================================================================================


                                  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          June 30, 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 August 12, 2004,  2,953,877 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      13

Item 4.     Controls and Procedures                                        14

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

Item 1.     Legal Proceedings                                              14

Item 2.     Changes in Securities and Use of Proceeds                      14

Item 3.     Defaults upon Senior Securities                                14

Item 4.     Submission of Matters to a Vote of Security Holders            14

Item 5.     Other Information                                              14

Item 6.     Exhibits and Reports on Form 8-K                               15

            Signatures                                                     16


                                       2





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

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





                                                                                      


                            ASTEA INTERNATIONAL INC.
                            ------------------------
                          CONSOLIDATED BALANCE SHEETS
                          ---------------------------

                                                                        June 30,             December 31,
                                                                          2004                   2003
                                                                       (Unaudited)
                                                                  ---------------------- ----------------------
                                ASSETS
       Current assets:
         Cash and cash equivalents                                     $      4,763,000     $    3,480,000
         Restricted cash                                                        300,000            300,000
         Receivables, net of reserves of $708,000 and $810,000                4,774,000          3,943,000
         Prepaid expenses and other                                             518,000            601,000
                                                                  ---------------------- ----------------------
                 Total current assets                                        10,355,000          8,324,000

       Property and equipment, net                                              397,000            509,000
       Capitalized software, net                                              1,328,000          1,229,000
       Other assets                                                              36,000             34,000
                                                                  ---------------------- ----------------------

                  Total assets                                         $     12,116,000     $   10,096,000
                                                                  ====================== ======================

                 LIABILITIES AND STOCKHOLDERS' EQUITY
       Current liabilities:
         Accounts payable and accrued expenses                         $      2,653,000     $    3,003,000
         Deferred revenues                                                    3,789,000          3,359,000
                                                                  ---------------------- ----------------------
                 Total current liabilities                                    6,442,000          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, 2,954,000 issued                                        30,000             30,000
          Additional paid-in capital                                         22,977,000         22,792,000
          Cumulative translation adjustment                                    (814,000)          (776,000)
          Accumulated deficit                                               (16,309,000)       (18,100,000)
          Less:  treasury stock at cost, 42,000 and 43,000 shares              (210,000)          (212,000)
                                                                  ---------------------- --------------------
                           Total stockholders' equity                         5,674,000          3,734,000
                                                                  ---------------------- --------------------

                 Total liabilities and stockholders' equity              $   12,116,000     $   10,096,000
                                                                  ====================== ====================

                          See accompanying  notes to the consolidated  financial statements.



                                       3








                                                                                            


                                                   ASTEA INTERNATIONAL INC.
                                                   ------------------------
                                            CONSOLIDATED STATEMENTS OF OPERATIONS
                                            -------------------------------------
                                                          (Unaudited)


                                                         Three Months                             Six Months
                                                        Ended June 30,                          Ended June 30,
                                             -------------------------------------  -----------------------------------
                                                  2004                2003                2004                 2003
                                             ---------------    ------------------    --------------      ---------------

Revenues:
     Software license fees               $       1,606,000   $           312,000     $     4,502,000    $       1,334,000
     Services and maintenance                    2,810,000             2,826,000           5,798,000            5,792,000
                                         --------------------------------------------------------------------------------

          Total revenues                         4,416,000             3,138,000          10,300,000            7,126,000
                                         --------------------------------------------------------------------------------

Costs and expenses:
     Cost of software license fees                 335,000               181,000             745,000              410,000
     Cost of services and maintenance            1,588,000             1,830,000           3,138,000            3,474,000
     Product development                           316,000               587,000             721,000            1,094,000
     Sales and marketing                         1,433,000             1,524,000           2,922,000            3,098,000
     General and administrative                    445,000               531,000           1,001,000            1,049,000
                                         --------------------------------------------------------------------------------

          Total costs and expenses               4,117,000             4,653,000           8,527,000            9,125,000
                                         --------------------------------------------------------------------------------

Income (loss) from operations                      299,000            (1,515,000)          1,773,000           (1,999,000)


Interest  income, net                               10,000                12,000              19,000               29,000
                                         --------------------------------------------------------------------------------
Income (loss) before income taxes                  309,000            (1,503,000)          1,792,000           (1,970,000)

Income tax expense                                       -                     -                 -                    -
                                         --------------------------------------------------------------------------------

Net income (loss)                        $         309,000   $        (1,503,000)    $     1,792,000    $      (1,970,000)
                                         ================================================================================

Basic net income (loss) per share        $            0.11   $             (0.51)    $          0.61    $           (0.67)
                                         ================================================================================

Diluted net income (loss) per share                   0.11                 (0.51)               0.61                (0.67)
Shares outstanding used in
     computing basic income
     (loss) per share                            2,932,000             2,921,000           2,927,000            2,921,000
                                         --------------------------------------------------------------------------------
Shares outstanding used in
     computing diluted income (loss)
     per share                                   2,972,000             2,921,000           2,942,000            2,921,000
                                         ================================================================================

                            See accompanying notes to the consolidated financial statements.




