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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2004
or
[ ]Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange
Act of 1934.
For the transition period from ___________ to ___________
Commission File Number: 0-26330
ASTEA INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
Delaware 23-2119058
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
240 Gibraltar Road, Horsham, PA 19044
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 682-2500
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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 12, 2004, 2,922,301 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
- ------------------------------
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 13
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,
2004 2003
---------------------- ----------------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 3,585,000 $ 3,480,000
Restricted cash 300,000 300,000
Receivables, net of reserves of $763,000 and $810,000 6,274,000 3,943,000
Prepaid expenses and other 601,000 601,000
---------------------- ----------------------
Total current assets 10,760,000 8,324,000
Property and equipment, net 456,000 509,000
Capitalized software, net 1,216,000 1,229,000
Other assets 33,000 34,000
---------------------- ----------------------
Total assets $ 12,465,000 $ 10,096,000
====================== ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 3,407,000 $ 3,003,000
Deferred revenues 3,861,000 3,359,000
---------------------- ----------------------
Total current liabilities 7,268,000 6,362,000
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued
- -
Common stock, $.01 par value, 5,000,000 shares
authorized, 2,965,000 issued
30,000 30,000
Additional paid-in capital
22,792,000 22,792,000
Cumulative translation adjustment
(797,000) (776,000)
Accumulated deficit
(16,618,000) (18,100,000)
Less: treasury stock at cost, 43,000 shares (210,000) (212,000)
---------------------- ----------------------
Total stockholders' equity 5,197,000 3,734,000
---------------------- ----------------------
Total liabilities and stockholders' equity $ 12,465,000 $ 10,096,000
====================== ======================
See accompanying notes to the consolidated financial statements.
3
ASTEA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
2004 2003
----------- -----------
Revenues:
Software license fees $ 2,896,000 $ 1,022,000
Services and maintenance 2,988,000 2,966,000
----------- -----------
Total revenues 5,884,000 3,988,000
----------- -----------
Costs and expenses:
Cost of software license fees 410,000 229,000
Cost of services and maintenance 1,547,000 1,645,000
Product development 408,000 507,000
Sales and marketing 1,489,000 1,574,000
General and administrative 555,000 518,000
----------- -----------
Total costs and expenses 4,409,000 4,473,000
----------- -----------
Income (loss) from operations 1,475,000 (485,000)
Interest income, net 8,000 18,000
----------- -----------
Income (loss) before income taxes 1,483,000 (467,000)
Income tax expense -- --
----------- -----------
Net income (loss) $ 1,483,000 $ (467,000)
=========== ===========
Basic and diluted income (loss) per share:
Net income (loss) per share $ 0.51 $ (0.16)
Shares outstanding used in computing basic
income (loss) per share 2,922,000 2,921,000
Shares outstanding used in computing diluted
income (loss) per share 2,923,000 2,921,000
See accompanying notes to the consolidated financial statements.
4
ASTEA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
2004 2003
----------- -----------
Cash flows from operating activities:
Net income (loss) $ 1,483,000 $ (467,000)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization 299,000 239,000
Bad debt expense 22,000 32,000
Changes in operating assets and liabilities:
Receivables (2,362,000) 1,824,000
Prepaid expenses and other (2,000) (146,000)
Other assets 1,000 --
Accounts payable and accrued expenses 401,000 (234,000)
Deferred revenues 505,000 (312,000)
----------- -----------
Net cash provided by operating activities
347,000 936,000
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (19,000) (84,000)
Capitalized software development costs (217,000) (120,000)
----------- -----------
Net cash used in investing activities (236,000) (204,000)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of stock through the
employee stock purchase plan 1,000 1,000
----------- -----------
Effect of exchange rate changes on cash (7,000) (23,000)
----------- -----------
Net increase in cash and cash equivalents 105,000 710,000
Cash, beginning of period 3,480,000 5,267,000
----------- -----------
Cash, end of period $ 3,585,000 $ 5,977,000
=========== ===========
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, 2004 and for the three month
periods ended March 31, 2004 and 2003 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 2003 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, 2004 are not necessarily indicative of the results that may be
expected for the full year.
