================================================================================
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                   ___________________________________________

                                    FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities  Exchange
Act of 1934

For the quarterly period ended          March 31, 2004

                                       or

[ ]Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange
Act of 1934.

For the transition period from     ___________  to     ___________

                         Commission File Number: 0-26330

                            ASTEA INTERNATIONAL INC.
             (Exact name of registrant as specified in its charter)

                  Delaware                             23-2119058
    (State or other jurisdiction of                 (I.R.S. Employer
    incorporation or organization)              Identification No.)

         240 Gibraltar Road, Horsham,  PA                   19044
       (Address of principal executive offices)          (Zip Code)

       Registrant's telephone number, including area code: (215) 682-2500

                                      N/A
--------------------------------------------------------------------------------
             (Former name, former address and former fiscal year, if
                           changed since last report)


Indicate  by check  mark  whether  the  registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X

As of May 12, 2004, 2,922,301 shares of the registrant's Common Stock, par value
$.01 per share, were outstanding.









                                                 ASTEA INTERNATIONAL INC.

                                                         FORM 10-Q
                                                     QUARTERLY REPORT
                                                           INDEX
                                                                                                  Page No.
                                                                                                  
Facing Sheet                                                                                         1

Index                                                                                                2

PART I - FINANCIAL INFORMATION
------------------------------
Item 1.             Consolidated Financial Statements

                    Consolidated Balance Sheets (Unaudited)                                           3

                    Consolidated Statements of Operations (Unaudited)                                 4

                    Consolidated Statements of Cash Flows (Unaudited)                                 5

                    Notes to Unaudited Consolidated Financial Statements                              6

Item 2.             Management's Discussion and Analysis of Financial
                    Condition and Results of Operations                                               8

Item 3.             Quantitative and Qualitative Disclosure About Market Risk                        12

Item 4.             Controls and Procedures                                                          12

PART II - OTHER INFORMATION
---------------------------
Item 1.             Legal Proceedings                                                                13

Item 2.             Changes in Securities and Use of Proceeds                                        13

Item 3.             Defaults upon Senior Securities                                                  13

Item 4.             Submission of Matters to a Vote of Security Holders                              13

Item 5.             Other Information                                                                13

Item 6.             Exhibits and Reports on Form 8-K                                                 13

                    Signatures                                                                       14










                                       2








PART I - FINANCIAL INFORMATION
------------------------------

Item 1.  CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------




                                            ASTEA INTERNATIONAL INC.
                                           CONSOLIDATED BALANCE SHEETS


                                                                        March 31,            December 31,
                                                                          2004                   2003
                                                                  ---------------------- ----------------------
                               ASSETS                                  (Unaudited)
                                                                                        
       Current assets:
         Cash and cash equivalents                                $           3,585,000       $    3,480,000
         Restricted cash                                                        300,000              300,000
         Receivables, net of reserves of $763,000 and $810,000                6,274,000            3,943,000
         Prepaid expenses and other                                             601,000              601,000
                                                                  ---------------------- ----------------------
                 Total current assets                                        10,760,000            8,324,000

       Property and equipment, net                                              456,000              509,000
       Capitalized software, net                                              1,216,000            1,229,000
       Other assets                                                              33,000               34,000
                                                                  ---------------------- ----------------------
                 Total assets                                     $          12,465,000       $   10,096,000
                                                                  ====================== ======================

                 LIABILITIES AND STOCKHOLDERS' EQUITY
       Current liabilities:
         Accounts payable and accrued expenses                    $           3,407,000       $    3,003,000
         Deferred revenues                                                    3,861,000            3,359,000
                                                                  ---------------------- ----------------------
                 Total current liabilities                                    7,268,000            6,362,000

       Stockholders' equity:
          Preferred stock, $.01 par value, 5,000,000 shares
             authorized, none issued
                                                                                      -                    -
          Common stock, $.01 par value, 5,000,000 shares
             authorized, 2,965,000 issued
                                                                                 30,000               30,000
          Additional paid-in capital
                                                                             22,792,000           22,792,000
          Cumulative translation adjustment
                                                                               (797,000)            (776,000)
          Accumulated deficit
                                                                            (16,618,000)         (18,100,000)
          Less:  treasury stock at cost, 43,000 shares                         (210,000)            (212,000)
                                                                  ---------------------- ----------------------
                    Total stockholders' equity                                5,197,000            3,734,000
                                                                  ---------------------- ----------------------
                    Total liabilities and stockholders' equity    $          12,465,000       $   10,096,000
                                                                  ====================== ======================

                          See accompanying notes to the consolidated financial statements.






