Astea International (ATEA) 10-Q 14 Aug 18 2018 Q2 Quarterly report Financial data

Document and Entity Information

Document and Entity Information	6 Months Ended
	Jun. 30, 2018USD ($)shares
Document and Entity Information:
Entity Registrant Name	Astea International Inc.
Document Type	10-Q
Document Period End Date	Jun. 30, 2018
Trading Symbol	atea
Amendment Flag	false
Entity Central Index Key	945,989
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding | shares	3,594,549
Entity Public Float | $	$ 2,010,269
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	No
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Document Fiscal Year Focus	2,018
Document Fiscal Period Focus	Q2

Consolidated Balance Sheet

Consolidated Balance Sheet - USD ($)		Jun. 30, 2018	Dec. 31, 2017
Current assets:
Cash and cash equivalents		$ 1,365,000	$ 1,924,000
Receivables, net		5,835,000	6,589,000
Deferred Hosting Costs		1,244,000
Prepaid expenses and other		408,000	295,000
Total current assets		8,852,000	8,808,000
Property and equipment, net		102,000	105,000
Capitalized software, net		4,658,000	4,073,000
Restricted cash		76,000	77,000
Other assets		514,000	506,000
Total noncurrent assets		5,350,000	4,761,000
Total Assets		14,202,000	13,569,000
Current liabilities:
Term Note current portion			225,000
Accounts payable and accrued expenses		4,030,000	3,988,000
Deferred revenues		9,799,000	11,025,000
Total current liabilities		13,829,000	15,238,000
Long-term liabilities:
Borowings under line of credit - long term		2,396,000	2,305,000
Long-term accrued expenses		306,000	312,000
Deferred tax liability		49,000	49,000
Deferred revenue- long term		1,711,000	504,000
Total noncurrent liabilities		4,462,000	3,170,000
Total Liabilities		18,291,000	18,408,000
STOCKHOLDERS' EQUITY:
Convertible redeemable preferred stock,	[1]	16,000	16,000
Common stock	[2]	36,000	36,000
Additional paid-in capital		31,532,000	31,710,000
Accumulated deficit		(34,398,000)	(35,338,000)
Accumulated other comprehensive loss		(1,067,000)	(1,055,000)
Treasury stock at cost	[3]	208,000	208,000
Total stockholders' equity		(4,089,000)	(4,839,000)
Total liabilities and stockholders' equity		$ 14,202,000	$ 13,569,000
[1]	$.01 par value, shares authorized 5,000,000; issued and outstanding Series A 826,000 and outstanding Series B 797,000
[2]	$.01 par value, 25,000,000 shares authorized; issued 3,636,000 and outstanding 3,594,000
[3]	42,000 shares

Consolidated Statements of Oper

Consolidated Statements of Operations - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Revenues:
Software license fees	$ 892,000	$ 402,000	$ 1,311,000	$ 645,000
Subscriptions	864,000	504,000	1,692,000	1,271,000
Services and maintenance	4,876,000	5,050,000	10,325,000	10,041,000
Total revenues	6,632,000	5,956,000	13,328,000	11,957,000
Costs of Revenue:
Cost of software license fees	497,000	573,000	1,226,000	1,290,000
Cost of subscriptions	191,000	225,000	425,000	433,000
Cost of services and maintenance	3,486,000	3,599,000	7,009,000	7,153,000
Total cost of revenues	4,174,000	4,397,000	8,660,000	8,876,000
Gross Profit	2,458,000	1,559,000	4,668,000	3,081,000
Operating Expenses:
Product Development	153,000	235,000	367,000	797,000
Sales and marketing	977,000	807,000	1,978,000	1,734,000
General and administrative	948,000	705,000	1,896,000	1,368,000
Total operating expenses	2,078,000	1,747,000	4,241,000	3,899,000
Income (Loss) from operations	380,000	(188,000)	427,000	(818,000)
Interest expense, net	64,000	32,000	99,000	74,000
Loss before income tax	316,000	(220,000)	328,000	(892,000)
Income tax expense	12,000	7,000	18,000	14,000
Net Income (loss)	304,000	(227,000)	310,000	(906,000)
Preferred Dividend	125,000	125,000	(250,000)	250,000
Net income (loss) allocable to common stockholders	$ 179,000	$ (352,000)	$ 60,000	$ (1,156,000)
Basic net (loss) earingings per share allocable to common stockholders	$ 0.05	$ (0.33)	$ 0.02	$ (0.32)
Diluted net (loss) earnings per share allocable to common stockholders	$ 0.05	$ (0.33)	$ 0.02	$ (0.32)
Weighted average shares outstanding used in computing basic net (loss) earnings per share	3,594,000	3,594,000	3,594,000	3,594,000
Weighted average shares outstanding used in computing diluted net (loss) earnings per share	3,773,000	3,594,000	3,773,000	3,594,000

