**UNITEDSTATES****SECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

 

**Form 10-Q**

 

**ý****        Quarterly Report pursuant to Section 13 or 15(d) ofthe SecuritiesExchange Act of 1934**

 

**For the quarterly period ended March 31, 2005**

 

**For the transition period from          to**

 

**Commission File Number   001-16379**

 

**DendriteInternational, Inc.**

(Exact name of registrant as specified in its charter)

 
| **New Jersey**                                                  | ** ** | **22-2786386**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |       | (I.R.S. Employer  Identification No.) |
|                                                            |       |                                  |
| **1405 U.S. Highway 206**                                       |
| **Bedminster, NJ   07921**                                 |
| (Address, including zip code, of  principal executive offices)  |
|                                                            |
| **(908) 443-2000**                                              |
| (Registrant’s telephone number, including area code)       |

 

Indicateby check mark whether the registrant: (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months, and (2) has been subject to suchfiling requirements for the past 90 days.ý yes o no

 

Indicateby check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2of the Act): ýyes o no

 

Asof May 3, 2005, 42,584,996 shares of Dendrite International, Inc. nopar value common stock were outstanding.

 

 

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**DENDRITE INTERNATIONAL, INC.**

**INDEX TO QUARTERLY REPORT ON FORM 10-Q**

**FOR THE QUARTER ENDED MARCH 31, 2005**

 
| PART I.  | FINANCIAL INFORMATION                                                                               |   |
|---------------|-----------------------------------------------------------------------------------------------------|--------|
|          |                                                                                                |   |
| ITEM 1.       | Financial Statements                                                                                |   |
|          |                                                                                                |   |
|          | Consolidated  Statements of Operations (unaudited)  Three months ended March 31, 2005 and 2004 |   |
|          |                                                                                                |   |
|          | Consolidated Balance Sheets  (unaudited)  March 31, 2005 and December 31, 2004            |   |
|          |                                                                                                |   |
|          | Consolidated  Statements of Cash Flows (unaudited)  Three months ended March 31, 2005 and 2004 |   |
|          |                                                                                                |   |
|          | Notes  to Unaudited Consolidated Financial Statements                                               |   |
|          |                                                                                                |   |
| ITEM 2.       | Management’s Discussion and  Analysis of Financial Condition and Results of Operations         |   |
|          |                                                                                                |   |
| ITEM 4.       | Controls and Procedures                                                                             |   |
|          |                                                                                                |   |
| PART II. | OTHER INFORMATION                                                                                   |   |
|          |                                                                                                |   |
| ITEM 6.       | Exhibits                                                                                            |   |
|          |                                                                                                |
| Signatures    |                                                                                                |

 

2

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PART I.     FINANCIALINFORMATION

 

ITEM 1.     FinancialStatements

 

**DENDRITE INTERNATIONAL, INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(IN THOUSANDS, EXCEPT PER SHARE DATA)**

**(UNAUDITED)**

 
| ** **                                         | ** ** | **THREE MONTHS ENDED  MARCH 31,** | ** ** |
|----------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                         | ** ** | **2005**                               | ** ** | **2004** | ** ** |
|                                               |       |                                   |       |   |   |   |   |
| Revenues                                           |       | $                                      | 99,447     |   | $ | 95,064 |   |
|                                               |       |                                   |       |   |   |
| Operating Costs & Expenses:               |       |                                   |       |   |   |
| Operating costs                                    |       | 53,651                                 |       | 49,807 |   |
| Selling, general and administrative                |       | 35,788                                 |       | 32,157 |   |
| Research and development                           |       | 1,818                                  |       | 3,022 |   |
| Facility and other charges                         |       | 9,372                                  |       | — |   |
| Amortization of acquired intangible assets         |       | 1,250                                  |       | 1,027 |   |
| Other operating (income)                           |       | —                                 |       | (339 | ) |
| Total operating costs & expenses          |       | 101,879                                |       | 85,674 |   |
|                                               |       |                                   |       |   |   |
| Operating (loss) income                            |       | (2,432                                 | )          | 9,390 |   |
|                                               |       |                                   |       |   |   |
| Interest (income), net                             |       | (141                                   | )          | (7 | ) |
| Other (income), net                                |       | (23                                    | )          | (43 | ) |
|                                               |       |                                   |       |   |   |
| (Loss) income before income tax (benefit)  expense |       | (2,268                                 | )          | 9,440 |   |
| Income tax (benefit) expense                       |       | (873                                   | )          | 3,776 |   |
|                                               |       |                                   |       |   |   |
| Net (loss) income                                  |       | $                                      | (1,395     | ) | $ | 5,664 |   |
|                                               |       |                                   |       |   |   |
| Net (loss) income per share:                       |       |                                   |       |   |   |
| Basic                                              |       | $                                      | (0.03      | ) | $ | 0.14 |   |
| Diluted                                            |       | $                                      | (0.03      | ) | $ | 0.13 |   |

 

The accompanying notes are an integral part of these consolidatedstatements.

 

3

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**DENDRITE INTERNATIONAL, INC.**

**CONSOLIDATED BALANCE SHEETS**

**(IN THOUSANDS, EXCEPT SHARE DATA)**

**(UNAUDITED)**

 
| ** **                                                                                                                                                                                                          | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| **Assets**                                                                                                                                                                                                          |       |                     |       |                        |       |
| Current Assets:                                                                                                                                                                                                     |       |                     |       |                        |       |
| Cash and cash equivalents                                                                                                                                                                                           |       | $                        | 53,279     |                        | $          | 64,020 |   |
| Accounts receivable, net                                                                                                                                                                                            |       | 72,873                   |       | 71,653                      |       |
| Prepaid expenses and other current assets                                                                                                                                                                           |       | 6,195                    |       | 6,935                       |       |
| Deferred income taxes                                                                                                                                                                                               |       | 5,685                    |       | 5,029                       |       |
| Total current assets                                                                                                                                                                                                |       | 138,032                  |       | 147,637                     |       |
|                                                                                                                                                                                                                |       |                     |       |                        |       |
| Property and equipment, net of accumulated  amortization of $51,960 and $56,499, respectively                                                                                                                       |       | 48,815                   |       | 45,283                      |       |
| Other assets                                                                                                                                                                                                        |       | 7,933                    |       | 7,922                       |       |
| Goodwill                                                                                                                                                                                                            |       | 83,334                   |       | 80,963                      |       |
| Intangible assets, net                                                                                                                                                                                              |       | 23,481                   |       | 19,876                      |       |
| Purchased capitalized software, net                                                                                                                                                                                 |       | 903                      |       | 1,056                       |       |
| Capitalized software development costs, net                                                                                                                                                                         |       | 9,809                    |       | 9,170                       |       |
| Deferred income taxes                                                                                                                                                                                               |       | 12,302                   |       | 9,873                       |       |
|                                                                                                                                                                                                                |       | $                        | 324,609    |                        | $          | 321,780 |   |
| **Liabilities  and Stockholders’ Equity**                                                                                                                                                                      |       |                     |       |                        |       |
| Current Liabilities:                                                                                                                                                                                                |       |                     |       |                        |       |
| Accounts payable                                                                                                                                                                                                    |       | $                        | 9,569      |                        | $          | 8,171 |   |
| Income taxes payable                                                                                                                                                                                                |       | 10,210                   |       | 12,013                      |       |
| Capital lease obligations                                                                                                                                                                                           |       | 1,680                    |       | 1,689                       |       |
| Accrued compensation and benefits                                                                                                                                                                                   |       | 17,186                   |       | 16,058                      |       |
| Accrued professional and consulting fees                                                                                                                                                                            |       | 5,803                    |       | 7,413                       |       |
| Accrued facility and other charges                                                                                                                                                                                  |       | 3,628                    |       | —                      |       |
| Other accrued expenses                                                                                                                                                                                              |       | 16,880                   |       | 19,284                      |       |
| Purchase accounting restructuring accrual                                                                                                                                                                           |       | 2,486                    |       | 3,000                       |       |
| Deferred revenues                                                                                                                                                                                                   |       | 12,219                   |       | 13,347                      |       |
| Total current liabilities                                                                                                                                                                                           |       | 79,661                   |       | 80,975                      |       |
|                                                                                                                                                                                                                |       |                     |       |                        |       |
| Capital lease obligations                                                                                                                                                                                           |       | 2,655                    |       | 3,036                       |       |
| Purchase accounting restructuring accrual                                                                                                                                                                           |       | 3,745                    |       | 4,143                       |       |
| Accrued facility and other charges                                                                                                                                                                                  |       | 4,663                    |       | —                      |       |
| Deferred rent                                                                                                                                                                                                       |       | 2,287                    |       | 2,070                       |       |
| Other non-current liabilities                                                                                                                                                                                       |       | 3,682                    |       | 3,967                       |       |
|                                                                                                                                                                                                                |       |                     |       |                        |       |
| Stockholders’ Equity:                                                                                                                                                                                          |       |                     |       |                        |       |
| Preferred stock, no par value, 15,000,000  shares authorized, none issued                                                                                                                                           |       | —                   |       | —                      |       |
| Common stock, no par value, 150,000,000  shares authorized, 45,074,498 and 44,913,584 shares issued; 42,535,750 and  42,374,836 shares outstanding at March 31, 2005 and December 31,  2004, respectively |       | 127,059                  |       | 125,237                     |       |
| Retained earnings                                                                                                                                                                                                   |       | 126,106                  |       | 127,501                     |       |
| Deferred compensation                                                                                                                                                                                               |       | (109                     | )          | (123                        | )          |
| Accumulated other comprehensive income                                                                                                                                                                              |       | 1,125                    |       | 1,239                       |       |
| Less treasury stock, at cost                                                                                                                                                                                        |       | (26,265                  | )          | (26,265                     | )          |
| Total stockholders’ equity                                                                                                                                                                                     |       | 227,916                  |       | 227,589                     |       |
|                                                                                                                                                                                                                |       | $                        | 324,609    |                        | $          | 321,780 |   |

 

The accompanying notes are an integral part of these consolidatedstatements.

 

4

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**DENDRITE INTERNATIONAL, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(IN THOUSANDS)**

**(UNAUDITED)**

 
| ** **                                                                                | ** ** | **Three Months Ended March 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                | ** ** | **2005**                              | ** ** | **2004** | ** ** |
| Operating activities:                                                                     |       |                                  |       |   |   |
| Net (loss) income                                                                         |       | $                                     | (1,395     | ) | $ | 5,664 |   |
| Adjustments to reconcile net (loss) income  to net cash provided by operating activities: |       |                                  |       |   |   |
| Depreciation and amortization                                                             |       | 5,402                                 |       | 5,196 |   |
| Write-off of property and equipment                                                       |       | 1,030                                 |       | — |   |
| Amortization of deferred compensation, net  of forfeitures                                |       | 14                                    |       | 109 |   |
| Deferred income tax benefit                                                               |       | (3,006                                | )          | — |   |
| Changes in assets and liabilities, net of  effects from acquisitions:                     |       |                                  |       |   |   |
| Decrease in accounts receivable                                                           |       | 1,492                                 |       | 13,671 |   |
| Decrease in prepaid expenses and other  current assets                                    |       | 779                                   |       | 737 |   |
| (Increase) decrease in other assets                                                       |       | (24                                   | )          | 254 |   |
| Decrease in accounts payable and accrued  expenses                                        |       | (1,094                                | )          | (4,027 | ) |
| Increase in accrued facility and other  charges                                           |       | 8,291                                 |       | — |   |
| Decrease in purchase accounting  restructuring accrual                                    |       | (1,102                                | )          | (2,615 | ) |
| Decrease in income taxes payable                                                          |       | (1,495                                | )          | (1,007 | ) |
| Decrease in deferred revenue                                                              |       | (1,308                                | )          | (2,575 | ) |
| (Decrease) increase in other non-current  liabilities                                     |       | (287                                  | )          | 114 |   |
|                                                                                      |       |                                  |       |   |   |
| Net cash provided by operating activities                                                 |       | 7,297                                 |       | 15,521 |   |
|                                                                                      |       |                                  |       |   |   |
| Investing activities:                                                                     |       |                                  |       |   |   |
| Acquisitions, net of cash acquired                                                        |       | (9,918                                | )          | (1,990 | ) |
| Purchases of property and equipment                                                       |       | (7,887                                | )          | (2,530 | ) |
| Additions to capitalized software  development costs                                      |       | (1,407                                | )          | (770 | ) |
|                                                                                      |       |                                  |       |   |   |
| Net cash used in investing activities                                                     |       | (19,212                               | )          | (5,290 | ) |
|                                                                                      |       |                                  |       |   |   |
| Financing activities:                                                                     |       |                                  |       |   |   |
| Repayments of long-term debt                                                              |       | —                                |       | (1,120 | ) |
| Repayments of acquired loan                                                               |       | —                                |       | (624 | ) |
| Payments on capital lease obligations                                                     |       | (390                                  | )          | (405 | ) |
| Issuance of common stock                                                                  |       | 1,493                                 |       | 2,514 |   |
|                                                                                      |       |                                  |       |   |   |
| Net cash provided by financing activities                                                 |       | 1,103                                 |       | 365 |   |
|                                                                                      |       |                                  |       |   |   |
| Effect of foreign exchange rate changes on  cash                                          |       | 71                                    |       | 395 |   |
|                                                                                      |       |                                  |       |   |   |
| Net (decrease) increase in cash and cash  equivalents                                     |       | (10,741                               | )          | 10,991 |   |
| Cash and cash equivalents, beginning of  year                                             |       | 64,020                                |       | 30,405 |   |
|                                                                                      |       |                                  |       |   |   |
| Cash and cash equivalents, end of period                                                  |       | $                                     | 53,279     |   | $ | 41,396 |   |

 

The accompanying notes are an integral part of these consolidatedstatements.

