**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

 

**Washington,DC  20549**

 

**Form 10-Q**

 

**ý****                                ****Quarterly Reportpursuant to Section 13 or 15(d) of the SecuritiesExchange Act of 1934**

 

**For the quarterly period endedSeptember ****30, 2003**

 

**o****                                ****Transition ReportPursuant to Section 13 or 15(d) of the SecuritiesExchange Act of 1934**

 

**For the transition period from        to       **

 

**Commission File Number  0-26138**

 

| **Dendrite  International, 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.) |
|                                                                  |   |   |
| **1200 Mount Kemble Avenue  Morristown, NJ  07960**              |
| (Address, including zip code, of  principal executive offices)        |
|                                                                  |   |   |
| **(973) 425-1200**                                                    |
| (Registrant’s telephone number, including  area code)            |

 

Indicate by check mark whether the registrant: (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. ý

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Exchange Act): ý

 

As of November 5, 2003, 40,628,969 shares of DendriteInternational, Inc. common stock were outstanding.

 

 

----

 

**DENDRITEINTERNATIONAL, INC.INDEX TO QUARTELY REPORT ON FORM 10-QFOR THE QUARTER ENDED SEPTEMBER 30, 2003**

 
| **PART I.**    | **FINANCIAL INFORMATION**                                                                                        |   |
|----------------|------------------------------------------------------------------------------------------------------------------|--------|
|           |                                                                                                             |   |
| **ITEM 1.**    | Financial  Statements                                                                                            |   |
|           |                                                                                                             |   |
|           | Consolidated Statements of Operations  (unaudited)  Three and nine months ended September 30, 2003 and 2002 | 3      |
|           |                                                                                                             |   |
|           | Consolidated Balance Sheets  September 30, 2003 (unaudited) and December 31, 2002                      | 4      |
|           |                                                                                                             |   |
|           | Consolidated Statements of Cash Flows (unaudited)  Nine months ended September 30, 2003 and 2002            | 5      |
|           |                                                                                                             |   |
|           | Notes to  Unaudited Consolidated Financial Statements                                                            | 6      |
|           |                                                                                                             |   |
| **ITEM 2.**    | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                      | 14     |
|           |                                                                                                             |   |
| **ITEM 4.**    | Controls  and Procedures                                                                                         | 26     |
|           |                                                                                                             |   |
| **PART II.**   | **OTHER INFORMATION**                                                                                            |   |
|           |                                                                                                             |   |
| **ITEM 6.**    | Exhibits  and Reports on Form 8-K                                                                                | 26     |
|           |                                                                                                             |   |
| **Signatures** | 27                                                                                                               |

 

2

----

 

PART I.                             FINANCIALINFORMATION

 

ITEM 1.                             FinancialStatements

 

**DENDRITEINTERNATIONAL, INC.**

**CONSOLIDATED STATEMENTSOF OPERATIONS**

**(INTHOUSANDS, EXCEPT PER SHARE DATA)**

**(UNAUDITED)**

 
|                                 |   | **THREE  MONTHS ENDED  SEPTEMBER 30,** |   | **NINE MONTHS  ENDED  SEPTEMBER 30,** |   |
|--------------------------------------|--------|---------------------------------------------|--------|--------------------------------------------|--------|
|                                 |   | **2003**                                    |   | **2002**                                   |   | **2003** |   | **2002** |   |
| Revenues:                            |   |                                        |   |                                       |   |   |   |   |   |
| License fees                         |   | $                                           | 2,696  |                                       | $      | 2,276 |   | $ | 8,011 |   | $ | 7,761 |   |
| Services                             |   | 90,166                                      |   | 51,385                                     |   | 214,089 |   | 160,955 |   |
|                                 |   | $                                           | 92,862 |                                       | $      | 53,661 |   | $ | 222,100 |   | $ | 168,716 |   |
|                                 |   |                                        |   |                                       |   |   |   |   |   |
| Cost of revenues:                    |   |                                        |   |                                       |   |   |   |   |   |
| Cost of license fees                 |   | 1,133                                       |   | 845                                        |   | 3,405 |   | 2,776 |   |
| Cost of services                     |   | 45,840                                      |   | 24,510                                     |   | 108,169 |   | 81,485 |   |
|                                 |   | 46,973                                      |   | 25,355                                     |   | 111,574 |   | 84,261 |   |
|                                 |   |                                        |   |                                       |   |   |   |   |   |
| Gross margin:                        |   |                                        |   |                                       |   |   |   |   |   |
| License fees                         |   | 1,563                                       |   | 1,431                                      |   | 4,606 |   | 4,985 |   |
| Services                             |   | 44,326                                      |   | 26,875                                     |   | 105,920 |   | 79,470 |   |
|                                 |   | 45,889                                      |   | 28,306                                     |   | 110,526 |   | 84,455 |   |
|                                 |   |                                        |   |                                       |   |   |   |   |   |
| Operating expenses:                  |   |                                        |   |                                       |   |   |   |   |   |
| Selling, general and  administrative |   | 34,746                                      |   | 19,153                                     |   | 75,968 |   | 58,141 |   |
| Research and development             |   | 2,863                                       |   | 2,362                                      |   | 8,775 |   | 7,446 |   |
| Asset impairment                     |   | —                                      |   | 1,832                                      |   | — |   | 1,832 |   |
|                                 |   | 37,609                                      |   | 23,347                                     |   | 84,743 |   | 67,419 |   |
|                                 |   |                                        |   |                                       |   |   |   |   |   |
| Operating income                     |   | 8,280                                       |   | 4,959                                      |   | 25,783 |   | 17,036 |   |
| Interest income                      |   | 58                                          |   | 267                                        |   | 612 |   | 859 |   |
| Other expense                        |   | (55                                         | )      | (143                                       | )      | (21 | ) | (107 | ) |
|                                 |   |                                        |   |                                       |   |   |   |   |   |
| Income before income tax  expense    |   | 8,283                                       |   | 5,083                                      |   | 26,374 |   | 17,788 |   |
| Income tax expense                   |   | 3,314                                       |   | 2,541                                      |   | 11,158 |   | 7,115 |   |
|                                 |   |                                        |   |                                       |   |   |   |   |   |
| Net income                           |   | $                                           | 4,969  |                                       | $      | 2,542 |   | $ | 15,216 |   | $ | 10,673 |   |
|                                 |   |                                        |   |                                       |   |   |   |   |   |
| Net income per share:                |   |                                        |   |                                       |   |   |   |   |   |
| Basic                                |   | $                                           | 0.12   |                                       | $      | 0.06 |   | $ | 0.38 |   | $ | 0.27 |   |
| Diluted                              |   | $                                           | 0.12   |                                       | $      | 0.06 |   | $ | 0.37 |   | $ | 0.27 |   |

 

The accompanying notes are anintegral part of these statements.

 

3

----

 

**DENDRITEINTERNATIONAL, INC.**

**CONSOLIDATED BALANCESHEETS**

**(INTHOUSANDS, EXCEPT SHARE DATA)**

 
|                                                                                                                                               |   | **September 30,  2003** |    | **December 31,  2002** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|---------|-----------------------------|--------|
|                                                                                                                                               |   | **(Unaudited)**              |    |                        |   |
| **Assets**                                                                                                                                         |   |
| Current Assets:                                                                                                                                    |   |                         |    |                        |   |
| Cash and cash equivalents                                                                                                                          |   | $                            | 26,173  |                        | $      | 68,308 |   |
| Short-term investments                                                                                                                             |   | —                       |    | 1,295                       |   |
| Accounts receivable, net                                                                                                                           |   | 60,948                       |    | 39,853                      |   |
| Prepaid expenses and other  current assets                                                                                                         |   | 5,779                        |    | 4,962                       |   |
| Deferred taxes                                                                                                                                     |   | 12,808                       |    | 3,380                       |   |
| Facility held for sale                                                                                                                             |   | 6,900                        |    | 6,900                       |   |
| Total current assets                                                                                                                               |   | 112,608                      |    | 124,698                     |   |
|                                                                                                                                               |   |                         |    |                        |   |
| Property and equipment, net                                                                                                                        |   | 30,043                       |    | 26,377                      |   |
| Other assets                                                                                                                                       |   | 2,272                        |    | 1,713                       |   |
| Long-term receivable                                                                                                                               |   | 3,157                        |    | 6,314                       |   |
| Goodwill                                                                                                                                           |   | 69,155                       |    | 12,353                      |   |
| Intangible assets, net                                                                                                                             |   | 28,871                       |    | 2,973                       |   |
| Purchased capitalized  software, net                                                                                                               |   | 4,343                        |    | 2,275                       |   |
| Capitalized software  development costs, net                                                                                                       |   | 5,902                        |    | 5,605                       |   |
| Deferred taxes                                                                                                                                     |   | 1,584                        |    | 6,168                       |   |
|                                                                                                                                               |   | $                            | 257,935 |                        | $      | 188,476 |   |
|                                                                                                                                               |   |                         |    |                        |   |
| **Liabilities  and Stockholders’ Equity**                                                                                                     |   |
| Current Liabilities:                                                                                                                               |   |                         |    |                        |   |
| Accounts payable                                                                                                                                   |   | $                            | 7,720   |                        | $      | 1,274 |   |
| Income taxes payable                                                                                                                               |   | 9,315                        |    | 5,659                       |   |
| Capital lease obligations                                                                                                                          |   | 1,260                        |    | 615                         |   |
| Accrued compensation and  benefits                                                                                                                 |   | 15,147                       |    | 5,055                       |   |
| Other accrued expenses                                                                                                                             |   | 28,067                       |    | 16,749                      |   |
| Purchase accounting  restructuring accrual                                                                                                         |   | 9,591                        |    | 1,188                       |   |
| Accrued restructuring  charge                                                                                                                      |   | —                       |    | 260                         |   |
| Deferred revenues                                                                                                                                  |   | 9,299                        |    | 7,861                       |   |
| Total current liabilities                                                                                                                          |   | 80,399                       |    | 38,661                      |   |
|                                                                                                                                               |   |                         |    |                        |   |
| Capital lease obligations                                                                                                                          |   | 466                          |    | 275                         |   |
| Purchase accounting  restructuring accrual                                                                                                         |   | 8,595                        |    | 2,064                       |   |
| Other non-current  liabilities                                                                                                                     |   | 933                          |    | 717                         |   |
|                                                                                                                                               |   |                         |    |                        |   |
| Stockholders’ Equity:                                                                                                                         |   |                         |    |                        |   |
| Preferred stock, no par  value, 15,000,000 shares authorized, none issued                                                                          |   | —                       |    | —                      |   |
| Common Stock, no par value,  150,000,000 shares authorized, 42,790,861 and 42,156,344 shares issued;  40,568,161 and 39,933,644 shares outstanding |   | 98,151                       |    | 93,037                      |   |
| Retained earnings                                                                                                                                  |   | 92,092                       |    | 76,876                      |   |
| Deferred compensation                                                                                                                              |   | (25                          | )       | (76                         | )      |
| Accumulated other  comprehensive loss                                                                                                              |   | (1,800                       | )       | (2,202                      | )      |
| Less treasury stock, at  cost                                                                                                                      |   | (20,876                      | )       | (20,876                     | )      |
|                                                                                                                                               |   |                         |    |                        |   |
| Total stockholders’ equity                                                                                                                    |   | 167,542                      |    | 146,759                     |   |
|                                                                                                                                               |   |                         |    |                        |   |
|                                                                                                                                               |   | $                            | 257,935 |                        | $      | 188,476 |   |

 

The accompanying notes are an integral partof these statements.

