================================================================================
                                  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, 2001

                                       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.)

455 Business Center Drive, 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.

The  aggregate  market  value of the voting stock held by  nonaffiliates  of the
registrant as of March 25, 2002 (based on the closing price of $.80 as quoted by
Nasdaq National Market as of such date) was approximately $4,459,000.

As of March 25, 2002,  14,601,530  shares of the registrant's  Common Stock were
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None.
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<PAGE>



                                     TABLE OF CONTENTS





<TABLE>
<CAPTION>
                                                                                       Page
                  PART I
<S>                                                                                   <C>
Item 1.           Business                                                               3
Item 2.           Properties                                                            11
Item 3.           Legal Proceedings                                                     11
Item 4.           Submission of Matters to a Vote of Security Holders                   11

                  PART II

Item 5.           Market for Registrant's Common Equity and Related                     12
                  Stockholder Matters
Item 6.           Selected Financial Data                                               13
Item 7.           Management's Discussion and Analysis of Financial                     15
                  Condition and Results of Operations
Item 7A.          Quantitative and Qualitative Disclosures about Market Risk            26
Item 8.           Financial Statements and Supplementary Data                           27
Item 9.           Changes in and Disagreements with Accountants on                      48
                  Accounting and Financial Disclosure

                  PART III

Item 10.          Directors and Officers of the Registrant                              48
Item 11.          Executive Compensation                                                49
Item 12.          Security Ownership of Certain Beneficial Owners and                   52
                  Management
Item 13.          Certain Relationships and Related Transactions                        53

                  PART IV

Item 14.          Exhibits, Financial Statement Schedules, and Reports                  54
                  on Form 8-K

                  Signature Page                                                        57

</TABLE>



                                             2
<PAGE>


PART I

Item 1.           Business.

General

         Astea International Inc. ("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 CRM  solutions to automate
sales  and  service  business   processes  and  thereby   increase   competitive
advantages,  top-line revenue growth and profitability through better management
of information, people, assets and cash flows. Astea'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. Astea's focus on enterprise  solutions for
organizations  that  sell  and  service  equipment  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.  With  its  new   AllianceEnterprise  CRM  Suite
introduced  in 2001,  Astea has  grown its  product  portfolio  to also  include
integrated  management  applications  for  sales  and  marketing,  multi-channel
customer   contact    centers,    and    professional    services    automation.
AllianceEnterprise  includes  a  variety  of  mobile  wireless  and  web  portal
capabilities  and  features  such as  online  collaboration  to  involve  mobile
employees,  business  partners and customers in an  enterprise's  more efficient
management of workforce, assets and business relationships.

         AllianceEnterprise  includes  re-engineered versions of service modules
that were initially introduced as ServiceAlliance(R) in 1997 and a re-engineered
version of its sales force automation  product that was initially  introduced as
SalesAlliance  in 1999.  ServiceAlliance  and  SalesAlliance  were the Company's
initial   offerings   in   client-server   technology   following   a  long  and
highly-successful  history  with  its  DISPATCH-1(R)  legacy  system  solutions.
AllianceEnterprise   Suite   offerings  are  currently   being   engineered  for
client-server,  thin-client  and web  portal  applications  using  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.

         Astea's  software  has been  licensed to  approximately  547  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  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 its 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 advise and  participate in
ongoing product development efforts.

         Astea  provides  customers  with an array of  professional  consulting,
training and customer support services to implement its products, integrate them
with other corporate systems such as back-office financial and ERP applications,
and maintain the Astea  software  over its installed  life cycle.  The Company's
best


                                       3
<PAGE>

practices experience in service and sales management,  distribution,  logistics,
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 the new  AllianceEnterprise  Suite  products.  Marketing and sales of
licenses and services  related to DISPATCH-1 are limited to existing  DISPATCH-1
customers.

         Astea  continues to support  approximately  56 DISPATCH-1  customers on
maintenance contracts and offers a migration path to AllianceEnterprise with the
introduction  of  the  Company's  integrated  DISPATCH-1  to  AllianceEnterprise
Conversion  (iDAC) program in 2001.  The iDAC program  enables  long-time  Astea
users to leverage  their previous  investments  in DISPATCH-1  and  economically
deploy the latest and far superior AllianceEnterprise CRM technologies.


Current Product Offerings

AllianceEnterprise Suite

         AllianceEnterprise Suite products,  introduced in 2001, are designed to
increase business efficiencies by collapsing multiple,  interdependent  business
processes into an a consolidated  shared enterprise  system.  AllianceEnterprise
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. Customers'
return on investment in  AllianceEnterprise  is obtained from better utilization
of employees and material  resources,  improved sales  execution and new revenue
generation,  improved  service  delivery  and  revenue  recovery,  and  stronger
relationships with customers and partners.

         AllianceEnterprise  is an international  product with multi-lingual and
multi-currency   capabilities.   As  of  December  31,  2001  AllianceEnterprise
solutions  have been licensed to over 175 customers  worldwide,  which  includes
licensees of  ServiceAlliance  between 1997 and 2001 and  SalesAlliance  between
1999 and 2001.  Market  acceptance of  AllianceEnterprise  by marquee  companies
increased in 2001 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 AllianceEnterprise; Decreased Revenues from DISPATCH-1."

         From  the   broadest   perspective,   AllianceEnterprise   offers  four
functional applications branded "iSalesMarketing," "iContactCenter," "iService,"
and  "iProfessionalServices."  These  are  supported  by a series  of  "Alliance
Applications"  modules for fundamental  business  requirements  such as managing
price books,  customer and supplier  contracts  and  warranties,  inventory  and
logistics,  sales order  processing and customer  billing.  The Suite includes a
wide variety of wireless mobile CRM options, branded  "AllianceEveryWareUR," for
remote   connectivity   with   laptops,   PDAs,   mobile   phones  and   pagers.
AllianceEnterprise  users  customers  can mix and match mobile CRM  solutions to
precise sales and service  requirements,  IT preferences and corporate cultures.
The Suite also offers  value-added  options for capabilities  such as integrated
computer telephony integration ("Alliance CTI"), Internet portals for customers,
satellite offices and business partners ("Alliance CustomerPortal" and "Alliance
Mobile" Service Web), and web-based service parts planning and forecasting.

         AllianceEnterprise iSalesMarketing improves equipment and service sales
processes by uniting top-down sales and marketing direction with bottom-up field
sales force automation and histories of existing  customer data on an integrated
enterprise  platform  accessible  from PCs,  laptops and PDA devices.  Marketing
campaigns,   lead  development,   sales  pipeline  monitoring,   sales  proposal
generation,




                                       4
<PAGE>

online  collaboration for collaborative  team selling,  and easier processing of
booked  orders  for  faster  revenue  recognition  are  some  of  this  module's
comprehensive "lead-to-close" sales management capabilities.

         AllianceEnterprise  iContactCenter enables customer service departments
to implement  integrated  strategies to serve customers by phone, fax, email and
the Internet.  Aside from more  efficient  service and higher levels of customer
satisfaction  and  retention,  objectives  are to reduce  service  costs through
parameters such as shorter call handling times,  improved first-call  resolution
rates to avoid repeat calls or unnecessary field service,  and otherwise control
service overhead.  iContactCenter  supports information desks, service hotlines,
centralized  field service dispatch,  repair depots,  and inside sales including
merchandise returns, exchanges and trade-ins.  iContactCenter  installations can
be enhanced with Alliance CTI, which automatically  presents customer records as
calls are handled,  and the Alliance  CustomerPortal,  which  integrates  online
customer self-service.

         AllianceEnterprise   iService   delivers  a  robust  set  of  automated
capabilities for organizations to improve management of field service activities
and for field employees to more efficiently  complete and document  assignments,
manage vehicle  assets,  capture  expenses and generate  revenue  through add-on
sales  during a  customer  contact.  The  software  supports  all field  service
categories including equipment installations, break/fix, planned maintenance and
meter reading.  AllianceEnterprise  can also be integrated  with equipment fault
detection and diagnostic systems for fully automated solutions that initiate and
prioritize  service  requests and dispatch  assignments to field  employees PDAs
without human intervention.

         AllianceEnterprise   iProfessionalServices   provides   an   end-to-end
solution for organizations  such as IT consulting  companies to sell, manage and
bill professional  services  engagements that can extend for days, weeks, months
and years. AllianceEnterprise's capabilities to share sales, project management,
and post-project service data across the enterprise enable professional services
organizations  to  operate  with  less  overhead,   better  cash  flow,   higher
profitability, and increase business with more competitive bids.

         The fully  integrative  AllianceEnterprise  products  automate business
processes  within and among  departments and facilitate  one-time data entry and
data sharing to maximize efficiency and minimize chances for human error. Anyone
within a user  organization  who has contact  with a customer has the ability to
update the status of customer  records,  which  ensures "one view of a customer"
and  eliminates  any  disparity or confusion in business  data among  marketing,
sales,  customer service and field service.  This includes  information  entered
remotely   by   mobile   employees   and  by   customers   over  the   Internet.
AllianceEnterprise "synchronizes" all customer-facing activities to operate as a
cohesive unit.

         AllianceEnterprise  Alliance  EveryWareUR  integrates mobile and remote
employees  into the  enterprise CRM solution.  The Alliance  EveryWareUR  mobile
suite offers a choice of mobile technologies  (untethered wireless  applications
with  synchronized  client databases and/or  direct-connect  real-time  wireless
applications), a choice of mobile device types (laptops, PDAs, mobile phones and
pagers),  and a  choice  of  functional  applications  for  sales,  service  and
management.  Customers  can  mix  and  match  technologies,  device  types,  and
applications to address sales and service needs and IT support preferences.

         AllianceEnterprise   Internet/Intranet   Portals   in  2001   supported
unattended  eBusiness   transactions  for   customer/partner   self-service  and
self-sales  ("Alliance  Customer  Portal") and remote  service  employee/partner
system access ("Alliance Mobile" Service Web). An expanded,  dedicated "Alliance
PartnerPortal"  for channel  management  and  suppliers of goods and services is
planned for release in 2002.

         AllianceEnterprise  "iStudio" configuration tools allow modification of
user interfaces and system behavior to highly-specific business environments.  A
customer can control how  AllianceEnterprise  automates workflows as well as the
system's  intuitiveness  and "look and feel" to employees,  and thereby maximize
AllianceEnterprise's usability,  effectiveness and benefits to the organization.
iStudio also improves AllianceEnterprise's total cost of ownership by helping to
reduce  implementation  time and cost, and subsequently by enabling customers to
update system performance as their business needs change.




                                       5
<PAGE>

         AllianceEnterprise  iLinks  are  a  family  of  enterprise  application
integration products that interface  AllianceEnterprise  to back-office systems,
such as  financial  and  ERP  applications,  and  other  third-party  enterprise
applications,   such  as  wireless  data  transmission  services  and  equipment
diagnostic systems. iLinks improves AllianceEnterprise's total cost of ownership
by making all  AllianceEnterprise  components  accessible to other  applications
through  an  open,  well-defined,   synchronous  and  asynchronous  applications
programming interface (API) that is XML based.