 

5

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**DENDRITE INTERNATIONAL, INC.**

**NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

**($ IN THOUSANDS, EXCEPT PER SHARE DATA)**

 

**1.  Basis ofPresentation**

 

Theconsolidated financial statements of Dendrite International, Inc. and itssubsidiaries (“Dendrite” or the “Company”) included in this Form 10-Q areunaudited and reflect all adjustments (consisting of normal recurringadjustments) which are, in the opinion of management, necessary for a fairpresentation of the financial position as of March 31, 2005, operatingresults for the three months ended March 31, 2005 and 2004 and cash flowsfor the three months ended March 31, 2005 and 2004.  For further information, refer to theconsolidated financial statements and notes thereto included in the Company’sAnnual Report on Form 10-K for the year ended December 31, 2004.

 

Ourinterim operating results may not be indicative of operating results for thefull year.

 

***Reclassifications.*******Certain prior period balances have beenreclassified to conform to current period presentation.

 

**2. Recent Accounting Pronouncements**

 

In December 2004, the Financial AccountingStandards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123(revised 2004) “Share-Based Payment” (“SFAS 123(R)”) as a replacement toSFAS 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). Thisstatement supersedes Accounting Principles Board (“APB”) 25, “Accounting forStock Issued to Employees” which allowed companies to use the intrinsic methodof valuing share-based payment transactions and amends SFAS No. 95, “Statementof Cash Flows.” SFAS 123(R) requires all share-based payments toemployees, including grants of employee stock options, to be recognized in thefinancial statements based on the fair-value method as defined in SFAS 123.SFAS 123(R) provides two alternatives for adoption: (1) a “modifiedprospective” method in which compensation cost is recognized for all awardsgranted subsequent to the effective date of this statement as well as for theunvested portion of awards outstanding as of the effective date; or (2) a “modifiedretrospective” method which follows the approach of the “modified prospective”method, but also permits entities to restate prior periods to recordcompensation cost calculated under SFAS 123 for the pro forma disclosure. TheCompany plans to adopt SFAS 123(R) using the modified prospective method.In addition, SFAS 123(R) also requires that tax benefits received inexcess of compensation cost be reclassified from operating cash flows tofinancing cash flows in the consolidated statement of cash flows. The adoptionof FAS 123(R)’s fair value method is expected to have a significant impacton the Company’s consolidated results of operations, though it will have noimpact on the Company’s overall financial position. However, had the Companyadopted SFAS 123(R) in prior periods, the impact of the standard wouldhave approximated the impact of SFAS 123 as described in the disclosure ofpro forma net (loss) income and net (loss) income per share in Note 3 toour consolidated financial statements.

 

In April 2005, the Securities and ExchangeCommission issued Release No. 33-8568, Amendment to Rule 4-01(a) ofRegulation S-X Regarding the Compliance Date for Statement of Financial AccountingStandards No. 123 (Revised 2004), “Share-Based Payment,” which allowscompanies to continue to follow SFAS 123 throughout 2005 and implement SFAS123(R) beginning January 1, 2006, which the Company expects to follow.

 

**3.  Stock BasedCompensation**

 

TheCompany has adopted the disclosure requirements of SFAS 123 as amended bySFAS 148, “Accounting for Stock-Based Compensation-Transition andDisclosure.” The Company applies APB 25 and related interpretations in accountingfor stock options granted under the Company’s stock option plans (the “Plans”).Accordingly, compensation cost has been computed for the Plans based on theintrinsic value of the stock options at the date of grant, which represents thedifference between the exercise price and the fair value of the Company’sstock. The exercise price of all stock options granted equaled the fair valueof the Company’s stock at the date of option grant and accordingly, nocompensation cost related to stock options has been recorded in theaccompanying consolidated statements of operations. Had compensation cost forthe Plans and the employee stock purchase plan been determined consistent withSFAS 123, the Company’s net (loss) income and net (loss) income per sharewould have been adjusted to the following pro forma amounts:

 

6

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**DENDRITE INTERNATIONAL, INC.**

**NOTES TOUNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

**($ IN THOUSANDS, EXCEPT PER SHARE DATA)**

 

| ** **                                                                                                                                        | ** ** | **For the Three Months  Ended March 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                                                                                                        | ** ** | **2005**                                       | ** ** | **2004** | ** ** |
| Net (loss) income as reported                                                                                                                     |       | $                                              | (1,395     | ) | $ | 5,664 |   |
|                                                                                                                                              |       |                                           |       |   |   |
| Add: Deferred compensation amortization,  net of forfeitures recognized in accordance with APB 25, net of related tax  effects                    |       | —                                         |       | 65 |   |
|                                                                                                                                              |       |                                           |       |   |   |
| Deduct: Total stock-based employee  compensation expense determined under the fair value based method for all  awards, net of related tax effects |       | (3,507                                         | )          | (3,801 | ) |
|                                                                                                                                              |       |                                           |       |   |   |
| Pro forma net (loss) income                                                                                                                       |       | $                                              | (4,902     | ) | $ | 1,928 |   |
|                                                                                                                                              |       |                                           |       |   |   |
| Basic (loss) income per share:                                                                                                                    |       |                                           |       |   |   |
| As reported                                                                                                                                       |       | $                                              | (0.03      | ) | $ | 0.14 |   |
| Pro forma                                                                                                                                         |       | $                                              | (0.12      | ) | $ | 0.05 |   |
| Diluted (loss) income per share:                                                                                                                  |       |                                           |       |   |   |
| As reported                                                                                                                                       |       | $                                              | (0.03      | ) | $ | 0.13 |   |
| Pro forma                                                                                                                                         |       | $                                              | (0.12      | ) | $ | 0.05 |   |

 

Thefair value for these options were estimated at the date of grant using theBlack-Scholes option pricing model with the following assumptions:

 

| ** **                                        | ** ** | **For the Three Months  Ended March 31,** | ** ** |
|---------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                        | ** ** | **2005**                                       | ** ** | **2004** | ** ** |
| Expected dividend yield                           |       | 0.0                                            | %          | 0.0 | % |
| Weighted-average expected stock price  volatility |       | 50.0                                           | %          | 70.0 | % |
| Weighted-average risk-free interest rate          |       | 3.7                                            | %          | 3.1 | % |
| Expected life of the option (years)               |       | 5.25                                           |       | 5.25 |   |

 

Thestock-based employee compensation expense determined under the fair value basedmethods for all awards, net of related tax effects, disclosed above isdetermined based upon the number and fair value of options granted and anestimate of forfeitures. The expense is recognized over the vesting period ofthe options. Under SFAS 123, compensation expense is not recognized foroptions that are forfeited due to the employee’s failure to fulfill servicerequirements. Therefore, while the fair value per option is not recalculated,the number of options vesting would change, thus requiring recalculation of theaggregate compensation expense.

 

**4.  Net (Loss) IncomePer Share**

 

Thefollowing table presents the computation of basic and diluted net (loss) incomeper share for the three months ended March 31, 2005 and 2004:

 

7

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**DENDRITE INTERNATIONAL, INC.**

**NOTES TOUNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

**($ IN THOUSANDS, EXCEPT PER SHARE DATA)**

 

| ** **                                        | ** ** | **For the Three Months Ended  March 31,** | ** ** |
|---------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                        | ** ** | **2005**                                       | ** ** | **2004** | ** ** |
| Basic net (loss) income per share  computation:   |       |                                           |       |   |   |
| Net (loss) income                                 |       | $                                              | (1,395     | ) | $ | 5,664 |   |
| Weighted-average common shares outstanding        |       | 42,470                                         |       | 40,919 |   |
| Basic net (loss) income per share                 |       | $                                              | (0.03      | ) | $ | 0.14 |   |
|                                              |       |                                           |       |   |   |
| Diluted net (loss) income per share  computation: |       |                                           |       |   |   |
| Net (loss) income                                 |       | $                                              | (1,395     | ) | $ | 5,664 |   |
| Diluted common shares outstanding:                |       |                                           |       |   |   |
| Weighted-average common shares outstanding        |       | 42,470                                         |       | 40,919 |   |
| Impact of dilutive stock options                  |       | —                                         |       | 1,596 |   |
| Diluted common shares outstanding                 |       | 42,470                                         |       | 42,515 |   |
|                                              |       |                                           |       |   |   |
| Diluted net (loss) income per share               |       | $                                              | (0.03      | ) | $ | 0.13 |   |

 

For the three months ended March 31, 2005, 1,274 stock optionsthat could potentially dilute net (loss) income per share in the future are notincluded in the calculation of diluted net (loss) per share as they would havebeen antidilutive.

 

**5.  Comprehensive (Loss)Income**

 

Thecomponents of comprehensive (loss) income for the three months ended March 31,2005 and 2004 consisted of the following:

 
| ** **                               | ** ** | **For the Three Months  Ended March 31,** | ** ** |
|------------------------------------------|------------|------------------------------------------------|------------|
| ** **                               | ** ** | **2005**                                       | ** ** | **2004** | ** ** |
| Net (loss) income                        |       | $                                              | (1,395     | ) | $ | 5,664 |   |
| Other comprehensive (loss) income:       |       |                                           |       |   |   |
| Foreign currency translation adjustments |       | (114                                           | )          | 454 |   |
|                                     |       |                                           |       |   |   |
| Comprehensive (loss) income              |       | $                                              | (1,509     | ) | $ | 6,118 |   |

 

**6. Acquisitions**

 

***Buzzeo***

 

On January 4, 2005, the Company completed the strategicacquisition of BuzzeoPMDA, Inc. (“Buzzeo”). Based in Richmond, Virginia,Buzzeo provides compliance, auditing, consulting and reconciliation outsourcingservices to the pharmaceutical and life sciences industry. This acquisitionfurther expands the Company’s sample and compliance management solutionofferings. In connection with the acquisition, the Company restructured thecombined operations by eliminating certain former Buzzeo positions. The Companyaccrued $200 at January 4, 2005, for liabilities associated with the costof completing the restructuring plan. Buzzeo’s results of operations have beenincluded in the accompanying consolidated financial statements since the dateof acquisition.

