Edgar Filing: ASTEA INTERNATIONAL INC

astea10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

___________________________________________

FORM 10-Q

(Mark One)

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2009

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

For the transition period from _____________________ to _________________________

Commission File Number: 0-26330

ASTEA INTERNATIONAL INC.

(Exact name of registrant as specified in its charter)

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

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

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

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” and a “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer __

Accelerated filer __

Non-accelerated filer __

Smaller Reporting Company X

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes No X

As of May 8, 2009, 3,554,049 shares of the registrant’s Common Stock, par value $.01 per share, were outstanding.

ASTEA INTERNATIONAL INC.

FORM 10-Q

QUARTERLY REPORT

INDEX

		Page No.

Facing Sheet		1

Index		2

PART I - FINANCIAL INFORMATION

Item 1.	Unaudited Consolidated Financial Statements

	Consolidated Balance Sheets	3

	Consolidated Statements of Operations (unaudited)	4

	Consolidated Statements of Cash Flows (unaudited)	5

	Consolidated Statements of Stockholders' Equity	6

	Notes to Unaudited Consolidated Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial
	Condition and Results of Operations	13

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	23

Item 4.	Controls and Procedures	24

PART II - OTHER INFORMATION

Item 1A.	Risk Factors	25

Item 6.	Exhibits	25

	Signatures	26

PART I - FINANCIAL INFORMATION

Item 1. CONSOLIDATED FINANCIAL STATEMENTS

ASTEA INTERNATIONAL INC.

CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
	2009			2008
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	3,267,000		$	3,144,000
Investments available for sale		0			500,000
Receivables, net of reserves of $218,000 and $177,000		5,406,000			5,164,000
Prepaid expenses and other		386,000			362,000
Total current assets		9,059,000			9,170,000

Property and equipment, net		342,000			385,000
Intangibles, net		1,088,000			1,159,000
Capitalized software, net		2,672,000			2,718,000
Goodwill		1,538,000			1,538,000
Other long-term restricted cash		94,000			146,000
Other assets		46,000			50,000
Total assets	$	14,839,000		$	15,166,000

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses		2,861,000			2,764,000
Deferred revenues		5,249,000			5,112,000
Total current liabilities		8,110,000			7,876,000

Long-term liabilities:
Deferred tax liability		128,000			118,000
Commitments and Contingencies

Stockholders’ equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized, issued and outstanding 826,000 and 826,000		8,000			8,000
Common stock, $.01 par value, 25,000,000 shares authorized issued 3,596,000 and 3,596,000.		36,000			36,000
Additional paid-in capital		31,055,000			30,998,000
Cumulative translation adjustment		(558,000	)		(658,000	)
Accumulated deficit		(23,732,000	)		(23,004,000	)
Less: treasury stock at cost, 42,000 shares		(208,000	)		(208,000	)
Total stockholders’ equity		6,601,000			7,172,000
Total liabilities and stockholders’ equity	$	14,839,000		$	15,166,000

See accompanying notes to the consolidated financial statements.

ASTEA INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended March 31,
	2009			2008
Revenues:
Software license fees	$	510,000		$	1,431,000
Services and maintenance		4,274,000			5,595,000
Total revenues		4,784,000			7,026,000
Costs and expenses:
Cost of software license fees		554,000			761,000
Cost of services and maintenance		2,631,000			3,309,000
Product development		618,000			1,348,000
Sales and marketing		885,000			1,241,000
General and administrative		788,000			811,000
Total costs and expenses		5,476,000			7,470,000
Loss from operations		(692,000	)		(444,000	)
Interest income, net		11,000			19,000
Loss before income taxes		(681,000	)		(425,000	)
Income tax expense		47,000			-
Net (loss)		(728,000	)		(425,000	)
Preferred dividend		73,000			-
Net loss available to commons stockholders	$	(801,000	)	$	(425,000	)

Net loss	$	(728,000	)	$	(425,000	)
Cumulative translation adjustment		100,000			69,000
Comprehensive loss	$	(628,000	)	$	(356,000	)
Basic and diluted loss per share	$	(.23	)	$	(0.12	)
Shares outstanding used in computing basic and diluted loss per share		3,554,000			3,554,000

See accompanying notes to the consolidated financial statements.

ASTEA INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended March 31,
	2009			2008
Cash flows from operating activities:
Net loss	$	(728,000	)	$	(425,000	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		647,000			870,000
Increase (decrease) in allowance for doubtful accounts		60,000			(10,000	)
Stock based compensation		102,000			88,000
Changes in operating assets and liabilities:
Receivables		(646,000	)		1,333,000
Prepaid expenses and other		(90,000	)		(41,000	)
Accounts payable and accrued expenses		231,000			(3,000	)
Deferred revenues		168,000			(171,000	)
Deferred tax		10,000			-
Other long term assets		4,000			(2,000	)
Net cash (used in) provided by operating activities		(242,000	)		1,639,000
Cash flows from investing activities:
Purchases of property and equipment		(19,000	)		(134,000	)
Capitalized software development costs		(468,000	)		(479,000	)
Increase (decrease) in restricted cash		52,000			(20,000	)
Sale of short term investments		500,000			-
Net cash provided by (used in) investing activities		65,000			(633,000	)
Cash flows from financing activities:
Dividend paid on preferred stock		(45,000	)		-
Net cash (used in) investing activities		(45,000	)		-

Effect of exchange rate changes on cash		345,000			(19,000	)
Net increase in cash and cash equivalents		123,000			987,000
Cash, beginning of period		3,144,000			1,615,000
Cash, end of period	$	3,267,000		$	2,602,000


See accompanying notes to the consolidated financial statements.

Item 1. CONSOLIDATED FINANCIAL STATEMENTS (Continued)

ASTEA INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

	Common Stock		Preferred Stock		Additional Paid-in Capital			Accumulated Compre- hensive Loss			Accumulated Deficit			Treasury Stock			Total Stockholders' Equity			Comprehensive (loss)
Balance, December 31, 2007	$	36,000	$	-	$	27,852,000		$	(703,000	)	$	(19,869,000	)	$	(208,000	)	$	7,108,000
Legal Fees – Preferred Stock						(106,000	)											(106,000	)
Dividends paid on preferred stock						(48,000	)											(48,000	)
Issuance of preferred stock				8,000		2,992,000												3,000,000
Stock-based compensation						308,000												308,000
Currency translation adjustment									45,000									45,000			45,000
Net Loss												(3,135,000	)					(3,135,000	)		(3,135,000	)
Balance, December 31, 2008	$	36,000	$	8,000	$	30,998,000		$	(658,000	)	$	(23,004,000	)	$	(208,000	)	$	7,172,000		$	(3,090,000	)
Dividends paid on preferred stock						(45,000	)											(45,000	)
Stock-based compensation						102,000												102,000
Currency translation adjustment									100,000									100,000			100,000
Net loss												(728,000	)					(728,000	)		(728,000	)
Balance, March 31, 2009	$	36,000	$	8,000	$	31,055,000		$	(558,000	)	$	(23,732,000	)	$	(208,000	)	$	6,601,000		$	(628,000	)

See accompanying notes to the consolidated financial statements.

