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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2003
---------------
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
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ASTEA INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
Delaware 23-2119058
----------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
240 Gibraltar Road, Horsham, PA 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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N/A
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(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
As of May 07, 2003, 14,606,530 shares of the registrant's Common Stock, par
value $.01 per share, were outstanding.
ASTEA INTERNATIONAL INC.
FORM 10-Q
QUARTERLY REPORT
INDEX
Page No.
--------
Facing Sheet 1
Index 2
PART I - FINANCIAL INFORMATION
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Item 1. Consolidated Financial Statements
Consolidated Balance Sheets (Unaudited) 3
Consolidated Statements of Operations (Unaudited) 4
Consolidated Statements of Cash Flows (Unaudited) 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosure About Market Risk 12
Item 4. Controls and Procedures 12
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
ASTEA INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2003 2002
---------------------------------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 5,677,000 $ 4,967,000
Restricted cash 300,000 300,000
Receivables, net of reserves of $655,000 and $1,018,000 6,099,000 7,936,000
Prepaid expenses and other 831,000 691,000
---------------------------------------
Total current assets 12,907,000 13,894,000
Property and equipment, net 579,000 586,000
Capitalized software, net 1,319,000 1,349,000
Other assets 614,000 614,000
---------------------------------------
Total assets
$15,419,000 $16,443,000
=======================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $3,165,000 $3,418,000
Deferred revenues 3,684,000 4,027,000
---------------------------------------
Total current liabilities 6,849,000 7,445,000
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued -- --
Common stock, $.01 par value, 25,000,000 shares
authorized, 14,825,000 issued
148,000 148,000
Additional paid-in capital 22,674,000 22,674,000
Cumulative translation adjustment (1,000,000) (1,039,000)
Accumulated deficit (13,037,000) (12,568,000)
Less: treasury stock at cost, 218,000 and 221,000 (215,000) (217,000)
shares ---------------------------------------
Total stockholders' equity 8,570,000 8,998,000
---------------------------------------
Total liabilities and stockholders'
equity $15,419,000 $16,443,000
=======================================
See accompanying notes to the consolidated financial
3
statements.
ASTEA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
2003 2002
---------------------------------------------
Revenues:
Software license fees $ 1,022,000 $ 1,466,000
Services and maintenance 2,966,000 2,487,000
------------------------------
Total revenues 3,988,000 3,953,000
------------------------------
Costs and expenses:
Cost of software license fees 229,000 275,000
Cost of services and maintenance 1,645,000 1,632,000
Product development 507,000 440,000
Sales and marketing 1,574,000 1,259,000
General and administrative 518,000 629,000
------------------------------
Total costs and expenses 4,473,000 4,235,000
------------------------------
Loss from operations (485,000) (282,000)
Interest income, net 18,000 38,000
------------------------------
Loss before income taxes (467,000) (244,000)
Income tax expense -- 50,000
------------------------------
Net loss $ (467,000) $ (294,000)
==============================
Basic and diluted loss per share:
Net loss per share $ (0.03) $ (0.02)
Shares outstanding used in computing basic
loss per share 14,607,000 14,602,000
Shares outstanding used in computing diluted
loss per share
14,609,000 14,602,000
See accompanying notes to the consolidated financial statements.
4
ASTEA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
2003 2002
------------------------------
Cash flows from operating activities:
Net loss $ (467,000) $ (294,000)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 239,000 329,000
Changes in operating assets and liabilities:
Receivables 1,856,000 172,000
Prepaid expenses and other (146,000) (156,000)
Other assets -- 33,000
Accounts payable and accrued expenses (234,000) (114,000)
Accrued restructuring -- (156,000)
Deferred revenues (312,000) 167,000
------------------------------
Net cash provided by (used in) operating activities 936,000 (19,000)
------------------------------
Cash flows from investing activities:
Purchases of investments -- (9,000)
Purchases of property and equipment (84,000) (67,000)
Capitalized software development costs (120,000) (188,000)
------------------------------
Net cash used in investing activities (204,000) (264,000)
------------------------------
Cash flows from financing activities:
Proceeds from exercise of stock options and employee stock
purchase plan 1,000 2,000
Repayments of debt -- (21,000)
------------------------------
Net cash provided by (used in) financing activities 1,000 (19,000)
------------------------------
Effect of exchange rate changes on cash
(23,000) 11,000
------------------------------
Net increase (decrease) in cash and cash equivalents 710,000 (291,000)
Cash, beginning of period 5,267,000 4,071,000
------------------------------
Cash, end of period $ 5,977,000 3,780,000
==============================
See accompanying notes to the consolidated financial statements.
