SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-Q

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

For the quarterly period ended September 30, 2002

[   ] 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  0-26138

1200 Mount Kemble Avenue
Morristown, NJ 07960
973-425-1200

(Address, including zip code, and telephone
number (including area code) of registrant’s
principal executive office)

          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 the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: at November 8, 2002 there were 39,921,965 shares of common stock outstanding.

DENDRITE INTERNATIONAL, INC.
INDEX

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PART I.     FINANCIAL INFORMATION

ITEM 1.  Consolidated Financial Statements

DENDRITE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)

     The accompanying notes are an integral part of these consolidated financial statements.

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DENDRITE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)

     The accompanying notes are an integral part of these consolidated financial statements.

4

DENDRITE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

     The accompanying notes are an integral part of these consolidated financial statements.

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DENDRITE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.  Basis of Presentation

     The consolidated financial statements of Dendrite International, Inc. and its subsidiaries (the “Company”) included in this Form 10-Q are unaudited and reflect all adjustments (consisting of normal recurring adjustments except as disclosed herein) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the three and nine month periods ended September 30, 2002 and 2001. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001.

     Our interim operating results may not be indicative of operating results for the full year.

2.  Net Income (Loss) Per Share

     Basic net income (loss) per share was computed by dividing the net income (loss) for each period by the weighted average number of shares of common stock outstanding for each period. Diluted net income per share was computed by dividing net income for each period by the weighted average number of shares of common stock and common stock equivalents (stock options) outstanding during each period. For the three and nine month periods ended September 30, 2002, common stock equivalents used in computing diluted net income per share were 60,000 and 321,000 shares, respectively. For the three month period ended September 30, 2001, common stock equivalents used in computing diluted net income per share was 417,000 shares. For the nine month period ended September 30, 2001, common stock equivalents were anti-dilutive and were therefore excluded from the computation of diluted net loss per share.

3.  Comprehensive Income

     Assets and liabilities of the Company’s wholly-owned international subsidiaries are translated at their respective period-end exchange rates and revenues and expenses are translated at average currency exchange rates for the period. The resulting translation adjustments are included as “Accumulated other comprehensive loss” and are reflected as a separate component of stockholders’ equity. Total comprehensive income for the three months ended September 30, 2002 was $2,448,000 compared to total comprehensive income of $2,802,000 for the three months ended September 30, 2001. Total comprehensive income for the nine months ended September 30, 2002 was $10,653,000 compared to total comprehensive loss of $16,020,000 for the nine months ended September 30, 2001.

4.  Reclassifications

     Certain prior period balances have been reclassified to conform with current year presentation.

5.  Restructuring Charge

     On June 14, 2001, the Company announced a restructuring of its business operations to reflect a lower expected revenue growth model in the near term. The restructuring plan consisted of the resizing of the Company’s personnel by a reduction of 155 employees and the elimination of 35 independent contractors across various departments in the United States and Europe as well as 192 additional personnel associated with the restructuring of the Company’s facility in Stroudsburg, PA. The Stroudsburg, PA operations were substantially relocated to the Company’s facilities in New Jersey, Virginia and a new facility in Bethlehem, PA. The exit costs were included in the restructuring charge while the moving and other start-up costs were not included in this restructuring charge and were being expensed as incurred.

     During the second quarter of 2001, the Company recorded a charge of $6,134,000 associated with this restructuring. This charge was reduced by $24,000 to $6,110,000 in the fourth quarter of 2001 due to the variance between the amounts originally recorded and management’s current estimate of the total costs of the restructuring. Of the restructuring charge, $602,000 related primarily to severance has not been paid as of September 30, 2002 and, accordingly, is classified as accrued restructuring charge in the accompanying consolidated balance sheet. The restructuring charges were based upon formal plans approved by the Company’s management using the information available at the time. Management of the Company believes this provision will be adequate to cover the costs incurred relating to the restructuring. The Company anticipates that the accrued restructuring balance of $602,000 as of September 30, 2002 will be utilized during 2002. The activity on the accrued restructuring charge balance as of September 30, 2002 is summarized in the table below:

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6.  Acquisitions

     On August 12, 2002, the Company acquired Pharma Vision for cash consideration of approximately $700,000. Pharma Vision collects and sells data for customer targeting that pharmaceutical representatives use in Europe and provides support to pharmaceutical customers in Belgium and the Netherlands. The results of Pharma Vision’s operations have been included in the consolidated financial statements from the date of acquisition.

     On September 19, 2002, the Company acquired Software Associates International (“SAI”), a privately held company based in New Jersey. SAI provides software products and solutions that enable corporate level sales and marketing analysis for pharmaceutical companies. These solutions are complementary to the Company’s core suite of business products. The results of SAI’s operations have been included in the consolidated financial statements since the acquisition date.

     The aggregate purchase price was approximately $16,570,000 which included: cash of approximately $14,923,000; accrued professional service fees of approximately $410,000 and options to purchase Dendrite common stock valued at approximately $1,237,000. The fair value of the stock options was estimated using the Black-Scholes valuation model.

     The following table summarizes the estimated fair value of the assets acquired and the liabilities assumed at the date of the acquisition. The Company is in the process of finalizing a third-party valuation of certain intangible assets, and evaluating its facilities and personnel for redundancy. Therefore, the purchase price allocation is preliminary and subject to adjustment.

     Of the $5,721,000 of acquired intangible assets, approximately $732,000 was assigned to registered trademarks that are not subject to amortization. The remaining $4,989,000 of acquired intangible assets includes purchased software development costs of approximately $3,468,000 (5 year estimated useful life), approximately $328,000 of non-compete agreements (3 year estimated useful life) and approximately $1,193,000 of customer relationship assets (3 year estimated useful life).

7.  Pro Forma Results of Operations

     The Company’s unaudited pro forma results of operations for the three and nine months ended September 30, 2002 and 2001 assuming that the acquisition of SAI described in Note 6 occurred on January 1, 2001 are as follows:

     The unaudited pro forma results of operations are not necessarily indicative of what the actual results of operations of the Company would have been had the acquisition occurred as of January 1, 2001, nor do they purport to be indicative of the future results of operations of the Company.

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8.  Asset Impairment

     In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” (SFAS No. 144), the Company continues to examine the fair value of the facility held for sale in accordance with the prior pronouncement SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of” (SFAS No. 121) as the original disposal activity was initiated prior to the adoption of SFAS No. 144. During the three months ended September 30, 2002, the Company determined that an impairment existed due to continued increase in vacancy rates in the surrounding areas. Accordingly, the carrying value of the facility held for sale was adjusted to its fair value less costs to sell, or approximately $6,900,000, based upon a third-party valuation. The resulting $1,832,000 impairment loss has been included within the asset impairment line item in the accompanying statement of operations.

9.   Long Term Receivable

     During the nine months ended September 30, 2002, the Company recorded a long term receivable of $6,314,000 from a major U.S. pharmaceutical company as part of a five-year contract. The Company expects that this long term receivable will grow to approximately $6,700,000 by December 31, 2002 and will be paid beginning in January 2003 through January 2005 as the maturities come due. The Company has imputed interest and accordingly, interest income will be recognized as earned within interest income on the Consolidated Statement of Operations.

