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

                                    FORM 10-K
(Mark One)

 [X]      Annual  Report  Pursuant  to  Section  13 or 15(d)  of The  Securities
          Exchange Act of 1934. For The Fiscal Year Ended: December 31, 2002

                                       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, Pennsylvania                      19044
 --------------------------------------------               ------------
      (Address of principal executive offices)                 (Zip Code)

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

Securities registered pursuant to Section 12(b)
of the Act:                                         None
                                                    ----

Securities registered pursuant to Section 12(g)
of the Act:                                         Common Stock, $.01 par value
                                                    ----------------------------

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 if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ _ ]

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

The  aggregate  market  value of the voting stock held by  nonaffiliates  of the
registrant as of June 28, 2002 (based on the closing price of $0.93 as quoted by
Nasdaq National Market as of such date) was approximately $7,263,793

As of March 19, 2003,  14,606,530  shares of the registrant's  Common Stock were
outstanding.


                       DOCUMENTS INCORPORATED BY REFERENCE


                                      None.

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<TABLE>
<CAPTION>



                                TABLE OF CONTENTS

                                                                                         Page
                                                                                         ----
                  PART I


<S>             <C>                                                                     <C>
Item 1.           Business                                                               3
Item 2.           Properties                                                            13
Item 3.           Legal Proceedings                                                     13
Item 4.           Submission of Matters to a Vote of Security Holders                   13


                  PART II


Item 5.           Market for Registrant's Common Equity and Related                     14
                  Stockholder Matters
Item 6.           Selected Financial Data                                               15
Item 7.           Management's Discussion and Analysis of Financial                     16

                  Condition and Results of Operations
Item 7A.          Quantitative and Qualitative Disclosures about Market Risk            34
Item 8.           Financial Statements and Supplementary Data                           35
Item 9.           Changes in and Disagreements with Accountants on                      57
                  Accounting and Financial Disclosure

                  PART III

Item 10.          Directors and Officers of the Registrant                              57
Item 11.          Executive Compensation                                                60
Item 12.          Security Ownership of Certain Beneficial Owners and                   63
                  Management
Item 13.          Certain Relationships and Related Transactions                        64

                  PART IV

Item 14.          Controls and Procedures                                               64

Item 15.          Exhibits, Financial Statement Schedules, and Reports                  64
                  on Form 8-K

                  Signature Page                                                        68

                  Certifications                                                        69, 70
</TABLE>





                                       2
<PAGE>



PART I

Item 1.      Business.

General


         Astea International Inc. and subsidiaries  (collectively "Astea" or the
"Company")  develops,  markets and  supports  Customer  Relationship  Management
("CRM") software solutions which are licensed to companies that sell and service
equipment,  or sell and  deliver  professional  services.  Companies  invest  in
Astea's  software and services to automate  enterprise  business  processes  for
purposes of cost containment,  operational efficiency and management visibility.
Customers'  return on  investment  from  Astea  solutions  is  achieved  through
improved  management of information,  people and cash flows,  thereby increasing
competitive advantages, top-line revenue and profitability.

         Astea solutions are used in industries such as information  technology,
medical devices and diagnostic systems, industrial controls and instrumentation,
retail systems,  office  automation,  imaging  systems,  facilities  management,
telecommunications  and  other  industries  with  equipment  sales  and  service
requirements.  Astea's focus on enterprise solutions for organizations that sell
and deliver services is a unique CRM industry differentiator that draws upon the
Company's industry experience and core expertise.

         Founded in 1979,  Astea is known  throughout the CRM industry,  largely
from its history as a dominant provider of software  solutions for field service
management and depot repair.  Astea has since expanded its product  portfolio to
also  include  integrated  management  applications  for  sales  and  marketing,
multi-channel customer contact centers, and professional services automation.

         In 2002,  Astea began  commercial  release of its latest Astea Alliance
CRM suite  version 6 products  ("Astea  Alliance  6") that  adapt the  Company's
domain  expertise  and  integrated   business   process   functionality  to  the
Microsoft.NET Web Services  framework.  Astea solutions include a variety of Web
portal and wireless  remote-access  capabilities to integrate mobile  employees,
contractors,  business partners and customers into an enterprise's consolidated,
real-time management of workforce, assets and business relationships.

         Astea's  software  has been  licensed to  approximately  575  companies
worldwide.  Customers range from mid-size organizations to large,  multinational
corporations  with  geographically  dispersed  locations  around the globe.  The
Company markets and supports its products through a worldwide  network of direct
and indirect  sales and  services  offices with  corporate  headquarters  in the
United States and regional  headquarters  in the United  Kingdom and  Australia.
Sales partners include distributors  (value-added resellers,  system integrators
and sales agents) and OEM partners.

         In addition to its own product development that is conducted at Company
facilities in the United States and Israel,  Astea  participates in partnerships
with complementary  technology companies in order to reduce  time-to-market with
new product  capabilities  and  continually  increase its value  proposition  to
customers.  The Company's  product  strategies are developed from the collective
feedback from customers,  industry  consultants,  technology  partners and sales
partners, in addition to its internal product management and development.  Astea
also works with its active user community who closely  advises and  participates
in ongoing product development efforts.

         Astea  provides  customers  with an array of  professional  consulting,
training and customer  support  services to implement its products and integrate
them  with  other  corporate  systems  such  as  back-office  financial  and ERP
applications.  Astea also maintains and supports its software over its installed
life cycle.  The Company's  experience and domain expertise in service and sales
management,  distribution,  logistics,


                                       3
<PAGE>

finance,  mobile  technologies,  Internet  applications  and enterprise  systems
integration  are made available to customers  during their  assessments of where
and how their business processes can be improved.

         The  Company's  sales and  marketing  efforts  are  almost  exclusively
focused on new software licensing and support services for its latest generation
of Astea Alliance products. Marketing and sales of licenses and services related
to the Company's  legacy system  DISPATCH-1(R)  products are limited to existing
DISPATCH-1 customers.

         The Company continues to support  approximately 45 DISPATCH-1 customers
on maintenance contracts.  Further, the Company offers a migration path to Astea
Alliance with the Company's integrated  DISPATCH-1 to Alliance Conversion (iDAC)
program.  The iDAC  program  enables  long-time  Astea users to  leverage  their
previous  investments in DISPATCH-1  and  economically  deploy the latest,  more
comprehensive and far superior Alliance functionality.


Current Product Offerings

Astea Alliance

         Astea  Alliance   applications   are  designed  to  increase   business
efficiencies by collapsing  multiple,  interdependent  business processes into a
consolidated  shared enterprise system.  Astea Alliance  automates  front-office
sales and service  processes,  integrates  with  back-office  financial  and ERP
applications,  and enables real-time information sharing among local, remote and
mobile  employees,   customers  and  business  partners.  Companies'  return  on
investment from Astea Alliance is obtained from higher operational efficiencies,
such as more-efficient utilization of employees and material resources, improved
sales execution and revenue  generation,  improved  service delivery and revenue
recovery, and stronger relationships with customers and partners.

         Astea  Alliance is an  international  product  with  multi-lingual  and
multi-currency  capabilities.  The latest version software, Astea Alliance 6, is
engineered  with  a new  system  architecture  for  Web-based  deployment  using
existing and emerging  Microsoft.NET  technologies.  Prior to Astea  Alliance 6,
products were  engineered for Windows  client/server  technology and marketed as
AllianceEnterprise.   AllianceEnterprise  products  included  re-engineered  and
enhanced  versions  of  service  modules  that  were  initially   introduced  as
ServiceAlliance(R)  in 1997,  and a  re-engineered  and enhanced  version of the
Company's  sales force  automation  product  that was  initially  introduced  as
SalesAlliance in 1999. Astea Alliance 6 delivers all enhanced AllianceEnterprise
functionality  on  a  Web-based   platform  and  new  module   applications  for
multi-channel  contact  centers,  marketing  campaign  management,  Professional
Services Automation (PSA),  enterprise systems integration and remote access via
untethered  and  real-time  wireless  connectivity  using a  variety  of  mobile
devices.

         ServiceAlliance  and  SalesAlliance,  the  earliest  versions  of Astea
Alliance  solutions,   were  the  Company's  initial  new  technology  offerings
following a long and highly successful history with its DISPATCH-1 legacy system
solutions.  All references to Astea Alliance herein refer to the Alliance family
of products  available  since 1997.  As of December  31,  2002,  Astea  Alliance
solutions have been licensed to over 200 customers worldwide.  Market acceptance
of Astea  Alliance by global and  regional  companies  increased in 2002 and the
Company is aggressively pursuing opportunities for larger system implementations
with mid-size to large  enterprises on a worldwide  basis.  See "Certain Factors
that May Affect Future Results--  Uncertain Market Acceptance of Astea Alliance;
Decreased revenues from DISPATCH-1."



                                       4
<PAGE>

         Astea Alliance 6 consists of nine applications suites:

               o    Astea Contact Center 6
               o    Astea Depot Repair 6
               o    Astea Field Service 6
               o    Astea Marketing 6
               o    Astea Mobile 6
               o    Astea Portals 6
               o    Astea Professional Services 6
               o    Astea Sales 6
               o    Astea Analytics 6 (available 2003)

         Each suite includes two or more application  modules.  For example, the
Astea Field Service 6 suite includes Alliance Field Service,  Alliance Contracts
and Alliance  Logistics  modules.  All suites and modules are fully integrative,
enabling Astea Alliance configurations to meet exact customer needs.

         The Astea software  facilitates one-time data entry and data sharing to
maximize  operational  efficiencies.  Anyone within a user  organization who has
contact with a customer has the ability to update the status of customer records
in  real-time,  which  ensures  "one  view of a  customer"  and  eliminates  any
disparity or confusion in business data among marketing, sales, customer service
and field service  personnel.  This  includes  information  entered  remotely by
mobile employees and by customers over the Internet. Astea Alliance synchronizes
all customer-facing activities to operate as a cohesive unit.

         In addition to selected application suites and modules,  Astea Alliance
configurations are delivered with system  infrastructure  consisting of Alliance
Global Database, Alliance Studio and Alliance Links.

         Alliance Global Database is the system's enterprise database capable of
data translation for multi-national  organizations to collaborate across country
lines,  including support for double-byte  character data sets such as for Asian
languages.  Each user can interact with the system in their  preferred  language
and currency.  Alliance Global Database also provides  translation  between time
zones,  taxation  methods,  and other  unit-of-measure  implications of a global
enterprise.

         Alliance  Studio is a toolset for easily  adapting  system behavior and
user  interfaces to specific  business  environments  without  expensive  custom
programming.  A customer can control how Astea Alliance  automates  workflows as
well as the  system's  intuitiveness  and "look and  feel" to  employees,  which
thereby maximizes the system's usability,  effectiveness and benefits.  Alliance
Studio reduces system  implementation  time and cost, and  subsequently  enables
customers to update system  performance as their  business needs  change--all of
which contributes to the system's low cost of ownership.

         Alliance  Links  are a family  of  enterprise  application  integration
products that interface  Astea  Alliance to other  enterprise  systems,  such as
back-office  financial and ERP  applications,  remote  equipment  monitoring and
diagnostic  software,  and wireless data transmission  services.  Alliance Links
extend  Astea  Alliance's  return on  investment  for  customers  by making  all
Alliance  modules  accessible to external  software  through open, well defined,
synchronous and asynchronous  application programming interfaces (APIs) that are
XML based.


Astea Contact Center 6

         Astea Contact Center 6 applications  support call centers,  information
desks, service hotlines, inside sales and telemarketing activities.  Integrated,
multi-channel,    inbound/outbound    capabilities   enable   customer   service
representatives  to serve  prospects  and  customers  in their  media of choice,
including  phone,  fax,  e-mail or Internet.  Integrated  customer  self-service
portals with automated email response,  automated call escalation,


                                       5
<PAGE>

and interface to Computer  Telephony  Integration  (CTI) systems help streamline
customer  interaction  processes.  Work scheduling and demand balancing optimize
staff  utilization.  Employee  personal  portals  with  access to  comprehensive
real-time  customer  data  and  decision  support  tools  including  intelligent
knowledge management and scripting for problem resolution and inside sales drive
higher staff productivity. Aside from more efficient customer service and higher
levels of customer satisfaction, the objectives of Astea Contact Center software
are to reduce overhead through improved first-call  resolution rates and shorter
service-call handling times.


Astea Depot Repair 6

         Astea Depot Repair 6 applications  automate  tracking of assets through
equipment  calibration  and  repair  chains,  including  merchandise  ownership,
location, repair status and warranty coverage.  Objectives are to gain real-time
visibility of all repair chain  activities,  ensure compliance with warranty and
contractual  agreements,  respond to customer  inquiries  with  up-to-the-minute
repair  status,  collect  and  analyze  repair  statistics  for  product  design
improvement,  and reduce overhead such as inventory carrying costs. Applications
support in-house,  subcontractor and vendor calibration and repair; customer and
vendor exchanges and advance exchanges;  equipment on loan; change of ownership;
merchandise shipments, cross shipments and pickups;  consolidated repair orders;
and, storage and refurbishment  programs.  Integration with other Astea Alliance
modules  allows  repair orders and repair  status  queries to be initiated  from
customer contact centers,  field service,  field sales and warehouses as well as
the repair depot.


Astea Field Service 6

         Astea Field  Service 6 delivers a robust set of automated  capabilities
to  improve  management  of  field  service  activities  and for  field  service
representatives to more efficiently  complete and document  assignments,  manage
vehicle  assets,  capture  expenses and generate  revenue  through  add-on sales
during a customer contact. Applications alert dispatchers to contractual minimum
response  times  and  expedite  coordination  of field  force  skills  matching,
scheduling,  dispatch  and repair  parts  logistics.  Mobile  tools enable field
forces  to  work   electronically  for  receiving,   documenting  and  reporting
assignments,  eliminating manual procedures, service delays and paper reporting.
The  software  supports  all  field  service  categories   including   equipment
installations,  break/fix,  planned maintenance and meter reading.  Applications
can also be integrated  with equipment  diagnostic  systems for fully  automated
solutions that initiate and prioritize service requests and dispatch assignments
to field employees' PDAs without human intervention.


Astea Marketing 6

         Astea Marketing 6 coordinates  the planning,  execution and analysis of
marketing  campaigns.  The software  supports  budgeting  and tracking  complete
multi-channel   campaigns  that  integrate   advertising,   direct  mail,  email
marketing,   telemarketing,   etc.  Electronic   campaigns  such  as  email  and
telemarketing are further supported with list management, script development and
user interfaces for campaign  execution.  Marketing managers can define campaign
offerings  such as  products  and  services  to be sold,  pricing  and  discount
tolerances;  assign campaign attributes;  attach campaign  documentation such as
descriptive text, images,  slogans and lead conversion  literature;  and monitor
response. The big picture view enables managers to assess synergies each channel
delivers to an overall  campaign  and adjust  channel  details  such as prospect
lists,  scripts,   budgets  or  offering  incentives  to  elicit  best  results.
Integration  with other Astea  Alliance  modules  enables  equipment and service
organizations  to leverage  abundant  customer  information  for identifying new
potential  revenue sources and marketing to maximize  customer  loyalty and base
sales opportunities.


                                       6
<PAGE>

Astea Mobile 6

         Astea Mobile 6 enables  customers to match Astea Alliance mobile access
to  field  sales  and  service  needs.  Untethered  wireless  applications  with
synchronized  client  databases  are provided for laptops and Pocket PC handheld
devices.  Direct-connect,  real-time  wireless  text  messaging  is provided for
two-way  pagers and capable mobile phones.  The mobile  connectivity  integrates
field sales and service  activity  with  automated  front-office  processes  and
eliminates the time,  costs,  procedural  delays and errors of paper  reporting.
Benefits  include reduced field  administration  costs;  electronic data sharing
among  field  and  inhouse  personnel;  improved  speed,  accuracy  content  and
compliance  of field  reporting;  faster  sales order  processing  and  customer
service invoicing; and other operational efficiencies.


Astea Portals 6

         Astea  Portals  6  supports  unattended  e-business   transactions  for
customer  self-service  and self-sales  ("Alliance  Customer  Portal") and Astea
Alliance  remote system access for service  agents and small  satellite  offices
("Alliance  Employee  Portal").  Alliance Customer Portal empowers customers and
lessens  dependence on sales and service staff to conduct  transactions that can
be  performed  over the  Internet.  It  reduces  routine  voice and fax calls to
customer  contact  centers,  freeing lines for customers whose critical needs do
require  assistance  from a service  representative.  It also  provides  another
channel to promote and sell more  products and services to an existing  customer
base.  The  customer  portal can delay or  eliminate  needs for  contact  center
expansion and associated  increases in facility,  equipment and staffing  costs.
Alliance  Employee Portal enables  real-time online access to the Astea Alliance
system for employees in remote locations.  The Company plans to include Alliance
Partner  Portals for indirect sales channel  management  and  unattended  supply
chain transactions.


Astea Professional Services 6

         Astea Professional Services 6 supports management of knowledge workers,
such as deployed by professional  services  organizations  and internal  service
departments of large  organizations.  Suite  functionality  focuses on planning,
deploying  and  billing  service  engagements  that can extend for days,  weeks,
months  and  years.  Applications  improve  resource  planning  and  allocation,
workflow  management,  consultant time and expense reporting,  subcontractor and
vendor  invoice  processing,   customer  billing,   and  visibility  of  service
engagements.   Integration   with  other  Astea  Alliance  modules  delivers  an
end-to-end  solution to market,  sell,  manage and bill  professional  services.
Capabilities to share sales,  service,  project,  and post-project field service
data across the enterprise enable professional services organizations to operate
with  less  overhead,  improved  cash  flow,  higher  profitability,   and  more
competitive bidding.


Astea Sales 6

         Astea Sales 6 consolidates and streamlines  enterprise sales processes,
from quote  generation  through  order  processing,  at all  points of  customer
contact  including  field sales,  inside sales,  contact  center sales and field
service sales. Lead-to-close sales process capabilities include integration with
Astea  Alliance  marketing,  customer  support and field  service  applications,
leveraging  all  enterprise  knowledge  pools to increase  sales  opportunities,
margins  and close  rates.  Consolidated  views of sales and  service  data also
provide a clearer  understanding  of enterprise  operations  to drive  strategic
business decisions.  Sales force automation application automates business rules
and practices such as  enterprise-defined  sales  methodologies,  sales pipeline
management,   territory   management,   contact  and   opportunity   management,
forecasting,   collaborative  team  selling  and  literature  fulfilment.  Other
applications prompt customer support and service staff to up sell and cross sell
during contact with customers.

                                       7
<PAGE>

Astea Analytics 6

         Astea  Analytics  6,  planned for  introduction  in 2003,  will provide
pre-configured  business  intelligence  applications  for  equipment and service
companies.  Applications  will enable Astea  Alliance  users to perform  various
multi-dimensional  analyses and trend reporting of key  performance  indicators.
Dashboards will  graphically  highlight key metrics to aid Astea Alliance users'
decision  making  for  improving  operational  efficiencies,  customer  loyalty,
revenue and profit.

DISPATCH-1

         The Company's original flagship product,  DISPATCH-1, was introduced in
1986 and  adopted by many  Fortune  1000  companies.  Astea  currently  supports
approximately  45  DISPATCH-1   customers  on  active   maintenance.   In  2002,
approximately  24% of the  Company's  total  revenues were derived from license,
maintenance and professional service fees related to DISPATCH-1, compared to 35%
in 2001. See "Certain Factors that May Affect Future Results--  Uncertain Market
Acceptance of Astea Alliance; Decreased revenues from DISPATCH-1."

         While  Astea  Alliance  is the  successor  to  DISPATCH-1  and offers a
broader  CRM  solution,  DISPATCH-1  remains  deployed  in a  variety  of  large
enterprise  environments  and  supports  thousands  of  users  in  multinational
locations.  Support of these installations  remains a component of the Company's
plans and  DISPATCH-1  is  expected  to be a  significant  continuing  source of
licensing,  service and maintenance revenues to Astea for the foreseeable future
in the form of  additional  users on  current  licenses,  addition  of  optional
modules, and ongoing maintenance fees.

         DISPATCH-1, at one point one of the most widely installed field service
solutions in the world,  helps  organizations  with  complex and  geographically
dispersed field service  operations  automate and manage call center  operations
among  customers,  headquarters,  branch  offices and the field.  Version 8.0 of
DISPATCH-1  supports  both  Internet and graphical  desktop  interfaces,  and is
interfaced to a number of complementary  third-party products designed to extend
its  functionality.  DISPATCH-1  has been  deployed  in a wide  variety of large
enterprise  environments.  In select engagements,  the Company has significantly
customized and enhanced  DISPATCH-1 to  specifically  address the needs of a few
very large product  deployments,  generating an ongoing but decreasing  level of
professional  services and consulting  revenues,  as well as product maintenance
revenues.


integrated DISPATCH-1 to Alliance Conversion (iDAC)

         Astea offers a cost-effective  migration  program (iDAC) for DISPATCH-1
customers  to convert to Astea  Alliance  and  thereby  leverage  their  earlier
investments  with the Company into the far superior and expanded  Astea Alliance
applications.  The iDAC program includes professional services, training and gap
analyses  on  Astea  Alliance's   expanded   capabilities,   project   planning,
software-to-business   process   optimization,   standardized   file  conversion
routines, and Astea Alliance life cycle support.

Professional Services and Customer Support Services

         Astea offers a range of specialized  professional  and customer support
services to assist its clients in using its products effectively. These services
include   business  process   consulting,   implementation   planning,   project
management, customization, education and training, technical support and ongoing
software maintenance. Astea believes that its professional services capabilities
allow its clients to deploy the


                                       8
<PAGE>

Company's products quickly and efficiently.  Together, professional services and
customer support comprised  approximately 61% of the Company's total revenues in
2002 and 63% of the Company's total revenues in 2001.

Professional Services

         An  initial   professional   services  engagement  for  Astea  Alliance
typically lasts between three and six months.  Such  engagements  usually lasted
between six and eighteen months for DISPATCH-1.  For most of Astea's  customers,
teams are assembled from the Company's worldwide offices to perform the required
services.  Due to the  more  complex  nature  of the  DISPATCH-1  legacy  system
implementations  and upgrades,  customers that licensed these programs typically
purchased  a higher  volume of  professional  services  than  customers  need to
purchase  for  Astea  Alliance,  which  is a  superior  and  more  sophisticated
technology.

         Astea's  typical  professional  services  engagement  does not  include
customizations,  but rather includes planning, prototyping and implementation of
Astea's products within the client's  organization.  During the initial planning
phase of the engagement,  Astea's  professional  services personnel work closely
with  representatives  of the  client to prepare a  detailed  project  plan that
includes a  timetable,  resource  requirements,  milestones,  in-house  training
programs, onsite business process training and demonstrations of Astea's product
capabilities within the client's organization.

         The  next  most  critical  phase  of the  Astea  professional  services
engagement  is  the  prototyping  phase,  in  which  Astea  works  closely  with
representatives of the client to configure Astea's software functionality to the
client's specific business process requirements.

         The  final  phase  in  the  professional  services  engagement  is  the
implementation phase, in which Astea's professional services personnel work with
the client to develop detailed data mapping,  conversions,  interfaces and other
technical and business  processes  necessary to integrate  Astea's software into
the client's computing  environment.  Ultimately,  education plans are developed
and  executed  to  provide  the client  with the  process  and system  knowledge
necessary to  effectively  utilize the software  and fully  implement  the Astea
solution.  Professional  services are charged on an hourly or per diem basis and
are  billed,  pursuant  to  customer  work  orders,  usually  on a weekly  basis
subsequent to the work being performed.


