This Annual Report on Form 10-K may contain, in addition to historical information, forward-looking statements. These forward-looking statements are based on the Company's current assumptions, expectations and projections about future events. Words like "believe," "anticipate," "intend," "estimate," "expect," "project," and similar expressions are used to identify forward-looking statements, although not all forward-looking statements contain these words. These forward-looking statements are estimates reflecting the best judgment of the Company's management and actual events or results may differ materially from the results anticipated in these forward-looking statements as a result of a variety of factors. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include:
Many of these factors are beyond our ability to predict or control. In addition, as a result of these and other factors, our past financial performance should not be relied on as an indication of future performance. The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this report might not occur. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements.
The Company is not under any obligation and does not intend to make publicly available any update or other revision to any forward-looking statements to reflect circumstances existing after the date of this Annual Report on Form 10-K or to reflect the occurrence of future events even if experience or future events make it clear that any expected results expressed or implied by these forward-looking statements will not be realized.
General
Astea International Inc. and subsidiaries (collectively "we," "us," "Astea" or the "Company") develop, market and support service management software solutions, which are licensed to companies that sell and service equipment, and/or sell and deliver professional services. Companies invest in Astea's software and services to automate enterprise business processes for purposes of revenue enhancement, cost containment, operational efficiency improvement, and the expansion of their awareness of operational performance through analytical reporting. Customers' return on investment from implementing Astea's solutions is achieved through more efficient management of information, people, processes and cash flows, which we believe increases competitive advantage and customer satisfaction as well as top-line revenue and profitability.
Astea's solutions are used in industries such as information technology, medical devices and diagnostic systems, industrial controls and instrumentation, retail/point-of-sale equipment, heating, ventilation, and air conditioning systems ("HVAC"), office equipment, imaging systems, fire and security, gaming/leisure equipment, facilities management, telecommunications and other related industries with equipment sales and service requirements. Astea's strong focus on enterprise solutions for organizations that sell and deliver services is a unique industry differentiator that draws upon the Company's extensive industry experience and core expertise.
Founded in 1979, Astea is known throughout the industry, largely from its proven success as a provider of software solutions for field service management. Astea has since expanded its product portfolio to also include integrated management applications for sales, multi-channel customer contact centers, third party vendor management, workforce optimization, and professional services automation.
Astea offers all the cornerstones of service lifecycle management, including customer management; service management; asset management; complete forward and reverse logistics management; and mobile workforce management with enhanced scheduling optimization and actionable business intelligence. We believe this comprehensive approach provides unmatched expertise in service lifecycle workflow and integration needs throughout the service continuum. Astea's solutions empower companies by making more actionable data readily accessible, providing companies the agility needed to achieve sustainable value more quickly and to compete successfully in a global community.
Astea's software has been licensed to approximately 650 companies worldwide. Customers range from mid-size organizations to large, multinational corporations with geographically dispersed locations around the globe. The Company markets and supports its products through a worldwide network of direct and indirect sales and services offices with corporate headquarters in the United States and regional headquarters in the United Kingdom, Australia and Japan. Sales partners include distributors (value-added resellers, system integrators and sales agents) and original equipment manufacturing partners ("OEM partners"). See Note 13 to the Consolidated Financial Statements Geographic Segment Data for revenues, income (loss) from operations and long lived assets related to each of the Company's geographic operating regions for the past two years.
In addition to its own product development that is conducted at Company facilities in the United States and Israel, Astea participates in contractual relationships with complementary technology companies in order to reduce time-to-market with new product capabilities and continually increase its value proposition to customers.
The Company's product strategies are developed from the collective feedback from customers, industry consultants, technology partners and sales partners, in addition to its internal product management, professional services, and development teams. Astea also works with its active user community who closely advises and participates in ongoing product development efforts.
Astea provides customers with an array of professional consulting, training and customer support services to implement its products and integrate them with other corporate systems such as back-office financial and
enterprise resource planning (
ERP) applications. Astea also maintains and supports its software over its installed life cycle. The Company's experience and domain expertise in service and sales management, distribution, logistics, finance, mobile technologies, internet applications and enterprise systems integration are made available to customers during their assessments of where and how their business processes can be improved.
The Company's sales and marketing efforts are primarily focused on new software licensing and support services for its latest generation of Astea Alliance and FieldCentrix products.
Industry Overview – Service Management
Service management is generally defined as a technician performing repair, installation, or regularly scheduled/preventive maintenance work at a customer site. It involves the management of incoming service requests, dispatching of service technicians, managing parts, managing contracts, prioritizing service based on service level agreements and severity of problems, and the repair, refurbishment and retirement process for a piece of equipment. Field service organizations vary greatly in size, industries and supported technologies. Although every industry relies on field service to some degree, for certain industries field service is critical. Equipment, ranging from computers and peripherals to building systems, office equipment and medical equipment depends on field service. Sometimes, this equipment is the lifeblood of a company, and any downtime or service interruptions can significantly impair operations or even endanger human life and safety.
Managing today's service enterprise means planning and coordinating service on a global scale. It means delighting customers - and it calls for new technologies and business practices designed specifically to solve the service lifecycle management challenge. The benefits of implementing service management solutions are applicable in virtually every service organization, regardless of type, size, or geography served.
Current Product Offerings
Astea Alliance
Astea Alliance is a service management offering consisting of software applications and services. The software product consists of a series of applications. The offering has been developed as a global solution from the ground up with multi-lingual and multi-currency capabilities.
Astea Alliance has been designed to address the complete service lifecycle, f
rom lead generation and project quotation to service and billing through asset retirement. It integrates and optimizes critical business processes for Campaigns, Call Center, Depot Repair, Field Service, Logistics, Projects and Sales and Order Processing applications. Astea extends its application suite with mobile workforce management, dynamic scheduling optimization, third party vendor and customer self-service portals, and business intelligence. In order to ensure customer satisfaction and quick return on investment, Astea also offers infrastructure tools and services.
In 2015, Astea issued two product releases, Astea Alliance 12.0 and 12.5, which deliver a number of noteworthy advancements that will help companies accelerate response times, improve the overall customer experience, and gain instant access to actionable intelligence. A summary of features released with Astea Alliance 12.0 and 12.5 are highlighted below. They include:
•
Visualization & Collaboration Tools –Astea's cutting-edge HTML5 mobile solution has been leveraged by global organizations to increase engineer productivity, reduce costs and improve customer satisfaction. Astea remains relentless in the pursuit of providing powerful capabilities to the mobile user without adding complexity to the user experience. These releases continue to build on that philosophy with optimized user navigation; the ability for a mobile user to work from multiple devices with complete synchronizations between devices; visualization tools to easily support self-dispatch; live chat connecting the field engineer with the back office; centralized parts order status view; and full bi-directional Microsoft Outlook synchronization. Astea's mobile solution provides the level of flexibility necessary that makes it easy for organizations to modify and adapt the solution, for different user profiles or businesses, without requiring development skillsets or adding additional costs.
•
Your Service Platform, Your Way – Astea knows that even with the deepest level of functionality in their platform, organizations will always want to have the flexibility to make modifications to adapt to their business dynamics. A couple of years ago, Astea introduced an innovative customization tool that gives organizations the control they need, without requiring coding, while still being able to take advantage of the latest and greatest Astea Alliance feature updates. Additionally, there are added capabilities to give non-technical users even more "do it yourself" tools, while Astea's framework actively governs these customizations making it easy to see what is custom and what is standard. Organizations can build new modules, as well as import and export customizations to different environments, when needed. All customizations work with the latest Astea Alliance product updates.
•
Drive Proactive Support and Continuous Process Improvement – For years, Astea has been providing tools and reporting capabilities that provide proactive service insight and intelligence at every level. Astea continues to further enhance its decision making visualization tools, to easily and quickly leverage insightful information for optimal process improvements, productivity and customer satisfaction.
•
Easily Manage and Support a Company's Entire Service Ecosystem – When it comes to optimizing a company's service ecosystem, visibility and control become mission critical requirements to manage and track all of the people, internal and external to the organization, and processes that have an impact on the overall service experience for the customer. Astea has added a new customer satisfaction tracking capability to make it easy to collect as well review customer feedback at any time. Astea also introduced a new, vibrant Customer Self-Service module which optimizes workflow and further enriches the end user experience. Additionally, Astea's new Service Manager Analytics App, makes relevant performance metrics instantly available to service managers and executives to quickly and easily monitor for optimal service outcomes. Astea continues to add enhancements to its scheduling optimization solution, leveraging the latest Microsoft technologies, to ensure optimal operational performance. Further enhancements have also been made in the area of Astea's Third Party Vendor Management, Contracts, Logistics, and Professional Services Automation (Projects).
ServiceAlliance and SalesAlliance, the earliest versions of Astea Alliance solutions, were the Company's initial technology offerings following a long and highly successful history with its DISPATCH-1 legacy system solutions. Astea Alliance solutions have been licensed to over 300
customers worldwide. Market acceptance of Astea Alliance by
global and regional companies has continually increased since 2002 and the Company has aggressively pursued opportunities for larger system implementations
with
mid-size to large enterprises on a worldwide basis
.