5
Item 1. CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- -------------------------------------------------------
ASTEA INTERNATIONAL INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
- ------------------------
The consolidated financial statements at March 31, 2003 and for the three month
periods ended March 31, 2003 and 2002 of Astea International Inc. and
subsidiaries (the "Company") are unaudited and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial position and
operating results for the interim periods. The consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto, together with Management's Discussion and Analysis of Financial
Condition and Results of Operations, contained in the Company's 2002 Annual
Report on Form 10-K which are hereby incorporated by reference in this quarterly
report on Form 10-Q. Results of operations and cash flows for the three months
ended March 31, 2003 are not necessarily indicative of the results that may be
expected for the full year.
2. STOCKHOLDERS' EQUITY/COMPREHENSIVE LOSS
- ------------------------------------------
The reconciliation of Stockholders' Equity and comprehensive loss from December
31, 2002 to March 31, 2003 is summarized as follows:
Cumulative
Additional Currency
Common Paid-In Translation Accumulated Treasury Comprehensive
Stock Capital Adjustment Deficit Stock Loss
-------------------------------------------------------------------------------------
Balance at December 31, 2002 $148,000 $22,674,000 $(1,039,000) $(12,568,000) $ (217,000) $ --
Issuance of common stock
under employee stock
purchase plan -- -- (2,000) 2,000 --
Cumulative translation
adjustment -- -- 39,000 -- -- 39,000
Net loss -- -- -- (467,000) -- (467,000)
-------------------------------------------------------------------------------------
Balance at March 31, 2003 $148,000 $22,674,000 $ (1,000,000) $(13,037,000) $ (215,000) $ (428,000)
=====================================================================================
3. RECENT ACCOUNTING PRONOUNCEMENTS
- -----------------------------------
In December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123
("SFAS 148"). SFAS 148 amends FASB Statement No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for an entity that
voluntarily changes to the fair value based method of accounting for stock-based
employee compensation. It also amends the disclosure provisions of that
Statement to require prominent disclosure about the effects on reported net
income of an entity's accounting policy decisions with respect to stock-based
employee compensation. Finally, this Statement amends Accounting Principles
Board ("APB") Opinion No. 28, Interim Financial Reporting, to require disclosure
about those effects in interim financial information. SFAS 148 is effective for
financial statements for fiscal years ending after December 15, 2002. The
Company plans to continue to use the intrinsic valuation method for stock
compensation.
Stock Compensation
The Company accounts for options and the employee stock purchase plan under the
recognition and measurement principles of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees." No stock-based
employee compensation cost is reflected in net income, as all options granted
under those plans had an
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exercise price equal to the market value of the underlying common stock on the
date of grant. 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 loss and basic and
diluted net loss per share would have been:
March 31, March 31,
2003 2002
-----------------------------------------
(unaudited) (unaudited)
Net loss - as reported $ (467,000) $ (293,000)
Add: Stock-based compensation included in net
income as reported, net or related tax effects -- --
Deduct stock-based compensation determined under
fair value based methods for all awards, net of
related tax effects (84,000) (121,000)
Net loss - pro forma $ (551,000) $ (414,000)
Basic and diluted loss per share - as reported $ (0.03) $ (0.02)
Basic and diluted loss per share - pro forma $ (0.04) $ (0.03)
The weighted average fair value of those options granted during the quarters
ended March 31, 2003 and 2002 was estimated at $0.56 and $0.86, 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 3.73% and 5.20% for 2003 and 2002
grants, respectively; an expected life of six years; volatility of 145% and
147%; and a dividend yield of zero for 2003 and 2002 grants, respectively.
7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
- -------------
Overview
- --------
This document contains various forward-looking statements and information that
are based on management's beliefs, assumptions made by management and
information currently available to management. Such statements are subject to
various risks and uncertainties, which could cause actual results to vary
materially from those contained in such forward-looking statements. Should one
or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated, expected or projected. Certain of these, as well as
other risks and uncertainties are described in more detail herein and in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2002.
The Company develops, markets and supports Customer Relationship Management
(CRM) software solutions for companies that sell and service capital equipment.
Clients include Fortune 500 to mid-size companies that automate equipment sales
and service business processes to increase competitive advantages, top-line
revenue growth, profitability, and customer loyalty. The Company supports a
global client base with a worldwide sales and service network that conducts
business through Company facilities in the United States, United Kingdom,
Australia, the Netherlands, and Israel.
Over the past year, the Company has been in the process of making the transition
from a field service software provider to a provider of comprehensive suite of
CRM solutions. In addition to field service, the CRM suite also streamlines and
automates processes for managing sales and marketing, multi-channel customer
contact centers and professional services. The Company continues to focus on
companies in industries that sell and service equipment.
