Astea 10-K

Fair Value of Financial Instruments

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

Income Taxes

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

Advertising

Advertising costs are expensed when incurred. Advertising for the years ended December 31, 2005, 2004, and 2003 were $101,000, $86,000 and $104,000 respectively.

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 income (loss). There are no material transaction gains or losses in the accompanying consolidated financial statements for the periods presented.

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. 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 number of the shares assumed issued and the number of shares assumed purchased represents the dilutive shares.

At December 31, 2005 and 2004 there were 22,743 and 41,178 net additional dilutive shares assumed to be converted at an average exercise price of $5.06 and $4.52 per share, which brought the total outstanding dilutive shares to 3,116,000 and 3,001,000 respectively. Additionally, at December 31, 2005 and 2004 the Company had 41,975 and 51,950 antidilutive shares that were excluded from diluted earnings per share calculation due to their antidilutive nature.

The Company sustained a loss for fiscal year 2003. Options at December 31, 2003 to purchase shares of common stock were excluded from the diluted (loss) per common share calculation as the inclusion of these options would have been antidilutive.

	(in thousands, except per share data)
Year Ended December 31,	2005		2004		2003
Net income (loss)	$	1,828	$	2,134	$	(5,529	)
Basic weighted average number of common shares outstanding		3,093		2,960		2,922
Basic earnings (loss) per common share	$	.59	$	.72	$	(1.89	)
Effect of dilutive stock options		23		41		-
Diluted weighted average number of common shares outstanding		3,116		3,001		2,922
Diluted earnings (loss) per common share	$	.59	$	.71	$	(1.89	)

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 grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for stock option grants using the intrinsic-value method in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related Interpretations. Under the intrinsic-value method, because the exercise price of the Company’s employee stock options is greater than or equal to the market price of the underlying stock on the date of grant, no compensation expense is recognized.

- -

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” and SFAS 148, “Accounting for Stock Based Compensation - Transition and Disclosure,” the Company’s net income(loss) and basic and diluted net income(loss) per share would have been:

	2005			2004			2003
Net income (loss) - as reported	$	1,828,000		$	2,134,000		$	(5,529,000	)

Add: Stock based compensation included in net income as reported		-			-			-

Deduct stock based compensation determined under fair value based methods for all awards		(388,000	)		(252,000	)		(329,000	)

Net income (loss) - pro forma	$	1,440,000		$	1,882,000		$	(5,858,000	)

Basic income (loss) per share - as reported	$	.59		$	.72		$	(1.89	)

Diluted income (loss) per share - as reported	$	.59		$	.71		$	(1.89	)

Basic income (loss) per share - pro forma	$	.47		$	.64		$	(2.00	)

Diluted income (loss) per share - pro forma	$	.46		$	.63		$	(2.00	)

The weighted average fair value of those options granted during the years ended December 31, 2005, 2004 and 2003 was estimated as $6.46, $5.39 and $3.17, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: risk-free interest rate of 4.37%, 4.18% and 3.97% for 2005, 2004 and 2003 grants, respectively; an expected life of six years; volatility of 122%, 130% and 137%; and a dividend yield of zero for 2005, 2004 and 2003 grants, respectively.

The Company anticipates adopting the modified prospective method of FAS No. 123(R) on January 1, 2006. Based on the stock options outstanding as of December 31, 2005, we will recognize compensation expense in future consolidated statements of income of approximately $235,000 for the year ended December 31, 2006. The actual impact on our financial condition or results of operations will depend on the number and terms of stock options outstanding on the date of change, as well as future options that may be granted.

Reclassifications

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

Recent Accounting Standards or Accounting Pronouncements

In December 2004, the FASB issued FAS No. 123(R), “Share-Based Payment,” an amendment of FASB Statements 123 and 95. FAS No, 123(R) replaced FAS No. 123, “Accounting for Stock-Based Compensation,” and supercedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” This statement requires companies to recognize the fair value of stock options and other stock-based compensation to employees prospectively beginning with fiscal periods beginning after June 15, 2005. This means that the Company will be required to implement FAS No, 123(R) no later than the quarter beginning January 1, 2006. The Company currently measures stock-based compensation in accordance with APB Opinion No. 25, as discussed above. The Company anticipates adopting the modified prospective method of FAS No. 123(R) on January 1, 2006. The impact on the company’s financial condition or results of operations will depend on the number and terms of stock options outstanding on the date of change, as well as future options that may be granted..

In March 2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (“FIN 47). FIN 47 provides guidance relating to the identification of and financial reporting for legal obligations to perform an asset retirement activity. The Interpretation requires recognition of a liability for the fair value of a conditional asset retirement obligation when incurred if the liability’s fair value can be reasonably estimated. FIN 47 also defines when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. The provision is effective no later than the end of fiscal years ending after December 15, 2005. The Company will adopt FIN 47 beginning the first quarter of fiscal year 2006 and does not believe the adoption will have a material impact on its consolidated financial position or results of operations or cash flows.

