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


                                  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          September 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 November 15, 2004,  2,954,077 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                                             15

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



                                                                      September 30,          December 31,
                                                                          2004                   2003
                                                                       (Unaudited)
                                                                  --------------------------------------------
                                ASSETS
                                                                                                 
       Current assets:
         Cash and cash equivalents                                     $      3,871,000     $    3,480,000
         Restricted cash                                                        300,000            300,000
         Receivables, net of reserves of $566,788 and $810,000                5,211,000          3,943,000
         Prepaid expenses and other                                             496,000            601,000
                                                                  --------------------------------------------
                 Total current assets                                         9,878,000          8,324,000

       Property and equipment, net                                              416,000            509,000
       Capitalized software, net                                              1,446,000          1,229,000
       Other assets                                                              44,000             34,000
                                                                  --------------------------------------------

                  Total assets                                         $     11,784,000     $   10,096,000
                                                                  ============================================

                 LIABILITIES AND STOCKHOLDERS' EQUITY
       Current liabilities:
         Accounts payable and accrued expenses                         $      2,491,000     $    3,003,000
         Deferred revenues                                                    3,438,000          3,359,000
                                                                  --------------------------------------------
                 Total current liabilities                                    5,929,000          6,362,000

       Stockholders' equity:
          Preferred stock, $.01 par value, 5,000,000 shares
             authorized, none issued                                                  -                  -
          Common stock, $.01 par value, 25,000,000 shares
             authorized, 2,996,548 issued                                        30,000             30,000

          Additional paid-in capital                                         22,977,000         22,792,000
          Cumulative translation adjustment                                    (788,000)          (776,000)
          Accumulated deficit                                               (16,154,000)       (18,100,000)
          Less: treasury stock at cost, 42,000 and 43,000 shares               (210,000)          (212,000)
                                                                  --------------------------------------------
                           Total stockholders' equity                         5,855,000          3,734,000
                                                                  --------------------------------------------

                 Total liabilities and stockholders' equity            $     11,784,000     $   10,096,000
                                                                  ============================================

                          See accompanying notes to the consolidated financial statements.





                                       3



                                                 ASTEA INTERNATIONAL INC.
                                           CONSOLIDATED STATEMENTS OF OPERATIONS
                                                        (Unaudited)




                                                        Three Months                             Nine Months
                                                     Ended September 30,                     Ended September 30,
                                            -------------------------------------- -- -----------------------------------
                                                 2004                 2003                2004                2003
                                            ----------------    ------------------    --------------     ----------------
                                                                                                        
Revenues:
     Software license fees               $       1,184,000   $           353,000   $     5,686,000   $        1,687,000
     Services and maintenance                    2,820,000             2,491,000         8,619,000            8,283,000
                                         --------------------------------------------------------------------------------

          Total revenues                         4,004,000             2,844,000        14,305,000            9,970,000
                                         --------------------------------------------------------------------------------

Costs and expenses:
     Cost of software license fees                 328,000               170,000         1,073,000              580,000
     Cost of services and maintenance            1,590,000             1,691,000         4,728,000            5,165,000
     Product development                           290,000               622,000         1,012,000            1,715,000
     Sales and marketing                         1,192,000             1,388,000         4,114,000            4,486,000
     General and administrative                    467,000               564,000         1,467,000            1,613,000
                                         --------------------------------------------------------------------------------

          Total costs and expenses               3,867,000             4,435,000        12,394,000           13,559,000
                                         --------------------------------------------------------------------------------

Income (loss) from operations                      137,000            (1,591,000)        1,911,000           (3,589,000)

Interest  income, net                               18,000                11,000            36,000               40,000
                                         --------------------------------------------------------------------------------
Income (loss) before income taxes                  155,000           (1,580,000)         1,947,000           (3,549,000)

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

Net income (loss)                        $         155,000   $       (1,580,000)   $     1,947,000   $        (3,549,000)
                                         ================================================================================

Basic net income (loss) per share        $            0.05   $            (0.54)   $          0.66   $            (1.21)
                                         ================================================================================

Diluted net income (loss) per share                   0.05                 (0.54)             0.66                (1.21)
Shares outstanding used in
     computing basic income
     (loss) per share                            2,954,000             2,922,000         2,940,000            2,922,000
                                         --------------------------------------------------------------------------------
Shares outstanding used in
     computing diluted income (loss)
     per share                                   2,992,000             2,922,000         2,964,000            2,922,000
                                         ================================================================================




                             See accompanying notes to the consolidated financial statements.