Customer Support

         The Company's  customer support  organization  provides  customers with
telephone and online technical support, as well as product enhancements, updates
and new software releases. All regions of the Company's worldwide operations are
supported by local representatives. Support is provided in real-time and usually
spoken  in  native  languages  by the  Company's  personnel  or a  distributor's
personnel  familiar  with  local  business  customs  and  practices.  Typically,
customer  support fees are established as a fixed percentage of license fees and
are  invoiced  to  customers  on  an  annual  basis.  Astea's  customer  support
representatives  are located in one office in the United States,  two offices in
Europe, one office in Israel and one office in Australia.


Customers

         The Company  estimates that it has sold  approximately  575 licenses to
customers ranging from small, rapidly growing companies to large,  multinational
corporations with geographically  dispersed operations and remote offices.  More
than 200  licenses  have been  sold for Astea  Alliance  and the  remainder  for
DISPATCH-1. The broad applicability of the Company's products is demonstrated by
the wide range of companies  across


                                       9
<PAGE>

many markets and industries that use one or more of Astea's products,  including
customers in information  technology,  medical  devices and diagnostic  systems,
industrial  controls and  instrumentation,  retail systems,  office  automation,
imaging systems, facilities management, telecommunications, and other industries
with  equipment  sales and service  requirements.  In 2002,  no single  customer
accounted for more than 10% of the  Company's  revenues.  In 2001,  one customer
accounted for 11% of the Company's revenues.  In 2000, no customer accounted for
more than 10% the Company's revenues.


Sales and Marketing

         The Company markets its products through a worldwide  network of direct
and indirect  sales and  services  offices with  corporate  headquarters  in the
United  States  and  regional  headquarters  in  the  United  Kingdom  (European
Operations)  and Australia  (Asia Pacific  Operations).  Sales partners  include
distributors  (value-added  resellers,  system integrators and sales agents) and
OEM  partners.  The Company  actively  seeks to expand its reseller  network and
establish  an  international  indirect  distribution  channel  targeted  at  the
mid-market  tier. See "Certain  Factors that May Affect Future Results-- Need to
Expand Indirect Sales."

         Astea's direct sales force employs a consultative  approach to selling,
working  closely with  prospective  clients to understand and define their needs
and determine how such needs can be addressed by the Company's  products.  These
clients  typically  represent the mid- to high-end of the CRM software market. A
prospect development  organization  comprised of telemarketing  representatives,
who are engaged in outbound  telemarketing  and  inbound  enquiry  response to a
variety of  marketing  vehicles,  develops  and  qualifies  sales leads prior to
referral to the direct sales staff.  Additional  prospects  are  identified  and
qualified  through  the  networking  of direct  sales  staff  and the  Company's
management as part of daily business activities.

         The modular  structure  of Astea's  software  and its  ongoing  product
development  efforts  provide  opportunities  for  incremental  sales of product
modules and consulting services to existing accounts.  See "Certain Factors that
May Affect Future Results--  Continued  Dependence on Large Contracts May Result
in Lengthy Sales and Implementation  Cycles and Impact Revenue  Recognition and
Cash Flow."

         Astea's  corporate  marketing  department  is  responsible  for product
marketing, lead generation and marketing communications, including the Company's
corporate  website,  dialogue  with CRM industry  analysts,  trade  conferences,
advertising, e-marketing, on-line and traditional seminars, direct mail, product
collateral and public  relations.  Based on feedback from  customers,  analysts,
business partners and market data, the marketing  department  provides input and
direction   for  the  Company's   ongoing   product   development   efforts  and
opportunities  for  professional  services.  Leads developed from the variety of
marketing  communications  vehicles  are  routed  through  the  Company's  Astea
Alliance sales and marketing automation system. The Company also participates in
an  annual  conference  for  users of  Astea's  DISPATCH-1  and  Astea  Alliance
products.  Conference  participants  attend  training  sessions,  workshops  and
presentations, and interact with other Astea product users, Astea management and
staff,  and technology  partners,  providing  important input for future product
direction.

         Astea's international sales accounted for 31% of the Company's revenues
in 2002,  33% of the  Company's  revenues in 2001 and 41% in 2000.  See "Certain
Factors that May Affect  Future  Results--Risks  Associated  with  International
Sales."



                                       10
<PAGE>



Product Development

         Astea's  product  development  strategy  is to  provide  products  that
perform  with  exceptional  depth and breadth of  functionality  and are easy to
implement, use and maintain.  Products are designed to be flexible,  modular and
scalable,  so that they can be implemented  incrementally in phases and expanded
to satisfy the evolving  information  requirements  of Astea's clients and their
customers. Each product is also designed to be as  hardware-platform-independent
as possible for  client/server,  thin-client  and Web  environments  that can be
powered by multiple  hardware  platforms  and operating  systems.  To accomplish
these  goals,   the  Company  uses  widely  accepted,   commercially   available
application  development tools from Microsoft  Corporation and Sybase,  Inc. for
Astea Alliance and Progress Software Corporation for DISPATCH-1.  These software
tools provide the Company's  customers  with the  flexibility  to deploy Astea's
products  across  a  variety  of  hardware  platforms,   operating  systems  and
relational database  management systems.  The latest Astea Alliance products are
currently being engineered for existing and emerging Microsoft technologies such
as COM+,  Microsoft  ComPlus  Transactions,  Microsoft  Message  Queuing (MSMQ),
Internet Information Server (IIS) and Microsoft.NET Enterprise Servers including
Windows 2000 Server, SQL Server and BizTalk Server.

         In  addition  to  product  development  that is  conducted  at  Company
facilities in the United States and Israel,  Astea  participates in partnerships
with  complementary  technology  companies  to  reduce  time-to-market  with new
product   capabilities  and  continually   increase  its  value  proposition  to
customers.   The  Company  also  works  with  OEM  partners  who  can  integrate
AllianceEnterprise  modules to complement and expand the  capabilities  of their
product offerings.

         The  Company's  total  expenses for product  development  for the years
ended  December  31,  2002,  2001 and  2000,  were  $1,781,000,  $2,590,000  and
$2,744,000,  respectively;  and these  expenses  amounted to 10%, 15% and 14% of
total revenues for 2002, 2001, and 2000, respectively.  In addition, the Company
incurred  capitalized  software  development  costs of  $807,000,  $600,000  and
$640,000 in 2002, 2001 and 2000,  respectively.  The Company anticipates that it
will  continue to commit  substantial  resources to product  development  in the
future.  See  "Management's  Discussion and Analysis of Financial  Condition and
Results of Operations" and "Certain Factors that May Affect Future Results--Need
for Development of New Products."

Manufacturing

         The  Company's  software  products  are  distributed  on CD ROMs and by
e-mail. Included with the software products are security keys (a software piracy
protection) and documentation  available on CD ROM and hard copy.  Historically,
the Company has purchased media and  duplicating  and printing  services for its
product packaging from outside vendors.

Competition

         The CRM software  market is intensely  competitive and subject to rapid
change.  To maintain or increase its position in the industry,  the Company will
need to  continually  enhance  its  current  product  offerings,  introduce  new
products and features and maintain its professional services  capabilities.  The
Company  currently  competes  on the  basis  of the  depth  and  breadth  of its
integrated  product  features and  functions,  including  the  adaptability  and
scalability of its products to specific  customer  environments;  the ability to
deploy complex  systems  locally,  regionally,  nationally and  internationally;
product  quality;   ease-of-use;   reliability  and   performance;   breadth  of
professional  services;  integration of Astea's  offerings with other enterprise
applications;  price;  and the  availability  of  Astea's  products  on  popular
operating systems, relational databases, Internet and communications platforms.


                                       11
<PAGE>

         Competitors  vary in  size,  scope  and  breadth  of the  products  and
services offered. The Company encounters  competition generally from a number of
sources,  including other software companies,  third-party professional services
organizations that develop custom software,  and information systems departments
of potential  customers  developing  proprietary,  custom  software.  In the CRM
marketplace,  the Company  competes against publicly held companies and numerous
smaller,  privately held  companies.  The Company's  competitors  include Siebel
Systems, Inc. ("Siebel"), PeopleSoft Inc. ("PeopleSoft"), SAP AG ("SAP"), Oracle
Corporation  ("Oracle"),  Great Plains  Software which was acquired by Microsoft
("Microsoft  Great  Plains"),  Clarify  which was  acquired  by  Amdocs  Limited
("Amdocs Clarify"), Viryanet Ltd. ("Viryanet") and a number of smaller privately
held companies. See "Certain Factors that May Affect Future Results--Competition
in the Customer Relationship Management Software Market is Intense."


Licenses and Intellectual Property

         Astea  considers its software  proprietary and licenses its products to
its customers  under  written  license  agreements.  The Company also employs an
encryption  system  that  restricts  a user's  access to source  code to further
protect the Company's  intellectual  property.  Because the  Company's  products
allow  customers to customize  their  applications  without  altering the source
code, the source code for the Company's  products is typically  neither licensed
nor provided to customers.  The Company does, however,  license source code from
time to time and maintains certain third-party source code escrow  arrangements.
See "Customers" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

         The Company  seeks to protect its  products  through a  combination  of
copyright,  trademark, trade secret and fair business practice laws. The Company
also requires  employees,  consultants  and third parties to sign  nondisclosure
agreements.  Despite  these  precautions,  it may be possible  for  unauthorized
parties to copy certain  portions of the Company's  products or reverse engineer
or obtain and use  information  that the  Company  regards as  proprietary.  The
Company presently has no patents or patent  applications  pending.  See "Certain
Factors that May Affect  Future  Results--Risks  of  Dependence  on  Proprietary
Technology."

         Because the software  development  industry is  characterized  by rapid
technological  change, Astea believes that factors such as the technological and
creative skills of its personnel,  new product  developments,  frequent  product
enhancements,   and  reliable   product   maintenance   are  more  important  to
establishing and maintaining a technology leadership position than current legal
protections.

Employees

         As of December 31, 2002, the Company, including its subsidiaries, had a
total of 137 full time employees  worldwide,  63 in the United States, 18 in the
United Kingdom,  6 in the Netherlands,  33 in Israel, 14 in Australia,  and 3 in
Japan. The Company's future performance  depends,  in significant part, upon the
continued  service  of its  key  technical  and  management  personnel  and  its
continuing  ability  to  attract  and  retain  highly  qualified  and  motivated
personnel in all areas of its operations.  See "Certain  Factors that May Affect
Future Results--Dependence on Key Personnel; Competition for Employees." None of
the Company's  employees is  represented  by a labor union.  The Company has not
experienced any work stoppages and considers its relations with its employees to
be good.

Corporate History

         The Company was  incorporated  in  Pennsylvania  in 1979 under the name
Applied System Technologies, Inc. In 1992, the Company changed its name to Astea
International  Inc. Until 1986, the Company  operated  principally as a software
consulting firm,  providing  professional  software consulting


                                       12
<PAGE>

services  on a fee for  service  and on a project  basis.  In 1986,  the Company
introduced  its  DISPATCH-1  product.  In  November  1991,  the  Company's  sole
stockholder  acquired the outstanding stock of The DATA Group Corporation ("Data
Group"), a provider of field service software and related professional  services
for the mainframe computing environment.  Data Group was merged into the Company
in January 1994. In February 1995, the Company and its sole stockholder acquired
the outstanding  stock of Astea Service & Distribution  Systems BV ("Astea BV"),
the Company's  distributor of DISPATCH-1 and related services in Europe.  In May
1995,  the  Company  reincorporated  in  Delaware.  In July  1995,  the  Company
completed its initial  public  offering of Common Stock.  In February  1996, the
Company merged with Bendata,  Inc. In June 1996, the Company acquired Abalon AB.
In September 1998  (effective July 1, 1998),  the Company sold Bendata,  Inc. In
December  1998,  the  Company  sold  Abalon AB. In  December  1997,  the Company
introduced  ServiceAlliance  and in  October  1999,  SalesAlliance,  which  were
subsequently  re-engineered  into  components  of the  AllianceEnterprise  Suite
introduced in 2001.  Through 2001 and into 2002, the Company  rebuilt is product
functionality  for Web-based  applications  and in August 2002 introduced  Astea
Alliance 6.


Item 2.  Properties.

         The  Company's  headquarters  are  located  in  a  leased  facility  of
approximately  22,000  square feet in Horsham,  Pennsylvania.  The Company  also
leases facilities for operational activities in Houten, Netherlands,  and Tefen,
Israel, and for sales and customer support activities in Cranfield,  England and
St.  Leonards,  Australia.  The Company  believes  that  suitable  additional or
alternative  office  space  will be  available  in the  future  on  commercially
reasonable terms as needed.

Item 3.  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.  In
addition,  since the Company enters into a number of large  contracts  requiring
the  complex  installation  of  software  products  and  the  implementation  of
considerable  professional  services over several quarterly periods, the Company
is from time to time engaged in  discussions  and  deliberations  with customers
regarding the adequacy and timeliness of the  installation  or service,  product
functionality  and  features  desired by the customer  and  additional  work and
product  requirements  that  were not  anticipated  at the  commencement  of the
project.  These deliberations  sometimes result in changes in services required,
upward or downward  price  adjustments,  or  reworking  of contract  terms.  The
Company from time to time will reserve funds for  contingencies  under  contract
deliberations. The Company is not a party to any material legal proceedings, the
adverse outcome of which, in management's opinion, would have a material adverse
effect on the Company's business, financial condition or results of operations.

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

         No matters  were  submitted  to a vote of security  holders  during the
fourth  quarter  of  the  fiscal  year  covered  by  this  report,  through  the
solicitation of proxies or otherwise.






                                       13
<PAGE>





PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters.

         The  Company's  Common  Stock is traded on the Nasdaq  National  Market
under the symbol "ATEA." The following table sets forth the high and low closing
sale prices for the Common Stock as reported by the Nasdaq  National  Market for
the past two fiscal years:

        2002                                         High               Low
        --------------------------------------------------------------------
        First quarter                               $1.00             $0.72
        Second quarter                               1.00              0.76
        Third quarter                                0.97              0.51
        Fourth quarter                               0.75              0.45

        2001                                         High               Low
        --------------------------------------------------------------------
        First quarter                               $1.19             $0.53
        Second quarter                               1.37              0.53
        Third quarter                                1.24              0.72
        Fourth quarter                               1.00              0.70


         As of March 19, 2003, there were  approximately 90 holders of record of
the  Company's  Common  Stock.   (Because   "holders  of  record"  include  only
stockholders  listed with the Company's transfer agent and exclude  stockholders
listed  separately  with  financial  nominees,  this number does not  accurately
reflect the actual number of beneficial owners of the Company's Common Stock, of
which the Company  estimates  there were more than 2,700 on such date.) On March
19,  2003,  the last  reported  sale  price of the  Common  Stock on the  Nasdaq
SmallCap Market was $0.55 per share.

         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. On June 30, 2000, the Company
paid its only dividend since its initial public offering. The dividend was $2.05
per share.



                                       14
<PAGE>
<TABLE>
<CAPTION>




Item 6.           Selected Financial Data.

Years ended December 31,                                  2002           2001          2000          1999          1998

---------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>            <C>           <C>           <C>           <C>
(in thousands, except per share data)
Statement of Income Data: (1)
Revenues:
     Software license fees                           $      6,504   $      6,384  $      6,554  $     11,312  $      5,822
     Services and maintenance                              10,294         10,973        13,763        22,509        24,061
                                                        -------------------------------------------------------------------
            Total revenues                                 16,798         17,357        20,317        33,821        29,883
                                                        -------------------------------------------------------------------
Cost and Expenses:
     Cost of software license fees                          1,262          1,224         1,199         2,240         1,957
     Cost of services and maintenance                       6,345          6,808        10,928        17,849        18,525
     Product development                                    1,781          2,590         2,744         4,900         5,718
     Sales and marketing                                    6,218          5,396         6,857         8,463         7,976
     General and administrative (2)                         2,426          2,837         4,066         4,478         5,297
     Restructuring charge (3)                                   -            333         1,101         1,630          (800)
                                                        -------------------------------------------------------------------
           Total costs and expenses                        18,032         19,188        26,895        39,560        38,673
                                                        -------------------------------------------------------------------
Loss from continuing operations
      before interest and taxes                            (1,234)        (1,831)       (6,578)       (5,739)       (8,790)
Net interest income                                           106            309         1,496         2,163           496
                                                        -------------------------------------------------------------------
Loss from continuing
      operations before income taxes                       (1,128)        (1,522)                     (3,576)       (8,294)


Income tax expense (benefit)                                  200              -             -            -           (803)
                                                        -------------------------------------------------------------------
Loss from continuing operations                            (1,328)        (1,522)       (5,082)       (3,576)       (7,491)
Gain on sale of discontinued operations,
       net of taxes (1)                                         -              -           293            -         43,339

Loss from discontinued operations,
      net of taxes (1)                                          -              -             -            -         (1,697)
                                                        -------------------------------------------------------------------
Net loss                                             $     (1,328)   $    (1,522)  $    (4,789)  $    (3,576)  $    34,151
                                                        ==================================================================
Basic and diluted (loss) earnings per share:
      Continuing operations                          $      (0.09)   $     (0.10)  $     (0.35)  $     (0.26)  $     (0.56)

      Gain on sale of discontinued operations                   -              -          0.02            -           3.22
      Discontinued operations                                   -              -             -            -          (0.13)
                                                        -------------------------------------------------------------------
                                                     $      (0.09)   $     (0.10)  $     (0.33)  $     (0.26)  $      2.53
                                                        ==================================================================
Shares used in computing basic (loss) earnings
  per share                                                14,603         14,631        14,570        13,899        13,478


Shares used in computing diluted (loss) earnings
  per share                                                14,620         14,631        14,570        13,899        13,478
Balance Sheet Data: (1)
Working capital                                      $      6,449   $      7,313  $      9,668  $     44,170  $     45,542
Total assets                                               16,443         18,015        21,653        58,634        63,613
Long-term debt, less current portion                            -              -            23            49           468
Accumulated deficit                                       (12,568)       (11,239)       (9,716)       (4,927)       (1,351)
Total stockholders' equity                                  8,998         10,105        11,955        46,617        49,017
<FN>

(1)  The Company  sold Bendata in September  1998  (effective  July 1, 1998) and
     sold Abalon in December  1998.  The results of Bendata and Abalon have been
     treated as discontinued for all periods presented.  See Note 3 of the Notes
     to the Consolidated Financial Statements.
(2)  A one-time  accrual  for  consulting  fees of  $304,000  is included in the
     fourth quarter of 1999 general and administrative expense.
(3)  Included  in the  fourth  quarter  of 2001  is a  restructuring  charge  of
     $409,000 which includes cost of consolidating office space and severance of
     certain  personnel.  The second  quarter of 2000  contains a  restructuring
     charge of $1,101,000,  which includes  severance costs, there was an office
     closing, and other actions aimed at reducing operating expenses. The fourth
     quarter  of 1999  contains  a  restructuring  charge of  $1,630,000  due to
     reduced  DISPATCH-1  development and billable service activity and includes
     severance  payments,  the  write-off  of  capitalized  software for certain
     DISPATCH-1  modules  which  will no longer be sold and  reserves  to settle
     DISPATCH-1 contractual obligations. In the second quarter of 1998, $800,000
     was reversed due to lower than expected  restructuring costs. See Note 4 of
     the Notes to the Consolidated Financial Statements.
(4)  Certain  reclassifications  have  been  made  in  prior  years  due  to the
     implementation of EITF 01-14. See Note 2

</FN>
</TABLE>


                                       15
<PAGE>



                                     PART II

Item 7. 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 as well as assumptions made
by 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 in this Annual Report on
Form 10-K.

         The  Company  develops,  markets  and  supports  Customer  Relationship
Management ("CRM") software solutions, which are licensed to companies that sell
and service equipment,  or sell and deliver professional services. The Company's
principal  product  offering,  the Astea  Alliance  CRM  Suite,  integrates  and
automates sales and service business processes and thereby increases competitive
advantages,  top-line revenue growth and profitability through better management
of  information,   people,   assets  and  cash  flows.   Astea  Alliance  offers
substantially   broader  and  far  superior   capabilities  over  the  Company's
predecessor product,  DISPATCH-1,  which was designed for only field service and
customer support management applications.

         The Company's  products and services are  primarily  used in industries
such  as   information   technology,   healthcare,   industrial   controls   and
instrumentation,  retail systems, office automation, imaging systems, facilities
management and  telecommunications.  An eclectic group of other industries,  all
with equipment sales and service  requirements,  are also represented in Astea's
customer  base.  The  Company  maintains  offices in the United  States,  United
Kingdom, Australia, Israel and the Netherlands.

         The Company generates revenues from two sources:  software license fees
for  its  software  products,   and  services  and  maintenance   revenues  from
professional services, which includes consulting,  implementation,  training and
maintenance related to those products.

         Software license fees accounted for 39% of the Company's total revenues
in 2002. Sales of Astea Alliance  accounted for 37% of total revenues and add-on
sales to existing DISPATCH-1 users accounted for 2% of total revenues.  Software
license fee revenues also include some fees from the sublicensing of third-party
software,  primarily  relational database licenses.  Typically,  customers pay a
license fee for the software based on the number of licensed users. Depending on
the contract  terms and  conditions,  software  license fees are  recognized  as
revenue upon delivery of the product if no significant vendor obligations remain
and collection of the resulting  receivable is deemed  probable.  If significant
vendor obligations exist at the time of delivery or if the product is subject to
uncertain  customer  acceptance,   revenue  is  deferred  until  no  significant
obligations remain or acceptance has occurred.

         The remaining component of the Company's revenues consists  principally
of fees derived from professional  services  associated with the  implementation
and  deployment  of the Company's  software  products and  maintenance  fees for
ongoing customer support, primarily external customer technical support services
and product enhancements. Professional services (including training) are charged
on an hourly or daily basis and billed on a regular  basis  pursuant to customer
work orders.  Training services may also be charged on a per-attendee basis with
a minimum daily charge.  Out-of-pocket  expenses  incurred by company


                                       16
<PAGE>

personnel  performing  professional  services are  typically  reimbursed  by the
customer.  The Company  recognizes  revenue  from  professional  services as the
services are performed. Maintenance fees are typically paid to the Company under
agreements entered into at the time of the initial software license. Maintenance
revenue,  which is invoiced annually upon the expiration of the warranty period,
is recognized  ratably over the term of the  agreement,  which is usually twelve
months.

Critical Accounting Policies and Estimates

         The Company's significant  accounting policies are more fully described
in its Summary of Accounting  Policies,  Note 2, to the  Company's  consolidated
financial statements. The preparation of financial statements in conformity with
accounting  principles  generally  accepted  within the United  States  requires
management  to make  estimates and  assumptions  in certain  circumstances  that
affect amounts  reported in the  accompanying  financial  statements and related
notes.  In preparing these  financial  statements,  management has made its best
estimates and judgments of certain amounts included in the financial statements,
giving due consideration to materiality. The Company does not believe there is a
great likelihood that materially  different amounts would be reported related to
the  accounting  policies  described  below;   however,   application  of  these
accounting   policies  involves  the  exercise  of  judgments  and  the  use  of
assumptions as to future  uncertainties  and, as a result,  actual results could
differ from these estimates.

Revenue Recognition

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

         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 recognized at the time the service is performed.  Fees from
licenses sold together with  consulting  services are generally  recognized upon
shipment, provided that the contract has been executed, delivery of the software
has occurred,  fees are fixed and  determinable  and collection is probable.  In
instances where the aforementioned  criteria have not been met, both the license
and the consulting fees are recognized under the percentage of completion method
of contract accounting.

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

Accounts Receivable

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



                                       17
<PAGE>

receivable.  This estimate involves  significant  judgement by the management of
the  Company.  Actual  uncollectible  amounts  may  differ  from  the  Company's
estimate.