 

The aggregate purchase price for Buzzeo wasapproximately $10,283, including $33 of legal and professional fees.  As of March 31, 2005, approximately $1,800of the purchase price was held in escrow. In accordance with the purchase agreement, the $1,800 held in escrow,less amounts claimed against escrow, if any, is payable as follows: approximately$775 within five business days of filing this Form 10-Q; and approximately$1,025 on January 4, 2006. The Company is in the process of finalizing thevaluation of certain intangible assets, including the review of a third-partyvaluation. Therefore, the allocation of purchase price is preliminary andsubject to adjustment. The assets acquired and liabilities assumed inconnection with the Buzzeo acquisition, and pro forma results of operations arenot deemed material to the consolidated financial statements.

 

8

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**DENDRITE INTERNATIONAL, INC.**

**NOTES TOUNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

**($ IN THOUSANDS, EXCEPT PER SHARE DATA)**

 

The preliminary allocation of purchase price,including the net assets acquired of approximately $3,100, to intangible assetsand goodwill acquired in connection with the Buzzeo acquisition is as follows:

 

| ** **                                       | ** ** | **Weighted-Average  Estimated Useful  Life (Years)** | ** ** | **Acquired Intangible  Asset Value** | ** ** |
|--------------------------------------------------|------------|------------------------------------------------------|------------|--------------------------------------|------------|
| Intangible Assets Subject to Amortization:       |       |                                                 |       |                                 |       |
| Customer relationship asset                      |       | 10                                                   |       | $                                    | 4,390      |   |
| Trademark                                        |       | 7                                                    |       | 290                                  |       |
| Other                                            |       | 0.25                                                 |       | 70                                   |       |
| Total Intangible Assets Subject to  Amortization |       |                                                 |       | 4,750                                |       |
|                                             |       |                                                 |       |                                 |       |
| Intangible Assets Not Subject to  Amortization:  |       |                                                 |       |                                 |       |
| Goodwill                                         |       | N/A                                                  |       | 2,402                                |       |
| Total Intangible Assets                          |       |                                                 |       | $                                    | 7,152      |   |

 

The goodwill and intangible assets recorded forfinancial statement purposes are deductible for tax purposes.

 

**7.  Purchase AccountingRestructuring Accrual**

 

In connection with the June 2003 acquisition ofSynavant Inc. (“Synavant”), the Company restructured the combined operations byexiting certain former Synavant facilities and eliminating certain formerSynavant positions. The Company anticipates that the balance related to thetermination of employees will be paid during the current year and the remainingaccrued restructuring balance related to the facility exit costs will be paidover the life of the facility leases, ending in February 2012. Theliability accrued for expenses to be incurred in exiting certain Synavantfacilities and includes assumptions related to sublease income, which offsets futurelease obligations. The underlying subleases are not in place for all facilitiesand the future placement of subleases, including the timing and terms andconditions of subleases, could be different than the assumptions utilized.

 

In connection with the acquisition of SoftwareAssociates International (“SAI”), the Company developed an exit plan to close thefacility in Mt. Arlington, New Jersey, and relocate the operations to theCompany’s other facilities in New Jersey. The Company accrued, as part of theacquisition costs, the costs to terminate certain leases amounting to $3,252. TheCompany closed the facility during the first quarter of 2003.

 

In connection with the July 2004 and January 2005acquisitions of Schwarzeck-Verlag GmbH (“Schwarzeck”) and Buzzeo, the Companyrestructured the combined operations by eliminating certain former positions.The Company accrued approximately $300 and $200 to complete the Schwarzeck andBuzzeo restructuring plans, respectively.

 

The activity related to the purchase accountingrestructuring accrual for the three months ended March 31, 2005 issummarized in the table below:

 

9

----

 

**DENDRITE INTERNATIONAL, INC.**

**NOTES TOUNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

**($ IN THOUSANDS, EXCEPT PER SHARE DATA)**

 
| ** **                        | ** ** | **Purchase  Accounting  Restructuring  Accrual as of  December 31, 2004** | ** ** | **2005  Adjustments** | ** ** | **2005  Payments** | ** ** | **Currency  Translation  Adjustments** | ** ** | **Purchase  Accounting  Restructuring  Accrual as of  March 31, 2005** | ** ** |
|-----------------------------------|------------|--------------------------------------------------------------------------------|------------|-----------------------|------------|--------------------|------------|----------------------------------------|------------|-----------------------------------------------------------------------------|------------|
| Synavant                          |       |                                                                           |       |                  |       |               |       |                                   |       |                                                                        |       |
| Termination payments to employees |       | $                                                                              | 23         |                  | $          | —             |       | $                                      | (16        | )                                                                           | $          | — |   | $ | 7 |   |
| Facility exit costs               |       | 5,926                                                                          |       | —                |       | (587               | )          | —                                 |       | 5,339                                                                       |       |
| Total Synavant                    |       | 5,949                                                                          |       | —                |       | (603               | )          | —                                 |       | 5,346                                                                       |       |
|                              |       |                                                                           |       |                  |       |               |       |                                   |       |                                                                        |       |
| SAI                               |       |                                                                           |       |                  |       |               |       |                                   |       |                                                                        |       |
| Lease termination costs           |       | 947                                                                            |       | —                |       | (308               | )          | —                                 |       | 639                                                                         |       |
|                              |       |                                                                           |       |                  |       |               |       |                                   |       |                                                                        |       |
| Schwarzeck                        |       |                                                                           |       |                  |       |               |       |                                   |       |                                                                        |       |
| Termination payments to employees |       | 247                                                                            |       | —                |       | (191               | )          | (10                                    | )          | 46                                                                          |       |
|                              |       |                                                                           |       |                  |       |               |       |                                   |       |                                                                        |       |
| Buzzeo                            |       |                                                                           |       |                  |       |               |       |                                   |       |                                                                        |       |
| Termination payments to employees |       | —                                                                         |       | 200                   |       | —             |       | —                                 |       | 200                                                                         |       |
|                              |       |                                                                           |       |                  |       |               |       |                                   |       |                                                                        |       |
| Total                             |       | $                                                                              | 7,143      |                  | $          | 200                |       | $                                      | (1,102     | )                                                                           | $          | (10 | ) | $ | 6,231 |   |

 

**8.  Goodwill andIntangible Assets**

 

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

 
| ** **                                      | ** ** | **As of March 31, 2005** | ** ** | **As of December 31, 2004** | ** ** |
|-------------------------------------------------|------------|-------------------------------|------------|----------------------------------|------------|
| ** **                                      | ** ** | **Gross**                     | ** ** | **Accumulated  Amortization**    | ** ** | **Net** | ** ** | **Gross** | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** |
| Intangible Assets Subject To Amortization:      |       |                          |       |                             |       |   |   |   |   |   |   |   |   |
|                                            |       |                          |       |                             |       |   |   |   |   |   |   |   |   |
| Purchased capitalized software                  |       | $                             | 2,441      |                             | $          | (1,538 | ) | $ | 903 |   | $ | 2,441 |   | $ | (1,385 | ) | $ | 1,056 |   |
| Capitalized software development costs          |       | 28,014                        |       | (18,205                          | )          | 9,809 |   | 26,607 |   | (17,437 | ) | 9,170 |   |
| Customer relationship assets                    |       | 13,966                        |       | (2,590                           | )          | 11,376 |   | 9,595 |   | (2,222 | ) | 7,373 |   |
| Backlog                                         |       | 2,400                         |       | (2,335                           | )          | 65 |   | 2,400 |   | (2,313 | ) | 87 |   |
| Non-compete covenants                           |       | 3,765                         |       | (3,022                           | )          | 743 |   | 3,768 |   | (2,678 | ) | 1,090 |   |
| Purchased database                              |       | 5,214                         |       | (1,262                           | )          | 3,952 |   | 5,221 |   | (979 | ) | 4,242 |   |
| Trademarks                                      |       | 446                           |       | (27                              | )          | 419 |   | 151 |   | (15 | ) | 136 |   |
| Other intangibles                               |       | 481                           |       | (287                             | )          | 194 |   | 413 |   | (197 | ) | 216 |   |
| Total                                           |       | 56,727                        |       | (29,266                          | )          | 27,461 |   | 50,596 |   | (27,226 | ) | 23,370 |   |
|                                            |       |                          |       |                             |       |   |   |   |   |   |   |   |   |
| Intangible Assets Not Subject to  Amortization: |       |                          |       |                             |       |   |   |   |   |   |   |   |   |
|                                            |       |                          |       |                             |       |   |   |   |   |   |   |   |   |
| Goodwill                                        |       | 83,334                        |       | —                           |       | 83,334 |   | 80,963 |   | — |   | 80,963 |   |
| Trademarks                                      |       | 6,732                         |       | —                           |       | 6,732 |   | 6,732 |   | — |   | 6,732 |   |
| Total                                           |       | 90,066                        |       | —                           |       | 90,066 |   | 87,695 |   | — |   | 87,695 |   |
|                                            |       |                          |       |                             |       |   |   |   |   |   |   |   |   |
| Total Goodwill and Intangible Assets            |       | $                             | 146,793    |                             | $          | (29,266 | ) | $ | 117,527 |   | $ | 138,291 |   | $ | (27,226 | ) | $ | 111,065 |   |

 

Thechanges in the carrying amount of intangible assets not subject to amortizationfor the three months ended March 31, 2005 is as follows:

 

| ** ** | ** ** | **Balance as of  December 31, 2004** | ** ** | **Acquisitions /  Purchase  Accounting  Adjustments** | ** ** | **Currency  Translation  Adjustments** | ** ** | **Balance as of  March 31, 2005** | ** ** |
|------------|------------|-------------------------------------------|------------|-------------------------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| Goodwill   |       | $                                         | 80,963     |                                                  | $          | 2,402                                  |       | $                                      | (31        | ) | $ | 83,334 |   |
| Trademarks |       | 6,732                                     |       | —                                                |       | —                                 |       | 6,732                                  |       |
|       |       |                                      |       |                                                  |       |                                   |       |                                   |       |
| Total      |       | $                                         | 87,695     |                                                  | $          | 2,402                                  |       | $                                      | (31        | ) | $ | 90,066 |   |

 

10

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**DENDRITE INTERNATIONAL, INC.**

**NOTES TOUNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

**($ IN THOUSANDS, EXCEPT PER SHARE DATA)**

 

TheCompany conducts its annual impairment testing of goodwill as of October 1each year. During the three months ended March 31, 2005, there were nochanges in events or circumstances that would indicate impairment.

 

The following table reconciles net intangible assetssubject to amortization for the period from December 31, 2004 to March 31,2005:

 
| ** **                             | ** ** | **Net Intangibles  as of  December 31, 2004** | ** **    | **2005 Year-to-Date Activity** | ** **       | **Net Intangibles  as of  March 31, 2005** | ** **                 |
|----------------------------------------|------------|----------------------------------------------------|---------------|--------------------------------|------------------|-------------------------------------------------|----------------------------|
| ** **                             | ** ** | ** **                                         | **Additions** | ** **                     | **Amortization** | ** **                                      | **Translation  and Other** | ** ** | ** ** |
| ** **                             | ** ** | ** **                                         | ** **    | ** **                     | ** **       | ** **                                      |
| Purchased capitalized software         |       | $                                                  | 1,056         |                           | $                | —                                          |                       | $ | (153 | ) | $ | — |   | $ | 903 |   |
| Capitalized software development costs |       | 9,170                                              |          | 1,407                          |             | (768                                            | )                          | — |   | 9,809 |   |
| Customer relationship assets           |       | 7,373                                              |          | 4,390                          |             | (368                                            | )                          | (19 | ) | 11,376 |   |
| Backlog                                |       | 87                                                 |          | —                         |             | (22                                             | )                          | — |   | 65 |   |
| Non-compete covenants                  |       | 1,090                                              |          | —                         |             | (344                                            | )                          | (3 | ) | 743 |   |
| Purchased database                     |       | 4,242                                              |          | —                         |             | (283                                            | )                          | (7 | ) | 3,952 |   |
| Trademarks                             |       | 136                                                |          | 290                            |             | (12                                             | )                          | 5 |   | 419 |   |
| Other intangibles                      |       | 216                                                |          | 70                             |             | (90                                             | )                          | (2 | ) | 194 |   |
| Total                                  |       | $                                                  | 23,370        |                           | $                | 6,157                                           |                       | $ | (2,040 | ) | $ | (26 | ) | $ | 27,461 |   |

