astea10q.htm
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 September
30,
2009
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 a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See definition of “accelerated filer”, “large accelerated
filer”, “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of
the Exchange act.
Large
Accelerated filer __
|
Accelerated
Filer __
|
Non-accelerated
Filer __
|
Smaller
Reporting Company X
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes No X
As of
November 5, 2009, 3,554,049 shares of the registrant’s Common Stock, par value
$.01 per share, were outstanding.
FORM
10-Q
QUARTERLY
REPORT
INDEX
|
|
Page No.
|
|
|
|
Facing
Sheet
|
|
|
|
|
|
Index
|
|
|
|
|
|
PART I - FINANCIAL
INFORMATION
|
|
|
|
|
Item
1.
|
Unaudited
Consolidated Financial Statements
|
|
|
|
|
|
Consolidated
Balance Sheets
|
|
|
|
|
|
Consolidated
Statements of Operations and Comprehensive Loss
(unaudited)
|
|
|
|
|
|
Consolidated
Statements of Cash Flows (unaudited)
|
|
|
|
|
|
Consolidated
Statements of Stockholders’ Equity
|
|
|
|
|
|
Notes
to Unaudited Consolidated Financial Statements
|
|
|
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial
|
|
|
Condition
and Results of Operations
|
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosure About Market Risk
|
|
|
|
|
Item
4T.
|
Controls
and Procedures
|
|
|
|
|
PART II - OTHER INFORMATION
|
|
|
|
|
Item
1A
|
Risk
Factors
|
|
|
|
|
Item
6.
|
Exhibits
|
|
|
|
|
|
Signatures
|
|
PART I - FINANCIAL
INFORMATION
Item
1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE
SHEETS
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2009
(Unaudited)
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
2,774,000 |
|
|
$ |
3,144,000 |
|
Investments
available for sale
|
|
|
200,000 |
|
|
|
500,000 |
|
Receivables,
net of reserves of $256,000 (unaudited) and $177,000
|
|
|
5,128,000 |
|
|
|
5,164,000 |
|
Prepaid
expenses and other
|
|
|
422,000 |
|
|
|
362,000 |
|
Total
current assets
|
|
|
8,524,000 |
|
|
|
9,170,000 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
262,000 |
|
|
|
385,000 |
|
Intangibles,
net
|
|
|
948,000 |
|
|
|
1,159,000 |
|
Capitalized
software, net
|
|
|
2,696,000 |
|
|
|
2,718,000 |
|
Goodwill
|
|
|
1,538,000 |
|
|
|
1,538,000 |
|
Other
long-term restricted cash
|
|
|
103,000 |
|
|
|
146,000 |
|
Other
assets
|
|
|
45,000 |
|
|
|
50,000 |
|
|
|
$ |
14,116,000 |
|
|
$ |
15,166,000 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$ |
2,410,000 |
|
|
$ |
2,764,000 |
|
Deferred
revenues
|
|
|
5,527,000 |
|
|
|
5,112,000 |
|
Total
current liabilities
|
|
|
7,937,000 |
|
|
|
7,876,000 |
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
|
Deferred
tax liability
|
|
|
146,000 |
|
|
|
118,000 |
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, $.01 par value, 5,000,000 shares authorized; issued
and
outstanding
826,000 as of September 30, 2009 and December 31, 2008
|
|
|
8,000 |
|
|
|
8,000 |
|
Common
stock $.01 par value, 25,000,000 shares authorized; issued
3,596,000
as
of September 30, 2009 and December 31,
2008
|
|
|
36,000 |
|
|
|
36,000 |
|
Additional
paid-in capital
|
|
|
31,030,000 |
|
|
|
30,998,000 |
|
Accumulated
deficit
|
|
|
(24,343,000 |
) |
|
|
(23,004,000 |
) |
Cumulative
comprehensive loss
|
|
|
(490,000
|
) |
|
|
(658,000
|
) |
Less: treasury
stock at cost, 42,000 shares
|
|
|
(208,000
|
) |
|
|
(208,000
|
) |
Total
stockholders’ equity
|
|
|
6,033,000 |
|
|
|
7,172,000 |
|
Total
liabilities and stockholders’ equity
|
|
$ |
14,116,000 |
|
|
$ |
15,166,000 |
|
See
accompanying notes to the consolidated financial statements.
|
|
CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited)
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
2008
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
license fees
|
|
$
|
414,000
|
|
|
$
|
141,000
|
|
|
$
|
1,024,000
|
|
$
|
1,994,000
|
|
Services
and maintenance
|
|
|
4,377,000
|
|
|
|
5,301,000
|
|
|
|
13,482,000
|
|
|
15,945,000
|
|
Total
revenues
|
|
|
4,791,000
|
|
|
|
5,442,000
|
|
|
|
14,506,000
|
|
|
17,939,000
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of software license fees
|
|
|
543,000
|
|
|
|
707,000
|
|
|
|
1,422,000
|
|
|
2,166,000
|
|
Cost
of services and maintenance
|
|
|
2,707,000
|
|
|
|
3,100,000
|
|
|
|
8,017,000
|
|
|
9,684,000
|
|
Product
development
|
|
|
526,000
|
|
|
|
746,000
|
|
|
|
1,687,000
|
|
|
3,476,000
|
|
Sales
and marketing
|
|
|
708,000
|
|
|
|
1,029,000
|
|
|
|
2,354,000
|
|
|
3,625,000
|
|
General
and administrative
|
|
|
665,000
|
|
|
|
838,000
|
|
|
|
2,307,000
|
|
|
2,539,000
|
|
Total
costs and expenses
|
|
|
5,149,000
|
|
|
|
6,420,000
|
|
|
|
15,787,000
|
|
|
21,490,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(358,000
|
)
|
|
|
(978,000
|
)
|
|
|
(1,281,000
|
)
|
|
(3,551,000
|
)
|
Interest
income, net
|
|
|
6,000
|
|
|
|
13,000
|
|
|
|
24,000
|
|
|
46,000
|
|
Loss
before income taxes
|
|
|
(352,000
|
)
|
|
|
(965,000
|
)
|
|
|
(1,257,000
|
)
|
|
(3,505,000
|
)
|
Income
tax expense
|
|
|
1,000
|
|
|
|
11,000
|
|
|
|
82,000
|
|
|
31,000
|
|
Net
loss
|
|
$
|
(353,000
|
)
|
|
$
|
(976,000
|
)
|
|
$
|
(1,339,000
|
)
|
$
|
(3,536,000
|
)
|
Preferred
dividend
|
|
|
73,000
|
|
|
|
-
|
|
|
|
219,000
|
|
|
-
|
|
Net
loss available to common shareholders
|
|
$
|
(426,000)
|
|
|
$
|
(976,000
|
)
|
|
$
|
(1,558,000)
|
|
$
|
(3,536,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(353,000
|
)
|
|
$
|
(976,000
|
)
|
|
$
|
(1,339,000
|
)
|
$
|
(3,536,000
|
)
|
Cumulative
translation adjustment
|
|
|
54,000
|
|
|
|
(75,000
|
)
|
|
|
168,000
|
|
|
(62,000
|
)
|
Comprehensive
loss:
|
|
$
|
(299,000
|
)
|
|
$
|
(1,051,000
|
)
|
|
$
|
(1,171,000
|
)
|
$
|
(3,598,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
$
|
(0.12
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(0.44
|
)
|
$
|
(0.99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding used in computing
basic
and diluted loss per common share
|
|
|
3,554,000
|
|
|
|
3,554,000
|
|
|
|
3,554,000
|
|
|
3,554,000
|
|
|
|
See
accompanying notes to the consolidated financial
statements.