                                                            4




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


                                                                                     For the Nine Months
                                                                                     Ended September 30,
                                                                                    2004              2003
                                                                              -----------------------------------
                                                                                                      
Cash flows from operating activities:
   Net income (loss)                                                            $  1,947,000      $ (3,549,000)
   Adjustments to reconcile net income (loss) to net cash provided by (used in)
        operating activities:
        Depreciation and amortization                                                961,000           693,000
        Provision for doubtful accounts                                                    -           215,078
        Changes in operating assets and liabilities:
            Receivables                                                           (1,312,000)        4,084,922
            Prepaid expenses and other                                               105,000          (172,000)
            Other assets                                                             (10,000)           (1,000)
            Accounts payable and accrued expenses                                   (438,000)         (832,000)
            Deferred revenues                                                         78,000        (1,002,000)
                                                                              ----------------- -----------------

 Net cash provided by operating activities                                         1,331,000          (563,000)
                                                                              ----------------- -----------------

Cash flows from investing activities:
   Purchases of property and equipment                                              (123,000)         (198,000)
   Capitalized software development costs                                           (969,000)         (360,000)
                                                                              ----------------- -----------------

Net cash used in investing activities                                             (1,092,000)         (558,000)
                                                                              ----------------- -----------------

Cash flows from financing activities:
   Proceeds from exercise of stock options and employee stock purchase plan          113,000             4,000
                                                                              ----------------- -----------------

   Effect of exchange rate changes on cash                                            39,000          (101,000)
                                                                              ----------------- -----------------

   Net increase in cash and cash equivalents                                         391,000        (1,218,000)
   Cash, beginning of period 
                                                                                   3,480,000         4,967,000
                                                                              ----------------- -----------------

   Cash and cash equivalents balance, end of period                             $  3,871,000      $  3,749,000
                                                                              ================= =================


                        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 September 30, 2004 and for the three
and nine month periods ended September 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 nine months
ended September 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 September 30, 2004 is summarized as follows:




                                                                                         

                                                           Cumulative
                                           Additional      Currency
                               Common       Paid-In        Translation     Accumulated     Treasury    Comprehensive
                                Stock       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                         -               -        (12,000)               -            -        (12,000)

Net income for the period             -               -              -        1,947,000            -      1,947,000  
                               ---------- --------------- --------------- --------------- ------------ ----------------

Balance  at  September   30,    
2004                            $30,000    $ 22,977,000     $ (788,000)    $(16,154,000)   $(210,000)   $ 1,935,000
                               ========== =============== =============== =============== ============ ================




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 three  years  currently  used should be reduced to two 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 $129,000,  or $0.04 per diluted share for the three
months ended  September,  2004 and  $295,000 or $0.10 per diluted  share for the
nine months ended September 30, 2004.

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

The Company has utilized a portion of its net operating  loss carry forwards for
the three  months and nine  months  ended  September  30, 2004 to reduce any tax
provisions on its pre-tax income. At September 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                      Nine months ended
                                                 September 30,                          September 30,
                                        ---------------------------------      ----------------------------------    
                                             2004              2003                 2004               2003
                                        --------------- -- -------------- ---- -------------- -- ----------------
                                          (unaudited)        (unaudited)          (unaudited)        (unaudited)

Net income (loss) - as reported          $        155,000   $   (1,580,000)    $      1,947,000     $   (3,549,000)  

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                       (76,000)             (109,000)           (180,000)           (318,000)

Net income (loss) - pro forma            $    79,000        $   (1,689,000)    $     1,767,000      $   (3,867,000)  
                                                                                                     
Basic income per share -                                                                             
   as reported                           $      0.05        $        (0.54)    $        0.66        $        (1.21)  
                                                                                                     
Diluted income (loss) per share as                                                                   
   reported                              $      0.05        $        (0.54)    $        0.66        $        (1.21)  
                                                                                                     
Basic income (loss) per share -                                                                      
   pro forma                             $      0.03        $        (0.58)    $        0.60        $        (1.32)  
                                                                                                     
Diluted income (loss) per share pro                                                                  
   forma                                 $      0.03        $        (0.58)    $        0.60        $        (1.32)  



                                                                                
                                                                                
The weighted  average fair value of those  options  granted  during the quarters
ended  September 30, 2004 was estimated at $7.61.  There were no options granted
during  the third  quarter of 2003.  The  weighted  average  fair value of those
options  granted  during the nine months ended  September  30, 2004 and 2003 was
estimated  at $5.06 and $3.15.  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 4.11% and
3.61% for 2004 and 2003  grants,  respectively;  an expected  life of six years;
volatility  of 131% and  134%;  and a  dividend  yield of zero for 2004 and 2003
grants, respectively.