                                                       3



                                ASTEA INTERNATIONAL INC.
                         CONSOLIDATED STATEMENTS OF OPERATIONS
                                      (Unaudited)



                                                           Three Months Ended
                                                                 March 31,
                                                        2004                   2003
                                                      -----------          -----------
                                                                     
Revenues:
   Software license fees                              $ 2,896,000          $ 1,022,000
   Services and maintenance                             2,988,000            2,966,000
                                                      -----------          -----------
              Total revenues                            5,884,000            3,988,000
                                                      -----------          -----------

Costs and expenses:
   Cost of software license fees                          410,000              229,000
   Cost of services and maintenance                     1,547,000            1,645,000
   Product development                                    408,000              507,000
    Sales and marketing                                 1,489,000            1,574,000
    General and administrative                            555,000              518,000
                                                      -----------          -----------
              Total costs and expenses                  4,409,000            4,473,000
                                                      -----------          -----------

Income (loss) from operations                           1,475,000             (485,000)
    Interest income, net                                    8,000               18,000
                                                      -----------          -----------

Income (loss) before income taxes                       1,483,000             (467,000)

Income tax expense                                           --                   --
                                                      -----------          -----------
Net income (loss)                                     $ 1,483,000          $  (467,000)
                                                      ===========          ===========

Basic and diluted income (loss) per share:
     Net income (loss) per share                      $      0.51          $     (0.16)
Shares outstanding used in computing basic
    income (loss) per share                             2,922,000            2,921,000
Shares outstanding used in computing diluted
    income (loss) per share                             2,923,000            2,921,000



                See accompanying notes to the consolidated financial statements.







                                           4





                                                  ASTEA INTERNATIONAL INC.
                                            CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                         (Unaudited)

                                                                                                 Three Months Ended
                                                                                                      March 31,
                                                                                             2004                   2003
                                                                                          -----------           -----------
                                                                                                          
Cash flows from operating activities:
   Net income (loss)                                                                      $ 1,483,000           $  (467,000)
   Adjustments to reconcile  net income (loss) to net cash provided by operating
        activities:
           Depreciation and amortization                                                      299,000               239,000
           Bad debt expense                                                                    22,000                32,000
   Changes in operating assets and liabilities:
            Receivables                                                                    (2,362,000)            1,824,000
            Prepaid expenses and other                                                         (2,000)             (146,000)
            Other assets                                                                        1,000                  --
            Accounts payable and accrued expenses                                             401,000              (234,000)
            Deferred revenues                                                                 505,000              (312,000)
                                                                                          -----------           -----------
   Net cash provided by operating activities
                                                                                              347,000               936,000
                                                                                          -----------           -----------

Cash flows from investing activities:
            Purchases of property and equipment                                               (19,000)              (84,000)
            Capitalized  software development costs                                          (217,000)             (120,000)
                                                                                          -----------           -----------
   Net cash used in investing activities                                                     (236,000)             (204,000)
                                                                                          -----------           -----------

Cash flows from financing activities:
            Proceeds from issuance of stock through the
              employee stock purchase plan                                                      1,000                 1,000
                                                                                          -----------           -----------

   Effect of exchange rate changes on cash                                                     (7,000)              (23,000)
                                                                                          -----------           -----------
   Net increase in cash and cash equivalents                                                  105,000               710,000
   Cash, beginning of period                                                                3,480,000             5,267,000
                                                                                          -----------           -----------
   Cash, end of period                                                                    $ 3,585,000           $ 5,977,000
                                                                                          ===========           ===========


                         See accompanying notes to the consolidated financial statements.






