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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, 2005
-----------------------------
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.)
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
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Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
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As of May 9, 2005, 2,960,741 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.
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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
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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
March 31, December 31,
2005 2004
------------------------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 4,581,000 $ 4,483,000
Restricted cash 300,000 300,000
Receivables, net of reserves of $348,000 and $411,000 5,061,000 6,428,000
Prepaid expenses and other 542,000 441,000
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Total current assets 10,484,000 11,652,000
Property and equipment, net 540,000 548,000
Capitalized software, net 1,618,000 1,520,000
Other assets 40,000 34,000
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Total assets $ 12,682,000 $ 13,754,000
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,790,000 $ 3,194,000
Deferred revenues 4,464,000 4,489,000
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Total current liabilities 7,254,000 7,683,000
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued -- --
Common stock, $.01 par value, 25,000,000 shares
authorized, 3,002,000 issued 30,000 30,000
Additional paid-in capital 22,997,000 22,997,000
Cumulative translation adjustment (806,000) (779,000)
Accumulated deficit (16,585,000) (15,967,000)
Less:treasury stock at cost, 42,000 and 43,000 shares
respectfully (208,000) (210,000)
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Total stockholders' equity 5,427,000 6,071,000
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Total liabilities and stockholders' equity $ 12,682,000 $ 13,754,000
==============================
See accompanying notes to the consolidated financial statements.
3
ASTEA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
2005 2004
--------------------------
Revenues:
Software license fees $ 598,000 $ 2,896,000
Services and maintenance 3,172,000 2,988,000
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Total revenues 3,770,000 5,884,000
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Costs and expenses:
Cost of software license fees 265,000 410,000
Cost of services and maintenance 1,840,000 1,547,000
Product development 477,000 408,000
Sales and marketing 1,249,000 1,489,000
General and administrative 583,000 555,000
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Total costs and expenses 4,414,000 4,409,000
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Income (loss) from operations (644,000) 1,475,000
Interest income, net 26,000 8,000
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Income (loss) before income taxes (618,000) 1,483,000
Income tax expense -- --
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Net (loss) income $ (618,000) $ 1,483,000
==========================
Basic and diluted (loss) income per share:
Net (loss) income per share $ (0.21) $ 0.51
Shares outstanding used in computing basic (loss)
income per share 2,960,000 2,922,000
Shares outstanding used in computing diluted (loss)
income per share 2,960,000 2,923,000
See accompanying notes to the consolidated financial statements.
4
ASTEA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
2005 2004
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Cash flows from operating activities:
Net (loss) income $ (618,000) $ 1,483,000
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 351,000 299,000
Increase in allowance for doubtful accounts 120,000 22,000
Changes in operating assets and liabilities:
Receivables 1,241,000 (2,362,000)
Prepaid expenses and other (101,000) (2,000)
Other assets -- 1,000
Accounts payable and accrued expenses (405,000) 401,000
Deferred revenues (23,000) 505,000
Other long term assets (6,000) --
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Net cash provided by operating activities 559,000 347,000
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Cash flows from investing activities:
Purchases of property and equipment (85,000) (19,000)
Capitalizedsoftware development costs (350,000) (217,000)
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Net cash used in investing activities (435,000) (236,000)
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Cash flows from financing activities:
Proceeds from issuance of stock through the employee stock purchase plan 1,000 1,000
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Effect of exchange rate changes on cash (27,000) (7,000)
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Net increase in cash and cash equivalents 98,000 105,000
Cash, beginning of period 4,483,000 3,480,000
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Cash, end of period $ 4,581,000 $ 3,585,000
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See accompanying notes to the consolidated financial statements.
5
Item 1. CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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ASTEA INTERNATIONAL INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1.BASIS OF PRESENTATION
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The consolidated financial statements at March 31, 2005 and for the three month
periods ended March 31, 2005 and 2004 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 2004 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, 2005 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, 2004 to March 31, 2005 is summarized as follows:
Cumulative
Additional Currency
Common Paid-In Translation Accumulated Treasury Comprehensive
Stock Capital Adjustment Deficit Stock Income
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Balance at December 31, 2004 $ 30,000 $ 22,997,000 $ (779,000) $(15,967,000) $ (210,000)
Issuance of common stock
under employee stock
purchase plan -- -- -- 2,000
Cumulative translation
adjustment -- -- (27,000) -- -- $ (27,000)
Net (loss) -- -- -- (618,000) -- $ (618,000)
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Balance at March 31, 2005 $ 30,000 $ 22,997,000 $ (806,000) $(16,585,000) $ (208,000) $ (645,000)
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3. CHANGE IN ACCOUNTING ESTIMATE
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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
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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, 2005, 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
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In December 2004, the FASB issued FAS 123(R), "Share Based Payment," an
amendment of FASB Statements 123 and 95.FAS No, 123(R), replaced FAS No. 123,
"Accounting for Stock-Based Compensation," and supercedes
6
APB Opinion No. 25, "Accounting for Stock Issued to Employees."This statement
requires companies to recognized the fair value of stock options and other
stock-based compensation to employees prospectively beginning with fiscal years
beginning after June 15, 2005.This means that the Company will be required to
implement FAS No. 123(R) no later than the quarter beginning January 1, 2006.The
Company currently measures stock-based compensation in accordance with APB
Opinion No. 25 as discussed above.The Company anticipates adopting the modified
prospective method of FAS No. 123(R) on January 1, 2006. The impact on the
Company's financial condition or results of operations will depend on the number
and terms of stock options outstanding on the day of change, as well as future
options that may be granted.