ASTEA INTERNATIONAL INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The consolidated financial statements at March 31, 2009 and for the three month periods ended March 31, 2009 and 2008 of Astea International Inc. and subsidiaries (“Astea” or the "Company") are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. The following unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto, included in the Company’s latest shareholders’ annual report (Form 10-K) and our Form 10-Q’s for the quarters ended March 31, 2008, June 30, 2008 and September 30, 2008. The interim financial information presented is not necessarily indicative of results expected for the entire year ended December 31, 2009.

On January 26, 2009 the Company formed Astea International Japan Inc., a wholly owned subsidiary. The purpose of the subsidiary is to establish a local presence in Japan to improve service to our existing customer base and pursue new business opportunities.

2. RECENT ACCOUNTING STANDARDS OR ACCOUNTING PRONOUNCEMENTS

In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133. Statement 161 requires disclosure of how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Statement 161 is effective for fiscal years beginning after November 15, 2008. The Company adopted this standard for its 2009 reporting. The implementation of this standard did not have a material impact on the financial position, results of operations or cash flow of the Company.

In April 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3, Determination of the Useful Life of Intangible Assets. FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008. The Company adopted FAS 142-3 as of the required effective date and will apply its provisions prospectively to any renewals or extensions of its intangible assets.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141R”). This statement replaces SFAS No. 141, “Business Combinations,” and requires an acquirer to recognize the assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions. SFAS No. 141R requires costs incurred to effect the acquisition to be recognized separately from the acquisition as period costs. SFAS No. 141R also requires the acquirer to recognize restructuring costs that the acquirer expects to incur, but is not obligated to incur, separately from the business combination. In addition, SFAS No. 141R requires an acquirer to recognize assets and liabilities assumed arising from contractual contingencies as of the acquisition date, measured at their acquisition-date fair values. Other key provisions of this statement include the requirement to recognize the acquisition-date fair values of research and development assets separately from goodwill and the requirement to recognize changes in the amount of deferred tax benefits that are recognizable due to the business combination in either income from continuing operations in the period of the combination or directly in contributed capital, depending on the circumstances. The Company adopted SFAS 141R as of the required effective date and will apply its provisions prospectively to business combinations that occur after adoption.

In April 2009, the FASB issued FSP FAS 141R-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies,” (FSP FAS 141(R)-1), which amends and clarifies SFAS No. 141R. FSP FAS 141R-1 requires that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value if fair value can be reasonably estimated. If fair value cannot be reasonably estimated, the asset or liability would generally be recognized in accordance with FASB Statement No. 5, “Accounting for Contingencies,” and FASB Interpretation No. 14, “Reasonable Estimation of the Amount of a Loss.” Further, the FASB decided to remove the subsequent accounting guidance for assets and liabilities arising from contingencies from SFAS 141R, and carry forward without significant revision the guidance in SFAS No. 141, “Business Combinations.” FSP FAS 141R-1 is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements ("FAS 160"). FAS 160 amends Accounting Research Bulletin 51, Consolidated Financial Statements, to establish accounting and reporting standards for the noncontrolling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements and requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. FAS 160 also clarifies that all of those transactions resulting in a change in ownership of a subsidiary are equity transactions if the parent retains its controlling financial interest in the subsidiary. FAS 160 requires expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parent's owners and the interests of the noncontrolling owners of a subsidiary. FAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company has adopted FAS 160 as of January 1, 1009. It shall be applied prospectively for all periods presented. At this time, adoption of the standard has had no impact on the Company’s consolidated financial statements.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, "Interim Disclosures about Fair Value of Financial Instruments." This FSP amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. This FSP will be effective for interim reporting periods ending after June 15, 2009. The Company is currently evaluating the disclosure requirements of this new FSP but no significant impact is expected on the determination or reporting of the Company’s financial results.

3. FAIR VALUE OF FINANCAIL INSTRUTMENTS

Investments that the Company designated as available-for-sale are reported at fair value, with unrealized gains and losses, net of tax, recorded in accumulated other comprehensive income (loss). The Company bases the cost of the investment sold on the specific identification method. The available-for-sale investment consists of variable rate domestic obligations. These are U.S. corporate obligations in which the yield adjusts weekly and can be sold any time with funds available in 5 days.

In February 2007, the FASB issued SFAS No. 157, "The Fair Value Option for Financial Assets and Financial Liabilities," ("SFAS No. 157"). SFAS No. 157 provides companies with an option to report selected financial assets and liabilities at fair value and to provide additional information that will help investors and other users of financial statements to understand more easily the effect on earnings of a company's choice to use fair value. It also requires companies to display the fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. We are required to adopt SFAS No. 157 on January 1, 2008 and are currently evaluating the impact, if any, of SFAS No. 157 on our consolidated financial statements.

Under SFAS157, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy is broken down into three levels based on the reliability of inputs as follows:

1.	Level 1 - Valuations based on quoted prices in active markets for identical assets that the Company has the ability to access.

2.	Level 2 - Valuations based inputs on other than quoted prices included within level 1, for which all significant inputs are observable, either directly or indirectly.

3.	Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

There were no investments at March 31, 2009. On December 31, 2008 the fair value for the Company’s investments was determined based upon quoted prices in active markets for identical assets (Level 1).

4. INCOME TAX

The Company has adopted the provisions of Financial Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income taxes – an interpretation of FASB Statement 109” (“FIN 48”), on January 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement 109, “Accounting for Income Taxes”, and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.

The Company has identified its federal tax return and its state returns in Pennsylvania and California as “major” tax jurisdictions, as defined. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements. The Company’s evaluation was performed for tax years ended 2003 through 2008, the only periods subject to examination. The Company believes that its income tax positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material change to its financial position. Accordingly, the Company did not record a cumulative effect adjustment related to the adoption of FIN 48.