10.   Note Receivable to Officer of the Company

     In May 2002, the Company entered into a note receivable with an officer of the Company in the amount of $500,000 in connection with his relocation. The principal is secured by real estate and marketable securities and payable in four installments through December 31, 2005. Interest will be calculated on the principal balance and paid with each installment payment at a rate equal to 7.25% per annum. The note receivable is included within Other Assets on the accompanying Consolidated Balance Sheet.

11.  Common Stock Repurchase Program

     On July 31, 2002, the Company announced that its Board of Directors had authorized the Company to repurchase up to $20,000,000 of its outstanding common stock over a two-year period (the “2002 Stock Repurchase Plan”). Under the 2002 Stock Repurchase Plan, the Company will repurchase shares on the open market or in privately negotiated transactions from time to time. Repurchases of stock under the 2002 Stock Repurchase Plan are at management’s discretion, depending upon price and availability. The repurchased shares are held as treasury stock, which may be used to satisfy the Company’s requirements under its equity incentive and other benefit plans and for other corporate purposes. As of September 30, 2002, the Company has repurchased under the 2002 Stock Repurchase Plan 277,500 shares of Company common stock at a purchase price of $1,469,032.

12.   Customer and Geographic Segment Data

     In the three months ended September 30, 2002 and 2001, the Company derived approximately 51% and 56% of its revenues from its two largest customers, respectively. In the nine months ended September 30, 2002 and 2001, the Company derived approximately 47% and 50% of its revenues from its two largest customers, respectively.

     The Company is organized by geographic locations and has one reportable segment. All transfers between geographic areas have been eliminated from consolidated revenues. Operating income consists of total revenues recorded in the location less operating expenses and does not include interest income, other expense or income taxes. This data is presented in accordance with SFAS No. 131, “Disclosure About Segments of an Enterprise and Related Information”.

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     For segment reporting purposes, license revenues have been allocated to the sales office of the respective country in which the sale is made, although the actual contract is with the U.S. entity for legal and tax purposes.

13.   Impact of Recently Issued Accounting Pronouncements

     Effective July 1, 2001 the Company adopted SFAS No. 141, “Business Combinations,” and effective January 1, 2002 the Company adopted SFAS No. 142, “Goodwill and other Intangible Assets.” SFAS No. 141 requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting. It also specifies the types of acquired intangible assets that are required to be recognized and reported separate from goodwill. SFAS No. 142 requires that goodwill and certain intangibles no longer be amortized, but instead tested for impairment at least annually. SFAS No. 142 also requires that intangible assets with finite useful lives be amortized over their respective estimated useful lives and reviewed for impairment in accordance with SFAS No. 121, which was superceded by SFAS No. 144. Based on the Company’s analysis, there was no impairment of goodwill upon adoption of SFAS No. 142 on January 1, 2002. The Company intends to conduct its annual impairment testing of goodwill on October 1 each year.

     The total gross carrying amount and accumulated amortization for goodwill and intangible assets are as follows:

     The changes in the carrying amount of goodwill for the nine months ended September 30, 2002 are as follows:

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     The pro forma results of operations for the three months and nine months ended September 30, 2001 assuming the provisions of SFAS No. 142 had been applied are as follows:

     In October 2001, the FASB issued SFAS No. 144, which supercedes SFAS No. 121, “Accounting for the Impairment of Long-lived Assets and for Long-Lived Assets to be Disposed Of”, and addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement is effective for fiscal years beginning after December 15, 2001. The Company adopted this statement on January 1, 2002, which did not have an impact on the Company’s financial position or results of operations.

     In November 2001, the FASB issued Emerging Issues Task Force Rule No. 01-14, “Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred” (“EITF 01-14”). EITF 01-14 requires that in cases where the contractor acts as a principal, reimbursements received for out-of-pocket expenses incurred be characterized as revenue and the associated costs be included as cost of services in the income statement. The Company applied EITF 01-14 and, as required, has also reclassified comparative financial information for the period ended September 30, 2001. The impact of applying this pronouncement was to increase both revenues and cost of services by $439,000 and $3,415,000 for the three months and nine months ended September 30, 2002, respectively, and to increase both revenues and cost of services by $798,000 and $2,715,000 for the three months and nine months ended September 30, 2001, respectively. The implementation of EITF 01-14 has no impact upon earnings.

14.   Income Taxes

     In July 2002, the State of New Jersey enacted new tax legislation that adversely impacts the effective state tax rate of most companies operating in New Jersey. This legislation is retroactive to January 1, 2002. It is estimated that this legislation will increase the Company’s effective tax rate from 36% to 40% for the 2002 tax year. In accordance with SFAS No. 109, “Accounting for Income Taxes,” the tax provision for the three months ending September 30, 2002 reflects the retroactive impact of the higher effective tax rate for the six months ended June 30, 2002 as well as a provision on the current quarter pre-tax earnings of approximately 40%. The retroactive impact on the six months ended June 30, 2002 resulted in approximately $508,000 of additional income tax expense in the three months ending September 30, 2002.

ITEM 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

FORWARD-LOOKING STATEMENTS

     This Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21-E of the Securities Exchange Act of 1934, and which are intended to be covered by the safe harbors created by such acts. For this purpose, any statements that are not statements of historical fact may be deemed to be forward-looking statements, including the statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our strategy, future operations, future expectations or future estimates, future financial position and objectives of management. Those statements in this Form 10-Q containing the words “believes”, “anticipates”, “plans”, “expects”, “looks”, “may”, “will” or similar statements or variations of such terms constitute forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations, assumptions, estimates and projections about our Company and the pharmaceutical industry. All such forward-looking statements involve risks and uncertainties, including those risks identified under “Factors That May Affect Future Operating Results”, many of which are beyond our control. Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of the assumptions could be inaccurate. Actual results may differ materially from those indicated by the forward-looking statements included in this Form 10-Q. In light of the significant uncertainties inherent in the forward-looking statements included in this Form 10-Q, you should not consider the inclusion of such information as a representation by us or anyone else that we will achieve such results. Moreover, we assume no obligation to update these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements.

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OVERVIEW

     Dendrite provides solutions to enable pharmaceutical companies to optimize their sales and marketing channels and clinical resources. Co-founded in 1986 by John E. Bailye, the Company’s Chairman and Chief Executive Officer, Dendrite was originally established to provide sales force automation (“SFA”) solutions to the global pharmaceutical industry. These solutions allow clients to manage sales force activities in complex selling environments. Today, Dendrite also provides customer relationship management (“CRM”) solutions, advanced analytics, clinical trial services and eLearning. The Company’s solutions are combined with specialized support services such as training and implementation, technical and hardware support, as well as help desk and data center services. We develop, implement and service our products through sales, support and technical personnel located in 17 countries.