The current Astea Alliance offering consists of:
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Reporting and Business Intelligence; and
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Astea Alliance Core Applications:
Alliance Contact Center
Alliance Depot Repair
Alliance Field Service
Alliance Logistics
Alliance Order Processing
Alliance Professional Services
Alliance Sales
Alliance Dynamic Scheduling Engine
Alliance Workforce Planning
Astea Alliance Mobile Applications:
Alliance Mobile – Laptop/ Smartphones/Tablets
Alliance Third Party Vendor Mobile
Alliance 2-way Paging
Astea Alliance Extended Portals:
Alliance Customer Self-Service
Alliance Vendor & Third Party Management
Astea Alliance Reporting and Business Intelligence:
Alliance Reporting
Alliance Business Intelligence
Astea Alliance Tools:
Alliance Link
Alliance Knowledge Base
Astea Alliance Core Applications
The Alliance Contact Center application supports call centers, information desks, service hotlines, inside sales and telemarketing activities. Integrated multi-channel inbound/outbound capabilities enable customer service representatives to serve prospects and customers in their media of choice, including phone, fax, e-mail or Internet. Integrated customer self-service portals with automated e-mail response, automated call escalation and interface to Computer Telephony Integration systems help streamline customer interaction processes. Work scheduling and demand balancing optimize staff utilization. Employee portals with access to comprehensive real-time customer data and decision support tools including intelligent knowledge management and scripting for problem resolution, drive higher staff productivity. The objectives of Astea's Alliance Contact Center software are to reduce overhead through improved first-call resolution rates and shorter service-call handling times, as well as more efficient customer service and higher levels of customer satisfaction. A knowledge engine enhances the diagnostic tools available to contact center agents. This knowledge engine is also available in other areas of the solution suite such as Depot Repair and Field Service.
Alliance Depot Repair
Alliance Depot Repair automates tracking of assets through equipment calibration and repair chains, including merchandise ownership, location, repair status and warranty coverage. Objectives are to gain real-time visibility of all repair chain activities, ensure compliance with warranty and contractual agreements, respond to customer inquiries with up-to-the-minute repair status, collect and analyze repair statistics for product design improvement, and reduce overhead such as inventory carrying costs. Applications support in-house, subcontractor and vendor calibration and repair; customer and vendor exchanges and advance exchanges; equipment on loan; change of ownership; merchandise shipments, cross shipments and pickups; consolidated repair orders; and, storage and refurbishment programs. Integration with other
Astea Alliance
modules allows repair orders and repair status queries to be initiated from customer contact centers, field service, field sales and warehouses as well as the repair depot.
Alliance Field Service
The Alliance Field Service core application delivers a set of automated capabilities intended to streamline and improve management of field service activities. By automating workflow, field service representatives should be able to efficiently complete and document assignments, manage vehicle assets, capture expenses and generate revenue through add-on sales during a customer contact. Applications alert dispatchers to contractual minimum response times and expedite coordination of field force skills matching, scheduling, dispatch and repair parts logistics. The use of the Dynamic Scheduling Engine should automate much of this process. The software supports all field service categories including equipment installations, break/fix, planned maintenance and meter reading. Applications can also be integrated with equipment diagnostic systems for fully automated solutions that initiate and prioritize service requests and dispatch assignments to field employees' smartphones, laptops or tablets without human intervention
Alliance Logistics
The Alliance Logistics core application is divided into three functional portals. These are Supply Chain, Inventory Management and Reverse Supply Chain, reflecting the diversity of needs in this area. Seamlessly integrated with sales and service applications, Alliance Logistics enables service organizations to control inventory costs, manage assets and implement proactive service management strategies. Automated calculation of stock profiles based on usage eliminates overstocking and dramatically reduces costs associated with storing, depreciating, and insuring inventory. The application supports parts and tools management for effective field service delivery and Service Level Agreements compliance. We believe that improved cost management improves cash flow by streamlining and shortening the cycles from inventory to usage to billing. Lower logistics costs open opportunities to recognize higher margins on products and services. Key areas to apply Alliance Logistics include asset management, field service parts/tools management, demand fulfillment, and sales fulfillment.
Alliance Order Processing
The Alliance Order Processing module provides straightforward functionality for the management of quotations and order fulfillment. Quotations can be created for the sale of products and the provision of field services. Integration with the approvals process and the Logistics and Field Service modules should ensure efficient management control and sustainable promises for delivery. This application is ideally suited to the sale of "consumable products" in association with the provision of equipment-based services, but can be equally applied to the supply of finished products resulting from up-sell and cross-sell opportunities.
Alliance Professional Services
Alliance Professional Services supports management of knowledge workers, such as those deployed by professional services organizations and internal service departments of large organizations. Functionality focuses on planning, deploying and billing service engagements that can extend for days, weeks, months and years. Applications are expected to improve resource planning and allocation, workflow management, consultant time and expense reporting, subcontractor and vendor invoice processing, customer billing, and visibility of service engagements. Integration with other Astea Alliance modules delivers an end-to-end solution to market, sell, manage and bill professional services. Capabilities to share sales, service, project, and post-project field service data across the enterprise, generally enables professional services organizations to operate with less overhead, improved cash flow, higher profitability, and more competitive bidding.
Alliance Sales
Alliance Sales consolidates and streamlines the sales processes of an enterprise, from quote generation through order processing, at all points of customer contact including field sales, inside sales, contact center sales and field service sales. Lead-to-close sales process capabilities include integration with customer support and field service applications, leveraging all enterprise knowledge pools with the goal to increase sales opportunities, margins and close rates.
Consolidated views of sales and service data also provide a clearer understanding of enterprise operations to drive strategic business decisions. Sales force automation application automates business rules and practices such as enterprise-defined sales methodologies, sales pipeline management, territory management, contact and opportunity management, forecasting, collaborative team selling and literature fulfillment. Other applications prompt customer support and service staff to up-sell and cross-sell during contact with customers.
Alliance Dynamic Scheduling Engine ("Alliance DSE")
Alliance DSE is the next level of field service scheduling solutions for a new era of service management. It is a real-time scheduling solution designed to optimize and balance the tradeoffs between service cost and level of service. It addresses the specific challenges of field service scheduling, while simultaneously calculating ways to increase efficiency, accuracy and profitability with the goal to help users sustain a competitive advantage in today's volatile environment. Astea has taken a scheduling engine that was developed to handle mission critical environments such as emergency response, where a response time determined life or death, adapted and embedded it into its core product. We believe that Alliance DSE provides for maximum flexibility that enables companies to proactively drive, manage and monitor their technicians through demand forecasting, workforce profiling, and operational optimization. Astea's Alliance DSE is designed to enhance productivity, improve business processes and maximize return on investment.
Alliance Workforce Planning
Workforce Planning assists in forecasting workforce requirements based on planned and unplanned orders and tracks actual results against the plan. Multiple workforce plans can be created, and plans can be maintained for different groups of resources and/or different planning periods. The Workforce planning module is flexible and can be leveraged to create plans that are comprised of days dedicated to only unplanned work, or the workforce can be allocated a percentage of planned work to be accomplished. Workforce demands for service technicians are not always consistent from period to period or from branch to branch. This creates a surplus of manpower in some locations and a shortage in others. Based on an Alliance Workforce plan, personnel can be temporarily transferred to another branch or action group to take care of the workload. A workforce plan shows the daily available hours for labor, and compares these to the daily activities from both planned and unplanned selected sources, including PM schedules, field change orders, project demands, committed sales orders and unplanned work. Plans can be frozen to compare actual time spent against the frozen plan to track performance.
Astea Alliance Mobile Applications
Astea's Alliance Mobility Suite consists of Alliance Mobile Select, which is Astea's original mobile solution supporting Windows Mobile devices and Windows laptops, Alliance Mobile Universal, and Alliance Third Party Vendor Mobile. Alliance Mobile Universal is optimized to operate with the latest devices in the market including Android smartphones and tablets, iPhones, and iPads. Organizations can choose the device that works best for their environment and still be able to leverage the most powerful mobile solution designed specifically for the way field technicians work. Astea's Alliance Mobility Suite leverages the latest HTML5 technology to deliver a sleek and innovative user interface while still providing the ability for mobile workers to continue working whether they are in or out of wireless coverage. Field service technicians' days are transformed by receiving work orders which are automatically sent to the device, being able to view asset and service history; customer, account and job site information; contract and warranty information; receiving step-by-step guidance to complete the job; capturing customer signature; and completing work orders for invoicing. The real-time connectivity integrates field sales and service activity with automated front-office processes and eliminates the time, costs, procedural delays and errors of paper reporting. Expected benefits include reduced field administration costs; electronic data sharing among field and in-house personnel; improved speed, accuracy, content and compliance of field reporting; faster sales order processing and customer service invoicing; and other operational efficiencies.