                                                             5



Item 1.   CONSOLIDATED FINANCIAL STATEMENTS (Continued)
-------------------------------------------------------

                            ASTEA INTERNATIONAL INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



1. BASIS OF PRESENTATION
   ---------------------

The consolidated  financial statements at March 31, 2004 and for the three month
periods  ended  March  31,  2004  and  2003  of  Astea  International  Inc.  and
subsidiaries   (the   "Company")  are  unaudited  and  reflect  all  adjustments
(consisting only of normal recurring  adjustments)  which are, in the opinion of
management,  necessary for a fair  presentation  of the  financial  position and
operating results for the interim periods. The consolidated financial statements
should be read in conjunction  with the  consolidated  financial  statements and
notes thereto,  together with Management's  Discussion and Analysis of Financial
Condition  and Results of  Operations,  contained in the  Company's  2003 Annual
Report on Form 10-K which are hereby incorporated by reference in this quarterly
report on Form 10-Q.  Results of operations  and cash flows for the three months
ended March 31, 2004 are not  necessarily  indicative of the results that may be
expected for the full year.

2. STOCKHOLDERS' EQUITY/COMPREHENSIVE INCOME
   -----------------------------------------

The  reconciliation  of  Stockholders'  Equity  and  comprehensive  income  from
December 31, 2003 to March 31, 2004 is summarized as follows:



                                                              Cumulative
                                              Additional        Currency
                                 Common        Paid-In       Translation     Accumulated     Treasury    Comprehensive
                                   Stock       Capital        Adjustment       Deficit        Stock         Income
                                 ----------- -------------- ---------------- -------------- ------------ ---------------
                                                                           
Balance at December 31, 2003       $30,000    $22,792,000     $  (776,000)    $(18,100,000) $ (212,000)
Issuance of common stock
   under employee stock
   purchase plan                         -              -               -           (1,000)      2,000
Cumulative translation
   adjustment                            -              -         (21,000)               -           -     $   (21,000)
Net income                               -              -               -        1,483,000           -       1,483,000
                                 ----------- -------------- ---------------- -------------- ------------ ---------------
Balance at March 31, 2004          $30,000    $22,792,000     $  (797,000)    $(16,618,000) $ (210,000)    $ 1,462,000
                                 =========== ============== ================ ============== ============ ===============


3. CHANGE IN ACCOUNTING ESTIMATE
   -----------------------------

During the first quarter of 2004, the Company  re-evaluated  the estimated lives
of its  capitalized  software assets related to licenses and determined that the
estimated life of 3 years currently used should be reduced to 2 years,  based on
the rate of product  release  and the  current  sales  trend.  The impact of the
change in the  estimated  life  resulted  in an increase  in  amortization,  and
reduction  in net income,  of $80,000,  or $0.03 per share for the three  months
ended March 31, 2004.

4. INCOME TAX EXPENSE
   ------------------

The Company has utilized a portion of its net operating  loss carry forwards for
the three  months  ended  March 31,  2004 to reduce  any tax  provisions  on its
pre-tax  income.  At March 31,  2004,  the Company  maintains  a 100%  valuation
allowance for its remaining net deferred tax assets based on the  uncertainty of
the realization of future taxable income.


5. STOCK BASED COMPENSATION
   ------------------------

In December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based
Compensation-Transition  and Disclosure,  an amendment of FASB Statement No. 123
("SFAS 148"). SFAS 148 amends FASB Statement No. 123, Accounting for Stock-Based




                                        6


Compensation,  to provide  alternative  methods of transition for an entity that
voluntarily changes to the fair value based method of accounting for stock-based
employee  compensation.  It  also  amends  the  disclosure  provisions  of  that
Statement  to require  prominent  disclosure  about the effects on reported  net
income of an entity's  accounting  policy  decisions with respect to stock-based
employee  compensation.  Finally,  this Statement amends  Accounting  Principles
Board ("APB") Opinion No. 28, Interim Financial Reporting, to require disclosure
about those effects in interim financial information.  SFAS 148 is effective for
financial  statements  for fiscal  years ending  after  December  15, 2002.  The
Company  plans to  continue  to use the  intrinsic  valuation  method  for stock
compensation.