The Company’s policy for recording interest and penalties associated with audits is to record such items as a component of income before income taxes. Penalties are recorded in general and administrative expenses and interest paid or received is recorded in interest expense or interest income, respectively, in the statement of operations. For the first quarter 2009, there were no interest or penalties related to the settlement of audits.

In 2008, the Israel Taxing Authority “ITA” notified the Company that it intends to re-examine a 2002 transaction that it had previously approved. The Company is vigorously defending itself in court and based on information to date, does not expect this issue to result in any additional tax to the company. It is the opinion of the Company based on correct information that this matter will not have a material impact on its financial condition.

At March 31, 2009, the Company maintains a 100% valuation allowance for its remaining deferred tax assets, based on the uncertainty of the realization of future taxable income.

5. STOCK BASED COMPENSATION

The Company records stock based compensation in accordance with the provisions of SFAS 123(R), “Share Based Payments”, using the modified prospective transition method. Under this method, compensation costs recognized in the first quarter of 2009 include (a) compensation costs for all share-based payments granted to employees and directors prior to, but not yet vested as of January 1, 2006, based on the grant date value estimated in accordance with the original provisions of FAS 123 and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of FAS 123(R).

The Company estimates the fair value of stock options granted using the Black-Scholes-Merton option-pricing formula and amortizes the estimated option value using an accelerated amortization method where each option grant is split into tranches based on vesting periods. The Company’s expected term represents the period that the

Company’s share-based awards are expected to be outstanding and was determined based on historical experience regarding similar awards, giving consideration to the contractual terms of the share-based awards and employee termination data and guidance provided by the U.S. Securities and Exchange Commission’s Staff Accounting Bulletin 107 (“SAB 107”). Executive level employees who hold a majority of options outstanding, and non-executive level employees were each found to have similar historical option exercise and termination behavior and thus were grouped for valuation purposes. The Company’s expected volatility is based on the historical volatility of its traded common stock in accordance with the guidance provided by SAB 107 to place exclusive reliance on historical volatilities to estimate our stock volatility over the expected term of its awards. The Company has historically not paid dividends and has no foreseeable plans to issue dividends. The risk-free interest rate is based on the yield from the U.S. Treasury zero-coupon bonds with an equivalent term. Results for prior periods have not been restated.

As of March 31, 2009, the total unrecognized compensation cost related to non-vested options amounted to $434,000, which is expected to be recognized over the options’ average remaining vesting period of 1.47 years. No income tax benefit was realized by the Company in the year quarter ended March 31, 2009.

Under the Company’s stock option plans, option awards generally vest over a four year period of continuous service and have a 10 year contractual term. The fair value of each option is amortized on a straight-line basis over the option’s vesting period. The fair value of each option is estimated on the date of grant using the Black-Scholes option valuation model.

There were no options granted during the three month periods ended March 31, 2009 and 2008.

Activity under the Company’s stock option plans is as follows:

	OPTIONS OUTSTANDING
	Shares			Wtd. Avg. Exercise Price
Balance, December 31, 2008		469,000		$	5.57
Authorized		-			-
Granted		-			-
Cancelled		-			-
Exercised		-			-
Expired		(9,000	)	$	4.42
Balance, March 31, 2009		460,000		$	5.59

The following table summarizes outstanding options that are vested and expected to vest and options under the Company’s stock option plans as of March 31, 2009.

	Number of Shares		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding Options		460,000	$	5.59		6.89		-

Ending Vested and Expected to Vest		361,000	$	5.77		6.48		-

Options Exercisable		245,000	$	6.26		5.51		-

6. LOSS PER SHARE

The Company follows SFAS 128 “Earnings Per Share,” Under SFAS 128, companies that are publicly held or have complex capital structures are required to present basic and diluted earnings per share on the face of the statement of operations. Earnings per share are based on the weighted average number of shares and common stock equivalents outstanding during the period. In the calculation of diluted earnings per share, shares outstanding are

adjusted to assume conversion of the Company’s non-interest bearing convertible stock and exercise of options as if they were dilutive. In the calculation of basic earnings per share, weighted average numbers of shares outstanding are used as the denominator. The Company had a net loss available to the common shareholders for the three months ended March 31, 2009 and 2008. Loss per share is computed as follows:

	Three Months Ended March 31,
	2009			2008
Numerator:
Net loss available to common shareholders	$	(801,000	)	$	(425,000	)

Denominator:
Weighted average shares used to compute net loss available to common shareholders per common share-basic		3,554,000			3,554,000
Effect of dilutive stock options		-			-

Weighted average shares used to compute net loss available to common shareholders per common share-dilutive		3,554,000			3,554,000

Basic net loss per share to common shareholder	$	(.23	)	$	(.12	)

Dilutive net loss per share to common shareholder	$	(.23	)	$	(.12	)

7. MAJOR CUSTOMERS

In the first quarter of 2009, one customer accounted for 11% of the Company’s revenue. In the first quarter of 2008, one customer accounted for 14% of total revenue. At March 31, 2009, no customer accounted for 10% or more of total accounts receivable. At December 31, 2008, one customer accounted for 13% of total accounts receivable.

8. GEOGRAPHIC SEGMENT DATA

The Company and its subsidiaries are engaged in the design, development, marketing and support of its service management software solutions. Substantially all revenues result from the license of the Company’s software products and related professional services and customer support services. The Company’s chief executive officer reviews financial information presented on a consolidated basis, accompanied by disaggregated information about revenues by geographic region for purposes of making operating decisions and assessing financial performance. Accordingly, the Company considers itself to have three reporting segments as follows:

For the Three Months Ended,	2009			2008
Revenues:
Software license fees
United States
Domestic	$	339,000		$	1,431,000
Export		-			-
Total United States
software license fees		339,000			1,431,000

Europe		117,000			-
Asia Pacific		54,000			-
Total foreign software
license fees		171,000			-
Total software license fees		510,000			1,431,000

Services and maintenance
United States
Domestic		3,253,000			4,025,000
Export		-			61,000
Total United States service
and maintenance revenue		3,253,000			4,086,000

Europe		483,000			1,017,000
Asia Pacific		538,000			492,000

Total foreign service and maintenance revenue		1,021,000			1,509,000

Total service and maintenance revenue		4,274,000			5,595,000
Total revenue	$	4,784,000		$	7,026,000
Net loss
United States	$	(560,000	)	$	(304,000	)
Europe		(225,000	)		(150,000	)
Asia Pacific		57,000			29,000
Net loss	$	(728,000	)	$	(425,000	)

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

Overview

This document contains various forward-looking statements and information that are based on management's beliefs, assumptions made by management and information currently available to management. Such statements are subject to various risks and uncertainties, which could cause actual results to vary materially from those contained in such forward-looking statements. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected or projected. Certain of these, as well as other risks and uncertainties are described in more detail herein and in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

Astea is a global provider of service management software that addresses the unique needs of companies who manage capital equipment, mission critical assets and human capital. Clients include Fortune 500 to mid-size companies which Astea services through company facilities in the United States, United Kingdom, Australia, The Netherlands and Israel. Since its inception in 1979, Astea has licensed applications to companies in a wide range of sectors including information technology, telecommunications, instruments and controls, business systems, and medical devices.