Consolidated Statements of Comp

Consolidated Statements of Comprehensive Income (Loss) - USD ($)	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Statement of Comprehensive Income (loss)
Net Income (loss)	$ 310,000	$ (906,000)
Other comprehensive income (loss) :
Foreign currency translation adjustment	(12,000)	(165,000)
Comprehensive income (loss)	$ 298,000	$ (1,071,000)

CONSOLIDATED STATEMENTS OF CASH

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Cash flows from operating activities:
Net Income (loss)	$ 304,000	$ (227,000)	$ 310,000	$ (906,000)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	1,238,000	1,288,000
Amortization of deferred financing cost	14,000	23,000
Amortization of deferred hosting costs	27,000
Stock-based compensation	72,000	63,000
Changes in operating assets and liabilities:
Receivables	715,000	194,000
Prepaid expenses and other	(126,000)	(23,000)
Deferred Hosting costs	(641,000)
Accounts payable and accrued expenses	(206,000)	366,000
Deferred revenues	27,000	1,057,000
Other assets	(7,000)	(10,000)
Net cash provided by operating activities	1,423,000	2,052,000
Cash flows from investing activities:
Purchases of property and equipment	(34,000)
Capitalized software development costs	(1,785,000)	(1,246,000)
Net cash used in investing activities	(1,819,000)	(1,246,000)
Cash flows from financing activities
Proceeds from debt from Silicon Valley Bank		5,062,000
Proceeds on line of credit with CEO/Director		450,000
Payments on term note from Bridge Bank	(225,000)
Proceeds on line of credit from Bridge Bank	5,150,000
Payment line of credit from Bridge Bank	(5,058,000)
Repayment on debt from Silicon Valley Bank		(5,434,000)
Dividend payments on preferred stock	(55,000)	(250,000)
Net cash provided by financing activities	(188,000)	(172,000)
Effect of exchange rate changes on cash	24,000	(14,000)
Net increase in cash, cash equivalents and restricted cash	(560,000)	620,000
Cash, cash equivalents and restricted cash, beginning of period	2,001,000	730,000
Cash,cash equivalents and restricted, end of period	$ 1,441,000	$ 1,350,000	$ 1,441,000	$ 1,350,000

Consolidated Statement of Stock

Consolidated Statement of Stockholders' Equity - 6 months ended Jun. 30, 2018 - USD ($)	Convertible redeemable preferred stock	Common stock	Additional paid-in-capital	Accumulated deficit	Accumulated other comprehensive income	Treasury Stock	Total
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Beginning Balance at Dec. 31, 2017	$ 16,000	$ 36,000	$ 31,710,000	$ (1,055,000)	$ (35,338,000)	$ (208,000)	$ (4,839,000)
Cumulative effect for accounting change at Jun. 30, 2018					630,000		630,000
Preferred Dividend			(250,000)				(250,000)
Stock-based compensation			72,000				72,000
Other Comprehensive income (loss)				(12,000)			(12,000)
Net Income (loss)					310,000		310,000
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Ending Balance at Jun. 30, 2018	$ 16,000	$ 36,000	$ 31,532,000	$ (1,067,000)	$ (34,398,000)	$ (208,000)	$ (4,089,000)