The Company  accounts for options and the employee stock purchase plan under the
recognition  and  measurement  principles of Accounting  Principles  Board (APB)
Opinion No. 25,  "Accounting  for Stock  Issued to  Employees."  No  stock-based
employee  compensation  cost is reflected in net income,  as all options granted
under  those  plans  had an  exercise  price  equal to the  market  value of the
underlying  common  stock on the date of grant.  Had  compensation  cost for the
Company's  stock  options  and  employee  stock  purchase  plan been  determined
consistent with SFAS No. 123,  "Accounting for  Stock-Based  Compensation,"  the
Company's net loss and basic and diluted net loss per share would have been:




                                                                 March 31, 2004         March 31, 2003
                                                               --------------------    -------------------
                                                                  (unaudited)              (unaudited)
                                                                              
Net income (loss) - as reported                             $          1,483,000    $          (467,000)

Add:  Stock-based compensation included in net
   income as reported, net or related tax effects
                                                                       -                       -
Deduct stock-based compensation determined under
   fair value based methods for all awards, net of
   related tax effects                                                   (32,000)               (84,000)

Net income (loss) - pro forma                               $          1,451,000    $          (551,000)

Basic and diluted income (loss) per share - as reported     $               0.51    $             (0.16)
Basic and diluted income (loss) per share - pro forma       $               0.50    $             (0.19)


The weighted  average fair value of those  options  granted  during the quarters
ended March 31, 2004 and 2003 was  estimated  at $2.94 and $2.81,  respectively.
The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes   option-pricing   model  with  the  following   weighted  average
assumptions:  risk-free  interest  rate of  3.65%  and  3.73%  for 2004 and 2003
grants,  respectively;  an expected  life of six years;  volatility  of 130% and
145%; and a dividend yield of zero for 2004 and 2003 grants, respectively.

6. MAJOR CUSTOMERS
   ---------------

For the first three months of 2004,  there was one major customer that accounted
for 33% of the Company's total  revenues.  At March 31, 2004, this same customer
represented 30% of the Company's accounts  receivable  balance,  the majority of
which was  subsequently  received  in the  second  quarter.  There were no major
customers for the three months ended March 31, 2003.





                                       7




Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
--------------------------------------------------------------------------------
        OF OPERATIONS
        -------------

Overview
--------

This document contains various  forward-looking  statements and information that
are  based  on  management's   beliefs,   assumptions  made  by  management  and
information  currently  available to management.  Such statements are subject to
various  risks and  uncertainties,  which  could  cause  actual  results to vary
materially from those contained in such forward-looking  statements.  Should one
or more of these  risks  or  uncertainties  materialize,  or  should  underlying
assumptions  prove  incorrect,  actual  results may vary  materially  from those
anticipated,  estimated,  expected or  projected.  Certain of these,  as well as
other risks and  uncertainties  are  described in more detail  herein and in the
Company's  Annual  Report on Form 10-K for the fiscal  year ended  December  31,
2003.

The Company develops, markets and supports service management software solutions
for companies that sell and service capital  equipment.  Clients include Fortune
500 to mid-size  companies that automate  equipment  sales and service  business
processes  to  increase   competitive   advantages,   top-line  revenue  growth,
profitability,  and customer loyalty.  The Company supports a global client base
with a worldwide  sales and  service  network  that  conducts  business  through
Company  facilities  in  the  United  States,  United  Kingdom,  Australia,  the
Netherlands, and Israel.

Over the past year, the Company has been in the process of making the transition
from a pure field  service  software  provider to a provider of a  comprehensive
suite of service management  solutions.  In addition to field service, the suite
also  streamlines  and  automates  processes for managing  sales and  marketing,
multi-channel  customer contact centers and professional  services.  The Company
continues to focus on companies in industries that sell and service equipment.

The Company continues to make a significant investment in product development in
support  of  the  transition.  The  Company  believes  that  its  investment  in
development  along  with its  continued  commitment  to  marketing  its  service
management  suite will  favorably  position  the Company as economic  conditions
continue to improve.

Critical Accounting Policies and Estimates
------------------------------------------

The Company's significant accounting policies are more fully described in Note 2
of the Notes to the Consolidated Financial Statement of Operations Procedures in
the Company's  Annual Report on Form 10-K for the year ended  December 31, 2003.
The preparation of financial statements in conformity with accounting principles
generally  accepted  within  the  United  States  requires  management  to  make
estimates and assumptions in certain  circumstances that affect amounts reported
in the accompanying  financial  statements and related notes. In preparing these
financial  statements,  management  has made its best estimates and judgments of
certain amounts included in the financial  statements,  giving due consideration
to  materiality.  The Company does not believe there is a great  likelihood that
materially  different  amounts  would  be  reported  related  to the  accounting
policies  described below;  however,  application of these  accounting  policies
involves  the  exercise of  judgments  and the use of  assumptions  as to future
uncertainties  and,  as  a  result,  actual  results  could  differ  from  these
estimates.