 

Amortizationexpense related to intangible assets, including internally developedcapitalized software costs, for the three month periods ended March 31,2005 and 2004 was $2,040 and $1,708, respectively.Aggregate annual amortization expense ofintangible assets (exclusive of future additions) is estimated to be:

 
| Year Ending December 31,                                            |   |   |   |
|--------------------------------------------------------------------------|--------|--------|--------|
| 2005                                                                     |   | $      | 7,872  |   |
| 2006                                                                     |   | 7,055  |   |
| 2007                                                                     |   | 4,744  |   |
| 2008                                                                     |   | 2,151  |   |
| 2009                                                                     |   | 1,454  |   |
| 2010                                                                     |   | 1,357  |   |
| Thereafter                                                               |   | 4,868  |   |
|                                                                     |   | 29,501 |   |
| Less: Year-to-date amortization expense                                  |   | (2,040 | )      |
|                                                                     |   |   |   |
| Net intangible assets subject to  amortization as of March 31, 2005 |   | $      | 27,461 |   |
|                                                                          |        |        |        |  |  |

 

**9. Accrued Facility and Other Charges**

 

During the period ended March 31, 2005, the Company initiated andcompleted a plan to exit a facility for which it has an operating leaseexpiring in September 2011.  Thisaccrued facility charge relates to vacating a New Jersey facility andfor additional facilities vacated and accrued for in previous periods, forwhich it has operating leases expiring through February 2012, due to changesin current market conditions. The Company accrued for the present valueof these costs, net of estimated future sublease income.  The Company also accrued for severance chargesrelated to the elimination ofcertain senior and mid-level management positions. The Company accrued forthese charges in Accrued Facility and Other Charges on the consolidatedbalance sheet as of March 31, 2005, and in Facility and Other Charges onthe consolidated statement of operations during the three months ended March 31,2005.

 

Theactivity related to Accrued Facility and Other Charges for the three monthsended March 31, 2005 is summarized in the table below:

 

11

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**DENDRITE INTERNATIONAL, INC.**

**NOTES TOUNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

**($ IN THOUSANDS, EXCEPT PER SHARE DATA)**

 
| ** **          | ** ** | **Accrued Facility and  Other Charges as of  December 31, 2004** | ** ** | **2005 Facility  and Other  Charges** | ** ** | **2005  Payments** | ** ** | **Accrued  Facility and  Other Charges  as of March 31,** | ** ** |
|---------------------|------------|-----------------------------------------------------------------------|------------|---------------------------------------|------------|--------------------|------------|----------------------------------------------------------------|------------|
| Facility exit costs |       | $                                                                     | —     |                                  | $          | 6,619              |       | $                                                              | —     |   | $ | 6,619 |   |
| Severance           |       | —                                                                |       | 1,723                                 |       | (51                | )          | 1,672                                                          |       |
|                |       |                                                                  |       |                                  |       |               |       |                                                           |       |
|                |       | $                                                                     | —     |                                  | $          | 8,342              |       | $                                                              | (51        | ) | $ | 8,291 |   |

 

In connection with the plan initiated and completed during the threemonths ended March 31, 2005, the Company also wrote-off $1,030 of leaseholdimprovements included within Facility and Other Charges in the consolidatedstatement of operations for the three months ended March 31, 2005.

 

**10. Line-of-Credit**

 

The Company entered into a line-of-credit agreement(the “Agreement”) as of June 16, 2003, in the amount of $30,000 withJPMorgan Chase Bank that expires on July 1, 2005. The Agreement isavailable to finance working capital needs and possible future acquisitions.Among other covenants, the Agreement requires the Company to maintain a minimumconsolidated net worth, measured quarterly, which is equal to $130,000, plus50% of net income earned after April 1, 2003, and 75% of the net proceedsof any offering of new equity interests issued subsequent to June 30,2003. As of March 31, 2005, the Company’s consolidated net worth was $227,916.The Agreement contains certain restrictions on the Company’s ability to createor assume liens, dispose of assets, consolidate or merge, extend credit, incurother indebtedness or pay cash dividends. On September 24, 2004, theCompany entered into an amendment to the Agreement that relaxed certaincovenants relating to acquisitions, dispositions of Company assets,indebtedness of foreign subsidiaries of the Company, real estate and capitalexpenditures in connection with the Company’s move to its new corporateheadquarters facility. As of March 31, 2005, the Company was in compliancewith all covenants and did not have any amounts outstanding under theline-of-credit. The Company currently intends to renew or replace the Agreementconcurrent with its expiration.

 

Asof March 31, 2005, the Company had outstanding letters-of-credit ofapproximately $5,721.

 

**11. Income Taxes**

 

TheCompany’s effective income tax (benefit) expense rate decreased to (38.5)% forthe three months ended March 31, 2005, from 40% for the three months endedMarch 31, 2004. The primary reason for the decline in the effective taxrate was the consolidation of certain international legal entities.  Prior to operational restructuring and legalentity integration, these international legal entities generated losses thatcould not be benefited.  As a result ofthe integration, the amount of losses generated that can not be benefited hasbeen reduced.

 

**12.  Enterprise-WideData**

 

Information about Major Customers:

 

Forthe three month periods ended March 31, 2005 and 2004, the Company derivedapproximately 25% and 27% of its revenues from its largest customer,respectively.

 

Information about Products and Services:

 

Due to the growth in the Company’s strategic product and serviceofferings, largely built through recent acquisitions, the Company has expandedits revenue categories into sales support, marketing support and shipping.These categories are reflective of how service offerings are marketed to and viewedby customers. They are not reflective of the way the business is managed.Company operating costs are not broken out for these categories on a globalbasis, as they are not viewed as necessary to the management of the businessglobally. Based upon all of these factors, while these categories are useful inunderstanding the Company’s operating results, the Company has only onereportable segment for disclosure purposes under SFAS 131, “Disclosure AboutSegments of an Enterprise and Related Information.” The following is a summaryof our revenue categories:

 

*Sales solutions*revenue includes product and sales support services which are used by, orprovided to, the sales forces of our customers.

 

12

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**DENDRITE INTERNATIONAL, INC.**

**NOTES TOUNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

**($ IN THOUSANDS, EXCEPT PER SHARE DATA)**

 

*Marketing solutions*revenue includes our product and service offerings that are not directly gearedtoward the client sales force and primarily consists of offerings acquired inour business combinations over the past few years. The primary components ofmarketing solutions revenue include interactive marketing, data, consulting,clinical, and field inventory and reconciliation services.

 

*Shipping* revenuesare disclosed separately as they are pass-through costs that bear little to nomargin, and are required to be included in revenues and costs based uponEmerging Issues Task Force (“EITF”) 00-10, “Accounting for Shipping andHandling Fees and Costs.” These billable shipping transactions are primarilyrelated to our interactive marketing activities.

 

The following table presents revenues by category for the three monthperiods ended March 31, 2005 and 2004.

 

| ** **                      | ** ** | **March 31,** | ** ** |
|---------------------------------|------------|--------------------|------------|
| ** **                      | ** ** | **2005**           | ** ** | **2004** | ** ** |
| Services & Technology: |       |               |       |   |   |
| Sales solutions                 |       | $                  | 70,177     |   | $ | 70,411 |   |
| Marketing solutions             |       | 24,611             |       | 20,801 |   |
| Shipping                        |       | 4,659              |       | 3,852 |   |
|                            |       | $                  | 99,447     |   | $ | 95,064 |   |

 

Informationabout Geographic Areas:

 

TheCompany is organized by geographic location and has one reportable segment. Alltransfers between geographic areas have been eliminated from consolidatedrevenues. The following table presents revenues by geographic area for thethree months ended March 31, 2005 and 2004.

 

| ** **    | ** ** | **March 31,** | ** ** |
|---------------|------------|--------------------|------------|
| ** **    | ** ** | **2005**           | ** ** | **2004** | ** ** |
| United States |       | $                  | 59,447     |   | $ | 62,466 |   |
| Europe        |       | 27,942             |       | 20,595 |   |
| All other     |       | 12,058             |       | 12,003 |   |
|          |       | $                  | 99,447     |   | $ | 95,064 |   |

 

Thetable above allocates license revenues on a legal basis. On a legal basis,license revenues have been allocated using the geographic location where theintellectual property is owned.

 

The following table presents long-lived assets by geographic area:

 

| ** **    | ** ** | **As of  March 31,  2005** | ** ** | **As of  December 31,  2004** | ** ** |
|---------------|------------|---------------------------------|------------|------------------------------------|------------|
| United States |       | $                               | 153,335    |                               | $          | 144,233 |   |
| Europe        |       | 10,369                          |       | 9,614                              |       |
| All other     |       | 10,571                          |       | 10,423                             |       |
|          |       | $                               | 174,275    |                               | $          | 164,270 |   |

 

13

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

**($ IN THOUSANDS)**

 

ThisForm 10-Q contains certain forward-looking statements within the meaningof Section 27A of the Securities Act of 1933 and Section 21-E of theSecurities Exchange Act of 1934, which are intended to be covered by the safeharbors created by such acts. For this purpose, any statements that are notstatements of historical fact may be deemed to be forward-looking statements,including the statements under “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” regarding our strategy, futureoperations, future expectations and future estimates, future financial positionor results and future plans and objectives of management. Those statements inthis Form 10-Q containing the words “believes,” “anticipates,” “plans,” “expects”and similar expressions constitute forward-looking statements, although not allforward-looking statements contain such identifying words. Theseforward-looking statements are based on our current expectations, assumptions,estimates and projections about our Company and the pharmaceutical and consumerpackaged goods industries. All such forward-looking statements involvesignificant risks and uncertainties, including those risks identified in this Form 10-Qunder “Factors That May Affect Future Results,” many of which are beyondour control. Although we believe that the assumptions underlying ourforward-looking statements are reasonable, any of the assumptions could beinaccurate. Actual results may differ materially from those indicated by theforward-looking statements included in this Form 10-Q, as more fullydescribed under “Factors That May Affect Future Results.” In light of thesignificant uncertainties inherent in the forward-looking statements includedin this Form 10-Q, you should not consider the inclusion of suchinformation as a representation by us or anyone else that we will achieve suchresults. Moreover, we assume no obligation to update these forward-lookingstatements to reflect actual results or changes in assumptions, expectations orprojections. In addition, our financial and performance outlook concerningfuture revenues, margins, earnings, earnings per share and other operating orperformance results does not include the impact of any future acquisitions,future acquisition-related expenses or accruals, or any future restructuring orother charges that may occur from time-to-time due to management decisions andchanging business circumstances and conditions.

 

**EXECUTIVE OVERVIEW**

 

We provide a broad array of solutions worldwide thatenable pharmaceutical and other life science companies to strategically optimizetheir sales and marketing channels and clinical resources. Our plan is tocontinue to diversify and expand our solutions portfolio, customer base andgeographic reach by leveraging our extensive knowledge of the pharmaceuticaland life sciences industries and capitalizing upon our deep relationships inthese industries. Our strategy continues to rely on both internal growth andacquisitions to meet to our growth objectives.

 

We have expanded both our portfolio of solutions andcustomer base and believe that this combination presents significantopportunity for future growth.  In January 2005,we broadened and enhanced our service portfolio with our acquisition ofBuzzeoPMDA, Inc. (“Buzzeo”). The Buzzeo acquisition expands our sample andcompliance management solution offerings. We believe our recent acquisitionscomplement our existing business operations by enhancing our solutionsportfolio, increasing our access to new customers and allowing deeperpenetration into our current markets.  Wehave also committed to investing in key initiatives to help drive futuregrowth. Our future growth is dependent on our ability to further penetrate themarkets in which we operate and increase the adoption rate of our expandedportfolio of solutions.