                                       4







                                                                                             


                                           ASTEA INTERNATIONAL INC.
                                           ------------------------
                                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                      -------------------------------------
                                                  (Unaudited)
                                                                                      For the Six Months
                                                                                        Ended June 30,
                                                                                    2004              2003
                                                                              ----------------- -----------------

Cash flows from operating activities:
   Net income (loss)                                                            $ 1,792,000        $ (1,970,000)

   Adjustments to reconcile net income (loss) to net cash provided by
        operating activities:
        Depreciation and amortization                                               601,000             469,000
        Bad debt expense                                                             76,000             248,000
        Changes in operating assets and liabilities:
            Receivables                                                            (985,000)          3,367,000
            Prepaid expenses and other                                               86,000            (241,000)
            Other assets                                                             (2,000)             (2,000)
            Accounts payable and accrued expenses                                  (275,000)           (584,000)
            Deferred revenues                                                       432,000            (515,000)
                                                                              ----------------- -----------------

 Net cash provided by operating activities                                        1,725,000             772,000
                                                                              ----------------- -----------------

Cash flows from investing activities:
   Purchases of property and equipment                                              (34,000)           (153,000)
   Capitalized software development costs                                          (560,000)           (240,000)
                                                                              ----------------- -----------------

Net cash used in investing activities                                              (594,000)           (393,000)
                                                                              ----------------- -----------------

Cash flows from financing activities:
   Proceeds from exercise of stock options and employee stock purchase plan
                                                                                    111,000               2,000
                                                                              ----------------- -----------------

   Effect of exchange rate changes on cash                                           41,000             (98,000)
                                                                              ----------------- -----------------

   Net increase in cash and cash equivalents                                      1,283,000             283,000
   Cash, beginning of period                                                      3,480,000           4,967,000
                                                                              ----------------- -----------------

   Cash, end of period                                                         $  4,763,000        $  5,250,000
                                                                              ================= =================

                        See  accompanying  notes to the  consolidated  financial statements.




                                       5





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

                            ASTEA INTERNATIONAL INC.
                            ------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------


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

The consolidated financial statements at June 30, 2004 and for the three and six
month  periods  ended June 30,  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 six months
ended June 30, 2004 are not  necessarily  indicative  of the results that may be
expected for the full year.

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

The reconciliation of stockholders'  equity and comprehensive loss from December
31, 2003 to June 30, 2004 is summarized as follows:




                                                                                     

                                                           Cumulative
                                                            Currency
                               Common      Additional      Translation     Accumulated     Treasury    Comprehensive
                                Stock    Paid-In Capital    Adjustment        Deficit        Stock      Income (Loss)
                                -----    ---------------    ----------        -------        -----      -------------

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                -
Exercise of stock options            -         111,000              -                -            -
Stock issued for
 satisfaction of liability           -          74,000              -                -            -                -
Cumulative translation
   adjustment                        -               -        (38,000)               -            -          (37,000)
Net income for the period            -               -              -        1,792,000            -        1,792,000
                              ----------- --------------- --------------- --------------- ------------ ----------------

Balance at June 30, 2004       $30,000    $ 22,977,000     $ (814,000)     (16,309,000)   $(210,000)   $   1,755,000
                              =========== =============== =============== =============== ============ ================




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 $83,000,  or $0.03 per diluted  share for the three
months ended June 30, 2004 and  $166,000 or $0.06 per diluted  share for the six
months ended June 30, 2004.

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

The Company has utilized a portion of its net operating  loss carry forwards for
the three months and six months ended June 30, 2004 to reduce any tax provisions
on its pre-tax income.  At June 30, 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.