|
|
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Unaudited)
|
|
For
the Nine Months
Ended
September 30,
|
|
|
|
2009
|
2008
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,339,000
|
)
|
|
$
|
(3,536,000
|
)
|
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,662,000
|
|
|
|
2,504,000
|
|
Provision
for doubtful accounts
|
|
|
89,000
|
|
|
|
(60,000
|
)
|
Stock
based compensation
|
|
|
167,000
|
|
|
|
219,000
|
|
Deferred
tax expense
|
|
|
28,000
|
|
|
|
31,000
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(58,000
|
)
|
|
|
2,504,000
|
|
Prepaid
expenses and other
|
|
|
(144,000
|
)
|
|
|
127,000
|
|
Accounts
payable and accrued expenses
|
|
|
(37,000
|
)
|
|
|
(144,000
|
)
|
Deferred
revenues
|
|
|
426,000
|
|
|
|
(797,000
|
)
|
Other
assets
|
|
|
5,000
|
|
|
|
8,000
|
|
Net
cash provided by operating activities
|
|
|
799,000
|
|
|
|
856,000
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Sale
of short term investments
|
|
|
300,000
|
|
|
|
-
|
|
Purchases
of property and equipment
|
|
|
(58,000
|
)
|
|
|
(234,000
|
)
|
Capitalized
software development costs
|
|
|
(1,248,000
|
)
|
|
|
(1,544,000
|
)
|
Release
of restricted cash
|
|
|
44,000
|
|
|
|
-
|
|
Net
cash used in investing activities
|
|
|
(962,000
|
)
|
|
|
(1,778,000
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds
from preferred stock
|
|
|
-
|
|
|
|
3,000,000
|
|
Issuance
costs of preferred stock
|
|
|
-
|
|
|
|
(106,000
|
)
|
Release
of restricted cash
|
|
|
-
|
|
|
|
150,000
|
|
Dividend
payments on preferred stock
|
|
|
(135,000
|
)
|
|
|
-
|
|
Net
cash (used in) provided by financing activities
|
|
|
(135,000
|
)
|
|
|
3,044,000
|
|
Effect
of exchange rate changes on cash
|
|
|
(72,000
|
)
|
|
|
(34,000
|
)
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(370,000
|
)
|
|
|
2,088,000
|
|
Cash
and cash equivalents, beginning of period
|
|
|
3,144,000
|
|
|
|
1,615,000
|
|
Cash
and cash equivalents, end of period
|
|
$
|
2,774,000
|
|
|
$
|
3,703,000
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure for non-cash operating and investing
activities:
|
|
|
|
|
|
|
|
|
Adjustment
to earnout provision related to previous agreement
|
|
$
|
-
|
|
|
$
|
2,000
|
|
See
accompanying notes to the consolidated financial
statements.
|
|
ASTEA INTERNATIONAL INC., AND
SUBSIDIARIES
|
|
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Additional Paid-in
Capital
|
|
|
Accumulated
Deficit
|
|
|
Cumulative
Comprehensive
Loss
|
|
|
Treasury
Stock
|
|
|
Total
Stock-
holders'
Equity
|
|
|
Compre-
hensive
Loss
|
|
Balance,
December 31, 2007
|
|
$ |
- |
|
|
$ |
36,000 |
|
|
$ |
27,852,000 |
|
|
$ |
(19,869,000 |
) |
|
$ |
(703,000 |
) |
|
$ |
(208,000 |
) |
|
$ |
7,108,000 |
|
|
|
|
Issuance
of preferred stock
|
|
|
8,000 |
|
|
|
|
|
|
|
2,992,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000,000 |
|
|
|
|
Legal
Fees - Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
(106,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(106,000 |
) |
|
|
|
Dividends
paid on preferred stock
|
|
|
|
|
|
|
|
|
|
|
(48,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48,000 |
) |
|
|
|
Stock-based
compensation
|
|
|
|
|
|
|
|
|
|
|
308,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
308,000 |
|
|
|
|
Currency
translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,000 |
|
|
|
|
|
|
|
45,000 |
|
|
|
45,000 |
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,135,000 |
) |
|
|
|
|
|
|
|
|
|
$ |
(3,135,000 |
) |
|
|
(3,135,000 |
) |
Balance,
December 31, 2008
|
|
$ |
8,000 |
|
|
$ |
36,000 |
|
|
$ |
30,998,000 |
|
|
$ |
(23,004,000 |
) |
|
$ |
(658,000 |
) |
|
$ |
(208,000 |
) |
|
$ |
7,172,000 |
|
|
$ |
(3,090,000 |
) |
Dividends
paid on preferred stock
|
|
|
|
|
|
|
|
|
|
|
(135,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(135,000 |
) |
|
|
|
|
Stock-based
compensation
|
|
|
|
|
|
|
|
|
|
|
167,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
167,000 |
|
|
|
|
|
Currency
translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168,000 |
|
|
|
|
|
|
|
168,000 |
|
|
|
168,000 |
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,339,000 |
) |
|
|
|
|
|
|
|
|
|
|
(1,339,000 |
) |
|
|
(1,339,000 |
) |
Balance,
September 30, 2009
|
|
$ |
8,000 |
|
|
$ |
36,000 |
|
|
$ |
31,030,000 |
|
|
$ |
(24,343,000 |
) |
|
$ |
(490,000 |
) |
|
$ |
(208,000 |
) |
|
$ |
6,033,000 |
|
|
$ |
(1,171,000 |
) |
See
accompanying notes to the consolidated financial statements.
Item
1. CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
ASTEA INTERNATIONAL INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
The
consolidated financial statements at September 30, 2009 and for the three and
nine month periods ended September 30, 2009 and 2008 of Astea International Inc.
and subsidiaries (“Astea” or 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 following
unaudited condensed financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission
(“SEC”). Certain information and note disclosures normally included
in annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to those rules and
regulations, although the Company believes that the disclosures made are
adequate to make the information not misleading. It is suggested that
these condensed financial statements be read in conjunction with the financial
statements and the notes thereto, included in the Company’s latest shareholders
annual report (Form 10-K) and our Form 10-Q’s for the quarters ended March 31,
2009, June 30, 2009, September 30, 2008, June 30, 2008 and March 31,
2008. The interim financial information presented is not necessarily
indicative of results expected for the entire year ended December 31,
2009.
2. SUBSEQUENT
EVENTS
The
Company evaluates events occurring between the end of our fiscal quarter and,
September 30, 2009 and November 10, 2009 when the financial statements were
issued.
3. RECENTLY ADOPTED ACCOUNTING
GUIDANCE
In
September 2009, guidance was issued by the Financial Accounting Standards Board
(“FASB”) that addresses the effect on the calculation of earnings per share for
a period that includes the redemption or induced conversion of preferred
stock. The guidance addresses the difference between the (1) fair
value of the consideration transferred to the holders of preferred stock and (2)
the carrying amount of the preferred stock in the registrant’s balance sheet
should be subtracted from net income to arrive at income available to commons
stockholders in the calculation of earnings per share. Adoption of
this new guidance did not have a material impact on our financial
statements.
On
January 1, 2009, we adopted authoritative guidance issued by FASB on business
combinations. The guidance retains the fundamental requirements that the
acquisition method of accounting (previously referred to as the purchase method
of accounting) be used for all business combinations, but requires a number of
changes, including changes in the way assets and liabilities are recognized and
measured as a result of business combinations. It also requires the
capitalization of in-process research and development at fair value and requires
the expensing of acquisition-related costs as incurred. We adopted this guidance
for all business combinations that occur after January 1,
2009.
On
January 1, 2009, we adopted the authoritative guidance issued by the FASB
that changes the accounting and reporting for non-controlling interests.
Non-controlling interests are to be reported as a component of equity separate
from the parent’s equity, and purchases or sales of equity interests that do not
result in a change in control are to be accounted for as equity transactions. In
addition, net income attributable to a non-controlling interest is to be
included in net income and, upon a loss of control, the interest sold, as well
as any interest retained, is to be recorded at fair value with any gain or loss
recognized in net income. Adoption of the new guidance did not have a material
impact on our financial statements.
On
January 1, 2009, we adopted the authoritative guidance on fair value
measurement for nonfinancial assets and liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). Adoption of the new guidance did not have a material
impact on our financial statements.
4. RECENT ACCOUNTING GUIDANCE
NOT YET ADOPTED
In
October 2009, the FASB issued authoritative guidance on revenue recognition that
will become effective for us beginning July 1, 2010, with earlier adoption
permitted. Under the new guidance, arrangements that include software
elements, tangible products that have software components that are essential to
the functionality of the tangible product will no longer be within the scope of
the software revenue recognition guidance. Software-enabled products
will now be subject to other relevant revenue recognition
guidance. Additionally, the FASB issued authoritative guidance on
revenue arrangements with multiple deliverables that are outside the scope of
the software revenue recognition guidance. Under the new guidance, when vendor
specific objective evidence or third party evidence for deliverables in an
arrangement cannot be determined, a best estimate of the selling price is
required to separate deliverables and allocate arrangement consideration using
the relative selling price method. The new guidance includes new disclosure
requirements on how the application of the relative selling price method affects
the timing and amount of revenue recognition. We believe adoption of
this new guidance will not have a material impact on our financial
statements.