 

Weevaluate our performance based upon a number of operating metrics. Chief amongthese metrics are revenues, operating margins, diluted net income per share,operating cash flow and days sales outstanding. Our goal in 2005 is to executeour strategy to yield growth in revenues, operating margins and diluted netincome per share. We hope to continue to improve days sales outstanding andgenerate strong positive operating cash flow even as we continue to reduce theremaining liabilities associated with our acquisitions.  As a result of international growth throughour recent acquisitions, certain lines of our business are now subject to ahigher level of seasonal fluctuations than we have experienced in thepast.  Specifically, our Europeanbusiness and interactive marketing business in the United States haveexperienced a seasonal slowdown during the summer months.

 

Due to the growth in our strategic product andservice offerings, largely built through our recent acquisitions, we expandedour revenue categories into sales solutions, marketing solutions and shipping.These categories reflect how our service offerings are marketed to and viewedby our customers. They are not reflective of the way we manage our business.Our operating costs are not broken out for these categories on a global basis,as they are not viewed as necessary in the management of our global business.Based upon all of these factors, while these categories are useful inunderstanding our operating results, we have only one reporting segment fordisclosure purposes under Statement of Financial Accounting Standards (“SFAS”)131, “Disclosure About Segments of an Enterprise and Related Information.” Thefollowing is a summary of our revenue categories:

 

*Sales solutions*revenue includes product and sales support services which are used by, orprovided to, the sales force of our customers.

 

14

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

**($ IN THOUSANDS)**

 

*Marketing solutions*revenue includes our product and service offerings that are not directly gearedtoward the client sales force and primarily consists of offerings acquired inour business combinations over the past few years. The primary components ofmarketing solutions revenue include interactive marketing, data, consulting,clinical, and field inventory and reconciliation services.

 

*Shipping*revenues are disclosed separately as they are pass-through costs that bearlittle to no margin, and are required to be included in revenues and costsbased upon Emerging Issues Task Force (“EITF”) 00-10, “Accounting for Shippingand Handling Fees and Costs.” These billable shipping transactions areprimarily related to our interactive marketing activities.

 

**CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES**

 

Therehave been no material changes to our critical accounting policies, judgmentsand estimates from the information provided in Item 7, Management’s Discussionand Analysis of Financial Condition and Results of Operations included in ourAnnual Report on Form 10-K for the year ended December 31, 2004.

 

**MERGERS AND ACQUISITIONS**

 

Weregularly evaluate opportunities to acquire products or businesses thatrepresent strategic enhancements to our operations. Such acquisitionopportunities, if they arise, may involve the use of cash, equity or debtinstruments.

 

**Buzzeo**

 

On January 4, 2005, we completed the strategic acquisitionof Buzzeo. Based in Richmond, Virginia, Buzzeo provides compliance, auditing,consulting and reconciliation outsourcing services to the pharmaceutical andlife sciences industry. This acquisition further expands our sample andcompliance management solution offerings. In connection with the acquisition, werestructured the combined operations by eliminating certain former Buzzeopositions. We accrued $200 at January 4, 2005, for liabilities associatedwith the cost of completing the restructuring plan. Buzzeo’s results ofoperations have been included in the accompanying consolidated financialstatements since the date of acquisition.

 

The aggregate purchase price for Buzzeo wasapproximately $10,283, including $33 of legal and professional fees. As of March 31,2005, approximately $1,800 of the purchase price was held in escrow.  In accordance with the purchase agreement,the $1,800 held in escrow, less amounts claimed against escrow, if any, ispayable as follows: $775 within five business days of the filing this Form 10-Q;and $1,025 on January 4, 2006. We are in the process of finalizing thevaluation of certain intangible assets, including the review of a third-partyvaluation. Therefore, the allocation of purchase price is preliminary andsubject to adjustment. The assets acquired and liabilities assumed inconnection with the Buzzeo acquisition, and pro forma results of operations arenot deemed material to the consolidated financial statements.

 

The preliminary allocation of purchase price,including the net assets acquired of approximately $3,100, to intangible assetsand goodwill acquired in connection with the Buzzeo acquisition are as follows:customer relationship asset of $4,390, amortizable over 10 years; trademark of$290, amortizable over 7 years; other intangibles of $70, fully amortizedduring the three months ended March 31, 2005; and goodwill of $2,402.

 

**Schwarzeck**

 

On July 20, 2004, we completed the strategicacquisition of the capital stock of Schwarzeck-Verlag GmbH (“Schwarzeck”).Schwarzeck was a provider of physician databases, direct marketing services andsample fulfillment services to pharmaceutical companies in Germany. Thisacquisition accelerated our expansion in Europe and increases our interactivemarketing solutions and services to the German pharmaceutical industry. Inconnection with the acquisition, we restructured the combined operations byeliminating certain former Schwarzeck positions. We accrued approximately $300at July 20, 2004 for liabilities associated with the cost of completingthe restructuring plan. Schwarzeck’s results of operations have been includedin the accompanying consolidated financial statements since the date ofacquisition. We have preliminarily allocated the entire purchase price ofapproximately $800 to purchased database. The assets acquired and liabilitiesassumed in connection with the Schwarzeck acquisition, and pro forma results ofoperations are not deemed material to the consolidated financial statements.

 

**MDM**

 

On April 6, 2004, we completed the strategicacquisition of the capital stock of the MDM. Primarily based in Warsaw, Poland,MDM was a provider of physician databases, market research and sales forcesupport services to pharmaceutical companies in Poland, Hungary, Russia andUkraine. MDM’s results of operations have been included in the accompanyingconsolidated financial statements since the date of acquisition.

 

15

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

**($ IN THOUSANDS)**

 

The aggregate purchase price for MDM wasapproximately $9,290 and consisted of approximately $5,700 in cash payments,approximately $3,320 in restricted stock and approximately $270 of legal andprofessional fees. The valuation of certain intangible assets was finalizedduring the fourth quarter of 2004. The assets acquired and liabilities assumedin connection with the MDM acquisition and pro forma results of operations arenot deemed material to the consolidated financial statements.

 

**Uto Brain**

 

On January 5, 2004, we completed the strategicacquisition of the capital stock of Uto Brain. Based in Osaka, Japan, Uto Brainprovided more than thirty pharmaceutical companies with data, analytics,publishing and advisory services. The combining of resources of Uto Brain withour existing resources creates a comprehensive information, software andservices company dedicated to the Japanese pharmaceutical industry and furtherenhances our ability to provide solutions to enhance the sales, marketing andclinical functions of pharmaceutical companies in the Japanese market. UtoBrain’s results of operations have been included in the accompanyingconsolidated financial statements since the date of acquisition.

 

The aggregate purchase price for Uto Brain wasapproximately $4,900 (498,270 Yen), including approximately $100 of legal andprofessional fees. As of March 31, 2005, we paid approximately $3,900 ofthe purchase price with approximately $900 still outstanding and includedwithin Other Accrued Expenses on the March 31, 2005 consolidated balancesheet. In addition, we assumed approximately $3,800 in bank debt and anacquired loan, all of which was repaid during the year ended December 31,2004. The assets acquired and liabilities assumed in connection with the UtoBrain acquisition and pro forma results of operations are not deemed materialto the consolidated financial statements.

 

**RESULTS OF OPERATIONS**

 

**THREE MONTHS ENDED MARCH 31, 2005 AND 2004**

 

**REVENUES**

 
| ** **                      | ** ** | **THREE MONTHS ENDED  MARCH 31,** | ** ** | **$ Increase  / (Decrease)** | ** ** | **% Increase  / (Decrease)** | ** ** | **2005 % of  Total  Revenue** | ** ** | **2004 % of  Total  Revenue** | ** ** |
|---------------------------------|------------|----------------------------------------|------------|-----------------------------------|------------|------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| ** **                      | ** ** | ** **                             | ** ** | ** **                        | ** ** | ** **                   |
| ** **                      | ** ** | **2005**                               | ** ** | **2004**                          | ** ** | ** **                   | ** ** | ** **                    | ** ** |
|                            |       |                                   |       |                              |       |                         |       |                          |       |                          |       |   |   |
| Services & Technology: |       |                                   |       |                              |       |                         |       |                          |       |                          |       |   |   |
| Sales solutions                 |       | $                                      | 70,177     |                              | $          | 70,411                       |       | $                             | (234       | )                             | 0          | % | 71 | % | 74 | % |
| Marketing solutions             |       | 24,611                                 |       | 20,801                            |       | 3,810                        |       | 18                            | %          | 25                            | %          | 22 | % |
| Shipping                        |       | 4,659                                  |       | 3,852                             |       | 807                          |       | 21                            | %          | 5                             | %          | 4 | % |
| Total Revenues                  |       | $                                      | 99,447     |                              | $          | 95,064                       |       | $                             | 4,383      |                          | 5          | % | 100 | % | 100 | % |

 

Totalrevenues increased by 5% for the three months ended March 31, 2005compared with the three months ended March 31, 2004.   Our international revenues were $40,985, orapproximately 41% of total revenues in the quarter, and increased by 17% over2004, due to a combination of factors including our recent acquisitions and afavorable foreign currency impact of approximately 2%.  Total revenues in the United States decreasedby 3% from the three months ended March 31, 2004, and were $58,461, orapproximately 59% of total revenues. This decrease in the United States was primarily due to a decrease inrevenues associated with new system roll-outs by our customers and delayeddecision making by clients that are engaged in complex merger, restructuring orcost containment initiatives.

 

Asa result of our recent acquisitions, our business is now subject to a higherlevel of seasonal fluctuation than we have experienced in the past.  Specifically, our European business and our interactivemarketing business in the United States have experienced a seasonal slowdownduring the summer months.

 

***Sales Solutions***

 

Salessolutions revenue accounted for approximately 71% of total revenues during thethree months ended March 31, 2005, and were relatively flat compared withthe three months ended March 31, 2004. Sales solutions revenues in the United States decreased by 2%, primarilyin the areas of implementation revenues and other fees associated with clientsystem roll-outs.  We were alsounfavorably impacted by delayed decision making relating to several of ourclients that are engaged in complex merger, restructuring or cost containmentinitiatives.  The decrease in the UnitedStates sales solutions service revenues was offset by the addition of inventoryand reconciliation services revenues from our recent acquisition of Buzzeo, a significantincrease in domestic license revenue and an increase in international salessolutions service revenues of 10% versus the three months ended March 31,2004.  The increase in sales solutionslicense revenue was primarily related to sales of new user licenses, upgradesfrom our existing

 

16

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

**($ IN THOUSANDS)**

 

customersin the United States and favorable exchange rates, offset by a decrease inlicense fees of our international business versus the three months ended March 31,2004.

 

***Marketing Solutions***

 

Marketingsolution revenues accounted for approximately 25% of total revenues during thethree months ended March 31, 2005, and increased by approximately 18%compared with the three months ended March 31, 2004.  This increase was due to our internationalmarketing solutions business, which increased by 45% over the prior year,primarily from 67% growth in our international interactive marketing services.  This growth in international interactivemarketing revenues resulted from approximately equal contributions of organicgrowth and the additional revenues from our 2004 acquisitions.  In the United States, marketing solutionrevenues decreased by approximately 5% compared with the three months ended March 31,2004, due to decreases in interactive marketing, data and consulting. Thesedecreases were partially offset by 26% growth in our domestic clinical servicesand the addition of consulting services from our acquisition of Buzzeo.

 

***Shipping***

 

Shippingrevenues accounted for approximately 5% of total revenues during the threemonths ended March 31, 2005, and increased by approximately 21% comparedwith the three months ended March 31, 2004.  Shipping revenues contribute little to nomargin, and increased primarily as a result of higher pass-through shippingcosts related to the growth in our international interactive marketingbusiness.

