| Document and Entity Information | 9 Months Ended |
| Sep. 30, 2014 | |
| Document and Entity Information: | ' |
| Entity Registrant Name | 'Astea International Inc. |
| Document Type | '10-Q |
| Document Period End Date | 30-Sep-14 |
| Amendment Flag | 'false |
| Entity Central Index Key | '0000945989 |
| Current Fiscal Year End Date | '--12-31 |
| Entity Common Stock, Shares Outstanding | 3,587,299 |
| Entity Filer Category | 'Smaller Reporting Company |
| Entity Current Reporting Status | 'No |
| Entity Voluntary Filers | 'Yes |
| Entity Well-known Seasoned Issuer | 'Yes |
| Document Fiscal Year Focus | '2014 |
| Document Fiscal Period Focus | 'Q3 |
| Consolidated Balance Sheet (USD $) | Sep. 30, 2014 | Dec. 31, 2013 | ||
| Current assets: | ' | ' | ||
| Cash and cash equivalents | $1,107,000 | $1,111,000 | ||
| Investments available for sale | 23,000 | 34,000 | ||
| Receivables, net | 4,776,000 | [1] | 4,239,000 | [2] |
| Prepaid expenses and other | 639,000 | 558,000 | ||
| Total current assets | 6,545,000 | 5,942,000 | ||
| Property and equipment, net | 192,000 | 291,000 | ||
| Intangibles, net | 130,000 | 232,000 | ||
| Capitalized software, net | 5,001,000 | 5,667,000 | ||
| Goodwill | 1,538,000 | 1,538,000 | ||
| Restricted cash | 122,000 | 125,000 | ||
| Other assets | 103,000 | 105,000 | ||
| Total Assets | 13,631,000 | 13,900,000 | ||
| Current liabilities: | ' | ' | ||
| Line of credit from director/officer, current | 150,000 | ' | ||
| Line of credit from Silicon Valley Bank | 619,000 | ' | ||
| Accounts payable and accrued expenses | 2,780,000 | 2,951,000 | ||
| Deferred revenues | 8,871,000 | 6,781,000 | ||
| Total current liabilities | 12,420,000 | 9,732,000 | ||
| Long-term liabilities: | ' | ' | ||
| Line of credit from director/ officer, long term | ' | 2,000,000 | ||
| Deferred tax liability | 374,000 | 339,000 | ||
| Total long-term liabilities | 374,000 | 2,339,000 | ||
| STOCKHOLDERS' EQUITY: | ' | ' | ||
| Convertible redeemable preferred stock, | 16,000 | [3] | 8,000 | [4] |
| Common stock | 36,000 | [5] | 36,000 | [5] |
| Additional paid-in capital | 32,786,000 | 30,938,000 | ||
| Accumulated deficit | -31,793,000 | [6] | -28,945,000 | [7] |
| Treasury stock at cost | 208,000 | [8] | 208,000 | [8] |
| Total stockholders' equity | 837,000 | 1,829,000 | ||
| Total liabilities and stockholders' equity | $13,631,000 | $13,900,000 | ||
| [1] | net of allowance of $74,000 | |||
| [2] | net of allowance of $112,000 | |||
| [3] | $.01 par value, shares authorized 5,000,000; issued and outstanding Series A 826,000 and oustanding Series B 797,000 | |||
| [4] | $.01 par value, shares authorized 5,000,000; issued and outstanding Series A 826,000 | |||
| [5] | $.01 par value, 25,000,000 shares authorized; issued 3,629,000 and outstanding 3,587,000 | |||
| [6] | including accumulated comprehensive loss of of $2,848,000 | |||
| [7] | including accumulated comprehensive loss of $3,202,000 | |||
| [8] | 42,000 shares | |||
| Consolidated Statements of Operations (USD $) | 3 Months Ended | 9 Months Ended | ||
| Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | |
| Statement of Income | ' | ' | ' | ' |
| Software license fees | $884,000 | $818,000 | $2,534,000 | $2,190,000 |
| Services and maintenance | 4,231,000 | 4,524,000 | 12,717,000 | 13,110,000 |
| Total revenues | 5,115,000 | 5,342,000 | 15,251,000 | 15,300,000 |
| Cost of software license fees | 978,000 | 485,000 | 2,645,000 | 1,238,000 |
| Cost of services and maintenance | 2,820,000 | 3,029,000 | 8,642,000 | 9,319,000 |
| Total cost of revenues | 3,798,000 | 3,514,000 | 11,287,000 | 10,557,000 |
| Gross Profit | 1,317,000 | 1,828,000 | 3,964,000 | 4,743,000 |
| Product Development | 365,000 | 299,000 | 1,086,000 | 899,000 |
| Sales and marketing | 919,000 | 759,000 | 3,004,000 | 2,991,000 |
| General and administrative | 769,000 | 763,000 | 2,525,000 | 2,589,000 |
| Restructuring | ' | 44,000 | ' | 226,000 |
| Total operating expenses | 2,053,000 | 1,865,000 | 6,615,000 | 6,705,000 |
| Income (loss) from operations | -736,000 | -37,000 | -2,651,000 | -1,962,000 |
| Interest (expense) income | 24,000 | 29,000 | -99,000 | -32,000 |
| Income (Loss) before income tax | -760,000 | -66,000 | -2,750,000 | -1,994,000 |
| Income tax expense | 35,000 | 15,000 | 58,000 | 60,000 |
| Net (loss) income | -795,000 | -81,000 | -2,808,000 | -2,054,000 |
| Preferred Dividend | 110,000 | 75,000 | 260,000 | 225,000 |