In May 2005, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 154, Accounting Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3. SFAS No. 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 also requires that retrospective application of a change in accounting principle be limited to the direct effects of the change. Indirect effects of the change in accounting principle, such as a change in nondiscretionary profit-sharing payment resulting from an accounting change, should be recognized in the period of the accounting change. SFAS No. 154 also requires that a change in depreciation, amortization or depletion method for long-lived, non-financial assets be accounted for as a change in accounting estimate effected by a change in accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Early adoption is permitted for accounting changes and corrections of errors made in fiscal years beginning after the date this Statement is issued. Management does not expect the implementation of this new standard to have a material impact on their financial position, results of operations and cash flows.

In June 2005, the Emerging Issues Task Force, or EITF, reached a consensus on Issue 05-6, Determining the Amortization Period for Leasehold Improvements, which requires that leasehold acquired in a business combination or purchased subsequent to the inception of a lease be amortized over the lesser of the useful life of the assets or a term that includes renewals that are reasonably assured at the date of the business combination or purchase. EITF 05-6 is effective for periods beginning after July 1, 2005. We do no expect the provisions of this consensus to have a material impact on our financial position, results of operations or cash flows.

3. Reverse Stock Split

On September 2, 2003, the Company implemented a 1:5 reverse stock split of the Company’s outstanding common stock that was previously approved at the Annual Meeting of Stockholders. The par value of all post reverse split shares remained unchanged at $0.01. The Company redeemed all fractional shares that resulted from the reverse split. The number of authorized shares was unchanged at 25,000,000.

Results for 2003 have been restated to reflect the results of the reverse stock split, which includes the common stock and additional paid-in capital captions on the balance sheet as well as the shares used in computing earnings per share.

4. Receivables

December 31,	2005		2004
Billed receivables	$	4,719,000	$	4,379,000
Unbilled receivables		318,000		2,049,000

	$	5,037,000	$	6,428,000

Billed receivables represent billings for the Company’s products and services to end users and value added resellers. Unbilled receivables represent contractual amounts due within one year under software licenses that have been delivered but have not been billed. Billed and unbilled receivables are shown net of reserves for estimated uncollectible amounts.

For the years ended December 31, 2005, 2004 and 2003, the Company recorded bad debt expense of $227,000, $84,000, and $477,000, and write-offs of $328,000 $483,000, and $685,000. The decrease in bad debt expense in 2004 is primarily due to improvement in customer payment performance. The improved payment performance deteriorated somewhat in 2005.

5. Property and Equipment

			December 31,
	Useful Life		2005			2004
Computers and related equipment		3	$	2,879,000		$	2,246,000
Furniture and fixtures		10		504,000			468,000
Leasehold improvements		Lease term		122,000			111,000
Software		1		280,000			-
Office equipment		3-7		1,238,000			993,000
				5,023,000			3,818,000
Less: Accumulated depreciation and amortization				(3,985,000	)		(3,270,000	)
			$	1,038,000		$	548,000

Depreciation and amortization expense for the years ended December 31, 2005, 2004 and 2003 was $538,000, $286,000 and $310,000, respectively. The increase in property and equipment resulted primarily from the acquisition of FieldCentrix, (see note 13).

6. Capitalized Software Development Costs


	Remaining Weighted Average Life		December 31, 2005 2004
Capitalized software development costs		1.68	$	6,764,000	$	5,209,000
Less: Accumulated amortization				4,709,000		3,689,000
			$	2,055,000	$	1,520,000

The Company capitalized software development costs for the years ended December 31, 2005, 2004 and 2003 of $1,555,000, $1,380,000 and $480,000, respectively. Amortization of software development costs for the years ended December 31, 2005, 2004 and 2003 was $1,020,000, $1,088,000 and $599,000, respectively, and is reflected in cost of software license fees in the financial statements. Additionally, for the year ended December 31, 2004, the Company wrote-off $1,155,000 of fully amortized capitalized software for old versions that had been deemed no longer useful or functional. The Company amortizes software developments cost on a straight-line basis over the estimated useful lives of the product (two years) and expects to amortize approximately $1,130,000 during 2006 and $447,000 in 2007 based on products currently released for sale.

7. Intangible Assets

Intellectual property and customer lists (“intangible assets”) acquired as part of the FieldCentrix acquisition are amortized on a straight-line basis over their estimated annual lives or over the period of their expected benefit, generally ranging from 5 to 10 years. Accumulated amortization of intangible assets was $81,000 and $0 at December 31, 2005 and 2004, respectively. Amortization expense related to these intangible assets was $81,000 and $0 for the years ended December 31, 2005 and 2004, respectively.