 

**OPERATING COSTS &EXPENSES**

 
| ** **                                 | ** ** | **THREE MONTHS ENDED  MARCH 31,** | ** ** | **$ Increase  / (Decrease)** | ** ** | **% Increase  / (Decrease)** | ** ** | **2005 % of  Total  Revenue** | ** ** | **2004 % of  Total  Revenue** | ** ** |
|--------------------------------------------|------------|----------------------------------------|------------|-----------------------------------|------------|------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| ** **                                 | ** ** | ** **                             | ** ** | ** **                        | ** ** | ** **                   |
| ** **                                 | ** ** | **2005**                               | ** ** | **2004**                          | ** ** | ** **                   | ** ** | ** **                    | ** ** |
| Operating Costs & Expenses:       |       |                                   |       |                              |       |                         |       |                          |       |                          |       |   |   |
| Operating costs (including shipping)       |       | $                                      | 53,651     |                              | $          | 49,807                       |       | $                             | 3,844      |                          | 8          | % | 54 | % | 52 | % |
| Selling, general and administrative        |       | 35,788                                 |       | 32,157                            |       | 3,631                        |       | 11                            | %          | 36                            | %          | 34 | % |
| Research and development                   |       | 1,818                                  |       | 3,022                             |       | (1,204                       | )          | -40                           | %          | 2                             | %          | 3 | % |
| Facility and other charges                 |       | 9,372                                  |       | —                            |       | 9,372                        |       | NM                            |       | 9                             | %          | 0 | % |
| Amortization of acquired intangible assets |       | 1,250                                  |       | 1,027                             |       | 223                          |       | 22                            | %          | 1                             | %          | 1 | % |
| Other operating (income)                   |       | —                                 |       | (339                              | )          | 339                          |       | NM                            |       | 0                             | %          | 0 | % |
| Total operating costs & expenses  |       | $                                      | 101,879    |                              | $          | 85,674                       |       | $                             | 16,205     |                          | 19         | % | 102 | % | 90 | % |

 

***OPERATING COSTS (including shipping).***Operating costs increased8% for the three months ended March 31, 2005 compared with the three monthsended March 31, 2004.  This increasewas due to higher costs from our three acquisitions completed subsequent to March 31,2004, higher pass-through postage costs and the impact of foreign currencymovements.  These increases werepartially offset by a decrease in the variable costs associated with our interactivemarketing, training and implementation service revenues, which declined, aswell as savings related to our offshore initiative. We anticipate realizingadditional savings in future periods as we continue to build our offshorepresence.

 

***SELLING, GENERAL AND ADMINISTRATIVE(SG&A).***SG&Aexpenses increased 11% for the three months ended March 31, 2005 comparedwith the three month ended March 31, 2004. SG&A costs increased due tohigher costs related to the three acquisitions completed subsequent to March 31,2004, and increased expenses as a result of our efforts to comply withSarbanes-Oxley section 404 review, testing and attestation requirements.  As a percentage of revenues, SG&A increasedto 36% for the three months ended March 31, 2005, up from 34% comparedwith the three months ended March 31, 2004.  We have and will continue to invest in salesand marketing initiatives in order to drive our top-line growth whilecontinuing to focus on cost containment measures.

 

***RESEARCH AND DEVELOPMENT (R&D).***R&D expenses decreased 40% for the threemonths ended March 31, 2005 compared with the three months ended March 31,2004.  As a percentage of revenues,R&D expenses decreased to 2% for the three months ended March 31, 2005,from 3% for the three months ended March 31, 2004. This decrease was dueto the expansion of revenue in marketing solutions areas which are notdependent on R&D spending, as well as a substantially higher softwarecapitalization rate.  We capitalized morecosts in the three months ended March 31, 2005 due to the development forthe expected mid-2005 release of our next generation CRM solution which was notcapitalized during the three months ended March 31, 2004.  R&D expenses plus additions tocapitalized software development costs, decreased 15% from $3,792 for the threemonths ended March 31, 2004, to $3,225 for the three months ended March 31,2005, due to savings related to our off-shore initiative. We expect ourcapitalization rates for the second half of 2005 to decline, which is more inline with our historical capitalization rates.

 

17

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

**($ IN THOUSANDS)**

 

***FACILITY AND OTHER CHARGES.***During the three months ended March 31,2005, we recorded approximately $7,600 of facility related charges and aseverance charge of approximately $1,700. The facility charges consist ofapproximately $6,600 related to vacating a New Jersey facility and foradditional facilities vacated in previous periods due to changes in current marketconditions, as well as approximately $1,000 related to the write-off ofleasehold improvements associated with the exit of our New Jerseyfacility.  The $1,700 severance chargerelates to the elimination of certain senior and mid-level management positionsduring the three months ended March 31, 2005.

 

***AMORTIZATION OF ACQUIRED INTANGIBLE ASSETS.***Amortization of acquired intangible assetsincreased 22% over the comparable three months ended March 31, 2004. Theincrease reflects the current period’s amortization of intangible assetsacquired in connection with our acquisitions of MDM, Schwarzeck and Buzzeo,offset by certain intangible assets related to the SAI acquisition fullyamortized during the three months ended December 31, 2004.

 

***OTHER OPERATING (INCOME).***We received proceeds of $339 related to an insurance claim in the threemonth period ended March 31, 2004.

 

***PROVISION FOR INCOME TAXES. ***Our effective income tax (benefit) expense rate decreased to (38.5)%for the three months ended March 31, 2005, from 40% for the three monthsended March 31, 2004. The primary reason for the decline in the effectivetax rate was the consolidation of certain international legal entities.  Prior to operational restructuring and legalentity integration, these international legal entities generated losses thatcould not be benefited.  As a result ofthe integration, the amount of losses generated that can not be benefited hasbeen reduced. We expect our annualized effective tax rate for the year ending December 31,2005 to be approximately 38.5%.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

Asof March 31, 2005, working capital was $58,371 compared to $66,662 as of December 31,2004. Cash and cash equivalents were $53,279 as of March 31, 2005,compared to $64,020 as of December 31, 2004. These decreases wereprimarily attributable to the payments made in connection with our 2005 and2004 acquisitions.

 

Wefinance our business primarily through cash generated by operations. Net cashprovided by operating activities was $7,297 and $15,521 for the three monthperiods ended March 31, 2005 and 2004, respectively. During the threemonths ended March 31, 2005, we generated operating cash from our net lossadjusted for changes in assets and liabilities, net of effects fromacquisitions. While our accrued facility and other charges resulted in usrecording a net loss for the three months ended March 31, 2005, it had aminimal effect on our operating cash flows. Future payments of these accrualswill have a negative impact on future operating cash flows.  Impacting our operating cash flow were paymentsof income taxes, purchase accounting restructuring charges, and accountspayable and accrued expenses. During the three months ended March 31,2005, we had several large receivable collections delayed until early in thesecond quarter resulting in our accounts receivable days sales outstandingincreasing to 66 days for the three months ended March 31, 2005, from 62days for the three months ended December 31, 2004.

 

Duringthe three months ended March 31, 2004, we generated operating cash fromnet income adjusted for changes in assets and liabilities, net of effects fromacquisitions.  This increase in operatingcash flow was partially offset by $2,615 of payments related to accruedpurchase accounting restructuring charges incurred in connection the Synavantacquisition as well as increased payments of accounts payable and accruedexpenses. Our accounts receivable days sales outstanding decreased to 59 daysfor the three months ended March 31, 2004, from 68 days for the threemonths ended December 31, 2003 partially due to the receipt ofapproximately $3,300 of a long term contracted receivable.

 

Cashused in investing activities was $19,212 for the three months ended March 31,2005, and includes payments for the Buzzeo and Uto Brain acquisitions as wellas additions to capitalized software development costs and purchases ofproperty and equipment. Additions of property and equipment primarily relatedto our new hardware facility in New Jersey, as well as investing in ourhelpdesk automation process and interactive marketing machinery.  Cash used in investing activities was $5,290for the three months ended March 31, 2004, and was primarily attributableto purchases of property and equipment as well as payments made related to the UtoBrain acquisition.

 

Asanticipated, purchases of property and equipment increased for the three monthsended March 31, 2005 versus the comparable prior year period. During 2005,we expect capital spending in the range of approximately $22,000 to $26,000primarily to support our infrastructure expansion as well as for the consolidationof our New Jersey based, U.S. hardware facility. We review our capitalexpenditure program periodically and adjust it as required to meet currentneeds.

 

Cashprovided by financing activities was $1,103 for the three months ended March 31,2005, compared to $365 for the three months ended March 31, 2004. Thedecrease of $738 was primarily attributable to the repayments of long-term debtand loans

 

18

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

**($ IN THOUSANDS)**

 

acquiredin connection with the Uto Brain acquisition during the three months ended March 31,2004, as well as a decrease in proceeds from stock option exercises in the threemonths ended March 31, 2005.

 

We regularly evaluate opportunities to acquireproducts or businesses complementary to our operations. Such acquisitionopportunities, if they arise, may involve the use of cash, equity or debtinstruments. We believe that available funds, anticipated cash flows fromoperations and the availability of our revolving line of credit will satisfyour current projected working capital and capital expenditure requirements,exclusive of cash required for possible future acquisitions of businesses,products and technologies, during the next twelve to eighteen months. There canbe no assurance, however, that our business will continue to generate cash flowat current levels or that anticipated operational improvements will beachieved. Our ability to generate future cash flows depends on our futureperformance and financial results, which, to a certain extent, are subject togeneral conditions in or affecting the pharmaceutical and life sciencesindustry and to general economic, political, financial, competitive and regulatoryfactors beyond our control.

 

**Contractual Obligations and Commitments**

 

We entered into a line-of-credit agreement (the “Agreement”)as of June 16, 2003, in the amount of $30,000 with JPMorgan Chase Bankthat expires on July 1, 2005. The Agreement is available to financeworking capital needs and possible future acquisitions. Among other covenants,the Agreement requires us to maintain a minimum consolidated net worth,measured quarterly, which is equal to $130,000, plus 50% of net income earnedafter April 1, 2003, and 75% of the net proceeds of any offering of newequity interests issued subsequent to June 30, 2003. As of March 31,2005, our consolidated net worth was $227,916. The Agreement contains certainrestrictions on our ability to create or assume liens, dispose of assets,consolidate or merge, extend credit, incur other indebtedness or pay cashdividends. On September 24, 2004, we entered into an amendment to theAgreement that relaxed certain covenants relating to acquisitions, dispositionsof our assets, indebtedness of our foreign subsidiaries, real estate andcapital expenditures in connection with our move to our new corporateheadquarters facility. As of March 31, 2005, we were in compliance withall covenants and did not have any amounts outstanding under theline-of-credit. We currently intend to renew or replace the Agreementconcurrent with its expiration.

 

Our principal commitments at March 31, 2005consisted primarily of obligations under operating and capital leases as wellas future minimum guarantees to certain vendors. Future minimum payments onthese obligations are as follows:

 
| ** **                   | ** ** | **Payments Due by Period** | ** ** |
|------------------------------|------------|----------------------------|------------|
| **Contractual  Obligations** | ** ** | **Total**                  | ** ** | **April 1, 2005  Through  December 31, 2005** | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **Thereafter** | ** ** |
| Capital leases               |       | $                          | 4,591      |   | $ | 1,390 |   | $ | 1,669 |   | $ | 1,509 |   | $ | 23 |   | $ | — |   | $ | — |   |
| Corporate headquarters       |       | 2,194                      |       | 2,194 |   | — |   | — |   | — |   | — |   | — |   |
| Minimum guarantees           |       | 2,995                      |       | 2,922 |   | 73 |   | — |   | — |   | — |   | — |   |
| Uto Brain purchase price     |       | 911                        |       | 911 |   | — |   | — |   | — |   | — |   | — |   |
| Operating leases (1)         |       | 108,985                    |       | 14,949 |   | 17,598 |   | 15,104 |   | 11,991 |   | 11,275 |   | 38,068 |   |
| Total                        |       | $                          | 119,676    |   | $ | 22,366 |   | $ | 19,340 |   | $ | 16,613 |   | $ | 12,014 |   | $ | 11,275 |   | $ | 38,068 |   |

 

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(1)                                  Operating lease amounts disclosed aboveinclude $20,011 of future operating lease costs, excluding estimated futuresublease income, accrued for in accrued facility charges and in the purchaseaccounting restructuring accruals related to the Synavant and SAI acquisitions.

 

As of March 31, 2005, letters of credit forapproximately $5,721 were outstanding related to deposits on certainfacilities.