     Dendrite’s primary markets are the United States, the United Kingdom, France, and Japan. We bill services provided by our foreign branches and subsidiaries in local currencies. Operating results generated in local currencies are translated into U.S. dollars at the average exchange rate in effect for the reporting period. We generated approximately 20% and 19% of our total revenues outside the United States during the nine months ended September 30, 2002 and 2001, respectively. Our operating profits by geographic segment are shown in Note 12 of the Notes to Unaudited Consolidated Financial Statements.

CRITICAL ACCOUNTING POLICIES

     Financial Reporting Release No. 60, which was released by the SEC in December 2001, requires companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. A critical accounting policy is one that is both important to the portrayal of the Company’s financial position and results of operations and requires management’s most difficult, subjective or complex judgments. The Company believes its critical accounting policies to be revenue recognition, accounting for impairments and income taxes.

     The Company charges customers license fees to use its proprietary computer software. Customers generally pay one-time fees for perpetual licenses based upon the number of users, territory covered, and the particular software licensed by the customer. The Company generally recognizes license fees as revenue using the percentage-of-completion method over a period of time that commences with the execution of the license agreement and ends when the product configuration is complete and it is ready for use in the field. This period of time usually includes initial configuration and concludes with quality assurance and testing. When there is no initial configuration, the Company generally recognizes the license fees from those products upon delivery as the services to be provided are not essential to the functionality of the software. Additionally, license revenues will be recognized immediately when the user count for previously delivered software increases. The Company’s software maintenance usually begins immediately after an initial warranty period. The portion of the license fee associated with the warranty period is unbundled from the license fee and is recognized as maintenance revenue ratably over the warranty period. The Company does not recognize any license fees unless persuasive evidence of an arrangement exists, delivery has occurred, the license amount is fixed or determinable and collectability is reasonably assured.

     The Company recognizes license fees as revenue from certain third party software products, which are embedded into the Company’s products. These license fees are recognized as revenue using the percentage-of-completion method over a period of time that commences with the execution of the license agreement and ends when the product configuration is completed and ready for use by the customer. The cost of third party software is included in the cost of license fees in the accompanying consolidated statements of operations.

     Sales force support services are generally provided under multi-year contracts. The contracts specify the payment terms, which are generally over the term of the contract and generally provide for termination in the event of breach, as defined in the respective contract. Service revenues consist primarily of facilities management, configuration, training and software maintenance. Facilities management represents charges for help desk, data center and project management, and are recognized on a monthly basis as services are performed. Configuration includes initial implementation services following sales of new software products to customers, as well as revenues relating to work orders to perform configuration services for previously purchased software. Configuration revenue is recognized as services are performed when the related billings are on a time and materials basis, and using the percentage-of-completion method for fixed fee configuration or implementation contracts. Training revenue is recognized as the services are performed. Software maintenance revenue is recognized ratably over the term of the contract, generally one year.

     We review goodwill for impairment pursuant to SFAS No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142). Goodwill is tested for impairment at least annually. Additionally, if an event occurs or circumstances change, and it is more likely than not that an impairment has occurred, we will perform an interim test for goodwill impairment. We have chosen October 1 as the date to review our existing goodwill for impairment on an annual basis. SFAS No. 142 requires that an initial impairment test be performed upon implementation on January 1, 2002. We have only one reportable segment and one reporting unit. Therefore, impairment is tested at the entity level. Based upon the excess of the Company’s fair value over its net book value at January 1, 2002, there was no indication of an impairment to goodwill and therefore, no impairment was recorded upon implementation of SFAS No. 142. We are in the process of testing goodwill for impairment again as of October 1, 2002.

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     We review our long-lived assets excluding goodwill for impairment pursuant to SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Our long-lived assets, excluding goodwill, consist primarily of property and equipment, a facility held for sale, a long term receivable and capitalized software development costs. Pursuant to the guidelines of SFAS No. 144, our facility held for sale is reviewed for impairment in accordance with SFAS No. 121 as the original disposal activity initiated prior to the adoption of SFAS No. 144. Our facility held for sale is carried at its estimated fair value less selling costs. All other long-lived assets, excluding goodwill, are classified as held and used. These assets are tested for recoverability whenever events or changes in circumstances indicate that the respective carrying amount may not be recoverable.

     We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. The Company periodically reviews its deferred tax assets for recoverability and establishes a valuation allowance based on historical taxable income, projected future taxable income, and the expected timing of the reversals of existing temporary differences, all of which require significant management judgments. Although realization is not assured, management believes it is more likely than not that the recorded net deferred tax asset will be realized.

RECENT DEVELOPMENTS

     On August 12, 2002, the Company acquired Pharma Vision for cash consideration of approximately $700,000. Pharma Vision collects and sells data for customer targeting that pharmaceutical representatives use in Europe and provides support to pharmaceutical customers in Belgium and the Netherlands. The results of Pharma Vision’s operations have been included in the consolidated financial statements from the date of acquisition.

     On September 19, 2002, the Company acquired Software Associates International (“SAI”), a privately held company based in New Jersey. SAI provides software products and solutions that enable corporate level sales and marketing analysis for pharmaceutical companies. These solutions are complementary to the Company’s core suite of business products. The results of SAI’s operations have been included in the consolidated financial statements since the acquisition date.

     The aggregate purchase price was approximately $16,570,000 which included: cash of approximately $14,923,000; accrued professional service fees of approximately $410,000 and options to purchase Dendrite common stock valued at approximately $1,237,000. The fair value of the stock options was estimated using the Black-Sholes valuation model. The Company is in the process of finalizing a third-party valuation of certain intangible assets, and evaluating its facilities and personnel for redundancy, and therefore, the purchase price allocation is preliminary and subject to adjustment.

     Of the $5,721,000 of acquired intangible assets, approximately $732,000 was assigned to registered trademarks that are not subject to amortization. The remaining $4,989,000 of acquired intangible assets includes purchased software development costs of approximately $3,468,000 (5 year estimated useful life), approximately $328,000 of non-compete agreements (3 year estimated useful life) and approximately $1,193,000 of customer relationship assets (3 year estimated useful life).

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001

     REVENUES. Total revenues decreased to $53,661,000 in the three months ended September 30, 2002, down $4,250,000 or 7% from revenues of $57,911,000 in the three months ended September 30, 2001.

     License fee revenues decreased to $2,276,000 in the three months ended September 30, 2002, a decrease of $6,359,000 or 74% from $8,635,000 in the three months ended September 30, 2001. License fee revenues as a percentage of total revenues were 4% in the three months ended September 30, 2002, as compared to 15% in the three months ended September 30, 2001. License fees are, by nature, non-recurring items. The majority of license fees recognized during the three months ended September 30, 2002 resulted from purchases of additional user licenses by existing customers. The higher license fee revenues for the three months ended September 30, 2001 were primarily due to a major systems upgrade by an existing customer.

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     Service revenues increased to $51,385,000 in the three months ended September 30, 2002, up $2,109,000 or 4% from $49,276,000 in the three months ended September 30, 2001. Service revenues as a percentage of total revenues were 96% in the three months ended September 30, 2002, as compared to 85% in the three months ended September 30, 2001. The increase in service revenues related to growth within our international services business.