Organization, Consolidation and

Organization, Consolidation and Presentation of Financial Statements	6 Months Ended
	Jun. 30, 2018
Organization, Consolidation and Presentation of Financial Statements:
New Accounting Pronouncements, Policy	2. NEW ACCOUNTING PRONOUNCEMENTS In February 2016 as amended, the FASB issued guidance for accounting for leases. The guidance requires lessees to recognize assets and liabilities related to long-term leases on the balance sheet and expands disclosure requirements regarding leasing arrangements. The guidance is effective for reporting periods beginning after December 15, 2018 and early adoption is permitted. The guidance must be adopted on a modified retrospective basis and provides for certain practical expedients. The Company expects to adopt this guidance in the first quarter of 2019 and we currently expect that the adoption of this guidance will change the way we account for our operating leases and will result in recording the future benefits of those leases as an asset and the related minimum lease payments as a liability on our consolidated balance sheets. The Company does not finance purchases on equipment, but it does have operating leases for office space and copiers in all locations. There are also a few car leases. The Company has identified all material operating lease agreements. The Company is in the process of evaluating the effect that this guidance will have on its financial statements and related disclosures In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income ("GILTI") provisions of the Tax Cuts and Jobs Act (the "Act"). The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or to treat any taxes on GILTI inclusions as a period cost are both acceptable methods subject to an accounting policy election. Effective the first quarter of 2018, the Company elected to treat any potential GILTI inclusions as a period cost since we are not projecting any material impact from GILTI inclusions and any deferred taxes related to any inclusion would be immaterial.
Comparability of Prior Year Financial Data, Policy	Comparability Effective January 1, 2018, the Company adopted a new accounting standard. Prior periods were not retrospectively restated, so the consolidated balance sheet as of December 31, 2017 and results of operations for the six months ended June 30, 2017 were prepared using an accounting standard that was different than the one in effect for the six months ended June 30, 2018. Therefore, the condensed consolidated balance sheets as of June 30, 2018 and December 31, 2017 are not directly comparable, nor are the results of operations for the six months ended June 30, 2018 and June 30, 2017.
Liquidation Basis of Accounting	Operating Matters and Liquidity The Company has a history of net losses and an accumulated deficit of $34,398,000 as of June 30, 2018. In the first six months of 2018, the Company generated net income of $310,000 compared to a net loss of $906,000 generated in the first six months of 2017. Further, at June 30, 2018, the Company had a working capital ratio of .64:1, with cash and cash equivalents of $1,365,000 compared to December 31, 2017 when the Company had cash and cash equivalents of $1,924,000. The decrease in cash and cash equivalents for the first six months of 2018 was primarily driven by a decrease of cash provided by operations in 2018 compared to 2017 and the repayment of the Company’s term loan for $225,000 in the first six months of 2018. As of June 30, 2018, the Company owed $2,396,000 against the line of credit from Western Alliance Bank (“WAB”). As of June 30, 2018, there was no availability under the line of credit. The Company had a $400,000 term loan with WAB through April 2018. As of April 2018 the Company repaid the term loan in full. The Company has projected revenues that management believes will provide sufficient funds along with the additional borrowings available under its lines of credit to sustain its continuing operations through at least August 14, 2019. The Second Loan Agreement modified the availability under the line of credit from $2,400,000 to $2,850,000 (see footnote #9). The Company was in compliance with the WAB financial and liquidity covenant as of June 30, 2018 and expects to be able to continue to comply with the required covenants under the modified agreement with WAB for at least the next year. As a result, the amounts due to WAB under the line of credit and term loan as of June 30, 2018 were classified in the accompanying consolidated balance sheet in accordance with the repayment terms stipulated in the agreement with WAB. Our primary cash requirements are to fund operations Management’s current operating plan is to maintain and/or reduce operating expenses in order to be aligned with expected revenues. The primary area of focus will continue to be headcount and costs from outside consultants. The Company remains focused on maximizing revenue from its revenue generating resources and will continue to repurpose, if necessary, certain personnel to become billable so the Company can continue to improve its liquidity. The Company has a substantial professional services backlog that resulted from new customers added in 2018 as well as upgrade projects from our existing customers as they move to the latest version of Astea Alliance. In 2018, the Company continues to consider ways to reduce operating expenses in certain areas of the Company in order to maintain our liquidity. However, management has implemented new marketing initiatives which have increased our spending in this area in 2018. We believe the new initiatives will directly contribute to increasing new business, which is essential to our growth. Operations will generate enough cash to meet obligations at least through August 14, 2019. As noted above, if the Company’s actual results fall short of expectations, the Company will make cost adjustments to improve the Company’s operating cash flows. Our operations are subject to certain risks and uncertainties including, among others, current and potential competitors with greater resources, dependence on our significant and existing customer base, closing license and subscription sales in a timely manner, lack of a history of consistently generating net income and uncertainty of future profitability, and possible fluctuations in financial results.