Revenue Recognition

Revenues are recognized in accordance  with  Statement of Operations  Procedures
(SOP) 97-2, which provides guidelines on the recognition of software license fee
revenue.  Principally,  revenue may be recognized when persuasive evidence of an
arrangement  exists,  delivery  has  occurred,  the  license  fee is  fixed  and
determinable and the collection of the fee is probable.  The Company allocates a
portion of its software revenue to post-contract  support activities or to other
services or products  provided to the customer free of charge or at non-standard
discounts when provided in conjunction with the licensing  arrangement.  Amounts
allocated are based upon standard prices charged for those services or products.
Software  license  fees for  resellers or other  members of the  indirect  sales
channel are based on a fixed percentage of the Company's  standard  prices.  The
Company  recognizes  software  license revenue for such contracts based upon the
terms and conditions provided by the reseller to its customer.



                                       8


Revenue from  post-contract  support is recognized  ratably over the term of the
contract on a straight-line  basis.  Consulting and training  service revenue is
generally  unbundled and  recognized at the time the service is performed.  Fees
from licenses sold together with  consulting  services are generally  recognized
upon  shipment,  provided that the contract has been  executed,  delivery of the
software  has  occurred,  fees are  fixed and  determinable  and  collection  is
probable. In instances where the aforementioned criteria have not been met, both
the license and the  consulting  fees are  recognized  under the  percentage  of
completion method of contract accounting.

In limited instances, the Company will enter into contracts for which revenue is
recognized  under contract  accounting.  The  accounting  for such  arrangements
requires  judgement,  which  impacts  the  timing  of  revenue  recognition  and
provision for estimated losses, if applicable.

Accounts Receivable

The Company evaluates the adequacy of its allowance for doubtful accounts at the
end of each quarter.  In performing this  evaluation,  the Company  analyzes the
payment  history  of  its  significant   past  due  accounts,   subsequent  cash
collections  on  these  accounts  and  comparative   accounts  receivable  aging
statistics.  Based on this information,  along with consideration of the general
strength  of the  economy,  the  Company  develops  what  it  considers  to be a
reasonable   estimate  of  the   uncollectible   amounts  included  in  accounts
receivable.  This estimate involves  significant  judgement by the management of
the  Company.  Actual  uncollectible  amounts  may  differ  from  the  Company's
estimate.

Capitalized Software Research and Development Costs

The Company accounts for its internal  software  development costs in accordance
with Statement of Financial  Accounting  Standards  ("SFAS") No. 86, "Accounting
for the Costs of Computer  Software to be Sold,  Leased or Otherwise  Marketed."
Accordingly,   all  costs   incurred   subsequent  to  attaining   technological
feasibility  are  capitalized  and  amortized  over a period not to exceed three
years.  Technological  feasibility is attained when software products reach Beta
release. Costs incurred prior to the establishment of technological  feasibility
are charged to product development  expense.  The establishment of technological
feasibility and the ongoing assessment of recoverability of capitalized software
development costs require  considerable  judgement by management with respect to
certain external  factors,  including,  but not limited to,  anticipated  future
revenues,   estimated  economic  life  and  changes  in  software  and  hardware
technologies.  Upon the general  release of the software  product to  customers,
capitalization  ceases and such  costs are  amortized,  using the  straight-line
method, on a product-by-product  basis over the estimated life. During the first
quarter of 2004,  the Company  revised the  estimated  life for its  capitalized
software  products from 3 years to 2 years based on current sales trends and the
rate of product releases. All research and development  expenditures are charged
to research and development expense in the period incurred.

Results of Operations
---------------------

Comparison of Three Months Ended March 31, 2004 and 2003
--------------------------------------------------------

Revenues
--------

Revenues increased $1,896,000,  or 48%, to $5,884,000 for the three months ended
March 31,  2004 from  $3,988,000  for the three  months  ended  March 31,  2003.
Software  license fee  revenues  increased  $1,874,000,  or 183%,  from the same
period last year. Services and maintenance fees for the three months ended March
31, 2004 amounted to $2,988,000, a 1% increase from the same quarter in 2003.