In June
2009, the FASB issued authoritative guidance on the consolidation of variable
interest entities, which is effective for us beginning January 1, 2010. The
new guidance requires revised evaluations of whether entities represent variable
interest entities, ongoing assessments of control over such entities, and
additional disclosures for variable interests. We believe adoption of
this new guidance will not have a material impact on our financial
statements.
5. FAIR VALUE
MEASUREMENTS
The
Company accounts for certain assets and liabilities at fair
value. The hierarchy below lists three levels of fair value based on
the extent to which inputs in measuring fair value are observable in the
market. We categorize each of our fair value measurements in one of
these three levels based on the lowest level input that is significant to the
fair value measurement in its entirety. These levels
are:
|
1.
|
Level
1 - Valuations based on quoted prices in active markets for identical
assets or liabilities that the Company has the ability to access at the
measurement date.
|
|
2.
|
Level
2 - Valuations based inputs on other than quoted prices included within
level 1, that are observable for the asset or the liability, either
directly or indirectly.
|
|
3.
|
Level
3 - Valuations based on inputs that are unobservable for the asset or the
liability measurement.
|
On
December 31, 2008 and September 30, 2009 the fair value for all of the
Company’s investments was determined based upon quoted prices in active markets
for identical assets (Level 1).
6. INCOME
TAX
The
Company has identified its federal tax return and its state returns in
Pennsylvania and California as “major” tax jurisdictions. Based on
our evaluation, we concluded that there are no significant uncertain tax
positions requiring recognition in the Company’s financial
statements. The Company’s evaluation was performed for tax years
ended 2003 through 2008, the only periods subject to
examination. The Company believes that its income tax positions
and deductions will be sustained on audit and does not anticipate any
adjustments that will result in a material change to its financial
position. Accordingly, the Company did not record a cumulative effect
adjustment.
The
Company’s policy for recording interest and penalties associated with audits is
to record such items as a component of income before income
taxes. Penalties are recorded in general and administrative expenses
and interest paid or received is recorded in interest expense or interest
income, respectively, in the statement of operations. For the third
quarter 2009, there was no interest or penalties related to the settlement of
audits.
At
September 30, 2009, the Company maintains a 100% valuation allowance for its
remaining deferred tax assets, based on the uncertainty of the realization of
future taxable income.
In 2008,
the Israel Tax Authority “ITA” notified the Company that it intends to
re-examine a 2002 transaction that it had previously approved. The Company is
vigorously defending itself in court and based on information to date, does not
expect this issue to result in any additional tax, interest and/or penalties to
the Company.
7. STOCK BASED
COMPENSATION
The
Company records stock based compensation using the modified prospective
transition method. Under this method, compensation costs
recognized in the first nine months of 2009 include (a) compensation costs for
all share-based payments granted to employees and directors prior to, but not
yet vested as of January 1, 2006, based on the grant date value estimated and
(b) compensation cost for all share-based payments granted subsequent to January
1, 2006, based on the grant date fair value estimated in.
The
Company estimates the fair value of stock options granted using the
Black-Scholes-Merton (Black-Scholes) option-pricing formula and amortizes the
estimated option value using an accelerated amortization method where each
option grant is split into tranches based on vesting periods. The
Company’s expected term represents the period that the Company’s share-based
awards are expected to be outstanding and was determined based on historical
experience regarding similar awards, giving consideration to the contractual
terms of the share-based awards and employee termination
data. Executive level employees who hold a majority of options
outstanding, and non-executive level employees each have similar historical
option exercise and termination behavior and thus were grouped for valuation
purposes. The Company’s expected volatility is based on the
historical volatility of its traded common stock and places exclusive reliance
on historical volatilities to estimate our stock volatility over the expected
term of its awards. The Company has historically not paid dividends
and has no foreseeable plans to issue dividends. The risk-free
interest rate is based on the yield from the U.S. Treasury zero-coupon bonds
with an equivalent term. Results for prior periods have not been
restated.
As of
September 30, 2009, the total unrecognized compensation cost related to
non-vested options amounted to $263,000, which is expected to be recognized over
the options’ average remaining vesting period of 1.18 years. No
income tax benefit was realized by the Company in the nine months ended
September 30, 2009.
Under the
Company’s stock option plans, option awards generally vest over a four year
period of continuous service and have a 10 year contractual term. The
fair value of each option is amortized on a straight-line basis over the
option’s vesting period. The fair value of each option is estimated
on the date of grant using the Black-Scholes option valuation
model.
There
were no options granted during the first nine months of 2009. During
the same period in 2008, the Company granted 25,000 options.
Activity
under the Company’s stock option plans is as follows:
|
|
OPTIONS
OUTSTANDING
|
|
|
Shares
|
|
|
Wtd.
Avg. Exercise Price
|
Balance,
December 31, 2008
|
|
|
469,000 |
|
|
$ |
5.57 |
|
Authorized
|
|
|
- |
|
|
|
- |
|
Granted
|
|
|
- |
|
|
|
- |
|
Forfeited
|
|
|
(23,000
|
) |
|
|
4.54 |
|
Exercised
|
|
|
- |
|
|
|
- |
|
Expired
|
|
|
(10,000
|
) |
|
|
5.16 |
|
Balance,
September 30, 2009
|
|
|
436,000 |
|
|
$ |
5.63 |
|
The
following table summarizes outstanding options that are vested and expected to
vest and options under the Company’s stock options plans as of September 30,
2009.
|
Number
of Shares
|
Weighted
Average Exercise Price Per Share
|
Weighted
Average Remaining Contractual Term (in years)
|
Aggregate
Intrinsic Value
|
Outstanding
Options
|
436,000
|
$5.63
|
6.17
|
-
|
|
|
|
|
|
Ending
Vested and Expected to Vest
|
366,000
|
$5.80
|
5.83
|
-
|
|
|
|
|
|
Options
Exercisable
|
274,000
|
$6.23
|
5.05
|
-
|
|
|
|
|
|
8. LOSS PER
SHARE
Earnings
per share is computed on the basis of the weighted average number of shares and
common stock equivalents outstanding during the period. In the
calculation of diluted earnings per share, shares outstanding are adjusted to
assume conversion of the Company’s non-interest bearing convertible stock and
exercise of options as if they were dilutive. In the calculation of
basic earnings per share, weighted average numbers of shares outstanding are
used as the denominator. The Company had a net loss available to the
common shareholders for the three months ended September 30, 2009 and September
30, 2008. The Company had a net loss available to the common
shareholders for the nine months ended September 30, 2009 and September 30,
2008. Loss per share is computed as follows:
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss available to common shareholders
|
|
$ |
(426,000 |
) |
|
$ |
(976,000 |
) |
|
$ |
(1,558,000 |
) |
|
$ |
(3,536,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares used to compute net loss available to common shareholders
per common share-basic
|
|
|
3,554,000 |
|
|
|
3,554,000 |
|
|
|
3,554,000 |
|
|
|
3,554,000 |
|
Effect
of dilutive stock options
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares used to compute net loss available to shareholders per
common share-dilutive
|
|
|
3,554,000 |
|
|
|
3,554,000 |
|
|
|
3,554,000 |
|
|
|
3,554,000 |
|
Basic
net loss per share to common shareholder
|
|
$ |
(0.12 |
) |
|
$ |
(0.27 |
) |
|
$ |
(0.44 |
) |
|
$ |
(0.99 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive
net loss per share to common shareholder
|
|
$ |
(0.12 |
) |
|
$ |
(0.27 |
) |
|
$ |
(0.44 |
) |
|
$ |
(0.99 |
) |
All
options outstanding for the three and nine months ended September 30, 2009 and
2008 to purchase shares of common stock and preferred stock convertible into
common stock were excluded from the diluted loss per common share calculation as
the inclusion of the options and the convertible preferred
stock would have been antidilutive.