Astea Alliance, the Company’s service management suite of solutions, supports the complete service lifecycle, from lead generation and project quotation to service and billing through asset retirement. It integrates and optimizes critical business processes for Contact Center, Field Service, Depot Repair, Logistics, Professional Services, and Sales and Marketing. Astea extends its application with portal, analytics and mobile solutions. Astea Alliance provides service organizations with technology-enabled business solutions that improve profitability, stabilize cash-flows, and reduce operational costs through automating and integrating key service, sales and marketing processes.

Marketing and sales of licenses, service and maintenance related to the Company’s legacy system DISPATCH-1® products are limited to existing DISPATCH-1 customers.

FieldCentrix

On September 21, 2005, the Company, through a wholly owned subsidiary, FC Acquisition Corp., acquired substantially all of the assets of FieldCentrix Inc, the industry’s leading mobile field force automation company. FieldCentrix develops and markets mobile field service automation (FSA) systems, which include the wireless dispatch and support of mobile field technicians using portable, hand-held computing devices. The FieldCentrix offering has evolved into a leading complementary service management solution that runs on a wide range of mobile devices (handheld computers, laptops and PC’s, and Pocket PC devices), and integrates seamlessly with popular CRM and ERP applications. FieldCentrix has licensed applications to Fortune 500 and mid-size companies in a wide range of sectors including HVAC, building and real estate services, manufacturing, process instruments and controls, and medical equipment.

Critical Accounting Policies and Estimates

The Company’s significant accounting policies are more fully described in its Summary of Accounting Policies, Note 2, in the Company’s 2008 Annual Report on Form 10-K. The preparation of financial statements in conformity with accounting principles generally accepted within the United States requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying financial statements and related notes. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. The Company does not believe there is a great likelihood that materially different amounts would be reported related to the accounting policies described below; however, application of these accounting policies involves the exercise of judgments and the use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.

Principles of Consolidation

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

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. Significant assets and liabilities that are subject to estimates include allowances for doubtful accounts, goodwill and other acquired intangible assets, deferred tax assets and certain accrued and contingent liabilities.

Revenue Recognition

Astea’s revenue is principally recognized from two sources: (i) licensing arrangements and (ii) services and maintenance.

The Company markets its products primarily through its direct sales force and resellers. License agreements do not provide for a right of return, and historically, product returns have not been significant.

Astea recognizes revenue on its software products in accordance with AICPA Statement of Position (“SOP”) 97-2, Software Revenue Recognition, SOP 98-9, Modification of SOP 97-2,Software Revenue Recognition with Respect to Certain Transactions, and SEC Staff Accounting Bulletin (“SAB”) 104, Revenue Recognition.

Astea recognizes revenue from license sales when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the license fee is fixed and determinable and the collection of the fee is probable. We utilize written contracts as a means to establish the terms and conditions by which our products support and services are sold to our customers. Delivery is considered to have occurred when title and risk of loss have been transferred to the customer, which generally occurs after a license key has been delivered electronically to the customer. Revenue for arrangements with extended payment terms in excess of one year is recognized when the payments become due, provided all other revenue recognition criteria are satisfied. If collectability is not considered probable, revenue is recognized when the fee is collected. Our typical end user license agreements do not contain acceptance clauses. However, if acceptance criteria is required, revenues are deferred until customer acceptance has occurred.

Astea allocates revenue to each element in a multiple-element arrangement based on the elements’ respective fair value, determined by the price charged when the element is sold separately. Specifically, Astea determines the fair value of the maintenance portion of the arrangement based on the price, at the date of sale, if sold separately, which is generally a fixed percentage of the software license selling price. The professional services portion of the arrangement is based on hourly rates which the Company charges for those services when sold separately from software. If evidence of fair value of all undelivered elements exists, but evidence does not exist for one or more delivered elements, then revenue is recognized using the residual method. If an undelivered element for which evidence of fair value does not exist, all revenue in an arrangement is deferred until the undelivered element is delivered or fair value can be determined. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue. The residual value, after allocation of the fee to the undelivered elements based on VSOE of fair value, is then allocated to the perpetual software license for the software products being sold. The Company’s policy is to recognize expenses as incurred when revenues are deferred in connection with transactions where VSOE cannot be established for an undelivered element as the Company follows the accounting requirements of SOP 97-2. Accordingly, all costs associated with the contracts are recorded in the period incurred, which may differ from the period in which revenue is recognized.

When appropriate, the Company may allocate 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 rates when provided in conjunction with the licensing arrangement. Amounts allocated are based upon standard prices charged for those services or products which, in the Company’s opinion, approximate fair value. 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, which is generally twelve months on a straight-line basis. Consulting and training service revenue is generally unbundled and recognized at the time the service is performed.

We believe that our accounting estimates used in applying our revenue recognition are critical because:

·	the determination that it is probable that the customer will pay for the product and services purchased is inherently judgmental;

·	the allocation of proceeds to certain elements in multiple-element arrangements is complex;

·	the determination of whether a service is essential to functionality of the software is complex;

·	establishing company-specific fair values of elements in multiple-element arrangements requires adjustments from time-to-time to reflect recent prices charged when each element is sold separately; and

·	the determination of the stage of completion of certain consulting arrangements is complex.

Changes in the aforementioned items could have a material effect on the type and timing of revenue recognized.

If we were to change our pricing approach in the future, this could affect our revenue recognition estimates, in particular, if bundled pricing precludes establishment of VSOE.

In June 2006, the FASB reached a consensus on Emerging Issues Task Force ("EITF") Issue No. 06-3, How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation), ("EITF 06-03"). EITF 06-3 indicates that the income statement presentation on either a gross basis or a net basis of the taxes within the scope of the issue is an accounting policy decision that should be disclosed. EITF 06-3 is effective for interim and annual periods beginning after December 15, 2006. The adoption of EITF 06-3 did not change our policy of presenting taxes within the scope of EITF 06-3 on a net basis and had no impact on our consolidated financial statements.

