Organization, Consolidation and Presentation of Financial Statements

12 Months Ended

Dec. 31, 2018

Organization, Consolidation and Presentation of Financial Statements:

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 year ended December 31, 2017 were prepared using an accounting standard that is different than the one in effect for the year ended December 31, 2018. Therefore, the consolidated balance sheets as of December 31, 2018 and December 31, 2017 are not directly comparable, nor are the results of operations for the twelve months ended December 31, 2018 and December 31, 2017.

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		364,000
Balance, December 31, 2018	$	(35,072,000	)

Additional Financial Information Disclosure

Operating Matters and Liquidity

The Company has a history of net losses and an accumulated deficit of $34,344,000 as of December 31, 2018.  In the year ended December 31, 2018, the Company generated net income of $364,000 compared to a net income of $99,000 generated in the year ended 2017.  Further, at December 31, 2018, the Company had a working capital ratio of .61:1, with cash and cash equivalents of $1,276,000 compared to December 31, 2017 when the Company had cash and cash equivalents of $1,924,000.  The decrease in cash and cash equivalents in 2018 was primarily driven by a decrease of cash provided by operations in 2018 compared to 2017, the repayment of the Company’s term loan for $225,000 and an increase in capitalized software development costs of $511,000 in 2018.

As of December 31, 2018, the Company owed $2,669,000 against the line of credit from Western Alliance Bank (“WAB”).   As of December 31, 2018, there was $181,000 available 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 April 1, 2020. The Second Loan Agreement increased the availability under the line of credit from $2,400,000 to $2,850,000 (see Note 7).

The Company was in compliance with the WAB financial and liquidity covenant as of December 31, 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 amount due to WAB under the line of credit as of December 31, 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 which mainly include personnel-related costs, marketing costs, third party costs related to hosting and software, general and administrative costs associated with being a public company, travel costs, and quarterly preferred stock dividends.  The Company expects to continue to incur operating expenses for research and development and investment in software development costs to achieve its projected revenue growth.  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 results of operations.  However, projections of future cash needs and cash flows are subject to risks and uncertainty. 

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 2019, the Company will continue 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 will increase our spending in this area in 2019.  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 April 1, 2020. 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. In addition, we plan to maintain the same level of investment in software development and we do not expect to increase capital expenditures.

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.