                                       7




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

In the third quarter of 2004,  there was one major  customer that  accounted for
11% of total  revenues.  In the  third  quarter  of  2003,  the  Company  had no
customers that accounted for 10% of its total revenue. For the first nine months
of 2004 there was one major  customer that  accounted for 18% of total  revenues
and for the first nine 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.

Astea is a global  provider of service  management  software that  addresses the
unique needs of companies who manage capital equipment,  mission critical assets
and human capital.  Clients  included  Fortune 500 to mid-size  companies  which
Astea services through company facilities in the United States,  United Kingdom,
Australia,  The  Netherlands  and Israel.  Astea Alliance  supports the complete
service  lifecycle,  from lead  generation and project  quotation to service and
billing through asset retirement.  It integrates and optimizes critical business
processes  for  Contact  Center,   Field  Service,   Depot  Repair,   Logistics,
Professional Services,  and Sales and Marketing.  Astea extends its applications
with portal,  analytics and mobile  solutions.  Astea Alliance  provides service
organizations   with   technology-enabled   business   solutions   that  improve
profitability,   stabilize  cash-flows  and  reduce  operational  costs  through
automating and integrating key service, sales and marketing processes. Since its
inception in 1979, Astea has licensed  applications to companies in a wide range
of sectors including information technology, telecommunications, instruments and
controls, business systems, and medical devices.

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 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 


                                       8



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,"
under which the Company is required to  capitalize  software  development  costs
between the time  technological  feasibility is  established  and the product is
ready for general  release.  Costs that do not qualify  for  capitalization  are
charged to research and  development  expense when  incurred.  Accordingly,  all
costs incurred subsequent to attaining technological feasibility are capitalized
and  amortized  over a period not to exceed three years.  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 September 30, 2004 and 2003
------------------------------------------------------------

Revenues 
--------

Revenues increased $1,160,000,  or 41%, to $4,004,000 for the three months ended
September  30, 2004 from  $2,844,000  for the three months ended  September  30,
2003. Software license fee revenues increased  $831,000,  or 235%, from the same
period last year.  Services  and  maintenance  fees for the three  months  ended
September 30, 2004 amounted to $2,820,000,  a 13% increase from the same quarter
in 2003.

The Company's international operations contributed $1,542,000 of revenues in the
third quarter of 2004 which was a 54% increase over  revenues  generated  during
the third quarter of 2003. The Company's revenues from international  operations
amounted to 39% of the total  revenue for the third  quarter in 2004 compared to
35% of total


                                       9



revenues  for the same  quarter in 2003.  The increase in revenues is due to the
increase in sales from the Company's operations in Europe.

Software license fee revenues  increased 235% to $1,184,000 in the third quarter
of 2004 from  $353,000  in the third  quarter of 2003.  Astea  Alliance  license
revenues  increased  $628,000 or 178%,  to $981,000 in the third quarter of 2004
from  $353,000  in the  third  quarter  of  2003.  The  increase,  in  part,  is
attributable  to one major  customer that  accounted for 11% of total revenue in
the third  quarter  of 2004.  The  Company  also  sold  $200,000  of  additional
DISPATCH-1  licenses to an  existing  customer.  There were no license  sales of
DISPATCH-1  in the third  quarter of 2003.  Additionally,  sales  improved  as a
result of greater acceptance of our vision and an improving economy.