DISPATCH-1

         The  Company's  original  flagship  product,   DISPATCH-1,   which  was
introduced in 1986 typically has been adopted by larger Fortune 1000  companies.
Astea  currently  supports  approximately  56  DISPATCH-1  customers  on  active
maintenance.  In 2001,  approximately  35% of the Company's  total revenues were
derived  from  license,  maintenance  and  professional  service fees related to
DISPATCH-1, compared to 57% in 2000. See "Certain Factors that May Affect Future
Results--Uncertain  Market Acceptance of AllianceEnterprise;  Decreased Revenues
from DISPATCH-1."

         While  AllianceEnterprise  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  is a key 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.

         The Company's original customer service product,  DISPATCH-1, is one of
the most widely installed field service solutions in the world. DISPATCH-1 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 AllianceEnterprise Conversion (iDAC)

         Astea offers a formal migration program (iDAC) for DISPATCH-1 customers
to convert to AllianceEnterprise economically and thereby leverage their earlier
CRM   investments   with  the  Company   into  the  far  superior  and  expanded
AllianceEnterprise   technology   applications.   The  iDAC   program   includes
professional  services,   training  and  gap  analyses  on  AllianceEnterprise's
expanded   capabilities,   project   planning,    software-to-business   process
optimization, standardized file conversion routines, and AllianceEnterprise 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  Company's  products  quickly  and  efficiently.
Together, professional services and customer support



                                       6
<PAGE>

comprised  approximately  63% of the Company's total revenues in 2001 and 67% of
the Company's total revenues in 2000.

Professional Services

         An initial  professional  services  engagement  for  AllianceEnterprise
typically  is between  one and four  months.  Such  engagements  usually  lasted
between six and 18 months for DISPATCH-1. For most of Astea's clients, 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  solutions,
customers that licensed these  programs  typically  purchased a higher volume of
professional services than customers need to purchase for AllianceEnterprise.

         Astea's typical  professional  services  engagement  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.  During the prototyping phase,
Astea's  professional  services personnel design the technology  infrastructure,
define  and  document  business  processes  and  establish  the order of product
deployment. The critical element of the prototyping phase is a detailed analysis
of the client's business processes and needs.

         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 monthly basis.

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 clients on an annual basis after the  conclusion of the warranty
period, which is normally 90 days. 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  547 licenses to
customers ranging from small, rapidly growing companies to large,  multinational
corporations with geographically  dispersed operations and remote offices.  More
than 175 licenses  have been sold for  AllianceEnterprise  and the remainder for
DISPATCH-1. The broad applicability of the Company's products is demonstrated by
the wide range of companies  across many markets and industries  that use one or
more  of  Astea's  products,  including  customers  in  information  technology,
healthcare,  industrial  controls and  instrumentation,  retail systems,  office
automation,  imaging systems,  facilities  management,  telecommunications,  and
other  industries  with




                                       7
<PAGE>

equipment sales and service  requirements.  In 2001, one customer  accounted for
11% of the Company's revenues. In 2000, no customer accounted for 10% or more of
the Company's revenues.  In 1999, two customers accounted for 18% and 16% of 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 and  Australia.
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."

         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,  webinars,  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  AllianceEnterprise
sales and  marketing  automation  system.  The Company also  participates  in an
annual  conference  for  users  of  Astea's  DISPATCH-1  and  AllianceEnterprise
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 33% of the Company's revenues
in 2001,  41% of the  Company's  revenues in 2000 and 32% in 1999.  See "Certain
Factors that May Affect  Future  Results--Risks  Associated  with  International
Sales" and Note 16 of the Notes to the Consolidated Financial Statements.

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
AllianceEnterprise  and Progress  Software  Corporation  for  DISPATCH-1.  These
software




                                       8
<PAGE>

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  AllianceEnterprise  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,  2001,  2000 and  1999,  were  $2,590,000,  $2,744,000  and
$4,900,000,  respectively;  and these  expenses  amounted to 15%, 14% and 15% of
total revenues for 2001, 2000, and 1999, respectively.  In addition, the Company
incurred  capitalized  software  development  costs of  $600,000,  $640,000  and
$800,000 in 2001, 2000 and 1999,  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 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.

         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
("Great  Plains"),  Clarify  which was acquired by Amdocs  Limited  ("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."




                                       9
<PAGE>

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, 2001, the Company, including its subsidiaries, had a
total of 140 full time employees  worldwide,  66 in the United States, 19 in the
United  Kingdom,  six in the  Netherlands,  one in France,  33 in Israel,  14 in
Australia,  and one 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 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.




                                       10
<PAGE>

Item 2.  Properties.

         The  Company's  headquarters  are  located  in  a  leased  facility  of
approximately  51,000  square  feet in  Horsham,  Pennsylvania;  the Company has
subleased approximately half of such building to other tenants. The Company also
leases  facilities for operational  activities in Houten,  the 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.
See Note 12 of the Notes to the Consolidated Financial Statements.

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.



                                       11
<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:

          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

          2000                                         High               Low
          --------------------------------------------------------------------
          First quarter                                7.38              3.88
          Second quarter                               3.63              2.09
          Third quarter                                1.94               .75
          Fourth quarter                               1.09               .44

         As of March 25, 2002, there were  approximately 70 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
25,  2002,  the last  reported  sale  price of the  Common  Stock on the  Nasdaq
National Market was $.80 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.





                                       12
<PAGE>

Item 6.           Selected Financial Data.



<TABLE>
<CAPTION>
Years ended December 31,                                2001             2000               1999           1998             1997
------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)

Statement of Income Data: (1)
Revenues:
<S>                                                <C>                 <C>                <C>           <C>              <C>
     Software license fees                         $   6,384           $  6,554           $11,312       $   5,822        $   9,213
     Services and maintenance                         10,717             13,381            21,723          23,119           22,948
                                                     ------------------------------------------------------------------------------
            Total revenues                            17,101             19,935            33,035          28,941           32,161
                                                     ------------------------------------------------------------------------------
Cost and Expenses:
     Cost of software license fees (2)                 1,224              1,199             2,240           1,957            2,749
     Cost of services and maintenance                  6,552             10,546            17,063          17,583           16,054
     Product development                               2,590              2,744             4,900           5,718            8,653
     Sales and marketing                               5,396              6,857             8,463           7,976            8,367
     General and administrative (3)                    2,837              4,066             4,478           5,297           11,127
     Restructuring charge (4)                            333              1,101             1,630            -800            5,328
                                                     ------------------------------------------------------------------------------
           Total costs and expenses                   18,932             26,513            38,774          37,731           52,278
                                                     ------------------------------------------------------------------------------
Loss from continuing operations
      before interest and taxes                       -1,831             -6,578            -5,739          -8,790          -20,117
Net interest income                                      309              1,496             2,163             496                4
                                                     ------------------------------------------------------------------------------
Loss from continuing
      operations before income taxes                  -1,522             -5,082            -3,576          -8,294          -20,113

Benefit for income taxes                                   -                  -                 -            -803             -877
                                                     ------------------------------------------------------------------------------
Loss from continuing operations                       -1,522             -5,082            -3,576          -7,491          -19,236
Gain on sale of discontinued operations,
       net of taxes (1)                                    -                293                 -          43,339                -
(Loss) income from discontinued operations,
      net of taxes (1)                                     -                  -                 -          -1,697              742
                                                     ------------------------------------------------------------------------------
Net (loss) income                                  $  -1,522           $ -4,789           $-3,576       $  34,151        $ -18,494
                                                     ==============================================================================
Basic and diluted (loss) earnings per share:
      Continuing operations                        $    -0.1           $  -0.35           $ -0.26       $   -0.56        $   -1.45
      Gain on sale of discontinued operations              -               0.02                 -            3.22                -
      Discontinued operations                              -                  -                 -           -0.13             0.05
                                                     ------------------------------------------------------------------------------
                                                   $    -0.1           $  -0.33           $ -0.26       $    2.53        $    -1.4
                                                     ==============================================================================
Shares used in computing basic and diluted (loss)
     earnings per share                               14,631             14,570            13,899          13,478           13,252
Balance Sheet Data: (1)
Working capital                                    $   7,313           $  9,668           $44,170       $  45,542        $  11,409
Total assets                                          18,015             21,653            58,634          63,613           30,525
Long-term debt, less current portion                       -                 23                49             468            1,477
Accumulated deficit                                  -11,239             -9,716            -4,927          -1,351          -35,502
Total stockholders' equity                            10,105             11,955            46,617          49,017           13,429

<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)  Included in cost of software license fees in the first quarter of 1997 is a
     write-off of $453,000 of capitalized  software development costs related to
     the Company's support automation product,  PowerHelp, and to older versions
     of certain service  automation  modules which are no longer marketed by the
     Company.
(3)  A one-time  accrual  for  consulting  fees of  $304,000  is included in the
     fourth quarter of 1999 general and administrative  expense.  See Note 15 of
     the  Notes to the  Consolidated  Financial  Statements.  As a result of the
     restructuring  during the first  quarter of 1997,  the  Company  recorded a
     goodwill  impairment  charge




                                       13
<PAGE>

     of $2,058,000 which is included in general and administrative expense. This
     charge related to the 1995 acquisition of Astea BV.
(4)  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.  Included in the first quarter of 1997
     is a restructuring  charge of $5,328,000  which includes  severance  costs,
     office closing costs and other  consolidation  costs. 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.
</FN>
</TABLE>













                                       14
<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  AllianceEnterprise  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.  AllianceEnterprise  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 37% of the Company's total revenues
in 2001.  Sales of  AllianceEnterprise  accounted for 34% of total  revenues and
add-on sales to existing  DISPATCH-1  users  accounted for 3% 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  personnel
performing  professional services are typically reimbursed by the customer.  The
Company



                                       15
<PAGE>

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

Financial  Reporting  Release  No.  60,  which  was  recently  released  by  the
Securities  and  Exchange  Commission,  requires  all  companies  to  include  a
discussion of critical accounting policies or methods used in the preparation of
its  financial  statements.   The  significant   accounting  policies  of  Astea
International  Inc.  are  described  in Note 2 of the Notes to the  Consolidated
Financial  Statement  of  Operations  Procedures.   The  significant  accounting
policies  that  the  Company  believes  are the  most  critical  to aid in fully
understanding its reported financial results include the following:

Revenues

In accordance  with  Statement of  Operations  Procedures  (SOP) 97-2,  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.

Capitalized software research and development costs
Our  policy  on  capitalized   software  costs  determines  the  timing  of  our
recognition of certain  development  costs. In addition,  this policy determines
whether the cost is classified as  development  expense or cost of license fees.
Management  is required to use  professional  judgment  in  determining  whether
development costs meet the criteria for immediate expense or capitalization.