| Net income (loss) allocable to common stockholders | ($905,000) | ($156,000) | ($3,068,000) | ($2,279,000) |
| Basic net earingings (loss) per share allocable to common stockholders | ($0.25) | ($0.04) | ($0.86) | ($63) |
| Diluted net earnings (loss) per share allocable to common stockholders | ($0.25) | ($0.04) | ($0.86) | ($63) |
| Weighted average shares outstanding used in computing basic net earnings (loss) per share | 3,587,000 | 3,594,000 | 3,587,000 | 3,594,000 |
| Weighted average shares outstanding used in computing diluted net earnings (loss) per share | 3,587,000 | 3,594,000 | 3,587,000 | 3,594,000 |
| Consolidated Statement of Stockholders' Equity (USD $) | Convertible redeemable preferred stock | Common stock | Additional paid-in-capital | Accumulated deficit | Treasury Stock | Total |
| Stockholders' Equity at Dec. 31, 2012 | ' | ' | ' | ' | ' | ' |
| Cash dividends: preferred stock | ' | ' | ($300,000) | ' | ' | ($300,000) |
| Stock based compensation expense | ' | ' | 182,000 | ' | ' | 182,000 |
| Comprehensive income (loss) | ' | ' | ' | -3,202,000 | ' | -3,202,000 |
| Stockholders' Equity at Dec. 31, 2013 | 8,000 | 36,000 | 30,938,000 | -28,945,000 | -208,000 | 1,829,000 |
| Cash dividends: preferred stock | ' | ' | -260,000 | ' | ' | -260,000 |
| Stock based compensation expense | ' | ' | 116,000 | ' | ' | 116,000 |
| Comprehensive income (loss) | ' | ' | ' | -2,848,000 | ' | -2,848,000 |
| Preferred stock issued | 8,000 | ' | 1,992,000 | ' | ' | 2,000,000 |
| Stockholders' Equity at Sep. 30, 2014 | $16,000 | $36,000 | $32,786,000 | ($31,793,000) | ($208,000) | $837,000 |
| CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) | 3 Months Ended | |
| Sep. 30, 2014 | Sep. 30, 2013 | |
| Statement of Cash Flows | ' | ' |
| Net (loss) income | ($2,808,000) | ($2,054,000) |
| Depreciation and amortization | 2,817,000 | 1,488,000 |
| Decrease in allowance for doubtful accounts | -38,000 | -21,000 |
| Stock-based compensation | 116,000 | 134,000 |
| Deferred income tax | 35,000 | 34,000 |
| Receivables | -502,000 | 582,000 |
| Prepaid expenses and other | -7,000 | -165,000 |
| Accounts payable and accrued expenses | -275,000 | 31,000 |
| Deferred revenues | 2,080,000 | -50,000 |
| Other assets | 2,000 | 19,000 |
| Net cash (used in) provided by operating activities | 1,420,000 | -2,000 |
| Sale of short term investments | 10,000 | 120,000 |
| Purchases of property and equipment | -55,000 | -74,000 |
| Capitalized software development costs | -1,895,000 | -2,521,000 |
| Change in restricted cash | 2,000 | -6,000 |
| Net cash used in investing activities | -1,938,000 | -2,481,000 |
| Dividend payments on preferred stock, Series A | -150,000 | -225,000 |
| Repayment on line of credit | -1,261,000 | ' |
| Proceeds from line of credit from director/officer | 400,000 | 1,800,000 |
| Proceeds from line of credit from Silicon Valley Bank | 1,630,000 | ' |
| Deferred financing costs | -103,000 | -16,000 |
| Net cash provided by (used in) financing activities | 516,000 | 1,559,000 |
| Effect of exchange rate changes on cash | -2,000 | -166,000 |
| Net increase (decrease) in cash and cash equivalents | -4,000 | -1,090,000 |
| Cash and cash equivalents, beginning of period | 1,111,000 | 2,015,000 |
| Cash and cash equivalents, end of period | 1,107,000 | 925,000 |
| Issuance of preferred stock | 2,000,000 | ' |
| Cancellation of line of credit from director/officer | ($2,000,000) | ' |
| Organization, Consolidation and Presentation of Financial Statements | 9 Months Ended |
| Sep. 30, 2014 | |
| Organization, Consolidation and Presentation of Financial Statements: | ' |
| Consolidation, Policy | ' |
| 1. BASIS OF PRESENTATION | |
| The consolidated financial statements at September 30, 2014 and for the nine month periods ended September 30, 2014 and 2013 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 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 omitted pursuant to the rules and regulations of the SEC for quarterly reports on Form 10-Q. It is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto, included in the Company’s latest annual report (Form 10-K) and our Form 10-Q’s for the quarters ended June 30, 2013, September 30, 2013, March 31, 2014 and June 30, 2014. The interim financial information presented is not necessarily indicative of results expected for the entire year ending December 31, 2014. | |
| New Accounting Pronouncements, Policy | ' |
| RECENTLY ADOPTED ACCOUNTING GUIDANCE | |