Deferred Revenue

Deferred revenue represents payments or accounts receivable from the Company’s customers for amounts billed in advance.

Reimbursable Expenses

The Company charges customers for out-of-pocket expenses incurred by its employees during the performance of professional services in the normal course of business. In accordance with Emerging Issues Task Force 01-14, “Income Statement Characterization of Reimbursements Received for ‘Out-of-Pocket’ Expenses Incurred,” 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 services and maintenance.

Investments Available for Sale

companies to display the fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. We are required to adopt SFAS No. 157 on January 1, 2008 and are currently evaluating the impact, if any, of SFAS No. 157 on our consolidated financial statements.

The Company adopted the provisions of SFAS 157 effective November 15, 2007. Under this standard, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The Company has investments that are valued in accordance with the provisions of SFAS 157. SFAS 157 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy is broken down into three levels based on the reliability of inputs as follows:

1.	Level 1 - Valuations based on quoted prices in active markets for identical assets that the Company has the ability to access.

2.	Level 2 - Valuations based inputs on other than quoted prices included within level 1, for which all significant inputs are observable, either directly or indirectly.

3.	Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

On December 31, 2008 the fair value for the Company’s investments was determined based upon quoted prices in active markets for identical assets (Level 1).

Allowance for Doubtful Accounts

The Company records an allowance for doubtful accounts based on specifically identified amounts that management believes to be uncollectible. The Company also records an additional allowance based on certain percentages of aged receivables, which are determined based on historical experience and management’s assessment of the general financial conditions affecting the Company’s customer base. Once management determines that an account will not be collected, the account is written off against the allowance for doubtful accounts. If actual collections experience changes, revisions to the allowances may be required.

We believe that our estimate of our allowance for doubtful accounts is critical because of the significance of our accounts receivable relative to total assets. If the general economy deteriorates, or factors affecting the profitability or liquidity of the industry changed significantly, then this could affect the accuracy of our allowance for doubtful accounts.

Capitalized Software Development Costs

The Company accounts for its internal software development costs are in accordance with Statements of Financial Accounting Standards (“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 technology feasibility are charged to product development expense. Product development expense includes payroll, employee benefits, other headcount-related costs associated with product development and any related costs to third parties under sub-contracting or net of any collaborative arrangements.

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 beginning with the initial release to customers. The Company’s estimated life for its capitalized software products is two years based on current sales trends and the rate of product release. The Company continually evaluates whether events or circumstances had 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.

We believe that our estimate of our capitalized software costs and the period for their amortization is critical because of the significance of our balance of capitalized software costs relative to our total assets. Potential impairment is determined by comparing the balance of unamortized capitalized software costs to the sales revenue projected for a capitalized software project. If efforts to sell that software are terminated, or if the projected sales revenue from the software drops below a level that is less than the unamortized balance, then an impairment would be recognized.

Goodwill

Goodwill represents the excess of the cost of businesses acquired over the fair value of the net assets acquired at the date of acquisition. Goodwill is not amortized but rather tested for impairment at least annually. The Company performs its annual impairment test as of the first day of the fiscal fourth quarter. The impairment test must be performed more frequently if there are triggering events, as for example when our market capitalization significantly declines for a sustained period, which could cause us to do interim impairment testing that might result in an impairment to goodwill.

SFAS No. 142, Goodwill and Other Intangible Assets, prescribes a two-step method for determining goodwill impairment. In the first step, the Company determines the fair value of the reporting unit and compares that fair value to the net book value of the reporting unit. The fair value of the reporting unit is determined using various valuation techniques, including a comparable companies market multiple approach and a discounted cash flow analysis (an income approach).

To measure the amount of the impairment, SFAS No. 142 prescribes that the Company determine the implied fair value of goodwill in the same manner as if the Company had acquired those business units. Specifically, the Company must allocate the fair value of the reporting unit to all of the assets of that unit, including any unrecognized intangible assets, in a hypothetical calculation that would yield the implied fair value of goodwill.

Our annual impairment test, which was completed during the fourth quarter of 2008, indicated that the fair value of our one reporting unit exceeded the carrying value and, therefore, the goodwill amount was not impaired for our one reporting unit.

The determination of the fair value of the reporting units and the allocation of that value to individual assets and liabilities within those reporting units requires the Company to make significant estimates and assumptions. These estimates and assumptions primarily include, but are not limited to: the selection of appropriate peer group companies; control premiums appropriate for acquisitions in the industries in which the Company competes; the discount rate; terminal growth rates; and forecasts of revenue, operating income, depreciation and amortization, and capital expenditures.

Due to the inherent uncertainty involved in making these estimates, actual financial results could differ from those estimates. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on either the fair value of the reporting unit or the amount of the goodwill impairment charge.

On September 21, 2005, the Company acquired the assets and certain liabilities of FieldCentrix, Inc. through its wholly-owned subsidiary, FC Acquisition Corp. Included in the allocation of the purchase price was goodwill valued at $1,100,000.

The purchase agreement provided for an earnout provision through June 30, 2007 that paid the sellers a percentage of certain license revenues and certain professional services. Due to the contingent nature of such payments, the value of the future payments were not included in the purchase price. However, under FAS 141, as such sales transactions occurred, the related earnout amounts were added to the purchase price, specifically goodwill. The total addition to goodwill from the date the assets of FieldCentrix, Inc. were acquired through the end of the earnout period June 30, 2007 was $285,000.

Major Customers

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. The Company places investments with financial institutions evaluated as being creditworthy, or investing in short-term money market which are exposed to minimal interest rate and credit risk. Cash balances are maintained with several banks. Certain operating accounts may exceed the FDIC limits.

Concentration of credit risk, with respect to accounts receivable, is limited due to the Company’s credit evaluation process. The Company sells its products to customers involved in a variety of industries including information technology, medical devices and diagnostic systems, industrial controls and instrumentation and retail systems. While the Company does not require collateral from its customers, it does perform continuing credit evaluations of its customer’s financial condition.

Fair Value of Financial Instruments

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

Accounting for Income Taxes

Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and operating loss and tax credit carryforwards and are measured using the enacted tax rates and laws that will be in effect when the difference and carryforwards are expected to be recovered or settled. In accordance with Statements of Financial Accounting Standards (“FAS”) No. 109, Accounting for Income Taxes (“FAS 109”), a valuation allowance for deferred tax assets is provided when we estimate that it is more likely than not that all or a portion of the deferred tax assets may not be realized through future operations. This assessment is based upon consideration of available positive and negative evidence which included, among other things, our most recent results of operations and expected future profitability. We consider our actual historical results to have a stronger weight than other more subjective indicators when considering whether to establish or reduce a valuation allowance on deferred tax assets.