                                       16
<PAGE>




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,                    2001        2000        1999
--------------------------------------------------------------------------
Revenues:
    Software license fees                   37.3 %      33.0 %     34.2 %
    Services and maintenance                62.7        67.0       65.8
                                         ---------------------------------
        Total revenues                     100.0 %     100.0 %    100.0 %
                                         ---------------------------------
Costs and expenses:
   Cost of software license fees             7.2 %       6.0 %      6.8 %
   Cost of services and maintenance         38.3        52.8       51.7
   Product development                      15.1        13.7       14.8
   Sales and marketing                      31.6        34.3       25.6
   General and administrative               16.6        20.4       13.6
   Restructuring charge                      1.9         5.5        4.9
                                         ---------------------------------
        Total costs and expenses           110.7  %    132.7 %    117.4 %
                                         ---------------------------------

Comparison of Years Ended December 31, 2001 and 2000

         Revenues.  Total revenues decreased $2,834,000,  or 14%, to $17,101,000
for the year  ended  December  31,  2001  from  $19,935,000  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 $10,717,000,  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.  AllianceEnterprise 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 AllianceEnterprise 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 AllianceEnterprise CRM suite.

         Total services and maintenance  revenues decreased $2,664,000 or 20% to
$10,717,000  in 2001 from  $13,381,000  in 2000.  The  decrease  in service  and
maintenance  revenues  is  attributable  to a decrease  in  DISPATCH-1  revenues
partially    offset   by   an   increase   in    AllianceEnterprise    revenues.
AllianceEnterprise  service and maintenance  revenues increased to $5,203,000 in
2001 from  $4,991,000  in 2000 due to the  growing  AllianceEnterprise  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




                                       17
<PAGE>

decrease in gross margin percentage was attributable to the cost of items resold
to customers, principally third party software and hardware.

         The costs of  services  and  maintenance  revenues  decreased  38%,  or
$3,994,000,  to $6,552,000  in 2001 from  $10,546,000  in 2000.  The service and
maintenance gross margin  percentage  increased to 39% 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 AllianceEnterprise 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 32% 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
17% 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 AllianceEnterprise  licenses,  services and maintenance were similar to
those in 2000.  International  operations resulted in net income of $226,000 for





                                       18
<PAGE>

2001  compared to a loss of $819,000 in 2000.  The  increase in income  resulted
primarily  from the  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.

Comparison of Years Ended December 31, 2000 and 1999

         Revenues. Total revenues decreased $13,100,000,  or 40%, to $19,935,000
for the year  ended  December  31,  2000  from  $33,035,000  for the year  ended
December 31, 1999.  Software license revenues decreased by 42% in 2000, compared
to 1999.  Services and maintenance fees for 2000 amounted to $13,381,000,  a 38%
decrease from 1999.

         Software  license fee revenues  decreased  $4,758,000  to $6,554,000 in
2000 from $11,312,000 in 1999. AllianceEnterprise license fee revenues decreased
to  $3,414,000  in 2000  from  $4,174,000  in  1999,  a  decrease  of 18% due to
re-engineering of the Company's sales model to focus on mid to upper market size
customers,  which is consistent  with the install base of the  Company's  legacy
product,  DISPATCH-1.  The Company's PowerHelp product is no longer owned by the
Company.  In  1999,  PowerHelp   contributed  license  revenues  of  $1,232,000,
including  $1,100,000 of revenue from the sale of all of the Company's rights to
PowerHelp  to a  distributor  in  December  1999.  The Company  will  receive no
additional PowerHelp revenues in the future. License fee revenues for DISPATCH-1
decreased  $2,766,000  or 47%  from  $5,906,000  in 1999 to  $3,140,000  in 2000
primarily as a result of the sale of DISPATCH-1 source code revenue amounting to
$3,386,000.

         Total services and maintenance  revenues decreased $8,342,000 or 38% to
$13,381,000  in 2000 from  $21,723,000  in 1999.  The  decrease  in service  and
maintenance  revenues  is  attributable  to a decrease  in  DISPATCH-1  revenues
partially    offset   by   an   increase   in    AllianceEnterprise    revenues.
AllianceEnterprise  service and maintenance  revenues increased to $4,991,000 in
2000 from  $3,857,000  in 1999 due to the  growing  AllianceEnterprise  customer
base. DISPATCH-1 service and maintenance revenues decreased 53% or $9,434,000 to
$8,390,000 in 2000 from  $17,824,000  in 1999 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 2000,  the Company had no  significant  customers that accounted for
10% or more of its revenues.  In 1999, two  DISPATCH-1  customers that accounted
for 18% and 15% of  revenues,  respectively.  The  Company  does not  expect  to
receive  significant revenue from these two customers in the future because they
purchased source code in 1999.

         Costs of Revenues.  Costs of software  license fee  revenues  decreased
46%, or $1,041,000,  to $1,199,000 in 2000 from $2,240,000 in 1999.  Included in
the cost of  software  license  fees is the fixed cost of  capitalized  software
amortization.  Capitalized software  amortization was $800,000 and $1,508,000 in
2000 and 1999,  respectively.  The decrease in cost of software license fees was
due to  decreased  capitalized  software  amortization  costs and a decrease  in
direct costs due to lower license  revenues.  The software licenses gross margin
percentage was 82% in 2000 compared to 80% in 1999. The increase in gross margin
was principally attributable to decreased amortization of capitalized software.

         The costs of  services  and  maintenance  revenues  decreased  38%,  or
$6,517,000,  to  $10,546,000  in 2000 from  $17,063,000 in 1999. The service and
maintenance  gross  margin  percentage  remained  constant  at 21% in both  2000
and1999.  The  decrease  in costs is  attributed  to the  relative  decrease  in
revenues as well as a decrease in third party maintenance expense.

         Product  Development.  Product  development  expenses decreased 44%, or
$2,156,000,  to $2,744,000 in 2000 from $4,900,000 in 1999. Product  development
as a percentage  of total  revenue  decreased to 14% in 2000  compared to 15% in
1999.  The Company's  total product  development  costs,  including  capitalized
software  development  costs were $3,384,000 or 17% of revenues in 2000 compared
to $5,700,000,  which was also 17% of 1999 revenues, a decrease of $2,316,000 or
41%. The decrease in product development




                                       19
<PAGE>

expenses is primarily  attributable to reduced third party  consultant costs and
the elimination of development costs in 2000 related to DISPATCH-1.  The Company
has   focused   its   development   effort   exclusively   on  the   upgrade  of
AllianceEnterprise.

         Sales and  Marketing.  Sales and marketing  expenses  decreased 19%, or
$1,606,000, to $6,857,000 in 2000 from $8,463,000 in 1999. The decrease resulted
from the Company's cost restructuring  effort.  However, the Company is making 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 increased to 34% in 2000 from 26% in 1999.

         General  and  Administrative.   General  and  administrative   expenses
decreased 9%, or $412,000,  to $4,066,000 in 2000 from  $4,478,000 in 1999. As a
percentage of total revenues,  general and administrative  expenses increased to
20% in 2000 compared to 14% in 1999. The increase primarily relates to increases
in the allowance for uncollectible  accounts and professional fees.  Included in
1999 general and administrative  expenses, is a one-time accrual of $304,000 for
consulting  fees.  Without  this  one-time  charge  general  and  administrative
expenses would have been $ 4,174,000.

         Restructuring  Charge.  During the second quarter of 2000, the Company,
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 equipment  operating  leases and  severance  costs
related to downsizing the Company's  employment roles. During the fourth quarter
of 1999,  the Company also  recorded a  restructuring  charge of  $1,630,000  in
connection  with the wind-down of DISPATCH-1  development  and billable  service
activity.   The  1999  restructuring  charge  includes  severance  of  $677,000,
write-off  of  DISPATCH-1  capitalized  software  that is no longer  viable  for
$457,000 and other consolidation costs of $496,000.  (See Note 4 of the Notes to
Consolidated Financial Statements).

         Net  Interest  Income.  Net  interest  income  decreased  $667,000,  to
$1,496,000  in 2000  from  $2,163,000  in  1999.  This  decrease  was  primarily
attributable  to 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 $644,000, or 7% to $8,163,000 in 2000 from
$8,807,000 in 1999.  The decrease in revenue from  international  operations was
primarily attributable to the reductions in service revenues from DISPATCH-1 due
to  decreasing  demand  offset  by an  increase  in  revenue  from  the  sale of
DISPATCH-1  source code and sales of  AllianceEnterprise  licenses and services.
International operations resulted in a $819,000 loss for 2000 compared to a loss
of $645,000 in 1999. The increase in loss is primarily due to the  restructuring
charge which occurred in 2000.

Liquidity and Capital Resources

         Net cash used in operating  activities  was $439,000 for the year ended
December 31, 2001 compared to $4,387,000  for the year ended  December 31, 2000.
This decreased use of cash was primarily  attributable to a $3,267,000 reduction
in the net loss, a $565,000  decrease in prepaid  expenses and a $1,185,000  net
increase in accrued restructuring costs,  partially offset by lower depreciation
and  amortization  of  $121,000,  a lower  reduction  of  $832,000  in  accounts
receivable,  less a decrease  in accounts  payable of  $909,000  and a small net
decrease in deferred  revenues of $1,183,000  compared to a large  increase last
year.

         The Company  used  $325,000 of cash for  investing  activities  in 2001
compared  to  generating  $33,017,000  in 2000.  The  change  from last year was
primarily  attributable  to the  sale  of  $34,373,000  of  investments  in 2000
compared to selling $519,000 of investments in 2001.  Capital  expenditures were
$244,000 in 2001 compared to $716,000 in 2000.  Capitalized  software costs were
$600,000 in 2001 compared to $640,000 in 2000.




                                       20
<PAGE>

         The Company used  $343,000 in financing  activities  for the year ended
December 31, 2001 compared to using  $29,650,000 for the year ended December 31,
2000.  The  decrease  in cash  used for  financing  activities  was  principally
attributable  to the June 30,  2000  payment of a special  dividend of $2.05 per
share,  or  $30,376,000.  During the year ended  December 31, 2001,  the Company
purchased 223,000 shares of treasury stock for $223,000.

         At  December  31,  2001,  the Company  had a working  capital  ratio of
approximately 2.0:1, with cash and investments available for sale of $7,058,000.
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.
On June 30, 2000,  the Company  paid a dividend of $2.05 per share.  The Company
does not plan any significant capital expenditures in 2002. In addition, it does
not  anticipate  that its  operations  or financial  condition  will be affected
materially by inflation.

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:

         Uncertain Market Acceptance of  AllianceEnterprise;  Decreased Revenues
from  DISPATCH-1.  In each of 2001,  2000 and 1999, more than 35%, 58%, and 72%,
respectively,  of the Company's total revenues was derived from the licensing of
DISPATCH-1  and the provision 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 ServiceAlliance 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
AllianceEnterprise   Suite,   introduced   in  2001  and  which   includes   the
AllianceEnterprise  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 2001 and 2000.  DISPATCH-1  revenues have declined
in each of the last three  fiscal  years and that trend is  expected to continue
and accelerate.

         While the Company has licensed AllianceEnterprise to over 182 companies
worldwide in 1998 through 2001, revenues from sales of AllianceEnterprise  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
AllianceEnterprise  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




                                       21
<PAGE>

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
AllianceEnterprise,  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.  If the  Company is unable to  develop  and
introduce new products or enhancements  of existing  products in a timely manner
in  response  to  changing  market  conditions  or  customer  requirements,  the
Company's business, operating results and financial condition will be materially
adversely effected.