| In July 2013, the Financial Accounting Standards Board (“FASB”) issued guidance on Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The new guidance requires an entity to present unrecognized tax benefits as a reduction of a deferred tax asset, except in certain circumstances. This guidance is effective for fiscal years and interim periods beginning after December 31, 2013, and early adoption is permitted. The Company adopted the guidance in the first quarter of 2014, it did not have a significant impact on our financial statements. | |
| In May 2014, as part of its ongoing efforts to assist in the convergence of U.S. GAAP and International Financial Reporting Standards, the FASB issued a new standard related to revenue recognition. Under the new standard, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new standard will be effective for us beginning January 1, 2017 and early adoption is not permitted. We anticipate this standard may have a material impact on our consolidated financial statements, and we are currently evaluating its impact. | |
| In August 2014, FASB issued Preparation of Financial Statements - Going Concern, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. Under GAAP, continuation of a reporting entity as a going concern is presumed as the basis for preparing financial statements unless and until the entity's liquidation becomes imminent. Preparation of financial statements under this presumption is commonly referred to as the going concern basis of accounting. If and when an entity's liquidation becomes imminent, financial statements should be prepared under the liquidation basis of accounting in accordance with Presentation of Financial Statements--Liquidation Basis of Accounting. Even when an entity's liquidation is not imminent, there may be conditions or events that raise substantial doubt about the entity's ability to continue as a going concern. In those situations, financial statements should continue to be prepared under the going concern basis of accounting, but the amendments in this Update should be followed to determine whether to disclose information about the relevant conditions and events. The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company will evaluate the going concern considerations, however, at the current period, management does not believe that it has met conditions which would subject these financial statements for additional disclosure. We anticipate this Update will not have a material impact on our consolidated financial statements. | |
| Liquidity Disclosure | ' |
| Operating Matters and Liquidity | |
| At September 30, 2014, the Company had a working capital ratio of .53:1, with cash and investments available for sale of $1,130,000. The Company believes that it has sufficient cash to meet its anticipated operating cash needs for at least the next 12 months. However, projections of future cash needs and cash flows are subject to substantial uncertainty. We continually evaluate our operating cash flows which can vary subject to the actual timing of expected new sales compared to our expectations of those sales and are sensitive to many factors, including changes in working capital and our net (loss) income. The Company has projected revenues for the remainder of 2014 that management believes will provide sufficient funds to sustain its continuing operations. However, due to unanticipated delays in the signing of certain license agreements and the cash flow timing impact of the Company’s planned conversion to a subscription-based software delivery model it was determined that the Company needed additional liquidity in the near term. Accordingly, in June 2014, the Company entered into a new line of credit agreement, and has an existing line of credit from its Chief Executive Officer, both of which are described in Note 6. As of September 30, 2014 the Company owed $150,000 against the line of credit from its Chief Executive Officer and $619,000 against the new line of credit from Silicon Valley Bank (“SVB”). The Company was not in compliance with the earnings covenants of the SVB loan agreement as of September 30, 2014, based on the operating results for the quarter ended September 30, 2014. However, SVB provided a forbearance agreement which defers its right to exercise the default provisions of the line of credit until January 1, 2015. During the forbearance period, the Company has agreed to a reduction in the maximum revolving line of credit amount, which may not exceed $1,000,000. SVB shall have no further obligation to make any additional borrowings available to the Company or to provide any other extensions of credit during the forbearance period. However, the Company agrees that, if in the sole and absolute discretion of SVB, they make any discretionary financial accommodation during the forbearance period, such act shall not constitute (i) a waiver of any of the existing default covenants, which may now exist or which may occur after the date of the forbearance agreement, or (ii) an agreement on the part of SVB to make any further extensions of credit of any kind to the Company at a later date. In August 2014, the line of credit from the Company’s Chief Executive Officer was reduced from $3,000,000 to $1,000,000. The $1,000,000 line of credit is available in addition to the line of credit with SVB. | |
| The Company is currently working with SVB to change the financial covenants in the existing loan agreement to better reflect the financial results of the Company as it changes its delivery model from exclusively selling perpetual licenses to also including cloud-based hosted solutions. In the event the Company does not meet its financial covenants after January 1, 2015 and SVB does not extend a waiver or forbearance agreement, and the Company believes that it does not have adequate liquidity to operate, if necessary, the Company will implement a cost cutting plan that reduces all its expenditures to the appropriate level that matches its operating cash flows. | |
| The Company does not plan any significant capital expenditures in 2014 other than to replace its existing capital equipment as it becomes obsolete. |
| Risks and Uncertainties | 9 Months Ended |
| Sep. 30, 2014 | |
| Risks and Uncertainties: | ' |
| Concentration Risk Disclosure | ' |
| 1. 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 positions which are exposed to minimal interest rate and credit risk. Cash balances are maintained with several banks. Certain operating accounts may exceed the Federal Deposit Insurance Corporation (FDIC) limits. | |
| 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 customers’ financial condition. | |
| Accounting Policies | 9 Months Ended | ||||||||||||||||
| Sep. 30, 2014 | |||||||||||||||||
| Accounting Policies: | ' | ||||||||||||||||
| Earnings Per Share, Policy | ' | ||||||||||||||||
| LOSS PER SHARE | |||||||||||||||||
| Loss 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 loss 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 loss per share, weighted average numbers of shares outstanding are used as the denominator. | |||||||||||||||||
| The Company had net loss allocable to common stockholders for the three and nine months ended September 30, 2014 and 2013. Loss per share is computed as follows: | |||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||||||||||
| Numerator: | |||||||||||||||||
| Net loss available to common stockholders-basic | |||||||||||||||||
| and diluted | $ | (905,000 | ) | $ | (156,000 | ) | $ | (3,068,000 | ) | $ | (2,279,000 | ) | |||||
| Denominator: | |||||||||||||||||
| Weighted average shares used to compute net loss available to common stockholders per common share-basic and diluted | 3,587,000 | 3,594,000 | 3,587,000 | 3,594,000 | |||||||||||||
| Basic and diluted net loss per share to common stockholders | $ | (0.25 | ) | $ | (0.04 | ) | $ | (0.86 | ) | $ | (0.63 | ) | |||||
| All options outstanding to purchase shares of common stock and shares of common stock issued on the assumed conversion of the eligible preferred stock were excluded from the diluted loss per common share calculation for the three and nine months ended September 30, 2014 and 2013, as the inclusion of these options would have been antidilutive. | |||||||||||||||||
| Subsequent Events, Policy | ' | ||||||||||||||||
| SUBSEQUENT EVENTS | |||||||||||||||||
| Failure to Satisfy a Continued NASDAQ Listing Rule or Standard | |||||||||||||||||
| On April 7, 2014 the Company received a notification letter from the NASDAQ Stock Market advising the Company of its failure to comply with the required minimum of $2,500,000 in stockholders’ equity for continued listing on the NASDAQ Capital Market, pursuant to NASDAQ listing rule 5550(b)(1). The Company fell below the minimum requirement with reported stockholders’ equity of $1,829,000 in its Form 10-K for the year ended December 31, 2013. The Company’s loss in the first nine months of 2014 further reduced the reported stockholders’ equity to $837,000. | |||||||||||||||||