Capitalized software research and development costs

         The Company  accounts for its internal  software  development  costs in
accordance  with Statement of Financial  Accounting  Standards  ("SFAS") No. 86,
"Accounting for the Costs of Computer  Software to be Sold,  Leased or Otherwise
Marketed." Accordingly, all costs incurred subsequent to attaining technological
feasibility  are  capitalized  and  amortized  over a period not to exceed three
years.  Technological  feasibility is attained when software products reach Beta
release. Costs incurred prior to the establishment of technological  feasibility
are charged to product development  expense.  The establishment of technological
feasibility and the ongoing assessment of recoverability of capitalized software
development  costs require  considerable  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,  which  is
generally three years. All research and development  expenditures are charged to
research and development expense in the period incurred.


Recent Accounting Pronouncements

         In November 2002, the FASB issued  Interpretation No. 45,  "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  including  Indirect
Guarantees  of   Indebtedness  of  Others"   ("Interpretation   No.  45").  This
Interpretation  elaborates  on the  existing  disclosure  requirements  for most
guarantees, including loan guarantees such as standby letters of credit. It also
clarifies  that at the time a  company  issues a  guarantee,  the  company  must
recognize an initial  liability for the fair market value of the  obligations it
assumes under that  guarantee and must disclose that  information in its interim
and  annual  financial  statements.  The  initial  recognition  and  measurement
provisions of  Interpretation  No. 45 apply on a prospective basis to guarantees
issued or modified after December 31, 2002. The adoption of  Interpretation  No.
45 is not  expected  to have a material  impact on our  consolidated  results of
operations, financial position or cash flows.

         FIN 46,  Consolidation  of Variable  Interest  Entities,  clarifies the
application  of Accounting  Research  Bulletin No. 51,  "Consolidated  Financial
Statements,"  to certain  entities  in which  equity  investors  do not have the
characteristics  of a controlling  financial  interest or do not have sufficient
equity at risk for the  entity to  finance  its  activities  without  additional
subordinated  financial  support  from  other  parties.  FIN  46  is  applicable
immediately for variable  interest  entities created after January 31, 2003. For
variable  interest entities created prior to January 31, 2003, the provisions of
FIN 46 are  applicable  no  later  than  July 1,  2003.  We do not  expect  this
Interpretation to have an effect on the consolidated financial statements.

         In August 2001,  the FASB issued  Statement  No. 143,  "Accounting  for
Asset  Retirement  Obligations"  ("SFAS  143"),  which  provides the  accounting
requirements  for retirement  obligations  associated  with tangible  long-lived
assets. SFAS 143 requires entities to record the fair value of the liability for
an asset  retirement  obligation  in the period in which it is  incurred  and is
effective for our 2003 fiscal year.  The adoption of SFAS 143 is not expected to
have a material  impact on our  consolidated  results of  operations,  financial
position or cash flows.

         In October 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived  Assets"  ("SFAS 144").  SFAS 144 addresses
financial  accounting and reporting for the impairment or disposal of long-lived
assets.  This statement  supersedes SFAS Statement No. 121,


                                       18
<PAGE>

"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," and the accounting and reporting  provisions of APB Opinion No.
30, "Reporting the Results of Operations-Reporting  the Effects of Disposal of a
Segment of a Business,  and  Extraordinary,  Unusual and Infrequently  Occurring
Events and Transactions." This new pronouncement also amends Accounting Research
Bulletin  (ARB) No. 51  "Consolidated  Financial  Statements,"  to eliminate the
exception to  consolidation  for a subsidiary  for which control is likely to be
temporary.  SFAS 144 requires that one  accounting  model be used for long-lived
assets to be  disposed  of by sale,  whether  previously  held and used or newly
acquired and also  broadens  the  presentation  of  discontinued  operations  to
include  more  disposal  transactions.  SFAS 144 is  effective  for fiscal years
beginning after December 15, 2001 and interim periods within those fiscal years.
Adoption  of SFAS  144 on  January  1,  2002,  did not have  any  impact  on our
financial  position,  cash  flows or results  of  operations  for the year ended
December 31, 2002.

         In April 2002, the FASB issued  Statement No. 145,  "Rescission of FASB
Statements  No. 4, 44 and 64,  Amendment of FASB Statement No. 13, and Technical
Corrections"  ("SFAS 145").  The rescission of FASB No. 4, "Reporting  Gains and
Losses from  Extinguishment  of Debt"  applies to us.  FASB No. 4 required  that
gains  and  losses  from  extinguishment  of  debt  that  were  included  in the
determination  of net income be  aggregated  and, if material,  classified as an
extraordinary  item, net of the related income tax effect. SFAS 145 is effective
for our  fiscal  year  beginning  January 1,  2003.  Effective  January 1, 2003,
pursuant to SFAS 145, the losses on early  extinguishment  of debt, if any, will
be included in "Other expenses" in our consolidated Statements of Income.

         In June 2002, the FASB issued Statement No. 146,  "Accounting for Costs
Associated  with Exit or Disposal  Activities:  ("SFAS  146"),  which  addresses
financial  accounting and reporting for costs  associated  with exit or disposal
activities,  and  nullifies  Emerging  Issues Task Force  (EITF) Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)" which
previously governed the accounting treatment for restructuring activities.  SFAS
146 applies to costs  associated  with an exit activity that does not involve an
entity  newly  acquired in a business  combination  or with a disposal  activity
covered by SFAS 144. Those costs include, but are not limited to, the following:
(1) termination  benefits  provided to current  employees that are involuntarily
terminated under the terms of a benefit  arrangement that, in substance,  is not
an ongoing benefit arrangement or individual deferred-compensation contract, (2)
costs to  terminate  a contract  that is not a capital  lease,  and (3) costs to
consolidate  facilities or relocate employees.  SFAS 146 does not apply to costs
associated  with the  retirement of long-lived  assets covered by SFAS 143. SFAS
146  will be  applied  prospectively  and is  effective  for  exit  or  disposal
activities  initiated after December 31, 2002. We do not expect adoption of SFAS
146 to materially impact its financial position,  results of financial position,
results of operations, or cash flows.

         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  expects to continue to utilize the
intrinsic valuation method for recording employee stock based compensation.




                                       19
<PAGE>
<TABLE>
<CAPTION>

Results of Continuing Operations

         The following  table sets forth,  for the periods  indicated,  selected
financial data and the percentages of the Company's  total revenues  represented
by each line item presented for the periods presented:

Years ended December 31,                            2002           2001        2000
------------------------------------------------------------------------------------------
<S>                                                    <C>           <C>        <C>
Revenues:
    Software license fees                              38.7   %      36.8  %     32.3   %
    Services and maintenance                           61.3          63.2        67.7
                                                 -----------------------------------------

        Total revenues                                100.0   %     100.0  %    100.0  %
                                                 -----------------------------------------

Costs and expenses:
   Cost of software license fees                        7.5   %       7.1  %      5.9  %
   Cost of services and maintenance                    37.8          39.2        53.8
   Product development                                 10.6          14.9        13.5
   Sales and marketing                                 37.0          31.1        33.8
   General and administrative                          14.4          16.3        20.0
   Restructuring charge                                   -           1.9         5.4
                                                 -----------------------------------------

        Total costs and expenses                      107.3   %     110.5  %    132.4  %
                                                 -----------------------------------------

</TABLE>

Comparison of Years Ended December 31, 2002 and 2001

         Revenues.  Total revenues decreased $559,000, or 3%, to $16,798,000 for
the year ended  December 31, 2002 from  $17,357,000  for the year ended December
31, 2001.  Software license revenues increased by 2% in 2002,  compared to 2001.
Services and maintenance  fees for 2002 amounted to  $10,294,000,  a 6% decrease
from 2001.

         Software license fee revenues increased $120,000 or 2% to $6,504,000 in
2002 from $6,384,000 in 2001. Astea Alliance  license fee revenues  increased to
$6,220,000 in 2002 from $5,888,000 in 2001, an increase of 6% which reflects the
growing acceptance of the Astea Alliance CRM suite of software products. License
fee revenues for DISPATCH-1  decreased  $213,000 or 43% from $496,000 in 2001 to
$283,000 in 2002 primarily due to the Company's planned movement from its legacy
software to the Astea Alliance CRM suite.

         Total services and  maintenance  revenues  decreased  $679,000 or 6% to
$10,294,000  in 2002 from  $10,973,000  in 2001.  The  decrease  in service  and
maintenance  revenues is  attributable to a decrease of $1,760,000 in DISPATCH-1
revenues  partially  offset  by  an  increase  in  Astea  Alliance  revenues  of
$1,081,000.  Astea  Alliance  service  and  maintenance  revenues  increased  to
$6,540,000 in 2002 from  $5,459,000  in 2001 due to the growing  Astea  Alliance
customer base.  DISPATCH-1  service and  maintenance  revenues  decreased 32% to
$3,754,000  in 2002 from  $5,514,000  in 2001 due to an ongoing  decrease in the
number of customers under service and maintenance contracts.  As a result of the
DISPATCH-1 source code sales, which enables the users to customize the software,
and decreasing  demand for  DISPATCH-1,  the decrease in service and maintenance
revenue is expected to continue in 2003.

         In 2002 and  2000,  no  customer  accounted  for  more  than 10% of its
revenues.  In 2001, the Company had one significant  customer that accounted for
11% of its revenues.

         Costs of Revenues. Costs of software license fee revenues increased 3%,
or $38,000,  to $1,262,000 in 2002 from $1,224,000 in 2001. Included in the cost
of software license fees is the fixed cost of capitalized software amortization.
Capitalized software amortization increased to $870,000 in 2002 from $800,000 in
2001.  The  increase  in  amortization  of  capitalized  software  is due to the
increase in software capitalized.  The software licenses gross margin percentage
remained unchanged in 2002 at 81%, as compared to 2001.

                                       20
<PAGE>

         The  costs of  services  and  maintenance  revenues  decreased  7%,  or
$463,000,  to  $6,345,000  in 2002 from  $6,808,000  in 2001.  The  service  and
maintenance  gross  margin  percentage  remained  unchanged  at 38% in 2002,  as
compared to 2001.

         Product  Development.  Product  development  expenses decreased 31%, or
$809,000,  to $1,781,000 in 2002 from $2,590,000 in 2001. Product development as
a percentage of total revenue  decreased to 11% in 2002 compared to 15% in 2001.
The Company's total product development costs,  including  capitalized  software
development  costs  were  $2,588,000  or 15% of  revenues  in 2002  compared  to
$3,190,000,  which was 19% of revenues  in 2001,  a decrease of $602,000 or 19%.
The decrease in product  development  expenses is primarily  attributable to the
strengthening  of the US dollar  against the Israel  shekel,  which is where the
Company  performs most of its  development.  Despite this decrease,  development
employee headcount remained  unchanged.  The Company has focused its development
effort  exclusively on the upgrade of the Astea  Alliance suite of products.  In
2003, the Company expects to slightly increase its development costs relative to
the amount spent in 2002.

         Sales and  Marketing.  Sales and marketing  expenses  increased 15%, or
$822,000,  to $6,218,000 in 2002 from $5,396,000 in 2001. The increase  supports
newly released  versions of its Astea Alliance suite of software  products.  The
Company's focused on improving its market presence through intensified marketing
efforts to increase awareness of the Company's  products.  This occurred through
the use of  Webinars  focused in the  vertical  industries  in which the Company
operates,  attendance at selected  trade shows and increased  investment in lead
generation for its sales force.  Sales and marketing  expense as a percentage of
total revenues increased to 37% in 2002 from 31% in 2001.

         General  and  Administrative.   General  and  administrative   expenses
decreased 14%, or $411,000,  to $2,426,000 in 2002 from $2,837,000 in 2001. As a
percentage of total revenues,  general and administrative  expenses decreased to
14% in 2002 compared to 16% in 2001.  This decrease  primarily  results from the
restructuring  that occurred in 2001, as well as ongoing  efforts to control all
operating costs.

         Restructuring  Charge.  At  the  end of  December,  2001,  the  Company
recorded a  restructuring  charge of $409,000 in connection with severance costs
to downsize the Company's  employment  roles and eliminate  excess office space.
Additionally,  the Company reversed  $76,000 of restructuring  costs relating to
the 2000 restructuring plan determined to be no longer needed (See Note 4 in the
Notes to the Consolidated Financial Statements).  In the fourth quarter of 2002,
the  Company   determined  that  it  had  over  accrued  $24,000  from  is  2001
restructuring charge. This was reversed in the last quarter of 2002 and included
in general and administrative expenses.

         Net  Interest  Income.  Net  interest  income  decreased  $203,000,  to
$106,000 in 2002 from $309,000 in 2001. This decrease was primarily attributable
to  significantly  lower  interest  rates paid in 2002 on invested  cash and the
reduction in cash balances which are used to fund operations.

         Income Tax Expense. The Company accounts for income taxes in accordance
with SFAS No. 109 "Accounting for Income Taxes" which requires that deferred tax
assets and  liabilities be recognized  using enacted tax rates for the effect of
temporary  differences  between  the book and tax basis of  recorded  assets and
liabilities. SFAS No. 109 also requires that deferred tax assets be reduced by a
valuation  allowance  if it is more likely than not that some  portion or all of
the deferred tax asset will not be realized.

         The realizability of the deferred tax assets is evaluated  quarterly by
assessing the valuation  allowance and by adjusting the amount of the allowance,
if necessary.  The factors used to assess the likelihood of realization  are the
forecast of future  taxable  income and available tax planning  strategies  that
could be  implemented  to realize the net  deferred  tax asset.  During the year
ended  December  31,  2002,  the  Company



                                       21
<PAGE>

recorded a tax expense of $200,000 to increase its valuation  allowance  related
to its net  deferred  tax asset based on an  assessment  of what  portion of the
asset is more likely than not to be realized,  in accordance  with FSAS No. 109.
The  Company  will  review  this  provision   periodically   in  the  future  as
circumstances change.

         International   Operations.    Total   revenue   from   the   Company's
international  operations  declined by $486,000,  or 8.6% to  $5,141,000 in 2002
from $5,627,000 in 2001. The decrease in revenue from  international  operations
was primarily  attributable to the reductions in license revenues from the Astea
Alliance  suite.  The  economic  slowdown  in both  Europe and the  Pacific  Rim
severely impacted the operating results of the Company.  International  revenues
from  professional  services  and  maintenance  were  similar  to those in 2001.
International operations resulted in net income of $4,000 for 2002 compared to a
net income of $226,000 in 2001. The decrease in income  resulted  primarily from
the decline in license  sales  resulting  from  depressed  world wide  operating
conditions in both Europe and the Pacific Rim.

Comparison of Years Ended December 31, 2001 and 2000

         Revenues.  Total revenues decreased $2,960,000,  or 15%, to $17,357,000
for the year  ended  December  31,  2001  from  $20,317,000  for the year  ended
December 31, 2000.  Software license revenues decreased by 3% in 2001,  compared
to 2000.  Services and maintenance fees for 2001 amounted to $10,973,000,  a 20%
decrease from 2000.

         Software license fee revenues decreased $170,000 or 3% to $6,384,000 in
2001 from $6,554,000 in 2000. Astea Alliance  license fee revenues  increased to
$5,888,000 in 2001 from  $3,414,000  in 2000, an increase of 72% which  reflects
the growing  acceptance  of the Astea  Alliance CRM suite of software  products.
License fee revenues for DISPATCH-1  decreased $2,644,000 or 84% from $3,140,000
in 2000 to $496,000 in 2001 primarily due to the Company's planned movement from
its legacy software to the Astea Alliance CRM suite.

         Total services and maintenance  revenues decreased $2,790,000 or 20% to
$10,973,000  in 2001 from  $13,763,000  in 2000.  The  decrease  in service  and
maintenance  revenues  is  attributable  to a decrease  in  DISPATCH-1  revenues
partially  offset by an  increase in Astea  Alliance  revenues.  Astea  Alliance
service and maintenance revenues increased to $5,459,000 in 2001 from $4,991,000
in 2000 due to the growing Astea Alliance customer base.  DISPATCH-1 service and
maintenance  revenues  decreased  34% or  $2,876,000  to $5,514,000 in 2001 from
$8,390,000 in 2000 due to an ongoing  decrease in the number of customers  under
service  and  maintenance  contracts  and  the  completion  of  two  significant
long-term  projects in the first quarter of 2000. As a result of the  DISPATCH-1
source code sales in 2000,  which  enables the users to customize  the software,
and decreasing  demand for  DISPATCH-1,  the decrease in service and maintenance
revenue is expected to continue in 2002.

         In 2001,  the Company had one  significant  customer that accounted for
11% of its  revenues.  In 2000,  no customer  accounted for more than 10% of its
revenues.

         Costs of Revenues. Costs of software license fee revenues increased 2%,
or $25,000,  to $1,224,000 in 2001 from $1,199,000 in 2000. Included in the cost
of software license fees is the fixed cost of capitalized software amortization.
Capitalized software  amortization was $800,000 in both 2001 and 2000. The small
increase  in cost of  software  license  fees was due to costs of  miscellaneous
hardware  included  in a  license  sale.  The  software  licenses  gross  margin
percentage was 81% in 2001 compared to 82% in 2000. The decrease in gross margin
percentage  was   attributable  to  the  cost  of  items  resold  to  customers,
principally third party software and hardware.

                                       22
<PAGE>

         The costs of  services  and  maintenance  revenues  decreased  38%,  or
$4,120,000,  to $6,808,000  in 2001 from  $10,928,000  in 2000.  The service and
maintenance gross margin  percentage  increased to 38% in 2001 from 21% in 2000.
The  improvement  in  gross  margin  is   attributable  to  improved   personnel
utilization  and the  elimination  of certain  redundant  positions in 2000. The
gross  margin  improvement  is also a result  of the  decrease  in  third  party
maintenance  costs  associated  with  the  decline  in  DISPATCH-1   maintenance
revenues.

         Product  Development.  Product  development  expenses  decreased 6%, or
$154,000,  to $2,590,000 in 2001 from $2,744,000 in 2000. Product development as
a percentage of total revenue  increased to 15% in 2001 compared to 14% in 2000.
The Company's total product development costs,  including  capitalized  software
development  costs  were  $3,190,000  or 19% of  revenues  in 2001  compared  to
$3,384,000, which was 17% of revenues in 2000, a decrease of $194,000 or 6%. The
decrease in product  development  expenses is primarily  attributable to reduced
third party  consultant  costs.  The Company has focused its development  effort
exclusively on the upgrade of the Astea Alliance suite of products. In 2002, the
Company expects to pay similar development costs as incurred in 2001.

         Sales and  Marketing.  Sales and marketing  expenses  decreased 21%, or
$1,461,000, to $5,396,000 in 2001 from $6,857,000 in 2000. The decrease resulted
primarily  from the Company's  cost  restructuring  efforts that occurred in the
middle of 2000 as well as lower  commissions as a result of lower total revenues
in 2001.  However,  the  Company  continues  to make a  concentrated  effort  to
increase  market share and expand its presence  through both direct and indirect
channels.  Sales  and  marketing  expense  as a  percentage  of  total  revenues
decreased to 31% in 2001 from 34% in 2000.

         General  and  Administrative.   General  and  administrative   expenses
decreased 30%, or $1,229,000,  to $2,837,000 in 2001 from $4,066,000 in 2000. As
a percentage of total revenues, general and administrative expenses decreased to
16% in 2001 compared to 20% in 2000.  This decrease  primarily  results from the
restructuring  that occurred in 2000, minimal legal activity in 2001 as compared
to 2000 which resulted in lower legal costs,  as well as a favorable  outcome on
an arbitration case which resulted in the reversal of a $250,000 accrual.

         Restructuring  Charge.  At  the  end of  December,  2001,  the  Company
recorded a  restructuring  charge of $409,000 in connection with severance costs
to downsize the Company's  employment  roles and eliminate  excess office space.
Additionally,  the Company reversed  $76,000 of restructuring  costs relating to
the 2000 restructuring plan determined to be no longer needed (See Note 4 in the
Notes to the Consolidated  Financial  Statements).  During the second quarter of
2000,  the  Company  also  recorded  a  restructuring  charge of  $1,101,000  in
connection  with the closing of one of its offices,  relocation of other offices
to  smaller  facilities,  termination  fees  related  to  operating  leases  and
severance costs related to downsizing the Company's employment roles.

         Net Interest  Income.  Net interest  income  decreased  $1,187,000,  to
$309,000  in  2001  from   $1,496,000  in  2000.  This  decrease  was  primarily
attributable to significantly lower interest rates paid in 2001 on invested cash
and the reduction in cash balances  resulting from the special dividend of $2.05
per share, totaling $30,376,000, paid June 30, 2000.

         International   Operations.    Total   revenue   from   the   Company's
international  operations  declined by $2,536,000,  or 31% to $5,627,000 in 2001
from $8,163,000 in 2000. The decrease in revenue from  international  operations
was primarily attributable to the reductions in license revenues from DISPATCH-1
due to sales of source code in 2000. The source code sales also contributed to a
reduction in  international  maintenance  revenues on DISPATCH-1.  Revenues from
sales of Astea Alliance licenses, services and maintenance were similar to those
in 2000.  International  operations  resulted in net income of $226,000 for 2001
compared  to a loss of  $819,000  in  2000.  The  increase  in  income  resulted
primarily  from the


                                       23
<PAGE>

restructuring  charge,  which took place during the second  quarter of 2000, the
elimination  of certain  redundant  costs and increase  sales  activity in Japan
during 2001.

Liquidity and Capital Resources

         Net cash used in operating  activities  was $455,000 for the year ended
December 31, 2002 compared to $439,000 for the year ended December 31, 2001. The
$16,000  increase in the use of cash was  primarily  attributable  to a $294,000
increase in accounts receivable in 2002 compared to a $460,000 decrease in 2001,
a $385,000  decrease in accrued  restructuring  offset by a $186,000 increase in
accounts  payable in 2002,  compared  to a decrease  of  $1,522,000  in accounts
payable in 2001, and a $203,000  decrease in deferred  revenues in 2002 compared
to a $268,000 decrease in 2001.

         The Company  generated  $1,477,000 of cash for investing  activities in
2002 compared to using $325,000 in 2001. The change from last year was primarily
attributable  to the sale of  $2,998,000  of  investments  in 2002  compared  to
selling $519,000 of investments in 2001.  Capital  expenditures were $404,000 in
2002 compared to $244,000 in 2001.  Capitalized  software costs were $807,000 in
2002 compared to $600,000 in 2001.  The Company also  purchased a certificate of
deposit, which is security for a letter of credit, for $300,000.

         The Company  used $31,000 in  financing  activities  for the year ended
December 31, 2002  compared to using  $343,000  for the year ended  December 31,
2001.  The  decrease  in cash  used for  financing  activities  was  principally
attributable to the purchase of 223,000 shares of treasury stock for $223,000 in
2001. During 2002, the Company did not purchase any treasury stock. In addition,
the Company  paid  $35,000 to repay its  outstanding  debt in 2002,  compared to
paying $126,000 in 2001.

         At  December  31,  2002,  the Company  had a working  capital  ratio of
approximately  1.8:1, with cash of $5,267,000.  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
foreseeable  future.  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
plan any  significant  capital  expenditures  in 2003. In addition,  it does not
anticipate  that  its  operations  or  financial   condition  will  be  affected
materially by inflation.