The Company continues to make a significant investment in product development in
support of the transition. As economic conditions throughout the world continue
to deteriorate, the Company diligently monitors costs and manages them
aggressively. The Company believes that its investment in development along with
its continued commitment to marketing its CRM suite will favorably position the
Company when economic conditions improve in the future.
Critical Accounting Policies and Estimates
- ------------------------------------------
The Company's significant accounting policies are more fully described in Note 2
of the Notes to the Consolidated Financial Statement of Operations Procedures in
the Company's Annual Report on Form 10-K. The preparation of financial
statements in conformity with accounting principles generally accepted within
the United States requires management to make estimates and assumptions in
certain circumstances that affect amounts reported in the accompanying financial
statements and related notes. In preparing these financial statements,
management has made its best estimates and judgments of certain amounts included
in the financial statements, giving due consideration to materiality. The
Company does not believe there is a great likelihood that materially different
amounts would be reported related to the accounting policies described below;
however, application of these accounting policies involves the exercise of
judgments and the use of assumptions as to future uncertainties and, as a
result, actual results could differ from these estimates.
Revenue Recognition
Revenues are recognized in accordance with Statement of Operations Procedures
(SOP) 97-2, which 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.
8
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.
Accounts Receivable
The Company evaluates the adequacy of its allowance for doubtful accounts at the
end of each quarter. In performing this evaluation, the Company analyzes the
payment history of its significant past due accounts, subsequent cash
collections on these accounts and comparative accounts receivable aging
statistics. Based on this information, along with consideration of the general
strength of the economy, the Company develops what it considers to be a
reasonable estimate of the uncollectible amounts included in accounts
receivable. This estimate involves significant judgement by the management of
the Company. Actual uncollectible amounts may differ from the Company's
estimate.
Capitalized Software Research and Development Costs
The Company accounts for its internal software development costs in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed."
Accordingly, all costs incurred subsequent to attaining technological
feasibility are capitalized and amortized over a period not to exceed three
years. Technological feasibility is attained when software products reach Beta
release. Costs incurred prior to the establishment of technological feasibility
are charged to product development expense. The establishment of technological
feasibility and the ongoing assessment of recoverability of capitalized software
development costs require considerable judgement by management with respect to
certain external factors, including, but not limited to, anticipated future
revenues, estimated economic life and changes in software and hardware
technologies. Upon the general release of the software product to customers,
capitalization ceases and such costs are amortized, using the straight-line
method, on a product-by-product basis over the estimated life, which is
generally three years. All research and development expenditures are charged to
research and development expense in the period incurred.
Results of Operations
- ---------------------
Comparison of Three Months Ended March 31, 2003 and 2002
- ---------------------------------------------------------
Revenues
- --------
Revenues increased $35,000, or 1%, to $3,988,000 for the three months ended
March 31, 2003 from $3,953,000 for the three months ended March 31, 2002.
Software license fee revenues decreased $444,000, or 30%, from the same period
last year. Services and maintenance fees for the three months ended March 31,
2003 amounted to $2,966,000, a 19% increase from the same quarter in 2002.
The Company's international operations contributed $1,363,000 of revenues in the
first quarter of 2003 compared to $1,201,000 in the first quarter of 2002. This
represents a 13% increase from the same period last year and 34% of total
revenues in the first quarter 2003. The increase in revenues is due to the
increase in sales from the Company's operations in Japan.
9
Software license fee revenues decreased 30% to $1,022,000 in the first quarter
of 2003 from $1,466,000 in the first quarter of 2002. The decrease is
attributable to AsteaAlliance license revenues that decreased $266,000 or 21%,
to $1,022,000 in the first quarter of 2003 from $1,288,000 in the first quarter
of 2002. There were no DISPATCH-1 license sales in the first quarter of 2003
compared to $178,000 in the first quarter of 2002. The lack of DISPATCH-1
license revenue was anticipated due to its discontinuation. The decline in
AsteaAlliance license revenue results from the continuation of the economic
downturn which has extended the sales cycle for the AsteaAlliance product.
Services and maintenance revenues increased 19% to $2,966,000 in the first
quarter of 2003 from $2,487,000 in the first quarter of 2002. The increase
primarily relates to service and maintenance revenues from AsteaAlliance which
increased $811,000 to $2,236,000 from $1,425,000 in the first quarter of 2002.
The increase in AsteaAlliance service and maintenance revenues is a direct
result of license sales which took place in the last half of 2002. The increase
in AsteaAlliance service and maintenance revenues was partially offset by a
decrease of $332,000 in DISPATCH-1 service and maintenance revenues due to
expected decreased demand.