                                       6





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
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:




                                                                                            


                                                  Three months ended                       Six months ended
                                                        June 30,                                June 30,
                                            ---------------------------------      ----------------------------------
                                                 2004              2003                 2004               2003
                                            ---------------    --------------      --------------    ----------------
                                             (unaudited)        (unaudited)          (unaudited)        (unaudited)

Net income (loss) - as reported          $        309,000   $   (1,503,000)    $      1,792,000         (1,970,000)

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                            (78,000)        (120,000)            (110,000)     $    (205,000)

Net income (loss) - pro forma            $        231,000   $   (1,623,000)    $      1,682,000      $  (2,174,000)

Basic income per share -
   as reported                           $           0.11   $        (0.51)    $           0.62      $       (0.67)
Diluted income (loss) per share as
   reported                              $           0.10   $        (0.51)    $           0.61      $       (0.67)
Basic income (loss) per share -
   pro forma                             $           0.08   $        (0.56)    $           0.57      $       (0.74)
Diluted income (loss) per share pro
   forma                                 $           0.07   $        (0.56)    $           0.56      $        0.74



The weighted  average fair value of those  options  granted  during the quarters
ended June 30, 2004 and 2003 was estimated at $3.23 and $0.76, respectively. The
weighted average fair value of those options granted during the six months ended
June 30, 2004 and 2003 was estimated at $3.12 and $0.63.  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 4.61%  and 3.38% for 2004 and 2003  grants,  respectively;  an
expected life of six years; volatility of 132% and 144%; and a dividend yield of
zero for 2004 and 2003 grants, respectively.


                                       7





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

In the second  quarter of 2004,  there was one major customer that accounted for
14% of total  revenues.  In the  second  quarter  of 2003,  the  Company  had no
customers that accounted for 10% of its total revenue.  For the first six months
of 2004 there was one major  customer that  accounted for 22% of total  revenues
and for the first six months of 2003, there were no customers that accounted for
10% of total revenues.


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  Statements in the Company's Annual
Report on Form 10-K. 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 Position  (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


                                       8





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.

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 judgment, 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 judgment 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  judgment 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 three years to two 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 June 30, 2004 and 2003
-------------------------------------------------------

Revenues
--------

Revenues increased $1,278,000,  or 41%, to $4,416,000 for the three months ended
June 30, 2004 from $3,138,000 for the three months ended June 30, 2003. Software
license fee revenues  increased  $1,294,000,  or 415%, from the same period last
year.  Services  and  maintenance  fees for the three months ended June 30, 2004
amounted to $2,810,000, a .6% decrease from the same quarter in 2003.


                                       9





The Company's international operations contributed $1,752,000 of revenues in the
second quarter of 2004 which was a 42% increase over revenues  generated  during
the second quarter of 2003. The Company's revenues from international operations
amounted to 40% of the total revenue for the second  quarter in 2004 compared to
39% of total  revenues for the same quarter in 2003. The increase in revenues is
due to the  increase in sales from the  Company's  operations  in Japan and from
operations in Europe.

Software license fee revenues increased 415% to $1,606,000 in the second quarter
of 2004 from  $312,000 in the second  quarter of 2003.  Astea  Alliance  license
revenues  increased  $1,078,000 or 346%, to $1,390,000 in the second  quarter of
2004 from  $312,000 in the second  quarter of 2003.  The  increase is  primarily
attributable  to one major  customer that  accounted for 14% of total revenue in
the  second  quarter of 2004.  The  Company  also sold  $217,000  of  additional
DISPATCH-1 licenses to an existing customer in the second quarter of 2004. There
were no license sales of DISPATCH-1 in the second  quarter of 2003.  The Company
does not anticipate future license sales of DISPATCH-1.

Services and  maintenance  revenues  decreased  marginally  to $2,810,000 in the
second quarter of 2004 from  $2,826,000 in the second quarter of 2003. The Astea
Alliance service and maintenance revenues increased by $68,000 or 3% compared to
the second quarter of 2003.  More than  offsetting  this increase was an $84,000
decrease in DISPATCH-1 service and maintenance revenues,  which resulted from an
expected decrease in demand.

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

Cost of software license fees increased 85% to $335,000 in the second quarter of
2004 from  $181,000  in the  second  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.  This revision
increased amortization for the period to $230,000 as compared to $150,000 in the
second quarter of 2003. The cost of software  license fees also increased due to
the greater level of software license sales. The software  licenses gross margin
percentage  was 79% in the second  quarter of 2004 compared to 42% in the second
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  13% to  $1,588,000  in the second
quarter of 2004 from  $1,830,000 in the second  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 43% in the second  quarter of 2004 compared to 35% in the second
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 46% to $316,000 in the second quarter of
2004 from  $587,000 in the second  quarter of 2003.  Gross  development  expense
before  capitalization  of software  costs was $658,000 in the second quarter of
2004 compared to $707,000  during the same period in 2003. The Company  includes
the  capitalization  of  software  costs  in  product  development.  Capitalized
software  totaled  $342,000 in the second  quarter of 2004  compared to $120,000
during the same period in 2003.  The  increase in software  capitalization  is a
result of product  development  initiatives  geared towards the release of Astea
Alliance  version  6.7 during the third  quarter  of 2004.  Product  development
expense as a percentage of revenues  decreased 7% in the second  quarter of 2004
compared with 19% in the second  quarter of 2003.  The decrease in margin is the
result of the increase in software  capitalization  combined  with the increased
license sales volume.