			Gross Carrying Value				Accumulated Amortization
Description	Weighted Avg. Life		2005		2004		2005		2004

Software		5 years	$	720,000	$	-	$	42,000	$	-
Customer List		10 years		1,360,000		-		39,000		-
			$	2,080,000	$	-	$	81,000	$	-

Estimated amortization expense for each of the next five years is as follows:

	Amortization Expense
2006	$ 280,000
2007	280,000
2008	280,000
2009	280,000
2010	238,000

8. Accounts Payable and Accrued Expenses

December 31,	2005		2004
Accounts payable	$	926,000	$	688,000
Accrued compensation and related benefits		1,389,000		1,229,000
Accrued professional services		182,000		197,000
Sales and payroll taxes		695,000		410,000
Other accrued liabilities		784,000		670,000
	$	3,976,000	$	3,194,000

9. Income Taxes

Astea accounts for income taxes pursuant to SFAS No. 109, Accounting for Income Taxes, which provides for an asset and liability approach to accounting for income taxes. Deferred tax assets and liabilities represent the future tax consequences of the differences between the financial statement carrying amounts for assets and liabilities versus the tax bases of assets and liabilities. Under this method, deferred tax assets are recognized for deductible temporary differences, operating loss and tax credit carryforwards. Deferred liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The impact of tax rate changes on deferred tax assets and liabilities is recognized in the year that the change is enacted.

The provision for income taxes is as follows:

Years ended December 31,	2005		2004		2003
Current:
Federal	$	-	$	-	$	-
State		-		-		-
Foreign		-		-		-
		-		-		-
Deferred:
Federal	$	6,000	$	-	$	-
State		1,000		-		-
	$	7,000	$	-	$	-

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

December 31,	2005			2004
Deferred income tax assets:
Revenue recognition	$	29,000		$	-
Accruals and reserves not currently deductible for tax		122,000			126,000
Benefit of net operating loss carryforward		8,447,000			7,882,000
Depreciation		65,000			32,000
Alternative minimum tax		370,000			370,000
Capital loss carryforward		10,000			10,000
		9,043,000			8,420,000
Deferred income tax liabilities:
Capitalized software development costs		(761,000	)		(547,000	)
Amortization of deductible goodwill		(7,000	)		-

		(768,000	)		(547,000	)
Net deferred tax asset before allowance		(8,275,000	)		(7,873,000	)
Valuation allowance		(8,282,000	)		(7,873,000	)
Net deferred income tax liability	$	(7,000	)	$	-

Realization of deferred tax assets is primarily dependent on future taxable income, the amount and timing of which is uncertain. The valuation allowance is adjusted on a periodic basis to reflect management’s estimate of the realizable value of the net deferred tax assets. Therefore, a valuation allowance has been recorded for the entire net deferred tax asset with the exception of $7,000 related to the deferred tax liability associated with indefinite-lived intangible assets in accordance with SFAS No. 142. Because indefinite-lived intangible assets and goodwill are not amortized for book purposes, the related deferred tax liabilities will not reverse until some indeterminate future period when the assets becomes impaired, are disposed of, or in the case of indefinite-lived intangible assets, begin to reverse if they are reclassified as an amortizing intangible asset. SFAS No. 109 requires the expected timing of future reversals of deferred tax liabilities to be taken into account when evaluating the realizability of deferred tax assets. Therefore, the Company believes the reversal of deferred tax liabilities related to indefinite-lived intangible assets and goodwill should not be considered a source of future taxable income when assessing the realization of the Company’s deferred tax assets. And as a result a deferred expense has been recorded.

In 2004 the Company utilized $494,000 of its reserved deferred tax asset to offset its provision for income taxes, primarily from the utilization of its net operating loss carryforward and turning of certain accruals. In the years ended December 31, 2005 and 2003, there were no income taxes owed, as the Company had tax losses.

The Company has a tax holiday in Israel, which expires in 2015. Net income for the Israeli subsidiary was $417,000 and $334,950 for the years ending December 31, 2005 and 2004, respectfully. The Israeli subsidiary has net carryforward losses for Israeli tax purposes of approximately $0.7 million.

As of December 31, 2005, the Company had a net operating loss carryforward for United States federal income tax purposes of approximately $24,800,000. Included in the aggregate net operating loss carryforward is $8,895,000 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 carryforwards expire in 2016 through 2025.

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, 2005, the Company had not provided federal income taxes on cumulative earnings of individual international subsidiaries of $4,076,000. 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.

The extent to which the loss carryforward can be used to offset future taxable income and tax liabilities, respectively, may be limited, depending on the extent of ownership changes within any three-year period.

10. Commitments and Contingencies

The Company leases facilities and equipment under noncancelable operating leases. Rent expense for facility leases for the years ended December 31, 2005, 2004 and 2003 was $780,000, $701,000 and $867,000, respectively.

Future minimum lease payments under the Company’s leases as of December 31, 2005 are as follows:

	Operating Leases
2006	$ 1,235,000
2007	896,000
2008	647,000
2009	506,000
2010	34,000
Total minimum lease payments	$ 3,318,000

On September 11, 2002, the Company invested $300,000 in a certificate of deposit, which was pledged as collateral on an outstanding letter of credit related to a lease obligation. It was classified as restricted cash on the balance sheet. According to the lease agreement, the letter of credit may be reduced by $75,000 per year starting in November 2005, at which time it was reduced to $225,000. The certificate of deposit automatically renews every six months. The letter of credit is due to expire in February 2009.