Costs of Revenues
- -----------------
Cost of software license fees decreased 17% to $229,000 in the first quarter of
2003 from $275,000 in the first quarter of 2002. Included in the cost of
software license fees is the fixed cost of capitalized software amortization.
Capitalized software amortization was $150,000 and $217,000 in the first quarter
of 2003 and 2002, respectively. In addition to lower amortization of capitalized
software costs, the cost of software license fees also decreased due to the
lower level of software license sales in the first quarter of 2003. The software
licenses gross margin percentage was 78% in the first quarter of 2003 compared
to 81% in the first quarter of 2002. This decrease in gross margin was
attributable to the cost of certain third party costs included in 2003 cost of
license fees and the relationship of the fixed cost of amortized capitalized
software to a lower level of sales in 2003.
Cost of services and maintenance increased 1% to $1,645,000 in the first quarter
of 2003 from $1,632,000 in the first quarter of 2002. The increase in cost of
service and maintenance is primarily attributed to general wage increases from
last year to this year. The services and maintenance gross margin percentage was
45% in the first quarter of 2003 compared to 34% in the first quarter of 2002.
The increase in services and maintenance gross margin was primarily due to
increased utilization of AsteaAlliance service professionals.
Product Development
- -------------------
Product development expense increased 15% to $507,000 in the first quarter of
2003 from $440,000 in the first quarter of 2002. The increase in product
development expenses is attributable to the increase in development personnel in
the first quarter of 2003 and decreased capitalization of software costs.
Product development as a percentage of revenues was 13% in the first quarter of
2003 compared with 11% in the first quarter of 2002.
Sales and Marketing
- -------------------
Sales and marketing expense increased 25% to $1,574,000 in the first quarter of
2003 from $1,259,000 in the first quarter of 2002. The increase in sales and
marketing is attributable to an increase in sales and marketing personnel. As a
percentage of revenues, sales and marketing expenses increased to 39% from 32%
in the first quarter of 2002 in an increased effort to improving the recognition
and perception of the Company in the marketplace.
General and Administrative
- --------------------------
General and administrative expenses decreased 18% to $518,000 in the first
quarter of 2003 from $629,000 in the first quarter of 2002. The decrease in
general and administrative expenses is due to lower legal costs, rental expense
and outside consulting expense.
10
Interest Income, net
- ---------------------
Net interest income decreased $20,000 from $38,000 in the first quarter of 2002
to $18,000 in the first quarter of 2003. The decrease resulted primarily from
lower interest rates earned on invested securities from the same period as last
year as well as a decrease in the amount of investments.
International Operations
- ------------------------
Total revenue from the Company's international operations increased by $162,000,
or 13%, to $1,363,000 in first quarter of 2003 from $1,201,000 in the same
quarter in 2002. The increase in revenue from international operations was
primarily attributable to the increase in revenues from Asia Pacific operations.
International operations generated a net loss of $82,000 loss for the first
quarter ended March 31, 2003 compared to a loss of $284,000 in the same quarter
in 2002.
The Company has reviewed the impact of its subsidiaries dominated in German
deutsche marks, French francs, and the Dutch guilder converting into the Euro
beginning January 1, 2002. This conversion has had no material impact on its
systems related to the Company's business activities and financial reporting.
The Company is not aware of any circumstances indicating that the introduction
of the Euro caused or will cause material misstatements in the Company's
accounting records or adversely affects business operations in the future.
Liquidity and Capital Resources
- --------------------------------
Net cash provided by operating activities was $936,000 for the three months
ended March 31, 2003 compared to cash used in operations of $19,000 for the
three months ended March 31, 2002. This increase in cash provided was primarily
attributable to a significant decrease in accounts receivable resulting from
collected balances.
The Company's investing activities used $204,000 of cash in the first three
months of 2003 compared to using $264,000 of cash in the first three months of
2002. The decrease in cash used is primarily attributable to a decrease in
capitalized software development costs.
The Company generated $1,000 of cash from financing activities during the three
months ended March 31, 2003 compared to cash used of $19,000 in the first three
months of 2002. The difference is due to repaying outstanding debt of $21,000
during the first quarter of 2002. The Company did not have any outstanding debt
to pay during the first quarter of 2003.
At March 31, 2003, the Company had a working capital ratio of 1.9:1, with cash,
cash equivalents and restricted cash of $5,977,000. The Company believes that it
has adequate cash resources to make the investments necessary to maintain or
improve its current position and to sustain its continuing operations for the
foreseeable future. The Board of Directors from time to time reviews the
Company's forecasted operations and financial condition to determine whether and
when payment of a dividend or dividends is appropriate. The Company does not
anticipate that its operations or financial condition will be affected
materially by inflation.