Contractual Obligations and Commercial Commitments

The following tables summarize our contractual and commercial obligation as of
December 31, 2002:
<TABLE>
<CAPTION>

                                                                  Payment Due By Period
                                     2003        2004        2005        2006        2007      Thereafter      Total
                                     ----        ----        ----        ----        ----      ----------      -----
 Contractual Obligations:
<S>                               <C>                                                                           <C>
   Long-term Debt                 $  -         $   -        $  -         $  -         $  -        $   -        $    -
   Capital Leases                    -             -           -            -            -            -             -
   Operating Leases                782,000     770,000     555,000     465,000     469,000      972,000      4,013,000


</TABLE>

                                       24
<PAGE>
<TABLE>
<CAPTION>




                                                       Amounts of Commitment Expiration Per Period
                                     2003        2004        2005        2006        2007      Thereafter      Total
                                     ----        ----        ----        ----        ----      ----------      -----
 Other Commercial
   Commitments:
<S>                               <C>            <C>        <C>          <C>        <C>           <C>           <C>
   Letters of Credit              $ 300,000      $   -      $    -       $   -      $   -         $ -         $300,000
</TABLE>


Certain Factors That May Affect Future Results

         The  Company  does  not  provide  forecasts  of  its  future  financial
performance.  From time to time, however, information provided by the Company or
statements made by its employees may contain "forward looking"  information that
involves risks and uncertainties.  In particular,  statements  contained in this
Annual Report on Form 10-K that are not historical  fact may constitute  forward
looking  statements and are made under the safe harbor provisions of the Private
Securities  Litigation  Reform  Act of 1995.  The  Company's  actual  results of
operations  and  financial  condition  have  varied and may in the  future  vary
significantly from those stated in any forward looking statements.  Factors that
may  cause  such  differences  include,  but  are not  limited  to,  the  risks,
uncertainties and other information  discussed within this Annual Report on Form
10-K, as well as the accuracy of the Company's internal estimates of revenue and
operating expense levels.

         The following  discussion of the Company's  risk factors should be read
in conjunction with the financial statements and related notes thereto set forth
elsewhere in this report.  The  following  factors,  among  others,  could cause
actual  results to differ  materially  from  those set forth in forward  looking
statements  contained or  incorporated by reference in this report and presented
by management from time to time. Such factors, among others, may have a material
adverse effect upon the Company's business,  results of operations and financial
conditions:

Recent History of Net Losses.

         The  Company has a history of net losses.  In  particular,  the Company
incurred net losses of  approximately  $1.3 million in fiscal 2002, $1.5 million
in fiscal 2001 and $4.8 million in fiscal 2000.  As of December 31, 2002, we had
stockholders'   equity  of  approximately  $9.0  million  which  is  net  of  an
accumulated  deficit of  approximately  $12.6  million.  Moreover,  we expect to
continue  to  incur  additional  operating  expenses  resulting  primarily  from
research  and  development.  As a result,  we will need to generate  significant
revenues to achieve and  maintain  profitability.  We may not be able to achieve
the necessary  revenue growth or profitability on an annual basis in the future.
If we do not attain or sustain  profitability in the future, we may be unable to
continue our operations.

Uncertain  Market  Acceptance  of  Astea  Alliance;   Decreased   revenues  from
DISPATCH-1.

         In each of 2002, 2001, and 2000, 24%, 35% and 58%, respectively, of the
Company's  total  revenues was derived from the licensing of DISPATCH-1  and the
providing  of  professional  services  in  connection  with the  implementation,
deployment  and  maintenance  of  DISPATCH-1  installations.  See  "Management's
Discussion and Analysis of Financial  Condition and Results of Operations."  The
Company originally introduced Astea Alliance in August 1997 in order to target a
market  segment  in  which  DISPATCH-1  was not  cost-effective  or  attractive.
Subsequent,  rapid changes in technology  have now positioned the Astea Alliance
Suite,  introduced in 2001 and which includes the Astea Alliance  functionality,
to supercede  DISPATCH-1 as the company's flagship product.  As a result,  there
are no sales planned or anticipated  for  DISPATCH-1 to new customers.  Sales to
existing  customers  comprised  100% of DISPATCH-1  license  revenue in 2002 and
2001.  DISPATCH-1  revenues have declined in each of the last three fiscal years
and that trend is expected to continue and accelerate.

                                       25
<PAGE>

         While the Company has  licensed  Astea  Alliance to over 210  companies
worldwide in 1998 through 2002,  revenues from sales of Astea Alliance alone are
not yet sufficient to support the expenses of the Company.  The Company's future
success  will depend  mainly on its  ability to  increase  licenses of the Astea
Alliance Suite offerings, on developing new products and product enhancements to
complement its existing  product  offerings,  on its ability to continue support
and  maintenance  revenues  from  DISPATCH-1,  and on its ability to control its
operating expenses.  Any failure of the Company's products to achieve or sustain
market  acceptance,  or of the Company to sustain  its  current  position in the
Customer Relationship  Management software market, would have a material adverse
effect on the  Company's  business  and results of  operations.  There can be no
assurance that the Company will be able to increase  demand for Astea  Alliance,
obtain an acceptable level of support and maintenance  revenues from DISPATCH-1,
or to lower its expenses, thereby avoiding future losses.

Need for Development of New Products.

         The  Company's  future  success will depend upon its ability to enhance
its current  products and develop and  introduce  new products on a timely basis
that keep pace  with  technological  developments,  industry  standards  and the
increasingly sophisticated needs of its customers, including developments within
the client/server,  thin-client and object-oriented computing environments. Such
developments may require, from time to time,  substantial capital investments by
the Company in product development and testing.  The Company intends to continue
its  commitment  to  research  and  development  and its  efforts to develop new
products and product  enhancements.  There can be no assurance  that the Company
will not  experience  difficulties  that could delay or prevent  the  successful
development,   introduction   and   marketing   of  new   products  and  product
enhancements;   that  new  products  and  product  enhancements  will  meet  the
requirements  of the  marketplace  and achieve  market  acceptance;  or that the
Company's  current or future  products  will  conform to industry  requirements.
Furthermore,  reallocation of resources by the Company, such as the diversion of
research and development  personnel to development of a particular feature for a
potential  or existing  customer,  can delay new  products  and certain  product
enhancements.  Some of our  customers  adopted our  software  on an  incremental
basis.   These   customers   may  not  expand   usage  of  our  software  on  an
enterprise-wide  basis or implement  new  software  products  introduced  by the
Company.  The failure of the  software to perform to  customer  expectations  or
otherwise  to be  deployed  on an  enterprise-wide  basis  could have a material
adverse  effect on the  Company's  ability to collect  revenues  or to  increase
revenues  from new as well as  existing  customers.  If the Company is unable to
develop  and  market  new  products  or   enhancements   of  existing   products
successfully,  the Company's ability to remain  competitive in the industry will
be materially adversely effected.

Rapid Technological Change.

         In this industry there is a continual emergence of new technologies and
continual  change  in  customer  requirements.  Because  of the  rapid  pace  of
technological change in the application software industry, the Company's current
market  position  could be eroded rapidly by product  advancements.  In order to
remain  competitive,   the  Company  must  introduce  new  products  or  product
enhancements  that  meet  customers'  requirements  in a timely  manner.  If the
Company is unable to do this, it may lose current and  prospective  customers to
competitors.

         The  Company's  application  environment  relies  primarily on software
development  tools from  Microsoft  Corporation  and  PowerSoft  Corporation,  a
subsidiary of Sybase, Inc., in the case of Astea Alliance, and Progress Software
Corporation,  in the case of  DISPATCH-1.  If alternative  software  development
tools were to be designed and generally accepted by the marketplace, we could be
at a competitive  disadvantage  relative to companies employing such alternative
developmental tools.


                                       26
<PAGE>

Burdens of Customization.

         Certain of the Company's clients request customization of DISPATCH-1 or
Astea Alliance products to address unique characteristics of their businesses or
computing  environments.  In these  situations,  the  Company  applies  contract
accounting  to determine  the  recognition  of license  revenues.  The Company's
commitment to customization could place a burden on its client support resources
or delay  the  delivery  or  installation  of  products  which,  in turn,  could
materially  adversely  affect  its  relationship  with  significant  clients  or
otherwise adversely affect business and results of operations.  In addition, the
Company could incur  penalties or reductions in revenues for failures to develop
or timely  deliver  new  products  or  product  enhancements  under  development
agreements and other  arrangements with customers.  If customers are not able to
customize or deploy the Company's  products  successfully,  the customer may not
complete  expected  product  deployment,  which  would  prevent  recognition  of
revenues and  collection of amounts due, and could result in claims  against the
Company.

Risk of Product Defects; Failure to Meet Performance Criteria.

         The  Company's   software  is  intended  for  use  in   enterprise-wide
applications  that may be  critical  to its  customer's  business.  As a result,
customers and  potential  customer  typically  demand  strict  requirements  for
installation and deployment. The Company's software products are complex and may
contain  undetected  errors or  failures,  particularly  when  software  must be
customized for a particular customer, when first introduced or when new versions
are released.  Although the Company  conducts  extensive  product testing during
product  development,  the Company has at times  delayed  commercial  release of
software  until  problems  were  corrected  and,  in some  cases,  has  provided
enhancements to correct errors in released  software.  The Company could, in the
future, lose revenues as a result of software errors or defects. Despite testing
by the Company and by current and potential  customers,  errors in the software,
customizations  or  releases  might  not  be  detected  until  after  initiating
commercial shipments,  which could result in additional costs, delays,  possible
damage to the Company's  reputation  and could cause  diminished  demand for the
Company's products.  This could lead to customer  dissatisfaction and reduce the
opportunity to renew maintenance contracts or sell new licenses.

Continued Dependence on Large Contracts May Result in Lengthy Sales and
Implementation Cycles and Impact Revenue Recognition and Cash Flow.

         The sale and implementation of the Company's products generally involve
a significant commitment of resources by prospective customers. As a result, the
Company's  sales  process  often is subject to delays  associated  with  lengthy
approval processes attendant to significant capital expenditures,  definition of
special   customer   implementation   requirements,   and   extensive   contract
negotiations with the customer.  Therefore, the sales cycle varies substantially
from  customer to customer  and  typically  lasts  between four and nine months.
During this time the  Company may devote  significant  time and  resources  to a
prospective  customer,  including  costs  associated  with multiple site visits,
product  demonstrations  and feasibility  studies.  The Company may experience a
number of significant delays over which the Company has no control.  Because the
costs  associated  with the sale of the  product  are fixed in current  periods,
timing differences between incurring costs and recognizing of revenue associated
with a particular project may result.  Moreover, in the event of any downturn in
any  existing  or  potential  customer's  business  or the  economy in  general,
purchases of the Company's products may be deferred or canceled.

         Furthermore,  the  implementation of the Company's  products  typically
takes several months of  integration  of the product with the  customer's  other
existing systems and customer training. A successful  implementation  requires a
close  working  relationship  between the customer and members of the  Company's
professional service organization. These issues make it difficult to predict the
quarter  in which  expected  orders  will  occur.  Delays in  implementation  of
products  could  cause some or all of the  revenues  from those


                                       27
<PAGE>

licenses to be shifted  from the  expected  quarter to a  subsequent  quarter or
quarters.  In these  situations,  the Company  applies  contract  accounting  to
determine the recognition of license revenue.

         When the Company has provided  consulting services to implement certain
larger projects, some customers have in the past delayed payment of a portion of
license fees until  implementation  was complete and in some cases have disputed
the consulting  fees charged for  implementation.  There can be no assurance the
Company will not experience  additional delays or disputes  regarding payment in
the future,  particularly  if the  Company  receives  orders for large,  complex
installations.  Additionally,  as a result  of the  application  of the  revenue
recognition rules applicable to the Company's  licenses under generally accepted
accounting principles, license revenues may be recognized in periods after those
in which  the  respective  licenses  were  signed.  The  Company  believes  that
period-to-period  comparisons of its results of operations  should not be relied
upon as any indication of future performance.

Fluctuations in Quarterly Operating Results May Be Significant.

         The Company's  quarterly  operating results have in the past and may in
the future vary or decrease significantly depending on factors such as:

          o    Revenue from software sales;
          o    The timing of new product releases;
          o    Market  acceptance of new and enhanced  versions of the Company's
               products;
          o    Customer order  deferrals in  anticipation of enhancements or new
               products;
          o    the size and timing of  significant  orders,  the  recognition of
               revenue from such orders;
          o    changes in pricing policies by the Company and its competitors;
          o    the introduction of alternative technologies;
          o    changes in operating expenses;
          o    changes in the Company's strategy;
          o    personnel changes;
          o    the  effect of  potential  acquisitions  by the  Company  and its
               competitors;  and general domestic and international economic and
               political factors.

         The Company has limited or no control over many of these  factors.  Due
to all these  factors,  it is possible that in some future quarter the Company's
operating results will be materially adversely affected.

Fluctuations in Quarterly Operating Results due to Seasonal Factors.

         The Company expects to experience  fluctuations in the sale of licenses
for its  products  due to seasonal  factors.  The Company  has  experienced  and
anticipates  that it will continue to experience  relatively  lower sales in the
first fiscal quarter due to patterns in capital  budgeting and purchasing cycles
of current and  prospective  customers.  The Company also expects that sales may
decline  during  the summer  months of its third  quarter,  particularly  in the
European  markets.  Moreover,  the Company  generally  records most of its total
quarterly  license  revenues  in  the  third  month  of  the  quarter,   with  a
concentration  of these  revenues  in the last half of that  third  month.  This
concentration of license  revenues is influenced by customer  tendencies to make
significant  capital  expenditures at the end of a fiscal  quarter.  The Company
expects these revenue patterns to continue for the foreseeable future. Thus, its
results of operations may vary seasonally in accordance with licensing activity,
and will also depend upon recognition of revenue from such licenses from time to
time. The Company believes that  period-to-period  comparisons of its results of
operations  are not  necessarily  meaningful and should not be relied upon as an
indication of future performance.



                                       28
<PAGE>

General Economic Conditions May Affect Operations.

         As business has grown, the Company has become  increasingly  subject to
the  risks  arising  from  adverse  changes  in  domestic  and  global  economic
conditions.  Because of the recent economic slowdown in the United States and in
other parts of the world,  many  companies  are delaying or reducing  technology
purchases and investments.  Similarly, the Company's customers may delay payment
for Company  products  causing  accounts  receivable  to increase.  In addition,
terrorist  attacks could further  contribute to the slowdown in the economies of
North  America,  Europe  and Asia.  The  overall  impact to the  Company of this
slowdown is difficult to predict,  however,  revenues could decline, which would
have an  adverse  effect  on the  Company's  results  of  operations  and on its
financial condition, as well as on its ability to sustain profitability.

Competition in the Customer Relationship Management Software Market is Intense.

         The Company competes in the CRM software market.  This market is highly
competitive and the Company expects  competition in the market to increase.  The
Company's competitors include large public companies such as Oracle,  PeopleSoft
and Siebel, as well as traditional  enterprise  resource planning (ERP) software
providers  such as SAP that are  developing  CRM  capabilities.  In addition,  a
number of smaller  privately  held  companies  generally  focus only on discrete
areas of the CRM software marketplace.  Because the barriers to entry in the CRM
software  market are relatively  low, new  competitors  may emerge with products
that are  superior to the  Company's  products or that  achieve  greater  market
acceptance.  Moreover,  the CRM industry is currently  experiencing  significant
consolidation,  as larger public  companies seek to enter the CRM market through
acquisitions  or establish other  cooperative  relationships  among  themselves,
thereby  enhancing  their ability to compete in this market with their  combined
resources. Some of the Company's existing and potential competitors have greater
financial,  technical,  marketing and  distribution  resources than the Company.
These and other competitors pose business risks to the Company because:

          o    they  compete for the same  customers  that the Company  tries to
               attract;
          o    if the Company  loses  customers  to its  competitors,  it may be
               difficult or impossible to win them back;
          o    lower prices and a smaller market share could limit the Company's
               revenue generating ability, reduce its gross margins and restrict
               its ability to become profitable or sustain profitability; and
          o    competitors  may be  able to  devote  greater  resources  to more
               quickly respond to emerging  technologies and changes in customer
               requirements or to the development,  promotion and sales of their
               products.

There can be no assurance that the Company will be able to compete successfully
against current and future competitors or that competitive pressures faced by
the Company will not adversely affect its business and results of operations.

Risk of Dependence on Proprietary Technology.

         The Company depends heavily on proprietary  technology for its business
to succeed.  The  Company  licenses  its  products to  customers  under  license
agreements  containing,  among other terms,  provisions  protecting  against the
unauthorized use, copying and transfer of the licensed program. In addition, the
Company relies on a combination  of trade secrets,  copyright and trademark laws
and  confidentiality  procedures to protect the Company's  proprietary rights in
its  products  and  technology.   The  legal  protection  is  limited,  however.
Unauthorized  parties may copy aspects of the Company's  products and obtain and
use  information  that the Company  believes is  proprietary.  Other parties may
breach  confidentiality  agreements or other  contracts  they have made with the
Company.  Policing  unauthorized use of the Company's software is difficult and,
while the  Company  is unable to  determine  the  extent to which  piracy of its
software  products  exists,  software  piracy can be expected to be a persistent
problem. There can be no assurance that any of the


                                       29
<PAGE>

measures  taken by the  Company  will be  adequate  to protect  its  proprietary
technology or that its competitors will not independently  develop  technologies
that are substantially equivalent or superior to the Company's technologies.  If
the Company  fails to  successfully  enforce  its  proprietary  technology,  its
competitive position may be harmed.

         Other   software    providers   could   develop   similar    technology
independently,  which may  infringe on the  Company's  proprietary  rights.  The
Company  may not be able  to  detect  infringement  and may  lose a  competitive
position in the market  before it does so. In addition,  competitors  may design
around the Company's technology or develop competing  technologies.  The laws of
some foreign  countries do not protect the Company's  proprietary  rights to the
same extent as do the laws of the United States.  Litigation may be necessary to
enforce the Company's proprietary rights. Such litigation is time-consuming, has
an uncertain  outcome and could  result in  substantial  costs and  diversion of
management's  attention  and  resources.   However,  if  the  Company  fails  to
successfully enforce its proprietary rights, the Company's  competitive position
may be harmed.

Possible Infringement of Third Party Intellectual Property Rights.

         Substantial litigation and threats of litigation regarding intellectual
property  rights are common in this industry.  The Company is not aware that its
products and technologies  employ technology that infringes any valid,  existing
proprietary  rights of third  parties.  While  there  currently  are no  pending
lawsuits against the Company  regarding  infringement of any existing patents or
other  intellectual  property  rights or any notices that it is  infringing  the
intellectual  property rights of others, third parties may assert such claims in
the future. Any claims, with or without merit, could:

          o    be time consuming to defend;
          o    result in costly litigation or damage awards;
          o    divert management's attention and resources;
          o    cause product shipment delays; or
          o    require  the Company to seek to enter into  royalty or  licensing
               agreements, which may not be available on terms acceptable to the
               Company, if at all.

         A successful claim of intellectual  property  infringement  against the
Company or the  Company's  failure or  inability  to license  the  infringed  or
similar  technology  could seriously harm its business because the Company would
not be able to sell the impacted  product without  exposing itself to litigation
risk and  damages.  Furthermore,  redevelopment  of the  product  so as to avoid
infringement could cause the Company to incur significant additional expense and
delay.

Dependence on Technology from Third Parties.

         The  Company  integrates  various  third-party   software  products  as
components of its software.  The Company's  business  would be disrupted if this
software,  or functional  equivalents  of this  software,  were either no longer
available  to the Company or no longer  offered to the  Company on  commercially
reasonable  terms.  In either  case,  the  Company  would be  required to either
redesign its software to function with alternate third-party software or develop
these components itself,  which would result in increased costs and could result
in delays in software  shipments.  Furthermore,  the Company  might be forced to
limit the features available in its current or future software offerings.

Need to Expand Indirect Sales.

         The Company has historically sold its products through its direct sales
force  and a limited  number  of  distributors  (value-added  resellers,  system
integrators  and sales  agents).  The Company's  ability to achieve  significant
revenue  growth in the  future  will  depend  in large  part on its  success  in
establishing  relationships


                                       30
<PAGE>

with  distributors  and OEM partners.  The Company is currently  investing,  and
plans to continue to invest,  significant  resources  to expand its domestic and
international  direct sales force and develop  distribution  relationships.  The
Company's distributors also sell or can potentially sell products offered by the
Company's  competitors.  There can be no assurance that the Company will be able
to retain or attract a  sufficient  number of its existing or future third party
distribution  partners  or that such  partners  will  recommend,  or continue to
recommend,  the  Company's  products.  The  inability  to  establish or maintain
successful  relationships  with  distributors  and OEM  partners or to train its
direct sales force could cause its sales to decline.

Risks of Future Acquisitions.

         As part of Astea's growth  strategy,  it may pursue the  acquisition of
businesses,  technologies  or products that are  complementary  to its business.
Acquisitions  involve a number of special  risks  that could harm the  Company's
business,  including the diversion of management's attention, the integration of
the operations and personnel of the acquired  companies,  and the potential loss
of key employees. In particular,  the failure to maintain adequate operating and
financial  control  systems  or  unexpected   difficulties   encountered  during
expansion  could  harm  the  Company's  business.  Acquisitions  may  result  in
potentially dilutive issuances of equity securities,  and the incurrence of debt
and contingent  liabilities,  any of which could materially adversely affect the
Company's business and results of operations.

Risks Associated with International Sales.

         Astea's international sales accounted for 31% of the Company's revenues
in 2002, 33% in 2001, and 41% in 2000.  The Company  expects that  international
sales will  continue  to be a  significant  component  of its  business.  In the
Company's  efforts to expand its  international  presence,  it will face certain
risks which it may not be successful in addressing. These risks include:

          o    difficulties   in   establishing   and   managing   international
               distribution  channels and in  translating  products into foreign
               languages;
          o    difficulties  finding  staff to  manage  foreign  operations  and
               collect accounts receivable;
          o    difficulties enforcing intellectual property rights;
          o    liabilities  and  financial   exposure  under  foreign  laws  and
               regulatory requirements;
          o    fluctuations  in the value of  foreign  currencies  and  currency
               exchange rates; and
          o    potentially adverse tax consequences.

Additionally, the current economic difficulties in several Asian countries could
have an  adverse  impact on the  Company's  international  operations  in future
periods.  Moreover, the currency unification in Europe may change the market for
the Company's  business  software.  Any of these  factors,  if not  successfully
addressed, could harm the Company's operating results.

Research and Development in Israel;  Risks of Potential  Political,  Economic or
Military Instability.

         Astea's  principal  research and development  facilities are located in
Israel. Accordingly,  political,  economic and military conditions in Israel may
directly affect its business.  Continued  political and economic  instability or
armed  conflicts in Israel or in the region could  directly  harm the  Company's
business and operations.

         Since the  establishment  of the  State of Israel in 1948,  a number of
armed  conflicts have taken place between Israel and its Arab  neighbors,  and a
state of hostility has existed in varying  degrees and intensity.  This state of
hostility  has led to security and economic  problems for Israel.  The future of
peace efforts  between Israel and its Arab  neighbors,  particularly in light of
the recent  violence and  political  unrest in Israel and the rest of the Middle
East,  remains  uncertain and several  countries  still  restrict  business with
Israel


                                       31
<PAGE>

and Israeli  companies.  These restrictive laws and policies may also materially
harm the Company's operating results and financial condition.

Dependence on Key Personnel that are Required to Perform Military Service.

         Many of the  Company's  employees  in Israel are  obligated  to perform
annual military reserve duty in the Israeli army and are subject to being called
to active duty at any time, which could adversely  affect the Company's  ability
to pursue its planned  research  and  development  efforts.  The Company  cannot
assess the full impact of these  requirements  on its  workforce or business and
the Company  cannot  predict the effect of any  expansion  or reduction of these
obligations.  However,  in light of the recent violence and political  unrest in
Israel,  there is an  increased  risk that a number of the  Company's  employees
could be called to active  military  duty without  prior  notice.  The Company's
operations could be disrupted by the absence for a significant period of time of
one or more of our key employees or a significant  number of other employees due
to military service.  Any such disruption in the Company's operations could harm
its operations.

Risks Associated with Inflation and Currency Fluctuations.