9. MAJOR
CUSTOMERS
For the
three months ended September 30, 2009 no customer accounted for more than 10% of
total revenues. For the three months ended September 30, 2008 one
customer accounted for 16% of total revenues. For the nine months
ended September 30, 2009, no customer accounted for more than 10% of total
revenues. For the nine months ended September 30, 2008, one customer
accounted for 11% of total revenues. At September 30, 2009, two
customers accounted for 11% or more of total accounts receivable. At
December 31, 2008, one customer accounted for 13% of total accounts
receivable.
10. GEOGRAPHIC SEGMENT
DATA
The
Company and its subsidiaries are engaged in the design, development, marketing
and support of its service management software
solutions. Substantially all revenues result from the license of the
Company’s software products and related professional services and customer
support services. The Company’s chief executive officer reviews
financial information presented on a consolidated basis, accompanied by
disaggregated information about revenues by geographic region for purposes of
making operating decisions and assessing financial
performance. Accordingly, the Company considers itself to have three
reporting segments as follows:
|
|
Three
Months Ended September
30, |
|
|
Nine
Months
Ended
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Software license fees
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$ |
205,000 |
|
|
$ |
141,000 |
|
|
$ |
697,000 |
|
|
$ |
1,663,000 |
|
Total
United States
software
license fees
|
|
|
205,000 |
|
|
|
141,000 |
|
|
|
697,000 |
|
|
|
1
,663,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
189,000 |
|
|
|
- |
|
|
|
310,000 |
|
|
|
- |
|
Asia
Pacific
|
|
|
20,000 |
|
|
|
- |
|
|
|
17,000 |
|
|
|
331,000 |
|
Total
foreign software
license
fees
|
|
|
209,000 |
|
|
|
- |
|
|
|
327,000 |
|
|
|
331,000 |
|
Total
software license fees
|
|
|
414,000 |
|
|
|
141,000 |
|
|
|
1,024,000 |
|
|
|
1,994,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
and maintenance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
2,320,000 |
|
|
|
3,703,000 |
|
|
|
8,813,000 |
|
|
|
11,577,000 |
|
Export
|
|
|
297,000 |
|
|
|
- |
|
|
|
483,000 |
|
|
|
155,000 |
|
Total
United States service
and
maintenance revenue
|
|
|
2,617,000 |
|
|
|
3,703,000 |
|
|
|
9,296,000 |
|
|
|
11,732,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
575,000 |
|
|
|
721,000 |
|
|
|
1,698,000 |
|
|
|
2,287,000 |
|
Asia
Pacific
|
|
|
1,185,000 |
|
|
|
877,000 |
|
|
|
2,488,000 |
|
|
|
1,926,000 |
|
Total
foreign service and
maintenance
revenue
|
|
|
1,760,000 |
|
|
|
1,598,000 |
|
|
|
4,186,000 |
|
|
|
4,213,000 |
|
Total
service and
maintenance
revenue
|
|
|
4,377,000 |
|
|
|
5,301,000 |
|
|
|
13,482,000 |
|
|
|
15,945,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$ |
4,791,000 |
|
|
$ |
5,442,000 |
|
|
$ |
14,506,000 |
|
|
$ |
17,939,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
(259,000 |
) |
|
$ |
(802,000 |
) |
|
$ |
(1,052,000 |
) |
|
$ |
(2,577,000 |
) |
Europe
|
|
|
(147,000 |
) |
|
|
(445,000 |
) |
|
|
(499,000 |
) |
|
|
(1,315,000 |
) |
Asia
Pacific
|
|
|
53,000 |
|
|
|
271,000 |
|
|
|
212,000 |
|
|
|
356,000 |
|
Net
loss
|
|
$ |
(353,000 |
) |
|
$ |
(976,000 |
) |
|
$ |
(1,339,000 |
) |
|
$ |
(3,536,000 |
) |
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 Astea International
Inc.’s (“Astea or the Company”) Annual Report on Form 10-K for the fiscal year
ended December 31, 2008.
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, Japan, the Netherlands and Israel. 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.
Astea
Alliance, the Company’s service management suite of solutions, 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.
Marketing
and sales of licenses, service and maintenance related to the Company’s legacy
system DISPATCH-1® products are limited to existing DISPATCH-1
customers.
FieldCentrix
On
September 21, 2005, the Company, through a wholly owned subsidiary, FC
Acquisition Corp., acquired substantially all of the assets of FieldCentrix Inc,
the industry’s leading mobile field force automation
company. FieldCentrix develops and markets mobile field service
automation (FSA) systems, which include the wireless dispatch and support of
mobile field technicians using portable, hand-held computing
devices. The FieldCentrix offering has evolved into a leading
complementary service management solution that runs on a wide range of mobile
devices (handheld computers, laptops and PC’s, and Pocket PC devices), and
integrates seamlessly with popular CRM and ERP
applications. FieldCentrix has licensed applications to Fortune 500
and mid-size companies in a wide range of sectors including HVAC, building and
real estate services, manufacturing, process instruments and controls, and
medical equipment.
Critical Accounting Policies
and Estimates
The
Company’s significant accounting policies are more fully described in its
Summary of Accounting Policies, Note 2, in the Company’s 2008 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.
Principles
of Consolidation
The
consolidated financial statements include the accounts of Astea International
Inc. and its wholly owned subsidiaries and branches. All significant
intercompany accounts and transactions have been eliminated upon
consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. Significant assets and liabilities that are subject to
estimates include allowances for doubtful accounts, goodwill and other acquired
intangible assets, deferred tax assets and certain accrued and contingent
liabilities.
Revenue
Recognition
Astea’s
revenue is principally recognized from two sources: (i) licensing arrangements
and (ii) services and maintenance.
The
Company markets its products primarily through its direct sales force and
resellers. License agreements do not provide for a right of return,
and historically, product returns have not been significant.
Astea
recognizes revenue from license sales when all of the following criteria are
met: persuasive evidence of an arrangement exists, delivery has occurred, the
license fee is fixed and determinable and the collection of the fee is
probable. We utilize written contracts as a means to establish the
terms and conditions by which our products support and services are sold to our
customers. Delivery is considered to have occurred when title and
risk of loss have been transferred to the customer, which generally occurs after
a license key has been delivered electronically to the
customer. Revenue for arrangements with extended payment terms in
excess of one year is recognized when the payments become due, provided all
other revenue recognition criteria are satisfied. If collectability
is not considered probable, revenue is recognized when the fee is
collected. Our typical end user license agreements do not contain
acceptance clauses. However, if acceptance criteria is required,
revenues are deferred until customer acceptance has occurred.
Astea
allocates revenue to each element in a multiple-element arrangement based on the
elements’ respective fair value, determined by the price charged when the
element is sold separately. Specifically, Astea determines the fair
value of the maintenance portion of the arrangement based on the price, at the
date of sale, if sold separately, which is generally a fixed percentage of the
software license selling price. The professional services portion of
the arrangement is based on hourly rates which the Company charges for those
services when sold separately from software. If evidence of fair
value of all undelivered elements exists, but evidence does not exist for one or
more delivered elements, then revenue is recognized using the residual
method. If an undelivered element for which evidence of fair value
does not exist, all revenue in an arrangement is deferred until the undelivered
element is delivered or fair value can be determined. Under the residual method,
the fair value of the undelivered elements is deferred and the remaining portion
of the arrangement fee is recognized as revenue. The residual value, after
allocation of the fee to the undelivered elements based on VSOE of fair value,
is then allocated to the perpetual software license for the software products
being sold. The Company’s policy is to recognize expenses as incurred
when revenues are deferred in connection with transactions where VSOE cannot be
established for an undelivered element. Accordingly, all costs
associated with the contracts are recorded in the period incurred, which may
differ from the period in which revenue is recognized.
When
appropriate, the Company may allocate 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 rates when provided in
conjunction with the licensing arrangement. Amounts allocated are
based upon standard prices charged for those services or products which, in the
Company’s opinion, approximate fair value. 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,
which is generally twelve months on a straight-line basis. Consulting
and training service revenue is generally unbundled and recognized at the time
the service is performed.