Astea Alliance Extended Portals
Alliance Customer Portal
The Alliance Customer Portal is a secure, multi-level entry point that supports unattended e-business transactions for customer self-service and self-sales. Alliance Customer Portal empowers customers as it lessens dependence on sales and service staff to conduct transactions that can be performed over the Internet. It reduces routine voice and fax calls to customer contact centers, freeing lines for customers whose critical needs do require assistance from a service representative. The pre-defined Entry-Level, Standard and Enterprise profiles, in connection with a security utility, are designed to ensure tight control on access to sensitive data and a range of features that can be enabled. It also provides another channel to promote and sell more products and services to an existing customer base. The customer portal can delay or eliminate needs for contact center expansion and associated increases in facility, equipment and staffing costs.
Alliance Vendor & Third Party Management Portal
The Vendor & Third Party Management portal enables companies to manage their external vendors and third party service providers with a robust, secure and unified platform. This portal can now serve as their single point of information for all full-time and out-sourced stakeholders. As a result, they will have the necessary level of upstream and downstream visibility and accountability that is a critical stepping stone to better service network automation and optimizations. Whether that third party is an external service agent or a vendor that supplies parts, they will now be able to track and manage all of the parties that participate in your service supply chain. Their vendors and external service agents (SAs) will have access to a secure portal that allows them to enter, update and view pertinent information as it relates to a service order and logistics and reverse logistics functions. Service organizations are able to easily interconnect their entire service lifecycle ecosystem to eliminate redundant processes and drive ongoing efficiencies. Additionally, organizations benefit by increased visibility, collaboration and communication.
Astea Alliance Reporting and Business Intelligence ("Alliance BI")
For proactive service management, Alliance BI provides highly visual, real-time analysis
of business performance, focusing on key performance indicators - a tool that facilitates businesses' understanding of customer behavior. Alliance BI enables the viewing of information for the entire enterprise, increasing revenues and identifying new business opportunities.
Alliance BI has been designed to ensure that users of all kinds have immediate access to crucial information whenever it's needed. In the boardroom, at agent level, or even for customers, this tool effortlessly allows the viewing of performance data such as performance against service level agreements, contract profitability, product failure rate, repair turnaround times, customer satisfaction and engineer efficiency. Reports allow businesses to see how many orders have met their contractual service ETA and how many failed, which helps organizations better understand customer satisfaction. Workloads show the available working hours at a specific location in contrast to the demand for workforce planning and optimization.
Astea Alliance Tools
Alliance Link
Alliance Link is an enterprise application integration product that interfaces Astea Alliance to other enterprise systems, such as back-office financial and ERP applications, remote equipment monitoring and diagnostic software, and wireless data transmission services. Alliance Link extends Astea Alliance's return on investment for customers by making all Alliance modules accessible to external software through web services and open, well defined, synchronous and asynchronous application programming interfaces that are eXtensible Markup Language ("XML") based.
Alliance Knowledge Base
Alliance Knowledge Base provides powerful and scalable enterprise search functionality for corporate content, across a network or on a portal, intranet or Internet site. Delivering single-point access to enterprise-wide data collections; full-text searches can be conducted quickly and easily across disparate data sources, improving knowledge retention and sharing across the organization. Alliance Knowledge Base offers advanced functionality for entering queries and results navigation to help users quickly find the information they need. Alliance Knowledge Base can provide user-friendly access to a vast range of information, including product manuals, technical support documentation, maintenance histories, repair notes, announcements, and much more. With search functionality, Alliance Knowledge Base becomes much more than simply an operations tool; it provides organizations the capability to share all sorts of information, improve problem resolution times, and improve the quality of decision-making across an organization.
FieldCentrix Enterprise Suite
The FieldCentrix Enterprise is a service management solution that runs on a wide range of mobile devices, and integrates seamlessly with popular customer relationship management (CRM) and ERP applications. Add-on features include a web-based customer self-service portal, workforce management capabilities, and equipment-centric functionality. FieldCentrix has licensed applications to companies in a wide range of sectors including HVAC, building and real estate services, manufacturing and process instruments and controls, and medical equipment.
The current FieldCentrix Enterprise offering consists of:
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FX Interchange for JD Edwards; and
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FX Service Center
FX Service Center is an Internet-based service management and dispatch solution that gives organizations command over their field service operation in order to more effectively manage call taking, entitlement verification, field personnel scheduling and dispatching, customer service, work orders, timesheets, service agreements, inventory and equipment tracking, pre-invoicing, and reporting. The software is intuitive, giving organizations graphical picture views of the scheduling board, work order lists, field service worker and site locations, and more. Real-time drag-and-drop scheduling and re-scheduling take just a few mouse clicks, and pre-scheduling preventive maintenance calls are simple as well. FX Service Center makes completed work order and timesheet information instantly available for export to an organization's accounting, ERP, or CRM system. They can integrate FX Service Center with an organization's accounting, ERP or CRM system for seamless information flow. FX Resource Utilization is a strategic workforce modeling tool expected to accurately plan, track, and analyze service resources in real-time. It provides an automated way to size, manage, and report on resource capacity and utilization across the enterprise to provide suggestions to deploy resources, cost-effectively balance workloads and service engineers, and still make sure all service level commitments are met and contracts remain profitable. By adding FX Resource Utilization as part of the Service Center module, organizations have a new tool that is designed to increase the productivity and efficiency of their work force and service operations through load balancing and optimized resource planning.
FX Mobile
FX Mobile is a workflow software product that uses wireless communications technology with smartphones, laptops, and tablets to automate field service processes and should help field service personnel do their jobs better and faster. FX Mobile
leverages the latest HTML5 technology, optimized for the latest devices such as Android, iPhone and iPad, to deliver a sleek and innovative user interface while still providing the ability for mobile workers to continue working whether they are in or out of wireless coverage. With
FieldCentrix's technology, field service workers are be able to complete their work, uninterrupted, regardless of wireless coverage. Along with FX Service Center, FX Mobile eliminates the manual inefficiencies and paperwork that can overwhelm service technicians and an organization's business. With FX Mobile, service technicians receive work orders electronically on their mobile devices. It then guides them, screen by screen, through the job – prompting them to perform standard tasks, take notes, and even record future recommended repairs or activities. With FX Mobile, field service personnel can now spend their time in the field, better serving customers, generating new business, and increasing organizations' bottom lines. FX Mobile is an international offering that supports various languages, as well as currencies, measurement systems and time zones.
FX e-Service
FX e-Service is an extension of the FieldCentrix solution that provides a dynamic customer self-service portal that links directly from a customer's web site. When integrated with FX Mobile software, it provides the unique capability to truly deliver real-time information from the point of service to your customers. Working seamlessly with FX Service Center call center and dispatching software, FX e-Service gives an organization's customers the flexibility of submitting service requests, accessing work order information, and managing their account over the Internet. Customers can receive an e-mail notification each time the status of a work order changes. This allows them to know instantly when the request has been received, scheduled, is in progress and when it is complete – all without ever calling into the office, waiting on hold or taking up valuable CSR resource.
FX Fleet Manager
FX Fleet Manager is FieldCentrix's Global Positioning System offering to help customers manage their mobile resources more effectively. FX Fleet Manager gives companies control and management of their field operations with the expectation that they will make decisions that will increase profitability, reduce service costs, enhance customer responsiveness and satisfaction, and improve productivity and efficiency. With FX Fleet Manager, dispatchers and office personnel will always know where mobile resources are located — in real-time. Are they where they should be? Are they lost? Are they safe? There's an emergency service request — which resource is the closest with the right parts and skill sets? All this information and more should contribute to more efficiently managed mobile resources.
FX Interchange
FX Interchange software provides data transporting services that allow enterprises to quickly and easily integrate FieldCentrix Enterprise to existing legacy and business systems – that are expected to maximize value from field data. FX Interchange converts data stored in FX Service Center knowledge base to XML or a Microsoft SQL Server database. Once converted, the data is accessible to other systems for basic billing and payroll extraction, and bi-directional integration purposes that should support the needs of an accounting, call center, or service dispatch integrated solution.
FX Interchange for JD
Edwards
®
FieldCentrix field service automation software and JD Edwards
®
Enterprise and EnterpriseOne applications are integrated to provide medium to large companies with an easy-to-use, cost-effective way to streamline and automate field service operations. The systems are integrated through FX Interchange™ for JD Edwards. This interface dynamically transfers key customer, work order, and accounting related information between the FieldCentrix and JD Edwards applications. This means the key functions that organizations need to run their business efficiently and cost-effectively are now seamless and completed electronically — without paper.
With the FieldCentrix and JD Edwards solution, service workers in the field access and enter all work order information using a mobile device at the job site. When the work is done, the service worker closes the work order and the completed information is sent wirelessly back to the office automatically. The electronic information is instantly accessible for processing by an organization's billing system so there's no data entry needed. Because you also no longer have to wait for the field service worker to bring in the paperwork before you can close the work order, customers can be billed quicker.
FX Mobility Express
™
For customers who want to mobilize their workforce without deploying a full field service automation solution, FieldCentrix offers a special mobilized application development toolkit called FX Mobility Express™. The FX Mobility Express toolkit is bundled with FieldCentrix's popular mobile middleware and allows organizations to quickly and easily build custom mobile applications that fully leverage FieldCentrix's robust and scalable mobile infrastructure and user-friendly interface. Mobilizing applications with FX Mobility Express should provide organizations with a cost-effective way to create a solution that fits their unique business requirements on a platform built from years of mobile and wireless technology experience and used by thousands of users worldwide.