Accounting Changes and Error Co

Accounting Changes and Error Corrections	6 Months Ended
	Jun. 30, 2018
Accounting Changes and Error Corrections:
Accounting Changes and Error Corrections	Accumulated Deficit The following table presents the cumulative effect adjustment to the beginning accumulated deficit for the new accounting standard adopted by the Company on January 1, 2018: Accumulated Deficit Balance, December 31, 2017, as previously reported $ (35,338,000 ) Cumulative effect adjustment from the adoption of new accounting standard: Revenue from Contracts with Customers 630,000 Balance, January 1, 2018, as adjusted (34,708,000 ) Net income 310,000 Balance, June 30, 2018 $ (34,398,000 ) Recently Adopted Accounting Standards - Revenue from Contracts with Customers In May 2014, the Financial Accounting Standards Board (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. The standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, under the new guidance, expenses incurred, will be deferred as an asset and will be amortized over the period that services or goods are transferred to the customer. The Company adopted Revenue from Contracts with Customers on January 1, 2018 using the modified retrospective transition method. Under this method, the Company evaluated contracts that were in effect at January 1, 2018 as if those contracts had been accounted for under the new guidance. The Company did not evaluate individual modifications for those periods prior to the adoption date. The aggregate effect of all modifications as of the adoption date and such effects are provided below. Under the modified retrospective transition approach, periods prior to the adoption date were not adjusted and continue to be reported in accordance with historical, pre-adoption accounting. A cumulative catch up adjustment was recorded to beginning accumulated deficit to reflect the impact of all existing arrangements under Revenue from Contracts with Customers (new guidance). The most significant impact of the adoption of revenue from the new guidance was that the Company deferred $630,000 of incremental hosting costs at the adoption date directly related to hosting customer contracts and the related hosting implementation costs for customers that had not gone live as of the date of adoption. The Company is amortizing these costs over the remaining life of the contract or expected customer life whichever is longer, once the customer goes live. The contract period is generally 1 to 3 years and the average expected customer life is 2 years. As noted above, upon adoption on January 1, 2018, the Company recognizes revenues in accordance with “Revenue from Contracts with Customers”. As such, the Company identifies a contract with a customer, identifies the performance obligations in the contract, determines the transaction price, allocates the transaction price to each performance obligation in the contract and recognizes revenues when (or as) the Company satisfies a performance obligation. The Company’s implementation team has completed its project plan, which included evaluating customer contracts across the organization, developing policies, processes and tools to report financial results including expanding our disclosures in the financial statements, and implementing and updating the Company’s internal controls over financial reporting that are necessary under the new standard. The Company has designed specific controls related to revenue recognition under the new guidance that were implemented beginning in January 2018. The next step was to identify any differences that would result from applying the new requirements and controls of the new standard to its perpetual and subscription sales contracts. The Company completed its analysis of its perpetual contracts under the new standard which supports the recognition of its license fee revenue at the time the license is delivered, consistent with its current revenue policy. The Company is still in the process of implementing changes to its accounting system to allow the Company to track revenue and cost by customer versus maintaining all the required information in excel format. The implementation is expected to be completed in the third quarter of 2018. The Company performed an analysis of the impact for revenue recognition under the new guidance. We completed the evaluation on the largest perpetual license sales in 2017 and other license sales in the prior years with potential additional performance obligations. After review of the contracts, it was determined that there would be no impact on revenue recognized or any new performance obligations identified for these customers as it relates to the new guidance. Based on the evaluation of our current contracts and revenue streams, revenue recognition is mostly consistent under both the previous and new standard as noted above, with the exception of subscription costs which are described below. Upon adoption, the Company will continue to recognize subscription revenue once a customer goes-live ratably over the remaining contract period or customer life whichever is longer. The contract period is typically 1 to 3 years. The average expected life of a customer is 2 years. The average customer takes about 8 to 10 months to go live. The Company expects the average life of a customer to increase as more customers begin to renew their subscription contracts. The primary change in how we report revenues and expenses under the new guidance is the way we report expenses related to our subscription business. In the past, we deferred all hosting revenue until the customer went live. This practice has continued. The purpose of this practice is to only recognize subscription revenue over the period in which the customer receives the benefit of using the system (performance obligation is satisfied). The major change resulting from the adoption of the new guidance relates to costs incurred in getting a hosted customer live. Through the end of 2017, the Company charged all implementation costs to expense in the period incurred. Starting January 1, 2018, we defer all implementation related costs on the balance sheet (primarily labor costs and hosting costs) until the customer goes live. Once live, we report the deferred implementation costs related to that customer ratably over the remaining expected life of the customer contract or two years, whichever is longer. At this point, based on the Company’s relatively short time-span as a provider of a hosted solution, our analysis shows that the average lifespan of an Astea hosted customer is 2 years. Therefore, we amortize the deferred costs over 2 years or the remaining life of the contract, whichever is longer. This is consistent with the revenue recognition methodology used for the subscription service revenue for that customer. The Company satisfies performance obligations as discussed in further detail below. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised service to a customer. Software license fee revenues are recognized when the software licenses have been delivered to the customer. The Company recognizes revenues from maintenance ratably over the term of the underlying maintenance contract term. The term of the maintenance contract is usually one year. Renewals of maintenance contracts create new performance obligations that are satisfied over the contract term. Revenues are recognized ratably over the contract term. Revenues from professional services consists mostly of time and material services. The performance obligations are satisfied, and revenues are recognized, when the services are provided or when the service term has expired. In contracts with multiple performance obligations, the Company accounts for individual performance obligations separately, if they are distinct. The Company allocates the transaction price to each performance obligation based on its relative standalone selling price out of total consideration of the contract. For maintenance and support, the Company determines the standalone selling price based on the price at which the Company separately sells a renewal contract. The Company determines the standalone selling price for sales of licenses using the residual approach. For professional services, the Company determines the standalone selling prices based on the price at which the Company separately sells those services. The Company does not grant a right of return to its customers. Although the new guidance prefers that revenue in a contract with multiple performance obligations use the adjusted market approach which includes standalone selling price (SSP) or third part evidence (TPE) or expected cost plus margin approach as the methodology for allocating revenues to software, the Company is using the Residual Method for allocating the revenues from a contract to the license component of the sale. A Company should not presume that contractually stated prices or a list price for perpetual licenses represents the SSP for that performance obligation. Due to competition, highly variable pricing, customer demographics, varying size of our customers, and other such factors, the Company’s selling prices are considered uncertain for each perpetual license sale. Therefore, SSP is not an appropriate methodology as it relates to our license revenue. In terms of TPE as a basis to price our software, our product is unique and expansive in terms of the system’s inherent functionality. There are no directly comparable products in the marketplace today, which we could use as the basis to set our standard license pricing based on a comparison with other vendors. In addition, most of the Company’s we compete with in our market are privately owned, which prevents us from obtaining reliable TPE. Accordingly, the new guidance permits the Company to use the Residual Method for allocating selling price if the first two preferable choices cannot be used. The residual between the total transaction price and the observable standalone selling prices of those performance obligations with observable standalone selling prices is considered to be the estimated standalone selling price of the goods or services underlying the performance obligation. Astea commonly sells our software products bundled with other products (maintenance) and professional services. As noted above, the new standard requires an entity to allocate the transaction price to the distinct performance obligations in a contract on a relative SSP basis. Under the new guidance, “ an entity shall determine the standalone selling price at contract inception of the distinct good or service underlying each performance obligation in the contract and allocate the transaction price in proportion to those standalone selling prices.” SSP is defined as the price at which an entity would sell a promised good or service separately to a customer. For example, the Company has a history of selling maintenance renewals and professional services on a standalone basis. Therefore, Astea will utilize SSP for its performance obligations as it relates to service and maintenance revenue. In addition, due to the Company having different maintenance and service rates in other parts of the world in which it operates, the Company has developed a reasonable range for its SSP for maintenance and services rather than a single point. The incremental costs of obtaining a customer contract (i.e., those costs related to obtaining the customer contract that would not have been incurred if the customer contract was not obtained), such as a sales commission, should be capitalized if the Company expects to recover those costs (based on net future cash flows from the contract and expected contract renewals). The Company may expense the incremental costs of obtaining a contract if the amortization period would otherwise be one year or less. Since sales commissions are costs that are incremental and the amortization of sales commissions would be one year or less, the Company will continue to expense these items as incurred. Costs of obtaining a customer contract that are not incremental (i.e., costs related to obtaining the customer contract that would have been incurred regardless of whether the customer contract had been obtained), such as travel costs incurred to present the customer proposal, should only be capitalized if those costs are explicitly chargeable to the customer regardless of whether the entity enters into a contract with the customer. Otherwise, such costs are expensed as incurred. The Company will continue to expense these costs as they are incurred. We present taxes assessed by a governmental authority including sales, use, value added and excise taxes on a net basis and therefore the presentation of these taxes is excluded from our revenues and is included in accrued expenses in the accompanying consolidated balance sheets until such amounts are remitted to the taxing authority. The cumulative effect of the changes made to our consolidated January 1, 2018 balance sheet for the new revenue standard requirements were as follows: As of December 31, As of January 1, 2017 Adjustments 2018 Assets Deferred hosting costs $ - $ 630,000 $ 630,000 Stockholders’ deficit Accumulated deficit $ (35,338,000 ) $ 630,000 $ (34,708,000 ) In accordance with requirements of the new revenue standard, the impact of adoption on our condensed consolidated balance sheet and statement of operations for the six months ended June 30, 2018 was as follows: As of June 30, 2018 As Reported Without Adoption Effect of Change Assets Deferred hosting costs $ 1,244,000 $ - $ 1,244,000 Equity Accumulated deficit $ (34,398,000 ) $ (35,642,000 ) $ 1,244,000 For the six months ended June 30, 2018 As Reported Without adoption Effect of Change Cost of Revenue: Cost of Subscriptions $ 425,000 $ 488,000 $ 63,000 Cost of services and maintenance 7,009,000 7,587,000 578,000 Total Cost of Revenue $ 7,434,000 $ 8,075,000 $ 641,000 Gross Profit $ 4,668,000 $ 4,027,000 $ 641,000 Net income (loss) $ 310,000 $ (331,000 ) $ 641,000 Preferred dividend 250,000 250,000 - Net income (loss) allocable to common stockholders $ 60,000 $ (581,000 ) $ 641,000 Basic and diluted $ 0.02 $ (0.16 ) $ ( 0.18 ) The following table summarizes the effects of adopting the new standard requirements on the financial statement line items of the Company’s condensed consolidated statement of cash flows for the six months ended June 30, 2018: As of June 30, 2018 As Reported Without Adoption Effect of Change Cash flows from operating activities: Net income $ 310,000 $ (331,000 ) $ ( 641,000 ) Amortization of hosting costs 27,000 - 27,000 Deferred hosting costs 614,000 - 614,000 Cash, cash equivalents and restricted cash The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheet that sum to the total of the same such amounts presented on the condensed consolidated statement of cash flows: June 30, 2018 December 31, 2017 Cash and cash equivalents $ 1,365,000 $ 1,924,000 Restricted cash 76,000 77,000 Total cash, cash equivalents, and restricted cash reported on the consolidated statement of cash flows $ 1,441,000 $ 2,001,000 Amounts included in restricted cash represent funds required to be set aside by a contractual agreement with the building leasing companies in Europe. The restrictions will lapse when the building leases expires.