Services and maintenance  revenues  increased to $2,820,000 in the third quarter
of 2004 from $2,491,000 in the third quarter of 2003. The Astea Alliance service
and  maintenance  revenues  increased  by $514,000 or 27%  compared to the third
quarter of 2003.  This increase was offset by a $183,000  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 93% to $328,000 in the third quarter of
2004  from  $170,000  in the  third  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 $291,000 as compared to $150,000 in the
third 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 72% in the third  quarter of 2004  compared  to 52% in the third
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 $1,590,000 in the third quarter
of 2004 from  $1,691,000 in the third  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
44% in the third  quarter of 2004  compared to 32% in the third 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 53% to $290,000 in the third quarter of
2004 from  $622,000  in the third  quarter of 2003.  Gross  development  expense
before  capitalization  of software  costs was $699,000 in the third  quarter of
2004 compared to $742,000  during the same period in 2003. The Company  includes
the  capitalization  of  software  costs  in  product  development.  Capitalized
software  totaled  $409,000  in the third  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,  as well as  development
costs  associated  with a new  version  anticipated  to be released at year end.
Product  development  expense as a percentage of revenues decreased to 7% in the
third quarter of 2004 compared with 22% in the third quarter of 2003.

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

Sales and marketing  expense decreased 14% to $1,192,000 in the third quarter of
2004 from  $1,388,000  in the third  quarter of 2003.  The decrease in sales and
marketing is  attributable  to a reduction in sales staffing  costs,  as well as
lower expenses related to the timing of marketing  initiatives.  As a percentage
of revenues,  sales and marketing  expenses decreased to 30% in 2004 from 49% in
the third quarter of 2003.

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

General and  administrative  expenses decreased 17% to $467,000 during the third
quarter of 2004 from  $564,000 in the third  quarter of 2003. As a percentage of
revenue,  general  and  administrative  expenses  decreased  to 12% in the



                                       10



third  quarter of 2004 from 20% in the third  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  increased  $7,000 to $18,000 in the third  quarter of 2004
from $11,000 in the third  quarter of 2003.  The increase of interest  income is
generally  attributable to more cash on hand than in 2003, as well as an overall
rise in interest rates paid on invested cash.

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

Total revenue from the Company's  international  operations increased during the
third quarter of 2004 to  $1,542,000  compared to $998,000 for the third quarter
of 2003.  The increase in revenue from  international  operations  was primarily
attributable to the increase in revenues from European operations. International
operations generated net income of $67,000 for the third quarter ended September
30, 2004 compared to a net loss of $287,000 in the same quarter in 2003.

Comparison of Nine Months Ended September 30, 2004 and 2003
-----------------------------------------------------------

Revenues 
--------

Revenues increased $4,335,000,  or 43%, to $14,305,000 for the nine months ended
September 30, 2004 from $9,970,000 for the nine months ended September 30, 2003.
Software  license fee  revenues  increased  $3,999,000,  or 237%,  from the same
period  last year.  Services  and  maintenance  fees for the nine  months  ended
September 30, 2004 amounted to  $8,619,000,  a 4% increase from the same quarter
in 2003.

The Company's international operations contributed $4,780,000 of revenues in the
first nine  months of 2004  compared to  $3,599,000  in the first nine months of
2003.  This  represents a 33% increase from the same period last year and 33% of
total revenues in the first nine 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  $5,686,000 in the first nine
months of 2004 from $1,687,000 in the first nine months of 2003. The increase is
primarily  attributable to a number of larger sales that closed during the first
nine months of the year. Astea Alliance license revenues increased $3,414,000 or
202% in the first nine months of 2004 from  $1,687,000  in the first nine months
of 2003. There were no license sales of the DISPATCH-1  product during the first
nine  months of 2003 as  compared  to  $585,000  during the same period in 2004.
Additionally, sales improved as a result of greater acceptance of our vision and
an improving economy.


Services and maintenance  revenues  increased 4% to $8,619,000 in the first nine
months of 2004 from  $8,283,000  in the first nine months of 2003.  The increase
primarily relates to service and maintenance  revenues from Astea Alliance which
increased  $775,000,  or 12%, to  $7,065,000  from  $6,290,000 in the first nine
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 $439,000 in  DISPATCH-1  service  and  maintenance  revenues,  which
resulted from an expected decrease in demand.