We
believe that our accounting estimates used in applying our revenue recognition
are critical because:
|
·
|
the
determination that it is probable that the customer will pay for the
product and services purchased is inherently
judgmental;
|
|
·
|
the
allocation of proceeds to certain elements in multiple-element
arrangements is complex;
|
|
·
|
the
determination of whether a service is essential to functionality of the
software is complex;
|
|
·
|
establishing
company-specific fair values of elements in multiple-element arrangements
requires adjustments from time-to-time to reflect recent prices charged
when each element is sold separately;
and
|
|
·
|
the
determination of the stage of completion of certain consulting
arrangements is complex.
|
Changes
in the aforementioned items could have a material effect on the type and timing
of revenue recognized.
If we
were to change our pricing approach in the future, this could affect our revenue
recognition estimates, in particular, if bundled pricing precludes establishment
of VSOE.
For the
three months ended September 30, 2009 and 2008, the Company recognized
$4,791,000 and $5,442,000, respectively, of revenue related to software license
fees and services and maintenance. For the nine months ended
September 30, 2009 and 2008, the Company recognized $14,506,000 and $17,939,000
respectively, of revenue related to software license fees and services and
maintenance.
Reimbursable
Expenses
The
Company charges customers for out-of-pocket expenses incurred by its employees
during the performance of professional services in the normal course of
business. Billings for out-of-pocket expenses that are reimbursed by
the customer are to be included in revenues with the corresponding expense
included in cost of services and maintenance.
Investments
Available for Sale
Investments
that the Company designated as available-for-sale are reported at fair value,
with unrealized gains and losses, net of tax, recorded in accumulated other
comprehensive income (loss). The Company bases the cost of the
investment sold on the specific identification method. The
available-for-sale investment consists of variable rate domestic
obligations. These are U.S. corporate obligations in which the yield
adjusts weekly and can be sold any time with funds available in 5
days.
The
Company defines the fair value as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date.
The
Company accounts for certain assets and liabilities at fair
value. The hierarchy below lists three levels of fair value based on
the extent to which inputs in measuring fair value are observable in the
market. We categorize each of our fair value measurements in one of
these three levels based on the lowest level input that is significant to the
fair value measurement in its entirety. These levels
are:
|
1.
|
Level
1 - Valuations based on quoted prices in active markets for identical
assets that the Company has the ability to
access.
|
|
2.
|
Level
2 - Valuations based inputs on other than quoted prices included within
level 1, for which all significant inputs are observable, either directly
or indirectly.
|
|
3.
|
Level
3 - Valuations based on inputs that are unobservable and significant to
the overall fair value measurement.
|
On
September 30, 2009 and December 31, 2008 the fair value for all of the
Company’s investments was determined based upon quoted prices in active markets
for identical assets (Level 1).
Accounts
Receivable
The
Company records an allowance for doubtful accounts based on specifically
identified amounts that management believes to be uncollectible. The
Company also records an additional allowance based on certain percentages of
aged receivables, which are determined based on historical experience and
management’s assessment of the general financial conditions affecting the
Company’s customer base. Once management determines that an account will not be
collected, the account is written off against the allowance for doubtful
accounts. If actual collections experience changes, revisions to the
allowances may be required.
We
believe that our estimate of our allowance for doubtful accounts is critical
because of the significance of our accounts receivable relative to total
assets. If the general economy deteriorates, or factors affecting the
profitability or liquidity of the industry changed significantly, then this
could affect the accuracy of our allowance for doubtful accounts.
Capitalized
Software Research and Development Costs
The
Company capitalizes software development costs incurred during the period from
the establishment of technological feasibility through the product’s
availability for general release. Costs incurred prior to the
establishment of technology feasibility are charged to product development
expense. Product development expense includes payroll, employee
benefits, other headcount-related costs associated with product development and
any related costs to third parties under sub-contracting or net of any
collaborative arrangements.
Software
development costs are amortized on a product-by product basis over the greater
of the ratio of current revenues to total anticipated revenues (current and
future revenues) or on a straight-line basis over the estimated useful lives of
the products beginning with the initial release to customers. The
Company’s estimated life for its capitalized software products is two years
based on current sales trends and the rate of product release. The Company
continually evaluates whether events or circumstances had 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.
We
believe that our estimate of our capitalized software costs and the period for
their amortization is critical because of the significance of our balance of
capitalized software costs relative to our total assets. Potential
impairment is determined by comparing the balance of unamortized capitalized
software costs to the sales revenue projected for a capitalized software
project. If efforts to sell that software are terminated, or if the
projected sales revenue from the software drops below a level that is less than
the unamortized balance, then an impairment would be recognized.
Goodwill
Goodwill
represents the excess of the cost of businesses acquired over the fair value of
the net assets acquired at the date of acquisition. Goodwill is not amortized
but rather tested for impairment at least annually. The Company performs its
annual impairment test as of the first day of the fiscal fourth quarter. The
impairment test must be performed more frequently if there are triggering
events, as for example when our market capitalization significantly declines for
a sustained period, which could cause us to do interim impairment testing that
might result in an impairment to goodwill.
The
Company uses a two step method for determining goodwill impairment. In the first
step, the Company determines the fair value of the reporting unit and compares
that fair value to the carrying value of the reporting unit including goodwill.
The fair value of the reporting unit is determined using various valuation
techniques, including a comparable companies market multiple approach and a
discounted cash flow analysis (an income approach). If the carrying
value of a reporting unit exceeds its fair value, the Company performs the
second step of the goodwill impairment test to measure the impairment loss, if
any.
The
Company compares the implied fair value of goodwill with the carrying amount of
goodwill. The Company determined the implied fair value of goodwill
in the same manner as if the Company had acquired those business units.
Specifically, the Company must allocate the fair value of the reporting unit to
all of the assets of that unit, including any unrecognized intangible assets, in
a hypothetical calculation that would yield the implied fair value of
goodwill.
Our
annual impairment test, which was completed during the fourth quarter of 2008,
indicated that the fair value of our one reporting unit exceeded the carrying
value and, therefore, the goodwill amount was not impaired for our one reporting
unit.
The
determination of the fair value of the reporting units and the allocation of
that value to individual assets and liabilities within those reporting units
requires the Company to make significant estimates and assumptions. These
estimates and assumptions primarily include, but are not limited to: the
selection of appropriate peer group companies; control premiums appropriate for
acquisitions in the industries in which the Company competes; the discount rate;
terminal growth rates; and forecasts of revenue, operating income, depreciation
and amortization, and capital expenditures.
Due to
the inherent uncertainty involved in making these estimates, actual financial
results could differ from those estimates. Changes in assumptions concerning
future financial results or other underlying assumptions could have a
significant impact on either the fair value of the reporting unit or the amount
of the goodwill impairment charge.
On
September 21, 2005, the Company acquired the assets and certain liabilities of
FieldCentrix, Inc. through its wholly-owned subsidiary, FC Acquisition Corp.
Included in the allocation of the purchase price was goodwill valued at
$1,100,000.
The
purchase agreement provided for an earn-out provision through June 30, 2007 that
paid the sellers a percentage of certain license revenues and certain
professional services. Due to the contingent nature of such payments,
the value of the future payments was not included in the purchase
price. However, as such sales transactions occurred, the related
earn-out amounts were added to the purchase price, specifically goodwill. The
total addition to goodwill from the date the assets of FieldCentrix, Inc. were
acquired through the end of the earn-out period June 30, 2007 was
$285,000.
Major
Customers
For the
three months ended September 30, 2009 no customer accounted for more than 10% of
total revenues. For the three months ended September 30, 2008 one
customer accounted for 16% of total revenues. For the nine months
ended September 30, 2009, no customer accounted for more than 10% of total
revenues. For the nine months ended September 30, 2008, one customer
accounted for 11% of total revenues. At September 30, 2009, two
customers accounted for 10% or more of total accounts receivable. At
December 31, 2008, one customer accounted for 13% of total accounts
receivable.
Concentration
of Credit Risk
Financial
instruments, which potentially subject the Company to credit risk, consist of
cash equivalents and accounts receivable. The Company’s policy is to
limit the amount of credit exposure to any one financial
institution. The Company places investments with financial
institutions evaluated as being creditworthy, or investing in short-term money
market which are exposed to minimal interest rate and credit
risk. Cash balances are maintained with several
banks. Certain operating accounts may exceed the FDIC
limits.