From time to time, the Company may be 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.

11. Profit Sharing Plan/Savings Plan

The Company maintains a discretionary profit sharing plan, including a voluntary Section 401(k) feature, covering all qualified and eligible employees. Company contributions to the profit sharing plan are determined at the discretion of the Board of Directors. The Company matches 25% of eligible employees’ contributions to the 401(k) plan up to a maximum of 1.5% of each employee’s compensation. The Company contributed approximately $53,000, $50,000 and $61,000 for the years ended December 31, 2005, 2004 and 2003, respectively.

12. 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, 2005, 2004 and 2003 and changes during the years then ended is as follows:

				OPTIONS OUTSTANDING					OPTIONS EXERCISABLE
	Shares Available for Grant			Shares			Wtd. Avg. Exercise Price			Shares		Wtd. Avg. Exercise Price
Balance, January 1, 2003		147,000			447,000		$	6.24			138,000	$	8.96
Granted at market		(127,000	)		127,000
Cancelled		96,000			(96,000	)
Balance, December 31, 2003		116,000			478,000		$	5.99			213,000	$	7.91
Granted at market		(110,000	)		110,000
Cancelled		150,000			(151,000	)
Exercised		-			(37,000	)
Expired		(43,000	)		-
Balance, December 31, 2004		113,000			400,000		$	5.73			190,000	$	7.09
Granted at market		(205,000	)		205,000			-			-		-
Cancelled		131,000			(133,000	)		-			-		-
Exercised		-			(162,000	)		-			-		-
Expired		(3,000	)		-			-			-		-
Balance, December 31, 2005		36,000			310,000		$	7.04			89,000	$	9.11

The following table summarizes information about stock options outstanding at December 31, 2005:

			OPTIONS OUTSTANDING			OPTIONS EXERCISABLE
Range of Exercise Prices			Number Outstanding	Weighted Average Remaining Contract Life (Years)	Weighted Average Exercise Price	Number Exercisable	Weighted Average Exercise Price
$ 2.75	-	$ 4.85	92,000	7.22	$ 3.60	38,000	$ 3.86
$ 5.70	-	$ 8.45	194,000	8.68	$ 7.18	27,000	$ 7.66
$ 15.30	-	$ 31.25	24,000	2.14	$ 19.19	24,000	$ 19.19
$ 2.75	-	$ 31.25	310,000	7.75	$ 7.04	89,000	$ 9.11

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 100 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, 50,000 shares of common stock were reserved for issuance. During 2005, 2004 and 2003, shares purchased were 500, 500 and 1,100, respectively. At December 31, 2005, there were 29,121 shares available for future purchases. The plan expired on June 30, 2005 and was not renewed.

13. FieldCentrix Acquisition

On September 21, 2005, the Company, through a newly formed wholly-owned subsidiary, FC Acquisition Corp., acquired substantially all of the assets of FieldCentrix, Inc., a leading provider of mobile workforce automation, pursuant to an Asset Purchase Agreement for $3,336,000 of Company stock. The total cost of the acquisition including earnout through December 31, 2005, legal, accounting and investment banking fees was $3,626,000.

In the Acquisition, the Company acquired substantially all of the assets of FieldCentrix, including cash, accounts receivables, personal property, contracts with customers, intellectual property, existing customer relationships and assumed certain liabilities of FieldCentrix. In consideration for the assets acquired and liabilities assumed from FieldCentrix, the Company issued 421,106 shares of its unregistered stock to FieldCentrix, Inc. The shares were valued at $3,336,000 based upon the average closing price of the Company’s common stock for five trading days preceding the closing of the Acquisition ($7.922). The Purchase Agreement also provides for certain quarterly cash earnout payments payable to FieldCentrix through June 30, 2007 related to the collection of gross license revenues for certain sales of FieldCentrix products, and collections on certain professional services for FieldCentrix customers.

Ten percent of the shares issued were deposited into escrow to cover any claims for indemnification made by the Company or FC Acquisition Corp. against FieldCentrix under the Purchase Agreement. Assuming there are no indemnification claims, this stock escrow will be released to FieldCentrix on or about September 21, 2006. Additionally, FieldCentrix deposited $177,243 into an escrow account to cover any uncollected accounts receivable and/or maintenance revenues of customers who have not consented to the assignment of their contracts with FieldCentrix Inc. to FC Acquisition Corp. The cash escrow was analyzed on or about January 19, 2006 with a portion being released to FC Acquisition Corp. for the total of uncollected accounts receivable and unassigned maintenance contracts that existed at the date of the acquisition.