| The Company presented its plan to NASDAQ on May 22, 2014, which included the conversion of outstanding debt into equity, and improved operating results. On May 29, 2014 NASDAQ granted the Company an extension of time in which to regain compliance, and then on August 20, 2014 granted an additional extension of time to regain compliance, but the Company has now passed the limit of the NASDAQ staff’s available discretion to extend. Therefore, on October 8, 2014 NASDAQ sent the Company a letter stating that the Company is out of compliance and will be delisted unless the Company appeal NASDAQ’s determination. The Company filed an appeal on October 15, 2014, and the hearing before the Hearings Panel is scheduled for December 4, 2014. The Hearings Panel can accept or reject the Company’s appeal at NASDAQ’s sole discretion. If NASDAQ accepts the Company’s appeal NASDAQ would grant us an additional period of time in which to regain compliance, of up to six months from the date of the latest NASDAQ letter. | |||||||||||||||||
| Cash and Cash Equivalents | 9 Months Ended | ||||||||
| Sep. 30, 2014 | |||||||||
| Cash and Cash Equivalents: | ' | ||||||||
| Investments in Debt and Equity Instruments, Cash and Cash Equivalents, Unrealized and Realized Gains (Losses) | ' | ||||||||
| INVESTMENTS AVAILABLE FOR SALE | |||||||||
| Investments that the Company designates as available-for-sale are reported at fair value, with unrealized gains and losses, net of tax, recorded in accumulated other comprehensive (loss) income. The Company bases the cost of the investment sold on the specific identification method. The available-for-sale investments consist of mutual funds. If an available-for-sale investment is other than temporarily impaired, the loss is charged to either earnings or stockholders’ equity depending on our intent and ability to retain the security until we recover the full cost basis and the extent of the loss attributable to the creditworthiness of the issuer. | |||||||||
| On September 30, 2014 and December 31, 2013 the fair value for all of the Company’s investments was determined based upon quoted prices in active markets for identical assets (Level 1). | |||||||||
| The carrying amount, gross unrealized holding gains (losses), and fair value of available-for-sale securities by major security type and class of security at September 30, 2014 and December 31, 2013 were as follows: | |||||||||
| Aggregate | Gross unrealized | Gross unrealized holding (losses) | Aggregate | ||||||
| cost basis | holding gains | fair value | |||||||
| At September 30, 2014 | |||||||||
| Available-for-sale: | |||||||||
| Mutual Funds | $ | 23,000 | $ | — | $ | — | $ | 23,000 | |
| At December 31, 2013 | |||||||||
| Available-for-sale: | |||||||||
| Mutual Funds | $ | 33,000 | $ | 1,000 | $ | — | $ | 34,000 | |
| The aggregate fair value of mutual funds as of September 30, 2014 was $23,000. As of September 30, 2014 and December 31, 2013 there were no mutual funds that had unrealized losses. The mutual funds contain investments that seek a high level of current income. The funds normally invest at least 80% of net assets, plus the amount of any borrowings for investment purposes, in floating or adjustable rate senior loans of any maturity or credit quality, including those rated below investment grade or determined by the fund's advisor to be of comparable quality. | |||||||||
| Debt | 9 Months Ended |
| Sep. 30, 2014 | |
| Debt: | ' |
| Schedule of Line of Credit Facilities | ' |
| LINE OF CREDIT | |
| Line of Credit from Director/ Officer- Related Party Transaction | |
| On May 29, 2013, the Company entered into a Revolving Loan Agreement and associated Revolving Promissory Note (collectively the “Loan Documents”) with Zack Bergreen, the Company’s Chief Executive Officer. Pursuant to the Loan Documents, Mr. Bergreen provided an unsecured $2,000,000 revolving line of credit to the Company (Line of Credit). Amounts outstanding under the Line of Credit bear interest at a rate of 7% per annum, with interest payable monthly. The maturity date of the Line of Credit is May 29, 2015. The Company may pay all amounts outstanding and terminate the Loan Documents prior to that time without any penalties. The Loan Documents contain customary covenants, default and other provisions. The Loan Documents were negotiated and approved by the Audit Committee of the Company’s Board of Directors. Borrowings under the Line of Credit are subject to the Audit Committee’s approval. On March 27, 2014 the Company amended its original Loan Documents with Mr. Bergreen. Pursuant to the amended Loan Documents, Mr. Bergreen provided an additional $1,000,000 unsecured revolving line of credit to the Company to increase the total available line of credit to $3,000,000. No other terms or conditions to the original | |