 

4

----

 

**DENDRITEINTERNATIONAL, INC.**

**CONSOLIDATED STATEMENTS OF CASHFLOWS**

**(INTHOUSANDS)**

**(UNAUDITED)**

 
|                                                                               |   | **Nine Months  Ended September 30,** |   |
|------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|
|                                                                               |   | **2003**                                  |   | **2002** |   |
| Operating activities:                                                              |   |                                      |   |   |   |
| Net income                                                                         |   | $                                         | 15,216 |   | $ | 10,673 |   |
| Adjustments to reconcile  net income to net cash provided by operating activities: |   |                                      |   |   |   |
| Depreciation and  amortization                                                     |   | 14,924                                    |   | 10,079 |   |
| Asset impairment                                                                   |   | —                                    |   | 1,832 |   |
| Amortization of deferred  compensation, net of forfeitures                         |   | (40                                       | )      | 45 |   |
| Deferred taxes                                                                     |   | 608                                       |   | — |   |
| Changes in assets and  liabilities, net of effects from acquisitions:              |   |                                      |   |   |   |
| Decrease/(increase) in  accounts receivable                                        |   | 15,443                                    |   | (324 | ) |
| Decrease in prepaid  expenses and other                                            |   | 1,399                                     |   | 972 |   |
| Decrease in other assets                                                           |   | 136                                       |   | — |   |
| Decrease in prepaid income  taxes                                                  |   | —                                    |   | 3,327 |   |
| Decrease in accounts  payable and accrued expenses                                 |   | (21,034                                   | )      | (6,911 | ) |
| Decrease in purchase  accounting restructuring accrual                             |   | (6,969                                    | )      | — |   |
| Increase in income taxes  payable                                                  |   | 2,163                                     |   | — |   |
| Decrease in accrued  restructuring charge                                          |   | (260                                      | )      | (2,569 | ) |
| Decrease in deferred  revenue                                                      |   | (8,968                                    | )      | (4,038 | ) |
| Increase in other  non-current liabilities                                         |   | 288                                       |   | 137 |   |
| Net cash provided by  operating activities                                         |   | 12,906                                    |   | 13,223 |   |
|                                                                               |   |                                      |   |   |   |
| Investing activities:                                                              |   |                                      |   |   |   |
| Purchases of short-term  investments                                               |   | —                                    |   | (13,412 | ) |
| Sales of short-term  investments                                                   |   | 1,294                                     |   | 13,553 |   |
| Acquisitions, net of cash  acquired                                                |   | (53,161                                   | )      | (12,948 | ) |
| Increase in other  non-current assets                                              |   | (50                                       | )      | (600 | ) |
| Purchases of property and  equipment                                               |   | (5,038                                    | )      | (8,360 | ) |
| Additions to capitalized  software development costs                               |   | (2,362                                    | )      | (1,732 | ) |
| Net cash used in investing  activities                                             |   | (59,317                                   | )      | (23,499 | ) |
|                                                                               |   |                                      |   |   |   |
| Financing activities:                                                              |   |                                      |   |   |   |
| Borrowings from line of  credit                                                    |   | 8,000                                     |   | — |   |
| Repayments of line of  credit                                                      |   | (8,000                                    | )      | — |   |
| Purchases of treasury stock                                                        |   | —                                    |   | (1,469 | ) |
| Payments on capital lease  obligations                                             |   | (469                                      | )      | (38 | ) |
| Issuance of common stock                                                           |   | 4,458                                     |   | 2,620 |   |
| Net cash provided by  financing activities                                         |   | 3,989                                     |   | 1,113 |   |
|                                                                               |   |                                      |   |   |   |
| Effect of foreign exchange  rate changes on cash and cash equivalents              |   | 287                                       |   | (29 | ) |
|                                                                               |   |                                      |   |   |   |
| Net decrease in cash and  cash equivalents                                         |   | (42,135                                   | )      | (9,192 | ) |
| Cash and cash equivalents,  beginning of period                                    |   | 68,308                                    |   | 65,494 |   |
| Cash and cash equivalents,  end of period                                          |   | $                                         | 26,173 |   | $ | 56,302 |   |

 

The accompanying notes are an integral partof these statements.

 

5

----

 

**DENDRITEINTERNATIONAL, INC.**

**NOTES****TOUNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

 

**1. Basis of Presentation**

 

The consolidated financial statements of Dendrite International, Inc.and its subsidiaries (the “Company”) included in this Form 10-Q are unauditedand reflect all adjustments (consisting of normal recurring adjustments) whichare, in the opinion of management, necessary for a fair presentation of thefinancial position and operating results for the three and nine month periodsended September 30, 2003 and 2002. For further information, refer to the consolidated financial statementsand notes thereto included in the Company’s Annual Report on Forms 10-K and10-K/A for the year ended December 31, 2002.

 

The Company's interim operating results may not be indicative ofoperating results for the full year.

 

**2. Significant Accounting Policies**

 

***RevenueRecognition. ***TheCompany provides a comprehensive range of customer relationship managementsoftware products, technology support services and various distribution andmarketing services to the pharmaceutical industry. New customers that purchasesoftware products from the Company generally enter into a license contract anda services contract with the Company. The Company’s software licenses typicallyprovide for a perpetual right to use the Company’s software and are contractedfor within a license agreement that provides for license fees billable uponcontract execution. When purchasing new software, customers often also purchaseimplementation services, which are essential to the functionality of theCompany’s software. These services are contracted for in a services contract,which generally provides for payment terms over the course of theimplementation project.  This servicescontract also covers the specific ongoing support services that may have beenpurchased by the customer, which typically begin after the completion of thesoftware implementation.  Certaincustomers who have not purchased software from the Company will also enter intoservices contracts, and the Company will provide services that may includetechnology support services and/or distribution and marketing services.

 

Many of the Company’s arrangements include multiple deliverables.  In the absence of higher-level specificauthoritative guidance, the Company determines the units of accounting for multipleelement arrangements in accordance with Emerging Issues Task Force Issue No.00-21, Revenue Arrangements with Multiple Deliverables (“EITF 00-21”).  Specifically, the Company will consider adelivered item as a separate unit of accounting if it has value to the customeron a standalone basis, if there is objective and reliable evidence of the fairvalue of the delivered element, and if the arrangement includes a general rightof return relative to the delivered element, delivery or performance of theundelivered element is considered probable and is substantially within theCompany’s control.

 

Revenues for the Company’s software license and related implementationfees are considered one accounting unit, and are recognized using thepercentage-of-completion method as prescribed by AICPA Statement of Position81-1 (“SOP 81-1”), Accounting for Performance of Construction-Type and CertainProduction-Type Contracts, and pursuant to paragraph 7 of AICPA Statement ofPosition 97-2 (“SOP 97-2”). The Company does not defer performance costsrelated to its software and implementation arrangements, as revenues aregenerally recognized as the associated costs are incurred. The Company uses theinput measure of labor incurred to monitor progress-to-completion on itssoftware and implementation projects. Under the terms of its contracts withcustomers, the Company does not have the right to invoice for claims relatingto overruns in its fixed fee implementation projects. To the extent that acustomer submits a properly authorized change of scope document, the Companywill add the budgeted revenues and costs to its existingpercentage-of-completion model, as a change in estimate, for that particularproject. The expected gross margin for changes of scope generally approximatesthat for the overall project and therefore, project revenue recognition has nothistorically been impacted significantly by the addition of change of scopework orders. The Company evaluates its contract accounting projects forexpected losses. If it becomes evident that a project will result in a loss,the Company will provide for this loss in the period that such loss becomesevident. Contract profitability is measured at the gross margin level, with noallocation of overhead or other inclusion of indirect costs.

 

The remaining service elements within the Company’s arrangements, whichare not related to software implementation, are also evaluated using theseparation criteria of EITF 00-21.  Thistypically results in separate accounting units for initial training andhardware services that often occur during the roll out of configured softwareto end users.  Revenues for theseservices are recognized as delivered, provided all other criteria for revenuerecognition have been met.  In additionto the initial training and hardware services, the Company also performsvarious ongoing services such as help desk, data center, asset management,production services and operations management. These ongoing services are selected and negotiated individually bycustomers based upon their business needs, and are generally recognized asdelivered over the respective contractual term.  Revenues related to the Company’s distribution and marketingservices are generally recognized as items are shipped or service obligationshave been fulfilled.  The Company hasoffered limited price protection under services agreements. Any right to afuture refund from such price protection is entirely within the Company’scontrol. It is estimated that the likelihood of a future payout due to priceprotection is remote.

 

6

----

 

From time-to-time, the Company’s customers will expand their fieldsales force and consequently purchase additional user licenses from theCompany.  The customer generally has theability to create its own copies of the software for the new users andtherefore, there is no need for the Company to deliver anything further. Basedupon this, the related revenue is recognized at the time of the customer order,in accordance with SOP 97-2.

 

The Company utilizes distributors to resell certain of its softwareproducts internationally, on a limited basis. Revenues related to sales to distributors are recognized as the licensesare sold through to end-users.

 

The Company utilizes Vendor Specific Objective Evidence of fair value(“VSOE”) to allocate the portion of the arrangement fee that relates topost-contract customer support (“PCS”). The PCS-related services offeredconsist only of software maintenance and warranty services. The Company’smaintenance services consist primarily of the correction of errors in thesoftware and the delivery of unspecified upgrades and enhancements over themaintenance term. The Company establishes VSOE of fair value for PCS using themaintenance renewal rate that is present in each of its services contracts. TheCompany’s maintenance is offered at a fee that is based upon a percentage oflicense fees. The PCS element of the Company’s arrangements is accounted forunder SOP 97-2.

 

The Company will sometimes provide for a warranty period within itsarrangements. The services provided during the warranty period are the same asthose provided under software maintenance. These activities include correctingerrors or bugs in the software, ensuring that the software complies withdefined specifications and providing unspecified upgrades or enhancements on awhen-and-if-available basis, during the term of the warranty period. Thewarranties included in the Company’s arrangements generally coincide with thelength of the projected software implementation period, typically 180 days fromthe execution of the license contract, and always end on a specific date. TheCompany allocates a portion of the related license fee revenues to the value ofservices during the warranty period, and recognizes such amounts ratably overthe warranty period. VSOE for the Company’s warranty services is establishedusing the maintenance renewal rate that is present in each of the Company’sservices contracts.

 

***Stock Based Compensation. ***The Company hasadopted the disclosure requirements of Statement of Financial AccountingStandards (“SFAS”) 123, “Accounting for Stock-Based Compensation,” as amendedby SFAS 148, “Accounting for Stock-Based Compensation – Transition andDisclosure.”  The Company appliesAccounting Principles Board (“APB”) 25, “Accounting for Stock Issued toEmployees” and related interpretations in accounting for stock options grantedunder the Company’s stock option plans (the “Plans”). Accordingly, compensationcost has been computed for the Plans based on the intrinsic value of the stockoption at the date of grant, which represents the difference between theexercise price and the fair value of the Company’s stock. As the exercise priceof substantially all stock options granted equaled the fair value of theCompany’s stock at the date of option issuance, no compensation cost related tostock options has been recorded in the accompanying statements of operations.Had compensation cost for the Plans and the employee stock purchase plan beendetermined consistent with SFAS 123, the Company’s net income and net incomeper share would have been adjusted to the following pro forma amounts:

 
|                                                                                                                                              |   | **For the Three Months Ended  September 30,** |      | **For the Nine Months Ended  September 30,** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------|-----------|---------------------------------------------------|--------|
|                                                                                                                                              |   | **2003**                                           |      | **2002**                                          |   | **2003** |   | **2002** |   |
| Net income as reported                                                                                                                            |   | $                                                  | 4,969,000 |                                              | $      | 2,542,000 |   | $ | 15,216,000 |   | $ | 10,673,000 |   |
|                                                                                                                                              |   |                                               |      |                                              |   |   |   |   |   |
| Add/(Deduct): Deferred  compensation amortization, net of forfeitures recognized in accordance with  APB 25, net of related tax effects           |   | 8,000                                              |      | 16,000                                            |   | (24,000 | ) | 27,000 |   |
|                                                                                                                                              |   |                                               |      |                                              |   |   |   |   |   |
| Deduct: Total stock-based  employee compensation expense determined under the fair value based method  for all awards, net of related tax effects |   | (3,181,000                                         | )         | (3,345,000                                        | )      | (9,321,000 | ) | (11,254,000 | ) |
|                                                                                                                                              |   |                                               |      |                                              |   |   |   |   |   |
| Pro forma net income/(loss)                                                                                                                       |   | $                                                  | 1,796,000 |                                              | $      | (787,000 | ) | $ | 5,871,000 |   | $ | (554,000 | ) |
|                                                                                                                                              |   |                                               |      |                                              |   |   |   |   |   |
| Earnings per share:                                                                                                                               |   |                                               |      |                                              |   |   |   |   |   |
| Basic - as reported                                                                                                                               |   | $                                                  | 0.12      |                                              | $      | 0.06 |   | $ | 0.38 |   | $ | 0.27 |   |
| Basic - pro forma                                                                                                                                 |   | $                                                  | 0.04      |                                              | $      | (0.02 | ) | $ | 0.15 |   | $ | (0.01 | ) |
|                                                                                                                                              |   |                                               |      |                                              |   |   |   |   |   |
| Diluted - as reported                                                                                                                             |   | $                                                  | 0.12      |                                              | $      | 0.06 |   | $ | 0.37 |   | $ | 0.27 |   |
| Diluted - pro forma                                                                                                                               |   | $                                                  | 0.04      |                                              | $      | (0.02 | ) | $ | 0.14 |   | $ | (0.01 | ) |