2. STOCKHOLDERS' EQUITY/COMPREHENSIVE INCOME
-----------------------------------------
The reconciliation of Stockholders' Equity and comprehensive income from
December 31, 2003 to March 31, 2004 is summarized as follows:
Cumulative
Additional Currency
Common Paid-In Translation Accumulated Treasury Comprehensive
Stock Capital Adjustment Deficit Stock Income
----------- -------------- ---------------- -------------- ------------ ---------------
Balance at December 31, 2003 $30,000 $22,792,000 $ (776,000) $(18,100,000) $ (212,000)
Issuance of common stock
under employee stock
purchase plan - - - (1,000) 2,000
Cumulative translation
adjustment - - (21,000) - - $ (21,000)
Net income - - - 1,483,000 - 1,483,000
----------- -------------- ---------------- -------------- ------------ ---------------
Balance at March 31, 2004 $30,000 $22,792,000 $ (797,000) $(16,618,000) $ (210,000) $ 1,462,000
=========== ============== ================ ============== ============ ===============
3. CHANGE IN ACCOUNTING ESTIMATE
-----------------------------
During the first quarter of 2004, the Company re-evaluated the estimated lives
of its capitalized software assets related to licenses and determined that the
estimated life of 3 years currently used should be reduced to 2 years, based on
the rate of product release and the current sales trend. The impact of the
change in the estimated life resulted in an increase in amortization, and
reduction in net income, of $80,000, or $0.03 per share for the three months
ended March 31, 2004.
4. INCOME TAX EXPENSE
------------------
The Company has utilized a portion of its net operating loss carry forwards for
the three months ended March 31, 2004 to reduce any tax provisions on its
pre-tax income. At March 31, 2004, the Company maintains a 100% valuation
allowance for its remaining net deferred tax assets based on the uncertainty of
the realization of future taxable income.
5. STOCK BASED COMPENSATION
------------------------
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
6
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.
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 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, 2004 March 31, 2003
-------------------- -------------------
(unaudited) (unaudited)
Net income (loss) - as reported $ 1,483,000 $ (467,000)
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 (32,000) (84,000)
Net income (loss) - pro forma $ 1,451,000 $ (551,000)
Basic and diluted income (loss) per share - as reported $ 0.51 $ (0.16)
Basic and diluted income (loss) per share - pro forma $ 0.50 $ (0.19)
The weighted average fair value of those options granted during the quarters
ended March 31, 2004 and 2003 was estimated at $2.94 and $2.81, 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 3.65% and 3.73% for 2004 and 2003
grants, respectively; an expected life of six years; volatility of 130% and
145%; and a dividend yield of zero for 2004 and 2003 grants, respectively.
6. MAJOR CUSTOMERS
---------------
For the first three months of 2004, there was one major customer that accounted
for 33% of the Company's total revenues. At March 31, 2004, this same customer
represented 30% of the Company's accounts receivable balance, the majority of
which was subsequently received in the second quarter. There were no major
customers for the three months ended March 31, 2003.
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,
2003.
The Company develops, markets and supports service management 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 pure field service software provider to a provider of a comprehensive
suite of service management solutions. In addition to field service, the 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. The Company believes that its investment in
development along with its continued commitment to marketing its service
management suite will favorably position the Company as economic conditions
continue to improve.
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 for the year ended December 31, 2003.
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 unbundled and 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. During the first
quarter of 2004, the Company revised the estimated life for its capitalized
software products from 3 years to 2 years based on current sales trends and the
rate of product releases. 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, 2004 and 2003
- --------------------------------------------------------
Revenues
- --------
Revenues increased $1,896,000, or 48%, to $5,884,000 for the three months ended
March 31, 2004 from $3,988,000 for the three months ended March 31, 2003.