| agreement were changed. On June 20, 2014, the Company converted $2,000,000 of outstanding principal owed to Mr. Bergreen under the Loan Documents in exchange for 797,000 shares of Series B Preferred Stock (see Note 10). In addition, during the second quarter of 2014 as noted below, the Company repaid $250,000 of principal against the line of credit owed to Mr. Bergreen. On August 12, 2014, the Board of Directors approved a reduction in the Line of Credit from Mr. Bergreen from $3,000,000 to $1,000,000. As of September 30, 2014, the Company owed $150,000 against the line of credit and classified it as current on the balance sheet due to the date of maturity. In addition, the Company incurred $81,000 of interest expense on this line of credit for the nine months ended September 30, 2014. As of December 31, 2013 the Company had borrowed $2,000,000 against the line of credit and classified it as long term on the balance sheet due to the maturity date. The Company was in compliance with the covenants of this agreement as of September 30, 2014 and December 31, 2013. | |
| Line of Credit from Silicon Valley Bank (“SVB”) | |
| On June 13, 2014, the Company entered into a Loan and Security Agreement with SVB. The Loan Agreement established a revolving credit facility for the Company in the principal amount of up to $3,000,000. Availability under the Revolving Facility is tied to a borrowing base formula that is based on 80% of the Company’s’ eligible accounts receivable. Advances under the Revolving Facility may be repaid and reborrowed in accordance with the Loan Agreement. No advances were made at closing of the loan, however, as of June 30, 2014 the Company borrowed $690,000 of which $250,000 was used to partially pay down the line of credit from its Chief Executive Officer. Pursuant to the Loan Agreement, the Company agreed to pay SVB the outstanding principal amount of all borrowings, the unpaid interest thereon, and all other obligations incurred with respect to the Loan Agreement on June 13, 2016. Interest will accrue on the unpaid principal balance of the borrowing at a floating per annum rate equal to the greater of: (i) 2.00% above the prime rate or (ii) 5.25%; provided, that, after the first anniversary of the effective date of the Loan Agreement and following the initial borrowing, the minimum interest amount due per month shall not be less than $4,500. During an event of default, the rate of interest may increase 3% above the otherwise applicable rate, until such event of default is cured or waived. All accrued and unpaid interest is payable monthly on the last calendar day of each month. | |
| Subject to certain exceptions, the Loan Agreement contains covenants prohibiting the Company from, among other things: (a) conveying, selling, leasing, transferring or otherwise disposing of their properties or assets; (b) liquidating or dissolving; (c) engaging in any business other than the business currently engaged in or reasonably related thereto; (d) entering into any merger or consolidation, or acquiring all or substantially all of the capital stock or property of another entity; (e) becoming liable for any indebtedness; (f) allowing any lien or encumbrance on any of their property; and (g) paying any dividends; and (i) making payment on subordinated debt. Further, the Company must (i) achieve certain minimum positive net income targets through December 31, 2015; and (ii) maintain a minimum “adjusted quick ratio,” tested as of the last day of each month, of at least 1.25:1.00. The adjusted quick ratio, as defined by the SVB Agreement, is the ratio of (a) the Company’s consolidated, unrestricted cash plus net booked accounts receivable to (b) the Company’s liabilities to SVB plus, without duplication, the aggregate amount of the Company’s liabilities that mature within 1 year, minus the current portion of deferred revenue. | |
| The Loan is secured by a first priority perfected security interest in substantially all of the assets of the Company, excluding the intellectual property of the Company. The Loan Agreement contains a negative covenant prohibiting the Company from granting a security interest in their intellectual property to any party. | |