         The  Company  generates  most of its  revenues  in U.S.  dollars  but a
portion of its costs  associated  with the Israeli  operations is in New Israeli
Shekels, or NIS. The Company also pays some of its international-based sales and
support  staff in local  currencies,  such as the British pound  sterling.  As a
result, the Company is exposed to risks to the extent that the rate of inflation
in  Israel  or in the U.K.  exceeds  the rate of  devaluation  of the NIS or the
British pound  sterling in relation to the U.S.  dollar or if the timing of such
devaluations  lags behind  inflation in Israel or in the U.K. In that event, the
cost of the  Company's  operations  in Israel and the U.K.  measured in terms of
U.S.  dollars will increase and the U.S.  dollar-measured  results of operations
will suffer. Historically, Israel has experienced periods of high inflation. The
Company's  results of  operations  also could be harmed if it is unable to guard
against  currency  fluctuations in Israel,  the U.K. or other countries in which
the Company may employ sales or support staff in the future.

Dependence on Key Personnel; Competition for Employees.

         The continued  growth and success largely depends on the managerial and
technical  skills  of  key  technical,   sales  and  management  personnel.   In
particular, the Company's business and operations are substantially dependent of
the performance of Zack B. Bergreen, the founder and chief executive officer. If
Mr. Bergreen were to leave or become unable to perform services for the Company,
the business would likely be harmed.  The Company's  success also depends,  to a
substantial degree, upon its continuing ability to attract,  motivate and retain
other talented and highly qualified personnel.  Competition for key personnel is
intense,  particularly  so in recent  years.  From time to time the  Company has
experienced  difficulty  in  recruiting  and  retaining  talented and  qualified
employees.  There  can be no  assurance  that the  Company  can  retain  its key
technical, sales and managerial employees or that it can attract,  assimilate or
retain other highly qualified  technical,  sales and managerial personnel in the
future. If the Company fails to attract or retain enough skilled personnel,  its
product development efforts may be delayed,  the quality of its customer service
may decline and sales may decline.

Concentration of Ownership.

         Currently,  Zack B. Bergreen,  the Company's chief  executive  officer,
beneficially  owns  approximately  47% of the  outstanding  Common  Stock of the
Company.  As a result,  Mr.  Bergreen  exercises  significant  control  over the
Company  through his ability to influence  and control the election of directors
and all other matters that require action by the Company's  stockholders.  Under
certain  circumstances,  Mr. Bergreen could prevent or delay a change of control
of the Company  which may be favored by a  significant  portion of the Company's
other stockholders,  or cause a change of control not favored by the majority of
the


                                       32
<PAGE>

Company's other stockholders. Mr. Bergreen's ability under certain circumstances
to influence, cause or delay a change in control of the Company also may have an
adverse effect on the market price of the Company's Common Stock.

Possible Volatility of Stock Price.

         The  market  price of the Common  Stock has in the past  been,  and may
continue to be, subject to significant  fluctuations  in response to, and may be
adversely  affected by, variations in quarterly  operating  results,  changes in
earnings  estimates by analysts,  developments  in the  software  industry,  and
adverse earnings or other financial  announcements of the Company's customers as
well as other  factors.  In addition,  the stock market can  experience  extreme
price and volume  fluctuations  from time to time  which may bear no  meaningful
relationship to the Company's performance. Broad market fluctuations, as well as
economic  conditions  generally and in the software industry  specifically,  may
result in material  adverse effects on the market price of the Company's  common
stock.

Limitations of the Company Charter Documents.

         The  Company's   Certificate  of  Incorporation   and  By-Laws  contain
provisions  that could  discourage a proxy  contest or make more  difficult  the
acquisition  of a  substantial  block of the Company's  common stock,  including
provisions  that allow the Board of  Directors  to take into account a number of
non-economic  factors,  such  as  the  social,  legal  and  other  effects  upon
employees,  suppliers,  customers and creditors,  when evaluating offers for the
Company's  acquisition.  Such  provisions  could limit the price that  investors
might be willing to pay in the future for the Company's  shares of common stock.
The Board of Directors is authorized to issue, without stockholder  approval, up
to 5,000,000 shares of preferred stock with voting,  conversion and other rights
and  preferences  that may be superior to the  Company's  common  stock and that
could adversely affect the voting power or other rights of our holders of common
stock. The issuance of preferred stock or of rights to purchase  preferred stock
could be used to discourage an unsolicited acquisition proposal.

Nasdaq SmallCap Market Compliance Requirements.

         The Company's common stock trades on The Nasdaq SmallCap Market,  which
has certain  compliance  requirements  for  continued  listing of common  stock,
including a series of financial  tests  relating to shareholder  equity,  public
float,  number of market makers and shareholders,  and maintaining a minimum bid
price per share for the Company's common stock. The result of delisting from The
Nasdaq  SmallCap  Market could be a reduction in the liquidity of any investment
in the Company's  common stock and a material adverse effect on the price of its
common  stock.  Delisting  could reduce the ability of holders of the  Company's
common stock to purchase or sell shares as quickly and as  inexpensively as they
could have done in the past. This lack of liquidity would make it more difficult
for the Company to raise capital in the future.  Although the Company is working
to comply with all continued listing requirements of Nasdaq SmallCap,  there can
be no assurance that the Company will be able to satisfy such requirements.

         Our common  stock must  maintain a minimum bid price of $1.00 per share
in order to remain eligible for continued listing on The Nasdaq SmallCap Market.
On October 25, 2002, the staff of The Nasdaq Stock Market, Inc. notified us that
we were not in  compliance  with the  minimum bid price  requirement.  The staff
advised us that we would be given until  April 21,  2003 within  which to comply
with the minimum bid price  requirement  in order to maintain our listing on The
Nasdaq  SmallCap  Market.  Nasdaq has  proposed  extending  the grace period one
additional  year for all  companies in this  situation  and we expect the SEC to
approve  the  blanket  extension.  If we  fail  to meet  the  continued  listing
standards by the time this additional grace period terminates on April 21, 2004,
our common stock would be delisted from the Nasdaq SmallCap  Market.  This would
likely have an adverse  impact on the trading  price and liquidity of our common
stock. If our common stock were to be delisted,  trading,  if any, in the common
stock may continue to be conducted on


                                       33
<PAGE>

the OTC Bulletin Board upon  application by the requisite  market makers.  It is
possible,  however,  that Nasdaq will revise the applicable  rules to provide an
extended grace period.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

         The  Company's  exposure to market  risk for changes in interest  rates
relates primarily to the Company's  investment  portfolio.  The Company does not
have any derivative financial  instruments in its portfolio.  The Company places
its  investments in instruments  that meet high credit  quality  standards.  The
Company is adverse to principal loss and ensures the safety and  preservation of
its invested funds by limiting default risk, market risk and reinvestment  risk.
The Company is currently in the process of revamping its  investment  portfolio.
As a result,  as of December 31, 2002,  the Company's  investments  consisted of
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.

         The Company has  reviewed the impact of its  subsidiaries  dominated in
German deutsche marks,  French francs and the Dutch guilder  converting into the
Euro beginning  January 1, 2002.  This  conversion has had no material impact on
its  systems  related  to  the  Company's  business   activities  and  financial
reporting.  The Company is not aware of any  circumstances  indicating  that the
introduction  of the Euro  caused or will cause  material  misstatements  in the
Company's  accounting  records or adversely  affects business  operations in the
future.




                                       34
<PAGE>




Item 8.   Financial Statements and Supplementary Data.

Report of Independent Certified Public Accountants


Board of Directors

Astea International Inc. and Subsidiaries
Horsham, Pennsylvania

         We have audited the accompanying  consolidated  balance sheets of Astea
International  Inc. and  subsidiaries  as of December 31, 2002 and 2001, and the
related  consolidated  statements of operations,  stockholders'  equity and cash
flows  for  the  years  then  ended.   These   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion  on these  financial  statements  based  on our  audits.  The  financial
statements of Astea International Inc. and subsidiaries as of December 31, 2000,
and for the year then  ended  were  audited by other  auditors  who have  ceased
operations.  Those auditors expressed an unqualified  opinion on those financial
statements in their report dated March 10, 2001.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States of America.  Those standards  require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

         In our opinion,  the  financial  statements  referred to above  present
fairly, in all material respects,  the financial position of Astea International
Inc. and subsidiaries as of December 31, 2002 and 2001, and the results of their
operations  and their cash flows for the years then ended,  in  conformity  with
accounting principles generally accepted in the United States of America.





                               \s\BDO Seidman, LLP
                               -------------------
                                BDO Seidman, LLP









Philadelphia, PA
February 21, 2003





                                       35
<PAGE>



This is a copy of the audit report previously issued by Arthur Andersen LLP in
connection with Astea International Inc.'s filing on Form 10-K for the year
ended December 31, 2000. This audit report has not been reissued by Arthur
Andersen LLP in connection with this filing on Form 10-K, as Arthur Andersen LLP
ceased providing audit services as of August 31, 2002. The consolidated balance
sheet as of December 31, 2000 referred to in this report have not been included
in the accompanying financial statements.



To Astea International Inc.:

         We have audited the  accompanying  consolidated  balance sheet of Astea
International Inc. (a Delaware  corporation) and subsidiaries as of December 31,
2000,  and the related  consolidated  statements  of  operations,  stockholders'
equity and cash flows for each of the two years in the period ended December 31,
2000. These  consolidated  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audit.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States.  Those standards require that we plan and perform
the  audit  to  obtain  reasonable  assurance  about  whether  the  consolidated
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  consolidated  financial  statements.  An audit also includes  assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall  consolidated  financial  statement  presentation.  We
believe that our audit provides a reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present  fairly,  in all  material  respects,  the  financial  position of Astea
International  Inc. and subsidiaries as of December 31, 2000, and the results of
their  operations  and their  cash flows for each of the two years in the period
ended  December 31, 2000, in conformity  with  accounting  principles  generally
accepted in the United States.




                             \s\Arthur Andersen LLP
                             ----------------------
                               Arthur Andersen LLP








Philadelphia, PA
March 10, 2001



                                       36
<PAGE>
<TABLE>
<CAPTION>




                    ASTEA INTERNATIONAL INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS


       December 31,                                              2002                2001
       ----------------------------------------------------------------------------------------


                                  ASSETS
Current assets:
<S>                                                           <C>                <C>
 Cash and cash equivalents                                    $  4,967,000       $  4,071,000
 Investments available for sale                                          -          2,987,000
 Restricted cash                                                   300,000                  -
 Receivables, net of reserves of $1,018,000 and $955,000         7,936,000          7,343,000
 Prepaid expenses and other                                        691,000            822,000
                                                       --------------------------------------
   Total current assets                                         13,894,000         15,223,000

 Property and equipment, net                                       586,000            617,000
 Capitalized software development costs, net                     1,349,000          1,412,000
 Other assets                                                      614,000            763,000
                                                       --------------------------------------
   Total assets                                               $ 16,443,000       $ 18,015,000
                                                       ======================================


    LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current portion of long-term debt                           $          -       $     34,000
  Accounts payable and accrued expenses                          3,418,000          3,627,000
  Deferred revenues                                              4,027,000          4,249,000
                                                       --------------------------------------
   Total current liabilities                                     7,445,000          7,910,000



Commitments and Contingencies (Note 12)


Stockholders' equity:
 Preferred stock, $.01 par value, 5,000,000 shares
 authorized, none issued
                                                                         -                  -
 Common stock, $.01 par value, 25,000,000 shares
  authorized, 14,825,000 shares issued                             148,000            148,000
 Additional paid-in capital                                     22,674,000         22,674,000
 Accumulated comprehensive loss -
  translation adjustment                                        (1,039,000)        (1,256,000)
 Accumulated deficit                                           (12,568,000)       (11,239,000)
 Less: Treasury stock at cost, 221,000 and 227,000
   shares                                                         (217,000)          (222,000)
                                                       --------------------------------------
    Total stockholders' equity                                   8,998,000         10,105,000
                                                       --------------------------------------
    Total liabilities and stockholders' equity                $ 16,443,000       $ 18,015,000
                                                       ======================================
</TABLE>


        See accompanying notes to the consolidated financial statements.




                                       37
<PAGE>
<TABLE>
<CAPTION>




                    ASTEA INTERNATIONAL INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS


Years ended December 31,                                         2002            2001             2000

------------------------------------------------------------------------------------------------------------


Revenues:
<S>                                                       <C>               <C>               <C>
Software license fees                                     $  6,504,000      $  6,384,000      $  6,554,000
Services and maintenance                                    10,294,000        10,973,000        13,763,000
                                                          ------------------------------------------------

   Total revenues                                           16,798,000        17,357,000        20,317,000
                                                          ------------------------------------------------


Costs and expenses:
   Cost of software license fees                             1,262,000         1,224,000         1,199,000
   Cost of services and maintenance                          6,345,000         6,808,000        10,928,000
   Product development                                       1,781,000         2,590,000         2,744,000
   Sales and marketing                                       6,218,000         5,396,000         6,857,000
   General and administrative                                2,426,000         2,837,000         4,066,000
   Restructuring charges                                             -           333,000         1,101,000
                                                          ------------------------------------------------

   Total costs and expenses                                 18,032,000        19,188,000        26,895,000
                                                          ------------------------------------------------

Loss from operations before interest and taxes              (1,234,000)       (1,831,000)       (6,578,000)

Interest income                                                112,000           318,000         1,512,000
Interest expense                                                (6,000)           (9,000)          (16,000)
                                                          ------------------------------------------------
Loss from continuing operations before income taxes         (1,128,000)       (1,522,000)       (5,082,000)
Income tax expense                                             200,000                 -                 -
                                                          ------------------------------------------------
Loss from continuing operations                             (1,328,000)       (1,522,000)       (5,082,000)

Gain on sale of discontinued operations, net of taxes                -                 -           293,000
                                                          ------------------------------------------------

Net loss                                                   (1,328,000)       $ (1,522,000)     $(4,789,000)
                                                          ================================================


Basic and diluted net loss per share:
   Continuing operations                                   $    (0.09)       $     (0.10)      $    (0.35)
   Gain on sale of discontinued operations                          -                  -              .02
                                                          ------------------------------------------------

Net loss                                                   $    (0.09)       $     (0.10)      $    (0.33)
                                                          ================================================
Weighted average shares used in computing basic net
loss per share                                              14,603,000        14,631,000        14,570,000
                                                          ================================================
Weighted average shares used in computing diluted net
loss per share                                              14,620,000        14,631,000        14,570,000
                                                          ================================================


        See accompanying notes to the consolidated financial statements.


</TABLE>



                                       38
<PAGE>

<TABLE>
<CAPTION>




                                           ASTEA INTERNATIONAL INC. AND SUBSIDIARIES

                                        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


                                              Additional   Accumulated                               Total
                                  Common        Paid-in    ComprehensiveAccumulated   Treasury   Stockholders'   Comprehensive
                                    Stock       Capital        Loss       Deficit       Stock        Equity           Loss
                                    -----       -------        ----       -------       -----        ------           ----

<S>                               <C>          <C>            <C>          <C>                     <C>
Balance, January 1, 2000         $141,000     $ 52,242,000    $ (839,000)  $(4,927,000) $     -  $ 46,617,000
Exercise of stock options           6,000          998,000             -             -        -     1,004,000
Issuance of common stock
under                               1,000           22,000             -             -        -        23,000
employee stock purchase
plan
Stock issued to Board of Directors
in lieu of cash payment                 -            9,000             -             -                  9,000
Variable stock option                   -         (224,000)            -             -               (224,000)
benefit
Cash dividend to stockholders           -      (30,376,000)            -             -           $(30,376,000)
Accumulated comprehensive loss          -                -      (306,000)            -               (306,000)   $   (306,000)
Purchases of treasury stock             -                -             -                  (3,000)      (3,000)              -
Net loss                                -                -                  (4,789,000)        -   (4,789,000)     (4,789,000)
                                  --------------------------------------------------------------------------------------------------
Balance, December 31, 2000      $ 148,000       22,671,000    (1,145,000)   (9,716,000)   (3,000) $11,955,000    $ (5,095,000)
                                                                                                                   =================
Issuance of common stock
under employee stock purchase                        3,000                      (1,000)    4,000        6,000
plan
Purchases of treasury stock                                                             (223,000)    (223,000)
Accumulated comprehensive loss                                  (111,000)                      -     (111,000)    $  (111,000)
Net loss                                                                     1,522,000)        -   (1,522,000)     (1,522,000)
                                  --------------------------------------------------------------------------------------------------
Balance, December 31, 2001      $ 148,000       22,674,000    (1,256,000)  (11,239,000) (222,000)  10,105,000     $(1,633,000)
                                                                                                                   ================
Issuance of common stock
under employee stock purchase
plan                                     -               -             -        (1,000)    5,000        4,000
Accumulated comprehensive                -               -             -                       -
loss                                     -               -       217,000             -         -      217,000      $  217,000
Net loss                                 -               -             -     (1,328,000)           (1,328,000)     (1,328,000)
                                  --------------------------------------------------------------------------------------------------

Balance, December 31, 2002      $ 148,000     $ 22,674,000  $ (1,039,000) $(12,568,000)$(217,000) $(8,998,000)    $(1,111,000)

                                  ==================================================================================================
</TABLE>


        See accompanying notes to the consolidated financial statements.





                                       39
<PAGE>
<TABLE>
<CAPTION>




                    ASTEA INTERNATIONAL INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31,                                                          2002            2001              2000
---------------------------------------------------------------------------------------------------------------------------


Cash flows from operating activities:

<S>                                                                           <C>             <C>             <C>
Net loss                                                                      $ (1,328,000)   $ (1,522,000)   $ (4,789,000)

Adjustments to reconcile net loss to net cash used in operating activities:
Compensation (benefit) charge in connection with
Variable stock options                                                                   -               -        (224,000)
Gain on sale of discontinued business                                                    -               -        (149,000)
Loss on sale of investments                                                              -               -          28,000
Depreciation and amortization                                                    1,295,000       1,421,000       1,532,000
Officer's life insurance valuation                                                  59,000        (763,000)              -
Deferred income taxes                                                              200,000         370,000         188,000
Other                                                                                    -               -           9,000
Changes in operating assets and liabilities:
Receivables                                                                       (294,000)        460,000       1,292,000
Prepaid expenses and other
                                                                                   125,000         976,000        (152,000)
Accounts payable and accrued expenses
                                                                                   186,000      (2,262,000)     (1,522,000)
Accrued restructuring                                                             (385,000)        409,000        (775,000)
Deferred revenues                                                                 (203,000)       (268,000)        915,000
Other                                                                             (110,000)              -               -
                                                                           -------------------------------------------------
Net cash used in operating activities                                             (455,000)       (439,000)     (4,387,000)
                                                                           -------------------------------------------------
Cash flows from investing activities:
Net sales of investments available for sale                                      2,987,000         519,000      34,373,000
Purchases of property and equipment                                               (404,000)       (244,000)       (716,000)
Capitalized software development costs                                            (807,000)       (600,000)       (640,000)
Restricted cash                                                                   (300,000)              -               -
                                                                           -------------------------------------------------
Net cash provided by (used in) investing activities                              1,476,000        (325,000)     33,017,000
                                                                           -------------------------------------------------
Cash flows from financing activities:
Proceeds from exercise of stock options and
employee stock purchase plan                                                         4,000            6,000       1,027,000

Cash dividend to stockholders                                                            -               -      (30,376,000)
Net repayments of long-term debt                                                   (34,000)        (126,000)       (298,000)
Purchases of treasury stock                                                              -         (223,000)        (3,000)
                                                                           -------------------------------------------------
Net cash used in financing activities                                              (30,000)       (343,000)    (29,650,000)
                                                                           -------------------------------------------------
Effect of exchange rate changes on cash and cash
equivalents                                                                        (95,000)        (30,000)         70,000
                                                                           -------------------------------------------------
Net increase (decrease) in cash and cash equivalents                               896,000      (1,137,000)       (950,000)
Cash and cash equivalents balance, beginning of year
                                                                                 4,071,000       5,208,000       6,158,000
                                                                           -------------------------------------------------

Cash and cash equivalents balance, end of year                                  $4,967,000    $  4,071,000   $   5,208,000
                                                                           =================================================

Supplemental disclosure of cash flow information:
Cash paid for interest expense=                                                 $    6,000     $     9,000    $     16,000
                                                                           =================================================
</TABLE>


        See accompanying notes to the consolidated financial statements.





                                       40
<PAGE>




                    ASTEA INTERNATIONAL INC. AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


1.   Company Background

         Astea  International Inc. and Subsidiaries  (collectively the "Company"
or "Astea")  develops,  markets,  and supports  front-office  solutions  for the
Customer Relationship  Management ("CRM") software market.  Astea's applications
are designed specifically for organizations for which field service and customer
support are considered  mission critical aspects of business  operations.  Astea
solutions are used in industries such as information technology, medical devices
and diagnostic systems, industrial controls and instrumentation, retail systems,
office automation,  imaging systems,  facilities management,  telecommunications
and other industries with equipment sales and service requirements.


         The Company has incurred losses from continuing operations for the past
six  years and has used  available  cash and cash  equivalents  to  support  its
operating  activities.  In addition,  during 2000 the Company  distributed $30.4
million of cash to its stockholders.  Management  believes that its current cash
and cash  equivalents on hand and future operating cash flows will be sufficient
to fund  operations  for a reasonable  period of time beyond 2003. To the extent
that future  operating  cash flows,  revenues  and  decreased  expenses  are not
realized,  the Company's results of operations and financial  condition could be
materially and adversely affected, which may impact the Company's viability. The
accompanying  consolidated  financial  statements  have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.


2.   Summary of Significant Accounting Policies

     Principles of Consolidation

         The  consolidated  financial  statements  include the accounts of Astea
International  Inc.  and  its  wholly  owned  subsidiaries  and  branches.   All
significant  intercompany  accounts and  transactions  have been eliminated upon
consolidation.

     Use of Estimates

         The  preparation of financial  statements in conformity  with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

     Revenue Recognition

         The Company licenses  software under  noncancelable  perpetual  license
agreements.  License fee revenues are recognized  when a  noncancelable  license
agreement  is  executed,  the  product  has been  shipped,  the  license  fee is
determined to be fixed or determinable and collectibility is reasonably assured.
If the fee is not fixed or  determinable,  revenue  is  recognized  as  payments
become due from the customer.  If  collectibility  is not  considered  probable,
revenue is recognized  when the fee is collected.  If the payment of the license
fee  is  coincident  to  services,  which  are  deemed  to be  essential  to the
functionality of the software,  the license fee is deferred and recognized using
contract accounting over the period during which the services are performed. The
Company's software licensing agreements provide for


                                       41
<PAGE>

customer  support  that begins  after the  warranty  period.  The portion of the
license fee  associated  with  customer  support  during the warranty  period is
unbundled  from the  license fee and is  recognized  ratably  over the  warranty
period  (generally  90 days)  as  maintenance  revenue.  The  Company's  revenue
recognition  policy is in  accordance  with the American  Institute of Certified
Public   Accountants'   Statement  of  Position  No.  97-2,   "Software  Revenue
Recognition."

         Services  revenues,   which  include  consulting,   implementation  and
training,  are  recognized as  performed.  Maintenance  revenues are  recognized
ratably over the terms of the maintenance agreements.

     Cash and Cash Equivalents

         The Company considers all highly liquid  investments  purchased with an
original maturity of three months or less to be cash equivalents.