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.
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, 2005 March 31, 2004
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(unaudited) (unaudited)
Net (loss) income - as reported $ (618,000) $ 1,483,000
Add:Stock-based compensation included in net (loss)
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 (37,000) (32,000)
Net (loss) income - pro forma $ (655,000) $ 1,451,000
Basic and diluted (loss) income per share - as reported $ (0.21) $ 0.51
Basic and diluted (loss) income per share - pro forma $ (0.22) $ 0.50
The weighted average fair value of those options granted during the quarters
ended March 31, 2005 and 2004 was estimated at $7.03 and $2.94, 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 4.53% and 3.65% for 2005 and 2004 grants,
respectively; an expected life of six years; volatility of 128% and 130%: and a
dividend yield of zero for 2005 and 2004 grants, respectively.
6. MAJOR CUSTOMERS
For the first three months of 2005, there were no major customers.For the first
three months of 2004, one customer 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 of 2004.
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,
2004.
Astea is a global provider of service management software that addresses the
unique needs of companies who manage capital equipment, mission critical assets
and human capital.Clients include Fortune 500 to mid-size companies which Astea
services through company facilities in the United States, United Kingdom,
Australia, The Netherlands and Israel.Astea Alliance supports the complete
service lifecycle, from lead generation and project quotation to service and
billing through asset retirement.It integrates and optimizes critical business
processes for Contact Center, Field Service, Depot Repair, Logistics,
Professional Services, and Sales and Marketing.Astea extends its application
with portal, analytics and mobile solutions.Astea Alliance provides service
organizations with technology-enabled business solutions that improve
profitability, stabilize cash-flows, and reduce operational costs through
automating and integrating key service, sales and marketing processes.Since its
inception in 1979, Astea has licensed applications to companies in a wide range
of sectors including information technology, telecommunications, instruments and
controls, business systems, and medical devices.
Critical Accounting Policies and Estimates
- ------------------------------------------
The Company's significant accounting policies are more fully described in its
Summary of Accounting Policies, Note 2, to the Company's consolidated financial
statement.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 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.
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.
8
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."
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 (usually two years), beginning with
the initial release to customers.During the first quarter of 2004, the Company
revised the estimated life for its capitalized software products from three
years to two years based on current sales trends and the rate of product
releases.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.As
of March 31, 2005, management believes that no revisions to the remaining useful
lives or write-downs of capitalized software development costs are required.
Results of Operations
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Comparison of Three Months Ended March 31, 2005 and 2004
- --------------------------------------------------------
Revenues
- --------
Revenues decreased $2,114,000, or 36%, to $3,770,000 for the three months ended
March 31, 2005 from $5,884,000 for the three months ended March 31,
2004.Software license fee revenues decreased $2,298,000, or 79%, from the same
period last year.Services and maintenance fees for the three months ended March
31, 2005 amounted to $3,172,000, a 6% increase from the same quarter in 2004.
The Company's international operations contributed $2,006,000 of revenues in the
first quarter of 2005 compared to $1,486,000 in the first quarter of 2004.This
represents a 35% increase from the same period last year and 53% of total
revenues in the first quarter 2005.The increase in revenues is due to the
increase in sales from the Company's operations in Europe and Japan partially
offset by a slight decrease in sales from operations inAustralia.
Software license fee revenues decreased 79% to $598,000 in the first quarter of
2005 from $2,896,000 in the first quarter of 2004.The decrease is primarily
attributable to poor sales results in the United States during the first quarter
of 2005, as well as two significant U.S. sales totaling approximately $2.1
million, that closed during the first quarter of 2004.Astea Alliance license
revenues decreased $2,147,000 or 79%, to $583,000 in the first quarter of
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2005 from $2,730,000 in the first quarter of 2004.The Company also sold $15,000
and $166,000 of DISPATCH-1 licenses to existing customers in the first quarter
of 2005 and 2004, respectively.
Services and maintenance revenues increased 6% to $3,172,000 in the first
quarter of 2005 from $2,988,000 in the first quarter of 2004.The increase
primarily relates to service and maintenance revenues from Astea Alliance, which
increased $393,000, or 16%, to $2,824,000 from $2,431,000 in the first quarter
of 2004.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 $210,000 in DISPATCH-1 service and maintenance revenues, which
resulted from an expected decrease in demand.