As of March 31, 2009, we have approximately $15,530,000 of net deferred tax assets, against which we provided a 100% valuation allowance. Our net deferred tax assets were generated primarily by operating losses. Accordingly, it is more likely than not, that we will not realize these assets through future operations.

On January 1, 2007, we implemented the provisions of FAS interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB statement 109 (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Estimated interest is recorded as a component of interest expense and penalties are recorded as a component of general and administrative expenses. Such amounts were not material for 2008, 2007 and 2006. The adoption of FIN 48 did not have a material impact on our financial position.

In 2008, the Israel Tax Authority “ITA” notified the Company that it intends to re-examine a 2002 transaction that it had previously approved. The Company is vigorously defending itself in court and based on information to date, does not expect this issue to result in any additional tax to the Company.

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). General and administrative expenses include exchange gains (losses) of $23,000 and $23,000 for the three months ended March 31, 2009 and 2008, respectively.

Net (Loss) Income 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. Under the treasury stock method it is assumed that dilutive stock options are exercised. Furthermore, it is assumed that the proceeds are used to purchase common stock at the average market price for the period. The difference between the numbers of the shares assumed issued and the number of shares assumed purchased represents the dilutive shares.

For the three months ended March 31, 2009 and 2008, the Company had a net loss. In 2009 and 2008 there were zero net additional dilutive shares assumed to be converted. In addition, at March 31, 2009, 100% of the outstanding convertible preferred stock, 826,000 shares, was eligible to be converted into common stock. For purposes of this calculation, if converted, it would have been assumed that they were converted into common stock and the related dividends were not paid. However, all options outstanding at March 31, 2009 and 2008 to purchase shares of common stock and shares of common stock issued on the assumed conversion of the eligible preferred stock were excluded from the diluted loss per common share calculation as the inclusion of these options would have been antidilutive.

	Three Months Ended March 31,
	2009			2008
Numerator:
Net loss available to common shareholders	$	(801,000	)	$	(425,000	)

Denominator:
Weighted average shares used to compute net loss available to common shareholders per common share-basic		3,554,000			3,554,000
Effect of dilutive stock options		-			-

Weighted average shares used to compute net loss available to common shareholders per common share-dilutive		3,554,000			3,554,000

Basic net loss per share to common shareholder	$	(.23	)	$	(.12	)

Dilutive net loss per share to common shareholder	$	(.23	)	$	(.12	)

Comprehensive Income (Loss)

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

Stock Compensation

The Company records stock based compensation in accordance with the provisions of SFAS 123(R) using the modified prospective transition method. Under this method, compensation costs recognized during 2006, include (a) compensation costs for all share-based payments granted to employees and directors prior to, but not yet vested as of January 1, 2006, based on the grant date value estimated in accordance with the original provision SFAS 123 and (b) compensation costs for all share-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of FAS 123(R).

The Company estimates the fair value of stock options granted using the Black-Scholes-Merton option-pricing formula and amortizes, the estimated option value using an accelerated amortization method where each option grant is split into tranches based on vesting periods. The Company’s expected term represents the period that the Company’s share-based awards are expected to be outstanding and was determined based on historical experience regarding similar awards, giving consideration to the contractual terms of the share-based awards and employee termination data and guidance provided by the U.S. Securities and Exchange Commission’s Staff Accounting Bulletin 107 (“SAB 107”). Executive level employees who hold a majority of the options outstanding, and non-executive level employees were each found to have similar historical option exercise and termination behavior and thus were grouped for valuation purposes. The Company’s expected volatility is based on the historical volatility of its traded common stock in accordance with the guidance provided by SAB 107 to place exclusive reliance on historical volatilities to estimate our stock volatility over the expected term of its awards. The Company has historically not paid dividends and has no foreseeable plans to issue dividends. The risk-free interest rate is based on the yield from U.S. Treasury zero-coupon bonds with an equivalent term. Results for prior periods have not been restated.

Under the Company’s stock option plans, options awards generally vest over a four year period of continuous service and have a 10 year contractual term. The fair value of each option is amortized on a straight-line basis over the option’s vesting period. The fair value of each option is estimated on the date of the grant using the Black-Scholes Merton option pricing formula. There were no options granted during the three months ended march 31, 2009 and 2008.

Convertible Preferred Stock

On September 24, 2008 the Company issued 826,446 shares of Series-A Convertible Preferred Stock (“preferred stock”) to its Chief Executive Officer at a price of $3.63 per share for a total of $3,000,000. Dividends accrue daily on the preferred stock at an initial rate of 6% and shall be payable only when, as and if declared by the Company’s Board of Directors, quarterly in arrears.

The preferred stock may be converted into common stock at the initial rate of one share of common for each share of preferred stock. The holder has the right during the first six months following issuance to convert up to 40% of the shares purchased, except in the event of a change in control of the Company, at which time there is no limit. After six months there is no limit on the number of shares that may be converted.

The Company has the right to redeem, subject to board approval, up to 60% of the shares of preferred stock at its option during the first six months after issuance at a price equal to 110% of the purchase price plus all accrued and unpaid dividends. The limitations on conversion and the redemption rights during this initial six-month period are not applicable in the event of certain change of control events. Commencing two years after issuance, the Company shall have certain rights to cause conversion of all of the shares of preferred stock then outstanding. Commencing four years after issuance, the Company may redeem, subject to board approval, all of the shares of preferred stock then outstanding at a price equal to the greater of (i) 130% of the purchase price plus all accrued and unpaid dividends and (ii) the fair market value of such number of shares of common stock which the holder of the preferred stock would be entitled to receive had the redeemed preferred stock been converted immediately prior to the redemption.

In accordance with relevant accounting pronouncements, the Company recorded the preferred stock on the Company’s consolidated balance sheet within Stockholders’ Equity. In accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 68, “Increasing Rate Preferred Stock,” the preferred stock is recorded on the consolidated balance sheet at the amount of net proceeds received less an imputed dividend cost. The imputed dividend cost of $218,000 was the result of the preferred stock having a dividend rate during the first two years after its issuance (6%) that is lower than the rate that becomes fixed (10%) after the initial two year period. The imputed dividend cost of $218,000 is being amortized over the first two years from the date of issuance and is based upon the present value of the dividend discount using a 10% yield.