 

***Reclassifications.***Certainprior period balances have been reclassified to conform to current period presentation.

 

7

----

 

**3. Net Income Per Share**

 

The following table presents the computation of basic and diluted netincome per share for the three and nine month periods ended September 30,2003 and 2002:

 
|                                        |   | **For the Three Months Ended  September 30,** |      | **For the Nine Months Ended  September 30,** |   |
|---------------------------------------------|--------|----------------------------------------------------|-----------|---------------------------------------------------|--------|
|                                        |   | **2003**                                           |      | **2002**                                          |   | **2003** |   | **2002** |   |
| Basic net income per share  computation:    |   |                                               |      |                                              |   |   |   |   |   |
| Net income                                  |   | $                                                  | 4,969,000 |                                              | $      | 2,542,000 |   | $ | 15,216,000 |   | $ | 10,673,000 |   |
| Weighted average common shares  outstanding |   | 40,442,000                                         |      | 39,943,000                                        |   | 40,225,000 |   | 39,860,000 |   |
| Basic net income per share                  |   | $                                                  | 0.12      |                                              | $      | 0.06 |   | $ | 0.38 |   | $ | 0.27 |   |
|                                        |   |                                               |      |                                              |   |   |   |   |   |
| Diluted net income per  share computation:  |   |                                               |      |                                              |   |   |   |   |   |
| Net income                                  |   | $                                                  | 4,969,000 |                                              | $      | 2,542,000 |   | $ | 15,216,000 |   | $ | 10,673,000 |   |
| Diluted common shares  outstanding:         |   |                                               |      |                                              |   |   |   |   |   |
| Weighted average common  shares outstanding |   | 40,442,000                                         |      | 39,943,000                                        |   | 40,225,000 |   | 39,860,000 |   |
| Stock options                               |   | 1,417,000                                          |      | 60,000                                            |   | 865,000 |   | 321,000 |   |
| Diluted common shares  outstanding          |   | 41,859,000                                         |      | 40,003,000                                        |   | 41,090,000 |   | 40,181,000 |   |
| Diluted net income per  share               |   | $                                                  | 0.12      |                                              | $      | 0.06 |   | $ | 0.37 |   | $ | 0.27 |   |

 

**4. Comprehensive Income**

 

The componentsof comprehensive income for the three and nine month periods endedSeptember 30, 2003 and 2002, consisted of the following:

 

|                                      |   | **For the Three Months Ended  September 30,** |      | **For the Nine Months Ended  September 30,** |   |
|-------------------------------------------|--------|----------------------------------------------------|-----------|---------------------------------------------------|--------|
|                                      |   | **2003**                                           |      | **2002**                                          |   | **2003** |   | **2002** |   |
| Net income                                |   | $                                                  | 4,969,000 |                                              | $      | 2,542,000 |   | $ | 15,216,000 |   | $ | 10,673,000 |   |
| Other comprehensive income  (loss):       |   |                                               |      |                                              |   |   |   |   |   |
| Foreign currency  translation adjustments |   | 315,000                                            |      | (94,000                                           | )      | 402,000 |   | (20,000 | ) |
| Comprehensive income                      |   | $                                                  | 5,284,000 |                                              | $      | 2,448,000 |   | $ | 15,618,000 |   | $ | 10,653,000 |   |

 

**5. Restructuring Charge**

 

The activity inaccrued restructuring for the nine month period ended September 30, 2003is summarized in the table below:

 

|                               |   | **Accrued  Restructuring as of  January 1, 2003** |    | **Accrued  Cash Payments in  2003** |   | **Restructuring as of  September 30, 2003** |   |
|------------------------------------|--------|--------------------------------------------------------|---------|-------------------------------------|--------|--------------------------------------------------|--------|
|                               |   |                                                   |    |                                |   |                                             |   |
| Termination payments to  employees |   | $                                                      | 260,000 |                                | $      | 260,000                                          |   | $ | — |   |
|                                    |        |                                                        |         |                                     |        |                                                  |        |  |  |  |

 

**6. Acquisitions**

 

OnSeptember 19, 2002, the Company acquired Software Associates International(“SAI”), a privately-held company based in New Jersey. SAI provided softwareproducts and solutions that enhanced corporate level sales and marketinganalysis for pharmaceutical companies. The results of SAI’s operations havebeen included in the consolidated financial statements since the acquisitiondate.

 

The aggregatepurchase price was approximately $16,739,000 which included: cash of approximately$15,092,000; professional service fees of approximately $410,000; and optionsto purchase Dendrite common stock valued at approximately $1,237,000. The fairvalue of the stock options was estimated using the Black-Scholes valuationmodel.

 

8

----

 

OnJune 16, 2003, the Company completed its acquisition of Synavant Inc.(“Synavant”).  Synavant provided a broadrange of knowledge-based services to pharmaceutical and other life sciencescompanies around the world.  Itscomprehensive global solutions included pharmaceutical Customer RelationshipManagement (CRM) applications, interactive marketing, server and databasemanagement, dedicated local helpline support, training, telemarketing, samplemanagement and product recall services. Synavant was headquartered in Atlanta, Georgia, and had offices in 21countries.  The combining of resourcesof Synavant with the existing resources of Dendrite creates a comprehensiveinformation, software and services company dedicated to the global lifesciences industry, and further enhances Dendrite’s ability to provide marketleading solutions to the sales, marketing and clinical functions ofpharmaceutical and other life science companies.  Synavant’s results of operations have been included in theaccompanying consolidated financial statements since the date of acquisition.

 

The Synavantacquisition was completed pursuant to an Agreement and Plan of Merger, dated asof May 9, 2003 and amended as of May 16, 2003 (as amended, the “MergerAgreement”) by and among Dendrite, Synavant and Amgis Acquisition Co.(“Amgis”), a wholly-owned subsidiary of Dendrite.  Amgis and Dendrite conducted an all cash tender offer to acquirethe outstanding shares of Synavant common stock at $3.22 per share.  The consideration paid in the acquisitionwas a result of a bidding process and arms-length negotiations between theexecutive officers and boards of directors of Synavant and Dendrite.

 

The aggregatepurchase price was approximately $54,813,000 and included consideration paidfor the common stock and approximately $3,128,000 of legal and professionalfees incurred in connection with the transaction.

 

A condensedbalance sheet of Synavant, reflecting the amounts preliminarily assigned toeach major asset and liability category as of June 16, 2003 is as follows:

 

| Assets Acquired                    |   |       |        |
|------------------------------------|--------|------------|-------------|
| Current assets                     |   |       |        |
| Cash                               |   | $          | 1,042,000   |   |
| Accounts receivable                |   | 30,138,000 |        |
| Other current assets               |   | 2,861,000  |        |
| Total current assets               |   | 34,041,000 |        |
| Long-term assets                   |   |       |        |
| Property and equipment             |   | 8,876,000  |        |
| Other assets                       |   | 8,623,000  |        |
| Intangibles                        |   | 29,900,000 |        |
| Goodwill                           |   | 56,692,000 |        |
| Total assets                       |   | $          | 138,132,000 |   |
|                               |   |       |        |
| Liabilities Assumed                |   |       |        |
| Current liabilities                |   |       |        |
| Restructuring reserve -  current   |   | $          | 14,184,000  |   |
| Deferred revenue                   |   | 10,401,000 |        |
| Other current liabilities          |   | 50,255,000 |        |
| Total current liabilities          |   | 74,840,000 |        |
| Long-term liabilities              |   |       |        |
| Restructuring reserve -  long-term |   | 7,918,000  |        |
| Other liabilities                  |   | 561,000    |        |
| Total liabilities                  |   | 83,319,000 |        |
| Net assets acquired                |   | $          | 54,813,000  |   |

 

In connectionwith the Synavant acquisition, the Company recorded $56,692,000 of goodwill and $29,900,000 ofacquired intangible assets of which approximately $6,000,000 was assigned totrademarks, which are not subject to amortization.  The remaining $23,900,000 (approximately 11 year weighted averageamortization period) has been preliminarily assigned to the followingintangible assets: non-compete agreements - $2,100,000 (3 year amortization);backlog - $4,500,000 (3 year amortization); purchased capitalized software -$2,600,000 (10 year amortization); and customer relationships - $14,700,000 (15year amortization). The goodwill and intangible assets recorded for financialstatement purposes are not deductible for tax purposes.  The Company is in the process of finalizing athird party valuation of certain intangible assets, as well as its evaluationof acquired facilities and personnel for redundancy and, therefore, thepurchase price allocation remains preliminary and subject to adjustment.

 

9

----

 

Pro formaresults of operations of the Company as if the Synavant and SAI acquisitionshad occurred as of January 1, 2002 are as follows:

 

|                     |   | **Pro Forma Results  for the Three  Months Ended  September 30,** |       | **Pro Forma Results for the Nine  Months Ended September 30,** |   |
|--------------------------|--------|------------------------------------------------------------------------|------------|---------------------------------------------------------------------|--------|
|                     |   | **2002 (A)**                                                           |       | **2003 (B)**                                                        |   | **2002 (A)** |   |
|                     |   |                                                                   |       |                                                                |   |   |   |
| Revenues                 |   | $                                                                      | 97,177,000 |                                                                | $      | 287,183,000 |   | $ | 310,555,000 |   |
| Net income               |   | $                                                                      | 1,091,000  |                                                                | $      | 1,531,000 |   | $ | 6,887,000 |   |
| Basic income per share   |   | $                                                                      | 0.03       |                                                                | $      | 0.04 |   | $ | 0.17 |   |
| Diluted income per share |   | $                                                                      | 0.03       |                                                                | $      | 0.04 |   | $ | 0.17 |   |

 

----

(A)      Net income includes approximately $752,000 ofhistorical restructuring charges from Synavant.

 

(B)        Net income includes approximately $1,300,000 ofrestructuring charges from Synavant as well as early termination fees relatedto Synavant’s lines of credit of approximately $1,850,000.

 

**7.  Purchase Accounting Restructuring Accrual**

 

***SAI***

 

In connection with the acquisition of SAI, discussed in Note 6, theCompany developed an exit plan to close SAI’s facility in Mt. Arlington, NewJersey, and relocate the operations to other Company facilities in NewJersey.  The Company accrued, as part ofthe acquisition costs, the costs to terminate certain leases amounting to$3,252,000.  The Company exited thefacility during the first quarter of 2003. The activity related to the SAI purchase accountingrestructuring accrual for the nine month period ended September 30, 2003is summarized in the table below:

 

|                    |   | **Purchase Accounting  Restructuring Accrual as  of January 1, 2003** |      | **Cash Payments in  2003** |   | **Purchase Accounting  Restructuring Accrual as  of September 30, 2003** |   |
|-------------------------|--------|----------------------------------------------------------------------------|-----------|----------------------------|--------|-------------------------------------------------------------------------------|--------|
|                    |   |                                                                       |      |                       |   |                                                                          |   |
| Lease termination costs |   | $                                                                          | 3,252,000 |                       | $      | 688,000                                                                       |   | $ | 2,564,000 |   |
|                         |        |                                                                            |           |                            |        |                                                                               |        |  |  |  |

 

***Synavant***

 

In connectionwith the acquisition of Synavant, discussed in Note 6,  the Company plans to restructure the combined operations byexiting certain former Synavant facilities and eliminating certain formerSynavant positions.  The Company accruedapproximately $22,102,000 at June 16, 2003 for liabilities associated withthe cost of completing the restructuring plan. The components of this accrued liability are approximately $13,042,000of severance costs for former Synavant positions being eliminated and approximately$9,060,000 of costs to exit former Synavant facilities.

 

The liabilityaccrued for expenses to be incurred in exiting certain Synavant facilitiesincluded assumptions related to sublease income which offsets future leaseobligations.  The underlying subleasesare not in place for all facilities and the future placement of subleases,including the timing and terms and conditions of subleases, could be differentthan the assumptions.