         Competition in the Customer Relationship  Management Software Market Is
Intense.  The CRM  software  market  is  intensely  competitive.  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.  Some of the  Company's  existing  and  potential  competitors  have
greater financial, technical, marketing and distribution resources than does the
Company.  Moreover,  the CRM  industry  is  currently  experiencing  significant
consolidation,  as larger public  companies seek to enter the CRM market through
acquisitions.  The Company expects that competition will increase as a result of
software industry consolidations. As a result, some of the Company's competitors
may be able to respond more quickly to new or emerging  technologies and changes
in customer requirements,  or to devote greater resources to the development and
distribution  of their  products.  Increased  competition is likely to result in
price reductions,  reduced gross margins and loss of market share.  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.

         Continued Dependence on Large Contracts May Result in Lengthy Sales and
Implementation  Cycles.  The sale and  implementation of the Company's  products
generally   involve  a  significant   commitment  of  resources  by  prospective
customers. While AllianceEnterprise  requires a less substantial commitment than
does DISPATCH-1,  the purchase and  implementation of  AllianceEnterprise  still
requires a substantial  commitment.  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.  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  recognition  of




                                       22
<PAGE>

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.

         In addition,  following the initial  sale,  the  implementation  of the
Company's  products  typically  involves  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.
Occasionally,  delays  result  from  a  customer's  lack  of  attention  to  the
implementation project for reasons unrelated to the Company's performance.  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.  Some of the  Company's  customers  have  adopted  the  Company's
software on an incremental  basis.  There can be no assurance that the Company's
customers  will expand  usage of the  Company's  software on an  enterprise-wide
basis or implement new software products introduced by the Company.  The failure
of the  Company's  software to perform  according  to customer  expectations  or
otherwise  to be  deployed  on an  enterprise-wide  basis  could have a material
adverse effect on the ability of the Company to collect  revenues or to increase
revenues  from new as well as  existing  customers.  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 varied  significantly and
are likely to vary significantly in the future, depending on factors such as the
size and timing of revenue from significant  orders,  the recognition of revenue
from such orders,  the timing of new product  releases and market  acceptance of
these  new  releases,  the  level of  product  and  price  competition,  and the
seasonality  of its  business.  As a result of the  application  of the  revenue
recognition rules applicable to the Company's  licenses under generally accepted
accounting  principles,  the  Company's  license  revenues may be  recognized in
periods after those in which the respective  licenses were signed.  In addition,
the  Company's  quarterly  operating  results are  dependent  on factors such as
budgeting  cycles of its customers,  customer order deferrals in anticipation of
enhancements or new products,  the impact of  acquisitions  of competitors,  the
cancellation  of  licenses  or  maintenance  agreements,  product  life  cycles,
software bugs and other product quality problems,  personnel changes, changes in
Company strategy, investments to develop sales distribution channels, changes in
the level of operating expenses and general domestic and international  economic
and political conditions, among others.

         The Company has generally had stronger  demand for its products  during
the quarters ending in June and December and weaker demand in the quarter ending
in March. The Company anticipates that it may also experience  relatively weaker
demand in the quarter ending in September.  Moreover,  the Company has generally
recorded 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,  the  Company's  results  of  operations  may  vary
seasonally in accordance  with  licensing  activity or otherwise,  and will also
depend upon its  recognition  of revenue from such  licenses  from time to time.
There can be no assurance that the Company will be profitable or avoid losses in
any future period, and the Company believes that period-to-period comparisons of
its  results of  operations  are not  necessarily  meaningful  and should not be
relied upon as any indication of future performance.

         Rapid Technological Change. The CRM software market is subject to rapid
technological   change,   frequent  new  product   introductions   and  evolving
technologies  and industry  standards that can quickly render existing  products
and services  obsolete.  While the Company is not aware of any emerging products
that are  likely to  render  its  existing  products  obsolete,  there can be no
assurance  that the  Company's  products  could




                                       23
<PAGE>

not suffer such obsolescence.  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.  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  AllianceEnterprise,  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,  the Company  could be at a competitive
disadvantage  relative to companies  employing  such  alternative  developmental
tools,  possibly resulting in material harm to the Company's financial condition
and results of operation.

         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  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  could  have a  material  adverse  effect on the
Company's business, operating results or financial condition. Any failure by the
Company  to  maintain  and  train  its  direct  sales  force  and  expand  other
distribution  channels would materially adversely affect the Company's business,
operating results and financial condition.

         Risks Associated with International Sales. Astea's  international sales
accounted for 33% of the  Company's  revenues in 2001,  41% in 2000,  and 27% in
1999.  The  Company  expects  that  international  sales will  continue  to be a
significant  component  of its  business.  International  sales are subject to a
variety  of  significant  risks,  including  difficulties  in  establishing  and
managing  international  distribution  channels and in translating products into
foreign languages.  International  operations also may encounter difficulties in
collecting  accounts  receivable,  staffing and managing personnel and enforcing
intellectual  property  rights.  Other  factors that can also  adversely  affect
international operations include fluctuations in the value of foreign currencies
and  currency  exchange  rates,  changes in  import/export  duties  and  quotas,
introduction  of  tariff  or  non-tariff   barriers,   potentially  adverse  tax
consequences, possible recessionary environments in economies outside the United
States,  changes in the market for  business  software  as a result of  currency
unification  in Europe,  and  economic  or  political  changes in  international
markets. The current economic difficulties in several Asian countries could have
an adverse impact on the Company's  international  operations in future periods.
In  addition,  the  Company's  international  revenues may also be affected to a
great extent by seasonal fluctuations  resulting from lower sales that typically
occur during the summer months in Europe and other parts of the world.

         Dependence on Key  Personnel;  Competition  for  Employees.  The future
success of the  Company  will depend in large part on its ability to attract and
retain talented and qualified employees, including skilled management personnel.
The Company's  future success also depends on its continuing  ability to attract
and  retain  highly  qualified  technical,   sales  and  managerial   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.  The  inability  of the Company to continue to attract
talented  personnel or the loss of key employees  could have a material  adverse
effect on the Company's business and results of operations.

         Concentration  of Ownership.  Zack B.  Bergreen,  the  Company's  Chief
Executive Officer and Chairman of the Board, as of March 25, 2002,  beneficially
owned  approximately  47% of the outstanding  Common Stock of the Company.  As a
result, Mr. Bergreen exercises  significant control over the Company




                                       24
<PAGE>

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
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.

         Risks of Dependence on Proprietary Technology. The Company's success is
heavily  dependent  upon  proprietary  technology.  The  Company's  products are
licensed to customers under signed 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  secret,  copyright and trademark  laws and  non-disclosure  agreements to
protect  its  proprietary  rights  in  its  products  and  technology.  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. In addition,
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.  There can be no
assurance  that  measures  taken by the Company  will be adequate to protect the
Company's  proprietary  technology  or that the Company's  competitors  will not
independently develop technologies that are substantially equivalent or superior
to the Company's technologies.  Moreover, although the Company believes that its
products and technologies do not infringe on any existing  proprietary rights of
others, and although there are no pending lawsuits against the Company regarding
infringement of any existing  patents or other  intellectual  property rights or
any notices that the Company is infringing the  intellectual  property rights of
others,  there can be no  assurance  that such  infringement  claims will not be
asserted by third parties in the future. Any such situations can have a material
adverse effect on the Company's business and results of operations.

         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 a customer's  business.  As a result, the Company's customers and
potential customers  typically have demanding  requirements for installation and
deployment.  Software  products  as complex as those  offered by the Company may
contain errors or failures,  particularly when software must be customized for a
particular licensee, when new products are 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. There can be no
assurance  that,  despite  testing by the Company  and by current and  potential
customers,  errors  will not be found in  software,  customizations  or releases
after  commencement  of  commercial  shipments,  resulting  in loss or  delay of
revenue or delay in market  acceptance,  diversion of  development  resources or
increased service and warranty costs, any of which could have a material adverse
effect upon the Company's business, operating results and financial condition.

         Burdens of  Customization.  Certain of the  Company's  clients  request
customization  of DISPATCH-1 or  AllianceEnterprise  products to address  unique
characteristics  of their  businesses or computing  environments.  The Company's
commitment to customization could place a burden on the Company's client support
resources  or delay the delivery or  installation  of products  which,  in turn,
could materially  adversely affect the Company's  relationship  with significant
clients or otherwise adversely affect its 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.

         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




                                       25
<PAGE>

software  industry,  adverse  earnings or other financial  announcements  of the
Company's  customers  and  general  stock  market  conditions  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.

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.
As of December 31, 2001, the Company's  investments consisted of U.S. government
agency  securities,  commercial  paper and corporate and  municipal  bonds.  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.













                                       26
<PAGE>


Item 8.               Financial Statements and Supplementary Data.

Report of Independent Certified Public Accountants

To Astea International Inc.:

              We have audited the  accompanying  consolidated  balance  sheet of
Astea  International  Inc. and  subsidiaries  as of December  31, 2001,  and the
related  consolidated  statements of operations,  stockholders'  equity and cash
flows for the year then ended. 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 audit 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
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, 2001, and the results of
their  operations  and their cash flows for the year then ended,  in  conformity
with accounting principles generally accepted in the United States of America.




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








Philadelphia, PA
March 4, 2002







                                       27
<PAGE>







Report of Independent Public Accountants

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



                                       28
<PAGE>


                                  ASTEA INTERNATIONAL INC. AND SUBSIDIARIES

                                         CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
       December 31,                                                        2001                2000
       ------------------------------------------------------------- ------------------ -------------------
<S>                                                                      <C>                 <C>
                                  ASSETS
       Current assets:
         Cash and cash equivalents                                       $ 4,071,000         $ 5,208,000
         Investments available for sale
                                                                           2,987,000           3,506,000
         Receivables, net of reserves of  $955,000 and $1,600,000
                                                                           7,343,000           7,885,000
         Prepaid expenses and other                                          822,000           1,778,000
         Deferred income taxes                                                     -             668,000
                                                                     ------------------ -------------------
                 Total current assets                                                         19,045,000
                                                                          15,223,000

       Property and equipment, net
                                                                             617,000             996,000
       Capitalized software development costs, net                         1,412,000           1,612,000
       Other assets                                                          763,000                   -
                                                                     ------------------ -------------------
                 Total assets                                            $18,015,000         $21,653,000
                                                                     ================== ===================

                   LIABILITIES AND STOCKHOLDERS' EQUITY
       Current liabilities:
         Current portion of long-term debt                                 $  34,000          $  138,000
         Accounts payable and accrued expenses                             3,627,000           4,731,000
         Deferred revenues                                                 4,249,000           4,508,000
                                                                     ------------------ -------------------
                 Total current liabilities                                 7,910,000           9,377,000

       Deferred income taxes                                                       -             298,000

       Long-term debt
                                                                                   -              23,000

       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 and 14,821,000 shares issued              148,000             148,000
          Additional paid-in capital                                      22,674,000          22,671,000
          Cumulative translation adjustment                               (1,256,000)         (1,145,000)
          Accumulated deficit                                            (11,239,000)         (9,716,000)
          Less:  Treasury stock at cost, 227,000 and 3,900 shares           (222,000)             (3,000)
                                                                     ------------------ -------------------
                 Total stockholders' equity                               10,105,000          11,955,000
                                                                     ------------------ -------------------
                 Total liabilities and stockholders' equity             $ 18,015,000        $ 21,653,000
                                                                     ================== ===================


                      See accompanying notes to the consolidated financial statements.