     COST OF REVENUES. Total cost of revenues decreased to $25,355,000 in the three months ended September 30, 2002, down $3,639,000 or 13% from $28,994,000 in the three months ended September 30, 2001.

     Cost of license fees decreased to $845,000 in the three months ended September 30, 2002, down $686,000 or 45% from $1,531,000 in the three months ended September 30, 2001. Cost of license fees for the three months ended September 30, 2002 is comprised of the amortization of capitalized software development costs of $648,000 and third party vendor license fees of $197,000. Cost of license fees for the same period in 2001 is comprised of the amortization of purchased software and capitalized software development costs of $1,044,000 and third party vendor license fees of $487,000. The decrease in the amortization of capitalized software development costs in the three months ended September 30, 2002 was primarily due to the acceleration of amortization of certain purchased capitalized software during the third quarter of 2001. The decrease in the third party vendor license fees was primarily due to the purchase of third party software for a major system upgrade by an existing customer during the third quarter of 2001.

     Cost of services decreased to $24,510,000 in the three months ended September 30, 2002, down $2,953,000 or 11% from $27,463,000 in the three months ended September 30, 2001. The decrease in cost of services was partially due to efficiencies gained from the Company’s restructuring plan and the relocation of certain services to locations with lower operating expenses that took place during 2002 and 2001. Also contributing to this decrease was: i) the reversal during the three months ended September 30, 2002 of approximatley $939,000 of non-recurring costs previously recorded in June 2001, which related to the recognition of anticipated future losses on selected contracts for which the Company’s obligations with respect to these contracts were favorably resolved; and ii) approximately $500,000 of non-recurring costs incurred during the three months ended September 30, 2001.

     Total gross margin for the three months ended September 30, 2002 was 53%, up from 50% for the three months ended September 30, 2001. The improvement in gross margin during the three month period ended September 30, 2002 was due to a favorable mix shift within our services business and the efficiencies gained from the Company’s restructuring plan and the relocation of certain services to locations with lower operating expenses that took place during 2001. Also contributing to the improvement was: i) the reversal during the three months ended September 30, 2002 of approximatley $939,000 of non-recurring costs previously recorded in June 2001, which related to the recognition of anticipated future losses on selected contracts for which the Company’s obligations with respect to these contracts were favorably resolved; and ii) approximately $500,000 of non-recurring costs incurred during the three months ended September 30, 2001.

     SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES. SG&A expenses decreased to $19,153,000 in the three months ended September 30, 2002, down $3,722,000 or 16% from $22,875,000 in the three months ended September 30, 2001. As a percentage of revenues, SG&A expenses decreased to 36% in the three months ended September 30, 2002, down from 40% in the three months ended September 30, 2001. The decrease in SG&A expenses for the period ended September 30, 2002 was partially attributable to approximately $1,100,000 of non-recurring costs incurred during the three months ended September 30, 2001, which related to the transition of services from the Company’s New Jersey facility to its new facility in Chesapeake, Virginia. Excluding these costs, SG&A would have been $21,775,000 for the three months ended September 30, 2001, which would have resulted in a decrease of $2,622,000 or 12% for the three months ended September 30, 2002. The remaining decrease was due principally to: i) $1,200,000 of costs associated with the Company’s Customer Relationship Management (“CRM”) launch in partnership with Oracle Corporation for the three months ended September 30, 2001; ii) the efficiencies gained from the restructuring plan during 2002 and 2001; iii) lower bonus payout in 2002; and iv) the implementation of SFAS No. 142, which would have resulted in a reduction of goodwill amortization expenses of approximately $245,000 had the provision been retroactively applied for the three months ended September 30, 2001. These decreases were partially offset by approximately $1,355,000 of non-recurring costs incurred during the three months ended September 30, 2002, related to a reduction in the workforce effected during the quarter.

     RESEARCH AND DEVELOPMENT (R&D) EXPENSES. R&D expenses decreased to $2,362,000 in the three months ended September 30, 2002, down $327,000 or 12% from $2,689,000 in the three months ended September 30, 2001. As a percentage of revenues, R&D expenses decreased to 4% in the three months ended September 30, 2002, down from 5% in the three months ended September 30, 2001. This decrease was principally due to reduced payroll and related costs during the three months ended September 30, 2002.

     ASSET IMPAIRMENT. During the three months ended September 30, 2002, the Company reviewed the carrying value of its long-lived assets including the facility held for sale. Based upon this review, the carrying value of the facility held for sale was adjusted to its fair value less costs to sell, amounting to approximately $6,900,000, which was determined based upon a third-party valuation. The resulting $1,832,000 impairment loss has been recorded as a separate line item in the statement of operations.

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     INTEREST INCOME. Interest income decreased to $267,000 in the three months ended September 30, 2002, down $229,000 or 46% from $496,000 in the three months ended September 30, 2001. The decrease was principally due to lower short term interest rates versus last year.

      PROVISION FOR INCOME TAXES. The effective tax expense recorded in the three months ended September 30, 2002 was 50%, as compared with 36% in the three months ended September 30, 2001. In July 2002, the State of New Jersey enacted new tax legislation that adversely impacts the effective state tax rate of most companies operating in New Jersey. This legislation is retroactive to January 1, 2002. It is estimated that the effect of this legislation will increase the Company’s effective tax rate from 36% to 40% for the 2002 tax year. The tax provision for the three months ending September 30, 2002 reflects the retroactive impact of the higher effective tax rate for the six months ended June 30, 2002 which resulted in approximately $508,000 of additional income tax expense in the three months ending September 30, 2002 as well as a provision for the current quarter pre-tax earnings of approximately 40%.

NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001

     REVENUES. Total revenues increased to $168,716,000 in the nine months ended September 30, 2002, up $5,046,000 or 3% from $163,670,000 in the nine months ended September 30, 2001.

     License fee revenues decreased to $7,761,000 in the nine months ended September 30, 2002, a decrease of $8,150,000 or 51% from $15,911,000 in the nine months ended September 30, 2001. License fee revenues as a percentage of total revenues were 5% in the nine months ended September 30, 2002, as compared to 10% in the nine months ended September 30, 2001. License fees are, by nature, non-recurring items. The majority of license fees recognized during the nine months ended September 30, 2002 resulted from our performance of services related to licenses being recognized using the percentage-of-completion method as well as purchases of additional user licenses by existing customers. The higher license fee revenues for the nine months ended September 30, 2001 were primarily due to a major system upgrade by an existing customer.

     Service revenues increased to $160,955,000 in the nine months ended September 30, 2002, up $13,196,000 or 9% from $147,759,000 in the nine months ended September 30, 2001. Service revenues as a percentage of total revenues were 95% in the nine months ended September 30, 2002, as compared to 90% in the nine months ended September 30, 2001. The increase in service revenues related to growth within our traditional SFA business and growth in our clinical services business.