 

The Companyanticipates that approximately $5,000,000, of the remaining accruedrestructuring balance will be utilized during the fourth quarter of 2003.  The Company exited certain Synavantfacilities during the third quarter of 2003. The activity related to the Synavant purchase accounting restructuringaccrual for the nine month period ended September 30, 2003 is summarizedin the table below:

 

10

----

 

|                               |   | **Purchase Accounting  Restructuring Accrual as  of June 16, 2003** |       | **Purchase Accounting  Cash Payments in  2003** |   | **Restructuring Accrual as  of September 30, 2003** |   |
|------------------------------------|--------|--------------------------------------------------------------------------|------------|-------------------------------------------------|--------|----------------------------------------------------------|--------|
|                               |   |                                                                     |       |                                            |   |                                                     |   |
| Termination payments to  employees |   | $                                                                        | 13,042,000 |                                            | $      | 5,658,000                                                |   | $ | 7,384,000 |   |
| Facility exit costs                |   | 9,060,000                                                                |       | 822,000                                         |   | 8,238,000                                                |   |
|                               |   | $                                                                        | 22,102,000 |                                            | $      | 6,480,000                                                |   | $ | 15,622,000 |   |

 

**8.  Goodwill and Intangible Assets**

 

Effective January 1,2002, the Company adopted SFAS 142, “Goodwill and other Intangible Assets.”SFAS 142 requires that goodwill and certain intangibles no longer be amortized,but instead be tested for impairment at least annually.  SFAS 142 also requires that intangibleassets with finite useful lives be amortized over their respective estimateduseful lives and reviewed for impairment in accordance with SFAS 121, which wassuperceded by SFAS 144. Based on the Company’s analysis, there was noimpairment of goodwill upon adoption of SFAS 142 on January 1, 2002. TheCompany conducts its annual impairment testing of goodwill as of October 1of each year.  For the year endedDecember 31, 2002 there was no impairment recorded.

 

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

 
|                                            |   | **As of September 30, 2003** |        | **As of December 31, 2002** |   |
|-------------------------------------------------|--------|-----------------------------------|-------------|----------------------------------|--------|
|                                            |   | **Gross**                         |        | **Accumulated  Amortization**    |   | **Net** |   | **Gross** |   | **Accumulated  Amortization** |   | **Net** |   |
| Intangible Assets Subject  To Amortization:     |   |                              |        |                             |   |   |   |   |   |   |   |   |   |
| Purchased capitalized  software                 |   | $                                 | 5,041,000   |                             | $      | 698,000 |   | $ | 4,343,000 |   | $ | 2,441,000 |   | $ | 166,000 |   | $ | 2,275,000 |   |
| Capitalized software  development costs         |   | 19,908,000                        |        | 14,006,000                       |   | 5,902,000 |   | 17,546,000 |   | 11,941,000 |   | 5,605,000 |   |
| Customer relationship  assets                   |   | 15,893,000                        |        | 815,000                          |   | 15,078,000 |   | 1,193,000 |   | 132,000 |   | 1,061,000 |   |
| Backlog                                         |   | 4,500,000                         |        | 437,000                          |   | 4,063,000 |   | — |   | — |   | — |   |
| Non-compete covenants                           |   | 3,344,000                         |        | 346,000                          |   | 2,998,000 |   | 1,217,000 |   | 37,000 |   | 1,180,000 |   |
| Total                                           |   | 48,686,000                        |        | 16,302,000                       |   | 32,384,000 |   | 22,397,000 |   | 12,276,000 |   | 10,121,000 |   |
|                                            |   |                              |        |                             |   |   |   |   |   |   |   |   |   |
| Intangible Assets Not  Subject to Amortization: |   |                              |        |                             |   |   |   |   |   |   |   |   |   |
| Goodwill                                        |   | 69,155,000                        |        | —                           |   | 69,155,000 |   | 12,353,000 |   | — |   | 12,353,000 |   |
| Trademarks                                      |   | 6,732,000                         |        | —                           |   | 6,732,000 |   | 732,000 |   | — |   | 732,000 |   |
| Total                                           |   | 75,887,000                        |        | —                           |   | 75,887,000 |   | 13,085,000 |   | — |   | 13,085,000 |   |
|                                            |   |                              |        |                             |   |   |   |   |   |   |   |   |   |
| Total goodwill and  intangible assets           |   | $                                 | 124,573,000 |                             | $      | 16,302,000 |   | $ | 108,271,000 |   | $ | 35,482,000 |   | $ | 12,276,000 |   | $ | 23,206,000 |   |

 

The activityin the carrying amount of goodwill for the nine month period endedSeptember 30, 2003 is as follows:

 

|     |   | **Balance as of  January 1, 2003** |       | **Additions** |   | **Balance as of  September 30, 2003** |   |
|----------|--------|-----------------------------------------|------------|---------------|--------|--------------------------------------------|--------|
| Goodwill |   | $                                       | 12,353,000 |          | $      | 56,802,000                                 |   | $ | 69,155,000 |   |
|          |        |                                         |            |               |        |                                            |        |  |  |  |

 

Aggregateannual amortization expense for intangible assets is estimated to be:

 

| Year Ending  December 31, |   |       |      |
|--------------------------------|--------|------------|-----------|
| 2003                           |   | $          | 6,575,000 |   |
| 2004                           |   | 7,369,000  |      |
| 2005                           |   | 5,626,000  |      |
| 2006                           |   | 2,924,000  |      |
| 2007                           |   | 1,240,000  |      |
| Thereafter                     |   | 11,669,000 |      |
|                                |        |            |           |  |

 

11

----

 

**9.Line of Credit**

 

The Company entered into a credit agreement (the “Agreement”) as ofJune 16, 2003, in the amount of $30 million with JPMorgan Chase Bank.  The Agreement replaced the Company’s thenexisting $15 million credit facility. The Agreement is available to finance working capital needs and possiblefuture acquisitions. The terms of the Agreement require the Company to maintaina minimum consolidated net worth, among other covenants, measured quarterly,which is equal to $130 million, plus 50% of net income earned afterApril 1, 2003 and 75% of the net proceeds of any offering of new equityinterests issued subsequent to June 30, 2003. The covenants effectivelylimit the amount of any cash dividends. The Agreement expires on July 1, 2005.  The Company borrowed and repaid $8,000,000 during the nine monthsended September 30, 2003.  Atno time during the nine month period ended September 30, 2003 did theCompany have more than $5,000,000 outstanding under the line of credit.  As ofSeptember 30, 2003, there were no borrowings outstanding under the Agreement and the Company was in compliance withall covenants.

 

**10. Customer and Geographic Segment Data**

 

For the three months ended September 30, 2003 and 2002, theCompany derived approximately 31% of its revenues from its largest customer andapproximately 51% of its revenues from its two largest customers,respectively.  For the nine months endedSeptember 30, 2003 and 2002, the Company derived approximately 39% of itsrevenues from its largest customer and approximately 47% of its revenues fromits two largest customers, respectively.

 

The Company isorganized by geographic locations and has one reportable segment. All transfersbetween geographic areas have been eliminated from consolidated revenues.Operating income/(loss) consists of total revenues recorded in the locationless operating expenses and does not include interest income, other expense orincome tax expense. This data is presented in accordance with SFAS 131,“Disclosure About Segments of an Enterprise and Related Information.”

 
|              |   | **For the Three Months Ended  September 30,** |       | **For the Nine Months Ended  September 30,** |   |
|-------------------|--------|----------------------------------------------------|------------|---------------------------------------------------|--------|
|              |   | **2003**                                           |       | **2002**                                          |   | **2003** |   | **2002** |   |
| Revenues:         |   |                                               |       |                                              |   |   |   |   |   |
| United States     |   | $                                                  | 65,223,000 |                                              | $      | 41,202,000 |   | $ | 165,068,000 |   | $ | 134,678,000 |   |
| All other         |   | 27,639,000                                         |       | 12,459,000                                        |   | 57,032,000 |   | 34,038,000 |   |
|              |   | $                                                  | 92,862,000 |                                              | $      | 53,661,000 |   | $ | 222,100,000 |   | $ | 168,716,000 |   |
| Operating income: |   |                                               |       |                                              |   |   |   |   |   |
| United States     |   | $                                                  | 6,181,000  |                                              | $      | 2,307,000 |   | $ | 18,736,000 |   | $ | 10,805,000 |   |
| All other         |   | 2,099,000                                          |       | 2,652,000                                         |   | 7,047,000 |   | 6,231,000 |   |
|              |   | $                                                  | 8,280,000  |                                              | $      | 4,959,000 |   | $ | 25,783,000 |   | $ | 17,036,000 |   |

 
|                 |   | **As of****September 30,  2003** |        | **As of****December 31,  2002** |   |
|----------------------|--------|---------------------------------------|-------------|--------------------------------------|--------|
| Identifiable assets: |   |                                  |        |                                 |   |
| United States        |   | $                                     | 216,317,000 |                                 | $      | 161,477,000 |   |
| All other            |   | 41,618,000                            |        | 26,999,000                           |   |
|                 |   | $                                     | 257,935,000 |                                 | $      | 188,476,000 |   |

 

For segmentreporting purposes, license revenues have been allocated to the sales office ofthe respective country in which the sales are made although the actual contractis with the U.S. entity for legal and tax purposes.

 

**11. Income Taxes**

 

In connectionwith the integration of the Synavant acquisition, discussed in Note 6, theCompany performed a reforecast of projected taxable income by jurisdiction andrecognized a full valuation allowance in the quarter ended June 30, 2003of approximately $608,000 on a net operating loss carry forward for one of itsforeign subsidiaries.

 

**12. ****Recent Accounting Pronouncements**

 

In November 2002, the Financial Accounting Standards Board (FASB)issued EITF 00-21*. *EITF 00-21 addresses the accounting for arrangementsthat involve the delivery or performance of multiple products, services orrights to use assets.  This consensus is

 

12

----

 

applicable to arrangements entered into for periods after June 15,2003.  Adopted for periods afterJune 15, 2003, EITF 00-21 did not have a material impact on the Company’sconsolidated financial statements.

 

**13. Subsequent Events**

 

Effective October 31, 2003, the Company entered into a subleaseagreement with Pharmacia & Upjohn Company for premises located inBedminster, New Jersey.  The premises,which the Company will occupy incrementally throughout 2004, consists of twobuildings totaling 233,000 square feet and will serve as the Company’s globalheadquarters.  The new building willconsolidate and replace the majority of the current Dendrite facilities locatedin New Jersey.

 

13

----

 

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

 

**FORWARD-LOOKING STATEMENTS**

 

This Form 10-Q may contain certain forward-looking statements withinthe meaning of Section 27A of the Securities Act of 1933 andSection 21-E of the Securities Exchange Act of 1934, which are intended tobe covered by the safe harbors created by such acts.  For this purpose, any statements that are not statements ofhistorical fact may be deemed to be forward-looking statements, including thestatements under “Management’s Discussion and Analysis of Financial Conditionand Results of Operations” regarding our strategy, future operations, futureexpectations or future estimates, future financial position and future plansand objectives of management.  Thosestatements in this Form 10-Q containing the words “believes,” “anticipates,”“plans,” “expects” and similar expressions constitute forward-lookingstatements, although not all forward-looking statements contain suchidentifying words.  These forward-lookingstatements are based on our current expectations, assumptions, estimates andprojections about our Company and the pharmaceutical and consumer packagedgoods industries.  All suchforward-looking statements involve significant risks and uncertainties,including those risks identified in this Form 10-Q under “Factors ThatMay Affect Future Results,” many of which are beyond our control.  Although we believe that the assumptionsunderlying our forward-looking statements are reasonable, any of theassumptions could be inaccurate and actual results may differ materially fromthose indicated by the forward-looking statements included in this Form 10-Q,as more fully described under “Factors That May Affect FutureResults.”  In light of the significantuncertainties inherent in the forward-looking statements included in this Form10-Q, you should not consider the inclusion of such information as arepresentation by us or anyone else that we will achieve such results.  Moreover, we assume no obligation to updatethese forward-looking statements to reflect actual results.  In addition, our financial and performanceoutlook concerning future revenues, margins, earnings, earnings per share andother operating or performance results does not include the impact of anyfuture acquisitions, future acquisition-related expenses or any futurerestructuring or other charges that may occur from time-to-time due tomanagement decisions and changing business circumstances and conditions.