</TABLE>


                                       29
<PAGE>


<TABLE>
<CAPTION>

                                          ASTEA INTERNATIONAL INC. AND SUBSIDIARIES

                                            CONSOLIDATED STATEMENTS OF OPERATIONS



Years ended December 31,                                            2001                   2000                   1999
---------------------------------------------------------------------------------------------------------------------------


<S>                                                            <C>                    <C>                    <C>
Revenues:
      Software license fees                                    $  6,384,000           $  6,554,000           $ 11,312,000
      Services and maintenance                                   10,717,000             13,381,000             21,723,000
                                                            ---------------------------------------------------------------

          Total revenues                                         17,101,000             19,935,000             33,035,000
                                                            ---------------------------------------------------------------

Costs and expenses:
      Cost of software license fees                               1,224,000              1,199,000              2,240,000
      Cost of services and maintenance                            6,552,000             10,546,000             17,063,000
      Product development                                         2,590,000              2,744,000              4,900,000
      Sales and marketing                                         5,396,000              6,857,000              8,463,000
      General and administrative                                  2,837,000              4,066,000              4,478,000
      Restructuring charges                                         333,000              1,101,000              1,630,000
                                                            ---------------------------------------------------------------

          Total costs and expenses                               18,932,000             26,513,000             38,774,000
                                                            ---------------------------------------------------------------

Loss from operations before interest and taxes
                                                                 (1,831,000)            (6,578,000)            (5,739,000)

Interest income
                                                                    318,000              1,512,000              2,215,000
Interest expense                                                     (9,000)               (16,000)               (52,000)
                                                            ---------------------------------------------------------------
Loss from continuing operations                                  (1,522,000)            (5,082,000)            (3,576,000)
Gain on sale of discontinued operations, net of taxes                    --                293,000                     --
                                                            ---------------------------------------------------------------

Net loss                                                       $ (1,522,000)          $ (4,789,000)          $ (3,576,000)
                                                            ===============================================================

Basic and diluted net loss per share:
  Continuing operations                                        $      (0.10)          $      (0.35)          $      (0.26)

  Gain on sale of discontinued operations                                --                    .02                     --
                                                            ---------------------------------------------------------------

Net loss                                                       $      (0.10)          $      (0.33)          $      (0.26)
                                                            ===============================================================
Weighted average shares used in computing basic and
  diluted net loss per share                                     14,631,000             14,570,000             13,899,000
                                                            ===============================================================



                              See accompanying notes to the consolidated financial statements.
</TABLE>




                                                             30
<PAGE>


<TABLE>
<CAPTION>


                                              ASTEA INTERNATIONAL INC. AND SUBSIDIARIES

                                           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY



                                      Additional                 Cumulative                              Total
                            Common     Paid-in     Deferred     Translation   Accumulated   Treasury   Stockholders'   Comprehensive
                             Stock     Capital   Compensation    Adjustment     Deficit       Stock       Equity            Loss
                          --------------------------------------------------------------------------------------------------------

<S>                        <C>       <C>            <C>          <C>          <C>           <C>        <C>               <C>
Balance, January 1, 1999   $135,000  $51,098,000    $(29,000)    $(836,000)   $(1,351,000)        -    $49,017,000
  Exercise of stock options   6,000    1,132,000           -             -              -         -      1,138,000
  Adjustment of tax benefit
   from exercise of
   stock options                  -     (411,000)          -             -              -         -       (411,000)
  Amortization of deferred
    compensation                  -            -      21,000             -              -         -         21,000
  Cancellation of options
   granted                        -      (69,000)     69,000             -              -         -              -
  Grant of stock options
   below fair market value        -       61,000     (61,000)            -              -         -              -
  Compensation charged in
   connection with
   variable stock options         -      387,000           -             -              -         -        387,000
  Issuance of common stock
   under employee stock
   purchase plan                  -       28,000           -             -              -         -         28,000
  Stock issued to
   Board of Directors
   in lieu of cash payments       -       16,000           -             -              -         -         16,000
  Currency translation
   adjustment                     -            -           -        (3,000)             -         -         (3,000)     $ (3,000)
  Net loss                        -            -           -             -     (3,576,000)        -     (3,576,000)   (3,576,000)
                          --------------------------------------------------------------------------------------------------------
Balance, December 31, 1999  141,000   52,242,000           -      (839,000)    (4,927,000)        -     46,617,000   $(3,579,000)
                                                                                                                   ==============
  Exercise of stock options   6,000      998,000           -             -              -         -      1,004,000             -
  Issuance of common stock
   under employee stock
   purchase plan              1,000       22,000           -             -              -         -         23,000             -
  Stock issued to
   Board of Directors
   in lieu of cash payment        -        9,000           -             -              -         -          9,000             -
  Variable stock option
   benefit                        -     (224,000)          -             -              -         -       (224,000)            -
  Cash dividend to
   stockholders                   -  (30,376,000)          -             -              -         -    (30,376,000)            -
  Currency translation
   adjustment                     -            -           -      (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 plan                           3,000           -                       (1,000)    4,000          6,000
  Purchases of treasury
   stock                                                   -                               (223,000)      (223,000)
  Currency translation
   adjustment                                              -      (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)
                          ========================================================================================================

                                  See accompanying notes to the consolidated financial statements.

</TABLE>


                                                                 31
<PAGE>


<TABLE>
<CAPTION>

                                              ASTEA INTERNATIONAL INC. AND SUBSIDIARIES

                                                CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31,                                                      2001                    2000                  1999
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                    <C>                    <C>
Cash flows from operating activities:
   Net loss                                                              $ (1,522,000)          $ (4,789,000)          $ (3,576,000)
   Adjustments to reconcile net loss to net cash
       used in operating activities:
        Compensation (benefit) charge in connection with
            Variable stock options                                                 --               (224,000)               387,000
        Gain on sale of discontinued business                                      --               (149,000)                    --
        Loss on sale of investments                                                --                 28,000                     --
        Depreciation and amortization                                       1,421,000              1,532,000              2,454,000
        Amortization of deferred compensation                                      --                     --                 21,000
        Other Long-Term Assets                                               (763,000)                    --                     --
        Deferred income taxes
                                                                              370,000                188,000                441,000
        Other                                                                      --                  9,000                 16,000
        Changes in operating assets and liabilities:
            Receivables                                                       460,000              1,292,000                149,000
            Prepaid expenses and other                                        976,000               (152,000)               471,000
            Accounts payable and accrued expenses                          (1,522,000)            (2,262,000)            (1,970,000)
            Accrued restructuring                                             409,000               (775,000)             1,451,000
            Deferred revenues                                                (268,000)               915,000               (530,000)
                                                                      --------------------------------------------------------------

Net cash used in operating activities                                        (439,000)            (4,387,000)              (686,000)
                                                                      --------------------------------------------------------------

Cash flows from investing activities:
        Net sales (purchases) of investments available for sale               519,000             34,373,000            (15,304,000)
        Purchases of property and equipment                                  (244,000)              (716,000)              (512,000)
        Capitalized software development costs                               (600,000)              (640,000)              (800,000)
        Proceeds from sale of discontinued operations                              --                     --              9,276,000
                                                                      --------------------------------------------------------------

Net cash (used in) provided by investing activities                          (325,000)            33,017,000             (7,340,000)
                                                                      --------------------------------------------------------------

Cash flows from financing activities:
        Proceeds from exercise of stock options and employee
           stock purchase plan                                                  6,000              1,027,000              1,166,000
        Cash dividend to stockholders                                              --            (30,376,000)                    --
        Net repayments of long-term debt                                     (126,000)              (298,000)              (896,000)
        Tax expense from exercise of stock options                                 --                     --               (411,000)
        Purchases of treasury stock                                          (223,000)                (3,000)                    --
                                                                      --------------------------------------------------------------

Net cash used in financing activities                                        (343,000)           (29,650,000)              (141,000)
                                                                      --------------------------------------------------------------
Effect of exchange rate changes on cash and cash
   Equivalents                                                                (30,000)                70,000                 34,000
                                                                      --------------------------------------------------------------
Net decrease in cash and cash equivalents                                  (1,137,000)              (950,000)            (8,133,000)
Cash and cash equivalents balance, beginning of year                        5,208,000              6,158,000             14,291,000
                                                                      --------------------------------------------------------------

Cash and cash equivalents balance, end of year                           $  4,071,000           $  5,208,000           $  6,158,000
                                                                      =============================================================

                                  See accompanying notes to the consolidated financial statements.

</TABLE>


                                                                 32
<PAGE>

                    ASTEA INTERNATIONAL INC. AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


     1.       Company Background

              Astea  International  Inc.  (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. The Company
     licenses its products to companies worldwide,  distributed across a variety
     of industries,  that provide  maintenance  and repair  services,  including
     telecommunications, information technology, healthcare, process and control
     technologies and white goods.

              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 2002. 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.
     The  financial  statements  reflect  the  elimination  of  all  significant
     intercompany accounts and transactions.

     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 customer
     support that begins after the warranty  period.  The portion of the license
     fee  associated  with




                                       33
<PAGE>

     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 and 2000,  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 and 2000,  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.

     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.

     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 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.   During  1999,  the  Company   wrote-off   capitalized   software
     development  costs for products that were no longer marketed by the Company
     (See  Note  4).  As of




                                       34
<PAGE>

     December 31, 2001,  management  believes that no revisions to the remaining
     useful lives or write-downs of capitalized  software  development costs are
     required.

     Major Customers

              In 2001,  the Company had one customer  which  represented  11% of
     revenue.   In  2000,  the  Company  had  no  significant   customers  which
     represented  10% of revenues.  In 1999,  the Company had two customers that
     accounted for 18% and 16% of revenues,  respectively.  These same customers
     represented less than 1% and 11% of receivables,  respectively, at December
     31, 1999.

     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

              The  carrying  values  of  cash,  cash  equivalents,   investments
     available  for sale,  accounts  receivable,  accounts  payable  and accrued
     expenses approximate the respective fair values.

     Supplemental Cash Flow Information

              For the years ended December 31, 2001,  2000 and 1999, the Company
     paid interest of $9,000,  $16,000 and $43,000,  respectively.  In 1999, the
     Company received refunds of income taxes of $231,000.

     Income Taxes

              The Company  accounts for income taxes in accordance with SFAS No.
     109,  "Accounting for Income Taxes," the objective of which is to recognize
     the amount of current and deferred  income taxes  payable or  refundable at
     the date of the  financial  statements  as a result of all events that have
     been  recognized  in the  financial  statements  as measured by enacted tax
     laws.

     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.




                                       35
<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 1,588,000,  1,129,000,
     and 1,878,000  shares of common stock with an average  exercise  prices per
     share of $1.72, $2.64, and $2.33, were outstanding as of December 31, 2001,
     2000, and 1999,  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)

              In 1998, the Company adopted 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)  are  displayed  with  the  same   prominence  as  other   financial
     statements.  Comprehensive  income (loss) consists of net income (loss) and
     foreign currency translation adjustments.  The adoption of SFAS No. 130 had
     no  impact  on  total   stockholders'   equity  and  is  presented  in  the
     accompanying Consolidated Statements of Stockholders' Equity.