 

Wehave an agreement with a venture capital fund with a commitment to contribute$1,000 to the fund, callable at the discretion of the general partner in $100increments. As of March 31, 2005, $500 has been paid, with $500 of thecommitment remaining. The agreement has a termination date of December 11,2010, subject to extension with the consent of a majority in interest of thelimited partners. This asset is recorded within Other Assets in theaccompanying consolidated balance sheet.

 

### **FACTORS THAT MAY AFFECT FUTURERESULTS**

###  

Setforth in this Form 10-Q are certain risks and uncertainties that couldcause our actual results to differ materially from the forward-lookingstatements contained in this Form 10-Q. You are strongly urged tocarefully consider the cautionary language and risks set forth below.

 

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

**($ IN THOUSANDS)**

 

**WE DEPEND ON A FEW MAJOR CUSTOMERSFOR A SIGNIFICANT PORTION OF OUR REVENUES**

 

Historically, a limited number of our customers havecontributed a significant percentage of our revenues. We anticipate that ouroperating results in any given period will continue to depend significantlyupon revenues from a small number of customers. The loss of any of thesecustomers (which could include loss through mergers and acquisitions) couldhave a materially adverse effect on our business, operating results or financialcondition. We cannot make any assurances that we will retain our existingcustomers or attract new customers that would replace the revenue that could belost if one or more of these customers failed to renew itsagreement(s) with us.

 

**OUR BUSINESS IS HEAVILY DEPENDENT ON THE PHARMACEUTICAL INDUSTRY**

 

Mostof our solutions are currently used in connection with the marketing and saleof prescription-only drugs. This market is undergoing a number of significantchanges. These changes include:

 

•                  the significant andcontinuing consolidation of the pharmaceutical industry which may reduce thenumber of our existing and potential customers;

 

•                  regulatory changes thatpermit the over-the-counter sale of formerly prescription-only drugs;

 

•                  U.S. and internationalgovernmental regulations mandating price controls;

 

•                  increasing Food and DrugAdministration activism; and

 

•                  competitive pressure onthe pharmaceutical industry resulting from the continuing shift to delivery ofhealthcare and pharmaceuticals through managed care organizations.

 

We cannot assure you that we can respond effectivelyto any or all of these and other changes in the marketplace. Our failure to doso could have a material adverse effect on our business, operating results orfinancial condition, as our business depends, in large part, on the businessconditions within this marketplace.

 

**OUR CUSTOMERS MAY NOT SUCCESSFULLY IMPLEMENT OUR PRODUCTS**

 

Our customers often implement our products in stagesand our products are often utilized by a large number of our customers’personnel. In the event that our customers have difficulties implementing ourproducts and services or are not satisfied with the implementation or operationour products and services, our business, operating results and financialcondition could be materially and adversely affected.

 

**WE FACE RISKS ASSOCIATED WITH OUR ACQUISITIONS**

 

Our business may be materially and adverselyaffected as a result of the significant risks associated with our acquisitions,including our recent acquisitions of Synavant, Uto Brain, the MDM group ofcompanies, Schwarzeck and Buzzeo. As part of our business strategy, we haveacquired, and in the future may acquire, businesses that offer complementaryproducts, services or technologies. These acquisitions are accompanied bysubstantial risks, including:

 

•                  unexpected problems,liabilities, risks or costs associated with the acquired business;

 

•                  the effect of theacquisitions on our financial and strategic position;

 

•                  our inability tosuccessfully integrate the acquired business;

 

•                  the failure of an acquiredbusiness to further our strategies;

 

•                  our inability to achieveexpected cost and business synergies;

 

•                  the significant strain onour operating systems;

 

•                  the diversion of ourmanagement’s attention from other business concerns;

 

20

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

**($ IN THOUSANDS)**

 

•                  the impairment or loss ofrelationships with customers of the acquired business;

 

•                  the negative impact of thecombination of different corporate cultures;

 

•                  the loss of key employeesof the acquired company;

 

•                  undetected problems withinthe acquired organization; and

 

•                  the integration andmaintenance of uniform, company-wide standards, procedures and policies.

 

Any of these factors could have a material adverseeffect on our revenues and earnings. We expect that the consideration paid forfuture acquisitions, if any, could be in the form of cash, equity, debt or acombination of these. To the extent that we issue shares of stock or otherrights to purchase stock in connection with any future acquisition, existingshareholders will experience dilution and potentially decreased earnings pershare.

 

While to date we have had success integratingacquired entities into our operations, we cannot guarantee that we willsuccessfully integrate these new businesses into our operations or achieve anyexpected cost synergies.

 

We may in the future acquire additional complementarycompanies, products or technologies. If we do so, we may face the same risks,uncertainties and disruptions discussed above. In addition, our profitabilitymay suffer because of acquisition-related costs or amortization costs ofacquired intangible assets.

 

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

 

Business and economic pressures on our majorcustomers may result in budget constraints that directly impact their abilityto purchase our new products and services offerings. We cannot assure you thatany decrease in demand caused by these pressures will not have a materialadverse effect on our business, operating results or financial condition.

 

**OUR LENGTHY SALES AND IMPLEMENTATION CYCLES MAKE IT DIFFICULT TOPREDICT OUR QUARTERLY REVENUES**

 

The selection of a CRM or SFA solution generallyentails an extended decision-making process by our customers because of thestrategic implications, substantial costs and significant commitment ofresources associated with a customer’s license or implementation of thesolution. Given the importance of the decision, senior levels of management ofour customers are often involved in the process and, in some instances, theirboard of directors may also be involved. As a result, the decision-makingprocess typically takes nine to eighteen months, and in certain cases longer.In addition, other factors, unrelated to our product and services, such asacquisitions, product delays, or other issues, may also significantly impactthe timing and amounts of buying decisions. Accordingly, we cannot fullycontrol or predict the timing of our execution of contracts with customers.Prior sales and implementation cycles cannot be relied upon as any indication offuture cycles.

 

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

 

**OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE**

 

Our total revenue and operating results may varysignificantly from quarter-to-quarter. The main factors that could cause thesefluctuations are:

 

•                  the discretionary natureof our customers’ purchase and budget cycles;

 

•                  potential delays inrecognizing revenue from license and other transactions;

 

•                  seasonal variations inoperating results, including the increased seasonality associated with ourinternational growth; and

 

•                  variations in the fiscalor quarterly cycles of our customers.

 

21

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

**($ IN THOUSANDS)**

 

In addition, we establish our expenditure levels forproduct development, sales and marketing and some of our other operatingexpenses based in large part on our expected future revenues and anticipatedcompetitive conditions. In particular, we frequently add staff in advance ofnew business to permit adequate time for training. If the new business issubsequently delayed, canceled or not awarded, we will have incurred expenseswithout the associated revenues. We also may increase sales and marketingexpenses if competitive pressures become greater than originally anticipated.Since only a small portion of our expenses varies directly with our actualrevenues, our operating results and profitability are likely to be adverselyand disproportionately affected if our revenues fall below our targeted goalsor expectations.

 

As a result of these and other factors, revenues forany quarter may be subject to fluctuation. You should not rely on ourperiod-to-period comparisons of our results of operations as indications offuture performance. Our future quarterly results may from time to time not meetthe expectations of market analysts or investors, which could have a materiallyadverse effect on the price of our common stock.

 

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

 

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

 

•                  use available technologiesand data sources to develop new products and services and to enhance ourcurrent products and services;

 

•                  introduce new solutionsthat keep pace with developments in our target markets; and

 

•                  address the changing andincreasingly sophisticated needs of our customers.

 

We cannot assure you that we will successfullydevelop and market new products or product enhancements that respond totechnological advances in the marketplace, or that we will do so in a timelyfashion. We also cannot assure you that our products will adequately andcompetitively address the needs of the changing marketplace.

 

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

 

To remain competitive, we also may have to spendmore of our resources on product research and development than we have in thepast. As a result, our results of operations could be materially and adverselyaffected.

 

**SOFTWARE ERRORS OR DEFECTS COULD AFFECT OUR REVENUES**

 

Our software products are technologically complexand may contain previously undetected errors or failures or errors whenproducts are first introduced or when updated versions are released. We cannotassure you that, despite our testing, our new products will be free fromsignificant errors. Software errors could cause delays in the commercialrelease of products until the errors have been corrected. Software errors maycause us to be in breach of our agreements with customers, which could resultin termination of the agreements and monetary damages. Software errors maycause damage to our reputation and cause us to commit significant resources totheir correction. Errors that result in termination of agreements, monetarydamages, 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 DECREASEDDEMAND FOR OUR PRODUCTS AND SERVICES SOLUTIONS**

 

There are a number of other companies that sell CRMand SFA products and related services that specifically target thepharmaceutical industry, including competitors that are actively selling CRMand SFA software products in more than one country and competitors that alsooffer CRM and SFA support services. Some of our competitors and potentialcompetitors are part of large corporate groups and have significantly greaterfinancial, sales, marketing, technology and other resources than we have.

 

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

 

22

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

**($ IN THOUSANDS)**

 

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

 

•                  the number and success ofnew market entrants supplying competing CRM and SFA products or supportservices;

 

•                  alliances among existingcompetitors;

 

•                  technological changes orchanges in the our customers’ use of the Internet;

 

•                  expansion of product linesby, or consolidation among, our existing competitors; and

 

•                  development and/oroperation of in-house CRM or SFA software products or services by our customersand potential customers.

 

Any one of these factors can lead to pricereductions and/or decreased demand and we cannot assure you that we will beable to continue to compete successfully or that competition will not have amaterial adverse effect on our business, operating results or financialcondition.

 

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

 

The success of parts of our business will depend, inpart, on our ability to continue developing Internet-related products,modifying and improving our existing products and responding to technologicaladvances and changing commercial uses of the Internet. We cannot assure youthat our Internet-related products and services will adequately respond to suchtechnological advances and changing uses. Nor can we assure you that the demandfor our Internet-related products and services will increase.

 

Commercial use of the Internet raises potentialproblems with security, privacy, reliability, accessibility, quality of serviceand government regulation. These issues, if unresolved, may affect the use ofour Internet-related products. If these potential problems arise, our business,financial condition or results of operations could be materially and adverselyaffected.

 

**OUR INTERNATIONAL OPERATIONS HAVE RISKS THAT OUR DOMESTIC OPERATIONS DONOT**

 

We have recently significantly expanded and may inthe future further expand our international operations and enter additionalinternational markets. This expansion would require significant managementattention and financial resources that could adversely affect operating marginsand earnings. We may not be able to maintain or increase international marketdemand for our products and services. If we do not, our international saleswill be limited and our business, financial condition or results of operationscould be materially and adversely affected.

 

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

 

•                  adverse changes in thepolitical stability and economic environments in these countries and regions;

 

•                  adverse changes in tax,tariff and trade and other regulations;

 

•                  the absence or significantlack of legal protection for intellectual property rights in certain of thesecountries; and

 

•                  difficulties in managing anorganization spread on a global basis.

 

Each of the above risks could have a significantimpact on our revenues, profitability and our ability to deliver products on acompetitive and timely basis, which could materially and adversely affect ourbusiness, financial condition or operating results.

 

Since we have operations in a number of countriesand our service agreements in such countries are denominated in foreigncurrencies, we face exposure to adverse movements in foreign currency exchangerates. As currency rates change, translation of the income statements of ourinternational entities from local currencies to U.S. dollars affectsperiod-over-period comparability of operating results. Historically, we havenot hedged these translation risks because we generally reinvest our cash flowsfrom international operations. However, we continue to evaluate foreigncurrency translation risk exposure. As we continue to grow our internationalbusiness, the risks associated with foreign currency translation will alsogrow.

 

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

**($ IN THOUSANDS)**

 

**CATASTROPHIC EVENTS COULD NEGATIVELY AFFECT OUR INFORMATION TECHNOLOGYINFRASTRUCTURE**

 

The efficient operation of our business, andultimately our operating performance, depends on the uninterrupted use of ourcritical business and information technology systems. Many of these systemsrequire the use of specialized hardware and other equipment that is not readilyavailable in the marketplace. Although we maintain these systems at more thanone location, a natural disaster, a fire or other catastrophic event at any ofthese locations could result in the destruction of these systems. In such anevent, the replacement of these systems and restoration of archived data andnormal operation of our business could take several days to several weeks, ormore. During the intervening period when our critical business and informationtechnology systems are fully or partially inoperable, our ability to conductnormal business operations could be significantly and adversely impacted and asa result our business, operating results and financial condition could beadversely affected.