Astea Client Services
Professional Services
Astea's typical professional services engagement includes planning, prototyping and implementing Astea's products within the client's organization. Some customers may require customization, but they are relatively insignificant.
During the initial planning phase of the engagement, Astea's professional services personnel work closely with representatives of the customer to prepare a detailed project plan that includes a timetable, resource requirements, milestones, in-house training programs, onsite business process training and demonstrations of Astea's product capabilities within the customer's organization.
The next phase of the Astea professional services engagement is the prototyping phase, in which Astea works closely with representatives of the customer to configure Astea's software solutions to the customer's specific business process requirements.
The next integral phase in the professional services engagement is the implementation phase, in which Astea's professional services personnel work with the client to develop detailed data mapping, conversions, interfaces and other technical and business processes necessary to integrate Astea's solutions into the customer's computing environment. Ultimately, education plans are developed and executed to provide the customer with the process and system knowledge necessary to effectively utilize the software and fully implement the solution. Professional services are generally charged on an hourly or daily basis.
The last phase of the engagement utilizes Astea's professional services personnel to assist in
Go Live
planning and the
Go Live
effort. Astea will assist in the planning for installation, initialization, data preparation, operational procedures, schedules and required resources. The initialization and creation of the production database is planned and prepared for the data history, open orders and all required data for go live processing. During the cutover to the solution, Astea business resources are best utilized to assist new users with functionality/processes while Astea technical resources support the customer's IT staff.
Following go live, Astea's professional services team engages the customer in the
Assessment Phase
. During this effort, the delivered system is assessed to validate benefits, analyze processes to measure key performance indicators, document and understand lessons learned. To perform these assessments, Astea consultants collect and analyze the planned benefits, processes used to capture and report on the key performance indicators, and document the lessons learned from all phases of the implementation. An action plan is then developed from the lessons learned and key performance indicators for use in future phases and/or releases.
Technical Services
Astea's technical services teams provide services related to installation, data verification, functional design, technical design, system infrastructure setup or changes, customizations, Quality Assurance (QA) activities, testing and go live support. Initially, software and database installation resources are available to prepare the environment for the prototyping phase.
Data verification and feedback services can be provided for initial data verification analysis. These efforts are conducted to determine the present state of information as far as type, conversions, data manipulation, location, frequency, method of interface (initial load, ongoing load, data export or data import) and data integrity. Findings are documented and shared with the project team.
During the implementation phase, Astea's technical services team is often engaged to assist with the functional and/or technical design as related to customer desired system personalization, minor customization and interfaces, often referred to as 'gaps'. Gap solutions are assessed and categorized into system, studio, customization or interface. Utilizing the services of the customer project team, Astea professional services and Astea technical services create Business Requirement Documents ("BRDs") for all customizations and interfaces. Astea technical services will provide specifications and a quote for the customization. The customer and Astea agree on the outcome of the customization and all expected outputs prior to the actual development customization. Following acceptance of the BRDs, code will be written as per design. QA of the code with test data sets will complete these efforts.
Astea's technical services team will also provide testing and go live support, as required.
Customer Support
Astea's customer support organization provides customers with telephone and online technical support, as well as product enhancements, updates and new software releases. The Company can provide 24X7 "follow-the-sun" support through its global support network. Local representatives support all regions of Astea's worldwide operations. Astea personnel or a distributor's personnel familiar with local business customs and practices provide support in real-time and usually spoken in native languages. Typically, customer support fees are established as a fixed percentage of license fees and are invoiced to customers on an annual basis. Astea's customer support representatives are located in the United States, Europe, Israel, Japan and Australia. In addition, Astea provides customer support 24X7 with its self-service portal.
The maintenance offering provides customers with support and help desk services, as well as software service packs and unspecified release upgrades for the modules they have purchased.
Education & Training
Application Training:
Key business owners responsible for the implementation of the core components will receive in-depth training designed to present the features, functionality and terminology of Astea's solutions. The objective of this training is to provide the audience with a working knowledge of these solutions. This exposure to the system will enable project communication and add insight into specific business processes.
End-user training plans and documents are created during the implementation phase. These plans and documentation are utilized to conduct end-user training sessions prior to go live.
Technical Training:
Software and database installation/creation training is provided, as required and/or recommended.
System Administration training provides the customer's IT staff pre-requisite knowledge to manipulate and manage administrative tasks associated with the Astea solutions. Included within these tasks are: Security, Batch Applications, Escalation, Import, etc.
Many customers are interested in performing their own personalization and minor customization to the system. Training sessions are available to enhance customer understanding of available options for personalization and how to perform customizations.
Customers
The Company estimates that it has
sold
licenses to
approximately
650 customers ranging from small, rapidly growing companies to large, multinational corporations with geographically dispersed operations and remote offices. The broad applicability of the Company's products is demonstrated by the wide range of companies across many markets and industries that use one or more of Astea's products, including customers in information technology, medical devices and diagnostic systems, industrial controls and instrumentation, retail/point-of-sale systems equipment, HVAC, office automation equipment, imaging systems, fire and security, gaming/leisure equipment, facilities management, telecommunications and other related industries with equipment sales and service. In 2015 there was one customer that accounted for 12% of total revenues and in 2014 there was no one customer that accounted for 10% or more of total revenues.
Sales and Marketing
The Company markets its products through a worldwide network of direct and indirect sales and services offices with corporate headquarters in the United States and regional headquarters in the United Kingdom (Europe, Middle East and Africa Operations), Japan and Australia (Asia Pacific Operations). Sales partners include distributors (value-added resellers, system integrators and sales agents) and OEM partners. The Company actively seeks to expand its reseller network and establish an international indirect distribution channel targeted at the mid-market tier. See "Risk Factors
—
Need to Expand Indirect Sales."
Astea's direct sales force employs a consultative approach to selling, working closely with prospective clients to understand and define their needs and determine how such needs can be addressed by the Company's products. These clients typically represent the mid- to high-end of the market. A prospect development organization comprised of telemarketing representatives, who are engaged in outbound telemarketing and inbound inquiry response to a variety of marketing vehicles, develops and qualifies sales leads prior to referral to the direct sales staff. Additional prospects are identified and qualified through the networking of direct sales staff and the Company's management as part of daily business activities.
The modular structure of Astea's software and its ongoing product development efforts provide opportunities for incremental sales of product modules and consulting services to existing accounts. See "Risk Factors — Continued Dependence on Large Contracts May Result in Lengthy Sales and Implementation Cycles and Impact Revenue Recognition and Cash Flow."
Astea's corporate marketing department is responsible for product marketing, lead generation and marketing communications, including the Company's corporate website, dialogue with high tech industry analysts, trade conferences, advertising, e-marketing, online and traditional seminars, direct mail, product collateral and public relations. Based on feedback from customers, analysts, business partners and market data, the marketing department provides input and direction for the Company's ongoing product development efforts and opportunities for professional services. The Company also participates in an annual conference for users of Astea Alliance and FieldCentrix products. Conference participants attend training sessions, workshops and presentations, and interact with other Astea product users, Astea management and staff, and technology partners, providing important input for future product direction.
Astea's international sales accounted for 35% of the Company's revenues in 2015 and 38% of the Company's revenues in 2014. See "Risk Factors — Expansion of International Sales."
Product Development
Astea's product development strategy is to provide products that perform with exceptional depth and breadth of functionality and are easy to implement, use and maintain. Products are designed to be flexible, modular and scalable, so that they can be implemented incrementally in phases and expanded to satisfy the evolving information requirements of Astea's clients and their customers.
The Company uses widely accepted commercially available application development tools from Microsoft Corporation. These software tools provide the Company's customers with the flexibility to deploy Astea's products across a variety of hardware platforms, operating systems and relational database management systems. The latest Astea Alliance solution suite is engineered for existing and emerging Microsoft technologies such as Microsoft.NET Framework, Visual Studio 2012, Windows Presentation Framework, Internet Information Server, and supports Windows 7, Windows 8, Windows 10, Windows Server 2012 & 2012 R2, MS SQL 2012 & 2012 R2, MS SQL 2015, Oracle Databases 10 & 11, and BizTalk Server. Astea Alliance also supports deployments in both on-premise as well as cloud environments by leveraging a multi-tenant architecture. This multi-tenant architecture supports running the application using one set of hardware/software, serving multiple client organizations (tenants). The computing resources and application code are generally shared between all the tenants on a server. Each tenant has its own set of data that remains logically isolated from data that belongs to all other tenants.
In addition to product development that is conducted at Company facilities in the United States and Israel, Astea may participate in contractual relationships with complementary technology companies to reduce time-to-market with new product capabilities in order to continually increase its value proposition to existing and prospective customers.
The Company's expense for product development for the years ended December 31, 2015 and 2014 was $1,382,000 and $1,350,000, respectively. These expenses amounted to 6% and 7% of total revenues for 2015 and 2014, respectively. The Company's capitalized software development costs were $2,407,000 and $2,532,000 in 2015 and 2014, respectively. Total software development costs decreased $93,000 to $3,789,000 in 2015 compared to $3,882,000 in 2014. The Company anticipates that it will continue to allocate substantial resources to its development effort for the upgrade of its suite of products. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors — Need for Development of New Products."