     Reclassifications

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

     Recent Accounting Standards or Accounting Pronouncements

              In June 2001, SFAS No. 141,  "Business  Combinations" and SFAS No.
     142, "Goodwill and Other Intangible Assets" were issued. SFAS 142 addresses
     financial   accounting  and  reporting  for  acquired  goodwill  and  other
     intangible  assets.  It requires,  among other  things,  that  companies no
     longer amortize goodwill, but instead test goodwill for impairment at least
     annually.  SFAS 142 is required to be applied  for fiscal  years  beginning
     after December 15, 2001.  Currently,  the Company has no recorded  goodwill
     and will  assess how the  adoption of SFAS 141 and SFAS 142 will impact its
     financial position and results of operations in any future acquisitions.

              In  August  2001,   the  FASB  issued  SFAS   Statement  No.  144,
     "Accounting  for the Impairment or Disposal of Long-Lived  Assets." The new
     guidance resolves  significant  implementation  issues related to SFAS 121,
     "Accounting  for the  Impairment  of Long-Lived  Assets and for  Long-Lived
     Assets to be Disposed of". SFAS 144 is effective for fiscal years beginning
     after  December 14, 2001.  Currently,  the Company is assessing but has not
     determined how the adoption of SFAS 144 will impact its financial  position
     or results of operations.

              In November 2001, the FASB issued EITF 01-103,  "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 01-103 is
     required to be applied for fiscal years  beginning after December 15, 2001.
     During  fiscal  years 2001,  2000 and 1999,  the Company  billed  $256,000,
     $382,000 and $786,000, respectively, of reimbursable expenses to customers.
     This  activity is currently  reflected in cost of services and  maintenance
     net of  expenses.  For fiscal year 2002 and




                                       36
<PAGE>

     thereafter,  the Company will adopt this new guidance and restate 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 an  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 were 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).  As of December 31,  2001,  this entire  balance
     remained outstanding.

              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 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.

              During  the  fourth  quarter  of  1999,  the  Company  recorded  a
     restructuring  charge of  $1,630,000.  These  charges are the result of the
     wind-down of the  Company's  DISPATCH-1  product line.  This  wind-down has
     resulted in the reduction of DISPATCH-1  development  and billable  service
     activities.  The charge  includes  severance  payments,  the  write-off  of
     capitalized software for certain DISPATCH-1 modules which will no longer be
     sold and reserves for  contractual  obligations  to  DISPATCH-1  customers.
     Through December 2000, expenses incurred relating to the 1999 restructuring
     plan  totaled  $1,090,000  including  $434,000 in  severance  payments  and
     DISPATCH-1  capital  software  write-offs  of  $656,000.  During the second
     quarter of 2000, the Company evaluated its  restructuring  accrual based on
     the then current facts and determined  that $290,000 was not needed for the
     purposes of the 1999 restructuring plan and,  accordingly,  the accrual was
     carried forward and allocated to the 2000 restructuring  plan. During 2001,
     the Company made payments of $250,000 relating to an outstanding  severance
     obligation and contractual obligations to DISPATCH-1 customers.

              During the fourth quarter of 1999, the Company  accrued a one-time
     consulting fee of $304,000 (See Note 15).




                                       37
<PAGE>


     5.       Investments Available for Sale

<TABLE>
<CAPTION>
              December 31,                                                2001            2000
              ------------------------------------------------- ------------------ -----------------
<S>                                                                  <C>            <C>
              U.S. Government Agencies Securities                    $ 1,989,000    $    2,500,000
              Corporate and Municipal Bonds                              998,000         1,006,000
                                                                ------------------ -----------------
                                                                     $ 2,987,000       $ 3,506,000
                                                                ================== =================
</TABLE>

              All  investments  available for sale have  maturities of less than
     twelve months from the  respective  balance sheet date.  Losses on sales of
     securities for the years ended December 31, 2001,  2000 and 1999 were zero,
     $28,000, and zero, respectively.


     6.       Receivables
<TABLE>
<CAPTION>
              December 31,                                          2001          2000
              ------------------------------------------- ----------------- -----------------
<S>                                                            <C>               <C>
              Billed receivables                               $ 4,663,000       $ 7,103,000
              Unbilled receivables                               2,680,000           782,000
                                                          ----------------- -----------------
                                                               $ 7,343,000       $ 7,885,000
                                                          ================= =================
</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, 2001,  2000 and 1999, the Company
     recorded  bad  debt  expense  of  $648,000,   $889,000,  and  $708,000  and
     write-offs of $1,293,000, $336,000, and $429,000.

     7.       Property and Equipment

<TABLE>
<CAPTION>
                                                                                   December 31,
                                                        Useful Life             2001           2000
<S>                                                          <C>            <C>             <C>
             Computers and related
                equipment                                    3              $ 3,323,000     $ 4,469,000
             Furniture and fixtures                         10                  469,000         482,000
             Equipment under capital leases                  3                  988,000         988,000
             Leasehold improvements                     Lease term              112,000         106,000
             Office equipment                              3-7                  428,000         423,000
                                                                         ---------------- ------------------
                                                                              5,320,000       6,468,000
             Less:  Accumulated
                depreciation and amortization                                (4,703,000)     (5,472,000)
                                                                         ---------------- ------------------
                                                                          $     617,000    $    996,000
                                                                         ================ ==================
</TABLE>

              Depreciation and amortization expense for the years ended December
     31, 2001, 2000 and 1999 was $769,000, $732,000 and $946,000, 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, 2001 and 2000.  Accumulated  amortization on
     equipment under capital lease as of December 31, 2001 and 2000 was $925,000
     and $881,000, respectively.




                                       38
<PAGE>

      8.      Capitalized Software Development Costs

<TABLE>
<CAPTION>
              December 31,                                                     2001                2000
              --------------------------------------------------- -------------------- -------------------
<S>                                                                      <C>                 <C>
              Capitalized software development costs                     $ 3,698,000         $ 3,098,000
              Less:  Accumulated amortization                             (2,286,000)          (1,486,000)
                                                                  -------------------- -------------------
                                                                         $ 1,412,000         $ 1,612,000
                                                                  ==================== ===================
</TABLE>

              The Company capitalized  software  development costs for the years
     ended December 31, 2001, 2000 and 1999 of $600,000,  $640,000 and $800,000,
     respectively.  Amortization  of  software  development  costs for the years
     ended December 31, 2001, 2000 and 1999 was $800,000, $800,000,  $1,508,000,
     respectively.  The Company wrote-off capitalized software development costs
     of $3,783,000 in 1999 and related accumulated amortization of $3,326,000.

9.           Other Assets

<TABLE>
<CAPTION>
                  December 31,                                               2001             2000
             ---------------------------------------------------- ------------------- --------------------
<S>                                                                    <C>                 <C>
                  Cash surrender value of life insurance
                  policies                                             $     563,000       $       -
                  Deferred tax asset                                        200,000                -
                                                                  ------------------- --------------------
                                                                       $     763,000       $       -
                                                                  =================== ====================
</TABLE>


     10.      Accounts Payable and Accrued Expenses


<TABLE>
<CAPTION>
                  December 31,                                               2001               2000
             ---------------------------------------------------- ------------------- --------------------
<S>                                                                      <C>                    <C>
             Accounts payable                                            $ 1,023,000            $ 941,000
             Accrued compensation and related benefits                     1,223,000              959,000
             Accrued restructuring (See Note 4)                              409,000              372,000
             Accrued litigation                                                    -              339,000
             Income taxes payable                                             70,000              431,000
             Accrued professional services                                   101,000              674,000
             Other accrued liabilities                                       801,000            1,015,000
                                                                  ------------------- --------------------
                                                                         $ 3,627,000           $4,731,000
                                                                  =================== ====================
</TABLE>




                                       39
<PAGE>




     11.      Income Taxes

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


<TABLE>
<CAPTION>
                 Years ended December 31,                            2001                 2000                 1999
               ------------------------------------------------------------------------------------------------------
               Current:
<S>                                                          <C>                   <C>                   <C>
                   Federal                                   $  (170,000)          $  (188,000)          $  (226,000)
                   State                                              --                    --                    --
                   Foreign                                            --                    --                    --
                                                    -----------------------------------------------------------------
                                                                (170,000)             (188,000)             (226,000)
               Deferred:
                   Federal                                            --            (1,448,000)             (459,000)
                   State                                              --                    --                    --
                   Foreign                                            --                    --                    --
                                                    -----------------------------------------------------------------
                                                                      --            (1,448,000)             (459,000)
                                                    -----------------------------------------------------------------
                                                                (170,000)           (1,636,000)             (685,000)

                   Increase in valuation allowances              170,000             1,636,000               685,000
                                                    -----------------------------------------------------------------
                                                        $              -             $       -                  $  -
                                                    =================================================================

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

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

<TABLE>
<CAPTION>
               December 31,                                                  2001                  2000
               -----------------------------------------------------------------------------------------
<S>                                                                    <C>                   <C>
               Deferred income tax assets:
                   Revenue recognition                                 $    23,000           $   255,000
                   Accruals and reserves not
                       currently deductible for tax                        487,000             1,012,000
                   Benefit of net operating loss carryforward            3,367,000             2,317,000
                   Depreciation                                            174,000               140,000
                   Alternative minimum tax                                 370,000               370,000
                   Capital loss carryforward                                10,000                    --
                                                                    ------------------------------------
                                                                         4,431,000             4,094,000
               Deferred income tax liabilities:
                   Capitalized software development costs                 (523,000)             (597,000)
                                                                    ------------------------------------
                                                                         3,908,000             3,497,000
                                                                    ------------------------------------
                   Valuation reserve                                    (3,708,000)           (3,127,000)
                                                                    ------------------------------------
                   Net deferred income tax asset                       $   200,000           $   370,000
                                                                    ====================================
</TABLE>

              The Company has provided a valuation  allowance  for a substantial
     majority  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, 2000 relates to
     alternative  minimum tax  credits,  which have an  indefinite  carryforward
     period.




                                       40
<PAGE>

              The reconciliation of the statutory federal income tax rate to the
Company's effective income tax rate is as follows:

<TABLE>
<CAPTION>
     Years ended December 31,                           2001          2000          1999
     ------------------------------------------------ -------------- ------------ ----------
<S>                                                    <C>             <C>             <C>
       Federal statutory tax rate                     (34.0)%         (34.0)%         (34.0)%
       Adjustment of valuation reserve                  8.7            24.0            19.4
       Net operating income from foreign
            subsidiaries non-taxable                   24.8              --              --
       Net operating losses from foreign
            subsidiaries not benefited                   .2             7.2            15.2
       State income taxes, net of federal tax
            benefit                                      --            (3.0)             --
       Nondeductible expenses                            .3             8.8            (0.3)
       Other                                             --            (3.0)           (0.3)
                                             -------------- --------------- ---------------
       Effective income tax rate                        - %              -%             - %
                                             ============== =============== ===============
</TABLE>

              As of December  31,  2001,  the Company had a net  operating  loss
     carryforward for United States federal income tax purposes of approximately
     $17,600,000.  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,
     2001,  the Company had not  provided  federal  income  taxes on  cumulative
     earnings of individual  international  subsidiaries of $1,020,000 ($480,000
     earned during 2001).  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 and equipment under noncancelable capital leases. Interest
     rates on the capital leases range from 9.0% to 9.2%.