Concentration
of credit risk, with respect to accounts receivable, is limited due to the
Company’s credit evaluation process. The Company sells its products
to customers involved in a variety of industries including information
technology, medical devices and diagnostic systems, industrial controls and
instrumentation and retail systems. While the Company does not
require collateral from its customers, it does perform continuing credit
evaluations of its customer’s financial condition.
Fair
Value of Financial Instruments
Due to
the short term nature of these accounts, the carrying values of cash, cash
equivalents, account receivable, accounts payable and accrued expenses
approximate the respective fair values.
Accounting
for Income Taxes
Deferred
tax assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and operating loss and tax
credit carryforwards and are measured using the enacted tax rates and laws that
will be in effect when the difference and carryforwards are expected to be
recovered or settled. A valuation allowance for deferred tax assets
is provided when we estimate that it is more likely than not that all or a
portion of the deferred tax assets may not be realized through future
operations. This assessment is based upon consideration of available
positive and negative evidence which included, among other things, our most
recent results of operations and expected future profitability. We
consider our actual historical results to have a stronger weight than other more
subjective indicators when considering whether to establish or reduce a
valuation allowance on deferred tax assets.
As of
September 30, 2009, we have approximately $15,530,000 of net deferred tax
assets, against which we provided a 100% valuation allowance. Our net
deferred tax assets were generated primarily by operating
losses. Accordingly, it is more likely than not, that we will not
realize these assets through future operations.
The
Company prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. Estimated interest is recorded
as a component of interest expense and penalties are recorded as a component of
general and administrative expenses. Such amounts were not material
for 2008, 2007 and 2006 and did not have a material impact on our financial
position.
In 2008,
the Israel Tax Authority “ITA” notified the Company that it intends to
re-examine a 2002 transaction that it had previously approved. The Company is
vigorously defending itself in court and based on information to date, does not
expect this issue to result in any additional tax, interest and/or penalties to
the Company.
Currency
Translation
The
accounts of the international subsidiaries and branch operations translate the
assets and liabilities of international operations by using the exchange rate in
effect at the balance sheet date. The results of operations are translated at
average exchange rates during the period. The effects of exchange rate
fluctuations in translating assets and liabilities of international operations
into U.S. dollars are accumulated and reflected as a currency translation
adjustment as other comprehensive loss in the accompanying consolidated
statements of stockholders’ equity. Transaction gains and losses are included in
net (loss). General and administrative expenses include exchange gains (losses)
of ($51,000) and $119,000 for the nine months ended September, 2009 and 2008,
respectively.
Net
Loss Per Share
Earnings
per share is computed on the basis of the weighted average number of shares and
common stock equivalents outstanding during the period. In the
calculation of diluted earnings per share, shares outstanding are adjusted to
assume conversion of the Company’s non-interest bearing convertible stock and
exercise of options as if they were dilutive. In the calculation of
basic earnings (loss) per share, weighted average numbers of shares outstanding
are used as the denominator. The Company had a net loss available to
the common shareholders for the three months ended September 30, 2009 and
September 30, 2008. The Company had a net loss available to the
common shareholders for the nine months ended September 30, 2009 and September
30, 2008. Loss per share is computed as follows:
|
|
Three Months Ended September
30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss available to common shareholders
|
|
$ |
(426,000 |
) |
|
$ |
(976,000 |
) |
|
$ |
(1,558,000 |
) |
|
$ |
(3,536,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares used to compute net (loss) available to common shareholders
per common share-basic
|
|
|
3,554,000 |
|
|
|
3,554,000 |
|
|
|
3,554,000 |
|
|
|
3,554,000 |
|
Effect
of dilutive stock options
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares used to compute net loss available to shareholders per
common share-dilutive
|
|
|
3,554,000 |
|
|
|
3,554,000 |
|
|
|
3,554,000 |
|
|
|
3,554,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net loss per share to common shareholder
|
|
$ |
(0.12 |
) |
|
$ |
(0.27 |
) |
|
$ |
(0.44 |
) |
|
$ |
(0.99 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive
net loss per share to common shareholder
|
|
$ |
(0.12 |
) |
|
$ |
(0.27 |
) |
|
$ |
(0.44 |
) |
|
$ |
(0.99 |
) |
Stock
Compensation
The
Company records stock based compensation using the modified prospective
transition method. Under this method, compensation costs
recognized in the first nine months of 2009 include (a) compensation costs for
all share-based payments granted to employees and directors prior to, but not
yet vested as of January 1, 2006, based on the grant date value estimated and
(b) compensation cost for all share-based payments granted subsequent to January
1, 2006, based on the grant date fair value estimated in.
The
Company estimates the fair value of stock options granted using the
Black-Scholes-Merton (Black-Scholes) option-pricing formula and amortizes the
estimated option value using an accelerated amortization method where each
option grant is split into tranches based on vesting periods. The
Company’s expected term represents the period that the Company’s share-based
awards are expected to be outstanding and was determined based on historical
experience regarding similar awards, giving consideration to the contractual
terms of the share-based awards and employee termination
data. Executive level employees who hold a majority of options
outstanding, and non-executive level employees each have similar historical
option exercise and termination behavior and thus were grouped for valuation
purposes. The Company’s expected volatility is based on the
historical volatility of its traded common stock and places exclusive reliance
on historical volatilities to estimate our stock volatility over the expected
term of its awards. The Company has historically not paid dividends
and has no foreseeable plans to issue dividends. The risk-free
interest rate is based on the yield from the U.S. Treasury zero-coupon bonds
with an equivalent term. Results for prior periods have not been
restated.
Under the
Company’s stock option plans, options awards generally vest over a four year
period of continuous service and have a 10 year contractual
term. The fair value of each option is amortized on a
straight-line basis over the option’s vesting period. The fair value
of each option is estimated on the date of the grant using the Black-Scholes
Merton option pricing formula. There were no options granted during
the nine months ended September 30, 2009 and 2008.
Convertible
Preferred Stock
On
September 24, 2008 the Company issued 826,446 shares of Series-A Convertible
Preferred Stock (“preferred stock”) to its Chief Executive Officer at a price of
$3.63 per share for a total of $3,000,000. Dividends accrue daily on
the preferred stock at an initial rate of 6% and is payable only when, as and if
declared by the Company’s Board of Directors, quarterly in arrears.
The
preferred stock may be converted into common stock at the initial rate of one
share of common for each share of preferred stock. The holder has the
right during the first six months following issuance to convert up to 40% of the
shares purchased, except in the event of a change in control of the Company, at
which time there is no limit. After six months there is no limit on
the number of shares that may be converted.
The
Company has the right to redeem, subject to board approval, up to 60% of the
shares of preferred stock at its option during the first six months after
issuance at a price equal to 110% of the purchase price plus all accrued and
unpaid dividends. The limitations on conversion and the redemption
rights during this initial six-month period are not applicable in the event of
certain change of control events. Commencing two years after
issuance, the Company shall have certain rights to cause conversion of all of
the shares of preferred stock then outstanding. Commencing four years
after issuance, the Company may redeem, subject to board approval, all of the
shares of preferred stock then outstanding at a price equal to the greater of
(i) 130% of the purchase price plus all accrued and unpaid dividends and (ii)
the fair market value of such number of shares of common stock which the holder
of the preferred stock would be entitled to receive had the redeemed preferred
stock been converted immediately prior to the redemption.
In
accordance with relevant accounting guidance, the Company recorded the preferred
stock on the Company’s consolidated balance sheet within Stockholders’
Equity. In accordance with relevant accounting guidance the preferred
stock is recorded on the consolidated balance sheet at the amount of net
proceeds received less a dividend cost. The imputed dividend cost of
$218,000 was the result of the preferred stock having a dividend rate during the
first two years after its issuance (6%) that is lower than the rate that becomes
fixed (10%) after the initial two year period. The dividend cost of
$218,000 is being amortized over the first two years from the date of issuance
and is based upon the present value of the dividend discount using a 10%
yield.
Results of
Operations
Comparison
of Three Months Ended September 30, 2009 and 2008
Revenues
decreased $651,000 or 12%, to $4,791,000 for the three months ended September
30, 2009 from $5,442,000 for the three months ended September 30,
2008. Software license fee revenues increased $273,000, or 194%, from
the same period last year. Services and maintenance fees for the
three months ended September 30, 2009 amounted to $4,377,000, a 17% decrease
from the same quarter in 2008.