 

**OVERVIEW**

 

Co-founded in 1986 by John E. Bailye, the Company’s Chairman and ChiefExecutive Officer, and incorporated in 1987, Dendrite was established toprovide sales force automation solutions for the pharmaceutical industry. Sincethen, it has broadened its offerings to include multiple sales and marketingsolutions and related services to life sciences clients.  Dendrite’s solutions now comprise a broadarray of knowledge-based, technology-driven solutions that increase theeffectiveness of sales, marketing and clinical processes for pharmaceutical andother life sciences clients including: Customer Relationship Management (CRM)Solutions, Information Management, Business Intelligence and Analytics andCommercial Operations Management.

 

Dendrite’s primary markets are the United States, United Kingdom,France, Spain and Japan.  We billservices provided by our foreign branches and subsidiaries in local currencies.Operating results generated in local currencies are translated into U.S.dollars at the average exchange rate in effect for the reporting period.  We generated approximately 26% and 20% ofour total revenues outside the United States during each of the nine monthsended September 30, 2003 and 2002, respectively.  Our revenues and operating results by geographic segment are shownin Note 10 of the Notes to Unaudited Consolidated Financial Statements.

 

**CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES**

 

A critical accounting policy is one that is both very important to theportrayal of a company’s financial position and results of operations andrequires management’s most difficult, subjective or complex judgments.  The Company believes its critical accountingpolicies to be revenue recognition, accounting for restructuring, acquisitions,impairments and income taxes.

 

**Revenue Recognition**

The area of revenue recognition requires the Company’s management tomake significant judgments and estimates. AICPA Statement of Position (SOP) 97-2, “Software Revenue Recognition,”governs revenue recognition for arrangements that include software, which is,more than incidental to the arrangement. Under SOP 97-2, if a sale of software includes services that areessential to the functionality of the software, then the software and essentialservices are to be accounted for using contract accounting as described inAccounting Research Bulletin 45, “Long-Term Construction-Type Contracts,” andSOP 81-1, “Accounting for Performance of Construction-Type and CertainProduction-Type Contracts.”  Thedetermination of whether or not services are essential to the functionality ofthe software can differ from arrangement to arrangement and requires the use ofsignificant judgment by management. Factors used in determining whether or not services are essential to thefunctionality may include: whether or not physical changes are being made tothe software’s underlying source code; the complexity of software configurationservices; the level of effort required to build interfaces; the overallrelationship of the service fees to the license fees; the length of timeexpected to complete the services; and whether or not the services can beobtained by a customer from their internal resources or another third-partyvendor.  If services are not consideredto be essential to the functionality of the software, SOP 97-2 generally allowscompanies to recognize revenue for software licenses upon delivery of thelicenses, prior to configuration or implementation services, provided that theother requirements of the SOP are met. In management’s judgment, the Company’s configuration and implementationservices generally are essential to the functionality of its software.  Therefore, the Company typically recognizesrevenues using the 

 

14

----

 

percentage-of-completion method as detailed in SOP 81-1.

 

Many of the Company’s arrangements include multiple deliverables.  In the absence of higher-level specificauthoritative guidance, the Company determines the units of accounting formultiple element arrangements in accordance with EITF 00-21, RevenueArrangements with Multiple Deliverables. Specifically, the Company will consider a delivered item as a separateunit of accounting if it has value to the customer on a standalone basis, ifthere is objective and reliable evidence of the fair value of the deliveredelement, and if the arrangement includes a general right of return relative tothe delivered element and the delivery or performance of the undeliveredelement is considered probable and is substantially within the Company’scontrol.  The determination of whetheror not arrangements meet these criteria requires significant judgment on thepart of the Company’s management.  Ifthe Company’s arrangements did not meet the separation criteria of EITF 00-21,the timing of revenue recognition could be delayed.

 

The percentage-of-completion method of revenue recognition requiresmanagement to use significant estimates in measuring the progress-to-completionfor each project.  For its license feeand implementation service projects, the Company uses the input measure oflabor incurred as compared with total expected labor for the entireproject.  The determination of totalproject labor requires the use of significant judgment and estimates. We reviewthese estimates on a monthly basis. Actual results could differ from these estimates, which would haveimpacted the amount of revenue previously recognized had better estimates beenavailable at the time.

 

**Accounting forRestructuring**

During 2002, in connection with the purchase accounting related to theSAI acquisition, the Company established an accrual related to costs incurredin connection with exiting SAI’s facility. During 2003, in connection with the purchase accounting related to theSynavant acquisition, the Company established certain accruals related to costsincurred in connection with exiting multiple Synavant facilities and reducingthe size of the work force based on estimates made at the time of acquisition.

 

**Accounting forAcquisitions**

The purchase combinations carried out by us require management toestimate the fair value of the assets acquired and liabilities assumed in thecombinations. These estimates of fair value are based on our business plan forthe entities acquired including planned redundancies, restructuring, use ofassets acquired and assumptions as to the ultimate resolution of obligationsassumed for which no future benefit will be received. We also utilize appraisalreports issued by independent appraisers. Should actual use of assets orresolution of obligations differ from our estimates, revisions to the estimatedfair values would be required.

 

**Accounting for Impairments**

We review long-lived assets for impairment whenever events or changesin circumstances indicate that the carrying amount of an asset might not berecoverable.  If indicators of impairmentare present, we evaluate the recoverability of the long-lived assets, otherthan goodwill and indefinite lived intangibles, by estimating futureundiscounted cash flows that are directly associated with and expected to ariseas a direct result of the use and eventual disposition of the long-livedasset.  If this estimate of futureundiscounted cash flows demonstrates that recoverability is not probable, animpairment loss would be calculated and recognized based on the excess carryingvalue of the long-lived asset over the long-lived asset’s fair value.  The estimate of the fair value and thefuture undiscounted cash flows of the underlying long-lived assets are based onsignificant judgment and assumptions.

 

We review capitalized software development costs and purchasedcapitalized software development costs for impairment at each balance sheetdate to determine if the unamortized capitalized costs of a computer softwareproduct is greater than the net realizable value of that product.  In instances where the unamortizedcapitalized costs are greater than the net realizable value, we will record animpairment loss.

 

We assess the impairment of goodwill and indefinite lived intangibleson an annual basis (as of October 1 of each year), and whenever events orchanges in circumstances indicate that the carrying value may not berecoverable. Some factors we consider important which could trigger animpairment review include the following:

 

•                  Significantunderperformance relative to historical or projected future operating results;

•                  Significantchanges in our use of the acquired assets or the strategy for our overallbusiness; and

•                  Significantnegative industry or economic trends.

 

On an annual basis, or when we determine that the carrying value ofgoodwill may not be recoverable based upon the existence of one or more of theabove indicators of impairment, we compare the fair value of the reporting unitto its carrying value.  If the carryingvalue exceeds fair value, we calculate the implied fair value of the goodwillfor the reporting unit and compare it to the carrying value of the goodwill forthe reporting unit.  If the implied fairvalue of the goodwill were less than the carrying value of the goodwill, wewould recognize in our consolidated statement of operations an impairment lossequal to such difference, not to exceed the carrying value.

 

15

----

 

On an annual basis, or when we determine that the carrying value of anindefinite lived intangible asset may not be recoverable based upon theexistence of one or more of the above indicators of impairment, we compare thefair value of the indefinite lived intangible asset to its carrying value.  If the carrying value exceeds fair value, animpairment loss will be recognized in an amount equal to the difference.  If we deem the useful life to be no longerindefinite, after testing for impairment in accordance with the applicablerules stated above, we would amortize the intangible asset over its estimateduseful life, following the pattern in which the expected benefits will beconsumed or otherwise used up as well as continue to review for impairment inthe future annually.

 

**Accounting for Income Taxes**

We recognize deferred tax assets and liabilities based on the differencesbetween the financial statement carrying amounts and the tax basis of assetsand liabilities.  The Company regularlyreviews its deferred tax assets for recoverability and establishes a valuationallowance based on historical taxable income, projected future taxable incomeand the expected timing of the reversals of existing temporary differences, allof which require significant management judgments. Realization is dependent ongenerating sufficient taxable income of a correct character prior to theexpiration of the loss carryforwards, capital loss and foreign tax creditcarryforwards.  Although realization isnot assured, management currently believes it is more likely than not that therecorded net deferred tax asset will be realized; however, the asset could bereduced in the near term if estimates of future taxable income during thecarryforward period are reduced.

 

**RECENT DEVELOPMENTS**

 

On June 16, 2003, the Company completed its acquisition ofSynavant Inc. (“Synavant”).  Synavantprovided a broad range of knowledge-based services to pharmaceutical and otherlife sciences companies around the world. Its comprehensive global solutions included pharmaceutical CustomerRelationship Management (CRM) applications, interactive marketing, server anddatabase management, dedicated local helpline support, training, telemarketing,sample management and product recall services. Synavant was headquartered in Atlanta, Georgia, and had offices in 21countries.  The combining of resourcesof Synavant with the existing resources of Dendrite creates a comprehensiveinformation, software and services company dedicated to the global lifesciences industry, and further enhances Dendrite’s ability to provide marketleading solutions to the sales, marketing and clinical functions ofpharmaceutical and other life sciences companies. Synavant’s results ofoperations have been included in the accompanying consolidated financialstatements since the date of acquisition.

 

The acquisition was completed pursuant to an Agreement and Plan ofMerger, dated as of May 9, 2003 and amended as of May 16, 2003 (asamended, the “Merger Agreement”) by and among Dendrite, Synavant and AmgisAcquisition Co. (“Amgis”), a wholly-owned subsidiary of Dendrite.  Amgis and Dendrite conducted an all cashtender offer to acquire all outstanding shares of Synavant common stock at$3.22 per share.  The consideration paidin the acquisition was a result of a bidding process and arms-lengthnegotiations between the executive officers and the boards of directors ofSynavant and Dendrite.

 

The aggregate purchase price was approximately $54,813,000 and includedconsideration paid for the common stock and approximately $3,128,000 of legaland professional fees incurred in connection with the transaction.  The Company is in the process of finalizinga third party valuation of certain intangible assets, as well as its evaluationof acquired facilities and personnel for redundancy and, therefore, thepurchase price allocation is preliminary and subject to adjustment.

 

In connection with the acquisition of Synavant, discussed in Note 6,  the Company plans to restructure thecombined operations by exiting certain former Synavant facilities andeliminating certain former Synavant positions. The Company accrued approximately $22,102,000 at June 16, 2003 forliabilities associated with the cost of completing the restructuring plan.  The components of this accrued liability areapproximately $13,042,000 of severance costs for former Synavant positionsbeing eliminated and approximately $9,060,000 of costs to exit former Synavantfacilities.

 

The liability accrued for expenses incurred in exiting certain Synavantfacilities included assumptions related to sublease income which offsets futurelease obligations.  The underlyingsubleases are not in place for all facilities and the future placement ofsubleases, including the timing and terms and conditions of subleases, could bedifferent than the assumptions.

 

**RESULTS OF OPERATIONS**

 

Thefollowing discussion of the Company’s results of operations includes theresults of Synavant for the period from the June 16, 2003 acquisitiondate.  The following discussion of ourresults of operations also, where indicated, segregates and reconciles theresults of Synavant to total Company results. The Company believes that segregating Synavant’s results from the dateof acquisition provides investors with useful information, on a comparativebasis, on the impact of Synavant on overall Company operations for the threeand nine month periods ended September 30, 2003.  The Company also believes that information concerning Synavant’scontribution to 2003 revenues provides investors additional informationconcerning Dendrite’s historical business performance.  Dendrite management also internally usesthese non-GAAP adjusted amounts in reviewing and evaluating its historicperiod-over-period operating performance as well as its combined businessperformance, and in managing its overall business.  All such non-GAAP information is supplemental to informationpresented in accordance with generally accepted accounting principles (GAAP)and

 

16

----

 

is notintended to represent a presentation in accordance with GAAP and should not beconsidered as a substitute for, or superior to, measures of performanceprepared and presented in accordance with GAAP.

 

**THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002**

 

***REVENUES.***  Total revenues increased to $92,862,000for the three months ended September 30, 2003, up $39,201,000, or 73%,from $53,661,000 for the three months ended September 30, 2002.  Total revenues for the three months endedSeptember 30, 2003 includes $32,446,000 of revenues recognized fromSynavant.  Excluding the revenuerecognized from Synavant, revenues increased by $6,755,000, or 13%, for thethree months ended September 30, 2003 over the corresponding prior yearperiod.