     Investments Available for Sale

         Pursuant to Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain  Investments in Debt and Equity Securities," the Company
determines the appropriate  classification  of debt and equity securities at the
time of purchase and  re-evaluates  such  designation  as of each balance  sheet
date. As of December 31, 2001, all short-term  investments  have been classified
as available-for-sale.  Available-for-sale securities are carried at fair value,
based on quoted market prices,  with  unrealized  gains and losses,  net of tax,
reported as a separate  component of  stockholders'  equity.  As of December 31,
2001, unrealized losses and gains were not material to the financial statements.
Realized gains and losses, computed using specific identification,  and declines
in  value  determined  to  be  permanent  are  recognized  in  the  consolidated
statements of  operations.  As of December 31, 2002,  there were no  investments
held available for sale.

     Property and Equipment

         Property and  equipment  are recorded at cost.  Property and  equipment
capitalized  under  capital  leases are  recorded  at the  present  value of the
minimum lease payments due over the lease term.  Depreciation  and  amortization
are provided using the  straight-line  method over the estimated useful lives of
the related assets or the lease term, whichever is shorter.  Gains and losses on
disposal are recognized in the year of the disposition. Expenditures for repairs
and maintenance are charged to expense as incurred and significant  renewals and
betterments are capitalized.

         The Company  reviews the carrying  values of its long-lived  assets for
possible  impairment  whenever events or changes in circumstances  indicate that
the carrying  amount of the assets may not be recoverable  based on undiscounted
estimated  future operating cash flows. As of December 31, 2002, the Company has
determined that no impairment has occurred.

     Capitalized Software Development Costs

         The Company capitalizes  software  development costs in accordance with
SFAS No. 86,  "Accounting for the Costs of Computer  Software to be Sold, Leased
or Otherwise  Marketed."  The Company  capitalizes  software  development  costs
subsequent  to  the  establishment  of  technological  feasibility  through  the
product's  availability  for  general  release.  Costs  incurred  prior  to  the
establishment  of technological  feasibility are charged to product  development
expense.  Development costs associated with product enhancements that extend the
original  product's  life  or  significantly   improve  the  original  product's
marketability  are also  capitalized  once  technological  feasibility  has been
established.  Software  development costs are amortized on a  product-by-product
basis over the  greater of the ratio of current


                                       42
<PAGE>

revenues  to total  anticipated  revenues or on a  straight-line  basis over the
estimated useful lives of the products (three to four years), beginning with the
initial release to customers.  The Company continually  evaluates whether events
or  circumstances  have occurred that indicate that the remaining useful life of
the  capitalized  software  development  costs  should  be  revised  or that the
remaining  balance of such assets may not be recoverable.  The Company evaluates
the  recoverability  of  capitalized  software  based  on the  estimated  future
revenues of each product.  As of December 31, 2002,  management believes that no
revisions to the remaining  useful lives or write-downs of capitalized  software
development costs are required.

     Major Customers

         In 2002 and  2000,  the  Company  had no  significant  customers  which
represented  10% of  revenues.  In 2001,  the  Company  had one  customer  which
represented 11% of revenue.

     Concentration of Credit Risk

         Financial  instruments which potentially  subject the Company to credit
risk consist of cash equivalents and accounts  receivable.  The Company's policy
is to limit the amount of credit  exposure to any one financial  institution and
place investments with financial  institutions  evaluated as being creditworthy,
or in  short-term  money  market and  tax-free  bond funds  which are exposed to
minimal  interest  rate and credit  risk.  Concentration  of credit  risk,  with
respect  to  accounts  receivable,  is  limited  due  to  the  Company's  credit
evaluation process.  The Company does not require collateral from its customers.
The Company's receivables consist principally of amounts due form companies that
sell  and  service  equipment  or  sell  and  deliver   professional   services.
Historically,  the  Company  has not  incurred  any  significant  credit-related
losses.

     Fair Value of Financial Instruments

         Due to the short term nature of these accounts,  the carrying values of
cash, cash equivalents,  investments  available for sale,  accounts  receivable,
accounts payable and accrued expenses approximate the respective fair values.

     Income Taxes

         The Company  recognizes  deferred  tax assets and  liabilities  for the
expected  future tax  consequences  of events that have been  recognized  in the
Company's financial statements or tax returns.  Under this method,  deferred tax
assets and  liabilities  are  determined  based on the  difference  between  the
financial statement carrying amounts and the tax bases of assets and liabilities
using  enacted  tax rates in effect  in the years in which the  differences  are
expected to reverse.

     Currency Translation

         The accounts of the  international  subsidiaries and branch  operations
are translated in accordance with SFAS No. 52, "Foreign  Currency  Translation,"
which  requires  that assets and  liabilities  of  international  operations  be
translated  using the  exchange  rate in effect at the balance  sheet date.  The
results of operations are translated at average  exchange rates during the year.
The effects of exchange rate fluctuations in translating  assets and liabilities
of international operations into U.S. dollars are accumulated and reflected as a
currency translation adjustment in the accompanying  consolidated  statements of
stockholders'  equity.  Transaction  gains and losses are  included in net loss.
There  are  no  material   transaction  gains  or  losses  in  the  accompanying
consolidated  financial statements for the periods presented.


                                       43
<PAGE>

      Net Income (Loss) Per Share

         The Company  presents  earnings per share in  accordance  with SFAS No.
128,  "Earnings per Share." Pursuant to SFAS No. 128, dual presentation of basic
and diluted  earnings per share ("EPS") is required for  companies  with complex
capital  structures on the face of the  statements of  operations.  Basic EPS is
computed by dividing net income (loss) by the weighted-average  number of common
shares  outstanding for the period.  Diluted EPS reflects the potential dilution
from the exercise or  conversion of  securities  into common  stock.  Options to
purchase  2,237,000,  1,588,000  and  1,129,000  shares of common  stock with an
average exercise prices per share of $1.25 $1.72 and $2.64,  were outstanding as
of December 31, 2002, 2001, and 2000,  respectively,  but were excluded from the
diluted  loss per common share  calculation  as the  inclusion of these  options
would have been antidilutive.

     Comprehensive Income (Loss)

         The Company follows SFAS No. 130 "Reporting Comprehensive Income." SFAS
No. 130 establishes  standards for reporting and  presentation of  comprehensive
income (loss) and its  components  (revenues,  expenses,  gains and losses) in a
full set of general-purpose  financial statements.  This statement also requires
that all  components of  comprehensive  income (loss) be displayed with the same
prominence as other financial  statements.  Comprehensive income (loss) consists
of net income (loss) and foreign currency translation  adjustments.  The effects
of SFAS No. 130 are  presented in the  accompanying  Consolidated  Statements of
Stockholders' Equity.

     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:
<TABLE>
<CAPTION>


                                                        2002               2001             2000
                                            ------------------------------------------------------------


<S>                                                  <C>               <C>                 <C>
Net loss - as reported                               $  (1,328,000)   $(1,522,000)    $  (4,789,000)


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                                       (303,000)      (386,000)         (348,000)

                                            ------------------------------------------------------------


Net loss - pro forma                                 $  (1,631,000)   $(1,908,000)    $  (5,137,000)
                                            ============================================================


Basic and diluted loss
per share - as reported                              $      (0.09)    $     (0.10)    $       (0.33)
Basic and diluted loss
per share - pro forma                                $      (0.11)    $     (0.13)    $       (0.35)
</TABLE>

                                       44
<PAGE>

         The weighted  average fair value of those  options  granted  during the
years ended December 31, 2002,  2001 and 2000 was estimated as $0.70,  $0.71 and
$1.60,  respectively.  The fair value of each option  grant is  estimated on the
date of grant using the  Black-Scholes  option-pricing  model with the following
weighted average assumptions:  risk-free interest rate of 4.19%, 5.45% and 6.35%
for 2002,  2001 and 2000 grants,  respectively;  an expected  life of six years;
volatility of 147%, 85% and 85%; and a dividend yield of zero for 2002, 2001 and
2000 grants, respectively.


     Reclassifications

         Certain  reclassifications  of prior  year  amounts  have  been made to
conform to the current year presentation.

     Earnings Per Share

         Basic  earnings  (loss) per share is computed  by  dividing  net income
(loss) by the weighted  average number of common shares  outstanding  during the
period.  Diluted  income per share is computed by dividing net income  (loss) by
the sum of weighted  average  number of common shares  outstanding  and dilutive
common equivalent shares outstanding during the period. Common equivalent shares
consist of the shares issuable upon exercise of stock options using the treasury
stock method.  The following table sets forth the computation of the denominator
for the calculation of basic and diluted loss per share:
<TABLE>
<CAPTION>

                                                                     2002             2001            2000
                                                                   -----------     ------------    -------------
<S>                                                                   <C>              <C>              <C>
    Denominator  (in thousands):
      Denominator for basic loss per share -
         weighted average shares outstanding                          14,603           14,631           14,570
      Stock Options                                                       17                -                -
                                                                   -----------     ------------    -------------
      Denominator for diluted loss per share -
         adjusted weighted average shares outstanding,
         assuming exercise of common equivalent shares                14,620           14,631           14,570
                                                                   ===========     ============    =============

</TABLE>


     Recent Accounting Standards or Accounting Pronouncements

         In November 2002, the FASB issued  Interpretation No. 45,  "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  including  Indirect
Guarantees  of   Indebtedness  of  Others"   ("Interpretation   No.  45").  This
Interpretation  elaborates  on the  existing  disclosure  requirements  for most
guarantees, including loan guarantees such as standby letters of credit. It also
clarifies  that at the time a  company  issues a  guarantee,  the  company  must
recognize an initial  liability for the fair market value of the  obligations it
assumes under that  guarantee and must disclose that  information in its interim
and  annual  financial  statements.  The  initial  recognition  and  measurement
provisions of  Interpretation  No. 45 apply on a prospective basis to guarantees
issued or modified after December 31, 2002. The adoption of  Interpretation  No.
45 is not  expected  to have a material  impact on our  consolidated  results of
operations, financial position or cash flows.

         Financial  Interpretation  Number (FIN) 46,  Consolidation  of Variable
Interest Entities, clarifies the application of Accounting Research Bulletin No.
51,  "Consolidated  Financial  Statements," to certain  entities in which equity
investors do not have the characteristics of a controlling financial interest or
do not have  sufficient  equity at risk for the entity to finance its activities
without additional  subordinated financial support from other parties. FIN 46 is
applicable  immediately for variable interest entities


                                       45
<PAGE>

created after January 31, 2003. For variable  interest entities created prior to
January 31, 2003,  the provisions of FIN 46 are applicable no later than July 1,
2003. This  Interpretation is not expected to have an effect on the consolidated
financial statements.

         In August 2001,  the FASB issued  Statement  No. 143,  "Accounting  for
Asset  Retirement  Obligations"  ("SFAS  143"),  which  provides the  accounting
requirements  for retirement  obligations  associated  with tangible  long-lived
assets. SFAS 143 requires entities to record the fair value of the liability for
an asset  retirement  obligation  in the period in which it is  incurred  and is
effective for our 2003 fiscal year.  The adoption of SFAS 143 is not expected to
have a material  impact on our  consolidated  results of  operations,  financial
position or cash flows.

         In October 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived  Assets"  ("SFAS 144").  SFAS 144 addresses
financial  accounting and reporting for the impairment or disposal of long-lived
assets.  This statement  supersedes SFAS Statement No. 121,  "Accounting for the
Impairment of Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed Of,"
and the  accounting and reporting  provisions of APB Opinion No. 30,  "Reporting
the  Results of  Operations-Reporting  the Effects of Disposal of a Segment of a
Business,  and  Extraordinary,  Unusual and  Infrequently  Occurring  Events and
Transactions."  This new pronouncement also amends Accounting  Research Bulletin
(ARB) No. 51 "Consolidated  Financial Statements," to eliminate the exception to
consolidation for a subsidiary for which control is likely to be temporary. SFAS
144  requires  that one  accounting  model be used for  long-lived  assets to be
disposed of by sale, whether previously held and used or newly acquired and also
broadens the  presentation of  discontinued  operations to include more disposal
transactions.  SFAS 144 is effective for fiscal years  beginning  after December
15, 2001 and interim periods within those fiscal years.  Adoption of SFAS 144 on
January 1, 2002,  did not have any impact on the Company's  financial  position,
cash flows or results of operations for the year ended December 31, 2002.

         In April 2002, the FASB issued  Statement No. 145,  "Rescission of FASB
Statements  No. 4, 44 and 64,  Amendment of FASB Statement No. 13, and Technical
Corrections"  ("SFAS 145").  The rescission of FASB No. 4, "Reporting  Gains and
Losses from  Extinguishment  of Debt"  applies to us.  FASB No. 4 required  that
gains  and  losses  from  extinguishment  of  debt  that  were  included  in the
determination  of net income be  aggregated  and, if material,  classified as an
extraordinary  item, net of the related income tax effect. SFAS 145 is effective
for our  fiscal  year  beginning  January 1,  2003.  Effective  January 1, 2003,
pursuant to SFAS 145, the losses on early  extinguishment  of debt, if any, will
be included in "Other  expenses" in the  Company's  consolidated  Statements  of
Operations.

         In June 2002, the FASB issued Statement No. 146,  "Accounting for Costs
Associated  with Exit or Disposal  Activities:  ("SFAS  146"),  which  addresses
financial  accounting and reporting for costs  associated  with exit or disposal
activities,  and  nullifies  Emerging  Issues Task Force  (EITF) Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)" which
previously governed the accounting treatment for restructuring activities.  SFAS
146 applies to costs  associated  with an exit activity that does not involve an
entity  newly  acquired in a business  combination  or with a disposal  activity
covered by SFAS 144. Those costs include, but are not limited to, the following:
(1) termination  benefits  provided to current  employees that are involuntarily
terminated under the terms of a benefit  arrangement that, in substance,  is not
an ongoing benefit arrangement or individual deferred-compensation contract, (2)
costs to  terminate  a contract  that is not a capital  lease,  and (3) costs to
consolidate  facilities or relocate employees.  SFAS 146 does not apply to costs
associated  with the  retirement of long-lived  assets covered by SFAS 143. SFAS
146  will be  applied  prospectively  and is  effective  for  exit  or  disposal
activities  initiated  after  December 31, 2002. The Company does not expect the
adoption of SFAS 146 to  materially  impact its financial  position,  results of
financial position, results of operations, or cash flows.

                                       46
<PAGE>

         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.

         In  November  2001,  the FASB  issued  EITF  01-14,  "Income  Statement
Characterization  of  Reimbursements   Received  for  "Out-of-Pocket"   Expenses
Incurred." The new guidance  requires that billings for  out-of-pocket  expenses
that are  reimbursed  by the  customer  are to be included in revenues  with the
corresponding  expense  included in cost of sales.  EITF 01-14 is required to be
applied for fiscal years beginning after December 15, 2001.  During fiscal years
2002,  2001 and 2000,  the  Company  billed  $273,000,  $256,000  and  $382,000,
respectively,  of reimbursable  expenses to customers.  During 2002, the Company
adopted this new guidance  and restated all prior  periods  presented to reflect
the appropriate reclassifications.


3.        Discontinued Operations


         In September, 1998, the Company sold one of its subsidiaries,  Bendata,
Inc.  Included  in the  accounting  in the year of the sale  were  reserves  for
additional  expenses  expected to be incurred.  As expenses  related to the sale
were paid, they were charged against the reserve.  During 2000 it was determined
that all expenses related to the sale had been paid in full. As a result,  there
was excess in the reserve of $91,000.  This overaccrual was reversed in 2000 and
included in gain from discontinued operations.

         On December 31, 1998, Astea completed the sale of Abalon AB, another of
its subsidiaries.  Part of the sales proceeds was deposited into escrow to cover
costs  expected to be incurred by the purchaser.  In September  2000, the unused
balance of the escrow  account,  $144,000,  was distributed and included in gain
from discontinued operations. In addition, excess reserves for expected expenses
related to the sale of $58,000  were also  reversed in 2000 and  included in the
gain from discontinued operations.

4.        Restructuring and Other Charges

         During the fourth quarter of 2001, the Company recorded a restructuring
charge of $409,000 in connection  with severance costs to downsize the Company's
employment roles ($211,000) and eliminate  excess office space  ($198,000).  For
the year ended December 31, 2002, the Company made payments of $386,000  related
to the 2001  restructuring  plan,  including  severance payments of $194,000 and
lease  terminations of $192,000.  During the fourth quarter of 2002, the Company
evaluated  its  restructuring  accrual  based  on the  then  current  facts  and
determined  that  $23,000 was not needed for the  purposes of the 2001 plan and,
accordingly,  the accrual was reversed. This reversal is included in the general
and  administrative   expense  line  item  of  the  consolidated   statement  of
operations.

         During the second quarter of 2000, the Company recorded a restructuring
charge of  $1,101,000.  In addition,  $290,000 of unused  reserves from the 1999
restructuring  discussed below were  reclassified to cover expected  expenses of
the 2000  restructuring.  These  charges  resulted from closing an office in the
U.S.,  reducing  office  space  in  other  cities,  contractual  obligations  on
operating leases and severance


                                       47
<PAGE>

costs  related to the reduction of  personnel.  For the year ended  December 31,
2000, the Company made payments of $1,269,000  related to the 2000 restructuring
plan, including lease terminations and buy-outs of $314,000,  severance payments
of $944,000 and other costs of $11,000.  During the fourth  quarter of 2001, the
Company evaluated its restructuring  accrual based on the then current facts and
determined  that  $76,000 was not needed for the  purposes of the 2000 plan and,
accordingly, the accrual was reversed. During 2001, the Company made payments of
$46,000  related  to the 2000  restructuring  plan which  satisfied  outstanding
severance obligations.

<TABLE>
<CAPTION>

       5.            Investments Available for Sale

       December 31,                                               2002            2001
       ---------------------------------------------------------------------------------------

<S>                                                               <C>           <C>
              U.S. Government Agencies Securities                 $     -       $ 1,989,000
              Corporate and Municipal Bonds                             -           998,000
                                                              -------------------------------
                                                                  $     -       $ 2,987,000
                                                              ===============================
</TABLE>


         All  investments  available for sale had maturities of less than twelve
months from the respective balance sheet date. Losses on sales of securities for
the years ended  December 31, 2002,  2001 and 2000 were zero,  zero and $28,000,
respectively.

6.        Receivables
<TABLE>
<CAPTION>



              December 31,                                          2002          2001
             ---------------------------------------------------------------------------------

<S>                                                            <C>               <C>
              Billed receivables                               $ 5,701,000       $ 4,663,000
              Unbilled receivables                               2,235,000         2,680,000
                                                          -----------------------------------
                                                               $ 7,936,000       $ 7,343,000
                                                          ===================================
</TABLE>


         Billed  receivables  represent  billings for the Company's products and
services to end users and value added resellers. Billed and unbilled receivables
are  shown  net  of  reserves  for  estimated  uncollectible  amounts.  Unbilled
receivables  represent  contractual  amounts due within one year under  software
licenses, which are not yet billable.


         For the years  ended  December  31,  2002,  2001 and 2000,  the Company
recorded bad debt expense of $255,000,  $648,000, and $889,000 and write-offs of
$470,000, $1,293,000 and $336,000.


7.        Property and Equipment

<TABLE>
<CAPTION>

                                                                                   December 31,
                                                        Useful Life         2002                 2001
                                                        -----------         ----                 ----


<S>                                                <C>                          <C>          <C>
             Computers and related
                equipment                                   3               $ 2,575,000     $ 3,323,000
             Furniture and fixtures                         10                  471,000         469,000
             Equipment under capital leases                 3                   988,000         988,000
             Leasehold improvements                     Lease term              111,000         112,000
             Office equipment                              3-7                  633,000         428,000
                                                                         ----------------------------------
                                                                              4,778,000       5,320,000

             Less:  Accumulated
                depreciation and amortization                               (4,192,000)      (4,703,000)
                                                                         ----------------------------------
                                                                         $     586,000     $    617,000
                                                                         ===================================
</TABLE>

                                       48
<PAGE>


         Depreciation and amortization  expense for the years ended December 31,
2002, 2001 and 2000 was $425,000, $769,000 and $732,000, respectively.

         Equipment under capital leases includes  telephone  systems,  computers
and  related  equipment.  Title  to the  property  is  owned  by  the  financing
companies.  The gross book value of equipment under capital lease is $988,000 as
of December  31, 2002 and 2001.  Accumulated  amortization  on  equipment  under
capital  lease as of  December  31,  2002 and 2001 was  $969,000  and  $925,000,
respectively.
<TABLE>
<CAPTION>

8.        Capitalized Software Development Costs

              December 31,                                                     2002               2001
              ------------------------------------------------------------------------------------------

<S>                                                                      <C>                 <C>
              Capitalized software development costs                     $ 4,505,000          $ 3,698,000
              Less:  Accumulated amortization                             (3,156,000)          (2,286,000)

                                                                  ----------------------------------------

                                                                         $ 1,349,000          $ 1,412,000
                                                                  ========================================
</TABLE>


         The Company capitalized  software development costs for the years ended
December  31,  2002,   2001  and  2000  of  $807,000,   $600,000  and  $640,000,
respectively.  Amortization  of software  development  costs for the years ended
December  31,  2002,  2001  and  2000  was  $870,000,   $800,000  and  $800,000,
respectively.
<TABLE>
<CAPTION>


9.        Other Assets


                  December 31,                                             2002            2001
              ------------------------------------------------------------------------------------------
<S>                                                                    <C>                 <C>
                  Cash surrender value of life insurance
                  policies                                             $     574,000       $   563,000
                  Deferred tax asset                                               -           200,000
                  Security deposit                                            40,000                 -
                                                                  ========================================
                                                                       $     614,000       $  763,000
                                                                  ========================================


10.       Accounts Payable and Accrued Expenses


                  December 31,                                             2002                 2001
              ------------------------------------------------------------------------------------------

             Accounts payable                                              $ 926,000          $ 1,023,000
             Accrued compensation and related benefits                     1,494,000            1,223,000
             Income taxes payable                                            146,000               70,000
             Accrued professional services                                   175,000              101,000
             Other accrued liabilities                                       677,000              801,000

                                                                  ----------------------------------------
                                                                         $ 3,418,000          $ 3,627,000
                                                                  ========================================

</TABLE>



                                       49
<PAGE>
<TABLE>
<CAPTION>





11.       Income Taxes

                    The provision (benefit) for income taxes is as follows:

             Years ended December 31,        2002               2001          2000
              --------------------------------------------------------------------------
             Current:
<S>                               <C>                    <C>
Federal                                 $        -        $(170,000)      $   (188,000)
State                                            -               -               -
Foreign                                          -               -               -

                              ---------------------------------------------------------
                                                 -         (170,000)          (188,000)
Deferred:
Federal                                    200,000          170,000            188,000
                              ---------------------------------------------------------
                                           200,000               -               -
                              =========================================================

Continuing Operations                    $ 200,000        $      -          $(100,000)
Discontinued Operations:
Income from discontinued
operations                                       -               -               -
Gain on sale of discontinued
operations                                       -               -            100,000
                              ---------------------------------------------------------
                                         $ 200,000        $      -          $    -
                              =========================================================
</TABLE>
<TABLE>
<CAPTION>


The  approximate  income tax effect of each type of temporary  difference  is as
follows:

              December 31,                            2002               2001
              -------------------------------------------------------------------


              Deferred income tax assets:
<S>                                                   <C>                  <C>
Revenue recognition                               $    27,000         $    23,000
Accruals and reserves not
currently deductible for tax                          461,000             487,000
Benefit of net operating loss carryforward          3,693,000           3,367,000
Depreciation                                          119,000             174,000
Alternative minimum tax                               370,000             370,000
Capital loss carryforward                              10,000              10,000
                                             ------------------------------------
                                                    4,680,000           4,431,000

Deferred income tax liabilities:
Capitalized software development costs               (499,000)           (523,000)
                                             ------------------------------------
                                                    4,181,000           3,908,000

Valuation reserve                                  (4,181,000)         (3,708,000)
                                             ------------------------------------

Net deferred income tax asset                    $          -         $   200,000
                                             ====================================
</TABLE>


         In 2002, the Company has provided a valuation  allowance for all of its
net  deferred tax asset based on an  assessment  of what portion of the asset is
more likely than not to be realized.  The amount of the deferred tax  considered
realizable as of December 31, 2001 relates to a portion of  alternative  minimum
tax credits, which have an indefinite carryforward period.