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

Sales and marketing  expense decreased 6% to $1,433,000 in the second quarter of
2004 from  $1,524,000 in the second  quarter of 2003.  The decrease in sales and
marketing is  attributable  to a reduction  in sales  staffing  costs  partially
offset by  increased  marketing  expenses  related  to the  timing of  marketing
initiatives. As a percentage of revenues, sales and marketing expenses decreased
to 32% in 2004 from 49% in the second quarter of 2003.


                                       10





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

General and administrative  expenses decreased 16% to $444,000 during the second
quarter of 2004 from $531,000 in the second  quarter of 2003. As a percentage of
revenue,  general and  administrative  expenses  decreased  to 10% in the second
quarter  of 2004  from 17% in the  second  quarter  of  2003.  The  decrease  is
primarily  attributable to the higher level of revenue combined with a reduction
of bad debt expenses associated with improved collection activity.

Interest Income, Net
--------------------

Net interest  income  decreased  $2,000 to $10,000 in the second quarter of 2004
from $12,000 in the second quarter of 2003.  The decrease of interest  income is
generally  attributable to less cash on hand than in 2003, as well as an overall
reduction in interest rates paid on invested cash.

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

Total revenue from the Company's  international  operations increased during the
second  quarter of 2004 to  $1,752,000  compared  to  $1,238,000  for the second
quarter of 2003.  The  increase in revenue  from  international  operations  was
primarily  attributable  to the  increase  in revenues  from Japan and  European
operations.  International  operations  generated net income of $223,000 for the
second  quarter  ended June 30,  2004  compared to a net loss of $432,335 in the
same quarter in 2003.

Comparison of Six Months Ended June 30, 2004 and 2003
-----------------------------------------------------

Revenues
--------

Revenues increased  $3,174,000,  or 45%, to $10,300,000 for the six months ended
June 30, 2004 from  $7,126,000 for the six months ended June 30, 2003.  Software
license fee revenues  increased  $3,168,000,  or 237%, from the same period last
year.  Services  and  maintenance  fees for the six months  ended June 30,  2004
amounted to $5,798,000, a .1% increase from the same quarter in 2003.

The Company's international operations contributed $3,238,000 of revenues in the
first six months of 2004 compared to $2,601,000 in the first six months of 2003.
This  represents a 24% increase  from the same period last year and 31% of total
revenues in the first six months of 2004. The increase in revenues is due to the
increase in sales from the Company's  operations  in Japan and Europe  partially
offset by a slight decrease in sales from operations in Australia.

Software  license fee revenues  increased  237% to  $4,502,000  in the first six
months of 2004 from  $1,334,000 in the first six months of 2003. The increase is
primarily  attributable to a number of larger sales that closed during the first
half of the year. Astea Alliance license revenues  increased  $2,786,000 or 209%
in the first six months of 2004 from $1,334,000 in the first six months of 2003.
There  were no  license  sales of the  DISPATCH-1  product  during the first six
months of 2003 as compared to $383,000 during the same period in 2004.

Services and  maintenance  revenues  increased  marginally  to $5,798,000 in the
first six months of 2004 from  $5,792,000  in the first six months of 2003.  The
increase  primarily  relates  to service  and  maintenance  revenues  from Astea
Alliance which increased  $263,000,  or 6%, to $4,659,000 from $4,396,000 in the
first six months 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  $256,000 in  DISPATCH-1  service  and  maintenance
revenues, which resulted from an expected decrease in demand.

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

Cost of software  license fees increased 82% to $745,000 in the first six months
of 2004 from  $410,000 in the first six months of 2003.  Included in the cost of
software  license fees is the fixed cost of capitalized  software  amortization.
Capitalized  software  amortization  was  $460,000 and $300,000 in the first six
months of 2004 and


                                       11





2003, respectively.  The cost of software license fees also increased due to the
greater  level of software  license  sales in the first six months of 2004.  The
software  licenses  gross margin  percentage  was 83% in the first six months of
2004  compared  to 69% in the first six months of 2003.  This  increase in gross
margin was attributable to the increase in license sales.