     COST OF REVENUES. Total cost of revenues decreased to $84,261,000 in the nine months ended September 30, 2002, a decrease of $8,633,000 or 9% from $92,894,000 in the nine months ended September 30, 2001.

     Cost of license fees decreased to $2,776,000 in the nine months ended September 30, 2002, a decrease of $916,000 or 25% from $3,692,000 in the nine months ended September 30, 2001. Cost of license fees for the nine months ended September 30, 2002 is comprised of the amortization of capitalized software development costs of $1,945,000 and third party vendor license fees of $831,000. Cost of license fees for the same period in 2001 is comprised of the amortization of purchased software and capitalized software development costs of $2,732,000 and third party vendor license fees of $960,000. The decrease in the amortization of capitalized software development costs in the nine months ended September 30, 2002 was primarily due to the acceleration of amortization of certain purchased capitalized software during the nine months ended September 30, 2001 of approximately $570,000. The remaining decrease relates to amortization recorded on purchased capitalized software costs from the Company’s acquisition of Analytika and ABC during the nine months ended September 30, 2001 as discussed below. The decrease in the third party vendor license fees was primarily due to fewer sales of licenses.

     During the nine months ended September 30, 2001, the Company recorded an impairment charge of $2,614,000 related to its purchased capitalized software costs from its acquisitions of Analytika and ABC. These operations have been modified to keep pace with the developing needs of the ethical pharmaceutical market. The projected undiscounted future cash flows of these operations were substantially less than the carrying value of the related long-lived assets, including identifiable intangibles and goodwill. The fair value of the long-lived assets was determined based upon the discounted cash flows expected to be derived from these operations.

     Cost of services decreased to $81,485,000 in the nine months ended September 30, 2002, down $5,103,000 or 6% from $86,588,000 in the nine months ended September 30, 2001. This decrease was due primarily to $3,053,000 of non-recurring costs incurred during the nine months ended September 30, 2001, which related to the recognition of future losses on selected contracts for which we expected the costs of providing the future services will exceed the revenue to be received from the performance of the services, which was identified while examining the restructuring of our Stroudsburg, PA facility. The remaining decrease was principally due to: i) efficiencies gained from the Company’s restructuring plan and the relocation of certain services to locations with lower operating expenses that took place during 2001; ii) the reversal during the nine months ended September 30, 2002 of approximately $939,000 of non-recurring costs previously recorded in June 2001, which related to the recognition of anticipated future losses on selected contracts for which the Company’s obligations with respect to these contracts were favorably resolved; and iii) $483,000 which related to other non-recurring exit costs from our Stroudsburg, PA facility.

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     Total gross margin for the nine months ended September 30, 2002 was 50%, up from 43% for the nine months ended September 30, 2001. The margin in 2001 was impacted significantly by $2,614,000 asset impairment and $4,106,000 of non-recurring costs within cost of revenues that occurred in the nine months ended September 30, 2001. If not for the effects of these items, the gross margin would have been 47% for the nine months ended September 30, 2001. The improvement in gross margin during the nine month period ended September 30, 2002 was due to: i) efficiencies gained from the Company’s restructuring plan and the relocation of certain services to locations with lower operating expenses that took place during 2001; ii) the reversal during the nine months ended September 30, 2002 of approximately $939,000 of non-recurring costs previously recorded relating to the recognition of future anticipated losses on selected contracts, for which the Company’s obligations with respect to these contracts were favorably resolved; and iii) a favorable mix shift within our services business.

     SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES. SG&A expenses decreased to $58,141,000 in the nine months ended September 30, 2002, down $13,829,000 or 19% from $71,970,000 in the nine months ended September 30, 2001. As a percentage of revenues, SG&A expenses decreased to 34% in the nine months ended September 30, 2002, as compared with 44% in the nine months ended September 30, 2001. The decrease in SG&A expenses for the period ended September 30, 2002 was partially attributed to approximately $3,900,000 of non-recurring costs incurred during the nine months ended September 30, 2001, which related to the transition of services from the Company’s New Jersey facility to its new facility in Chesapeake, Virginia. Excluding these costs, SG&A would have been $68,070,000 for the nine months ended September 30, 2001, which would have resulted in a decrease of $9,929,000 or 15% for the nine months ended September 30, 2002. The remaining decrease was principally due to: i) $3,200,000 of costs associated with the Company’s CRM launch in partnership with Oracle Corporation during the nine months ended September 30, 2001; ii) an improvement in operating efficiencies achieved during the period as the result of our corporate restructing plan; iii) a decrease in management bonuses in the nine months ended September 30, 2002; and iv) the implementation of SFAS No. 142, which would have resulted in a reduction of goodwill amortization expenses of approximately $1,245,000 had the provisions been retroactively applied for the nine months ended September 30, 2001. These decreases were partially offset by approximately $1,355,000 of non-recurring costs incurred during the nine months ended September 30, 2002 related to a reduction in the workforce effected in the third quarter of 2002.

     RESEARCH AND DEVELOPMENT (R&D) EXPENSES. R&D expenses decreased to $7,446,000 in the nine months ended September 30, 2002, down $1,078,000 or 13% from $8,524,000 in the nine months ended September 30, 2001. As a percentage of revenues, R&D expenses decreased to 4% in the nine months ended September 30, 2002, down from 5% in the nine months ended 2001. This decrease was primarily due to reduced payroll and related costs during the nine months ended September 30, 2002.

     RESTRUCTURING CHARGE. On June 14, 2001, the Company announced a restructuring of its business operations to reflect a lower expected revenue growth model in the near term. The restructuring plan consisted of the resizing of the Company’s personnel as well as the restructuring of its facility located in Stroudsburg, PA. The Stroudsburg, PA operations have been substantially relocated to the Company’s facilities in New Jersey, Virginia and a new facility in Bethlehem, PA. The exit costs have been included in the restructuring charge while the moving and other start-up costs were not included in this restructuring charge and will continue to be expensed as incurred. During the nine months ended September 30, 2001, the Company recorded a charge of $6,134,000 associated with this restructuring. The restructuring charges were determined based upon formal plans approved by the Company’s management.

     ASSET IMPAIRMENT. During the nine months ended September 30, 2001, the Company reviewed the carrying values of its long-lived assets, including its minority investments in start-up ventures, identifiable intangibles and goodwill. Based upon this review, during the nine months ended September 30, 2001, the Company wrote off $3,450,000 of cost method investments it had in two start-up ventures due to a permanent impairment in the fair value of these investments. These entities experienced difficulty in raising the additional capital necessary to fund their start-up activities and the situation at both became especially severe in the second quarter of 2001.