Software license fee revenues increased $1,874,000, or 183%, from the same
period last year. Services and maintenance fees for the three months ended March
31, 2004 amounted to $2,988,000, a 1% increase from the same quarter in 2003.
The Company's international operations contributed $1,486,000 of revenues in the
first quarter of 2004 compared to $1,363,000 in the first quarter of 2003. This
represents a 9% increase from the same period last year and 25% of total
revenues in the first quarter 2004. The increase in revenues is due to the
increase in sales from the Company's operations in Japan partially offset by a
slight decrease in sales from operations in Europe.
Software license fee revenues increased 183% to $2,896,000 in the first quarter
of 2004 from $1,022,000 in the first quarter of 2003. The increase is primarily
attributable to two significant sales in the U.S. totaling approximately $2.1
million that closed during the quarter. Astea Alliance license revenues
increased $1,708,000 or 167%, to $2,730,000 in the first quarter of 2004 from
9
$1,022,000 in the first quarter of 2003. The Company also sold $166,000 of
additional DISPATCH-1 licenses to an existing customer in the first quarter of
2004. There were no license sales of DISPATCH-1 in the first quarter of 2003.
The Company does not anticipate future license sales of Dispatch-1.
Services and maintenance revenues increased marginally to $2,988,000 in the
first quarter of 2004 from $2,966,000 in the first quarter of 2003. The increase
primarily relates to service and maintenance revenues from Astea Alliance which
increased $195,000, or 9%, to $2,431,000 from $2,236,000 in the first quarter of
2003. The increase in Astea Alliance service and maintenance revenues is a
direct result of the growth of the Astea Alliance customer base. Partially
offsetting the increase in Astea Alliance service and maintenance revenues was a
decrease of $173,000 in DISPATCH-1 service and maintenance revenues, which
resulted from an expected decrease in demand.
Costs of Revenues
- -----------------
Cost of software license fees increased 79% to $410,000 in the first quarter of
2004 from $229,000 in the first quarter of 2003. Included in the cost of
software license fees is the fixed cost of capitalized software amortization.
During the first quarter of 2004, the Company revised the estimated useful life
of its capitalized software products from 3 years to 2 years, which increased
amortization for the period to $230,000 as compared to $150,000 in the first
quarter of 2003. The cost of software license fees also increased due to the
greater level of software license sales in the first quarter of 2004. The
software licenses gross margin percentage was 86% in the first quarter of 2004
compared to 78% in the first quarter of 2003. The increase in gross margin was
attributable to the mix of products sold in 2004 as well as the relationship of
the fixed cost of amortized capitalized software to a lower level of sales in
2003.
Cost of services and maintenance decreased 6% to $1,547,000 in the first quarter
of 2004 from $1,645,000 in the first quarter of 2003. The decrease in cost of
service and maintenance is primarily attributed to a reduction in headcount from
last year to this year. The services and maintenance gross margin percentage was
48% in the first quarter of 2004 compared to 45% in the first quarter of 2003.
The increase in services and maintenance gross margin was primarily due to
increased utilization of Astea Alliance service professionals.
Product Development
- -------------------
Product development expense decreased 20% to $408,000 in the first quarter of
2004 from $507,000 in the first quarter of 2003. The Company includes the
capitalization of software costs in product development. Capitalized software
totaled $217,000 in the first quarter of 2004 compared to $120,000 during the
same period in 2003. Product development as a percentage of revenues was 7% in
the first quarter of 2004 compared with 13% in the first quarter of 2003. The
decrease in margin is the result of the increase in software capitalization
combined with the increased sales volume.
Sales and Marketing
- -------------------
Sales and marketing expense decreased 5% to $1,489,000 in the first quarter of
2004 from $1,574,000 in the first quarter of 2003. The decrease in sales and
marketing is attributable to a reduction in marketing costs by consolidating the
worldwide marketing effort under the control of the U.S. partially offset by
increased sales commissions related to the increase in license sales. As a
percentage of revenues, sales and marketing expenses decreased to 25% from 39%
in the first quarter of 2003, which is the direct result of increased revenues
and lower costs.