The Company's international operations contributed $1,486,000 of revenues in the
first quarter of 2004 compared to $1,363,000 in the first quarter of 2003.  This
represents  a 9%  increase  from  the  same  period  last  year and 25% of total
revenues  in the first  quarter  2004.  The  increase  in revenues is due to the
increase in sales from the Company's  operations in Japan partially  offset by a
slight decrease in sales from operations in Europe.

Software license fee revenues  increased 183% to $2,896,000 in the first quarter
of 2004 from  $1,022,000 in the first quarter of 2003. The increase is primarily
attributable to two significant  sales in the U.S. totaling  approximately  $2.1
million  that  closed  during  the  quarter.  Astea  Alliance  license  revenues
increased  $1,708,000  or 167%,  to $2,730,000 in the first quarter of 2004 from




                                       9


$1,022,000  in the first  quarter of 2003.  The  Company  also sold  $166,000 of
additional  DISPATCH-1  licenses to an existing customer in the first quarter of
2004.  There were no license  sales of  DISPATCH-1 in the first quarter of 2003.
The Company does not anticipate future license sales of Dispatch-1.

Services and  maintenance  revenues  increased  marginally  to $2,988,000 in the
first quarter of 2004 from $2,966,000 in the first quarter of 2003. The increase
primarily relates to service and maintenance  revenues from Astea Alliance which
increased $195,000, or 9%, to $2,431,000 from $2,236,000 in the first quarter of
2003.  The  increase in Astea  Alliance  service and  maintenance  revenues is a
direct  result of the  growth of the Astea  Alliance  customer  base.  Partially
offsetting the increase in Astea Alliance service and maintenance revenues was a
decrease of $173,000 in  DISPATCH-1  service  and  maintenance  revenues,  which
resulted from an expected decrease in demand.

Costs of Revenues
-----------------

Cost of software  license fees increased 79% to $410,000 in the first quarter of
2004  from  $229,000  in the  first  quarter  of 2003.  Included  in the cost of
software  license fees is the fixed cost of capitalized  software  amortization.
During the first quarter of 2004, the Company revised the estimated  useful life
of its capitalized  software  products from 3 years to 2 years,  which increased
amortization  for the period to  $230,000  as  compared to $150,000 in the first
quarter of 2003.  The cost of software  license fees also  increased  due to the
greater  level of  software  license  sales in the first  quarter  of 2004.  The
software  licenses gross margin  percentage was 86% in the first quarter of 2004
compared to 78% in the first  quarter of 2003.  The increase in gross margin was
attributable to the mix of products sold in 2004 as well as the  relationship of
the fixed cost of  amortized  capitalized  software to a lower level of sales in
2003.

Cost of services and maintenance decreased 6% to $1,547,000 in the first quarter
of 2004 from  $1,645,000 in the first  quarter of 2003.  The decrease in cost of
service and maintenance is primarily attributed to a reduction in headcount from
last year to this year. The services and maintenance gross margin percentage was
48% in the first  quarter of 2004  compared to 45% in the first quarter of 2003.
The  increase in services and  maintenance  gross  margin was  primarily  due to
increased utilization of Astea Alliance service professionals.

Product Development
-------------------

Product  development  expense  decreased 20% to $408,000 in the first quarter of
2004 from  $507,000  in the first  quarter of 2003.  The  Company  includes  the
capitalization of software costs in product  development.  Capitalized  software
totaled  $217,000 in the first quarter of 2004  compared to $120,000  during the
same period in 2003.  Product  development as a percentage of revenues was 7% in
the first quarter of 2004  compared  with 13% in the first quarter of 2003.  The
decrease  in margin is the result of the  increase  in  software  capitalization
combined with the increased sales volume.

Sales and Marketing
-------------------

Sales and marketing  expense  decreased 5% to $1,489,000 in the first quarter of
2004 from  $1,574,000  in the first  quarter of 2003.  The decrease in sales and
marketing is attributable to a reduction in marketing costs by consolidating the
worldwide  marketing  effort under the control of the U.S.  partially  offset by
increased  sales  commissions  related to the  increase in license  sales.  As a
percentage of revenues,  sales and marketing  expenses decreased to 25% from 39%
in the first quarter of 2003,  which is the direct result of increased  revenues
and lower costs.