The purchase price of FieldCentrix is allocated as follows:

Assets acquired:	Disclosed in Third Quarter		Purchase Adjustment			Total Allocation
Cash	$	906,000				$	906,000
Accounts receivable		354,000		(30,000	)		384,000
Prepaid expenses		95,000		15,000			80,000
Property and equipment		1,451,000					730,000
Software		721,000					721,000
Customer relations		1,360,000					1,360,000
Other assets		31,000					31,000
Goodwill		956,000		(144,000	)		1,100,000

		5,153,000		(159,000	)		5,312,000
Less liabilities assumed:
Accrued expenses		492,000		227,000			719,000
Deferred revenue		1,035,000		(68,000	)		967,000

		1,527,000		159,000			1,686,000

Total purchase price	$	3,626,000	$	-		$	3,626,000

The $1,100,000 allocated to goodwill is expected to be deductible for tax purposes.

The acquisition of the long lived assets described above will result in future depreciation and amortization expense to the Company. All assets will be depreciated or amortized using the straight-line method over the following estimated useful live:

Asset	Useful Life
Property and Equipment	1 to 4 years
Software	1 to 5 years

Customer lists are amortized on a straight line basis over the period of their expected benefit. The expected benefit period will be reevaluated on a periodic basis based upon actual revenues generated.

14. Unaudited Pro Forma Financial Information

Unaudited pro forma financial information for the years ended December 31, 2005 and 2004 as though the FieldCentrix acquisition had occurred on January 1, 2004 is as follows:


	Year ended December 31,
	2005			2004

Revenues	$	27,532,000		$	27,760,000
Net (loss)	$	(1,283,000	)	$	(1,958,000	)
Net (loss) per common share
Basic	$	(.38	)	$	(.58	)
Diluted	$	(.38	)	$	(.58	)
Weighted shares outstanding
Basic		3,397,000			3,318,000
Diluted		3,397,000			3,318,000

15. 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 be in a single reporting segment, specifically the license, implementation and support of its software.

Year ended December 31,	2005			2004			2003
Revenues:
Software license fees
United States
Domestic	$	2,983,000		$	4,285,000		$	1,151,000
Export		-			-			-
Total United States
software license fees		2,983,000			4,285,000			1,151,000

United Kingdom		4,580,000			2,274,000			194,000
Other foreign		677,000			1,433,000			590,000
Total foreign software
license fees		5,257,000			3,707,000			784,000
Total software license fees		8,240,000			7,992,000			1,935,000

Services and maintenance
United States
Domestic		8,128,000			6,719,000			6,239,000
Export		304,000			749,000			1,140,000
Total United States service
and maintenance revenue		8,432,000			7,468,000			7,379,000

United Kingdom		2,859,000			1,834,000			1,581,000
Other foreign		3,234,000			2,023,000			1,946,000
Total foreign service and
maintenance revenue		6,093,000			3,857,000			3,527,000
Total service and
maintenance revenue		14,525,000			11,325,000			10,906,000
Total revenue	$	22,765,000		$	19,317,000		$	12,841,000

Profit(loss) from continuing operations
United States	$	(62,000	)	$	913,000		$	(3,757,000	)
United Kingdom		867,000			(47,000	)		(1,161,000	)
Other foreign		1,023,000			1,268,000			(611,000	)
Total income(loss) from continuing operations	$	1,828,000		$	2,134,000		$	(5,529,000	)

Long lived assets
United States	$	6,001,000		$	1,865,000		$	1,460,000
United Kingdom		67,000			55,000			88,000
Other foreign		314,000			183,000			224,000
Total assets	$	6,382,000		$	2,103,000		$	1,772,000

16. Selected Consolidated Quarterly Financial Data (Unaudited)

2005 Quarter Ended	Dec 31,			Sep 30, (Restated)		Jun 30, (Restated)		Mar 31, (Restated)
Revenues	$	5,387,000		$	8,249,000	$	5,359,000	$	3,770,000
Gross profit		2,929,000			6,021,000		2,884,000		1,534,000
Net income(loss)		(643,000	)		2,789,000		431,000		(749,000)

Basic net income(loss) per share	$	(.25	)	$	.94	$	.15	$	(.25)
Diluted net income(loss) per share	$	(.25	)	$	.90	$	.14	$	(.25)
Shares used in computing basic net income(loss) per share (in thousands)		3,455			2,968		2,962		2,960
Shares used in computing diluted net income(loss) per share (in thousands)		3,485			3,106		3,056		2,960

2004 Quarter Ended		Dec 31,		Sep 30,		Jun 30,		Mar 31,
Revenues	$	5,013,000	$	4,004,000	$	4,416,000	$	5,884,000
Gross profit		2,617,000		2,086,000		2,493,000		3,927,000
Net income		187,000		155,000		309,000		1,483,000
Basic net income per share	$	.06	$	.05	$	.10	$	.51
Diluted net income per share	$	.05	$	.05	$	.10	$	.51
Shares used in computing basic net income per share (in thousands)		2,960		2,954		2,954		2,921
Shares used in computing diluted net income per share (in thousands)		3,013		2,992		2,972		2,923

During the fourth quarter of 2005, the Company discovered that it had over capitalized software during the year in the amount $251,000. It was determined by the Company that $131,000, $218,000 and ($98,000) of the charge was related to the first quarter 2005, second quarter 2005 and the third quarter 2005, respectively. The impact on basic and diluted net earnings (loss) per share was ($.04) in the first quarter and ($.07) in the second quarter. The impact on basic and diluted earnings per share in the third quarter was in increase of $.03. The quarterly numbers for 2005 above have been restated to reflect this charge in the appropriate quarter. The Company will file amended Forms 10-Q shortly after the filing of this Form 10-K.