Manufacturing
The Company's software products are distributed on CD ROMs and electronically via a client-server file transfer protocol. Included with the software products are security keys (a software piracy protection) and documentation available on CD ROM and hard copy. Historically, the Company has purchased media and duplicating and printing services for its product packaging from outside vendors.
Competition
The service management software market is intensely competitive and subject to rapid change. To maintain or increase its position in the industry, the Company will need to continually enhance its current product offerings, introduce new products and features and maintain its professional services capabilities. The Company currently competes on the basis of the depth and breadth of its integrated product features and functions, including the adaptability and scalability of its products to specific customer environments; the ability to deploy complex systems locally, regionally, nationally and internationally; product quality; ease-of-use; reliability and performance; breadth of professional services; integration of Astea's offerings with other enterprise applications; price; and the availability of Astea's products on popular operating systems, relational databases, Internet and communications platforms.
Competitors vary in size, scope and breadth of the products and services offered. The Company encounters competition generally from a number of sources, including other software companies, third-party professional services organizations that develop custom software, and information systems departments of potential customers developing proprietary, custom software. In the service management marketplace, the Company competes against publicly held companies and numerous smaller, privately held companies. Some of the Company's competitors include SAP AG ("SAP"), Oracle Corporation ("Oracle"), and a number of smaller privately held companies. See "Risk Factors — Competition in the CRM Software Market is Intense."
Licenses and Intellectual Property
Astea considers its software proprietary and licenses its products to its customers under written license agreements. The Company also employs an encryption system that restricts a user's access to source code to further protect the Company's intellectual property. Because the Company's products allow customers to use the software's built in features to customize their applications without altering the framework source code, the framework source code for the Company's products is typically neither licensed nor provided to customers. The Company does, however, license source code from time to time and maintains certain third-party source code escrow arrangements. See "— Customers" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
The Company seeks to protect its products through a combination of copyright, trademark, trade secret and fair business practice laws. The Company also requires employees, consultants and third parties to sign nondisclosure agreements. Despite these precautions, it may be possible for unauthorized parties to copy certain portions of the Company's products or reverse engineer or obtain and use information that the Company regards as proprietary. The Company presently has no patents or patent applications pending. See "Risk Factors — Dependence on Proprietary Technology."
Because the software development industry is characterized by rapid technological change, Astea believes that factors such as the technological and creative skills of its personnel, new product developments, frequent product enhancements, and reliable product maintenance are more important to establishing and maintaining a technology leadership position than current legal protections.
Employees
As of December 31, 2015, the Company, including its subsidiaries, had a total of 166 full-time employees worldwide, 83 in the United States, 15 in the United Kingdom, 3 in the Netherlands, 43 in Israel, 12 in Australia and 10 in Japan. In addition, we have 5 part-time employees, 2 in the United States, and 3 in Israel. The Company's future performance depends, in significant part, upon the continued service of its key technical and management personnel and its continuing ability to attract and retain highly qualified and motivated personnel in all areas of its operations. See "Risk Factors — Dependence on Key Personnel; Competition for Employees." None of the Company's employees is represented by a labor union. The Company has not experienced any work stoppages and considers its relationships with its employees to be good.
Corporate History
The Company was incorporated in Pennsylvania in 1979 under the name Applied System Technologies, Inc. In 1992, the Company changed its name to Astea International Inc. Until 1986, the Company operated principally as a software-consulting firm, providing professional software consulting services on a fee for service and on a project basis. In 1986, the Company introduced its DISPATCH-1 product. In November 1991, the Company's sole stockholder acquired the outstanding stock of The DATA Group Corporation ("Data Group"), a provider of field service software and related professional services for the mainframe-computing environment. Data Group was merged into the Company in January 1994. In February 1995, the Company and its sole stockholder acquired the outstanding stock of Astea Service & Distribution Systems BV ("Astea BV"), the Company's distributor of DISPATCH-1 and related services in Europe. In May 1995, the Company reincorporated in Delaware. In July 1995, the Company completed its initial public offering of Common Stock. In February 1996, the Company merged with Bendata, Inc. In June 1996, the Company acquired Abalon AB. In September 1998 (effective July 1, 1998), the Company sold Bendata, Inc. In December 1998, the Company sold Abalon AB. In December 1997, the Company introduced ServiceAlliance and in October 1999, SalesAlliance. Both products were subsequently re-engineered into components of the AllianceEnterprise suite which was introduced in 2001. Through 2001 and into 2002, the Company rebuilt its product functionality for Web-based applications and in August 2003 introduced Astea Alliance version 6. The Company released a new system architecture based on Microsoft.NET during the third quarter of 2004. On September 21, 2005, the Company acquired substantially all the assets and certain liabilities of FieldCentrix, Inc. In the first quarter of 2010, the Company delivered Astea Alliance version 10.0. In 2011, Astea launched Alliance Mobile Universal to deliver enterprise functionality optimized for the latest devices such as Android, iPhone and iPad leveraging the latest HTML5 technology.
In 2013, the latest software version, Astea Alliance 11.0 was released. With this release, Astea introduced an abundance of new features and enhancements that were developed based on three primary concepts; optimizing and streamlining processes, enabling proactive service insight and intelligence at every level, and significantly increasing ease of use and customizations without technical skills. Accelerated revenue growth, proactive intelligence, productivity and process optimization, enriched employee interaction experience, and increased customer satisfaction are just a few of the advantages organizations will be able to achieve with this release. Astea Alliance is available either as an on-premise or cloud application, allowing every company to choose the right offering that aligns with their strategy and IT ecosystem. In 2014, Astea introduced Astea Alliance 11.5. This release introduced many new innovations such as third party vendor mobile app, advanced customization capabilities, additional reporting and dashboard capabilities, as well as extending reports and visual indicators to the mobile device.
With Astea's latest mobile release, organizations can create sales quotations, perform inventory cycle counts, support complex items with subcomponents, create and support different workflows/apps for different groups/types of work, and much more. Astea's mobile solution provides the level of flexibility necessary that makes it easy for organizations to modify and adapt the solution without needing development skillsets or adding additional costs. In February 2015, Astea released v12, and subsequently released v12.5 in September 2015. Astea Alliance Version 12.0 included scheduling enhancements, additional visualization and collaboration tools, optimized navigation, as well as numerous customer-driven features from around the globe. Astea Alliance 12.0 delivered a number of noteworthy advancements that help companies accelerate response times, improve the overall customer experience, and gain instant access to actionable intelligence. Astea Alliance Version 12.5 included a fresh, new Customer Self-Service Portal, a new Service Manager Analytics App, and many additional features designed to optimize service outcomes. Additional enhancements were also developed in the areas of scheduling optimization, knowledge management, mobile field service, and logistics.
The following discussion of the Company's risk factors should be read in conjunction with the financial statements and related notes thereto set forth elsewhere in this report. The following factors, among others, could cause actual results to differ materially from those set forth in forward looking statements contained or incorporated by reference in this report and presented by management from time to time. Such factors, among others, may have a material adverse effect upon the Company's business, results of operations and financial condition.
History of Net Losses
The Company has a history of net losses. In 2015, the Company generated a net loss of $4.4 million compared to a net loss of $3.4 million in 2014. As of December 31, 2015, the Company had an accumulated deficit of approximately $35.8 million. Moreover, the Company expects to continue to incur additional operating expenses for research and development and investment in software development costs to achieve its projected revenue growth. There is no assurance that the Company may be able to achieve the necessary revenue growth or profitability in the future. If the Company does not attain or sustain profitability or raise additional equity or debt in the future, the Company may be unable to continue its operations.
Need for Development of New Products
The Company's future success will depend upon its ability to enhance its current products and develop and introduce new products on a timely basis that keep pace with technological developments, industry standards and the increasingly sophisticated needs of its customers
, including developments within the client/server, thin-client and object-oriented computing environments. Such developments may require, from time to time, substantial capital investments by the Company in product development and testing. The Company intends to continue its commitment to research and development and its efforts to develop new products and product enhancements. There can be no assurance that the Company will not experience difficulties that could delay or prevent the successful development, introduction and marketing of new products and product enhancements; that new products and product enhancements will meet the requirements of the marketplace and achieve market acceptance; or that the Company's current or future products will conform to industry requirements.
Furthermore, reallocation of resources by the Company, such as the diversion of research and development personnel to development of a particular feature for a potential or existing customer, can delay new products and certain product enhancements. Some of our customers adopted our software on an incremental basis. These customers may not expand usage of our software on an enterprise-wide basis or implement new software products introduced by the Company. The failure of the software to perform to customer expectations or otherwise to be deployed on an enterprise-wide basis could have a material adverse effect on the Company's ability to collect revenues or to increase revenues from new as well as existing customers. If the Company is unable to develop and market new products or enhancements of existing products successfully, the Company's ability to remain competitive in the industry will be materially adversely affected.