         In the yer ended December 31, 2001 and 2000,  there was no income taxes
due to the  Company's  loss  position.  During 2002,  the Company  wrote off the
balance of its deferred tax asset of $200,000.

                                       50
<PAGE>

         The Company has a tax holiday in Israel which expires in 2005.  The net
impact on 2002,  2001 and 2000 of the tax holiday was a decrease in net loss and
net loss per share by $100,193, $172,938 and $38,916, and $0.01, $0.01 and zero,
respectively.

         As  of  December  31,  2002,  the  Company  had a  net  operating  loss
carryforward  for United  States  federal  income tax purposes of  approximately
$18,600,000.  Included in the  aggregate  net  operating  loss  carryforward  is
$7,761,000  of tax  deductions  related to equity  transactions,  the benefit of
which will be credited to stockholders'  equity,  if and when realized after the
other tax deductions in the carryforwards have been realized.  The net operating
loss carryforward begins to expire in 2016.

         The Company  does not provide for federal  income taxes or tax benefits
on the  undistributed  earnings  or  losses  of its  international  subsidiaries
because earnings are reinvested and, in the opinion of management, will continue
to be  reinvested  indefinitely.  At  December  31,  2002,  the  Company had not
provided federal income taxes on cumulative earnings of individual international
subsidiaries of $1,300,000  ($278,000 earned during 2002). Should these earnings
be  distributed  in the form of dividends  or  otherwise,  the Company  would be
subject to both U.S. income taxes and withholding taxes in various international
jurisdictions. Determination of the related amount of unrecognized deferred U.S.
income tax liability is not practicable  because of the complexities  associated
with its hypothetical  calculation.  As noted above, the Company has significant
net operating loss  carryforwards  for U.S.  federal income taxes purposes which
are  available to offset the  potential tax liability if the earnings were to be
distributed.

12.       Commitments and Contingencies

         The  Company  leases  facilities  and  equipment  under   noncancelable
operating  leases.  Rent expense under all operating  leases for the years ended
December  31,  2002,  2001 and 2000 was  $970,000,  $1,002,000  and  $1,396,000,
respectively.

          Future  minimum  lease  payments  under  the  Company's  leases  as of
December 31, 2002 are as follows:

                                                          Operating Leases
                                                          ----------------
              2003                                                $    782,000
              2004                                                     770,000
              2005                                                     555,000
              2006                                                     465,000
              2007                                                     469,000
              Thereafter                                               972,000
                                                    ----------------------------
              Total minimum lease payments                         $ 4,013,000
                                                    ============================



         On September 11, 2002, $300,000 of cash was pledged as collateral on an
outstanding letter of credit related to a lease obligation and was classified as
restricted  cash on the balance sheet.  The letter of credit is due to expire on
September 11, 2003, but may be extended until September 2004.


         The Company is from time to time  involved in certain legal actions and
customer  disputes arising in the ordinary course of business.  In the Company's
opinion,  the outcome of such actions will not have a material adverse effect on
the Company's financial position or results of operations.


                                       51
<PAGE>

13.       Profit Sharing Plan/Savings Plan

         The Company  maintains a voluntary  profit  sharing  plan,  including a
Section 401(k) feature,  covering all qualified and eligible employees.  Company
contributions to the profit sharing plan are determined at the discretion of the
Board of Directors. The Company matches 25% of eligible employees' contributions
to the 401(k) plan up to a maximum of 1.5% of each employee's compensation.  The
Company expensed approximately $57,000, $33,000 and $133,000 for the years ended
December 31, 2002, 2001, and 2000, respectively.


14.       Equity Plans

     Stock Option Plans

         The Company has Stock Option Plans (the "Plans") under which  incentive
and  non-qualified  stock  options  may be granted to its  employees,  officers,
directors  and others.  Generally,  incentive  stock options are granted at fair
value,  become  exercisable  over a  four-year  period,  and are  subject to the
employee's continued  employment.  Non-qualified options are granted at exercise
prices  determined  by the Board of Directors and vest over varying  periods.  A
summary of the status of the  Company's  stock  options as of December 31, 2002,
2001 and 2000 and changes during the years then ended is as follows:
<TABLE>
<CAPTION>

                                                                                    OPTIONS
                                                     OPTIONS OUTSTANDING           EXERCISABLE
                                                     -------------------           -----------
                                  Shares                          Wtd. Avg.                     Wtd. Avg.
                                Available                         Exercise                       Exercise
                                for Grant         Shares            Price          Shares         Price
                                ------------------------------------------------------------------------------
<S>                                <C>            <C>             <C>                   <C>           <C>
Balance, January 1, 2000           394,000        1,878,000       $      2.33      702,000       $ 2.08
Granted at market                 (780,000)         780,000              2.37
Cancelled                          849,000         (849,000)             2.89
Cancelled outside Plan                   -           (9,000)             1.69
Exercised                                -         (671,000)             1.49
                                -----------------------------------------------------------------------------
Balance, December 31, 2000         463,000        1,129,000              2.64      256,000         4.20
Authorized                       1,400,000                -                 -
Granted at market or above        (661,000)         661,000              1.00
Cancelled                          199,000         (199,000)             4.51
Cancelled outside of plan                -           (3,000)             1.69
Expired                            (13,000)               -                 -
                                -----------------------------------------------------------------------------
Balance, December 31, 2001       1,388,000         1,588,000             1.72      408,000         2.44
Granted at market                 (869,000)          869,000             0.72
Cancelled                          220,000          (220,000)            2.04
Expired                             (5,000)               -                 -
                                -----------------------------------------------------------------------------
Balance, December 31, 2002         734,000         2,237,000       $     1.25      688,000        $ 1.79
                                ==============================================================================

</TABLE>


         The  following  table  summarizes   information   about  stock  options
outstanding at December 31, 2002:
<TABLE>
<CAPTION>

                                              OPTIONS OUTSTANDING                           OPTIONS EXERCISABLE
                                 ----------------------------------------------------    --------------------------------

                                                   Weighted
                                                    Average           Weighted                         Weighted
           Range of               Number           Remaining          Average           Number          Average
            Exercise           Outstanding        Contractual       Exercise Price     Exercisable   Exercise Price
            --------           -----------       -----------        --------------     -----------   --------------
            Prices                                Life (yrs)
            ------                                ----------
<S>      <C>             <C>        <C>              <C>               <C>             <C>               <C>
         $ 0.55   -      $0.97      1,620,000        7.52              $0.82           340,000           $0.91
           1.06   -       1.69        409,000        7.57               1.43           179,000            1.54
           2.50   -       6.25        208,000        5.52               4.27           169,000            3.84
     ---------------------------  -----------        ----                          -----------
         $ 0.55   -      $6.25      2,237,000        7.34               1.25           688,000            1.79
                                  ===========                                      ===========
</TABLE>

                                       52
<PAGE>

         In  September  1998,  the Company  repriced  all  outstanding  employee
options (not including those issued under the Director Plan) to $1.69,  the fair
market  value  on the new  grant  date.  As this  reduction  in  exercise  price
represented the third  repricing of these options,  variable plan accounting was
triggered  requiring  intrinsic  value  to be  remeasured  at the  end  of  each
reporting  period.  The resultant  change in each period was charged or deducted
from expense for that period.  The ultimate  value of the options was determined
upon exercise or other  settlement of the option.  During 2000, all options were
exercised or terminated and the final cumulative  charge to expense was adjusted
to $163,000.


     Dividend Distribution

              On June 30, 2000, the Company paid a dividend of $2.05, or
$30,376,000.


     Employee Stock Purchase Plan

         In May 1995,  the Company  adopted an employee stock purchase plan (the
"ESPP")  which  allows  full-time   employees  with  one  year  of  service  the
opportunity  to purchase  shares of the Company's  common stock through  payroll
deductions at the end of bi-annual  purchase periods.  The purchase price is the
lower  of 85% of the  average  market  price  on the  first  or last  day of the
purchase periods.  An employee may purchase up to a maximum of 500 shares or 10%
of the employee's base salary,  whichever is less,  provided that the employee's
ownership  of the  Company's  stock  is less  than 5% as  defined  in the  ESPP.
Pursuant to the ESPP, 250,000 shares of common stock were reserved for issuance.
During  2002,  2001 and 2000,  shares  purchased  were 6,000,  8,145 and 11,207,
respectively.  At December 31, 2002,  there were 155,581  shares  available  for
future purchases.

     15.      Related Party Transactions

         In each of 2002,  2001 and 2000, the Company paid premiums on behalf of
the  majority  stockholder  and his wife of  $69,600  under  split  dollar  life
insurance  policies.  As of January 1, 2003,  the Company has  terminated  these
premium payments.

         In November 2001, the Company entered into a five year  development and
license agreement with a third party owned in part by a Director of the Company.
The agreement requires the third party to design,  develop and deliver a product
to be re-sold by the Company in exchange for a royalty fee. In  accordance  with
the agreement, the Company paid royalty fees totaling $37,500 and $7,500 in 2002
and 2001, respectively.





                                       53
<PAGE>
<TABLE>
<CAPTION>

16.       Geographic Segment Data

          The Company  operates in one business  segment.  The  following  table
presents information about the Company's operations by geographic area:

Year ended December 31,              2002                   2001                2000
----------------------------------------------------------------------------------------------
    <S>                               <C>                 <C>               <C>
Revenues:
  Software license fees
     United States
   Domestic                         $  4,296,000      $  3,470,000      $  2,193,000
   Export                                 72,000           209,000            62,000
                                ------------------------------------------------------------
     Total United States
       software license fees           4,368,000         3,679,000         2,255,000

    Europe                             1,151,000         1,625,000         3,010,000
    Other foreign                        985,000         1,080,000         1,289,000
                                ------------------------------------------------------------
     Total foreign software
       license fees                    2,136,000         2,705,000         4,299,000
                                ------------------------------------------------------------
     Total software license fees       6,504,000         6,384,000         6,554,000

  Services and maintenance
    United States
     Domestic                          7,037,000         7,700,000         9,393,000
     Export                              252,000           351,000           506,000
                                ------------------------------------------------------------
       Total United States
        service and
        maintenance revenue            7,289,000         8,051,000         9,899,000
                                ------------------------------------------------------------
     Europe                            2,126,000         2,104,000         2,749,000
     Other foreign                       879,000           818,000         1,115,000
                                ------------------------------------------------------------
         Total foreign service and
          maintenance revenue          3,005,000         2,922,000         3,864,000

                                ------------------------------------------------------------
         Total service and
         maintenance revenue          10,294,000        10,973,000        13,763,000
                                ------------------------------------------------------------
`        Total revenue              $ 16,798,000      $ 17,357,000      $ 20,317,000
                                ============================================================


Income (loss) from continuing
Operations
  United States                     $ (1,332,000)     $  1,748,000)     $ (3,970,000)
  Europe                                (454,000)         (908,000)       (1,287,000)
  Other foreign                          458,000         1,134,000            468,000
                                ------------------------------------------------------------
    Total loss from
    continuing operations           $ (1,328,000)     $ (1,522,000)     $ (4,789,000)
                                ============================================================


Identifiable assets
  United States                     $ 11,786,000      $ 13,274,000      $ 16,002,000
  Europe                               2,753,000         3,240,000         4,112,000
  Other foreign                        1,904,000         1,501,000         1,539,000
                                ------------------------------------------------------------
     Total assets                   $ 16,443,000      $ 18,015,000      $ 21,653,000
                                ============================================================
</TABLE>

                                       54
<PAGE>
<TABLE>
<CAPTION>






17.       Selected Consolidated Quarterly Financial Data (Unaudited)

    2002 Quarter Ended                             Dec 31,             Sep 30,            Jun 30,           Mar 31,
    -------------------------------------------------------------------------------------------------------------------
<S>                                                <C>                <C>             <C>                   <C>
    Revenues                                       $ 4,697,000        $ 4,846,000     $ 3,302,000           $ 3,953,000
    Gross profit                                     2,975,000          2,875,000       1,295,000             2,046,000
    Net (loss) income                                  299,000            229,000     (1,562,000)              (294,000)

    Basic and diluted net (loss) income                   0.02               0.02          (0.11)                (0.02)
      per share

    Shares used in computing basic
      and diluted net (loss) income                     14,604             14,604          14,602                14,602
    per
      share (in thousands)



    2001 Quarter Ended                              Dec 31,            Sep 30,           Jun 30,            Mar 31,
    ------------------------------------------ ----------------- ------------------- ----------------- -------------------
    Revenues                                       $ 4,317,000        $ 3,516,000     $ 4,473,000           $ 5,051,000
    Gross profit                                     2,252,000          1,791,000       2,358,000             2,924,000
    Net (loss) income                                (935,000)          (560,000)       (196,000)              169,000

    Basic and diluted net (loss)
      income per share                                  (0.06)             (0.04)          (0.01)                  0.01

    Shares used in computing basic and
      diluted net (loss) income per
      share (in thousands)                              14,616             14,612          14,661                14,698


</TABLE>



                                       55
<PAGE>



Item 9.   Changes in and  Disagreements  with  Accountants  on Accounting and
          Financial Disclosure.


     None.


                                    PART III


Item 10.  Directors and Executive Officers of the Registrant.

         The Directors and the  executive  officers of the Company,  their ages,
business  experience  and the positions  currently held by each such person with
the Company are listed below.

         Zack B.  Bergreen,  57,  founded  the Company in  November  1979.  From
November 1979 to January 1998, he served as President, Treasurer and Director of
the Company.  In April 1995, he was elected Chief Executive Officer and Chairman
of the Board of Directors.  From January 1998 through  August 1999 Mr.  Bergreen
served as Chairman of the Board and Chief  Executive  Officer.  Mr. Bergreen has
served as  Chairman  of the Board  since  August  1999,  when Bruce R. Rusch was
elected President and Chief Executive Officer.  Following the resignation of Mr.
Rusch on May 30, 2000, Mr. Bergreen resumed the positions of President and Chief
Executive Officer, and on June 27, 2000, was elected as Secretary.  Mr. Bergreen
holds  Bachelor  of  Science  and  Master  of  Science   degrees  in  Electrical
Engineering from the University of Maryland.

         Adrian A. Peters,  53, joined the Company's  Board of Directors in June
2000 and is a member of the Audit Committee.  He is the President and founder of
Tellstone  (previously  Boston  Partners),  a firm that specializes as strategic
advisors to high-tech firms.  From 1986 through 1995, he held various  positions
as  President  and CEO of Siemens  AG  companies.  Prior to that he held  senior
positions at Federale,  an investment firm, Arthur Andersen  Consulting and IBM.
Mr. Peters studied  science and engineering at the University of Stellenbosch in
South Africa as well as management at Harvard Business School.

         Isidore Sobkowski,  46, joined the Company's Board of Directors in June
2000  and is a  member  of the  Audit  Committee.  He  currently  serves  as the
President  and Chief  Executive  Officer of  PrimeCloud,  Inc. From 1994 through
1998,  he served as the President and Chief  Executive  Officer at  Professional
Help Desk,  and upon its  acquisition by Computer  Associates,  served from 1998
through  2000 as a Division  Vice  President at Computer  Associates.  From 1984
through 1994, he served as President  and Chief  Executive  Officer of Knowledge
Associates,  Ltd.  Mr.  Sobkowski  received  a Bachelor  of Science in  Computer
Science  from  City  College  of New  York in 1978 and a Master  of  Science  in
Computer Science from City College of New York in 1982.

         Eric Siegel,  46, is the newest member of the Astea Board of Directors.
In 1983,  he  founded  Siegel  Management  Company,  a strategy  consulting  and
investment banking advisory for a diverse client base, principally middle market
firms.  His expertise  and  experience  had been  utilized by growth  companies,
public market and acquisition candidates, industry consolidators and turnarounds
alike. He also serves on the Board of NCO Group (NASDAQ: NCOG) and PSCInfoGroup.
An  established  author,  he has been a lecturer  in  management  at the Wharton
School for over twenty years.  Mr.  Siegel is a magna cum laude  graduate of the
University  of  Pennsylvania  and  received an MBA from the Wharton  School with
honors.

         Rick Etskovitz, 48, joined the Company in June 2000 when he was elected
Chief Financial  Officer and Treasurer.  He is a certified public accountant and
shareholder of a local  accounting  firm. From 1986 through 1993, he worked with
the Company as the engagement partner with its independent  accounting firm. Mr.
Etskovitz  received his Bachelor of Science degree from the  Pennsylvania  State
University  in 1976 and his


                                       56
<PAGE>

Masters of Business  Administration  Degree from the Wharton  Graduate School at
the University of Pennsylvania in 1980.

         John  Tobin,  37,  joined  the  Company in June 2000 and serves as Vice
President and General  Counsel.  Mr. Tobin is responsible for handling the legal
affairs of the Company,  along with various  corporate  development and business
development initiatives. Prior to joining Astea, John worked at the Philadelphia
law firms Pepper Hamilton and Wolf Block, specializing in corporate transactions
and intellectual property.  Prior to returning to the Philadelphia area in 1998,
he worked as a corporate and entertainment  lawyer in Los Angeles,  specializing
in  motion  picture,  television  and music  transactions  and  licensing,  most
recently with PolyGram Filmed Entertainment. Mr. Tobin holds a B.S. in Economics
from the Wharton School of the University of  Pennsylvania in 1987, and received
his law degree from the University Of Pennsylvania in 1992.

         John Reed,  46, joined Astea as Vice  President of North American Sales
in July 2002. As a senior executive,  he is chartered with leading the Company's
sales  operations to drive revenues and market share.  John brings to Astea over
twenty years of  experience in technology  sales and sales  management,  ranging
from Supply Chain solutions and intelligent software application development, to
computer-based  control  systems.  Prior to  joining  Astea,  John  held  senior
management   positions   at  i2   Technologies,   where   he   focused   on  the
Telecommunications   and   Discrete   Manufacturing   industries,   and   Gensym
Corporation,  where he was vice  president  of sales  for  their  communications
business  unit.  He began his  career in sales  with such  industry  leaders  as
American  Cyanamid  and  AccuRay  Corporation  (now part of ABB).  John  holds a
Bachelor  of Science in  Chemistry  from Penn State  University  and a Master in
Business Administration from Temple University.

         Ashim Bose, 41, joined Astea as Vice President of Customer  Services in
February  2003.  Mr. Bose is  responsible  for all customer  service and support
operations  in Astea.  In this  capacity  he manages  the  delivery  of support,
customization,  and  professional  services to the North  American  client base.
Ashim  comes to Astea from i2  Technologies  where he was a  Practice  Director,
Consulting  Services.  While at i2, he built a supply chain  practice of over 40
consultants  generating  over $12M in  revenue  and  documenting  over  $350M in
customer savings in just 4 years.  Earlier, he was in technical management roles
at GTE (now Verizon) and Space Telescope Science Institute, a NASA affiliate. He
brings over 12 years of consulting  experience on global technology  rollouts in
multiple sectors  including  Automotive,  Industrial,  Consumer Goods,  Telecom,
High-tech,  Public  Sector,  and  Healthcare.  He has  spent the last 9 years in
progressive  management  roles  successfully  delivering   multi-million  dollar
projects to Fortune 1000 clients.  He started his career at Marktech Systems,  a
boutique  consulting firm in the Healthcare sector. He holds a Ph.D. in Computer
Science from the Univ. of Minnesota and a M.S. in  Mechanical  Engineering  from
the Univ. of Houston.

         Pat Noble, 54, Managing  Director,  Europe.  Pat brings to Astea thirty
years of expertise in the  service-centric  environment  on which the Company is
uniquely   focused.   Having  joined  the   organization  in  1996,  he  assumed
responsibility for managing European operations in 1999. Prior to joining Astea,
Pat was  managing  director at both  Servasure  Systems  Ltd.,  where he built a
leading  Field  Service  Management  System,  and at Vistec  Computer  Services.
Earlier he was  responsible  for  implementation  and  management  of  hardware,
software and control systems at organizations  such as Midlectron Ltd.,  Digital
Equipment  Co. (DEC) and Accuray Ltd.  During his tenure he also led and trained
large teams of field  service  engineers and  customers.  He began his career in
field service as a maintenance  engineer with Burroughs Business  Machines.  Pat
received his  Bachelors  Degree with honors in Electronic  Engineering  from the
University of Bradford.

         Paul Rahme, 34, Managing  Director,  Asia Pacific.  Paul is responsible
for growing  Astea  International's  overall Asia Pacific  business  with direct
responsibility for sales, service, marketing,  finance and administrative teams.
Paul  comes to Astea  with an  extensive  background  in Asia  Pacific  regional
management.  Previously,  he  was  founder  and  CEO  Annual  Long-Term  of  vEO
Management, an international business

                                       57
<PAGE>

development firm specializing in assisting US technology  companies expand their
business  throughout  the  region.  During  his  tenure,  he  assisted  numerous
companies in entering the market by establishing  partnerships  and distribution
networks in Australia,  New Zealand,  Singapore,  Hong Kong, Malaysia, China and
Japan. Paul has also held senior management  positions with Infinium,  Wall Data
and Visual Concepts Software.  He holds both a business management degree and an
advanced marketing degree from NSW Technical College. His undergraduate work was
completed at St. Ignatius College,  Riverview in Sydney. An established industry
speaker,  Paul  most  recently  presented  at  Voice  2001  on  Biometric  Voice
Verification.

         Danny  Klein,   43,  Vice  President  of  Development.   Mr.  Klein  is
responsible  for  managing  the  development   center  which  brings  to  market
value-driven  solutions.  In this  capacity,  he executes new product  lines and
provides second-level support to Astea offices and customers all over the world.
He is also  chartered with  enhancing the company's  technology  infrastructure.
With over 20 years of  experience  managing the  development  of  market-leading
software,  Danny  comes to Astea with a strong  background  in  programming  and
development methodologies. Previously, he was a software development and project
manager at MLL  Jerusalem,  a service  bureau for  banking  software  solutions.
During his tenure, Danny managed the development of financial  applications.  He
also led the company's technology upgrade to rapid application development tools
to meet the needs for rapid innovation, scalability and security required in the
industry. Prior to MLL, he managed various systems in the Israeli defense forces
(IDF).  Danny holds a  Bachelors  degree in computer  programming  from  C.E.I.E
Institute  and a degree in senior  business  management  from the  University of
Haifa.

         Section  16(a) of the Exchange Act  requires the  Company's  Directors,
executive  officers and holders of more than 10% of the  Company's  Common Stock
(collectively,  "Reporting Persons") to file with the Commission initial reports
of ownership and reports of changes in ownership of Common Stock of the Company.
Such  persons  are  required by  regulations  of the  Commission  to furnish the
Company  with copies of all such  filings.  Based on its review of the copies of
such filings  received by it with respect to the fiscal year ended  December 31,
2002 and written  representations  from certain Reporting  Persons,  the Company
believes  that all  Reporting  Persons  complied  with all Section  16(a) filing
requirements in the fiscal year ended December 31, 2002.






                                       58
<PAGE>


Item 11.  Executive Compensation.