General and Administrative
--------------------------

General  and  administrative  expenses  increased  7% to  $555,000  in the first
quarter of 2004 from  $518,000  in the first  quarter of 2003.  The  increase in
general and  administrative  expenses is due to an increase in foreign  currency
exchange  activity.  As a  percentage  of revenues,  general and  administrative
expenses  decreased to 9% from 13% in the first quarter of 2003. The decrease is
attributable to the significant increase in revenues.




                                       10


Interest Income, net
--------------------

Net interest income decreased  $10,000 from $18,000 in the first quarter of 2003
to $8,000 in the first quarter of 2004. The decrease  resulted  primarily from a
decrease in the amount of investments.

International Operations
------------------------

Total revenue from the Company's international operations increased by $123,000,
or 9%,  to  $1,486,000  in first  quarter  of 2004 from  $1,363,000  in the same
quarter in 2003.  The  increase in revenue  from  international  operations  was
primarily attributable to the increase in revenues from Asia Pacific operations.
International  operations generated net income of $152,000 for the first quarter
ended March 31, 2004 compared to a loss of $82,000 in the same quarter in 2003.

Liquidity and Capital Resources
-------------------------------

Net cash  provided by  operating  activities  was  $347,000 for the three months
ended March 31, 2004 compared to cash provided by operations of $936,000 for the
three months ended March 31, 2003.  The decrease in cash  provided by operations
was  primarily  attributable  to a significant  increase in accounts  receivable
resulting  from  increased  revenues  for  the  quarter  partially  offset  by a
significant increase in net income and increase in operating liabilities.

The Company's investing activities used $236,000 for investing activities in the
first three months of 2004 compared to using  $204,000 in the first three months
of 2003.  The increase in cash used is  attributable  to an increase in software
capitalization  partially  offset by a decrease in  purchases  of  property  and
equipment.

The Company generated $1,000 of cash from financing  activities during the three
months  ended March 31, 2004 and 2003  related to proceeds  from the issuance of
stock through the employee stock purchase plan.

At March 31, 2004, the Company had a working capital ratio of 1.5:1,  with cash,
cash equivalents and restricted cash of $3,885,000. The Company believes that it
has adequate  cash  resources to make the  investments  necessary to maintain or
improve its current  position and to sustain its  continuing  operations for the
next  twelve  months.  The  Board of  Directors  from time to time  reviews  the
Company's forecasted operations and financial condition to determine whether and
when  payment of a dividend or dividends  is  appropriate.  The Company does not
anticipate  that  its  operations  or  financial   condition  will  be  affected
materially by inflation.

Variability of Quarterly Results and Potential Risks Inherent in the Business
-----------------------------------------------------------------------------

The Company's  operations are subject to a number of risks,  which are described
in more detail in the Company's  prior SEC filings.  Risks which are peculiar to
the Company on a quarterly  basis,  and which may vary from  quarter to quarter,
include but are not limited to the following:

o    The Company's  quarterly  operating results have in the past varied and may
     in the future vary  significantly  depending  on factors  such as the size,
     timing and recognition of revenue from  significant  orders,  the timing of
     new product  releases and product  enhancements,  and market  acceptance of
     these new releases and enhancements,  increases in operating expenses,  and
     seasonality of its business.

o    The Company's future success will depend in part on its ability to increase
     licenses  of  AllianceEnterprise  and other new product  offerings,  and to
     develop new products and product  enhancements  to complement  its existing
     field service, sales automation and customer support offerings.

o    The enterprise software market is intensely competitive.

o    International  sales  for the  Company's  products  and  services,  and the
     Company's  expenses  related to these sales,  continue to be a  substantial
     component of the Company's operations. International sales are subject to a
     variety of risks,  including  difficulties  in  establishing  and  managing
     international   operations  and  in   translating   products  into  foreign
     languages.



                                       11


o    The market  price of the  common  stock  could 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,  adverse earnings or other financial
     announcements   of  the  Company's   customers  and  general  stock  market
     conditions, as well as other factors.