Rapid Technological Change
In the software industry there is a continual emergence of new technologies and continual change in customer requirements. Because of the rapid pace of technological change in the application software industry, the Company's current market position could be rapidly eroded by product advancements. In order to remain competitive, the Company must introduce new products or product enhancements that meet customers' requirements in a timely manner. If the Company is unable to do this, it may lose current and prospective customers to competitors.
The Company's application environment relies primarily on software development tools from Microsoft Corporation. If alternative software development tools were to be designed and generally accepted by the marketplace, we could be at a competitive disadvantage relative to companies employing such alternative developmental tools.
While the Company has licensed Astea Alliance to over 300 companies worldwide from 1998 through 2015, and more than 50 companies for the FieldCentrix suite supported by the Company since September 2005, revenues from sales of both Astea Alliance and FieldCentrix may not be sufficient to support the expenses of the Company. The Company's future success will depend mainly on its ability to increase licensed users of both the Astea Alliance suite and FieldCentrix offerings, on developing new products and product enhancements to complement its existing product offerings, on its ability to continue to generate professional services, support and maintenance revenues to Astea Alliance and FieldCentrix customers and on its ability to control its operating expenses. Any failure of the Company's products to achieve or sustain market acceptance, or of the Company to sustain its current position in the CRM software market due to rapid technological changes, would have a material adverse effect on the Company's business and results of operations. There can be no assurance that the Company will be able to increase demand for Astea Alliance and FieldCentrix products, maintain an acceptable level of support and maintenance revenues or to lower its expenses, thereby avoiding future losses.
Burdens of Customization
On rare occasions, the Company's clients may request significant customization of Astea Alliance and FieldCentrix products to address unique characteristics of their businesses or computing environments. In these situations, the Company would apply contract accounting to determine the recognition of license revenues. The Company's commitment to the customization could place a burden on its client support resources or delay the delivery or installation of products, which, in turn, could materially adversely affect its relationship with significant clients or otherwise adversely affect business and results of operations. In addition, the Company could incur penalties or reductions in revenues for failures to develop or timely deliver new products or product enhancements under development agreements and other arrangements with customers. If customers are not able to customize or deploy the Company's products successfully, the customer may not complete expected product deployment, which would prevent recognition of revenues and collection of amounts due, and could result in claims against the Company.
Product Defects; Failure to Meet Performance Criteria
The Company's software is intended for use in enterprise-wide applications that may be critical to its customers' business. As a result, customers and potential customers typically demand strict requirements for installation and deployment. The Company's software products are complex and may contain undetected errors or failures, particularly when software must be customized for a particular customer, when first introduced or when new versions are released. Although the Company conducts extensive product testing during product development, the Company has at times delayed commercial release of software until problems were corrected and, in some cases, has provided enhancements to correct errors in released software. The Company could, in the future, lose revenues or incur additional and unexpected costs as a result of software errors or defects. Despite testing by the Company and by current and potential customers, errors in the software, customizations or releases might not be detected until after initiating commercial shipments, which could result in additional costs, delays, possible damage to the Company's reputation and could cause diminished demand for the Company's products.
This could lead to customer dissatisfaction and reduce the opportunity to renew maintenance contracts or sell new licenses.
Our Sales Cycles Can be Long, Unpredictable and Require Considerable Time and Expense, Which May Cause our Operating Results to Fluctuate
The timing of our closing sales to customers is difficult to predict. These efforts require us to educate our customers about the use and benefit of our services, including the technical capabilities and potential cost savings to an organization. customers typically undertake a significant evaluation process that has in the past resulted in a lengthy sales cycle, typically between four and twelve months. We spend substantial time, effort and money on our sales efforts without any assurance that our efforts will produce any sales. In addition, service subscriptions are frequently subject to budget constraints and unplanned administrative, processing and other delays. If sales expected from a specific customer for a particular quarter are not realized in that quarter or at all, our results could fall short of public expectations, and our business operating results and financial condition could be adversely affected from quarter to quarter.
Continued Dependence on Large Contracts May Result in Lengthy Sales and Implementation Cycles and Impact Revenue Recognition and Cash Flow
The sale and implementation of the Company's products generally involve a significant commitment of resources by prospective customers. As a result, the Company's sales process is often subject to delays associated with lengthy approval processes attendant to significant capital expenditures, definition of special customer implementation requirements, and extensive contract negotiations with the customer. Therefore, the sales cycle varies substantially from customer to customer and typically lasts between four and twelve months. During this time the Company may devote significant time and resources to a prospective customer, including costs associated with multiple site visits, product demonstrations and feasibility studies. The Company may experience a number of significant delays over which the Company has no control. Because the costs associated with the sale of the product are fixed in current periods, there may be a lag between the time the Company incurs costs with regard to a particular customer or contract and the time the Company begins to receive or recognize revenues from such customer or contract. Moreover, in the event of any downturn in any existing or potential customer's business or the economy in general, purchases of the Company's products may be deferred or canceled.
In addition, the implementation of the Company's products typically takes several months of integration of the product with the customer's other existing systems and customer training requires a close working relationship between the customer and members of the Company's professional service organization. These issues make it difficult to predict the quarter in which expected orders will occur. Delays in implementation of products could cause some or all of the professional services revenues from those projects to be shifted from the expected quarter to a subsequent quarter or quarters.
When the Company has provided consulting services to implement certain larger projects, some customers have delayed payment of a portion of license fees until implementation was complete and in some cases have disputed the consulting fees charged for implementation. There can be no assurance the Company will not experience additional delays or disputes regarding payment in the future, particularly if the Company receives orders for large, complex installations. Additionally, as a result of the application of the revenue recognition rules applicable to the Company's licenses under generally accepted accounting principles, license revenues may be recognized in periods after those in which the respective licenses were signed.
The Company believes that period-to-period comparisons of its results of operations should not be relied upon as any indication of future performance.
We Cannot Accurately Predict Subscription Renewals Rates and the Impact These Rates May Have on Our Future Revenue and Operating Results
Our customers have no obligation to renew their subscriptions for our cloud service after the expiration of their initial subscription period, which is typically 36 months. Some customers may elect not to renew. In addition, our customers may renew for fewer users or renew for shorter contract lengths. We cannot accurately predict attrition rates given our varied customer base and the number of multi-year subscription contracts. Our attrition rates may increase or fluctuate as a result of a number of factors, including customer dissatisfaction with our service, customers' spending levels, decreases in the number of users at our customers, pricing changes and deteriorating general economic conditions. If our customers do not renew their subscriptions for our subscription services or reduce the number of paying subscriptions at the time of renewal, our revenue will decline and our business may suffer.
Our future success also depends in part on our ability to sell new and additional services and/or more subscription service to new and existing customers. The rate at which our customers purchase new licenses or upgraded services depends on a number of factors, including general economic conditions and that our customers do not react negatively to any price changes related to these services. If our efforts to sell to new and existing customers are not successful, our business may suffer.
Fluctuations in Quarterly Operating Results May Be Significant
The Company's quarterly operating results have in the past and may in the future vary significantly depending on factors such as:
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revenue from software sales;
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timing of new product releases;
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market acceptance of new and enhanced versions of the Company's products;
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customer order deferrals in anticipation of enhancements or new products;
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size and timing of significant orders, the recognition of revenue from such orders;
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changes in pricing policies by the Company and its competitors;
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introduction of alternative technologies;
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changes in operating expenses;
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changes in the Company's strategy;
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effect of potential acquisitions by the Company and its competitors.
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The Company has limited or no control over many of these factors. Due to all these factors, it is possible that in some future quarter the Company's operating results will be materially adversely affected.
Fluctuations in Quarterly Operating Results Due to Seasonal Factors
The Company expects to experience fluctuations in the sale of licenses for its products due to seasonal factors. The Company has experienced and anticipates that it may experience relatively lower sales in the first fiscal quarter due to patterns in capital budgeting and purchasing cycles of current and prospective customers. The Company also expects that sales may decline during the summer months of its third quarter, particularly in the European markets. Moreover, the Company generally records most of its total quarterly license revenues in the third month of the quarter, with a concentration of these revenues in the last half of that third month. This concentration of license revenues is influenced by customer tendencies to make significant capital expenditures at the end of a fiscal quarter. The Company expects these revenue patterns to continue for the foreseeable future.
Thus, its results of operations may vary seasonally in accordance with licensing activity, and will also depend upon recognition of revenue from such licenses from time to time. The Company believes that period-to-period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as an indication of future performance.
Impairment of Intangible Assets
If goodwill becomes impaired, it could impact our results of operations and financial position in the reporting period identified. Our identifiable intangible assets except for goodwill, were fully amortized as of September 30, 2015. The only intangible asset remaining was goodwill. We assess the potential impairment of goodwill on at least an annual basis, as well as whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that could trigger an impairment of such assets, include the following:
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significant underperformance relative to historical or projected future operating results;
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significant changes in the manner of or use of the acquired assets or the strategy for our overall business;
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significant negative industry or economic trends;
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significant decline in our stock price for a sustained period;
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changes in our organization or management reporting structure that could result in additional reporting units, which may require alternative methods of estimating fair values or greater disaggregation or aggregation in our analysis by reporting unit; and
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a decline in our market capitalization below net book value.