Cost of services and  maintenance  decreased  10% to $3,138,000 in the first six
months of 2004 from  $3,474,000 in the first six months 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 46% in the first six months of 2004 compared to 40% in the first
six months 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 34% to $721,000 in the first six months of
2004 from $1,094,000 in the first six months of 2003. Gross development  expense
before  capitalization of software costs was $1,281,000 for the first six months
of 2004 compared to $1,334,000 for the same period in 2003. The Company includes
the  capitalization  of  software  costs  in  product  development.  Capitalized
software  totaled  $560,000 in the first six months of 2004 compared to $240,000
during the same period in 2003.  The  increase in software  capitalization  is a
result of product  development  initiatives  geared towards the release of Astea
Alliance version 6.7 during the third quarter of 2004. Product  development as a
percentage  of revenues was 7% in the first six months of 2004 compared with 15%
in the first six  months 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 6% to $2,922,000 in the first six months
of 2004 from  $3,098,000 in the first six months of 2003.  The decrease in sales
and marketing is  attributable  to a reduction in sales staffing costs partially
offset by  increased  marketing  costs  related  to the  increase  in  marketing
initiatives. As a percentage of revenues, sales and marketing expenses decreased
to 28% from 43% in the first six months of 2003,  which is the direct  result of
increased revenues and lower costs.

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

General and administrative  expenses decreased 5% to $1,000,000 in the first six
months of 2004 from  $1,049,000 in the first six months of 2003. The decrease in
general and  administrative  expenses is due to a reduction in bad debt expense.
As a percentage of revenues,  general and  administrative  expenses decreased to
10% from 15% in the first six months of 2003.  The decrease is  attributable  to
the significant increase in revenues.

Interest Income, Net
--------------------

Net interest  income  decreased  $10,000 from $29,000 in the first six months of
2003 to $19,000 in the first six months 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 $637,000,
or 24%, to  $3,238,000  in the first six months of 2004 from  $2,601,000  in the
first six months in 2003. The increase in revenue from international  operations
was primarily  attributable  to the increase in revenues from Japan  operations.
International  operations  generated  net income of  $168,000  for the first six
months ended June 30, 2004  compared to a loss of $541,000 in the same period in
2003.

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

Net cash  provided by operating  activities  was  $1,725,000  for the six months
ended June 30, 2004  compared to cash provided by operations of $772,000 for the
six months ended June 30, 2003.  The increase in cash provided by operations was
primarily  attributable  to a  significant  increase in revenues.


                                       12





The Company's investing activities used $594,000 for investing activities in the
first six of 2004  compared  to using  $393,000 in the first six 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 $111,000 of cash from financing  activities during the six
months  ended June 30, 2004 and 2003  related to proceeds  from the  exercise of
stock  options and the  issuance of stock  through the employee  stock  purchase
plan.

At June 30, 2004, the Company had a working capital ratio of 1.61:1,  with cash,
cash equivalents and restricted cash of $5,063,000. 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.

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 relate 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 June 30, 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.


                                       13





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 June 30, 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 June 30,
2004 that have  materially  affected,  or are  reasonable  likely to  materially
affect, our internal controls over financial reporting.


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 June 30, 2004.

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

There have been no defaults by the Company on any Senior  Securities  during the
quarter ended June 30, 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
second   quarter  of  the  fiscal  year  covered  by  this  report  through  the
solicitation of proxies or otherwise.  The Annual Meeting of Stockholders of the
Company is scheduled for August 19, 2004.

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

None.


                                       14





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 - CEO and Principal Executive Officer

          31.2 Certification  pursuant to Section 302 of the  Sarbanes-Oxley Act
               of  2002 - CFO  and  Principal  Financial  and  Chief  Accounting
               Officer

          32.1 Certification  pursuant to Section 906 of the  Sarbanes-Oxley Act
               of 2002 - President and Principal Executive Officer

          32.2 Certification  pursuant to Section 906 of the  Sarbanes-Oxley Act
               of  2002 - CFO  and  Principal  Financial  and  Chief  Accounting
               Officer

(B)      Reports on Form 8-K

         On May 12, 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  ended March 31, 2004.  The Company  also  announced  the
         appointment of its new Chief Financial Officer, George S. Rapp.


                                       15





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 August
2004.

                                  ASTEA INTERNATIONAL INC.

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

                                  By:        /s/George S. Rapp
                                             --------------------------------
                                             George S. Rapp
                                             Chief Financial Officer
                                             (Principal Financial and Chief
                                             Accounting Officer)



                                       16