**SECURITIES AND EXCHANGE COMMISSION**

# **Washington, D. C. 20549**

 

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##### **FORM 10-Q**

 
| ý                                                                                                                                                        | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**  |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------|
|                                                                                                                                                          |                                                                                          |
| **For the quarterly period ended  March 31, 2003**                                                                                                            |
|                                                                                                                                                          |                                                                                          |
| **OR**                                                                                                                                                        |
|                                                                                                                                                          |                                                                                          |
| o                                                                                                                                                             | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                          |                                                                                          |
| **For the transition period  from          to          ** |

# ** **

# **Commission File Number: 0-30822**

** **

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**SYNAVANT Inc.**

(Exact name of registrantas specified in its charter)

 

| **Delaware**                                                                     |   | **22-2940965**                             |
|----------------------------------------------------------------------------------|--------|--------------------------------------------|
| (State of  Incorporation)                                                        |   | (I.R.S. Employer  Identification No.) |
|                                                                             |   |                                       |
| **3445 Peachtree Road NE, Suite 1400****Atlanta,  GA**                           |   | **30326**                                  |
| (Address of principal  executive offices)                                        |   | (Zip Code)                                 |
|                                                                             |   |                                       |
| Registrant’s telephone  number, including area code **(404) 841-4000** |

 

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Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Sections 13 or 15(d) ofthe Securities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past90 days.  Yes ýNo o

 

Indicate the number of shares outstanding of each ofthe issuer’s classes of common stock, as of the latest practicable date:

 

| **Title of  Class**                     |   | **Shares  Outstanding****at April  30, 2003** |
|-----------------------------------------|--------|-----------------------------------------------|
| Common Stock,  par value $.01 per share |   | 15,242,578 Shares                             |

 

 

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**SYNAVANT Inc.**

# **FORM 10-Q**

# **FOR THE QUARTER ENDED MARCH 31,2003**

 

# **INDEX**

 
| **PART I.**  | **FINANCIAL INFORMATION**                                                                   |
|--------------|---------------------------------------------------------------------------------------------|
|         |                                                                                        |
| ITEM 1.      | FINANCIAL STATEMENTS                                                                        |
|         |                                                                                        |
|         | Condensed  Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002           |
|         |                                                                                        |
|         | Consolidated  Statements of Operations for the Three Months Ended March 31, 2003 and 2002   |
|         |                                                                                        |
|         | Consolidated  Statements of Cash Flows for the Three Months Ended March 31, 2003 and 2002   |
|         |                                                                                        |
|         | Notes to  Consolidated Financial Statements                                                 |
|         |                                                                                        |
| ITEM  2.     | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
|         |                                                                                        |
| ITEM  3.     | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                 |
|         |                                                                                        |
| **PART II.** | **OTHER INFORMATION**                                                                       |
|         |                                                                                        |
| ITEM  1.     | LEGAL  PROCEEDINGS                                                                          |
|         |                                                                                        |
| ITEM  2.     | CHANGES  IN SECURITIES AND USE OF PROCEEDS                                                  |
|         |                                                                                        |
| ITEM  3.     | DEFAULTS  UPON SENIOR SECURITIES                                                            |
|         |                                                                                        |
| ITEM  4.     | SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS                                        |
|         |                                                                                        |
| ITEM  5.     | OTHER  INFORMATION                                                                          |
|         |                                                                                        |
| ITEM  6.     | EXHIBITS  AND REPORTS ON FORM 8-K                                                           |
|         |                                                                                        |
| SIGNATURES   |

 

2

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**PART I. FINANCIAL INFORMATION**

 

### **ITEMI. FINANCIAL STATEMENTS**

 