Accounting Policies

Accounting Policies	6 Months Ended
	Jun. 30, 2018
Accounting Policies:
Concentration Risk, Credit Risk, Policy	3. 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 funds which are exposed to minimal interest rate and credit risk. Cash balances are maintained with several banks. Certain operating accounts may exceed insured limits.
Debt, Policy	4. LINES OF CREDIT AND TERM NOTE Line of Credit and Term Loan with Western Alliance Bank On August 11, 2017, the Company entered in to a Business Financing Agreement (the “Financing Agreement”) with Bridge Bank, a division of WAB, which included a revolving line of credit and a term loan. The agreement matures on September 1, 2019. The Financing Agreement with WAB, established a revolving credit line for the Company in the principal amount of up to $2,400,000 (the “Revolving Credit Line”) and a Term Loan of $400,000 (the “Term Loan”). Availability under the Revolving Credit Line is tied to a borrowing base formula that is based on 80% of the Company’s eligible domestic accounts receivable. Advances under the Revolving Credit Line (the “Advances”) may be repaid and reborrowed in accordance with the Loan Agreement. Pursuant to the Financing Agreement, the Company agreed to pay to WAB the outstanding principal amount of all Advances, the unpaid interest thereon, and all other obligations incurred with respect to the Loan Agreement on September 1, 2019. Interest accrues and is paid monthly at the Wall Street Journal Prime Rate plus 1.5%. The original Term Loan provided $400,000 to the Company. Beginning in August 2017, for the first six months of the term loan the Company was only required to pay interest. Then for the next 18 months, the Term Loan was to be amortized into monthly payments of principal and interest. The interest rate on the original Term Loan was the Wall Street Journal Prime Rate plus 1.75%, or 6.50%. The Term Loan was modified in December 2017, and as a result, the Company fully repaid the Term Loan by April 30, 2018. The Company repaid $150,000 of the Term Loan in December 2017, $125,000 in January 2018 and the balance of $125,000 in April 2018. As of June 30, 2018 the Company owed $2,396,000 under the revolving line of credit. The Company incurred $76,000 of interest expense to WAB in the first six months of 2018. As of June 30, 2018, there was no availability under the line of credit. The Company was in compliance with the financial and liquidity covenants of the modified Loan Agreement as of June 30, 2018. The Company expects to be able to continue to comply with the required covenants contained in the agreement with WAB for at least the next year. As a result, the amounts due to WAB under the line of credit and term loan as of June 30, 2018 were classified in the accompanying consolidated balance sheet in accordance with the repayment terms stipulated in the agreement. In the event the Company does not meet its covenants after June 30, 2018 and WAB does not grant a waiver or forbearance agreement, and the Company believes that it does not have adequate liquidity to operate, the Company will implement a cost cutting plan that reduces its expenditures to the appropriate level that matches its operating cash flows. On July 24, 2018, the Company entered into a Second Modification to Business Financing Agreement (“Loan Modification Agreement”) with WAB which amended the original Financing Agreement, dated August 11, 2017. This Loan Modification increased the line of credit under Company’s credit facility to $2,850,000, extended the maturity date of the credit facility through November 15, 2020 and revised and clarified certain covenants and other terms of the credit facility. Subject to certain exceptions, the modified Financing 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 (other than dividends on outstanding convertible preferred stock); and (i) making payment on subordinated debt. In addition, actual EBITDA, as defined in the Financing Agreement for the trailing 6-month period must be at least $1 as tested quarterly. The Financing Agreement 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 Financing Agreement contains a negative covenant prohibiting the Company from granting a security interest in their intellectual property to any party. Line of Credit with Silicon Valley Bank (SVB) In August 2017 at the closing of the WAB Financing Agreement, the Company repaid all outstanding amounts owed to SVB under the Revolving Facility and terminated the Revolving Facility. As of June 30, 2017, the Company owed $1,555,000 against the Revolving Facility. The Company incurred $74,000 of interest expense to SVB for the six months ended June 30, 2017. Line of Credit with Chief Executive Officer/Director In April 2017, the Company extended its Revolving Loan Agreement and associated Revolving Promissory Note with its Chief Executive Officer/Director. This loan agreement provided an unsecured $1,000,000 revolving line of credit to the Company. The line of credit matured on May 1, 2018. 5. INCOME TAXES 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 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 2014 through 2017, the only periods subject to examination. The Company believes that its income tax positions and deductions will be sustained on a tax authority audit and does not anticipate any adjustments that will result in a material change to its financial position. 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 condensed consolidated statement of operations. For the six months ended June 30, 2018 and 2017, there were no interest or penalties related to uncertain tax positions. On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a federal corporate tax rate decrease from 35% to 21% for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. The Act repeals the Alternative Minimum Tax (“AMT”) for years beginning after December 31, 2017 and allows Companies with existing AMT credit carryforwards to receive future refunds of the credit. As a result, the Company recorded an AMT credit benefit of $362,000 in 2017 and as a result has a long term receivable as of June 30, 2018. The Company believes that the most significant impact on its consolidated financial statements will be a reduction of approximately $3,900,000 for the deferred tax assets related to net operating losses and other assets. Such reduction is offset by changes to the Company’s valuation allowance. Additionally, the Company has investments in various foreign subsidiaries for which at December 31, 2017 and November 2, 2017, the cumulative earnings and profits of these entities was estimated to be negative. Accordingly, the Company has not recorded a provisional amount for the transition tax enacted under the Act. On December 22, 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin 118, which allows a measurement period, not to exceed one year, to finalize the accounting for the income tax impacts of the Tax Act. Until the accounting for the income tax impacts of the Tax Act is complete, the reported amounts are based on reasonable estimates, are disclosed as provisional and reflect any adjustments in subsequent periods as the Company refines its estimates or completes its accounting of such tax effects. At June 30, 2018, the Company maintained a 100% valuation allowance for its remaining deferred tax assets, based on the uncertainty of the realization of the deferred tax assets due to the uncertainty of future taxable income.
Basis of Presentation and Significant Accounting Policies	BASIS OF PRESENTATION The condensed consolidated financial statements at June 30, 2018 and for the six month periods ended June 30, 2018 and 2017 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 accompanying 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 March 31, 2017, June 30, 2017, September 30, 2017 and March 31, 2018. The interim financial information presented is not necessarily indicative of results expected for the entire year ending December 31, 2018.