Item 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
--------------------------------------------------------------------

Interest  Rate  Risk.  The  Company's  exposure  to market  risk for  changes in
interest  rates relates  primarily to the Company's  investment  portfolio.  The
Company does not have any derivative financial instruments in its portfolio. The
Company  places its  investments  in  instruments  that meet high credit quality
standards.  The Company is adverse to principal  loss and ensures the safety and
preservation  of its invested  funds by limiting  default risk,  market risk and
reinvestment risk. As of March 31, 2004, the Company's  investments consisted of
U.S. government  commercial paper. The Company does not expect any material loss
with respect to its investment portfolio.

Foreign  Currency  Risk.  The  Company  does not use  foreign  currency  forward
exchange  contracts or purchased  currency  options to hedge local currency cash
flows  or for  trading  purposes.  All  sales  arrangements  with  international
customers are denominated in foreign  currency.  The Company does not expect any
material loss with respect to foreign currency risk.

Item 4.        CONTROLS AND PROCEDURES
--------------------------------------

Our management,  under the supervision and with the  participation  of the Chief
Executive Officer and Chief Financial  Officer,  has evaluated the effectiveness
of  our  controls  and  procedures  related  to  our  reporting  and  disclosure
obligations as of March 31, 2004, which is the end of the period covered by this
Quarterly  Report on Form 10-Q.  Based on that  evaluation,  the Chief Executive
Officer and Chief Financial Officer have concluded that our disclosure  controls
and procedures are sufficient to provide that (a) material  information relating
to us, including our consolidated subsidiaries,  is made known to these officers
by our and our consolidated subsidiaries other employees,  particularly material
information  related  to the  period  for which  this  periodic  report is being
prepared; and (b) this information is recorded, processed, summarized, evaluated
and reported, as applicable,  within the time periods specified in the rules and
forms promulgated by the Securities and Exchange Commission.

There were no changes that  occurred  during the fiscal  quarter ended March 31,
2004 that have  materially  affected,  or are  reasonable  likely to  materially
affect, our internal controls over financial reporting.





                                       12



PART II - OTHER INFORMATION
---------------------------

Item 1.           Legal Proceedings
-----------------------------------

From time to time,  the  Company is involved  in  litigation  relating to claims
arising out of its  operations in the normal course of business.  The Company is
not involved in any legal  proceedings,  which would, in  management's  opinion,
have a  material  adverse  effect  on  the  Company's  business  or  results  of
operations.

Item 2.           Changes in Securities and Use of Proceeds
-----------------------------------------------------------

There have been no changes in  securities  during the  quarter  ended  March 31,
2004.

Item 3.           Defaults Upon Senior Securities
-------------------------------------------------

There have been no defaults by the Company on any Senior  Securities  during the
quarter ended March 31, 2004.

Item 4.           Submission of Matters to a Vote of Security Holders
---------------------------------------------------------------------

No matters were  submitted to a vote of the  Company's  stockholders  during the
first quarter of the fiscal year covered by this report through the solicitation
of proxies or otherwise.

Item 5.           Other Information
-----------------------------------

None.

Item 6.           Exhibits and Reports on Form 8-K
--------------------------------------------------

(A)      Exhibits

         31.1     Certification pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 2002 - President and Chief Executive Officer
         31.2     Certification pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 2002 - Chief Financial Officer
         32.1     Certification pursuant to 18 U.S.C. Section 1350, as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 -
                  President and Chief Executive Officer
         32.2     Certification pursuant to 18 U.S.C. Section 1350, as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 -
                  Chief Financial Officer


(B) Reports on Form 8-K

         On March 30, 2004,  the Company filed a report on Form 8-K with respect
         to the press release  issued as of that date  reporting the results for
         the three months and year ended December 31, 2003.

         On March  31,  2004,  the  Company  filed a report on Form  8-K/A  with
         respect to the press  release  issued as of March 30, 2004 amending the
         previously  reported  results  for the  three  months  and  year  ended
         December 31, 2003.





                                       13




                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto duly  authorized this 12th day of May
2004.

                                        ASTEA INTERNATIONAL INC.


                                        By:       /s/Zack B. Bergreen
                                                  ----------------------
                                                  Zack B. Bergreen
                                                  Chief Executive Officer
                                                  (Principal Executive Officer)

                                        By:       /s/Rick Etskovitz
                                                  ----------------------
                                                  Rick Etskovitz
                                                  Chief Financial Officer
                                                  (Principal Financial and Chief
                                                  Accounting Officer)





































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