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On October 1, 2015, we performed our annual impairment test, which resulted in a goodwill impairment charge of $1.5 million for the year ended December 31, 2015. Due to the impairment charge as of December 31, 2015, there is no remaining value of goodwill reported on our balance sheet.
Competition in the CRM Software Market is Intense
The Company competes in the CRM software market. This market is highly competitive and the Company expects competition in the market to increase. The Company's competitors include large public companies such as Oracle, which owns PeopleSoft and Siebel, as well as traditional ERP software providers such as SAP that are developing CRM capabilities. In addition, a number of smaller privately held companies generally focus only on discrete areas of the CRM software marketplace. Because the barriers to entry in the CRM software market are relatively low, new competitors may emerge with products that are superior to the Company's products or that achieve greater market acceptance. Moreover, the CRM industry is currently experiencing significant consolidation, as larger public companies seek to enter the CRM market through acquisitions or establish other cooperative relationships among themselves, thereby enhancing their ability to compete in this market with their combined resources. Some of the Company's existing and potential competitors have greater financial, technical, marketing and distribution resources than the Company. These and other competitors pose business risks to the Company because:
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they compete for the same customers that the Company tries to attract;
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if the Company loses customers to its competitors, it may be difficult or impossible to win them back;
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lower prices and a smaller market share could limit the Company's revenue generating ability, reduce its gross margins and restrict its ability to become profitable or sustain profitability; and
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competitors may be able to devote greater resources to more quickly respond to emerging technologies and changes in customer requirements or to the development, promotion and sales of their products.
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There can be no assurance that the Company will be able to compete successfully against current and future competitors or that competitive pressures faced by the Company will not adversely affect its business and results of operations.
Part of our Business is Dependent on Market Demand for, and Acceptance of, the Cloud-based Model for the Use of Software
We derive, and expect to continue to derive a growing percentage of our revenue from the sale of cloud-based services. As a result, widespread acceptance and use of the cloud-based business model is critical to our future growth and success. Under the perpetual or periodic license model for software procurement, users of the software typically run applications on their hardware. Because companies are generally predisposed to maintaining control of their IT systems and infrastructure, there may be resistance to the concept of accessing the functionality that software provides as a service through a third party. If the market for cloud-based, software solutions ceases to grow or grows more slowly than we currently anticipate, demand for our services could be negatively affected.
Dependence on Proprietary Technology
The Company depends heavily on proprietary technology for its business to succeed. The Company licenses its products to customers under license agreements containing, among other terms, provisions protecting against the unauthorized use, copying and transfer of the licensed program. In addition, the Company relies on a combination of trade secrets, copyright and trademark laws and confidentiality procedures to protect the Company's proprietary rights in its products and technology. The legal protection is limited, however. Unauthorized parties could copy aspects of the Company's products and obtain and use information that the Company believes is proprietary. Other parties may breach confidentiality agreements or other contracts they have made with the Company. Policing unauthorized use of the Company's software is difficult and, while the Company is unable to determine the extent to which piracy of its software products exists, software piracy can be expected to be a persistent problem. There can be no assurance that any of the measures taken by the Company will be adequate to protect its proprietary technology or that its competitors will not independently develop technologies that are substantially equivalent or superior to the Company's technologies. If the Company fails to successfully enforce its proprietary technology, its competitive position may be harmed.
Other software providers could develop similar technology independently, which may infringe on the Company's proprietary rights. The Company may not be able to detect infringement and may lose a competitive position in the market before it does so. In addition, competitors may design around the Company's technology or develop competing technologies. The laws of some foreign countries do not protect the Company's proprietary rights to the same extent as do the laws of the United States. Litigation may be necessary to enforce the Company's proprietary rights. Such litigation is time-consuming, has an uncertain outcome and could result in substantial costs and diversion of management's attention and resources. However, if the Company fails to successfully enforce its proprietary rights, the Company's competitive position may be harmed.
Limited Number of Data Centers to Deliver our Cloud Services
We host our cloud-based software using several third-party data center facilities. We do not control the operation of these facilities. The owners of our data center facilities have no obligation to renew their agreements with us on commercially reasonable terms, or at all. If we are unable to renew these agreements on commercially reasonable terms, we may be required to transfer to other data center facilities, and we may incur significant costs and possible service interruption in connection with a transfer of this type.
Any changes in third-party service levels at our data centers or any errors, defects, disruptions or other performance problems with our services could harm our reputation and may damage our customers' businesses. Interruptions in our services might reduce our revenue, cause us to issue credits to customers, subject us to potential liability, cause customers to terminate their subscriptions or harm our renewal rates.
Our data centers are vulnerable to damage or interruption from human error, intentional bad acts, pandemics, earthquakes, hurricanes, floods, fires, war, terrorist attacks, power losses, hardware failures, systems failures, telecommunications failures and similar events. The occurrence of a natural disaster or an act of terrorism, or vandalism or other misconduct, a decision to close the facilities without adequate notice or other unanticipated problems could result in lengthy interruptions in our services.
Our Success Depends on Our Customers' Continued High-Speed Access to the Internet
Because our cloud services are designed to work over the Internet, our revenue growth depends on our customers' high-speed access to the Internet, as well as the continued maintenance and development of the Internet infrastructure. The future delivery of our cloud services will depend on third-party Internet service providers to expand high-speed Internet access, to maintain a reliable network with the necessary speed, data capacity and security, and to develop complementary products and services, including high-speed modems, for providing reliable and timely Internet access and services. The success of our business directly depends on the continued accessibility, maintenance and improvement of the Internet as a convenient means of customer interaction, as well as an efficient medium for the delivery and distribution of information by businesses to their employees. All of these factors are out of our control.
To the extent that the Internet continues to experience increased numbers of users, frequency of use or bandwidth requirements, the Internet may become congested and be unable to support the demands placed on it, and its performance or reliability may decline. Any future Internet outages or delays could adversely affect our ability to provide cloud services to our customers.
Possible Infringement of Third Party Intellectual Property Rights
Substantial litigation and threats of litigation regarding intellectual property rights are common in this industry. The Company is not aware that its products and technologies employ technology that infringes any valid, existing proprietary rights of third parties. While there currently are no pending lawsuits against the Company regarding infringement of any existing patents or other intellectual property rights or any notices that it is infringing the intellectual property rights of others, third parties may assert such claims in the future. Any claims, with or without merit, could:
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be time consuming to defend;
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result in costly litigation or damage awards;
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divert management's attention and resources;
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cause product shipment delays; or
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require the Company to seek to enter into royalty or licensing agreements, which may not be available on terms acceptable to the Company, if at all.
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A successful claim of intellectual property infringement against the Company or the Company's failure or inability to license the infringed or similar technology could seriously harm its business because the Company would not be able to sell the impacted product without exposing itself to litigation risk and damages. Furthermore, redevelopment of the product so as to avoid infringement could cause the Company to incur significant additional expense and delay.
Dependence on Technology from Third Parties
The Company integrates various third-party software products as components of its software. The Company's business would be disrupted if this software, or functional equivalents of this software, were either no longer available to the Company or the Company was no longer able to gain access to this software on commercially reasonable terms. In either case, the Company would be required to either redesign its software to function with alternate third-party software or develop these components itself, which would result in increased costs and could result in delays in software shipments. Furthermore, the Company might be forced to limit the features available in its current or future software offerings.
Security Breaches and Other Disruptions Could Compromise our Information and Expose us to Liability, Which Would Cause our Business and Reputation to Suffer.
In the ordinary course of the Company's business, it collects and stores sensitive data, including intellectual property and proprietary business information of the Company and the Company's customers, suppliers and business partners as well as personally identifiable information of the Company's customers and employees. The secure processing, maintenance and transmission of this information is critical to the Company's operations and business strategy. Despite the Company's security measures, its information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise the Company's networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties, disrupt the Company's operations and the services the Company provides to customers, damage the Company's reputation, and cause a loss of confidence in the Company's products and services, which could adversely affect the Company's business/operating margins, revenues and competitive position.
Need to Expand Indirect Sales
The Company has historically sold its products through its direct sales force and a limited number of distributors (value-added resellers, system integrators and sales agents). The Company's ability to achieve significant revenue growth in the future will depend in large part on its success in establishing relationships with distributors and OEM partners. The Company is currently investing, and plans to continue to invest, significant resources to expand its domestic and international direct sales force and develop distribution relationships. The Company's distributors also sell or can potentially sell products offered by the Company's competitors. There can be no assurance that the Company will be able to retain or attract a sufficient number of its existing or future third party distribution partners or that such partners will recommend, or continue to recommend, the Company's products. The inability to establish or maintain successful relationships with distributors and OEM partners or to train its direct sales force could cause its sales to decline.
Future Acquisitions
As part of Astea's growth strategy, it may pursue the acquisition of businesses, technologies or products that are complementary to its business. Acquisitions involve a number of special risks that could harm the Company's business, including the diversion of management's attention, the integration of the operations and personnel of the acquired companies, and the potential loss of key employees. In particular, the failure to maintain adequate operating and financial control systems or unexpected difficulties encountered during expansion could harm the Company's business. Acquisitions may result in potentially dilutive issuances of equity securities, and the incurrence of debt and contingent liabilities, any of which could materially adversely affect the Company's business and results of operations.