Equity

Equity	6 Months Ended
	Jun. 30, 2018
Equity:
Shareholders' Equity and Share-based Payments	EQUITY Share-Based Awards 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. 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. As of June 30, 2018, the total unrecognized compensation cost related to non-vested options amounted to $330,000, which is expected to be recognized over the options’ average remaining vesting period of 3.06 years. Activity under the Company’s stock option plans for the six months ended June 30, 2018 is as follows: OPTIONS OUTSTANDING Shares Weighted Average Exercise Price Per Share Balance, December 31, 2017 703,000 $ 2.39 Granted 125,000 $ 3.90 Expired (26,000 ) $ 4.10 Balance, June 30, 2018 802,000 $ 2.57 The following table summarizes outstanding options under the Company’s stock option plans as of June 30, 2018: Number of Shares Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value Outstanding Options 802,000 $2.57 6.23 $1,154,000 Ending Vested and Exercisable 491,000 $2.51 4.63 $733,000 Options Vested and Expected to Vest 713,000 $2.54 5.88 $1,047,000 Convertible Preferred Stock Series A On September 24, 2008, the Company issued 826,000 shares of Series-A Convertible Preferred Stock (“Series A 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 Series A Preferred at a rate of 10% and are payable only when, and if, declared by the Company’s Board of Directors, quarterly in arrears. At June 30, 2018, there were accrued dividends of $415,000. The Series A Preferred Stock may be converted into common stock at the rate of one share of common for each share of Series A Preferred Stock. The Company has rights to cause conversion of all of the shares of Series A Preferred Stock outstanding. The Company may redeem, subject to board approval, all of the shares of Series A 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 Series A Preferred Stock would be entitled to receive had the redeemed Series A Preferred Stock been converted immediately prior to the redemption. In the event of a liquidation of the Company, the holder of the Series A and (Series B) preferred stock shall be entitled to receive in preference to the holders of the common stock, the original amount invested in the preferred stock plus any unpaid and accrued dividends. Preferred stock dividends on the Series A are declared quarterly by the Board of Directors. The Company reports the Series A Preferred Stock on the Company’s condensed consolidated balance sheet within stockholders’ deficit. Series B On June 20, 2014, the Company issued 797,000 of Series-B Convertible Preferred Stock (“Series B Preferred Stock”) to its Chief Executive Officer at a price of $2.51 per share in exchange for the cancellation of $2,000,000 of outstanding principal owed to its Chief Executive Officer under a Revolving Promissory Note dated March 26, 2014. The Series B Preferred Stock may be converted into shares of common stock on a one-to-one ratio, subject to customary anti-dilution provisions. The Series B Preferred Stock will pay a quarterly dividend, which will accrue at an annual rate of 10%. The Company’s Chief Executive Officer may convert 100% of his shares of the Series B Preferred Stock into shares of common stock. Each and every outstanding share of Series B Preferred Stock is subject to mandatory and automatic conversion into shares of common stock if the closing price of the common stock as reported by the principal exchange or quotation system on which such common stock is traded or reported exceeds 300% of the then current conversion price for 30 consecutive trading days. The Company may redeem all of the outstanding shares of the Series B Preferred Stock issued at a price per share equal to 300% of the purchase price. The Series B Preferred Stock ranks senior to the common stock and on parity with the Company’s Series A Convertible Preferred Stock. In the event of a liquidation of the Company, the holder of the Series B and Series A Preferred Stock shall be entitled to receive in preference to the holders of the common stock, the original amount invested in the preferred stock plus any unpaid and accrued dividends. Preferred stock dividends on the Series B are declared quarterly by the Board of Directors. At June 30, 2018, there were accrued dividends of $280,000. The Company reports the Series B Preferred Stock on the Company’s condensed consolidated balance sheet within stockholders’ deficit.