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     In connection with the Company’s announcement on June 14, 2001, relative to its partnership with Oracle Corporation to market an integrated CRM solution to meet the specialized needs of the worldwide pharmaceutical industry, the Company’s vision and product platform changed. The operations acquired through the Company’s acquisitions of ABC and Analytika were modified to keep pace with the developing needs of the ethical pharmaceutical market. The projected undiscounted future cash flows of these operations were substantially less than the carrying value of the related long-lived assets, including identifiable intangibles and goodwill. The fair value of the long-lived assets was determined based upon the discounted cash flows expected to be derived from these operations. Management of the Company believes that these operations will generate negative cash flows over the next several years due to the administrative costs required to support the projected revenue stream. Accordingly, the Company recorded an impairment charge of $8,787,000, consisting of $2,614,000 of purchased capitalized software and $6,173,000 of goodwill during the nine months ended September 30, 2001. Relative to the operations acquired as a result of the MMI acquisition, the Company now offers the mid-tier pharmaceutical market a product which is more compatible with the Company’s vision of integrated CRM solutions. Accordingly, the Company reduced the remaining useful life of the purchased capitalized software related to the MMI acquisition to seven months as of June 2001. As the operations of the business acquired in the MMI acquisition continue to be successful, no impairment charge or reduction in life was necessary for the goodwill associated with MMI.

     During the three months ended September 30, 2002, the Company reviewed the carrying value of its long-lived assets including the facility held for sale. Based upon this review, the carrying value of the facility held for sale was adjusted to its fair value less costs to sell, amounting to approximately $6,900,000, which was determined based upon a third-party valuation. The resulting $1,832,000 impairment loss has been recorded as a separate line item in the statement of operations.

     INTEREST INCOME. Interest income decreased to $859,000 in the nine months ended September 30, 2002, down $1,224,000 or 59% from $2,083,000 in the nine months ended September 30, 2001. The decrease was primarily due to a lower short term interest rates versus last year which adversely impacted interest income during the nine months ended September 30, 2002.

     PROVISION FOR INCOME TAXES. The effective tax expense recorded in nine months ended September 30, 2002 was 40%, as compared with an effective tax benefit of 33% in the nine months ended September 30, 2001. This increase resulted from a net loss position offset by the write-off of certain goodwill amounts which are not deductible for tax purposes, both of which occurred in the nine months ended September 30, 2001.

     Also in July 2002, the State of New Jersey enacted new tax legislation that will adversely impact the effective state tax rate of most companies operating in New Jersey. This legislation is retroactive to January 1, 2002. It is estimated that the effect of this legislation will increase the Company’s effective tax rate from 36% to 40% for the 2002 tax year.

LIQUIDITY AND CAPITAL RESOURCES

     We finance our operations primarily through cash generated by operations. Net cash provided by operating activities was $13,223,000 for the nine months ended September 30, 2002, compared to $29,731,000 for the nine months ended September 30, 2001. This decrease was due largely to cash generated from the reduction of accounts receivable during the nine months ended September 30, 2001, due to the collection of an unusually high accounts receivable balance as of December 31, 2000. Overall, accounts payable and accrued expenses, including accrued restructuring charges, decreased by $9,480,000 during the nine months ended September 30, 2002 due to a reduction in management bonuses and continued payments of one-time and restructuring accruals. These factors were offset by the Company’s net loss in the nine months ended September 30, 2001 compared with its net income in the nine months ended September 30, 2002.

     Net cash used in investing activities was $23,499,000 in the nine months ended September 30, 2002. Cash used in investing activities was for funding of the Company’s acquisitions described in Note 6 to the Consolidated Financial Statements, investments in property and equipment, and additions to capitalized software development costs. Net cash used in investment activities was $30,272,000 in the nine months ended September 30, 2001, which was primarily for the purchase of a new facility (which is currently held for sale), investments in property and equipment and additions to capitalized software.

     Net cash provided by financing activities of $1,113,000 in the nine months ended September 30, 2002 includes approximately $2,600,000 of cash proceeds from the issuance of common stock offset by approximately $1,500,000 of repurchases of common stock under the stock repurchase program announced on July 31, 2002. Net cash used in financing activities of $14,151,000 in the nine months ended September 30, 2001 includes approximately $3,300,000 of cash proceeds from the issuance of common stock offset by approximately $17,500,000 of repurchases of common stock under the stock repurchase program announced on January 31, 2001.

     We maintain a $15,000,000 revolving line of credit agreement with JP Morgan Chase Bank. The agreement is available to finance working capital needs and possible future acquisitions. The terms of this agreement require us to maintain a minimum consolidated net worth, among other covenants, measured quarterly, which is equal to $105,000,000 plus 50% of net income earned after January 1, 2002 and 75% of the net proceeds to us of any stock offerings after September 30, 2001 as defined in the agreement. This covenant also limits the amount of cash dividends we may pay. The credit facility was recently extended for a one year period and currently expires on November 30, 2003. There were no borrowings outstanding under the agreement and we were in compliance with all of our covenant obligations as of September 30, 2002 and December 31, 2001.

     As of September 30, 2002, we did not have any material commitments for capital expenditures. Our principal commitments at September 30, 2002 consisted primarily of obligations under operating leases. Future minimum rental payments on these leases are as follows:

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     As of September 30, 2002, letters of credit for approximately $500,000 were outstanding.

     The Company has an agreement with a venture capital fund with a commitment to contribute $1,000,000 to the fund, callable in $100,000 increments. As of September 30, 2002, $200,000 has been paid, with $800,000 of commitment remaining. The agreement has a termination date which is ten years from its effective date, subject to extension by the general partner.

     At September 30, 2002, our working capital was approximately $81,706,000. Total cash and investments were 36% of total assets as of September 30, 2002 compared with 43% as of September 30, 2001. The Company’s days sales outstanding in accounts receivable was 69 days as of September 30, 2002 compared with 52 days as of September 30, 2001. The September 30, 2002 days sales outstanding was adversely impacted due to the inclusion of the accounts receivable balances acquired in the SAI acquisition, which closed late in the third quarter of 2002. Had it not been for the acquisition, the Company’s days sales outstanding would have been 61 days as of September 30, 2002. We believe that available funds, anticipated cash flows from operations and our line of credit will satisfy our currently projected working capital and capital expenditure requirements, exclusive of cash required for possible acquisitions of businesses, products and technologies, for the foreseeable future.

     We regularly evaluate opportunities to acquire products or businesses complementary to our operations. Such acquisition opportunities, if they arise, and are successfully completed, may involve the use of cash or equity instruments.

     On July 31, 2002, the Company announced that its Board of Directors had authorized the Company to repurchase up to $20,000,000 of its outstanding common stock over a two-year period (the “2002 Stock Repurchase Plan”). Under the 2002 Stock Repurchase Plan, the Company will repurchase shares on the open market or in privately negotiated transactions from time to time. Repurchases of stock under the 2002 Stock Repurchase Plan are at management’s discretion, depending upon price and availability. The repurchased shares are held as treasury stock, which may be used to satisfy the Company’s current and near term requirements under its equity incentive and other benefit plans and for other corporate purposes. As of September 30, 2002, the Company has repurchased under the 2002 Stock Repurchase Plan 277,500 shares of Company common stock at a purchase price of $1,469,032.

FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

OUR BUSINESS IS HEAVILY DEPENDENT ON THE PHARMACEUTICAL INDUSTRY

     Most of our customer relationship management (“CRM”) and sales force effectiveness (“SFE”) products and services are currently used in connection with the marketing and sale of prescription-only drugs. This market is undergoing a number of significant changes. These include:

     We cannot assure you that we can respond effectively to any or all of these and other changes in the marketplace. Our failure to do so could have a material adverse effect on our business, operating results or financial condition.

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WE MAY ENCOUNTER PROBLEMS WITH OUR RECENTLY IMPLEMENTED INTERNAL JOB-COST AND
FINANCIAL SYSTEMS THAT COULD NEGATIVELY IMPACT OUR BUSINESS, OPERATING RESULTS OR
FINANCIAL CONDITION

     We transitioned our internal job-cost and financial systems for our U.S. operations to an Oracle-based system in August 2002. While we took significant measures to ensure a successful transition and are confident that the implementation did not impact our ability to timely report accurate financial results for the third quarter of 2002, we cannot assure you that, despite our efforts, the transition will have no material adverse effect on our business, operating results or financial condition.

OUR QUARTERLY RESULTS OF OPERATIONS MAY FLUCTUATE SIGNIFICANTLY AND MAY NOT MEET MARKET EXPECTATIONS

     Our results of operations may vary from quarter to quarter due to lengthy sales and implementation cycles for our products, our fixed expenses in relation to our fluctuating revenues and variations in our customers’ budget cycles, each of which is discussed below. As a result, you should not rely on quarter-to-quarter comparisons of our results of operations as an indication of future performance. It is also possible that in some future period our results of operations may be below our targeted goals and the expectations of the public market analysts and investors. If this happens, the price of our common stock may decline.

OUR LENGTHY SALES AND IMPLEMENTATION CYCLES MAKE IT DIFFICULT TO PREDICT OUR QUARTERLY REVENUES

     The selection of a CRM solution generally entails an extended decision-making process by our customers because of the strategic implications and substantial costs associated with a customer’s license or implementation of the solution. Given the importance of the decision, senior levels of management of our customers often are involved and, in some instances, its board of directors may be involved in this process. As a result, the decision-making process typically takes nine to eighteen months, and in certain cases even longer. Accordingly, we cannot control or predict the timing of our execution of contracts with customers.

     In addition, an implementation process of three to six or more months before the software is rolled out to a customer’s sales force is customary. However, if a customer were to delay or extend its implementation process, our quarterly revenues may decline below expected levels and could adversely affect our results of operations.

OUR FIXED COSTS MAY LEAD TO FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS IF REVENUES FALL BELOW EXPECTATIONS

     We establish our expenditure levels for product development, sales and marketing and some of our other operating expenses based in large part on our expected future revenues and anticipated competitive conditions. In particular, we frequently add staff in advance of new business to permit adequate time for training. If the new business is subsequently delayed, canceled or not awarded, we will have incurred expenses without the associated revenues. In addition, we may increase sales and marketing expenses if competitive pressures become greater than originally anticipated. Since only a small portion of our expenses varies directly with our actual revenues, our operating results and profitability are likely to be adversely and disproportionately affected if our revenues fall below our targeted goals or expectations.

OUR BUSINESS IS AFFECTED BY VARIATIONS IN OUR CUSTOMERS’ BUDGET CYCLES

     We have historically realized a greater percentage of our license fees and service revenues in the second half of the year than in the first half because, among other things, our customers typically spend more of their annual budget authorization for CRM and SFE solutions in the second half of the year. However, the relationship between the amounts spent in the first and second halves of a year may vary from year to year and from customer to customer. In addition, changes in our customers’ budget authorizations may reduce the amount of revenues we receive from the license of additional software or the provision of additional services. As a result, our operating results could be adversely affected.

WE DEPEND ON A FEW MAJOR CUSTOMERS FOR A SIGNIFICANT PORTION OF OUR REVENUES

     Historically, a limited number of customers have contributed a significant percentage of the Company’s revenues. The Company anticipates that its operating results in any given period will continue to depend significantly upon revenues from a small number of customers. The loss of any of these customers (which could include loss through mergers and acquisitions) could have a materially adverse effect on the Company’s business. While we have lost some customers to software products and/or services offered by our competitors or by our customers’ in-house staff, such events have not to-date had a material adverse impact on the Company. We cannot, however, make any assurances that we will retain our existing customers or attract new customers that would replace the revenue that could be lost if one or more of these customers failed to renew its agreement(s) with the Company.

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BUSINESS AND ECONOMIC PRESSURES ON OUR MAJOR CUSTOMERS MAY CAUSE A DECREASE IN DEMAND FOR OUR NEW PRODUCTS AND SERVICES

     Business and economic pressures on our major customers may result in budget constraints that directly impact their ability to purchase the Company’s new products and services offerings. We cannot assure you that any decrease in demand caused by these pressures will have no material adverse effect on our business, operating results or financial condition.

WE MAY BE UNABLE TO SUCCESSFULLY INTRODUCE NEW PRODUCTS OR RESPOND TO TECHNOLOGICAL
CHANGE

     The market for CRM and SFE products changes rapidly because of frequent improvements in computer hardware and software technology. Our future success will depend, in part, on our ability to:

     We cannot assure you that we will successfully develop and market new products or product enhancements that respond to technological advances in the marketplace, or that we will do so in a timely fashion. We also cannot assure you that our products will adequately and competitively address the needs of the changing marketplace.

     Competition for software products has been characterized by shortening product cycles. We may be materially and adversely affected by this trend if the product cycles for our products prove to be shorter than we anticipate. If that happens, our business, operating results or financial condition could be adversely affected.

     To remain competitive, we also may have to spend more of our revenues on product research and development than we have in the past. As a result, our results of operations could be materially and adversely affected.

     Further, our software products are technologically complex and may contain previously undetected errors or failures. Such errors have occurred in the past and we cannot assure you that, despite our testing, our new products will be free from errors. Software errors could cause delays in the commercial release of products until the errors have been corrected. Software errors may cause damage to our reputation and cause us to commit significant resources to their correction. Errors that result in losses or delays could have a material adverse effect on our business, operating results or financial condition.

INCREASED COMPETITION MAY RESULT IN PRICE REDUCTIONS AND DECREASED DEMAND FOR OUR PRODUCTS AND SERVICES

     There are a number of other companies that sell CRM and SFE products and related services that specifically target the pharmaceutical industry, including competitors that are actively selling CRM and SFE software products in more than one country and competitors that also offer CRM and SFE support services. Some of our competitors and potential competitors are part of large corporate groups and have significantly greater financial, sales, marketing, technology and other resources than we have.

     While we believe that the CRM and SFE software products and/or services offered by most of our competitors do not address the variety of pharmaceutical customer needs that our solutions address, increased competition may require us to reduce the prices for our products and services. Increased competition may also result in decreased demand for our products and services.

     We believe our ability to compete depends on many factors, some of which are beyond our control, including:

Any one of these factors can lead to price reductions and/or decreased demand and we cannot assure you that we will be able to continue to compete successfully or that competition will not have a material adverse effect on our business, operating results or financial condition.