Costs of Revenues
- -----------------
Cost of software license fees decreased 35% to $265,000 in the first quarter of
2005 from $410,000 in the first quarter of 2004.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 $252,000 and $230,000 for 2005 and 2004,
respectively, compared to $150,000 in the first quarter of 2003.The cost of
software license fees also decreased due to the lower level of software license
sales in the first quarter of 2005.The software licenses gross margin percentage
was 56% in the first quarter of 2005 compared to 86% in the first quarter of
2004. The decrease in gross margin was attributable to the mix of products sold
in 2005 as well as the relationship of the fixed cost of amortized capitalized
software to a lower level of sales in 2005.
Cost of services and maintenance increased 19% to $1,840,000 in the first
quarter of 2005 from $1,547,000 in the first quarter of 2004.The increase in
cost of service and maintenance is primarily attributed to additions in
headcount from last year to this year, along with the use of outside service
consultants.The services and maintenance gross margin percentage was 42% in the
first quarter of 2005 compared to 48% in the first quarter of 2004.The decrease
in services and maintenance gross margin was primarily due to start up and
training of new staff that decreased the utilization of Astea Alliance service
professionals.
Product Development
- -------------------
Product development expense increased 17% to $477,000 in the first quarter of
2005 from $408,000 in the first quarter of 2004. The Company excludes the
capitalization of software costs in product development.Capitalized software
totaled $350,000 in the first quarter of 2005 compared to $217,000 during the
same period in 2004.Product development as a percentage of revenues was 13% in
the first quarter of 2005 compared with 7% in the first quarter of 2004.The
increase in percentage of revenues is the result of the continued effort of the
Company to improve the quality and functionality of its products by adding more
development staff, combined with the decreased sales volume.
Sales and Marketing
- -------------------
Sales and marketing expense decreased 16% to $1,249,000 in the first quarter of
2005 from $1,489,000 in the first quarter of 2004. The decrease in sales and
marketing is primarily attributable to a reduction in sales commissions related
to the decrease in license sales.As a percentage of revenues, sales and
marketing expenses increased to 33% from 25% in the first quarter of 2004, which
is the direct result of decreased revenues.
General and Administrative
- --------------------------
General and administrative expenses increased 5% to $583,000 in the first
quarter of 2005 from $555,000 in the first quarter of 2004.The increase in
general and administrative expenses is attributable to higher costs due to
company initiatives and an increase in foreign currency exchange activity.As a
percentage of revenues, general and administrative expenses increased to 15%
from 9% in the first quarter of 2004.The increase is due to a significant
decrease in revenues.
10
Interest Income, net
- --------------------
Net interest income increased $18,000 from $8,000 in the first quarter of 2004
to $26,000 in the first quarter of 2005.The increase resulted primarily from an
increase in the amount of investments as well as higher interest rates paid on
the Company's portfolio of invested funds.
International Operations
- ------------------------
Total revenue from the Company's international operations increased by $520,000,
or 35%, to $2,006,000 in the first quarter of 2005 from $1,486,000 in the same
quarter in 2004.The increase in revenue from international operations was
primarily attributable to the increase in revenues from Japanese and European
operations.International operations generated net income of $257,000 for the
first quarter ended March 31, 2005 compared to income of $152,000 in the same
quarter in 2004.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operating activities was $560,000 for the three months
ended March 31, 2005 compared to cash provided by operations of $347,000 for the
three months ended March 31, 2004.The increase in cash provided by operations
was primarily attributable to significant collections in accounts receivable
compared to the same quarter last year, when the Company had significant sales
at the end of the quarter and accounts receivable increased $2.3
million.Partially offsetting the $3.5 million swing in accounts receivable was
the decrease in earnings and reduction in accounts payable.
The Company used $435,000 for investing activities in the first three months of
2005 compared to using $236,000 in the first three months of 2004.The increase
in cash used is attributable to an increase in both the capitalization of
software development costs and the acquisition of property and equipment.
The Company generated $1,000 of cash from financing activities during both three
month periods ended March 31, 2005 and 2004 from the issuance of stock through
the employee stock purchase plan.
At March 31, 2005, the Company had a working capital ratio of 1.4:1, with cash
and restricted cash of $4,881,000.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
11
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, 2005, 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, 2005, 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,
2005 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,
2005.
Item 3. Defaults Upon Senior Securities
- -------------------------------------------------
There have been no defaults by the Company on any Senior Securities during the
quarter ended March 31, 2005.
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 28, 2005, 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, 2004.
On January 7, 2005, the Company filed a report on Form 8-K/A announcing
Rick Etskovitz as Chief Financial Officer.
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 11th day of May
2005.
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