Earnings Per Share

Earnings Per Share	6 Months Ended
	Jun. 30, 2018
Earnings Per Share:
Earnings Per Share	7. INCOME (LOSS) PER SHARE Income (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 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 income (loss) per share, weighted average numbers of shares outstanding are used as the denominator. The Company had net income available to the common stockholders for the three and six months ended June 30, 2018 and a net loss allocable to stockholders for the three and six months ended June 30, 2018 and 2017. In the three and six months ended June 30, 2018, there were 179,000 of net additional dilutive stock options assumed to be converted into common stock shares and in the three and six months ended June 30, 2017, the outstanding stock options would have been antidilutive due to the net loss incurred during those periods. In addition, 100% of the outstanding convertible preferred stock, 1,623,000 shares, were eligible to be converted into common stock. For purpose of this calculation, if converted, it was assumed that upon conversion, the related dividends were not paid. However, as of the three and six months ended June 30, 2018 and 2017 shares of common stock issuable on the assumed conversion of the eligible preferred stock were excluded from the diluted income (loss) per common shares calculation as the inclusion of these shares would have been antidilutive. Three Months Ended June 30, Six Months Ended June 30, 2018 2017 2018 2017 Numerator: Net income (loss) $ 304,000 $ (227,000 ) $ 310,000 $ (906,000 ) Preferred dividend 125,000 125,000 250,000 250,000 Net income available (loss allocable) to common stockholders $ 179,000 $ (352,000 ) $ 60,000 $ (1,156,000 ) Denominator: Basic weighted average number of common shares outstanding 3,594,000 3,954,000 3,594,000 3,954,000 Effect of dilutive stock options 179,000 - 179,000 - Diluted weighted average number of common shares outstanding 3,773,000 3,594,000 3,773,000 3,954,000 Basic income (loss) per common share $ 0.05 $ (0.10 ) $ 0.02 $ (0.32 ) Diluted income (loss) per common share $ 0.05 $ (0.10 ) $ 0.02 $ (0.32 )

Segment Reporting

Segment Reporting	6 Months Ended
	Jun. 30, 2018
Segment Reporting:
Segment Reporting Disclosure	8. 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 June 30, Six Months Ended June 30, 2018 2017 2018 2017 Revenues Software license fees United States $ 123,000 $ 301,000 $ 448,000 $ 412,000 Europe 103,000 47,000 152,000 47,000 Asia Pacific 666,000 54,000 711,000 186,000 Total foreign software license fees revenue 769,000 101,000 863,000 233,000 Total software license fees 892,000 402,000 1,311,000 645,000 Subscriptions United States 409,000 268,000 824,000 754,000 Europe 315,000 165,000 587,000 333,000 Asia Pacific 140,000 71,000 281,000 184,000 Total foreign subscriptions 455,000 236,000 868,000 517,000 Total subscription revenue 864,000 504,000 1,692,000 1,271,000 Services and maintenance United States 3,048,000 2,792,000 6,383,000 5,614,000 Europe 594,000 949,000 1,184,000 2,019,000 Asia Pacific 1,234,000 1,309,000 2,758,000 2,408,000 Total foreign services and maintenance revenue 1,828,000 2,258,000 3,942,000 4,427,000 Total services and maintenance revenue 4,876,000 5,050,000 10,325,000 10,041,000 Total revenue $ 6,632,000 $ 5,956,000 $ 13,328,000 $ 11,957,000 Net income (loss) United States $ 170,000 $ (244,000 ) $ 109,000 $ (945,000 ) Europe (159,000 ) ) 136,000 (215,000 ) 182,000 Asia Pacific 293,000 (119,000 ) 416,000 (143,000 ) Net income (loss) $ 304,000 $ (227,000 ) $ 310,000 $ (906,000 )

Subsequent Events

Subsequent Events	6 Months Ended
	Jun. 30, 2018
Subsequent Events:
Subsequent Events	9. SUBSEQUENT EVENT On July 24, 2018, the Company entered into a Second Modification to the Business Financing Agreement (“Loan Modification”) with WAB which amended the First Modification, dated November 22, 2017. This Loan Modification increased the credit limit under Company’s credit facility to $2,850,000, extended the maturity date of the credit facility through November 15, 2020 and revised and clarified certain covenants and other terms of the credit facility. No other terms or conditions were modified.