              Rent  expense  under all  operating  leases  for the  years  ended
     December 31, 2001, 2000 and 1999 was $1,002,000, $1,396,000 and $1,946,000,
     respectively.




                                       41
<PAGE>






              Future  minimum lease  payments  under the Company's  leases as of
December 31, 2001 are as follows:
<TABLE>
<CAPTION>
                                                             Operating Leases       Capital Leases
<S>           <C>                                                 <C>                    <C>
              2002                                                $ 991,000              $ 45,000
              2003                                                  235,000                     -
              2004                                                  170,000                     -
              2005                                                   27,000                     -
              2006                                                    2,000
                                                                                                -
              Thereafter                                                  -
                                                                                                -
                                                        ----------------------------------------------
              Total minimum lease payments                      $ 1,425,000              $ 45,000
                                                        ==============================================

              Less:  Amount representing interest                                          (11,000)
                                                                               -----------------------
              Present value of future
                  minimum                                                                  34,000
                  lease payments
              Less:  Current portion                                                       (34,000)
                                                                               -----------------------
                                                                                           $    -
                                                                               =======================
</TABLE>

              Future minimum  operating  lease payments have not been reduced by
     future minimum sublease rentals of $211,000 in 2002.

              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.

     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.  Effective  July 1, 1998, the Company
     began matching 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 $33,000,  $133,000, and $127,000 for the years ended
     December 31, 2001, 2000, and 1999, respectively.
















                                       42
<PAGE>




     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, 2001, 2000 and 1999 and changes during the years
     then ended is as follows:

<TABLE>
<CAPTION>

                                                                OPTIONS OUTSTANDING             OPTIONS EXERCISABLE
                                             Shares                          Wtd. Avg.                       Wtd. Avg.
                                           Available                         Exercise                        Exercise
                                           for Grant         Shares            Price             Shares        Price
                                           ---------------- --------------- ----------------- ------------ --------------
<S>                                      <C>             <C>               <C>                <C>           <C>
    Balance, January 1, 1999                816,000         2,025,000         $ 2.16             991,000       $ 2.29
       Granted at below market             (572,000)          572,000           3.24
       Granted at market                   (413,000)          413,000           2.48
       Granted outside Plan at market           -               9,000           1.73
       Cancelled                            563,000          (563,000)          2.50
       Cancelled outside Plan                   -              (9,000)          1.69
       Exercised                                -            (569,000)          1.73
                                           ---------------- --------------- ----------------- ------------ --------------
    Balance, December 31, 1999              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
                                           ================ =============== ================= ============ ==============
</TABLE>



              The following  table  summarizes  information  about stock options
outstanding at December 31, 2001:

<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>
         $ 0.81   -      $0.97        843,000        6.92                 $0.92           106,000             $0.90
           1.06   -       1.69        368,000        8.58                  1.39            77,000              1.69
           2.50   -       6.25        377,000        7.15                  3.81           225,000              3.42
-------------------------------------------------------------------------------------------------------------------------

         $ 0.81   -      $6.25      1,588,000        7.36                 $1.72           408,000             $2.44
=========================================================================================================================
</TABLE>

              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.  As
     of December  31,  1999,  the Company had  recorded a  cumulative  charge to
     expense of $387,000.  During 2000, all options were exercised or terminated
     and the final cumulative charge to expense was adjusted to $163,000.




                                       43
<PAGE>

              The Company  accounts for options and the employee  stock purchase
     plan under Accounting  Principles  Board (APB) Opinion No. 25,  "Accounting
     for Stock Issued to Employees," under which deferred  compensation  expense
     has been  recorded  in 1999 and prior for  options  granted  with  exercise
     prices below fair value.  The deferred  compensation  is charged to expense
     ratably over the vesting period.  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 income  (loss) and basic and diluted net income  (loss) per share would
     have been:

<TABLE>
<CAPTION>
                                                         2001                   2000                    1999
                                                   ---------------------- ----------------------- ------------------
<S>                                                <C>                    <C>                     <C>
    Net loss - as reported                         $  (1,522,000)         $  (4,789,000)          $  (3,576,000)
    Net loss - pro forma                           $  (1,908,000)         $  (5,137,000)          $  (4,000,000)

    Basic and diluted loss
       per share -  as reported                    $       (0.10)         $       (0.33)          $       (0.26)

    Basic and diluted loss
        per share -   pro forma                    $       (0.13)         $       (0.35)          $       (0.29)

</TABLE>

              The weighted  average fair value of those options  granted  during
     the years ended  December 31, 2001,  2000 and 1999 was  estimated as $0.71,
     $1.60 and  $1.87,  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
     5.45%,  6.35% and 5.72% for 2001,  2000 and 1999 grants,  respectively;  an
     expected life of six years; volatility of 85%; and a dividend yield of zero
     for 2001, 2000 and 1999 grants.

              The weighted  average fair value of the employee  purchase  rights
     granted in 2001,  2000 and 1999 was $0.34,  $0.71 and $0.78,  respectively.
     The fair value of the purchase rights was estimated using the Black-Scholes
     model with the following weighted average  assumptions:  risk-free interest
     rate of 5.53%,  6.26% and 4.58% for 2001, 2000 and 1999,  respectively;  an
     expected  life of six months;  volatility  of 85%; and a dividend  yield of
     zero for 2001, 2000 and 1999.

     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  2001,  2000 and 1999,  shares
     purchased  were 8,145,  11,207 and 20,216,  respectively.  At December  31,
     2001, there were 161,581 shares available for future purchases.

     15.      Related Party Transactions

              In 2001, 2000 and 1999, the Company paid premiums on behalf of the
     majority  stockholder  and  his  wife  of  $69,600,  $69,600  and  $75,000,
     respectively, under split dollar life insurance policies.




                                       44
<PAGE>

              On December 31,  1999,  the  Company's  majority  stockholder  and
     Chairman (the "stockholder")  ceased active employment with the Company. He
     was  engaged  as a  consultant  for the period  from  January 1, 2000 until
     December  31,  2000.  Under  the  terms of the  consulting  agreement,  the
     stockholder  received annual  compensation  of $354,000,  split dollar life
     insurance  benefits  and  indemnification  for tax  liabilities  during the
     Company's  S-corporation  status.  The Company charged to expense  $304,000
     deemed to be consulting services during the fourth quarter of 1999.
              In May 2000,  the  Company's  majority  stockholder  and  Chairman
     resumed his previous duties as President and Chief Executive Officer.





























                                       45
<PAGE>


     16.      Geographic Segment Data

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

<TABLE>
<CAPTION>
    Year ended December 31,                                 2001                   2000                     1999
    -------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>                     <C>                   <C>
    Revenues:
         Software license fees
              United States
                    Domestic                        $       3,470,000       $     2,193,000       $      7,831,000
                    Export                                    209,000                62,000                982,000
                                                    -------------------------------------------------------------------
                         Total United States
                             software license fees          3,679,000             2,255,000              8,813,000


              Europe                                        1,625,000             3,010,000              1,334,000
              Other foreign                                 1,080,000             1,289,000              1,165,000
                                                    -------------------------------------------------------------------
                         Total foreign software
                             license fees                   2,705,000             4,299,000              2,499,000
                                                    -------------------------------------------------------------------
                         Total software                     6,384,000             6,554,000             11,312,000
    license fees

         Services and maintenance
              United States
                    Domestic                                7,444,000             9,011,000             13,968,000
                    Export                                    351,000               506,000              1,447,000
                                                    -------------------------------------------------------------------
                          Total United States
                              service and
                              maintenance revenue           7,795,000             9,517,000             15,415,000
                                                    -------------------------------------------------------------------

              Europe                                        2,104,000             2,749,000              5,008,000
              Other foreign                                   818,000             1,115,000              1,300,000
                                                    -------------------------------------------------------------------
                          Total foreign service and
                              maintenance revenue           2,922,000             3,864,000              6,308,000
                                                    -------------------------------------------------------------------
                          Total service and
                              maintenance revenue          10,717,000            13,381,000             21,723,000
                                                    -------------------------------------------------------------------
                              Total revenue         $      17,101,000       $    19,935,000        $    33,035,000
                                                    ===================================================================

         Income (loss) from continuing
          Operations
              United States                         $      (1,748,000)      $    (3,970,000)       $    (2,128,000)
              Europe                                         (908,000)           (1,287,000)            (1,673,000)
              Other foreign                                 1,134,000               468,000                225,000
                                                    -------------------------------------------------------------------
                    Total loss from continuing
                              operations            $      (1,522,000)      $    (4,789,000)       $    (3,576,000)
                                                    ===================================================================

         Identifiable assets
              United States                         $      13,274,000       $    16,002,000        $    53,753,000
              Europe                                        3,240,000             4,112,000              3,161,000
              Other foreign                                 1,501,000             1,539,000              1,720,000
                                                    -------------------------------------------------------------------
                    Total assets                    $      18,015,000       $    21,653,000        $    58,634,000
                                                    ===================================================================

</TABLE>




                                       46
<PAGE>



     17.      Selected Consolidated Quarterly Financial Data (Unaudited)

<TABLE>
<CAPTION>
    2001 Quarter Ended                             Dec 31,             Sep 30,            Jun 30,           Mar 31,
    ------------------------------------------ ----------------- ------------------- ----------------- -------------------
<S>                                                <C>                <C>             <C>                   <C>
    Revenues                                       $ 4,266,000        $ 3,450,000     $ 4,386,000           $ 4,999,000
    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                 14,616             14,612          14,661                14,698
      share (in thousands)



    2000 Quarter Ended                              Dec 31,            Sep 30,           Jun 30,            Mar 31,
    ------------------------------------------ ----------------- ------------------- ----------------- -------------------
    Revenues                                       $ 3,339,000        $ 5,026,000     $ 5,980,000           $ 5,590,000
    Gross profit                                       979,000          2,652,000       2,525,000             2,034,000
    Loss from continuing operations                 (2,329,000)          (287,000)     (1,667,000)             (799,000)
    Gain on sale of discontinued
       Operations                                            -           293,000                -                     -
                                               ----------------- ------------------- ----------------- -------------------
    Net (loss) income                              (2,329,000)              6,000     (1,667,000)             (799,000)

    Basic and diluted loss per share
        Continuing operations                            (0.16)            (0.02)          (0.12)                (0.06)
        Gain on sale of discontinued
           operations                                        -              0.02                -                     -
                                               ----------------- ------------------- ----------------- -------------------
        Net loss                                         (0.16)                -           (0.12)                (0.06)


    Shares used in computing basic
       and diluted net loss per share                   14,821             14,821          14,373                14,231
       (in thousands)

</TABLE>




                                       47
<PAGE>


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

     On June 11, 2001, the Company  engaged the accounting  firm of BDO Seidman,
LLP as  independent  public  accountants  for the fiscal year ended December 31,
2001 replacing  Arthur  Andersen as the current  auditors.  As of December 2001,
there are no  changes  in and  disagreements  with BDO  Seidman,  LLP nor Arthur
Andersen, LLP on accounting and financial disclosures.