 

**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 andcustomer service personnel.

 

Our future success also depends on our continuingability to attract and retain highly qualified technical and managerialpersonnel. Due to competition for such personnel, we have at times experienceddifficulties in recruiting and retaining qualified personnel and we mayexperience such difficulties in the future. Our ability to expand and increaserevenue growth in the future will depend, in part, on our success in recruitingand training such qualified personnel. We may not always be able to expand ourpersonnel in these areas as necessary to support our operations. Any recruitingor retention difficulties could adversely affect our business, operatingresults or financial condition.

 

**IF OUR SECURITY MEASURES ARE BREACHED AND AN UNAUTHORIZED PARTY OBTAINSACCESS TO A CUSTOMER’S DATA, CERTAIN OF OUR SOLUTIONS MAY BE PERCEIVED ASBEING INSECURE AND CUSTOMERS MAY CURTAIL OR STOP USING OUR SERVICE.**

 

Certain of our solutions involve the storage andtransmission of customers’ proprietary information, and security breaches couldexpose us to a risk of loss of this information, litigation and potentialliability. Because techniques used to obtain unauthorized access or to sabotagesystems change frequently and generally are not recognized until launched againsta target, we may be unable to anticipate these techniques or to implementadequate preventative measures. If an actual or perceived breach of oursecurity occurs, the market perception of the effectiveness of our securitymeasures could be harmed and we could lose existing customers and our abilityto obtain new customers.

 

**OUR BUSINESS DEPENDS ON PROPRIETARY RIGHTS THAT WE MAY NOT BE ABLETO PROTECT COMPLETELY**

 

We rely on a combination of trade secret, copyrightand trademark laws, non-disclosure, license and other contractual agreementsand technical measures to protect our proprietary rights. We cannot assure youthat the steps we take will prevent misappropriation of these rights. Further,protective actions we have taken or will take in the future may not preventcompetitors from developing products with features similar to our products. Inaddition, effective copyright and trade secret protection may be unavailable orlimited in certain foreign countries. In response to customer requests, we havealso on occasion entered into agreements which require us to place our sourcecode in escrow to secure our service and maintenance obligations.

 

Further, while we believe that our products andtrademarks do not infringe upon the proprietary rights of any third parties,third parties may assert infringement claims against us in the future that mayresult in costly litigation, diversion of management’s attention, theimposition of monetary damages or injunctive relief against us. In addition,any such claims may require us to enter into royalty arrangements. Any of theseresults could materially and adversely affect our business, operating resultsor financial condition.

 

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

 

Some of our software is provided by third-partyvendors. If our third-party vendors are unable to successfully respond totechnological change or if our relationships with certain third-party vendorsare terminated, we may experience difficulty in replacing the functionalityprovided by the third-party software currently offered with our products.Although we believe there are other sources for all of our third-partysoftware, any significant interruption in the supply of these products couldadversely impact our sales unless and until

 

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

**($ IN THOUSANDS)**

 

wecan secure another source. The absence of or any significant delay in thereplacement of functionality provided by third-party software in our productscould materially and adversely affect our sales.

 

**THE RESULTS DERIVED FROM CURRENT AND FUTURE STRATEGIC RELATIONSHIPS MAY PROVETO BE LESS FAVORABLE THAN ANTICIPATED**

 

We are involved in a number of strategicrelationships with third parties and are frequently pursuing others. Shouldthese relationships, or any of them, prove to be more costly than anticipatedor fail to meet revenue expectations or other anticipated synergies, we cannotguarantee that such events will not have a material impact upon our business,operating results or financial condition.

 

**OUR DATA SOLUTIONS ARE DEPENDENT UPON STRATEGIC RELATIONSHIPS WHICH, IFNOT MAINTAINED, COULD UNDERMINE THE CONTINUED VIABILITY OF THESE SOLUTIONS**

 

Our data and analytics solutions are sourced, inpart, from data provided through strategic relationships. Although we believethere are other sources for such data, the termination of any of theserelationships could diminish the breadth or depth of our data. This terminationor our failure to establish new strategic relationships in the future could negativelyimpact our business, operating results or financial condition.

 

**FEDERAL AND STATE LAWS AND REGULATIONS COULD DEPRESS THE DEMAND FORSOME OF OUR SOLUTIONS**

 

While we believe our data and analytics solutionsare not in violation of current federal or state laws and regulationspertaining to patient privacy or health information, including the HealthInsurance Portability and Accountability Act of 1996 (HIPAA), we cannotguarantee that future laws or regulations or interpretations of existing laws andstatutes will not impact negatively upon our ability to market these solutionsor cause a decrease in demand for such solutions from customers that see anincreased risk in any such new laws or regulations.

 

**GOVERNMENTAL REGULATION MAY MATERIALLY AND ADVERSELY AFFECT OURABILITY TO DISTRIBUTE CONTROLLED SUBSTANCES THROUGH THE MAIL**

 

Through the interactive marketing business weacquired in the Synavant acquisition, we may distribute controlled substancesto doctors’ offices through the mail as part of certain interactive marketingprograms provided on behalf of pharmaceutical manufacturers. It is important tothe business that this practice of distributing prescription-only drugscontinues. Future legislation may restrict our ability to provide these types ofservices. If any such legislation is enacted, it could have a material andadverse effect on our business, operating results and financial condition.

 

**DIFFICULTIES IN SUBLEASING OR OTHERWISE DISPOSING OF CERTAIN OF OURFACILITIES MAY NEGATIVELY IMPACT UPON OUR EARNINGS**

 

We expect to sublease all or a portion of certainfacilities, including facilities acquired as part of the Synavant acquisition.An inability to successfully dispose of or sublet, as applicable, any of thesefacilities or to obtain favorable pricing or sublease terms could negativelyimpact our earnings.

 

**UNANTICIPATED CHANGES IN OUR ACCOUNTING POLICIES MAY BE REQUIREDBECAUSE OF MANDATES BY ACCOUNTING STANDARDS SETTING ORGANIZATIONS AND COULDHAVE A MATERIAL IMPACT ON OUR FINANCIAL STATEMENTS**

 

In reporting our financial results we rely upon theaccounting policies and standards then in effect at the time of our report.Future regulations, standards or interpretations may require us to adjust orrestate financial results previously reported. A required restatement couldhave a material impact upon past financial results or current comparison toprevious results.

 

**WE MAY FACE RISKS ASSOCIATED WITH EVENTS WHICH MAY AFFECT THEWORLD ECONOMY**

 

World events such as terrorist attacks, the currentU.S. military action in the Middle East and elsewhere, and hostilities in theMiddle East, Asia and other geographical areas, have and may in the futureweaken the U.S. and world economies. Any resultant weaknesses in theseeconomies may adversely affect our business, financial condition or results ofoperations or the businesses of our customers.

 

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

**($ IN THOUSANDS)**

 

**WE FACE RISKS IN CONNECTION WITH IMPLEMENTING THE REQUIREMENTS OF SECTION 404OF THE SARBANES OXLEY ACT**

 

We have been engaged in a very lengthy and timeconsuming process of evaluating our internal control over financial reportingin order to allow management to report on, and our registered independentpublic accounting firm to attest to, our internal controls, as required by Section 404of the Sarbanes-Oxley Act. This is a continuing process and we cannot becertain as to the timing of completion of our future reviews, evaluation,testing and remediation actions or the impact of the same on our operations orthe results of the required testing and required attestation report by us andalso by our registered independent public accounting firm. If at any time weare unable to implement the requirements of Section 404 in a timely manneror with adequate compliance, we may be subject to sanctions or investigation byregulatory authorities, such as the Securities and Exchange Commission orNASDAQ. Any such actions could have a material adverse affect our financialresults and the price of our common stock.

 

**PROVISIONS OF OUR CHARTER DOCUMENTS AND NEW JERSEY LAW MAY DISCOURAGEAN ACQUISITION OF DENDRITE**

 

Provisions of our Restated Certificate ofIncorporation, as amended, our By-laws, as amended, and New Jersey law may makeit more difficult for a third-party to acquire us. For example, the Board ofDirectors may, without the consent of the stockholders, issue preferred stockwith rights senior to those of the common stock. In addition, we have aShareholder Rights Plan which may limit the ability of a third-party to attempta hostile acquisition of the Company.

 

**OUR COMMON STOCK MAY BE SUBJECT TO PRICE FLUCTUATIONS**

 

Themarket price of our common stock may be significantly affected by thefollowing factors:

 

•                  the announcement or the introduction of new productsand services by us or our competitors;

 

•                  quarter-to-quarter variations in our operatingresults or changes in revenue or earnings estimates or failure to meet orexceed revenue or earnings estimates;

 

•                  market conditions in the technology, healthcare andother growth sectors;

 

•                  general consolidation in the healthcare informationindustry which may result in the market perceiving us or other comparable companiesas potential acquisition targets;

 

•                  the gain or loss of significant orders;

 

•                  changes in the domestic and international economic,political and business conditions; and

 

•                  future acquisitions.

 

Further, the stock market has experienced on occasionextreme price and volume fluctuations. The market prices of the equitysecurities of many technology companies have been especially volatile and oftenhave been unrelated to the operating performance of such companies. These broadmarket fluctuations may have a material adverse effect on the market price ofour common stock.

 

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**ITEM 4****.  Controls and Procedures**

 

TheCompany’s Chief Executive Officer and Chief Financial Officer, with theassistance of other members of the Company’s management, have evaluated theeffectiveness of the Company’s disclosure controls and procedures as of the endof the period covered by this Form 10-Q. Based on such evaluation, the Company’s Chief Executive Officer andChief Financial Officer have concluded that the Company’s disclosure controlsand procedures are effective.

 

TheCompany’s Chief Executive Officer and Chief Financial Officer have alsoconcluded that there have been no changes in the Company’s internal controlover financial reporting during the quarter ended March 31, 2005 that havematerially affected, or are reasonably likely to materially affect, theCompany’s internal control over financial reporting.

 

PART II.  OTHER INFORMATION

 

**ITEM 6.****                                               ****Exhibits**

 

31.1     Certification of John E. Bailye, Chairman ofthe Board and Chief Executive Officer of the Company, pursuant to Section 302of the Sarbanes-Oxley Act of 2002

 

31.2     Certification of Kathleen E. Donovan, SeniorVice President and Chief Financial Officer of the Company, pursuant to Section 302of the Sarbanes-Oxley Act of 2002

 

32        Certifications of John E. Bailye, Chairman ofthe Board and Chief Executive Officer of the Company, and Kathleen E. Donovan,Senior Vice President and Chief Financial Officer of the Company pursuant to 18U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002

 

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Signatures

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

Date:May 10, 2005

 
|   | By:    | /s/  John E. Bailye                                                               |
|--------|--------|-----------------------------------------------------------------------------------|
|   |   | John  E. Bailye,                                                                  |
|   |   | Chairman  of the Board and Chief Executive Officer  (Principal Executive Officer) |
|   |   |                                                                              |
|   | By:    | /s/  Kathleen E. Donovan                                                          |
|   |   | Kathleen  E. Donovan,                                                             |
|   |   | Senior  Vice President and Chief Financial Officer  (Principal Financial Officer) |

 

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**EXHIBIT INDEX**

 

31.1         Certification of John E. Bailye, Chairman ofthe Board and Chief Executive Officer of the Company, pursuant to Section 302of the Sarbanes-Oxley Act of 2002

 

31.2         Certification of Kathleen E. Donovan, SeniorVice President and Chief Financial Officer of the Company, pursuant to Section 302of the Sarbanes-Oxley Act of 2002

 

32            Certifications of John E. Bailye, Chairman ofthe Board and Chief Executive Officer of the Company, and Kathleen E. Donovan,Senior Vice President and Chief Financial Officer of the Company pursuant to 18U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002

 

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