Results of Operations

Comparison of Three Months Ended March 31, 2009 and 2008

Revenues

Revenues decreased $2,242,000, or 32%, to $4,784,000 for the three months ended March 31, 2009 from $7,026,000 for the three months ended March 31, 2008. Software license fee revenues decreased 64%, from the same period last year. Services and maintenance fees for the three months ended March 31, 2009 amounted to $4,274,000, a 24% decrease from the same quarter in 2008. The decrease in revenue is primarily the result of a slowdown in the worldwide economy which has resulted in an overall reduction in customer demand and new customer sales.

The Company’s international operations contributed $1,192,000 of revenues in the first quarter of 2009 compared to $1,509,000 in the first quarter of 2008. This represents a 21% decrease from the same period last year and 25% of total revenues in the first quarter 2009. The decrease in international revenues is principally due to reduced demand in Europe, partially offset by increased demand in Asia Pacific and revenue contributions from the newly created subsidiary in Japan.

Software license fee revenues decreased $921,000 to $510,000 in the first quarter of 2009 from $1,431,000 in the first quarter of 2008. Astea Alliance license revenues decreased $853,000 to $186,000 in the first quarter of 2009 from $1,039,000 in the first quarter of 2008. The low level of Alliance license sales reflects the slowdown in buying that has been prevalent throughout the world economy in the first quarter of 2009. The Company sold $324,000 of software licenses from its’ FieldCentrix subsidiary compared to $392,000 in the same period of 2008. There were no license revenues from DISPATCH-1 sales in either year.

Services and maintenance revenues decreased $1,318,000 to $4,274,000 in the first quarter of 2009 from $5,595,000 in the first quarter of 2008. Astea Alliance service and maintenance revenues decreased $1,256,000 to $2,996,000 compared to $4,252,000 in the first quarter of 2008. The decrease in Astea Alliance revenues is the result of reduced demand in the U.S. and Europe, partially offset by increased demand in the Asia Pacific region. Service and maintenance revenues from our FieldCentrix subsidiary was essentially flat compared to the same quarter last year, $1,212,000 in 2009 compared with $1,236,000 in 2008. Service and maintenance revenue from DISPATCH-1 declined by $40,000 to $66,000 for the quarter ending March 31, 2009. The decline in service and maintenance revenue for DISPATCH-1 was expected as the Company had discontinued development of DISPATCH-1 at the end of 1999.

Costs of Revenues

Cost of software license fees decreased 27% to $554,000 in the first quarter of 2009 from $761,000 in the first quarter of 2008. Included in the cost of software license fees is the fixed cost of capitalized software amortization and the amortization of software acquired from FieldCentrix. Contributing to the decrease in cost of license fees is the completion of amortization of software capitalized on older versions of Astea Alliance as well as the variable component of license sales which is reduced due to the low level of Astea Alliance license sales in the first quarter of 2009. The software licenses gross margin percentage was (9%) in the first quarter of 2009 compared to 47% in the first quarter of 2008. The large decrease in gross margin was attributable to the significant reduction in license revenue in 2009 compared to 2008.

Cost of services and maintenance decreased 20% to $2,631,000 in the first quarter of 2009 from $3,309,000 in the first quarter of 2008. The decrease is principally attributable to a decrease in headcount in both the U.S. and Europe which was needed to adjust expenses to the declining demand for professional services. In addition, the weakening of both European and Asian currencies assisted in making the cost of services in those countries less expensive relative to the U.S. dollar. The services and maintenance gross margin percentage was 38% in the first quarter of 2009 compared to 41% in the first quarter of 2008. The slight decrease in service and maintenance gross margin results from certain fixed price contracts extending beyond the estimated time, which resulted in reducing the Company’s effective daily rates.

Product Development

Product development expense decreased 54% to $618,000 in the first quarter of 2009 from $1,348,000 in the first quarter of 2008. The decrease results from a 14% reduction in development headcount compared to the same period last year. In addition the bulk of the Company’s development is performed in Israel. The Israeli shekel was 10% less expensive in the first quarter of 2009 compared to the same quarter in 2008, which contributed to reducing the Company’s cost of development in the first quarter of 2009. The Company excludes the capitalization of software development costs from product development. Development costs of $468,000 were capitalized in the first quarter of 2009 compared to $479,000 during the same period in 2008. Gross development expenses were $1,086,000 for the first quarter of 2009 compared to $1,827,000 for the first quarter of 2008, 41% lower in 2009 compared to 2008. Product development as a percentage of revenues was 13% in the first quarter of 2009 compared with 19% in the first quarter of 2008.

Sales and Marketing

Sales and marketing expense decreased by 29% to $885,000 in the first quarter of 2009 from $1,241,000 in the first quarter of 2008. The decrease is primarily attributable to a decrease in commissions due to lower license revenues. In addition, marketing expenses have been reduced to take into account the slowdown in buying and reduction in potential leads that have resulted due to the worldwide economic slowdown. As a percentage of revenues, sales and marketing expenses remained constant at 18% between the first quarter of 2009 and 2008.

General and Administrative

General and administrative expenses of $788,000 in the quarter ended March 31, 2009 were 3% lower than the first quarter of 2008. The decrease is primarily the result of small exchange gains on foreign currency transactions. As a percentage of revenues, general and administrative expenses increased slightly to 16% from 12% in the first quarter of 2008.

Interest Income, Net

Net interest income decreased $8,000 from $19,000 in the first quarter of 2008 to $11,000 in the first quarter of 2009. The decrease resulted primarily from a decrease in the rate of interest paid on short-term, low risk investments.

Net Loss

The Company generated a net loss of $728,000 for the three months ended March 31, 2009 compared to net loss of $425,000 in 2008. The increase in the net loss of $303,000 is the result of a decrease in revenues of $2,242,000 or 32%, mostly offset by a decrease in expenses of $1,994,000 or 27%.

International Operations

Total revenue from the Company’s international operations decreased by $317,000 to $1,192,000 in the first quarter of 2009 from $1,509,000 in the same quarter in 2008. The decrease in revenue from international operations is principally due to the reduction in professional services and maintenance revenue in Europe. There were a number of large projects that occurred in the first quarter of 2008 that have been completed and not completely replaced due to the economic slowdown in Europe. This was partially offset by an increase in revenues of 20% in the Asia Pacific region, which resulted from the Company’s expanded presence in Japan. International operations generated a net loss of $167,000 for the quarter ended March 31, 2009 compared to net loss of $121,000 in the same quarter in 2008. The slight increase in net loss in 2009 compared to 2008 is principally due to the reduction of revenues in Europe.