Under the covenants with Silicon Valley Bank ("SVB") regarding our line of credit, the Company must first get SVB's approval before entering into any acquisition transactions.
Expansion of International Sales
Astea's international sales accounted for 35% of the Company's revenues in 2015 and 38% in 2014.
The Company expects that international sales will continue to be a significant component of its business. In the Company's efforts to expand its international presence, it will face certain risks, which it may not be successful in addressing. These risks include:
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difficulties in establishing and managing international distribution channels and in translating products into foreign languages;
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difficulties finding staff to manage foreign operations and collect accounts receivable;
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difficulties enforcing intellectual property rights;
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liabilities and financial exposure under foreign laws and regulatory requirements;
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potential political, economic or military instability in the countries in which the Company operates;
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fluctuations in the value of foreign currencies and currency exchange rates; and
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potentially adverse tax consequences.
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Additionally, the current economic difficulties in several European and Asian countries could have an adverse impact on the Company's international operations in future periods. Any of these factors, if not successfully addressed, could harm the Company's operating results.
Subjection to Anti-Bribery and Anti-Corruption Laws
We are required to comply with anti-bribery and anti-corruption laws in the jurisdictions in which we operate, including the U.S. Foreign Corrupt Practices Act (the "FCPA"). The FCPA generally prohibits covered entities and their intermediaries from engaging in bribery or making other prohibited payments to foreign officials for the purpose of obtaining or keeping business or other benefits. In addition, the FCPA imposes accounting standards and requirements on covered entities which are intended to prevent the diversion of corporate funds to the payment of bribes and other improper payments, and to prevent the establishment of "off-books" slush funds from which such improper payments can be made. Although we believe that we have acted in compliance with applicable anti-corruption laws, there is no assurance that our practices have prevented or will work to prevent anti-corruption violations or that they will protect us against liability under anti-corruption laws for actions taken by our integrators, distributors, agents and other intermediaries with respect to our business or any businesses that we may acquire.
Compliance with the FCPA and other applicable anti-corruption laws is expensive and difficult, particularly in countries in which corruption is a recognized problem.
If we or our intermediaries acting on our behalf are found to have failed to comply with the FCPA or other applicable anti-corruption laws, we may be subject to criminal and civil penalties, disgorgement and other remedial measures, any of which could have an adverse impact on our business, results of operations and financial condition. Any investigation of any potential violations of anti-corruption laws also could have an adverse impact on our business, results of operations and financial condition, such as through legal expenses and reputational effects.
Research and Development in Israel; Potential Political, Economic or Military Instability
Astea's principal research and development facilities are located in Israel. Accordingly, political, economic and military conditions in Israel may directly affect its business. Continued political and economic instability or armed conflicts in Israel or in the region could directly harm the Company's business and operations.
Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors, and a state of hostility has existed in varying degrees and intensity. This state of hostility has led to security and economic problems for Israel. The future of peace efforts between Israel and its Arab neighbors, particularly in light of the recent violence and political unrest in the Middle East, remains uncertain and several countries still restrict business with Israel and Israeli companies. These restrictive laws and policies may also materially harm the Company's operating results and financial condition. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely affect our operations and results of operations. As an example, in early 2011, riots and uprisings in several countries in the Middle East have led to severe political instability and to a decline in the regional security situation. Such instability may affect the global economy and marketplace and could adversely affect business conditions and therefore affect the Company's operations. The political and security situation in Israel may also result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements.
Dependence on Key Personnel Who Are Required to Perform Military Service
Many of the Company's employees in Israel are obligated to perform annual military reserve duty in the Israeli army and are subject to being called to active duty at any time, which could adversely affect the Company's ability to pursue its planned research and development efforts. The Company cannot assess the full impact of these requirements on its workforce or business and the Company cannot predict the effect of any expansion or reduction of these obligations. However, in light of the recent violence and political unrest in Israel, there is an increased risk that a number of the Company's employees could be called to active military duty without prior notice. The Company's operations could be disrupted by the absence for a significant period of time of one or more of our key employees or a significant number of other employees due to military service. Any such disruption in the Company's business could harm its operations.
Inflation and Currency Fluctuations
The Company generates most of its revenues in U.S. dollars but all of its costs associated with the foreign operations located in Europe, the Pacific Rim, Japan, and Israel are denominated in the respective local currency and translated into U.S. dollars for consolidation and reporting. As a result, the Company is exposed to risks to the extent that the rate of inflation in Europe, the Pacific Rim, Japan, or Israel exceeds the rate of devaluation of their related foreign currency in relation to the U.S. dollar or if the timing of such devaluations lags behind inflation in Europe, the Pacific Rim, Japan, or Israel. In that event, the cost of the Company's operations in Europe, the Pacific Rim, Japan, and Israel measured in terms of U.S. dollars will increase and the U.S. dollar-measured results of operations will suffer. Historically, Israel has experienced periods of high inflation.
Dependence on Key Personnel; Competition for Employees
The continued growth and success largely depends on the managerial and technical skills of key technical, sales and management personnel. In particular, the Company's business and operations are substantially dependent on the performance of Zack Bergreen, the founder and chief executive officer. If Mr. Bergreen were to leave or become unable to perform services for the Company, the business would likely be harmed.
The Company's success also depends, to a substantial degree, upon its continuing ability to attract, motivate and retain other talented and highly qualified personnel. Competition for key personnel is intense, particularly so in recent years.
From time to time the Company has experienced difficulty in recruiting and retaining talented and qualified employees.
There can be no assurance that the Company can retain its key technical, sales and managerial employees or that it can attract, assimilate or retain other highly qualified technical, sales and managerial personnel in the future. If the Company fails to attract or retain enough skilled personnel, its product development efforts may be delayed, the quality of its customer service may decline and sales may decline.
Concentration of Ownership
Currently, Zack Bergreen, the Company's chief executive officer, beneficially owns approximately 54.5% of the outstanding Common Stock of the Company, which includes 826,000 shares of Series A Convertible Preferred Stock and 797,000 shares of Series B Convertible Preferred Stock. As a result, Mr. Bergreen exercises significant control over the Company through his ability to influence and control the election of directors and all other matters that require action by the Company's stockholders. Under certain circumstances, Mr. Bergreen could prevent or delay a change of control of the Company which may be favored by a significant portion of the Company's other stockholders, or cause a change of control not favored by the majority of the Company's other stockholders. Mr. Bergreen's ability under certain circumstances to influence, cause or delay a change in control of the Company also may have an adverse effect on the market price of the Company's Common Stock.
Possible Volatility of Stock Price
The market price of the Common Stock has in the past been, and may continue to be, subject to significant fluctuations in response to, and may be adversely affected by, variations in quarterly operating results, changes in earnings estimates by analysts, developments in the software industry, and adverse earnings or other financial announcements of the Company's customers as well as other factors. In addition, the stock market can experience extreme price and volume fluctuations from time to time, which may bear no meaningful relationship to the Company's performance. Broad market fluctuations, as well as economic conditions generally and in the software industry specifically, may result in material adverse effects on the market price of the Company's Common Stock.
Under Our Loan Agreement with SVB, if We Fail to Meet Certain Earnings Covenants, SVB May Increase Our Interest Rate, Lower Our Borrowing Base or Refuse to Grant Us Any Additional Borrowings in the Future.
The Company entered into a Loan and Security Agreement, as amended (the "Loan Agreement") with SVB. The Loan Agreement established a revolving credit facility (the "Revolving Facility") for the Company in the principal amount of up to $2,000,000.
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 (other than dividends on outstanding convertible preferred stock); and (i) making payment on subordinated debt. Further, the Company must 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 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 Revolving Facility 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 its intellectual property to any party.
However, there is no assurance that in the future that SVB will agree to grant a waiver or enter into a forbearance agreement with the Company if it fails to be in compliance with its covenants. Continued compliance with its covenants is dependent on the Company achieving certain operating results in 2016 and throughout the remaining term of the loan agreement. Market conditions have been difficult to predict and there is no assurance that in future periods the Company will meet the operating income targets in order to meet certain operating covenants as currently defined in the amended loan agreement.
Limitations of the Company Charter Documents
The Company's Certificate of Incorporation and By-Laws contain provisions that could discourage a proxy contest or make more difficult the acquisition of a substantial block of the Company's Common Stock, including provisions that allow the Board of Directors to take into account a number of non-economic factors, such as the social, legal and other effects upon employees, suppliers, customers and creditors, when evaluating offers for the Company's acquisition. Such provisions could limit the price that investors might be willing to pay in the future for the Company's shares of Common Stock. The Board of Directors is authorized to issue, without stockholder approval, up to 5,000,000 shares of preferred stock with voting, conversion and other rights and preferences that may be superior to the Company's Common Stock and that could adversely affect the voting power or other rights of our holders of Common Stock. There are currently 826,000 Series A and 797,000 Series B Convertible Preferred Stock shares outstanding. The issuance of preferred stock or of rights to purchase preferred stock could be used to discourage an unsolicited acquisition proposal.
Item 1B.
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Unresolved Staff Comments.
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None