Variability of Quarterly Results and Potential Risks Inherent in the Business
- -----------------------------------------------------------------------------
The Company's operations are subject to a number of risks, which are described
in more detail in the Company's prior SEC filings. Risks which are peculiar to
the Company on a quarterly basis, and which may vary from quarter to quarter,
include but are not limited to the following:
o The Company's quarterly operating results have in the past varied and may
in the future vary significantly depending on factors such as the size,
timing and recognition of revenue from significant orders, the timing of
new product releases and product enhancements, and market acceptance of
these new releases and enhancements, increases in operating expenses, and
seasonality of its business.
o The Company's future success will depend in part on its ability to increase
licenses of AllianceEnterprise and other new product offerings, and to
develop new products and product enhancements to complement its existing
field service, sales automation and customer support offerings.
11
o The Customer Relationship Management (CRM) software market is intensely
competitive.
o International sales for the Company's products and services, and the
Company's expenses related to these sales, continue to be a substantial
component of the Company's operations. International sales are subject to a
variety of risks, including difficulties in establishing and managing
international operations and in translating products into foreign
languages.
o The market price of the common stock could be subject to significant
fluctuations in response to, and may be adversely affected by, variations
in quarterly operating results, changes in earnings estimates by analysts,
developments in the software industry, adverse earnings or other financial
announcements of the Company's customers and general stock market
conditions, as well as other factors.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- --------------------------------------------------------------------
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 March 31, 2003, the Company's investments consisted of
U.S. government commercial paper. 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.
The Company has reviewed the impact of its subsidiaries dominated in
German deutsche marks, French francs, and the Dutch guilder converting into the
Euro beginning January 1, 2002. This conversion has had no material impact on
its systems related to the Company's business activities and financial
reporting. The Company is not aware of any circumstances indicating that the
introduction of the Euro caused or will cause material misstatements in the
Company's accounting records or adversely affects business operations in the
future.
Item 4. CONTROLS AND PROCEDURES
- --------------------------------------
Within the 90 days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, of the effectiveness of the design and operation of
the Company's disclosure controls and procedures pursuant to Rule 13a-15 of the
Securities Exchange Act of 1934. Based upon that evaluation, the Company's Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company required to be disclosed in the
Company's periodic SEC reports. There have been no significant changes in the
Company's internal control or in other factors which could significantly affect
internal controls subsequent to the date the Company carried out its evaluation.
PART II - OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings
- -----------------------------------
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. The Company is
not involved in any legal proceedings, which would, in management's opinion,
have a material adverse effect on the Company's business or results of
operations.
12
Item 2. Changes in Securities and Use of Proceeds
- -----------------------------------------------------------
Our common stock must maintain a minimum bid price of $1.00 per share in order
to remain eligible for continued listing on The Nasdaq SmallCap Market. On
October 25, 2002, the staff of The Nasdaq Stock Market, Inc. notified us that we
were not in compliance with the minimum bid price requirement. The staff advised
us that we would be given until April 21, 2003 within which to comply with the
minimum bid price requirement in order to maintain our listing on The Nasdaq
SmallCap Market. On April 22, 2003, the staff of The Nasdaq Stock Market, Inc.
notified the Company that it had not regained compliance in accordance with
Marketplace Rule 4310( c )(8)(D). The staff advised us that it has given the
Company a 90 day extension, or until July 21, 2003 in order to regain
compliance.
Item 3. Defaults Upon Senior Securities
- -------------------------------------------------
There have been no defaults by the Company on any Senior Securities during the
quarter ended March 31, 2003.
Item 4. Submission of Matters to a Vote of Security Holders
- ---------------------------------------------------------------------
No matters were submitted to a vote of the Company's stockholders during the
first quarter of the fiscal year covered by this report through the solicitation
of proxies or otherwise.
Item 5. Other Information
- -----------------------------------
None.
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------------------
(A) Exhibits
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 - President and Chief
Executive Officer
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 - Chief Financial
Officer
(B) Reports on Form 8-K
On March 31, 2003, the Company filed a report on Form 8-K with respect
to the press release issued as of that date reporting the results for
the three months and year ended December 31, 2002.
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized this 13th day of May
2003.
ASTEA INTERNATIONAL INC.
By: /s/Zack B. Bergreen
----------------------
Zack B. Bergreen
Chief Executive Officer
(Principal Executive Officer)
By: /s/Rick Etskovitz
-------------------
Rick Etskovitz
Chief Financial Officer
(Principal Financial and Chief
Accounting Officer)
14