         The following table sets forth information  concerning the compensation
for  services  in all  capacities  to the  Company  for the fiscal  years  ended
December 31, 2002, 2001, and 2000, of the following  persons (i) each person who
served as Chief  Executive  Officer during the year ended December 31, 2002, and
(ii) four other executive officers of the Company in office at December 31, 2002
who earned more than $100,000 in salary and bonus in fiscal 2002  (collectively,
the "Named Executive Officers").
<TABLE>
<CAPTION>

                                SUMMARY COMPENSATION TABLE

                                                                                       Long-Term
                           Annual Compensation                                         Compensation
                 ------------------------------------                                 -------------
                                                                                       Securities
                                                                                      Underlying
                                                                                        Options         All Other
      Name and Principal Position          Year        Salary ($)     Bonus ($)      (# of shares)   Compensation ($)
      ---------------------------          -----       -----------    ----------     -------------   ----------------
<S>                                         <C>         <C>                                           <C>       <C>
Zack B. Bergreen                            2002        $ 130,000         --              --          $  69,600 (2)
Chairman of the Board and Chief             2001          130,000         --          400,000 (1)        69,600 (2)
    Executive Officer                       2000          233,971         --              --            242,897 (3)

Rick Etskovitz                              2002        $ 127,050         --           50,000 (4)           --
Chief Financial Officer                     2001          119,160         --           25,000 (4)           --
                                            2000           55,538         --           25,000 (4)           --

John Tobin (5)                              2002        $ 151,033         --           50,000 (4)           --
Vice President and General Counsel          2001          126,895         --           25,000 (4)           --
                                            2000           42,957         --           25,000 (4)           --

John Reed (6)                               2002        $  65,538      $ 32,847        210,000(4)           --
Vice President, North American Sales

Lynn Ledwith (7)                            2002        $  87,667      $ 16,125        100,000(4)           --
Vice President, Marketing
</TABLE>

(1)  Represents options to purchase shares of Common Stock, which was awarded as
     compensation for a decrease taken in salary.
(2)  Includes premiums for term, split-dollar life insurance paid by the Company
     on behalf of the Named Executive Officer.
(3)  Includes premiums for term, split-dollar life insurance paid by the Company
     on behalf of the Named Executive  Officer,  payout for consulting  services
     performed January 2000 through May 2000, and vacation payout.
(4)  Represents  options to purchase  shares of Common Stock,  which was awarded
     based on merit.
(5)  Compensation paid to Coleman Legal, a third party legal services provider.
(6)  John Reed joined Astea in July 2002.
(7)  Lynn Ledwith joined Astea in April 2002 and terminated in February 2003.



                                       59
<PAGE>


Option Grants in Last Fiscal Year

         The following  table sets forth each grant of stock options made during
the year ended December 31, 2002 to each of the Named Executive Officers:
<TABLE>
<CAPTION>

                                                                          Individual Grants
                                                                     -------------------------
                                               Percent of
                                                 Total                                 Potential Realizable Value at
                               Number of        Options                                           Assumed
                               Securities      Granted to                               Annual Rates of Stock Price
                               Underlying      Employees      Exercise                    Appreciation for Option
                                Options        In Fiscal       Price     Expiration                 Terms(2)
Name                          Granted (#)        Year       ($/Share)(1)    Date                5%($) 10%($)
----                          -----------        ------     ------------    ----                ------------

<S>                            <C>                 <C>         <C>       <C>   <C>        <C>              <C>
Rick Etskovitz                 50,000(3)           7%          $0.89     05/10/2012       $72,486          $115,422

John Tobin                     50,000(3)           7%          $0.89     05/10/2012       $72,486          $115,422

John Reed                     210,000(3)           31%         $0.66     08/13/2012       $225,765         $359,493

Lynn Ledwith                  100,000(4)           15%         $0.89     05/10/2012       $144,972         $230,843
</TABLE>


(1)  The  exercise  price  per  share of each  option  was fixed by the Board of
     Directors.
(2)  Amounts  reported in these columns  represent  amounts that may be realized
     upon exercise of the options  immediately  prior to the expiration of their
     term assuming the specified  compounded  rates of appreciation (5% and 10%)
     on the market  value of the  Company's  Common  Stock on the date of option
     grant over the term of the options.  These numbers are calculated  based on
     rules  promulgated  by the  Commission  and do not  reflect  the  Company's
     estimate  of future  stock price  growth.  Actual  gains,  if any, on stock
     option  exercises and Common Stock  holdings are dependent on the timing of
     such exercise and the future  performance  of the  Company's  Common Stock.
     There can be no assurance  that the rates of  appreciation  assumed in this
     table can be achieved or that the amounts reflected will be received by the
     individual.
(3)  Options to purchase  shares will vest in equal  installments on each of the
     first four anniversaries of the grant date.
(4)  Options to purchase  shares will vest in equal  installments on each of the
     first  four  anniversaries  of the  grant  date.  Upon  termination  of her
     employment in February 2003,  100,000  options,  representing  the unvested
     portion of this grant, were cancelled.


Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

         The  following  table  sets  forth,  for  each of the  Named  Executive
Officers,  information  with respect to the exercise of stock options during the
year ended December 31, 2002 and the year-end value of unexercised options:
<TABLE>
<CAPTION>

                                                                                   Value of Unexercised
                               Shares                 Numbers of Unexercised       In-the-Money Options
              Name          Acquired on     Value       Options at Year End            at Year End
                            Exercise(#)   Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
                            -----------   ---------- -------------------------- -------------------------

<S>                                                       <C>     <C>
      Zack B. Bergreen          --            --          100,000/400,000                  --

      Rick Etskovitz            --            --            18,750/81,250                  --

      John Tobin                --            --            31,250/68,750                  --

      John Reed                 --            --             --/210,000                    --

      Lynn Ledwith              --            --             --/100,000                    --

</TABLE>

                                       60
<PAGE>



Employment Agreements and Severance Arrangements with Executive Officers

         The Company has not entered into employment  agreements with any of its
current Executive Officers.

Board Interlocks and Insider Participation

         No executive  officer of the Company served as a member of the Board of
Directors,  compensation  committee,  or other committee  performing  equivalent
functions,  of  another  entity  one of whose  executive  officers  served  as a
Director  of the  Company.  Other than Mr.  Bergreen,  no person who served as a
member of the Board was,  during  the  fiscal  year  ended  December  31,  2002,
simultaneously  an officer,  employee or consultant of the Company or any of its
subsidiaries.  Mr. Bergreen did not participate in any Company  determination of
his own personal compensation matters.

Compensation of Directors

         Directors who are not employees of the Company  receive a fee of $1,000
for  attendance  at each regular and special  meeting of the Board of Directors,
and are also reimbursed for their reasonable  out-of-pocket expenses incurred in
attending meetings.  Non-Employee Directors may elect to receive, in lieu of the
foregoing cash compensation, unrestricted shares of Common Stock of the Company.
Shares of Common  Stock in lieu of cash  compensation  are  acquired at the fair
market value of the Common Stock on the last day of the calendar  quarter during
which the cash compensation was earned and foregone.  Non-employee Directors are
also eligible to receive  annual stock option  grants under the  Company's  1995
Non-Employee  Director  Stock Option Plan.  Directors  who are employees are not
compensated  for  their  service  on the  Board of  Directors  or any  committee
thereof.







                                       61
<PAGE>



Item 12. Security Ownership of Certain Beneficial Owners and Management.

         The  following  table sets forth as of March 19, 2003:  (i) the name of
each person who, to the knowledge of the Company,  owned  beneficially more than
5% of the shares of Common Stock of the Company  outstanding at such date;  (ii)
the name of each Director;  and (iii) the name of each current executive officer
of the  Company.  The  following  table also sets forth as of March 19, 2003 the
number  of  shares  owned  by each of such  persons  and the  percentage  of the
outstanding shares represented thereby, and also sets forth such information for
Directors, nominees and executive officers as a group.
<TABLE>
<CAPTION>

Name and Address Of Beneficial Owner                        Amount of Ownership(1)    Percent of Class(2)
------------------------------------                        ----------------------    -------------------

<S>             <C>                                                <C>                <C>
Zack B. Bergreen(3)                                                6,892,000          46.9%
 c/o Astea International
 455 Business Center Drive
 Horsham, Pennsylvania 19044

Adrian Peters (4)                                                     20,000          *

Isidore Sobkowski (4)                                                 20,000          *

Eric Siegel                                                                0          *

Rick Etskovitz (5)                                                    52,500          *

John Tobin (6)                                                        50,000          *

John Reed                                                                  0          *

Lynn Ledwith                                                               0          *
<FN>


All current directors, nominees and executive officers as          7,034,500          47.5%
a group (8 persons)(1)-(7)
_________________________
   *      Less than 1% of the outstanding shares of Common Stock.
(1)  Except as noted in the footnotes to this table, each person or entity named
     in the table has sole  voting  and  investment  power  with  respect to all
     shares of Common  Stock  owned,  based  upon  information  provided  to the
     Company by  Directors,  officers  and  principal  stockholders.  Beneficial
     ownership is determined in accordance  with the rules of the Securities and
     Exchange  Commission (the  "Commission") and includes voting and investment
     power with respect to shares of Common Stock  subject to options  currently
     exercisable or exercisable within 60 days after the Record Date ("presently
     exercisable stock options").
(2)  Applicable  percentage  of  ownership  as of the Record  Date is based upon
     14,606,530 shares of Common Stock  outstanding as of that date.  Beneficial
     ownership is determined in accordance  with the rules of the Commission and
     includes  voting and  investment  power with  respect to shares.  Presently
     exercisable  stock  options  are  deemed   outstanding  for  computing  the
     percentage ownership of the person holding such options, but are not deemed
     outstanding for computing the percentage of any other person.
(3)  Includes  782,834  shares  of  Common  Stock  held by  trusts  of which Mr.
     Bergreen and his wife are the only trustees,  272,342 shares held by trusts
     with  independent  trustees,  and 279,019  shares of Common Stock held by a
     family  limited  partnership  of which  Mr.  Bergreen  is the sole  general
     partner.  Also  included are 100,000  options,  all of which are  currently
     exercisable.
(4)  Board Of Directors.  Represents  options to purchase 20,000 shares,  all of
     which are currently  exercisable.
(5)  Chief Financial Officer.  Represents 15,000 shares of common stock and also
     options  to  purchase   37,500  shares,   18,750  of  which  are  currently
     exercisable,  and 18,750 of which shall become  exercisable within the next
     60 days.
(6)  Vice President and General Counsel.  Represents  options to purchase 50,000
     shares, 31,250 of which are currently exercisable and 18,750 of which shall
     become exercisable within the next 60 days.
</FN>
</TABLE>






                                       62
<PAGE>



Item 13.   Certain Relationships and Related Transactions

         None.



                                     PART IV



Item 14.   Controls and Procedures

Evaluation Of Disclosure Controls and Procedures

         Within  the 90 days  prior  to the  date of this  report,  the  Company
carried out an evaluation,  under the supervision and with the  participation of
the Company's  management,  of the  effectiveness of the design and operation of
the Company's  disclosure controls and procedures pursuant to Rule 13a-15 of the
Securities Exchange Act of 1934. Based upon that evaluation, the Company's Chief
Executive  Officer and Chief  Financial  Officer  concluded  that the  Company's
disclosure  controls and  procedures  are  effective in timely  alerting them to
material  information  relating to the Company  required to be  disclosed in the
Company's  periodic SEC reports.  There have been no significant  changes in the
Company's internal control or in other factors which could significantly  affect
internal controls subsequent to the date the Company carried out its evaluation.



Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

         (a)(1)(A)  Consolidated Financial Statements.

                    i)   Consolidated  Balance  Sheets at December  31, 2002 and
                         2001
                    ii)  Consolidated  Statements  of  Operations  for the years
                         ended December 31, 2002, 2001, and 2000
                    iii) Consolidated Statements of Stockholders' Equity for the
                         years ended December 31, 2002, 2001, and 2000
                    iv)  Consolidated  Statements  of Cash  Flows  for the years
                         ended December 31, 2002, 2001, and 2000
                    v)   Notes to the Consolidated Financial Statements

         (a)(1)(B) Report of Independent Public Accountants.

         (a)(2)   Schedules.

                  a) Schedule II - Valuation and Qualifying Accounts

                     Schedule listed above has been omitted because the
                     information required to be set forth therein is not
                     applicable or is shown in the accompanying Financial
                     Statements or notes thereto.



                                       63
<PAGE>

<TABLE>
<CAPTION>

         (a)(3)   List of Exhibits.

         The following exhibits are filed as part of and incorporated by
reference into this Annual Report on Form 10-K:

         Exhibit No Description

<S>      <C>                                             <C> <C>
         2.1      Stock Purchase Agreement, dated August 14, 1998, among the Company, Ixchange Technology Holdings Limited,
                  Network Data, Inc., Bendata, Inc., Bendata (Europe) Limited LLC, and Bendata Holding, Inc. (Incorporated
                  herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated September 4, 1998).
         2.2      Stock Purchase Agreement, dated December 31, 1998, among the Company, Network Data, Inc. and
                  Industri-Matematik International Corporation (Incorporated herein by reference to Exhibit 2.1 to the
                  Company's Current Report on Form 8-K dated December 31, 1998).
         3(i).1   Certificate of Incorporation of the Company (Incorporated herein by reference to
                  Exhibit 3.1 to the Company's Registration Statement on Form S-1, as amended (File No. 33-92778)).
         3(ii).1  By-Laws of the Company (Incorporated herein by reference to Exhibit 3.2 to the
                  Company's Registration Statement on Form S-1, as amended (File No. 33-92778)).
         4.1      Specimen certificate representing the Common Stock (Incorporated herein by
                  Reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1, as amended (File No.
                  33-92778)).
         10.1     1994 Amended Stock Option Plan (Incorporated herein by reference to Exhibit 10.1 to the Company's
                  Registration Statement on Form S-1, as amended (File No. 33-92778)).
         10.2     Form of Non-Qualified Stock Option Agreement under the 1994 Amended Stock
                  Option Plan (Incorporated herein by reference to
                  Exhibit 10.2 to the Company's Registration Statement
                  on Form S-1, as amended (File No. 33-92778)).
         10.3     Form of Incentive Stock Option Agreement under the 1994 Amended Stock Option
                  Plan (Incorporated herein by reference to Exhibit
                  10.3 to the Company's Registration Statement on Form
                  S-1, as amended (File No. 33-92778)).
         10.4     1991 Amended Non-Qualified Stock Option Plan (Incorporated herein by reference
                  to Exhibit 10.4 to the Company's Registration Statement on Form S-1, as amended (File No. 33-92778)).
         10.5     Form of Non-Qualified Stock Option Agreement under the 1991 Amended Non-
                  Qualified Stock Option Plan (Incorporated herein by
                  reference to Exhibit 10.5 to the Company's
                  Registration Statement on Form S-1, as amended (File
                  No. 33-92778)).
         10.6     1995 Employee Stock Purchase Plan (Incorporated herein by reference to Exhibit 10.6 to the Company's
                  Registration Statement on Form S-1, as amended (File No. 33-92778)).
         10.7     Amendment No. 1 to 1995 Employee Stock Purchase Plan (Incorporated herein by
                  reference to Exhibit 10.2 to the Company's Quarterly
                  Report on Form 10-Q for the fiscal quarter ended
                  September 30, 1997).
         10.8     1995 Employee Stock Purchase Plan Enrollment/Authorization Form (Incorporated
                  herein by reference to Exhibit 4.7 to the Company's Registration Statement on Form S-8, filed on September
                  19, 1995 (File No. 33-97064)).



                                       64
<PAGE>

         10.9     Amended and Restated 1995 Non-Employee Director Stock
                  Option Plan (Incorporated herein by reference to
                  Exhibit 10.9 to the Company's Annual Report on Form
                  10-K for the year ended December 31, 1997).
         10.10    Form of Non-Qualified Stock Option Agreement under the 1995 Non-Employee
                  Director Stock Option Plan (Incorporated herein by
                  reference to Exhibit 4.5 to the Company's
                  Registration Statement on Form S-8, filed on
                  September 19, 1995 (File No. 33-97064)).
         10.11    1997 Stock Option Plan (Incorporated herein by reference to Exhibit 10.10 to the
                  Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996).
         10.12    Form of Non-Qualified Stock Option Agreement under the 1997 Stock Option Plan.
                  (Incorporated herein by reference to Exhibit 10.11 to
                  the Company's Annual Report on Form 10-K for the
                  fiscal year ended December 31, 1996).
         10.13    Form of Incentive Stock Option Agreement under the 1997 Stock Option Plan
                  (Incorporated herein by reference to Exhibit 10.12 to
                  the Company's Annual Report on Form 10-K for the
                  fiscal year ended December 31, 1996).
         10.14    1998 Stock Option Plan (Incorporated herein by reference to Exhibit 10.14 to the Company's Annual Report on
                  Form 10-K for the year ended December 31, 1997).
         10.15    Form of Non-Qualified Stock Option Agreement under the 1998 Stock Option Plan.
                  (Incorporated herein by reference to Exhibit 10.15 to
                  the Company's Annual Report on Form 10-K for the year
                  ended December 31, 1997).
         10.16    Form of Incentive Stock Option Agreement under the 1998 Stock Option Plan.
                  (Incorporated herein by reference to Exhibit 10.16 to
                  the Company's Annual Report on Form 10-K for the year
                  ended December 31, 1997).
         10.17    Loan and Security Agreement, dated August 1, 1999, between
                  the Company and Silicon Valley Bank (Incorporated
                  herein by reference to Exhibit 10.1 to the Company's
                  Quarterly Report on Form 10-Q for the fiscal quarter
                  ended September 30, 1999).
         10.20    Modification Agreement dated April 30, 1998 by and
                  among the Company, PNC Bank, National Association and
                  PNC Leasing Corp. (Incorporated herein by reference
                  to Exhibit 10.1 to the Company's Quarterly Report on
                  Form 10-Q for the quarter ended March 31, 1998).
         10.22    Letter to John G. Phillips regarding severance terms (Incorporated herein by reference to Exhibit 10.22 to
                  the Company's Annual Report on Form 10-K for the year ended December 31, 1999).
         10.23    Letter to Bruce R. Rusch regarding employment terms. (Incorporated herein by reference to Exhibit 10.1 to
                  the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).
         10.24    Letter to Howard P. Kamins regarding employment terms (Incorporated herein by reference to Exhibit 10.24 to
                  the Company's Annual Report on Form 10-K for the year ended December 31, 1999).
         10.25    Consulting Agreement between the Company and Zack B.
                  Bergreen (Incorporated herein by reference to Exhibit
                  10.25 to the Company's Annual Report on Form 10-K for
                  the year ended December 31, 1999).
         10.26    Transfer of Rights Agreement regarding PowerHelp (Incorporated herein by reference to Exhibit 10.26 to
                  the Company's Annual Report on Form 10-K for the year ended December 31, 1999)
         10.27    Guaranty in connection with Transfer of Rights Agreement regarding PowerHelp (Incorporated herein by
                  reference to Exhibit 10.27 to the Company's Annual Report on Form 10-K for the year ended December 31,
                  1999).
         21.1*    Subsidiaries of the Registrant.


                                       65
<PAGE>

         23.1*    Consent of BDO Seidman, LLP.
         24.1*    Powers of Attorney (See the Signature Page).
         99.1*    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
                  Act of 2002 - President and Chief Executive Officer
         99.2*    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to       Section 906 of the
                  Sarbanes-Oxley Act of 2002 - Chief Financial Officer

                  -------------------
         *        Filed herewith
</TABLE>

         (b)      Reports on Form 8-K.

         The  Company  filed no current  reports on Form 8-K, or  amendments  to
current  reports on Form 8-K/A,  during the fiscal  quarter  ended  December 31,
2002.

         (c)      Exhibits.

         The Company hereby files as part of this Annual Report on Form 10-K the
exhibits listed in Item 14(a)(3) set forth above.




                                       66
<PAGE>


                                   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 28th day of March
2003.

                                      ASTEA INTERNATIONAL INC.


                                      By: /s/Zack Bergreen
                                          --------------------------------------
                                          Zack Bergreen
                                          President and Chief
                                          Executive Officer

                                POWER OF ATTORNEY

         KNOW  ALL MEN BY THESE  PRESENTS,  that  each  person  whose  signature
appears below constitutes and appoints Zack Bergreen and Rick Etskovitz, jointly
and severally,  his attorney-in-fact,  each with the power of substitution,  for
him in any and all  capacities,  to sign any  amendments  to this Report on Form
10-K and to file same,  with exhibits  thereto and other documents in connection
therewith,  with the Securities and Exchange  Commission,  hereby  ratifying and
confirming  all  that  each  of  said  attorney-in-fact,  or his  substitute  or
substitutes, may do or cause to be done by virtue hereof.

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated.

      Signature               Title                               Date
      ---------               -----                               ----

  /s/Zack Bergreen            President and Chief Executive       March 28, 2003
  ------------------
  Zack Bergreen               Officer (Principal Executive Officer)

  /s/Rick Etskovitz.          Vice President and Chief            March 28, 2003
  ------------------
  Rick Etskovitz              Financial Officer (Principal
                              Financial and Accounting
                              Officer)

  /s/Adrian Peters             Director                           March 28, 2003
  -------------------
  Adrian Peters


  /s/Zack Bergreen            Director                            March 28, 2003
  ------------------
  Zack Bergreen





                                       67
<PAGE>
                                 CERTIFICATIONS


I, Zack B. Bergreen, the Chief Executive Officer and Principal Executive Officer
of Astea International Inc. (the "Company"), certify that:

1.   I have reviewed this annual report on Form 10-K of Astea International
     Inc.;
2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this annual report;
3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;
4.   The registrant's other certifying officer and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   Designed such disclosure controls and procedures to ensure that
          material information relating to the registrant, including its
          consolidated subsidiaries, is made known to us by others within those
          entities, particularly during the period in which this annual report
          is being prepared;
     b)   Evaluated the effectiveness of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and
     c)   Presented in this annual report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying officer and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

     a)   All significant deficiencies in the design or operation of internal
          controls which could adversely affect the registrant's ability to
          record, process, summarize and report financial data and have
          identified for the registrant's auditors any material weaknesses in
          internal controls; and
     b)   Any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrant's internal
          controls; and

6.   The registrant's other certifying officer and I have indicated in this
     annual report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


Date:    March 28, 2003
                                          By:   /s/   Zack B. Bergreen
                                             ---------------------------------
                                              Zack B. Bergreen
                                              Chief Executive Officer
                                              (Principal Executive Officer)





                                       68
<PAGE>

I, Rick Etskovitz, the Chief Financial Officer and Principal Financial and Chief
Accounting Officer of Astea International Inc. (the "Company"), certify that:

1.   I have reviewed this annual report on Form 10-K of Astea International
     Inc.;
2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this annual report;
3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;
4.   The registrant's other certifying officer and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     d)   Designed such disclosure controls and procedures to ensure that
          material information relating to the registrant, including its
          consolidated subsidiaries, is made known to us by others within those
          entities, particularly during the period in which this annual report
          is being prepared;
     e)   Evaluated the effectiveness of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and
     f)   Presented in this annual report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying officer and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

     c)   All significant deficiencies in the design or operation of internal
          controls which could adversely affect the registrant's ability to
          record, process, summarize and report financial data and have
          identified for the registrant's auditors any material weaknesses in
          internal controls; and
     d)   Any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrant's internal
          controls; and

6.   The registrant's other certifying officer and I have indicated in this
     annual report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


Date:    March 28, 2003

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



                                       69
<PAGE>



               Consent of Independent Certified Public Accountants


Astea International, Inc.
Subsidiaries
Horsham, Pennsylvania

         We hereby consent to the incorporation by reference in the Registration
Statements  (Nos.  333-33825,  333-34865,  and  333-61981) on Form S-8 and (Nos.
333-11949  and  333-17459)  on  Form  S-3  of  Astea  International,   Inc.  and
subsidiaries of our report dated February 21, 2003, relating to the consolidated
financial statements of Astea International,  Inc. and subsidiaries appearing in
the Company's Annual Report on Form 10-K for the year ended December 31, 2002.




BDO Seidman, LLP
Philadelphia, PA


March  28, 2003



                                       70
<PAGE>