SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Date
of
Report (Date of earliest event reported): March 29, 2007
ASTEA
INTERNATIONAL INC.
(Exact
name of registrant as specified in its charter)
|
Delaware
|
0-26330
|
23-2119058
|
|
(State
or Other Jurisdiction
of
Incorporation)
|
(Commission
File
Number)
|
(I.R.S.
Employer
Identification
No.)
|
240
Gibraltar Road
Horsham,
Pennsylvania 19044
(Address
of principal executive offices, including zip code)
(215)
682-2500
(Registrant's
telephone number, including area code)
Not
Applicable
(Former
name or former address, if changed since last report)
Check
the
appropriate box below if the form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
o
Written communications pursuant to Rule 425 under the Securities Act (17
CFR
230.425)
o
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act
(17 CFR 240.14d-2(b))
o
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13-4(c))
ITEM
4.02. Non-Reliance
on Previously Issued Financial Statements or a Related Audit Report or
Completed
Interim Review.
In
connection with the 2006 audit of the financial statements of Astea
International Inc. (the “Company”), BDO Seidman LLP, the Company’s independent
registered public accounting firm, identified and notified the Company
in
mid-March of a potential error in the Company’s accounting for revenue
recognition relating to a particular contract from 2004 from the Company’s
United Kingdom subsidiary (the “Contract”). On March 29, 2007, the Company’s
Audit Committee concluded, based on the mid-March notice from BDO Seidman
LLP
and the recommendation of the Company’s management, that the Company’s
previously issued financial statements for fiscal 2004 and 2005 (which
will be
included in our Form 10-K for the year ended December 31, 2006), as well
as the
fourth quarter of 2004 and all interim periods from the first quarter of
2005
through the third quarter of 2006, should be restated. On March 29, 2007,
BDO
Seidman LLP notified the Company that such financial statements should
be
restated. All revenue related to the Contract, including license, service,
and
maintenance, is expected to be recognized in the first quarter of 2007,
with the
exception of certain post contract support revenue, which will be recognized
ratably over 2007 and 2008. The Company has already received the majority
of the
cash related to the Contract, having received $1,394,000 out of the total
billings from 2004 through 2006 of $1,679,000.
The
modifications contained in the restated financial statements relate to
revenue
and deferred revenues. These changes affected two of the elements of cash
flow
from operations, decreasing net income (or increasing net loss as applicable)
and increasing deferred revenue in equal amounts, but did not have any
impact to
net cash flow from operations as reported in the statements of cash flows.
The
total impact of this restatement on the Company’s statements of operations was
to decrease the net income for the year ended December 31, 2005 by $610,000
or
$.20 per share, and to decrease net income for the year ended December
31, 2004
by $611,000 or $.21 per share. For the interim quarters in 2006, the effect
was
to increase the net loss for the first quarter by $36,000 or $.01 per share,
to
increase the net loss for the second quarter by $126,000 or $.03 per share,
and
to decrease the net income by $129,000 or $.04 per share for the third
quarter.
The
Contract was executed in the fourth quarter of 2004. The Company believed
at the
time it filed its 2004 Form 10-K, which included audited financial statements
for the year ended December 31, 2004, that the Contract was properly recognized
as license revenue in 2004. In addition, the Company believed at the time
it
filed its 2005 Form 10-K, which included audited financial statements for
the
year December 31, 2005, that the maintenance and service related to the
Contract
were properly recognized as revenue in 2005. Notwithstanding the preceding,
during the 2006 audit it was determined that the Contract contained a specified
upgrade right, which would entail deferring the recognition of revenue
until
delivery and acceptance of that element of the Contract. According to accounting
requirements, a specified upgrade right must be valued using vendor specific
objective evidence (“VSOE”). The Company uses the residual method for
recognizing revenue on its software licenses. In such instances, the accounting
rules state that VSOE for a specified upgrade right cannot be determined
and
therefore, revenue must be deferred until the specified upgrade is delivered.
Although the specified upgrade was delivered in the first quarter of 2005,
changes in the customer’s requirements and subsequent concessions granted by the
Company in October 2005 (which included an additional specified upgrade
right),
further delayed the Company’s ability to establish that delivery and acceptance
of the license had occurred The Company delivered the upgrade in the first
quarter of 2007. Due to the extension of the final delivered element, proper
accounting treatment for such a transaction is to defer recognizing all
revenue
in an arrangement until all undelivered elements without VSOE are delivered
and
accepted. Accordingly, all revenue, including license, service and maintenance
must be deferred until the delivery and acceptance of the final element.
Therefore, the Company is restating its financial statements to defer all
license revenue and service and maintenance revenue recognized in relation
to
the Contract in 2004, 2005 and the first three quarters of 2006. Thus,
on March
29, 2007, the Audit Committee determined that the Company’s unaudited interim
financial statements for the quarterly periods ended December 31. 2004,
March
31, 2005, June 30, 2005, September 30, 2005, March 31, 2006, June 30, 2006
and
September 30, 2006, as well as its audited financial statements for the
years
ended December 31, 2004 and 2005 should no longer be relied on.
The
Company anticipates filing the corrections to its quarterly financial statements
on Forms 10-Q/A in the near future. The Company’s 2006 Form 10-K, which will be
filed with the Securities and Exchange Commission on April 2, 2007, reflects
these adjustments and contains additional information regarding this
matter.
Item
9.01. Financial Statements and Exhibits.
(c)
Exhibits
99.1 Letter
from
BDO Seidman dated April 2, 2007