 

License fee revenues increased to $2,696,000 for the three months endedSeptember 30, 2003, up $420,000, or 18%, from $2,276,000 for the threemonths ended September 30, 2002. License fee revenues for the three months ended September 30, 2003includes $746,000 of revenues recognized from Synavant.  Excluding the results of Synavant, licensefee revenues decreased $326,000, or 14%, for the three months endedSeptember 30, 2003 from the corresponding prior year period.  This decrease in third quarter 2003 licenserevenues was due to fewer expansion licenses.

 

Service revenues increased to $90,166,000 for the three months endedSeptember 30, 2003, up $38,781,000, or 75%, from $51,385,000 for the threemonths ended September 30, 2002. Service revenues for the three months ended September 30, 2003includes $31,700,000 of revenues recognized from Synavant, of whichapproximately $3,147,000 was attributable to pass-through postage of theinteractive marketing business. Excluding the results of Synavant, service revenues increased$7,081,000, or 14%, for the three months ended September 30, 2003 over thecorresponding prior year period.  This increasewas driven primarily by the  Company’sgrowth of approximately 9% in our technical services, 14% in our internationalservices, 27% in our sales support services and more than 200% in ourconsulting and data businesses, offset in part by an 8% decrease in low grossmargin or reimbursable revenue.

 

***COST OF REVENUES.***  Total cost of revenues increased to$46,973,000 for the three months ended September 30, 2003, up $21,618,000,or 85%, from $25,355,000 for the three months ended September 30,2002.  The primary drivers behind theincrease in cost of revenues were the Synavant and SAI acquisitions.

 

Cost of license fees increased to $1,133,000 for the three months endedSeptember 30, 2003, up $288,000, or 34%, from $845,000 for the threemonths ended September 30, 2002. Cost of license fees for the three months ended September 30, 2003are comprised of the amortization of capitalized and purchased software costsof $838,000 and third party vendor license fees of $295,000.  Cost of license fees for the same period in2002 is comprised of the amortization of capitalized and purchased softwarecosts of $648,000 and third party vendor license fees of $197,000.  The increase in amortization of capitalizedand purchased software costs relates primarily to the amortization of assetsobtained from the SAI acquisition.  Thethird party vendor license fees primarily increased due to the growth in thirdparty license fee revenues.

 

Cost of services increased to $45,840,000 for the three months endedSeptember 30, 2003, up $21,330,000, or 87%, from $24,510,000 for the threemonths ended September 30, 2002. This increase is a result of additional costs due to the increase inheadcount and associated costs from the Synavant and SAI acquisitions as wellas the increase in pass-through postage expenses of approximately $3,147,000attributable to the Synavant interactive marketing business, offset in part bythe impact of the Company’s cost reduction actions in the third quarter of2002.

 

***GROSS MARGIN. ***Totalgross margin for the three months ended September 30, 2003 and 2002 was49% and 53%, respectively.

 

Gross margin for license fees was 58% and 63% for the three monthsended September 30, 2003 and 2002, respectively.  The gross margin decreased primarily due to an increase inamortization of capitalized and purchased software costs associated with theSAI acquisition, offset in part by the increase in third party license feerevenues.

 

Gross margin for services was 49% and 52% forthe three months ended September 30, 2003 and 2002, respectively.  The decrease in gross margin for servicesrelates primarily to an increase in pass-through postage revenue ofapproximately $3,147,000 for the three months ended September 30, 2003, comparedto the three months ended September 30, 2002.  Excluding the pass-through postage revenue, gross margin forservices would have been 51% for the three months ended September 30,2003.  Also contributing to the decreasein gross margin was the inclusion of certain lower margin business from the Synavantacquisition, offset in part by efficiencies gained from cost reduction actionsin the third quarter of 2002.

 

The Company believes that segregating thegross margin impact of pass-through postage revenue provides investors andmanagement with useful information, on a comparative basis, on the impact ofthis particular service item on the overall gross margin of services.

 

17

----

 

***SELLING, GENERAL ANDADMINISTRATIVE (SG&A) EXPENSES.***  SG&A expenses increased to$34,746,000 for the three months ended September 30, 2003, up $15,593,000,or 81%, from $19,153,000 for the three months ended September 30,2002.  This increase in SG&A expenseprimarily relates to the Synavant acquisition. As a percentage of revenues, SG&A expenses increased to 37% from 36%for the three months ended September 30, 2003 and 2002, respectively. Theincrease in SG&A as a percentage of revenues primarily reflects theadditional operating costs from the Synavant and SAI acquisitions and theincrease in amortization expense as a result of the Synavant and SAIacquisitions, partially offset by the impact of the Company’s cost reductionactions in the third quarter of 2002.

 

***RESEARCH ANDDEVELOPMENT (R&D) EXPENSES.***  R&Dexpenses increased to $2,863,000 for the three months ended September 30,2003, up $501,000, or 21%, from $2,362,000 for the three months endedSeptember 30, 2002.  As apercentage of revenues, R&D expenses decreased to 3% for the three-monthperiod ended September 30, 2003, compared to 4% for the three-month periodended September 30, 2002.  Thedecrease in R&D expenses as a percentage of revenues for the three monthsended September 30, 2003 was due to the increase in revenues from theSynavant acquisition, offset in part by higher employment costs related to theSAI acquisition.

 

***ASSETIMPAIRMENT. ***Duringthe three months ended September 30, 2002, the Company reviewed thecarrying value of its long-lived assets including the facility held forsale.  Based upon a third-party valuation,the carrying value of the facility held for sale was adjusted to $6,900,000,which approximates its fair value less costs to sell.  The resulting $1,832,000 impairment loss was recorded as aseparate line item in the statement of operations.

 

***PROVISION FOR INCOMETAXES.***The annual estimated effective tax expenserate was 40% for the three months ended September 30, 2003, compared to50% for the three months ended September 30, 2002.  In July 2002, the State of New Jerseyenacted new tax legislation that adversely impacted the effective state taxrate of most companies operating in New Jersey.  The tax provision for the three months ended September 30,2002 reflects the retroactive impact of the higher tax rate for the six monthsended June 30, 2002, resulting in approximately $508,000 of additionalincome tax expense for the three months ended September 30, 2002, as wellas a provision for that quarter’s pre-tax earnings of approximately 40%.

 

**NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002**

 

***REVENUES.***  Total revenues increased to $222,100,000for the nine months ended September 30, 2003, up $53,384,000, or 32%, from$168,716,000 for the nine months ended September 30, 2002.  Total revenues for the nine months endedSeptember 30, 2003 includes $39,872,000 of revenues recognized fromSynavant.  Excluding the revenuesrecognized from Synavant, revenues increased $13,512,000, or 8%, for the ninemonths ended September 30, 2003 over the corresponding prior year period.

 

License fee revenues increased $250,000, or 3%,**to$8,011,000 for the nine months ended September 30, 2003 from $7,761,000for the nine months ended September 30, 2002.  License fee revenues for the nine months ended September 30,2003 includes $832,000 of revenues recognized from Synavant.  Excluding the results of Synavant, licensefee revenues decreased $582,000, or 7%, for the nine months endedSeptember 30, 2003 over the corresponding prior year period.  License fees are, by nature, non-recurringitems.  The majority of license feesrecognized during the nine months ended September 30, 2003 related tolicenses being recognized using the percentage-of-completion method as serviceswere performed.

 

Service revenues increased to $214,089,000 for the nine months endedSeptember 30, 2003, up $53,134,000, or 33%, from $160,955,000 for the ninemonths ended September 30, 2002. Service revenues for the nine months ended September 30, 2003includes $39,040,000 of revenues recognized from Synavant, of whichapproximately $4,097,000 was attributable to pass-through postage of theinteractive marketing business. Excluding the results of Synavant, service revenues increased$14,094,000, or 9%, for the nine months ended September 30, 2003 over thecorresponding prior year period.  Thisincrease was primarily driven by the Company’s growth of approximately 16% inour technical services, 16% in our international services, 12% in our salessupport services and more than 100% in our data and consulting business, offsetin part by a 56% decrease in low gross margin or reimbursable revenue.

 

***COST OF REVENUES.***  Total cost of revenues increased to$111,574,000 for the nine months ended September 30, 2003, an increase of$27,313,000, or 32%, from $84,261,000 for the nine months endedSeptember 30, 2002.  The primarydriver of the increase in cost of revenues was the Synavant and SAIacquisitions.

 

Cost of license fees increased to $3,405,000 for the nine months endedSeptember 30, 2003, an increase of $629,000, or 23%, from $2,776,000 forthe nine months ended September 30, 2002. Cost of license fees for the nine months ended September 30, 2003is comprised of the amortization of capitalized and purchased software costs of$2,517,000 and third party vendor license fees of $888,000.  Cost of license fees for the same period in2002 is comprised of the amortization of capitalized and purchased softwarecosts of $1,945,000 and third party vendor license fees of $831,000. Theincrease in amortization of capitalized and purchased software costs relateprimarily to the amortization of the assets obtained from the SAI acquisition.

 

18

----

 

Cost of services increased to $108,169,000 for the nine months endedSeptember 30, 2003, up $26,684,000, or 33%, from $81,485,000 for the ninemonths ended September 30, 2002. The increase in cost of services is primarily a result of the additionalcosts due to the increase in headcount and associated costs from the Synavantand SAI acquisitions as well as the pass-through postage expenses of approximately$4,097,000, offset by decreases in low gross margin or reimbursable revenue andefficiencies gained from cost reduction actions in the third quarter of 2002.

 

***GROSS MARGIN.***Total gross margin for the nine months ended September 30, 2003 and 2002was 50%.

 

Gross margin for license fees was 57% for the nine months endedSeptember 30, 2003, down from 64% for the nine months endedSeptember 30, 2002.  The decreasein gross margin was primarily impacted by increased amortization of capitalizedand purchased software costs relating to the assets obtained from the SAIacquisition.

 

Gross margin for services was 49% for the nine months endedSeptember 30, 2003 and 2002.  Theconsistent gross margin for services was attributable to the efficienciesgained from the Company’s cost reduction actions in the third quarter of 2002,offset by the inclusion of certain lower margin business from the Synavantacquisition.

 

***SELLING, GENERAL ANDADMINISTRATIVE (SG&A) EXPENSES.***  SG&A expenses increased to$75,968,000 for the nine months ended September 30, 2003, up $17,827,000,or 31%, from $58,141,000 for the nine months ended September 30,2002.  This increase reflects theadditional operating costs from the Synavant and SAI acquisitions, including:higher employment costs; higher professional fees; and amortization expense,partially offset by the impact of the Company’s third quarter 2002 costreduction measures.  As a percentage ofrevenues, SG&A remained constant at 34% of revenues for the nine monthsended September 30, 2003 and 2002.

 

***RESEARCH ANDDEVELOPMENT (R&D) EXPENSES.***  R&Dexpenses increased to $8,775,000 for the nine months ended September 30,2003, up $1,329,000, or 18%, from $7,446,000 for the nine months endedSeptember 30, 2002.  As apercentage of revenues, R&D expenses remained relatively constant at 4% forthe nine months ended September 30, 2003 and 2002.  The increase in R&D expenses relates tohigher employment costs due to the increase in headcount from the SAIacquisition.

 

***ASSETIMPAIRMENT. ***Duringthe nine months ended September 30, 2002, the Company reviewed thecarrying value of its long-lived assets including the facility held forsale.  Based upon a third-partyvaluation, the carrying value of the facility held for sale was adjusted to$6,900,000, which approximates its fair value less costs to sell.  The resulting $1,832,000 impairment loss wasrecorded as a separate line item in the statement of operations.

 

***PROVISION FOR INCOMETAXES.***  The annual estimated effective taxexpense rate recorded for the nine months ended September 30, 2003 was42%, compared to 40% for the nine months ended September 30, 2002.  In connection with the Synavant integration,the Company performed a reforecast of projected taxable income by jurisdictionand recognized a full valuation allowance on a net operating loss carryforwardfor one of its foreign subsidiaries of approximately $608,000, which increasedthe effective tax expense rate by 2%. Prior to the acquisition of Synavant, the Company’s forecasted effectivetax expense rate for the nine months ended September 30, 2003 was 40%.