- -

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

Disclosure.

None.

Item 9A. Controls and Procedures.

Our management, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of our controls and procedures related to our reporting and disclosure obligations as of December 31, 2005, which is the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that (a) material information relating to us, including our consolidated subsidiaries, is made known to these officers by our and our consolidated subsidiaries other employees, particularly material information related to the period for which this periodic report is being prepared; and (b) this information is recorded, processed, summarized, evaluated and reported, as applicable, within the time periods specified in the rules and forms promulgated by the Securities and Exchange Commission.

There were no changes that occurred during the fiscal quarter ended December 31, 2005 that have materially affected, or are reasonable likely to materially affect, our internal controls over financial reporting.

Item 9B. Other Information

None

PART III

Item 10. Directors and Executive Officers of the Registrant.

Certain information required by Part III is omitted from this Report in that the Company will file a definitive proxy statement with 120 days after the end of this fiscal year pursuant to Regulation 14A (the “Proxy Statement”) for its 2006 Annual Meeting of Stockholders proposed to be held on May 5, 2006, and the information therein is incorporated herein reference.

Item 10A. Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers

The information set forth under the captions “Executive Officers” of the Proxy Statement is incorporated herein by reference.

Item 11. Executive Compensation

The information in the Proxy Statement set forth under the captions “Executive Compensation Summary” and “Report on Executive Compensation” is incorporated herein by reference.

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

The information set forth under the captions “Security Ownership of Certain Beneficial Owners and Management’ of the Proxy Statement is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

The information required by this Item is incorporated by reference from the Proxy Statement under the heading “Certain Relationships and Related Transactions”

Item 14. Principal Accountant Fees and Services

The information required by this Item is incorporated by reference from the Proxy Statement under the heading “Principal Accountant Fees and Service”

PART IV

Item 15. Exhibits and Financial Statement Schedules

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

		i)	Consolidated Balance Sheets at December 31, 2005 and 2004
		ii)	Consolidated Statements of Operations for the years ended December 31, 2005, 2004, and 2003
		iii)	Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2005, 2004, and 2003
		iv)	Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004, and 2003
		v)	Notes to the Consolidated Financial Statements

	(a)(1)(B)	Report of Independent Registered Public Accounting Firm.

	(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

3(i).1	Certificate of Incorporation of the Company (Incorporated herein by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1, as amended (File No. 33-92778)).
3(ii).1	By-Laws of the Company (Incorporated herein by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1, as amended (File No. 33-92778)).
4.1	Specimen certificate representing the Common Stock (Incorporated herein by Reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1, as amended (File No. 33-92778)).
10.1	1994 Amended Stock Option Plan (Incorporated herein by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-1, as amended (File No. 33-92778)).
10.2	Form of Non-Qualified Stock Option Agreement under the 1994 Amended Stock Option Plan (Incorporated herein by reference to Exhibit 10.2 to the Company’s Registration Statement on Form S-1, as amended (File No. 33-92778)).
10.3	Form of Incentive Stock Option Agreement under the 1994 Amended Stock Option Plan (Incorporated herein by reference to Exhibit 10.3 to the Company’s Registration Statement on Form S-1, as amended (File No. 33-92778)).
10.4	1991 Amended Non-Qualified Stock Option Plan (Incorporated herein by reference to Exhibit 10.4 to the Company’s Registration Statement on Form S-1, as amended (File No. 33-92778)).

10.5	Form of Non-Qualified Stock Option Agreement under the 1991 Amended Non- Qualified Stock Option Plan (Incorporated herein by reference to Exhibit 10.5 to the Company’s Registration Statement on Form S-1, as amended (File No. 33-92778)).

10.6	1995 Employee Stock Purchase Plan (Incorporated herein by reference to Exhibit 10.6 to the Company’s Registration Statement on Form S-1, as amended (File No. 33-92778)).
10.7	Amendment No. 1 to 1995 Employee Stock Purchase Plan (Incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1997).
10.8	1995 Employee Stock Purchase Plan Enrollment/Authorization Form (Incorporated herein by reference to Exhibit 4.7 to the Company’s Registration Statement on Form S-8, filed on September 19, 1995 (File No. 33-97064)).
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).
10.28	2001 Stock Option Plan (Incorporated herein by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-8 (File No. 333-107757)).
21.1	Subsidiaries of the Registrant.
23.1*	Consent of BDO Seidman, LLP.
24.1*	Powers of Attorney (See the Signature Page).
31.1*	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - President and 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 - President and Chief Executive Officer
32.2*	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906

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.