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OUR INTERNATIONAL OPERATIONS HAVE RISKS THAT OUR DOMESTIC OPERATIONS DO NOT

     The sale of our products and services in foreign countries accounts for, and is expected in the future to account for, a material part of our revenues. These sales are subject to risks inherent in international business activities, including:

WE MAY FACE RISKS ASSOCIATED WITH ACQUISITIONS

     Our business could be materially and adversely affected as a result of the risks associated with acquisitions. As part of our business strategy, we have acquired businesses that offer complementary products, services or technologies. These acquisitions are accompanied by the risks commonly encountered in an acquisition of a business, including:

     These factors could have a material adverse effect on our revenues and earnings. We expect that the consideration paid for future acquisitions, if any, could be in the form of cash, stock, rights to purchase stock, or a combination of these. To the extent that we issue shares of stock or other rights to purchase stock in connection with any future acquisition, existing shareholders will experience dilution and potentially decreased earnings per share.

WE MAY FACE RISKS ASSOCIATED WITH EVENTS WHICH MAY AFFECT THE U.S. AND WORLD ECONOMIES

     The terrorist attacks of September 11, 2001 and subsequent world events created weakness in the U.S. and world economies. While we did not experience any material impact to our business during the time period immediately following the events of September 11, 2001, we cannot assure you that the impact of these events, the threat of hostilities in the Middle East, the threat of future terrorist activity in the U.S. and other parts of the world, and any related U.S. military action, on the U.S. and world economies will not adversely affect our business or the businesses of our customers.

OUR SUCCESS DEPENDS ON RETAINING OUR KEY SENIOR MANAGEMENT TEAM AND ONATTRACTING
AND RETAINING QUALIFIED PERSONNEL

     Our future success depends, to a significant extent, upon the contributions of our executive officers and key sales, technical and customer service personnel. Our future success also depends on our continuing ability to attract and retain highly qualified technical and managerial personnel. Competition for such personnel is intense. We have at times experienced difficulties in recruiting qualified personnel and we may experience such difficulties in the future. Any such difficulties could adversely affect our business, operating results or financial condition.

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AN INABILITY TO MANAGE OUR GROWTH COULD ADVERSELY AFFECT OUR BUSINESS

     To manage our growth effectively we must continue to strengthen our operational, financial and management information systems and expand, train and manage our work force. However, we may not be able to do so effectively or on a timely basis. Failure to do so could have a material adverse effect upon our business, operating results or financial condition.

OUR BUSINESS DEPENDS ON PROPRIETARY TECHNOLOGY THAT WE MAY NOT BE ABLE TO
PROTECT COMPLETELY

     We rely on a combination of trade secret, copyright and trademark laws, non-disclosure and other contractual agreements and technical measures to protect our proprietary technology. We cannot assure you that the steps we take will prevent misappropriation of this technology. Further, protective actions we have taken or will take in the future may not prevent competitors from developing products with features similar to our products. In addition, effective copyright and trade secret protection may be unavailable or limited in certain foreign countries. In response to a request by our customer, we have also on occasion entered into agreements which require us to place our source code in escrow to secure our service and maintenance obligations.

     Further, while we believe that our products and trademarks do not infringe upon the proprietary rights of third parties, third parties may assert infringement claims against us in the future that may result in the imposition of damages or injunctive relief against us. In addition, any such claims may require us to enter into royalty arrangements. Any of these results could materially and adversely affect our business, operating results or financial condition.

WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY IN THE INTERNET-RELATED PRODUCTS AND SERVICES MARKET NOR CAN WE PROVIDE ASSURANCES THAT THE DEMAND FOR INTERNET-RELATED PRODUCTS AND SERVICES WILL INCREASE

     The success of parts of our business will depend, in part, on our ability to continue developing Internet-related products and responding to technological advances and changing commercial uses of the Internet. We cannot assure you that our Internet-related products and services will adequately respond to such technological advances and changing uses. Nor can we assure you that the demand for Internet-related products and services will increase.

IF OUR THIRD-PARTY VENDORS ARE UNABLE TO SUCCESSFULLY RESPOND TO TECHNOLOGICAL CHANGE OR IF WE DO NOT MAINTAIN OUR RELATIONSHIPS WITH THIRD-PARTY VENDORS, INTERRUPTIONS IN THE SUPPLY OF OUR PRODUCTS MAY RESULT

     Some of our software is provided by third-party vendors. If our third-party vendors are unable to successfully respond to technological change or if our relationships with certain third-party vendors are terminated we may experience difficulty in replacing the functionality provided by the third-party software currently offered with our products. Although we believe there are other sources for all of our third-party software, any significant interruption in the supply of these products could adversely impact our sales unless and until we can secure another source. The absence of or any significant delay in the replacement of functionality provided by third-party software in our products could materially and adversely affect our sales.

CATASTROPHIC EVENTS COULD NEGATIVELY AFFECT OUR INFORMATION TECHNOLOGY INFRASTRUCTURE

     The efficient operation of our business, and ultimately our operating performance, depends on the uninterrupted use of our critical business and information technology systems. Many of these systems require the use of specialized hardware and other equipment that is not readily available. Although we maintain these systems at more than one location, a natural disaster, a fire or other catastrophic event at any of these locations could result in the destruction of these systems. In such an event, the replacement of these systems and restoration of the archived data and normal operation of our business could take several days to several weeks. During the intervening period when our critical business and information technology systems are fully or partially inoperable, our ability to conduct normal business operations could be significantly and adversely impacted and as a result our business, operating results and financial conditions could be adversely affected.

PROVISIONS OF OUR CHARTER DOCUMENTS AND NEW JERSEY LAW MAY DISCOURAGE AN ACQUISITION OF DENDRITE

     Provisions of our Restated Certificate of Incorporation, as amended, our By-laws, as amended, and New Jersey law may make it more difficult for a third party to acquire us. For example, the Board of Directors may, without the consent of the stockholders, issue preferred stock with rights senior to those of the common stock. In addition, the Company has a Shareholder Rights Plan which may limit the ability of a third party to attempt a hostile acquisition of the Company.

OUR COMMON STOCK MAY BE SUBJECT TO PRICE FLUCTUATIONS

     The market price of our common stock may be significantly affected by the following factors:

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     Further, the stock market has experienced on occasion extreme price and volume fluctuations. The market prices of the equity securities of many technology companies have been especially volatile and often have been unrelated to the operating performance of such companies. These broad market fluctuations may have a material adverse effect on the market price of our common stock.

Item 4.   Controls and Procedures.

     The Company’s principal executive officer and principal financial officer have evaluated the Company’s disclosure controls and procedures as of a date within 90 days of the filing date of this Form 10-Q and have found the disclosure controls and procedures to be effective. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect these internal controls subsequent to the date of their evaluation, nor were any significant deficiencies or material weaknesses in the Company’s internal controls found.

PART II.   OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K

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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.

     Date: November 14, 2002

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CERTIFICATION

I, John E. Bailye, certify that:

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CERTIFICATION

I, Luke M. Beshar, certify that:

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EXHIBIT INDEX