 

**LIQUIDITY AND CAPITALRESOURCES**

 

We finance our operations primarily through cash generated byoperations.  Net cash provided byoperating activities was $12,906,000 and $13,223,000 for the nine months endedSeptember 30, 2003 and 2002, respectively.

 

Cash from operations reported for the nine months endedSeptember 30, 2003 was generated primarily from considerable growth in netincome adjusted for non-cash items.  Inaddition, the Company generated strong cash receipts of $15,443,000 fromaccounts receivable, which was attributed mainly to the collection ofreceivables obtained in connection with the June 16, 2003 acquisition ofSynavant, the receipt of a $3,328,000 payment against a five year contractedreceivable discussed below, and overall collections improvement within theCompany’s existing accounts.  The cashgenerated from net income and accounts receivable collections was partiallyoffset by $22,866,000 of cash disbursements related to accrued expenses andaccrued purchasing accounting charges incurred as part of the Synavantacquisition.

 

For the nine months ended September 30, 2002, cash from operationswas primarily generated through net income adjusted for non-cash items, partiallyoffset by payments of accounts payable and accrued purchase accountingrestructuring charges.  No cash wasgenerated from accounts receivable during the nine months endedSeptember 30, 2002, as the cash collected from Dendrite’s operations wasoffset by the addition of a 5 year contracted receivable of $9,642,000, ofwhich $6,314,000 was long term.

 

Cash used in investing activities was $59,317,000 for the nine monthsended September 30, 2003, compared to $23,499,000 for the nine monthsended September 30, 2002.  Theincrease of $35,818,000 was primarily attributable to the cash used for theSynavant

 

19

----

 

acquisition in excess of cash used for the SAI acquisition as well as adecrease in purchases of property and equipment of $3,322,000 during the ninemonths ended September 30, 2003, compared to the corresponding prior yearperiod.

 

Cash provided by financing activities was $3,989,000 for the ninemonths ended September 30, 2003, compared to $1,113,000 for the ninemonths ended September 30, 2002. The increase of $2,876,000 was primarily attributable to an increase instock option exercises during the nine months ended September 30, 2003.  Due to the timing of the disbursements ofcash for the Synavant acquisition, the Company borrowed and repaid $8,000,000from its line of credit during the nine months ended September 30,2003.  At no time during the nine monthperiod ended September 30, 2003 did the Company have more than $5,000,000outstanding under the line of credit.

 

At September 30, 2003, working capital was approximately$32,209,000.  Cash and investments were10% of total assets as of September 30, 2003, compared with 37% as ofDecember 31, 2002.  The Company’sdays sales outstanding in accounts receivable was 62 days as ofSeptember 30, 2003 compared with 73 days as of December 31,2002.  The Company believes thatavailable funds, anticipated cash flows from operations and the availability ofour line of credit will be sufficient to satisfy our current projected workingcapital and capital expenditure requirements, exclusive of cash required forany possible future acquisitions of businesses, products and technologies,during the next twelve to eighteen months.

 

The Company regularly evaluates opportunities to acquire products orbusinesses complementary to our operations. Such acquisition opportunities, ifthey arise and are successfully completed, may involve the use of cash orequity instruments.

 

**ContractualObligations and Commitments**

 

The Company entered into a credit agreement(the “Agreement”) as of June 16, 2003, in the amount of $30 million withJPMorgan Chase Bank.  The Agreementreplaced the Company’s then existing $15 million credit facility.  The Agreement is available to finance workingcapital needs and possible future acquisitions. The terms of the Agreementrequire the Company to maintain a minimum consolidated net worth, among othercovenants, measured quarterly, which is equal to $130 million, plus 50% of netincome earned after April 1, 2003 and 75% of the net proceeds of anyoffering of new equity interests issued subsequent to June 30, 2003. Thecovenants effectively limit the amount of any cash dividends.  The Agreement expires on July 1,2005.  The Company borrowed and repaid$8,000,000 during the nine months ended September 30, 2003.  At no time during the ninemonth period ended September 30, 2003 did the Company have more than$5,000,000 outstanding under the line of credit.  As of September 30,2003, there were no borrowings outstanding under the Agreement and the Companywas in compliance with all covenants.

 

As of September 30, 2003, the Company did not have any materialcommitments for capital expenditures. Our principal commitments atSeptember 30, 2003 consisted primarily of obligations under operating andcapital leases as well as future minimum guarantees to certain vendors. Futureminimum payments on these obligations are as follows:

 
|                        |   | **Payments Due by Period** |       |
|-----------------------------|--------|----------------------------|------------|
| **Contractual Obligations** |   | **Total**                  |       | **2003** |   | **2004** |   | **2005** |   | **2006** |   | **2007** |   | **Thereafter** |   |
| Capital leases              |   | $                          | 1,726,000  |   | $ | 581,000 |   | $ | 986,000 |   | $ | 159,000 |   | $ | — |   | $ | — |   | $ | — |   |
| Minimum guarantees          |   | 754,000                    |       | 313,000 |   | 441,000 |   | — |   | — |   | — |   | — |   |
| Operating leases            |   | 79,931,000                 |       | 4,738,000 |   | 15,560,000 |   | 11,062,000 |   | 9,604,000 |   | 7,880,000 |   | 31,087,000 |   |
| Total                       |   | $                          | 82,411,000 |   | $ | 5,632,000 |   | $ | 16,987,000 |   | $ | 11,221,000 |   | $ | 9,604,000 |   | $ | 7,880,000 |   | $ | 31,087,000 |   |

 

Excluded from the operating lease obligations disclosed above is thesublease entered into effective October 31, 2003, with Pharmacia &Upjohn Company, for premises located in Bedminster, New Jersey.  The premises, which the Company will occupyincrementally throughout 2004, consists of two buildings totaling 233,000square feet and will serve as the Company’s global headquarters.  The new building will consolidate andreplace the majority of the current Dendrite facilities located in New Jersey.

 

As of September 30, 2003, $996,000 of letters of credit wereoutstanding.

 

The Company has an agreement with a venture capital fund with acommitment to contribute $1,000,000 to the fund, callable at the discretion ofthe general partner in $100,000 increments. As of September 30, 2003, $400,000 has been paid, with $600,000 ofcommitment remaining.  The agreement hasa termination date of December 11, 2010, subject to extension with theconsent of a majority in interest of the limited partners.

 

20

----

 

**FACTORSTHAT MAY AFFECT FUTURE RESULTS**

 

**OUR BUSINESS IS HEAVILY DEPENDENT ON THEPHARMACEUTICAL INDUSTRY**

 

Most of our customer relationship management(CRM), sales force automation (SFA) and data products and services arecurrently used in connection with the marketing and sale of prescription-onlydrugs. This market is undergoing a number of significant changes. Theseinclude:

 

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

 

•                  regulatorychanges that permit the over-the-counter sale of formerly prescription-onlydrugs;

 

•                  increasingFood and Drug Administration activism; and

 

•                  competitivepressure on the pharmaceutical industry resulting from the continuing shift todelivery of healthcare through managed care organizations.

 

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

 

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

 

Historically, a limited number of our customers have contributed asignificant percentage of the Company’s revenues.  The Company anticipates that its operating results in any givenperiod will continue to depend significantly upon revenues from a small numberof customers. The loss of any of these customers (which could include lossthrough mergers and acquisitions) could have a materially adverse effect on theCompany’s business. 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 the Company.

 

**BUSINESSAND ECONOMIC PRESSURES ON OUR MAJOR CUSTOMERS MAY CAUSE A DECREASE INDEMAND FOR OUR NEW PRODUCTS AND SERVICES**

 

Business and economic pressures on our majorcustomers may result in budget constraints that directly impact their abilityto purchase the Company’s products and services offerings.  We cannot assure you that any decrease indemand caused by these pressures will not have a material adverse effect on ourbusiness, operating results or financial condition.

 

**OUR LENGTHY SALES AND IMPLEMENTATION CYCLESMAKE IT DIFFICULT TO PREDICT OUR QUARTERLY REVENUES**

 

The selection of a CRM or SFA solution generally entails an extendeddecision-making process by our customers because of the strategic implicationsand substantial costs associated with a customer’s license or implementation ofthe solution.  Given the importance ofthe decision, senior levels of management of our customers are often involvedin the process and, in some instances, its board of directors may also beinvolved.  As a result, thedecision-making process typically takes nine to eighteen months, and in certaincases longer.  Accordingly, we cannotfully control or predict the timing of our execution of contracts withcustomers.

 

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

 

**OUR FIXED COSTS MAY LEAD TO FLUCTUATIONSIN OUR QUARTERLY OPERATING RESULTS IF REVENUES FALL BELOW EXPECTATIONS**

 

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. In addition, we may increase sales andmarketing expenses if competitive pressures become greater than originallyanticipated.  Since only a small portionof our expenses varies directly with our actual revenues, our operating resultsand profitability are likely to be adversely and disproportionately affected ifour revenues fall below our targeted goals or expectations.

 

21

----

 

**WE MAY BE UNABLE TO SUCCESSFULLYINTRODUCE NEW PRODUCTS OR RESPOND TO TECHNOLOGICAL CHANGE**

 

The market for CRM and SFA products changesrapidly because of frequent improvements in computer hardware and softwaretechnology. Our future success will depend, in part, on our ability to:

 

•                  useavailable technologies and data sources to develop new products and servicesand to enhance our current products and services;

 

•                  introducenew solutions that keep pace with developments in our target markets; and

 

•                  addressthe changing and increasingly sophisticated needs of our customers.

 

We cannot assure you that we willsuccessfully develop and market new products or product enhancements thatrespond to technological advances in the marketplace, or that we will do so ina timely fashion. We also cannot assure you that our products will adequately and competitively address the needs of thechanging 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 be shorterthan we anticipate. If that happens, our business, operating results orfinancial condition could be adversely affected.

 

To remain competitive, we also may have tospend more of our revenues on product research and development than we have inthe past. As a result, our results of operations could be materially andadversely affected.

 

Further, our software products aretechnologically complex and may contain previously undetected errors orfailures. We cannot assure you that, despite our testing, our new products willbe free from significant errors.  Softwareerrors could cause delays in the commercial release of products until theerrors have been corrected.  Softwareerrors may cause us to be in breach of our agreements with customers, whichcould result in termination of the agreements and monetary damages.  Software errors may cause damage to ourreputation and cause us to commit significant resources to their correction.  Errorsthat result in termination of agreements, monetary damages, losses or delayscould have a material adverse effect on our business, operating results orfinancial condition.

 

**INCREASED COMPETITION MAY RESULT INPRICE REDUCTIONS AND DECREASED DEMAND FOR OUR PRODUCTS AND SERVICES**

 

There are a number of other companies that sellCRM and 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 potential competitors are part of largecorporate groups and have significantly greater financial, sales, marketing,technology and other resources than we have.

 

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

 

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

 

•                  thenumber and success of new market entrants supplying competing CRM and SFA productsor support services;

 

•                  expansionof product lines by, or consolidation among, our existing competitors; and

 

•                  developmentand/or operation of in-house CRM or SFA software products or services by ourcustomers and potential customers.

 

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

 

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

 

The success of parts of ourbusiness will depend, in part, on our ability to continue developingInternet-related products and responding to technological advances and changingcommercial uses of the Internet.  Wecannot assure you that our Internet-related products and services willadequately respond to such technological advances and changing uses.  Nor can we assure you that the demand forInternet-related products and services will increase.

 

22

----

 

**OUR INTERNATIONAL OPERATIONS HAVE RISKS THATOUR DOMESTIC OPERATIONS DO NOT**

 

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

 

•                  anyadverse change in the political or economic environments in these countries orregions;

 

•                  anyadverse change in tax, tariff and trade or other regulations;

 

•                  theabsence or significant lack of legal protection for intellectual propertyrights;

 

•                  exposureto exchange rate risk for service revenues which are denominated in currenciesother than U.S. dollars; and

 

•                  difficultiesin managing an organization spread over various jurisdictions.