| As of September 30, 2014 the Company borrowed $619,000 against the line of credit and classified it as a current liability on the balance sheet. The Company incurred $20,000 of interest expense to SVB for the nine months ended September 30, 2014. The Company was not in compliance with the earnings covenant of this agreement as of September 30, 2014, based on the operating results for the quarter ended September 30, 2014. However, SVB provided a forbearance agreement which defers its right to exercise the default provisions of the line of credit until January 1, 2015. During the forbearance period, the Company has agreed to a reduction in the maximum amount of the revolving line of credit to $1,000,000. Due to the default, per the agreement, SVB may increase the interest rate by an additional 3%. However, SVB has elected not to increase the interest rate during the forbearance period. The Company will pay a forbearance fee of $3,500. SVB shall have no further obligation to make any additional borrowings to the Company or to provide any other extensions of credit during the forbearance period. However, the Company agrees that if, in the sole and absolute discretion of SVB, they make any discretionary financial accommodation during the forbearance period, such act shall not constitute (i) a waiver of any of the existing default covenants, which may now exist or which may occur after the date of the forbearance agreement, or (ii) an agreement on the part of SVB to make any further extensions of credit of any kind to the Company at a later date. The Company expects to be in compliance with the SVB covenants by the next quarter, ending December 31, 2014. |
| Compensation Related Costs, Share Based Payments | 9 Months Ended | ||||||
| Sep. 30, 2014 | |||||||
| Compensation Related Costs, Share Based Payments: | ' | ||||||
| Disclosure of Compensation Related Costs, Share-based Payments | ' | ||||||
| STOCK-BASED COMPENSATION | |||||||
| 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 to common stockholders 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. | |||||||
| As of September 30, 2014, the total unrecognized compensation cost related to non-vested options amounted to $219,000, which is expected to be recognized over the options’ average remaining vesting period of 2.45 years. No income tax benefit was realized by the Company in the nine months ended September 30, 2014. | |||||||
| 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 110,000 and 80,000 options granted during the first nine months of 2014 and 2013, respectively. | |||||||
| Activity under the Company’s stock option plans for the nine months ended September 30, 2014 is as follows: | |||||||
| OPTIONS OUTSTANDING | |||||||
| Weighted Average Exercise Price Per Share | |||||||
| Shares | |||||||
| Balance, December 31, 2013 | 666,000 | $ | 3.92 | ||||
| Granted | 110,000 | 2.71 | |||||
| Canceled | (91,000 | ) | 3.05 | ||||
| Expired | (6,000 | ) | 8 | ||||
| Balance, September 30, 2014 | 679,000 | $ | 3.81 | ||||
| The following table summarizes outstanding options under the Company’s stock option plans as of September 30, 2014: | |||||||
| Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Term (in years) | ||||||
| Number of Shares | Aggregate Intrinsic Value | ||||||
| Outstanding Options | 679,000 | $3.81 | 5.41 | - | |||
| Ending Vested and Exercisable | 475,000 | $4.22 | 4.18 | - | |||
| Options Expected to Vest | 204,000 | $2.85 | 2.45 | - | |||
| Income Taxes | 9 Months Ended |
| Sep. 30, 2014 | |
| Income Taxes: | ' |
| Income Tax Disclosure | ' |
| INCOME TAX | |
| The Company has identified its federal tax return and its state returns in Pennsylvania and California as “major” tax jurisdictions. Based on the Company’s evaluation, it has been 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 2008 through 2013, 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. | |
| At September 30, 2014, the Company maintained a 100% valuation allowance for its remaining deferred tax assets, based on the uncertainty of the realization of future taxable income. | |
| Fair Value Measures and Disclosures | 9 Months Ended |
| Sep. 30, 2014 | |
| Fair Value Measures and Disclosures: | ' |
| Fair Value Disclosures | ' |
| FAIR VALUE OF FINANCIAL INSTRUMENTS | |