- -

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized this 28th day of March 2006.

	ASTEA INTERNATIONAL INC.


	By:	/s/Zack Bergreen
		Zack Bergreen
		Chief Executive Officer

POWER OF ATTORNEY

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

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

Signature	Title	Date

/s/Zack Bergreen	Chief Executive Officer	March 30, 2006
Zack Bergreen	(Principal Executive Officer)

/s/Rick Etskovitz	Chief Financial Officer	March 30, 2006
Rick Etskovitz	(Principal Financial and Accounting
	Officer)

/s/Eileen Smith	Controller	March 30, 2006
Eileen Smith

/s/Thomas J. Reilly, Jr.	Director	March 30, 2006
Thomas J. Reilly, Jr.

/s/Zack Bergreen	Director	March 30, 2006
Zack Bergreen

/s/Adrian Peters	Director	March 30, 2006
Adrian Peters

/s/Eric Siegel	Director	March 30, 2006
Eric Siegel

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

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

2005	High		Low
First quarter	$	8.45	$	6.41
Second quarter		9.61		5.82
Third quarter		8.07		5.85
Fourth quarter		18.31		7.50

2004		High		Low
First quarter	$	4.31	$	2.41
Second quarter		13.75		3.15
Third quarter		9.62		5.13
Fourth quarter		8.74		6.31

Years ended December 31,	2005			2004			2003			2002			2001
(in thousands, except per share data)
Statement of Income Data:
Revenues:
Software license fees	$	8,240		$	7,992		$	1,935		$	6,504		$	6,384
Services and maintenance		14,525			11,325			10,906			10,294			10,973
Total revenues		22,765			19,317			12,841			16,798			17,357

Cost and Expenses:
Cost of software license fees		1,136			1,838			898			1,262			1,224
Cost of services and maintenance		8,261			6,356			6,963			6,345			6,808
Product development		2,503			1,431			2,490			1,781			2,590
Sales and marketing		6,192			5,565			5,875			6,218			5,396
General and administrative (1)		3,003			2,051			2,198			2,426			2,837
Restructuring charge		-			-			-						333
Total costs and expenses		21,095			17,241			18,424			18,032			19,188

Income(loss) from continuing operations before interest and taxes		1,670			2,076			(5,583	)		(1,234	)		(1,831	)
Net interest income		165			58			54			106			309
Income(loss) from continuing operations before income taxes		1,835			2,134			(5,529	)		(1,128	)		309	)
Income tax expense (benefit)		7			-						200			-
Net profit/(loss)	$	1,828		$	2,134		$	(5,529	)	$	(1,328	)	$	(1,522	)

Basic income (loss) per share	$	.59		$	.72		$	(1.89	)	$	(0.09	)	$	(0.10	)
Diluted income (loss) per share	$	.59		$	.72		$	(1.89	)	$	(0.09	)	$	(0.10	)
Shares used in computing basic income (loss) per share (2)		3,093			2,960			2,922			2,921			2,926
Shares used in computing diluted income (loss) per share (2)		3,116			3,001			2,922			2,921			2,926
Balance Sheet Data:
Working capital	$	5,488		$	3,969		$	1,820		$	6,449		$	7,313
Total assets		21,612			13,754			10,096			16,443			18,015
Long-term debt, less current portion		-			-			-			-
Accumulated deficit		(14,140	)		(15,967	)		(18,100	)		(12,568	)		(11,239	)
Total stockholders’ equity		11,869			6,071			3,734			8,998			10,105

Years ended December 31,	2005			2004			2003
Revenues:
Software license fees		36.2	%		41.4	%		15.1	%
Services and maintenance		63.8			58.6			84.9
Total revenues		100.0	%		100.0	%		100.0	%
Costs and expenses:
Cost of software license fees		5.0	%		9.6	%		6.0	%
Cost of services and maintenance		36.3			32.9			55.2
Product development		11.0			7.6			19.4
Sales and marketing		27.2			28.8			45.8
General and administrative		13.2			10.6			17.1
Total costs and expenses		92.7	%		89.5	%		143.5	%

		Page
	PART I

Item 1.	Business	3
Item 1A.	Risk Factors	18
Item 1B.	Unresolved SEC Items	26
Item 2.	Properties	26
Item 3.	Legal Proceedings	26
Item 4.	Submission of Matters to a Vote of Security Holders	26

	PART II

Item 5.	Market for Registrant’s Common Equity and Related	27
	Stockholder Matters
Item 6.	Selected Financial Data	28
Item 7.	Management’s Discussion and Analysis of Financial	29
	Condition and Results of Operations
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	39
Item 8.	Financial Statements and Supplementary Data	40
Item 9.	Changes in and Disagreements with Accountants on	64
	Accounting and Financial Disclosure
Item 9A.	Controls and Procedures	64
Item 9B.	Other Information	64