General and Administrative
- --------------------------
General and administrative expenses increased 7% to $555,000 in the first
quarter of 2004 from $518,000 in the first quarter of 2003. The increase in
general and administrative expenses is due to an increase in foreign currency
exchange activity. As a percentage of revenues, general and administrative
expenses decreased to 9% from 13% in the first quarter of 2003. The decrease is
attributable to the significant increase in revenues.
10
Interest Income, net
- --------------------
Net interest income decreased $10,000 from $18,000 in the first quarter of 2003
to $8,000 in the first quarter of 2004. The decrease resulted primarily from a
decrease in the amount of investments.
International Operations
- ------------------------
Total revenue from the Company's international operations increased by $123,000,
or 9%, to $1,486,000 in first quarter of 2004 from $1,363,000 in the same
quarter in 2003. The increase in revenue from international operations was
primarily attributable to the increase in revenues from Asia Pacific operations.
International operations generated net income of $152,000 for the first quarter
ended March 31, 2004 compared to a loss of $82,000 in the same quarter in 2003.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operating activities was $347,000 for the three months
ended March 31, 2004 compared to cash provided by operations of $936,000 for the
three months ended March 31, 2003. The decrease in cash provided by operations
was primarily attributable to a significant increase in accounts receivable
resulting from increased revenues for the quarter partially offset by a
significant increase in net income and increase in operating liabilities.
The Company's investing activities used $236,000 for investing activities in the
first three months of 2004 compared to using $204,000 in the first three months
of 2003. The increase in cash used is attributable to an increase in software
capitalization partially offset by a decrease in purchases of property and
equipment.
The Company generated $1,000 of cash from financing activities during the three
months ended March 31, 2004 and 2003 related to proceeds from the issuance of
stock through the employee stock purchase plan.
At March 31, 2004, the Company had a working capital ratio of 1.5:1, with cash,
cash equivalents and restricted cash of $3,885,000. 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
next twelve months. 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.
o The enterprise 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.
11
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, 2004, 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.
Item 4. CONTROLS AND PROCEDURES
- --------------------------------------
Our management, under the supervision and with the participation of the Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of our controls and procedures related to our reporting and disclosure
obligations as of March 31, 2004, which is the end of the period covered by this
Quarterly Report on Form 10-Q. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that our disclosure controls
and procedures are sufficient to provide that (a) material information relating
to us, including our consolidated subsidiaries, is made known to these officers
by our and our consolidated subsidiaries other employees, particularly material
information related to the period for which this periodic report is being
prepared; and (b) this information is recorded, processed, summarized, evaluated
and reported, as applicable, within the time periods specified in the rules and
forms promulgated by the Securities and Exchange Commission.
There were no changes that occurred during the fiscal quarter ended March 31,
2004 that have materially affected, or are reasonable likely to materially
affect, our internal controls over financial reporting.
12
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
- -----------------------------------
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. The Company is
not involved in any legal proceedings, which would, in management's opinion,
have a material adverse effect on the Company's business or results of
operations.
Item 2. Changes in Securities and Use of Proceeds
- -----------------------------------------------------------
There have been no changes in securities during the quarter ended March 31,
2004.
Item 3. Defaults Upon Senior Securities
- -------------------------------------------------
There have been no defaults by the Company on any Senior Securities during the
quarter ended March 31, 2004.
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
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 - President and Chief Executive Officer
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 - Chief Financial Officer
32.1 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
32.2 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 30, 2004, 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, 2003.
On March 31, 2004, the Company filed a report on Form 8-K/A with
respect to the press release issued as of March 30, 2004 amending the
previously reported results for the three months and year ended
December 31, 2003.
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 12th day of May
2004.
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