The
Company’s international operations contributed $1,969,000 of revenues in the
third quarter of 2009, which is a 23% increase compared to revenues generated
during the third quarter of 2008. The Company’s revenues from
international operations amounted to 41% of the total revenue for the third
quarter in 2009, compared to 29% of total revenues for the same quarter in
2008. The increase is primarily due to revenues generated by our new
subsidiary in Japan, which did not exist last year.
Software
license fee revenues increased 194% to $414,000 in the third quarter of 2009
from $141,000 in the third quarter of 2008. Astea Alliance license
revenues increased $57,000 or 130%, to $101,000 in the third quarter of 2009
from $44,000 in the third quarter of 2008. The Company sold $313,000
of software licenses from its FieldCentrix subsidiary, an increase of 223% from
the same quarter of 2008. The increase is attributable to an increase
in license sales in Europe.
Services
and maintenance revenues decreased to $4,377,000 from $5,301,000 in the third
quarter of 2009, a decrease of 17%. Astea Alliance service and
maintenance revenues decreased by $1,015,000 or 25% compared to the third
quarter of 2008. The decrease resulted from reduced demand from
customers. Service and maintenance revenues generated by
FieldCentrix, increased by $194,000 or 17% from $1,164,000 to $1,235,000 during
the same period in 2008. In addition, DISPATCH-1 service and
maintenance revenues decreased $4,000 to $77,000 from $81,000 in the prior
year. The decline in service and maintenance revenue for DISPATCH-1
is expected as the Company discontinued development of DISPATCH-1 at the end of
1999.
Costs
of Revenues
Cost of
software license fees decreased 23% to $543,000 in the third quarter of 2009
from $707,000 in the third quarter of 2008. Included in the cost of
software license fees are the fixed costs of capitalized software amortization
and, amortization of software acquired from FieldCentrix and any third party
software embedded in the Company’s software licenses sold to
customers. The principal cause of the decrease in cost of revenues is
lower amortization of capitalized software as certain versions which were
amortized in 2008 have been fully amortized prior to this quarter. Amortization
of capitalized software development costs was $464,000 for the quarter ended
September 30, 2009 compared to $664,000 for the same quarter in
2008. The software license gross margin percentage was (31%) in the
third quarter of 2008 compared to (401%) in the third quarter of
2008. The improvement in license margin resulted from both an
increase in license revenues and a decrease in cost of revenues.
Cost of
services and maintenance decreased 13% to $2,707,000 in the third quarter of
2009 from $3,100,000 in the third quarter of 2008. The decrease in
cost of service is due to a decrease in headcount compared to the same quarter
in 2008. The services and maintenance gross margin percentage was 38%
in the third quarter of 2009 compared to 42% in the third quarter of
2008. The decrease in services and maintenance gross margin was
primarily due to the decrease in billable projects.
Product
Development
Product
development expense decreased 29% to $526,000 in the third quarter of 2009 from
$746,000 in the third quarter of 2008. The large decrease results from reduced
costs for operating the Company’s principal development center in Israel due to
weakening of the Israeli shekel compared to the U.S
dollar. Fluctuations in product development expense from period to
period can vary due to the amount of development expense which is
capitalized. Development costs of $480,000 were capitalized in the
third quarter of 2009 compared to $757,000 during the same period in
2008. Gross product development expense was $1,006,000 in the quarter
ended September 30, 2009 which is 33% less than the same quarter in
2008. Product development expense as a percentage of revenues
decreased to 11% in the third quarter of 2009 compared with 13% in the third
quarter of 2008. The decrease in costs relative to revenues is due to
the significant decrease in product development expense.
Sales
and Marketing
Sales and
marketing expense decreased 31% to $708,000 in the third quarter of 2009 from
$1,029,000 in the third quarter of 2008. The decrease in sales and marketing is
primarily attributable to a reduction in headcount. As a percentage
of revenues, sales and marketing expense was 15% in 2009 compared to 19% the
same as in the third quarter of 2008.
General
and Administrative
General
and administrative expenses decreased 21% to $665,000 during the third quarter
of 2009 from $838,000 in the third quarter of 2008. The decrease in
general and administrative expenses is principally attributable to reduced costs
for outside consultants, a decrease in bad debt expense and a decrease in
bonuses paid. As a percentage of revenue, general and administrative
expenses decreased to 14% in the third quarter of 2009 from 15% in the third
quarter of 2008.
Interest
Income, Net
Net
interest income decreased $7,000 to $6,000 in the third quarter of 2009 from the
third quarter of 2008. The decrease resulted primarily from a decline
in interest rates paid on invested cash.
Income
Tax Expense
The
Company recorded a provision for income tax of $1,000 for the three months ended
September 30, 2009 compared to $11,000 for the same period in
2008. The reduction resulted from a decline in our foreign tax
liability in the Asia Pacific region.
International
Operations
Total
revenue from the Company’s international operations increased by 23% during the
third quarter of 2009 to $1,969,000 compared to $1,598,000 for the third quarter
of 2008. The increase in revenue from international operations was
primarily attributable to the opening of our new subsidiary in Japan in January
of 2009 and an increase in license revenue in Europe. International
operations generated a net loss of $94,000 for the third quarter ended September
30, 2009 compared to a net loss of $174,000 in the same period in
2008.
Net loss
for the three months ended September 30, 2009 was $353,000 compared to net loss
of $976,000 for the three months ended September 30, 2008. The
improvement results from a decrease in operating expenses of $1,271,000
partially offset by a decrease in revenue of $651,000 during the three months
ended September 30, 2009 compared to the same period in 2008.
Comparison
of Nine Months Ended September 30, 2009 and 2008
Revenues
decreased $3,433,000, or 19%, to $14,506,000 for the nine months ended September
30, 2009 from $17,939,000 for the nine months ended September 30,
2008. Software license revenues decreased 49% from the same period
last year. Service and maintenance fees for the nine months ended
September 30, 2009 amounted to $13,482,000, a 15% decrease from the same quarter
in 2008. The decrease in revenue is primarily the result of a
slowdown in the worldwide economy which has resulted in an overall reduction in
customer demand and new customer sales.
The
Company’s international operations contributed $4,513,000 of revenues in the
first nine months of 2009 compared to $4,544,000 in the first nine months of
2008. This represents a 1% decrease from the same period last year
and 31% of total Company revenues in the first nine months of 2009.
Software
license revenues decreased 49% to $1,024,000 in the first nine months of 2009
from $1,994,000 in the first nine months of 2008. Astea Alliance
license revenues decreased by 74% to $387,000 in the first nine months of 2009
from $1,476,000 in the first nine months of 2008. The reduction in
license sales results from reduced demand from customers for new
software. In addition, revenue from the FieldCentrix subsidiary
increased by $119,000 or 23% to $637,000. There were no sales of
DISPATCH-1during the first nine months of 2009 or 2008.
Services
and maintenance revenues decreased 15% to $13,482,000 in the first nine months
of 2009 from $15,945,000 in the first nine months of 2008. Astea Alliance
service and maintenance revenue was $9,529,000, a decrease of 20%, or $2,384,000
compared to the nine months ended September 30, 2008. There was a
decrease of 1% or $48,000 of service and maintenance revenue from FieldCentrix
in the first nine months of 2009 compared to $3,744,000 in the first nine months
of 2008. Service and maintenance revenue from DISPATCH-1 decreased by
$31,000 to $257,000. The decline in service and maintenance revenue
for DISPATCH-1 was expected as the Company discontinued development of
DISPATCH-1 at the end of 1999.
Costs
of Revenues
Cost of
software license fees decreased 34% to $1,422,000 in the first nine months of
2009 from $2,166,000 in the first nine months of 2008. Included in
the cost of software license fees is the fixed cost of capitalized software
amortization. The principal cause of the decrease results from a
reduction of $736,000 in the amortization of capitalized software related to
version 8 of Astea Alliance which was fully amortized in the first quarter of
2009. The software licenses gross margin percentage was (39%)
in the first nine months of 2009 compared to (9%) in the first nine months of
2008. The decrease in gross margin was attributable to a decrease in
license sales.