                                    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,  56, 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.

     Bernard M. Goldsmith,  58, joined the Company's Board of Directors in April
1999 and is a member of the Audit  Committee.  He  currently  serves as Managing
Director of Updata  Capital,  Inc. He is also Manager of Fallen  Angel  Capital,
LLC,  which is the general  partner of Fallen  Angel Equity  Fund,  L.P.,  which
currently  beneficially  owns more than 5% of the shares of Common  Stock of the
Company.  Mr.  Goldsmith  also serves on the boards of  directors  of  Compuware
Corporation,  Dendrite International, Inc. and Frontstep, Inc. Mr. Goldsmith has
a B.A. in business administration from Rutgers University.

     Adrian A. Peters,  52, 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, 45, 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.

     Rick  Etskovitz,  47,  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.




                                       48
<PAGE>

Mr.  Etskovitz  received  his Bachelor of Science  degree from the  Pennsylvania
State University in 1976 and his Masters of Business  Administration Degree from
the Wharton Graduate School at the University of Pennsylvania in 1980.

     Jacques Cormier, 53, joined the Company in 1995 as Managing Director of the
Asia/Pacific operations based in Sydney,  Australia. Mr Cormier relocated to the
United States in June 2000 to assume the  responsibilities  of Vice President of
Customer  Services,   managing  Customer  Support,   Professional  Services  and
Customizations.  From 1992 Mr. Cormier was a Director of Qantel Business Systems
Australia  Pty  Ltd,  a  systems  integrator  of  complete  business  solutions,
responsible  for  marketing,  product  management,   professional  services  and
customer support.  Before transferring to Australia in 1992, Mr. Cormier had the
product  management  responsibility  of the ERP products  manufactured by Qantel
Corporation, a manufacturer of hardware and software for small/medium businesses
located  near San  Francisco.  Mr.  Cormier  has been an active  member of APICS
(American Production and Inventory Control Society) for many years,  authoring a
course and a book on the essentials of managing manufacturing operations.

     Jim Kirby,  36,  joined the Company in January,  2000 as Vice  President of
Sales and Marketing based in Horsham, Pennsylvania. Mr. Kirby is responsible for
the leadership,  direction and management of the Company's marketing, direct and
indirect sales channels and pre-sales  organization  in the Americas.  Mr. Kirby
moved to Astea from Base Ten System,  Inc., an application  software development
company,  where he was vice president and general manager  responsible for North
American  sales,   marketing,   professional   services  and  customer  support.
Previously, he held various leadership and management positions during a 13-year
tenure with Honeywell, Inc. Mr. Kirby is a graduate of Villanova University.

     Clark E. Fuss,  Jr., 42,  joined the Company in October 2000 as Director of
Professional Services and was promoted to Vice President of Customer Services in
September 2001 managing Professional Services, Custom Development and Life Cycle
Support.  From  March  1999 to  October  2000 he  served as  Director  of Client
Services  at Access  Technologies  Group of Plymouth  Meeting,  PA., a web based
training developer.  From December 1996 to February 1999 Mr. Fuss served as Vice
President of Operations for FYI  Interactive  of Bala Cynwyd,  PA an interactive
call center providing audiotext and infotainment  programs.  Mr. Fuss has a B.A.
in Communications from Norfolk State University.

     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,
2001 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, 2001.

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, 2001, 2000, and 1999, of the following persons (i) each person who served as
Chief  Executive  Officer during the year ended December 31, 2001, (ii) the only
other executive officer of the Company in office at December 31, 2001 who earned
more than $100,000 in salary and bonus in fiscal 2001 (collectively,  the "Named
Executive Officers"),  and (iii) one former executive officer of the Company who
was not employed by the Company on December 31, 2001,  but otherwise  would have
been named an executive officer.





                                       49
<PAGE>



                           SUMMARY COMPENSATION TABLE



<TABLE>
<CAPTION>
                                                                                       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>               <C>
Zack B. Bergreen                            2001         $134,381         --          400,000 (1)          $ 69,600(2)
Chairman of the Board and Chief             2000          233,971         --              --                242,897(3)
    Executive Officer                       1999          300,000         --              --                 74,800(2)

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

Jim Kirby                                   2001         $238,860         --              --                --
Vice President, Sales, North America        2000          158,125      $94,841        100,000 (4)

Jacques Cormier                             2001         $122,000         --              --                --
Vice President, Software Solutions          2000

Clark Fuss                                  2001         $102,502         --           50,000 (4)           --
Vice President, Customer Services

<FN>

(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.
</FN>
</TABLE>

Option Grants in Last Fiscal Year

     The following  table sets forth each grant of stock options made during the
year ended December 31, 2001 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>
Zack Bergreen                  400,000(3)         61%          $0.96     10/02/2006       $490,092         $618,436

Rick Etskovitz                  25,000(4)          4%          $1.14     05/11/2011       $46,425          $73,925

Clark Fuss                      50,000(4)          8%          $0.85     11/09/2011       $69,250          $110,250


<FN>
(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




                                       50
<PAGE>

     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  400,000  shares  were  granted in  compensation  for a
     decrease in salary during 2001.  Options will vest in equal installments on
     each of the first four  anniversaries of the grant date. In accordance with
     the Stock Option Plan,  the exercise price is valued at 1.05% of market and
     the expiration date is 5 years from the date of grant.
(4)  Options to purchase  shares will vest in equal  installments on each of the
     first four anniversaries of the grant date.
</FN>
</TABLE>



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, 2001 and the year-end value of unexercised options:



<PAGE>


<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>             <C>                            <C>
      Zack B. Bergreen          --            --             0/400,000                     --

      Rick Etskovitz            --            --            6,250/43,750                   --

      Jim Kirby                 --            --          105,000/155,000                  --

      Jacques Cormier           --            --           11,250/21,250                   --

      Clark Fuss                --            --            1,250/53,750                   --
</TABLE>


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,  2001,
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.



                                       51
<PAGE>


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

         The  following  table sets forth as of March 25, 2002:  (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 25, 2002 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>
Zack B. Bergreen(3)                                                6,811,708                 46.7%
    c/o Astea International
    455 Business Center Drive
   Horsham, Pennsylvania 19044

Fallen Angel Equity Fund, L.P.(4)                                  2,182,500                 15.0%
    960 Holmdel Road
    Holmdel, NJ 07733

Barry M. Goldsmith(5)                                              2,184,040                 15.0%

Adrian Peters                                                          0                       *

Isidore Sobkowski                                                      0                       *

Rick Etskovitz                                                      10,000                     *

Jacques Cormier                                                     22,000                     *

Jim Kirby                                                              0                       *

All current directors, nominees and executive officers as          9,027,748                 61.8%
a group (7 persons)(1)-(5)
  ------------------------
<FN>
   * 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
     14,598,030 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  2,036,276  shares  of  Common  Stock  held by trusts of which Mr.
     Bergreen and his wife are the only trustees,  271,342 shares held by trusts
     with independent  trustees,  and 1,200,000 shares of Common Stock held by a
     family  limited  partnership  of which  Mr.  Bergreen  is the sole  general
     partner.
(4)  As reported on Schedule 13D and Form 4. Mr.  Goldsmith is Manager of Fallen
     Angel  Capital,  LLC,  which is the general  partner of Fallen Angel Equity
     Fund, L.P.
(5)  Represents  1,540 shares  directly  owned by Mr.  Goldsmith  and  2,182,500
     shares held by Fallen Angel  Equity Fund,  L.P. as reported on Schedule 13D
     and Form 4. Mr. Goldsmith is Manager of Fallen Angel Capital, LLC, which is
     the  general  partner of Fallen  Angel  Equity  Fund,  L.P.  Mr.  Goldsmith
     disclaims beneficial ownership of the shares of Common Stock held by Fallen
     Angel Equity Fund, L.P.
</FN>
</TABLE>




                                       52
<PAGE>

Item 13. Certain Relationships and Related Transactions.

         On December 31, 1999, Zack Bergreen  ceased active  employment with the
Company and was engaged as a consultant  beginning  January 1, 2000.  During May
2000, Mr. Bergreen  resumed his previous duties as President and Chief Executive
Officer thereby  terminating the consulting  agreement.  See also Note 15 of the
Notes  to  the  Consolidated  Financial  Statements  of  the  Company  appearing
elsewhere in this Annual report on Form 10-K.









                                       53
<PAGE>
                                    PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

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

          i)        Consolidated Balance Sheets at December 31, 2001 and 2000

          ii)       Consolidated  Statements of  Operations  for the years ended
                    December 31, 2001, 2000, and 1999

          iii)      Consolidated  Statements  of  Stockholders'  Equity  for the
                    years ended December 31, 2001, 2000, and 1999

          iv)       Consolidated  Statements  of Cash Flows for the years  ended
                    December 31, 2001, 2000, and 1999

          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.

          (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

          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




                                       54
<PAGE>

                    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)).

          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).




                                       55
<PAGE>

          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.

          23.1*     Consent of BDO Seidman, LLP.

          23.2*     Consent of Arthur Andersen, LLP.

          24.1*     Powers of Attorney (See the Signature Page).

                  -------------------
         *        Filed herewith

          (b)       Reports on Form 8-K.

         On March 6,  2001,  the  Company  filed a  current  report  on Form 8-K
relating  to the  Company's  failure  to  comply  with  the  $1.00  minimum  bid
requirement  for  continued  listing  set  forth  in  Nasdaq   marketplace  Rule
4450(a)(5)  and that its shares are,  therefore,  subject to delisting  from The
Nasdaq National Market.

         On May 7, 2001, the Company filed a current report on Form 8-K relating
to a letter  received from The Nasdaq Stock Market,  Inc.  notifying the Company
that the common stock will continue to be listed on The Nasdaq National Market.

         On June 18,  2001,  the  Company  filed a  current  report  on Form 8-K
relating  to a  change  in  auditors.  BDO  Seidman,  LLP  was  engaged  as  the
independent public accountants replacing Arthur Andersen, LLP.

         On June 22, 2001, the Company filed an amendment to a current report on
Form 8-K/A relating to a change in auditors.

          (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.







                                       56
<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 1st day of April
2002.

                                         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.

<TABLE>
<CAPTION>
     Signature                             Title                               Date
<S>                           <C>                                         <C>
  /s/Zack Bergreen            President and Chief Executive               March 29, 2002
  ---------------------       Officer (Principal Executive Officer)
  Zack Bergreen

  /s/Rick Etskovitz           Vice President and Chief                    March 29, 2002
  ---------------------       Financial Officer (Principal
  Rick Etskovitz              Financial and Accounting
                              Officer)

  /s/Barry M. Goldsmith       Director                                    March 29, 2002
  ---------------------
  Barry M. Goldsmith

  /s/Zack Bergreen            Director                                    March 29, 2002
  ---------------------
  Zack Bergreen

</TABLE>




                                       57