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

Cost of software  license fees  increased  85% to  $1,073,000  in the first nine
months of 2004 from  $580,000 in the first nine months of 2003.  Included in the
cost  of  software  license  fees is the  fixed  cost  of  capitalized  software
amortization. Capitalized software amortization was $752,000 and $450,000 in the
first nine months of 2004 and 2003,  respectively.  The cost of software license
fees also  increased due to the greater  level of software  license sales in the
first nine months of 2004. The software licenses gross margin percentage was 81%
in the first nine  months of 2004  compared  to 66% in the first nine  months of
2003. This increase in gross margin was attributable to the mix of


                                       11



products  sold in  2004,  as  well  as the  relationship  of the  fixed  cost of
amortized capital software to a lower level of sales in 2003.

Cost of services and  maintenance  decreased 8% to  $4,728,000 in the first nine
months of 2004 from $5,165,000 in the first nine 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 45% in the first nine months of 2004 compared to 38% in the first
nine 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 41% to $1,012,000 in the first nine months
of 2004 from  $1,715,000  in the first nine  months of 2003.  Gross  development
expense  before  capitalization  of software  costs was $1,979,000 for the first
nine months of 2004  compared  to  $2,075,000  for the same period in 2003.  The
Company includes the  capitalization  of software costs in product  development.
Capitalized  software totaled $968,000 in the first nine months of 2004 compared
to  $450,000   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, as well
as development cost associated with a new version  anticipated to be released at
year end.  Product  development  as a percentage of revenues was 7% in the first
nine months of 2004 compared with 17% in the first nine months of 2003.

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

Sales and marketing  expense decreased 8% to $4,114,000 in the first nine months
of 2004 from  $4,486,000 in the first nine months of 2003. The decrease in sales
and  marketing is  attributable  to lower  staffing  costs.  As a percentage  of
revenues,  sales and marketing  expenses  decreased to 29% from 45% in the first
nine months of 2003, which is the direct result of increased  revenues and lower
costs.

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

General and administrative expenses decreased 9% to $1,467,000 in the first nine
months of 2004 from $1,613,000 in the first nine 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 16% in the first nine months of 2003. The decrease is  attributable  to
the significant increase in revenues.

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

Net interest  income  decreased  $4,000 from $40,000 in the first nine months of
2003 to  $36,000  in the  first  nine  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
$1,181,000,  or 33%,  to  $4,780,000  in the  first  nine  months  of 2004  from
$3,599,000  in the first nine  months in 2003.  The  increase  in  revenue  from
international  operations was primarily attributable to the increase in revenues
from Japan and Europe operations.  International operations generated net income
of $211,000 for the first nine months  ended  September  30, 2004  compared to a
loss of $828,000 in the same period in 2003.

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

Net cash provided by operating  activities  was  $1,331,000  for the nine months
ended  September 30, 2004  compared to net cash used in operating  activities of
$563,000 for the nine months  ended  September  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 $1,092,000 for investing  activities in
the first  nine  months of 2004  compared  to using  $558,000  in the first nine
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 $113,000 of cash from financing activities during the nine
months ended  September  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 September 30, 2004, the Company had a working  capital ratio of 1.67:1,  with
cash, cash  equivalents and restricted cash of $4,171,000.  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 September 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 


                                       13




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 September 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  September
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 September 30,
2004.

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


There have been no defaults by the Company on any Senior  Securities  during the
quarter ended September 30, 2004.

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


At the Annual Meeting of Stockholders  held on August 19, 2004,  pursuant to the
Notice of Annual  Meeting of  Stockholders  dated July 9,  2004,  the  following
actions were adopted:

1.   The  election of a board of  directors to hold office until the next annual
     stockholders'  meeting  or until  their  respective  successors  have  been
     elected or appointed.

                                                  Number of Shares      
                                           -----------------------------
                                            Voted For         Withheld
                                           -------------    ------------
          Zack B. Bergreen                  2,675,401          12,768
          Adrian A. Peters                  2,651,825          36,344
          Thomas J. Reilly, Jr.             2,651,545          36,624
          Eric S. Siegel                    2,651,245          36,924

2.   The  ratification  of the  appointment  of BDO Seidman,  LLP as independent
     auditors for the Company for the fiscal year ending December 31, 2004.

                                 Number of Shares
  ------------------------------------------------------------------------------
     Voted For                    Voted Against                   Abstained
  ------------------             -----------------             -----------------



                                       14


  ------------------             
     2,674,077                        1,307                        12,785

No other matters were submitted to a vote of the Company's  stockholders  during
the third  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 - 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 August 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 six months ended June 30, 2004.


                                       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 15th day of
November 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