Cost of
services and maintenance decreased 17% to $8,017,000 in the first nine months of
2009 from $9,684,000 in the first nine months of 2008. The decrease
in cost of services and maintenance is principally due to the decrease in
headcount from last year to this year, a decrease in outside consultants used in
our Europe location and a decrease in recruiter fees. The services
and maintenance gross margin percentage increased slightly to 41% in the first
nine months of 2009 compared to 39% in the first nine months of
2008.
Product
Development
Product
development expense decreased 51% to $1,687,000 in the first nine months of 2009
from $3,476,000 in the first nine months of 2008. The decrease
results from a reduction in the value of the Israeli shekel compared to the US
Dollar and a decrease in headcount in our Israel location. Israel is
the primary site for the Company’s development. Software development
costs of $1,248,000 were capitalized in the first nine months of 2009 compared
to $1,544,000 during the same period in 2008. Gross development
expense was $2,935,000 during the first nine months of 2009 compared to
$5,020,000 during the same period in 2008. Product development as a
percentage of revenues was 12% in the first nine months of 2009 compared with
19% in the first nine months of 2008. The decrease in percentage of
revenues is the result of decreased revenues in 2009.
Sales
and Marketing
Sales and
marketing expense decreased 35% to $2,354,000 in the first nine months of 2009
from $3,625,000 in the first nine months of 2008. The decrease in sales and
marketing expense is primarily attributable to lower commission expense in 2009
and reduced headcount. As a percentage of revenues, sales and
marketing expenses decreased to 16% from 20% in the first nine months of
2008.
General
and Administrative
General
and administrative expenses decreased 9% to $2,307,000 in the first nine months
of 2009 from $2,539,000 in the first nine months of 2008. The
decrease in general and administrative expenses is attributable to a reduction
in audit expense, a reduction in salaries and a reduction in consultant
fees. As a percentage of revenues, general and administrative
expenses increased slightly to 16% from 14% in the first nine months of
2008.
Interest
Income, Net
Net
interest income decreased $22,000 to $24,000 from $46,000 in the first nine
months of 2009. The decrease resulted primarily from a decline in
interest rates.
Income
Tax Expense
The
Company recorded a tax provision of $82,000 for the nine months ended September
30, 2009 compared to $31,000 for the same period in 2008. The
increase resulted from tax expense in the Asia Pacific region.
International
Operations
Total
revenue from the Company’s international operations decreased by $31,000, or 1%,
to $4,513,000 in the first nine months of 2009 compared to $4,544,000 in the
first nine months in 2008. This represents 31% of total Company revenues in the
first nine months of 2009. The increase in revenues is due to the
commencement of direct operations in Japan by the Company in January 2009 and a
slight increase in license revenues in Europe. International
operations generated a net loss of $287,000 for the first nine months ended
September 30, 2009 compared to net loss of $959,000 in the same period in
2008.
Net
(Loss)
Net loss
for the nine months ended September 30, 2009 was $1,339,000 compared to net loss
of $3,536,000 for the nine months ended September 30, 2008. The
improvement of $2,197,000 is the direct result of a decrease in expenses of
$5,703,000 or 27% partially offset by a decrease in revenues of $3,433,000 in
the same period of 2008.
Liquidity and Capital
Resources
Operating
Activities
Net cash
generated by operating activities decreased by $57,000 to $799,000 for the nine
months ended September 30, 2009 compared to $856,000 for the nine months ended
September 30, 2008. The decrease in cash generated by operations was
attributable primarily to a reduction in collecting accounts receivables of
$2,562,000, and an increase in prepaid expense of $144,000 in 2009 compared to a
decrease of $127,000 in 2008, and a reduction in depreciation and amortization
of $842,000. Partially offsetting the reductions in cash flow are a
reduction in the net loss of $2,197,000, an increase in the allowance for
doubtful accounts of $89,000 compared to a decrease of $60,000 in 2008 and an
increase in deferred revenues of $426,000 in 2009 compared to a decrease of
$797,000 in 2008.
Investing
Activities
The
Company used $962,000 for investing activities in the first nine months of 2009
compared to using $1,778,000 in the first nine months of 2008. The
decrease in cash used for investing activities is attributable to a decrease in
capital expenditures of $176,000, a decrease in capitalized software development
costs of $296,000, the sale of $300,000 of short term investments and the
release of $44,000 from restricted cash.
Financing
Activities
The
Company used $135,000 for financing activities in the first nine months of 2009
compared to generating $3,044,000 in the same period of 2008. In
September 2008, the Company issued $3,000,000 of cumulative convertible
preferred stock against which there was $106,000 of related costs. In
2009, the only financing expenditures were payments of $135,000 of preferred
stock dividends.
Due to
the weakening of the U.S. dollar related to most other currencies in which the
Company operates, primarily the Australian dollar, Japanese Yen and Israel
shekel, the effect of exchange rates on cash provided an outflow of ($72,000) in
2009 compared to an outflow of ($34,000) in 2008.
In June
2009, the Company renewed its secured revolving line of credit with a bank to
borrow up to $2.0 million. The line of credit is secured by accounts
receivable. Interest is payable monthly based on the prime rate of
interest charged by the bank. The Company did not borrow any funds
during the first nine months of 2009. The Company made one loan
during the nine months ended September 30, 2008 and repaid the amount within 10
days. At September 30, 2009 the total outstanding loan under the line
of credit agreement was $0. The maturity date on the line of credit
is June 30, 2010.
At
September 30, 2009, the Company had a working capital ratio of 1.07:1, with cash
and cash equivalents of $2,774,000. 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.
Off Balance Sheet
Arrangements
The
Company is not involved in an any off-balance sheet arrangements that have or
are reasonably likely to have a material current or future impact on our
financial condition, changes in financial condition, revenues or expenses result
in operations, liquidity, capital expenditures or capital
resources.
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, including in its Annual Report
on Form 10-K for the fiscal year ended December 31, 2008. 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:
·
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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.
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·
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The
market price of the Company’s 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
Market
risk represents the risk of loss that may impact the Company’s financial
position due to adverse changes in financial market prices and
rates. The Company’s market risk exposure is primarily a result of
fluctuations in interest rates and foreign currency exchange
rates. The Company does not hold or issue financial instruments for
trading purposes.
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 September 30, 2009, the Company’s
investments consisted of U.S. money market funds and corporate bonds with seven
day maturities. The Company does not expect any material loss with
respect to its investment portfolio. In addition, the Company does
not believe that a 10% change in interest rates would have a significant effect
on its interest income.
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. For the
nine months ended September 30, 2009, approximately 31% of the Company’s overall
revenue resulted from sales to customers outside the United States. A
10% change in the value of the U.S. dollar relative to each of the currencies of
the Company’s non-U.S.-generated sales would not have resulted in a material
change to its results of operations. The Company does not expect any
material loss with respect to foreign currency risk.
Item
4T. CONTROLS AND PROCEDURES
Under the
supervision and with the participation of our management, including the Chief
Executive Officer and Chief Financial Officer, we have evaluated the
effectiveness of our disclosure controls and procedures as required by Exchange
Act Rule 13a-15(b) as of the end of the period covered by this report. Based on
that evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that these disclosure controls and procedures are effective. There
were no changes in our internal control over financial reporting during the
quarter ended September 30, 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
PART II - OTHER
INFORMATION
In
addition to the other information set forth in this report, you should carefully
consider the factors discussed in Part I, “Item 1A. Risk Factors” in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2008, which
could materially affect the Company’s business, financial condition or future
results. The risks described in this report and in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2008 are not the only risks facing
the Company. Additional risks and uncertainties not currently known to the
Company or that the Company currently deems to be immaterial also may materially
adversely affect the Company’s business, financial condition and/or operating
results.
Pursuant to the requirements
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.
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ASTEA
INTERNATIONAL INC.
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Date: November
10, 2009
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/s/Zack Bergreen
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|
Zack
Bergreen
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|
Chief
Executive Officer
|
|
(Principal
Executive Officer)
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|
|
|
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Date: November
10, 2009
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/s/Rick Etskovitz
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Rick
Etskovitz
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Chief
Financial Officer
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(Principal
Financial and Chief Accounting
Officer)
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Exhibit
Index
No.
|
Description
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31.1
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31.2
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32.1
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32.2
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