Liquidity and Capital Resources

Operating Activities

Net cash generated by operating activities was $242,000 for the three months ended March 31, 2009 compared to cash generated by operations of $1,639,000 for the three months ended March 31, 2008, a net decrease of $1,881,000. The decrease in cash generated by operations was primarily attributable to a change of $1,979,000 in accounts receivable, which increased by $646,000 in 2009 compared to a reduction of $1,333,000. Adding to the decrease in cash provided by operations was an increase in the net loss for the period of $303,000. Partially offsetting the increased uses of cash were an increase in deferred revenues of $339,000, an increase in accounts payable and accrued expenses of $231,000 in 2009 compared to a decrease of $3,000 in 2008, and an increase in the allowance for doubtful accounts of $60,000 in 2009 compared to a decrease of $10,000 in 2008.

Investing Activities

The Company generated $65,000 from investing activities in the first three months of 2009 compared to using $633,000 in the first three months of 2008. The increase in cash generated by investing activities of $698,000 when comparing the first quarter of 2009 to the first quarter of 2008 results primarily from the Company liquidating $500,000 of short-term investments in 2009. In addition, capital expenditures were $115,000 lower in 2009 as the Company focused on minimizing all discretionary spending.

Financing Activities

The Company paid $45,000 in dividends on its convertible preferred stock in the first quarter of 2009. The stock was issued at the end of the third quarter of 2008. There were no financing cash flows in the first quarter of 2008.

In June 2008, the Company renewed its secured revolving line of credit with a bank to borrow up to $2.0 million. The line of credit is secured by accounts receivable. Interest is payable monthly based on the prime rate of interest charged by the bank. The Company did not borrow any funds during the first quarter of 2009. It did make one loan during the three months ended March 31, 2008 and repaid the amount within 10 days. At March 31, 2009 the total outstanding loan under the line of credit agreement was $0. The maturity date on the line of credit is June 30, 2009.

At March 31, 2009, the Company had a working capital ratio of 1.12:1, with cash of $3,267,000. The Company believes that it has adequate cash resources to make the investments necessary to maintain or improve its current position and to sustain its continuing operations for the next twelve months. The Board of Directors from time to time reviews the Company’s forecasted operations and financial condition to determine whether and when payment of a dividend or dividends is appropriate. The Company does not anticipate that its operations or financial condition will be affected materially by inflation.

Variability of Quarterly Results and Potential Risks Inherent in the Business

The Company’s operations are subject to a number of risks, which are described in more detail in the Company’s prior SEC filings, including in its annual report on Form 10-K for the fiscal year ended December 31, 2008. Risks which are peculiar to the Company on a quarterly basis, and which may vary from quarter to quarter, include but are not limited to the following:

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

The market price of the Company’s common stock could be subject to significant fluctuations in response to, and may be adversely affected by, variations in quarterly operating results, changes in earnings estimates by analysts, developments in the software industry, adverse earnings or other financial announcements of the Company’s customers and general stock market conditions, as well as other factors.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Market risk represents the risk of loss that may impact the Company’s financial position due to adverse changes in financial market prices and rates. The Company’s market risk exposure is primarily a result of fluctuations in interest rates and foreign currency exchange rates. The Company does not hold or issue financial instruments for trading purposes.

Interest Rate Risk. The Company’s exposure to market risk for changes in interest rates relates primarily to the Company’s investment portfolio. The Company does not have any derivative financial instruments in its portfolio. The Company places its investments in instruments that meet high credit quality standards. The Company is adverse to principal loss and ensures the safety and preservation of its invested funds by limiting default risk, market risk and reinvestment risk. As of March 31, 2009, the Company’s investments consisted of U.S. money market funds. The Company does not expect any material loss with respect to its investment portfolio. In addition, the Company does not believe that a 10% change in interest rates would have a significant effect on its interest income.

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. For the three month period ended March 31, 2009, approximately 25% of the Company’s overall revenue resulted from sales to customers outside the United States. A 10% change in the value of the U.S. dollar relative to each of the currencies of the Company’s non-U.S.-generated sales would not have resulted in a material change to its results of operations. The Company does not expect any material loss with respect to foreign currency risk.

Item 4. CONTROLS AND PROCEDURES

The Company’s management team, under the supervision and with the participation of the Company’s principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934 (“Exchange Act”), as of the last day of the period covered by this report, March 31, 2009. The term disclosure controls and procedures means the Company’s controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to management, including the Company’s principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that, because of the material weaknesses in the Company’s internal control over financial reporting described below, the Company’s disclosure controls and procedures were not effective as of March 31, 2009. To address the material weaknesses in the Company’s internal control over financial reporting described below, we performed additional manual procedures and analysis and other post-closing procedures in order to prepare the consolidated financial statements included in this report. As a result of these expanded procedures, the Company believes that the condensed consolidated financial statements contained in this report present fairly, in all material respects, our financial condition, results of operations and cash flows for the periods covered thereby in conformity with generally accepted accounting principles in the United States (“GAAP”).

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we evaluated the effectiveness and design and operation of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In connection with management’s assessment of our internal control over financial reporting described above, management has identified that as of March 31, 2009, our disclosure controls and procedures did not adequately provide for effective controls over the accounting for revenue recognition. Specifically, our disclosure controls and procedures did not adequately provide for effective control over the review and monitoring of revenue recognition for certain license sale contracts that included undelivered elements. As a result of this material weakness, the Company restated its Form 10-K for the years ending December 31, 2006 and 2005. In addition, the Company restated its quarterly consolidated financial statements for the quarters ended March 31, 2006, June 30, 2006, September 30, 2006, December 31, 2006, March 31, 2007, June 30, 2007 and September 30, 2007.

Because of the material weaknesses identified, management concluded that its internal control over financial reporting and procedures did not adequately provide for effective internal control over financial reporting as of March 31, 2009, based on criteria in the COSO framework.

The Company expanded its internal procedures related to contracts, proposals sent to customers and implementation plans in order to correct the material weakness related to revenue recognition. In addition, the Company implemented internal training programs for its operations team to fully understand the rules relating to software revenue recognition.

However, the Company will need to complete additional future quarterly closings in order to adequately evaluate the effectiveness of the remediation efforts made to its material weaknesses in internal controls before it can state that the identified weakness has been corrected.

PART II - OTHER INFORMATION

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, which could materially affect the Company’s business, financial condition or future results. The risks described in this report and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results.

Item 6. Exhibits

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

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized this 15th day of May 2009.

ASTEA INTERNATIONAL INC.


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

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