	PART III

Item 10.	Directors and Executive Officers of the Registrant	64
Item 10A.	Departure of Directors of Principal Officers; Election of	64
	Directors; Appointment of Principal officers
Item 11.	Executive Compensation	64
Item 12.	Security Ownership of Certain Beneficial Owners and	64
	Management
Item 13.	Certain Relationships and Related Transactions	65
Item 14.	Principal Accountant Fees and Services	65

	PART IV

Item 15.	Exhibits and Financial Statement Schedules	66

	Signature Page	69

	Consent of Independent Registered Public Accounting Firm	70

	Certificates	71

	Payment Due By Period
	2006		2007-2008		2009-2010		2011 and after		Total
Contractual Cash Obligations:
Long-term Debt	$	-	$	-	$	-		-	$	-
Capital Leases		-		-		-		-		-
Operating Leases	$	1,235,000	$	1,543,000	$	540,000		-	$	3,318,000

	Amounts of Commitment Expiration Per Period
	2005		2006-2007		2008 -2009		2010 and after	Total
Other Commercial Commitments:
Letters of Credit	$	225,000	$	-	$	-		$	225,000

	Common Stock			Additional Paid-in Capital		Accumulated Comprehensive Loss			Accumulated Deficit			Treasury Stock			Total Stockholders' Equity			Comprehensive Income(loss)
Balance, January 31, 2002	$	148,000		$	22,674,000	$	(1,039,000	)	$	(12,568,000	)	$	(217,000	)	$	8,998,000

Reverse stock split		(118,000	)		118,000		-			-			-			-
Issuance of common stock under employee stock purchase plan		-			-		-			(3,000	)		5,000			2,000
Comprehensive income		-			-		263,000			-			-			263,000		$	263,000
Net loss		-			-		-			(5,529,000	)		-			(5,529,000	)		(5,529,000	)
Balance, December 31, 2003		30,000			22,792,000		(776,000	)		(18,100,000	)		(212,000	)		3,734,000			(5,266,000	)

Issuance of common stock under employee stock purchase plan		-			-		-			(1,000	)		2,000			1,000
Exercise of stock options		-			131,000		-			-			-			131,000
Options for satisfaction of liability		-			74,000		-			-			-			74,000
Comprehensive income		-			-		(3,000	)		-			-			(3,000	)	$	(3,000	)
Net income		-			-		-			2,134,000			-			2,134,000			2,134,000
Balance, December 31, 2004		30,000			22,997,000		(779,000	)		(15,967,000	)		(210,000	)		6,071,000			2,131,000

Issuance of common stock under employee stock purchase plan										(1,000	)		2,000			1,000
Exercise of stock options		2,000			787,000											789,000
Stock Issuance - FieldCentrix acquisition		4,000			3,332,000											3,336,000
Comprehensive income							(156,000	)								(156,000	)		(156,000	)
Net income										1,828,000						1,828,000			1,828,000
Balance, December 31, 2005	$	36,000		$	27,116,000	$	(935,000	)	$	(14,140,000	)	$	(208,000	)	$	11, 869,000		$	1,672,000

	Years Ended December 31,
	2005			2004
Acquisition of FieldCentrix Net Assets:
Purchase Price
Common stock issued	$	3,336,000		$	-

Assets acquired:
Accounts receivable		(384,000	)		-
Prepaid Expenses		(80,000	)		-
Property and equipment		(730,000	)		-
Software		(721,000	)
Customer relations		(1,360,000	)		-
Other assets		(31,000	)		-
Goodwill		(1,100,000	)		-
Total assets acquired:		(4,406,000	)		-
Liabilities assumed:
Accrued expenses		719,000			-
Deferred revenue		967,000			-
Total liabilities assumed		1,686,000			-
Net assets acquired		(2,720,000	)		-
Net Cash received from FieldCentrix acquisition	$	616,000		$	-

Year Ended December 31	Balance at beginning of year		Charged costs		Write offs		Balance at end of year
2005	$	411,000	$	227,000	$	328,000	$	310,000
2004		810,000		84,000		483,000		411,000
2003		1,018,000		477,000		685,000		810,000

Date: March 30, 2006
	By: /s/ Zack B. Bergreen
	Zack B. Bergreen
	Chief Executive Officer
	(Principal Executive Officer)

Date: March 30, 2006
	By: /s/ Rick Etskovitz
	Rick Etskovitz
	Chief Financial Officer
	(Principal Financial and
	Chief Accounting Officer)

	/s/ Zack Bergreen
	Zack Bergreen
	Chief Executive Officer
	(Principal Executive Officer)
	March 30, 2006

	/s/ Rick Etskovitz
	Rick Etskovitz
	Chief Financial Officer
	(Principal Financial and Accounting Officer)
	March 30, 2006