| The Company defines 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 on 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. The inputs reflect the Company’s assumptions about the assumptions a market participant would use in pricing the asset. | |
| The carrying amounts of cash and cash equivalents, trade accounts receivable, other assets, trade accounts payable and accrued expenses, and the lines of credit at face value approximate fair value because of the short maturity of these instruments. | |
| Investments classified as available for sale are measured using quoted market prices multiplied by the quantity held where quoted market prices were available. | |
| Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. Fair value is calculated based on publicly available market information or other estimates determined by management. We employ a systematic methodology on a quarterly basis that considers available quantitative and qualitative evidence in evaluating potential impairment of our investments. If the cost of an investment exceeds its fair value, we evaluate, among other factors, general market conditions, credit quality, the duration and extent to which the fair value is less than cost, and for equity securities, our intent and ability to hold, or plans to sell, the investment. For fixed income securities, we also evaluate whether we have plans to sell the security or it is more likely than not that we will be required to sell the security before recovery. We also consider specific adverse conditions related to the financial health of and business outlook for the investee, including industry and sector performance, changes in technology, and operational and financing cash flow factors. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded to other income (expense) and a new cost basis in the investment is established. |
| Segment Reporting | 9 Months Ended | ||||||||||||||||
| Sep. 30, 2014 | |||||||||||||||||
| Segment Reporting: | ' | ||||||||||||||||
| Segment Reporting Disclosure | ' | ||||||||||||||||
| 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 | Nine Months | ||||||||||||||||
| Ended September 30, | Ended September 30, | ||||||||||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||||||||||
| Revenues | |||||||||||||||||
| Software license fees | |||||||||||||||||
| United States | $ | 405,000 | $ | 53,000 | $ | 1,271,000 | $ | 799,000 | |||||||||
| Total United States | |||||||||||||||||
| software license fees | 404,000 | 53,000 | 1,271,000 | 799,000 | |||||||||||||
| Europe | 464,000 | 645,000 | 943,000 | 883,000 | |||||||||||||
| Asia Pacific | 15,000 | 120,000 | 320,000 | 508,000 | |||||||||||||
| Total foreign software | |||||||||||||||||
| license fees | 479,000 | 765,000 | 1,263,000 | 1,391,000 | |||||||||||||
| Total software license fees | 884,000 | 818,000 | 2,534,000 | 2,190,000 | |||||||||||||
| Services and maintenance | |||||||||||||||||
| United States | 2,510,000 | 2,773,000 | 7,860,000 | 8,598,000 | |||||||||||||
| Total United States | |||||||||||||||||
| services and maintenance revenue | 2,510,000 | 2,773,000 | 7,860,000 | 8,598,000 | |||||||||||||
| Europe | 848,000 | 967,000 | 2,561,000 | 2,164,000 | |||||||||||||
| Asia Pacific | 873,000 | 784,000 | 2,296,000 | 2,348,000 | |||||||||||||
| Total foreign services and | |||||||||||||||||
| maintenance revenue | 1,721,000 | 1,751,000 | 4,857,000 | 4,512,000 | |||||||||||||
| Total services and maintenance | |||||||||||||||||
| revenue | 4,231,000 | 4,524,000 | 12,717,000 | 13,110,000 | |||||||||||||
| Total revenue | $ | 5,115,000 | $ | 5,342,000 | $ | 15,251,000 | $ | 15,300,000 | |||||||||
| Net ( loss) income | |||||||||||||||||
| United States | $ | (400,000 | ) | $ | (124,000 | ) | $ | (1,602,000 | ) | $ | (1,002,000 | ) | |||||
| Europe | (94,000 | ) | 158,000 | (167,000 | ) | (492,000 | ) | ||||||||||
| Asia Pacific | (301,000 | ) | (115,000 | ) | (1,039,000 | ) | (560,000 | ) | |||||||||
| Net loss | $ | (795,000 | ) | $ | (81,000 | ) | $ | (2,808,000 | ) | $ | (2,054,000 | ) | |||||
| Consolidated Statements of Comprehensive Income (Loss) (USD $) | 9 Months Ended | |
| Sep. 30, 2014 | Sep. 30, 2013 | |
| Statement of Comprhensive Income (loss) | ' | ' |
| Net (loss) income | ($2,808,000) | ($2,054,000) |
| Foerighn currency translation adjustment | -39,000 | -70,000 |
| Change in unrealized gain on available for sale investments | -1,000 | -2,000 |
| Comprehensive income (loss) | ($2,848,000) | ($2,126,000) |