 

**WE FACE RISKS ASSOCIATED WITH OURACQUISITIONS**

 

Our business may be materially and adverselyaffected as a result of the risks associated with our acquisitions, includingour recent acquisitions of Synavant and SAI. As part of our business strategy, we have acquired, and in the futuremay acquire, businesses that offer complementary products, services ortechnologies.  These acquisitions areaccompanied by substantial risks, including:

 

•                  theeffect of the acquisitions on our financial and strategic position;

 

•                  ourinability to successfully integrate the acquired business as we had originallyexpected;

 

•                  thefailure of an acquired business to further our strategies;

 

•                  ourinability to achieve the expected cost and business synergies;

 

•                  thedifficulty of integrating the acquired business;

 

•                  thediversion of our management’s attention from other business concerns;

 

•                  theimpairment of relationships with customers of the acquired business;

 

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

 

•                  thepotential loss of key employees of the acquired company; and

 

•                  themaintenance of uniform, company-wide standards, procedures and policies.

 

These factors could have a material adverseeffect on our revenues and earnings.  Weexpect that the consideration paid for future acquisitions, if any, could be inthe form of cash, stock, rights to purchase stock, or a combination ofthese.  To the extent that we issueshares of stock or other rights to purchase stock in connection with any futureacquisition, existing shareholders will experience dilution and potentiallydecreased earnings per share.

 

We are completing the integration of the Synavant business with ourother operations.  While we have hadsuccess integrating acquired entities into our operations in the past, we cannotguarantee that we will successfully integrate this new business into ouroperations.

 

**AN INABILITY TO MANAGE GROWTH COULD ADVERSELYAFFECT OUR BUSINESS**

 

To manage our growth effectively we mustcontinue to strengthen our operational, financial and management informationsystems and expand, train and manage our work force. However, we may not beable to do so effectively or on a timely basis. Failure to do so could have amaterial adverse effect upon our business, operating results or financialcondition.

 

**WE MAY FACE RISKS ASSOCIATED WITH EVENTSWHICH MAY AFFECT THE WORLD ECONOMY**

 

The terrorist attacks of September 11, 2001 and subsequent worldevents weakened the world economy. While we did not experience any material impact to our business duringthe time period immediately following September 11, 2001, we cannot assureyou that the resulting impact which the terrorist attacks, threat of futureterrorist activity or current U.S. military action in the Middle East andelsewhere, or hostilities in the Middle East, Asia and other geographicalareas, had or may have on the U.S. and world economies will not adverselyaffect our business or the businesses of our customers.

 

23

----

 

**CATASTROPHICEVENTS COULD NEGATIVELY AFFECT OUR INFORMATION TECHNOLOGY INFRASTRUCTURE**

 

The efficient operation of our business, and ultimately our operatingperformance, depends on the uninterrupted use of our critical business andinformation technology systems.  Many ofthese systems require the use of specialized hardware and other equipment thatis not readily available.  Although wemaintain these systems at more than one location, a natural disaster, a fire orother catastrophic event at any of these locations could result in the destructionof these systems.  In such an event, thereplacement of these systems and restoration of archived data and normaloperation of our business could take several days to several weeks, or more.  During the intervening period when ourcritical business and information technology systems are fully or partiallyinoperable, our ability to conduct normal business operations could besignificantly and adversely impacted and as a result our business, operatingresults and financial conditions could be adversely affected.

 

**OUR SUCCESS DEPENDS ON RETAINING OUR KEYSENIOR MANAGEMENT TEAM AND ON ATTRACTING AND RETAINING QUALIFIED PERSONNEL**

 

Our future success depends, to a significantextent, upon the contributions of our executive officers and key sales,technical and customer service personnel. Our future success also depends on our continuing ability to attract andretain highly qualified technical and managerial personnel.  Due to competition for such personnel, wehave at times experienced difficulties in recruiting and retaining qualifiedpersonnel and we may experience such difficulties in the future.  Any such difficulties could adversely affectour business, operating results or financial condition.

 

**OUR BUSINESS DEPENDS ON PROPRIETARYTECHNOLOGY THAT WE MAY NOT BE ABLE TO PROTECT COMPLETELY**

 

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

 

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

 

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

 

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

 

**THE RESULTS DERIVED FROM CURRENT AND FUTURESTRATEGIC RELATIONSHIPS MAY PROVE TO BE LESS FAVORABLE THAN ANTICIPATED**

 

We are involved in a number of strategic relationships with thirdparties and are frequently pursuing others. Should these relationships, or any of them, prove to be more costly thananticipated or fail to meet revenue expectations or other anticipatedsynergies, we cannot guarantee that such events will have no material impactupon our business, operating results orfinancial condition.

 

**OUR DATA SOLUTIONS ARE DEPENDENT UPONSTRATEGIC RELATIONSHIPS WHICH, IF NOT MAINTAINED, COULD UNDERMINE THE CONTINUEDVIABILITY OF THESE SOLUTIONS**

 

Our data and analytics solutions are sourced,in part, from data provided through strategic relationships.  The termination of any of theserelationships could diminish the breadth or depth of our data solutions and wecannot guarantee that this would not negatively impact our business, operatingresults or financial condition.

 

24

----

 

**FEDERAL AND STATE LAWS AND REGULATIONS COULDDEPRESS THE DEMAND FOR SOME OF OUR SOLUTIONS**

 

While we believe our data and analytics solutions are not violative ofcurrent federal or state laws and regulations pertaining to patient privacy orhealth information, including the Health Insurance Portability andAccountability Act of 1996 (HIPAA), we cannot guarantee that future laws orregulations or interpretations of existing laws and statutes will not impactnegatively upon our ability to market these solutions or cause a decrease indemand for such solutions from customers that see an increased risk in any suchnew laws or regulations.

 

**GOVERNMENTAL REGULATION MAY MATERIALLY ANDADVERSELY AFFECT THE COMPANY’S ABILITY TO DISTRIBUTE CONTROLLED SUBSTANCESTHROUGH THE MAIL**

 

Throughthe interactive marketing business we acquired in the Synavant acquisition, wecurrently distribute controlled substances to doctors’ offices through the mailas part of certain interactive marketing programs provided on behalf ofpharmaceutical manufacturers.  It is important to the business that thispractice of distributing prescription-only drugs continues. Future legislationmay restrict our ability to provide these types of services.  If any suchlegislation is enacted, it could have a material and adverse effect on thebusiness, operating results and financial condition.

 

**DIFFICULTIES IN SUBLEASING, SELLING OROTHERWISE DISPOSING OF CERTAIN OF OUR FACILITIES MAY NEGATIVELY IMPACTUPON OUR EARNINGS**

 

We are currently marketing our Piscataway, New Jersey facility.  We also expect to sublease all or a portionof certain other facilities, including facilities acquired as part of theSynavant acquisition.  If the recentreal estate downturn continues, it could negatively impact upon our ability toeffectively market these facilities.  Aninability to successfully dispose of or sublet, as applicable, any of thesefacilities or to obtain favorable pricing or sublease terms could negativelyimpact our earnings.

 

**UNANTICIPATEDCHANGES IN OUR ACCOUNTING POLICIES MAY BE REQUIRED BECAUSE OF MANDATES BYACCOUNTING STANDARDS SETTING ORGANIZATIONS AND COULD HAVE A MATERIAL IMPACT ONOUR FINANCIAL STATEMENTS**

 

In reporting our financial results we relyupon the accounting policies and standards then in effect at the time of ourreport.  Future regulations, standards orinterpretations may require us to adjust or restate financial resultspreviously reported.  A requiredrestatement could have an unfavorable impact upon past financial results orcurrent comparison to previous results.

 

**PROVISIONS OF OUR CHARTER DOCUMENTS AND NEWJERSEY LAW MAY DISCOURAGE AN 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 of Directors may, without the consent ofthe stockholders, issue preferred stock with rights senior to those of thecommon stock.  In addition, the Companyhas a Shareholder Rights Plan which may limit the ability of a third party toattempt a hostile acquisition of the Company.

 

**OUR COMMON STOCK MAY BE SUBJECT TO PRICEFLUCTUATIONS**

 

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

 

•                  theannouncement or the introduction of new products by us or our competitors;

 

•                  quarter-to-quartervariations in our operating results or changes in revenue or earnings estimatesor failure to meet or exceed revenue or earnings estimates;

 

•                  marketconditions in the technology, healthcare and other growth sectors;

 

•                  generalconsolidation in the healthcare information industry which may result in themarket perceiving us or other comparable companies as potential acquisitiontargets; and

 

•                  futureacquisitions.

 

Further, the stock market has experienced onoccasion extreme 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.

 

25

----

 

**ITEM 4****.****                   Controlsand Procedures**

 

The Company’s Chief Executive Officer and Chief Financial Officer, withthe assistance 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 Quarterly Report on Form 10-Q.  Based on such evaluation, the Company’sChief Executive Officer and Chief Financial Officer have concluded that theCompany’s disclosure controls and procedures are effective.

 

The Company’s Chief Executive Officer and Chief Financial Officer havealso concluded that there have not been any changes in the Company’s internalcontrol over financial reporting that have materially affected, or arereasonably likely to materially affect, the Company’s internal control overfinancial reporting.

 

PART II.  OTHER INFORMATION

 

**ITEM6****.****                   Exhibits andReports on Form 8-K**

 

(i)  Exhibits

 

10.44           Sublease dated as of September 17, 2003between Pharmacia & Upjohn Company and Dendrite International, Inc.

 

10.45           New Hire Option Grant Authorization — Formof Notice of Stock Option Award, Nonqualified Stock Option Agreement andAppendix.

 

31.1                 Certification of John E. Bailye,Chairman of the Board and Chief Executive Officer of the Company, pursuant toSecurities Exchange Act Rule 13a-14(a).

 

31.2                 Certification of Kathleen E. Donovan,Senior Vice President and Chief Financial Officer of the Company, pursuant toSecurities Exchange Act Rule 13a-14(a).

 

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

 

(ii)  Reports on Form 8-K

 

(a)          The Company filed a Current Report on Form8-K on July 1, 2003, pursuant to “Item 2. Acquisition or Disposition ofAssets” and “Item 7. Financial Statements, Pro Forma Financial Information andExhibits” relating to its acquisition of Synavant Inc.

 

(b)         The Company furnished a Current Report on Form8-K on August 12, 2003, pursuant to “Item 7. Financial Statements, ProForma Financial Information and Exhibits” and “Item 12. Results of Operationsand Financial Condition” relating to its financial results for the secondquarter of 2003.

 

(c)          The Company filed a Current Report on Form8-K/A on August 13, 2003, pursuant to “Item 2. Acquisition or Dispositionof Assets” and “Item 7. Financial Statements, Pro Forma Financial Informationand Exhibits” relating to its acquisition of Synavant Inc.

 

26

----

 

Signatures

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

 
| Date: November 14, 2003 |                                                                    |
|------------------------------|-------------------------------------------------------------------------|
|                         |                                                                    |
|                         |                                                                    |
|                         | By: JOHN E. BAILYE                                                      |   |
|                         | John E. Bailye, Chairman of the Board and  Chief Executive Officer      |
|                         | (Principal Executive Officer)                                           |
|                         |                                                                    |
|                         | By: KATHLEEN E. DONOVAN                                                 |   |
|                         | Kathleen E. Donovan, Senior Vice President  and Chief Financial Officer |
|                         | (Principal Financial Officer)                                           |

 

27

----

 

**EXHIBITINDEX**

 
| **Number** |   | **Description**                                                                                                                                                                                                                                                                                                             |
|------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                                                                        |
| 10.44      |   | Sublease dated as of September 17, 2003 between Pharmacia &  Upjohn Company and Dendrite International, Inc.                                                                                                                                                                                                       |
|       |   |                                                                                                                                                                                                                                                                                                                        |
| 10.45      |   | New Hire Option Grant Authorization — Form of Notice of Stock Option  Award, Nonqualified Stock Option Agreement and Appendix.                                                                                                                                                                                         |
|       |   |                                                                                                                                                                                                                                                                                                                        |
| 31.1       |   | Certification of John E. Bailye, Chairman of the Board and Chief  Executive Officer of the Company, pursuant to Securities Exchange Act Rule  13a-14(a).                                                                                                                                                                    |
|       |   |                                                                                                                                                                                                                                                                                                                        |
| 31.2       |   | Certification of Kathleen E. Donovan, Senior Vice President and Chief  Financial Officer of the Company, pursuant to Securities Exchange Act Rule  13a-14(a).                                                                                                                                                               |
|       |   |                                                                                                                                                                                                                                                                                                                        |
| 32         |   | Certification Pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by  John E. Bailye, Chairman of the Board and Chief Executive Officer of the  Company and Kathleen E. Donovan, Senior Vice President and Chief Financial  Officer of the Company. |

 

28

----