee performing equivalent
functions, of another entity one of whose executive officers served as a
Director of the Company. Other than Mr. Bergreen, no person who served as a
member of the Board was, during the fiscal year ended December 31, 2001,
simultaneously an officer, employee or consultant of the Company or any of its
subsidiaries. Mr. Bergreen did not participate in any Company determination of
his own personal compensation matters.
Compensation of Directors
Directors who are not employees of the Company receive a fee of $1,000 for
attendance at each regular and special meeting of the Board of Directors, and
are also reimbursed for their reasonable out-of-pocket expenses incurred in
attending meetings. Non-Employee Directors may elect to receive, in lieu of the
foregoing cash compensation, unrestricted shares of Common Stock of the Company.
Shares of Common Stock in lieu of cash compensation are acquired at the fair
market value of the Common Stock on the last day of the calendar quarter during
which the cash compensation was earned and foregone. Non-employee Directors are
also eligible to receive annual stock option grants under the Company's 1995
Non-Employee Director Stock Option Plan. Directors who are employees are not
compensated for their service on the Board of Directors or any committee
thereof.
51
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth as of March 25, 2002: (i) the name of
each person who, to the knowledge of the Company, owned beneficially more than
5% of the shares of Common Stock of the Company outstanding at such date; (ii)
the name of each Director; and (iii) the name of each current executive officer
of the Company. The following table also sets forth as of March 25, 2002 the
number of shares owned by each of such persons and the percentage of the
outstanding shares represented thereby, and also sets forth such information for
Directors, nominees and executive officers as a group.
Name and Address Of Beneficial Owner Amount of Ownership(1) Percent of Class(2)
Zack B. Bergreen(3) 6,811,708 46.7%
c/o Astea International
455 Business Center Drive
Horsham, Pennsylvania 19044
Fallen Angel Equity Fund, L.P.(4) 2,182,500 15.0%
960 Holmdel Road
Holmdel, NJ 07733
Barry M. Goldsmith(5) 2,184,040 15.0%
Adrian Peters 0 *
Isidore Sobkowski 0 *
Rick Etskovitz 10,000 *
Jacques Cormier 22,000 *
Jim Kirby 0 *
All current directors, nominees and executive officers as 9,027,748 61.8%
a group (7 persons)(1)-(5)
------------------------
* Less than 1% of the outstanding shares of Common Stock.
(1) Except as noted in the footnotes to this table, each person or entity named
in the table has sole voting and investment power with respect to all
shares of Common Stock owned, based upon information provided to the
Company by Directors, officers and principal stockholders. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission (the "Commission") and includes voting and investment
power with respect to shares of Common Stock subject to options currently
exercisable or exercisable within 60 days after the Record Date ("presently
exercisable stock options").
(2) Applicable percentage of ownership as of the Record Date is based upon
14,598,030 shares of Common Stock outstanding as of that date. Beneficial
ownership is determined in accordance with the rules of the Commission and
includes voting and investment power with respect to shares. Presently
exercisable stock options are deemed outstanding for computing the
percentage ownership of the person holding such options, but are not deemed
outstanding for computing the percentage of any other person.
(3) Includes 2,036,276 shares of Common Stock held by trusts of which Mr.
Bergreen and his wife are the only trustees, 271,342 shares held by trusts
with independent trustees, and 1,200,000 shares of Common Stock held by a
family limited partnership of which Mr. Bergreen is the sole general
partner.
(4) As reported on Schedule 13D and Form 4. Mr. Goldsmith is Manager of Fallen
Angel Capital, LLC, which is the general partner of Fallen Angel Equity
Fund, L.P.
(5) Represents 1,540 shares directly owned by Mr. Goldsmith and 2,182,500
shares held by Fallen Angel Equity Fund, L.P. as reported on Schedule 13D
and Form 4. Mr. Goldsmith is Manager of Fallen Angel Capital, LLC, which is
the general partner of Fallen Angel Equity Fund, L.P. Mr. Goldsmith
disclaims beneficial ownership of the shares of Common Stock held by Fallen
Angel Equity Fund, L.P.
52
Item 13. Certain Relationships and Related Transactions.
On December 31, 1999, Zack Bergreen ceased active employment with the
Company and was engaged as a consultant beginning January 1, 2000. During May
2000, Mr. Bergreen resumed his previous duties as President and Chief Executive
Officer thereby terminating the consulting agreement. See also Note 15 of the
Notes to the Consolidated Financial Statements of the Company appearing
elsewhere in this Annual report on Form 10-K.
53
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, 2001 and 2000
ii) Consolidated Statements of Operations for the years ended
December 31, 2001, 2000, and 1999
iii) Consolidated Statements of Stockholders' Equity for the
years ended December 31, 2001, 2000, and 1999
iv) Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000, and 1999
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
Schedule listed above has 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
54
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)).
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 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).
10.20 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).
55
10.22 Letter to John G. Phillips regarding severance terms
(Incorporated herein by reference to Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1999).
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
(Incorporated herein by reference to Exhibit 10.24 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1999).
10.25 Consulting Agreement between the Company and Zack B.
Bergreen (Incorporated herein by reference to Exhibit 10.25
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1999).
10.26 Transfer of Rights Agreement regarding PowerHelp
(Incorporated herein by reference to Exhibit 10.26 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1999)
10.27 Guaranty in connection with Transfer of Rights Agreement
regarding PowerHelp (Incorporated herein by reference to
Exhibit 10.27 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1999).
21.1* Subsidiaries of the Registrant.
23.1* Consent of BDO Seidman, LLP.
23.2* Consent of Arthur Andersen, LLP.
24.1* Powers of Attorney (See the Signature Page).
-------------------
* Filed herewith
(b) Reports on Form 8-K.
On March 6, 2001, the Company filed a current report on Form 8-K
relating to the Company's failure to comply with the $1.00 minimum bid
requirement for continued listing set forth in Nasdaq marketplace Rule
4450(a)(5) and that its shares are, therefore, subject to delisting from The
Nasdaq National Market.
On May 7, 2001, the Company filed a current report on Form 8-K relating
to a letter received from The Nasdaq Stock Market, Inc. notifying the Company
that the common stock will continue to be listed on The Nasdaq National Market.
On June 18, 2001, the Company filed a current report on Form 8-K
relating to a change in auditors. BDO Seidman, LLP was engaged as the
independent public accountants replacing Arthur Andersen, LLP.
On June 22, 2001, the Company filed an amendment to a current report on
Form 8-K/A relating to a change in auditors.
(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.
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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 1st day of April
2002.
ASTEA INTERNATIONAL INC.
By: /s/Zack Bergreen
-------------------------------
Zack Bergreen
President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Zack Bergreen and Rick Etskovitz, 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.
Signature Title Date
/s/Zack Bergreen President and Chief Executive March 29, 2002
--------------------- Officer (Principal Executive Officer)
Zack Bergreen
/s/Rick Etskovitz Vice President and Chief March 29, 2002
--------------------- Financial Officer (Principal
Rick Etskovitz Financial and Accounting
Officer)
/s/Barry M. Goldsmith Director March 29, 2002
---------------------
Barry M. Goldsmith
/s/Zack Bergreen Director March 29, 2002
---------------------
Zack Bergreen
57