**SYNAVANT Inc.**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

***(Dollar amounts in thousands, except per share data)***

 
|                                                                                                                                                             |   | **March 31,  2003** |    | **December  31,  2002** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|---------|-------------------------|--------|
|                                                                                                                                                             |   | **(Unaudited)**     |    | **(Audited)**           |   |
| **ASSETS:**                                                                                                                                                      |   |                |    |                    |   |
| CURRENT ASSETS:                                                                                                                                                  |   |                |    |                    |   |
| Cash and cash  equivalents                                                                                                                                       |   | $                   | 10,146  |                    | $      | 6,994 |   |
| Restricted cash                                                                                                                                                  |   | 1,364               |    | —                  |   |
| Accounts  receivable—net                                                                                                                                    |   | 29,941              |    | 36,469                  |   |
| Other  receivables                                                                                                                                               |   | 1,171               |    | 334                     |   |
| Other current  assets                                                                                                                                            |   | 6,483               |    | 5,504                   |   |
| TOTAL CURRENT ASSETS                                                                                                                                             |   | 49,105              |    | 49,301                  |   |
|                                                                                                                                                             |   |                |    |                    |   |
| Property, plant  and equipment—net                                                                                                                          |   | 12,176              |    | 12,829                  |   |
| Computer  software—net                                                                                                                                      |   | 2,342               |    | 2,682                   |   |
| Goodwill—net                                                                                                                                                |   | 41,156              |    | 41,156                  |   |
| Other assets                                                                                                                                                     |   | 2,388               |    | 2,769                   |   |
|                                                                                                                                                             |   |                |    |                    |   |
| TOTAL ASSETS                                                                                                                                                     |   | $                   | 107,167 |                    | $      | 108,737 |   |
|                                                                                                                                                             |   |                |    |                    |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY:**                                                                                                                  |   |                |    |                    |   |
| CURRENT  LIABILITIES:                                                                                                                                            |   |                |    |                    |   |
| Accounts payable                                                                                                                                                 |   | $                   | 12,139  |                    | $      | 9,193 |   |
| Line of credit                                                                                                                                                   |   | 4,500               |    | —                  |   |
| Accrued restructuring                                                                                                                                            |   | 1,374               |    | 2,109                   |   |
| Accrued and  other current liabilities                                                                                                                           |   | 14,724              |    | 16,219                  |   |
| Accrued income  taxes                                                                                                                                            |   | 1,961               |    | 2,074                   |   |
| Deferred  revenues                                                                                                                                               |   | 9,784               |    | 8,180                   |   |
| TOTAL CURRENT LIABILITIES                                                                                                                                        |   | 44,482              |    | 37,775                  |   |
|                                                                                                                                                             |   |                |    |                    |   |
| Accrued  liability due to former parent                                                                                                                          |   | 9,000               |    | 9,000                   |   |
| Other  liabilities                                                                                                                                               |   | 1,671               |    | 1,966                   |   |
| TOTAL  LIABILITIES                                                                                                                                               |   | $                   | 55,153  |                    | $      | 48,741 |   |
|                                                                                                                                                             |   |                |    |                    |   |
| Commitments and  contingencies (see note 2)                                                                                                                      |   |                |    |                    |   |
|                                                                                                                                                             |   |                |    |                    |   |
| STOCKHOLDERS’  EQUITY:                                                                                                                                      |   |                |    |                    |   |
| Common stock,  par value $.01, authorized 41,000,000 shares; 15,242,578 and 15,187,722  shares outstanding at March 31, 2003 and December 31, 2002, respectively |   | 152                 |    | 152                     |   |
| Other  stockholders’ equity                                                                                                                                 |   | 51,862              |    | 59,844                  |   |
| TOTAL  STOCKHOLDERS’ EQUITY                                                                                                                                 |   | 52,014              |    | 59,996                  |   |
| TOTAL  LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                 |   | $                   | 107,167 |                    | $      | 108,737 |   |

 

See accompanying Notes tothe Consolidated Financial Statements (unaudited).

 

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**SYNAVANT Inc.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(Unaudited)**

***(Dollar amounts in thousands, except per share data)***

*** ***
|                                                    |   | **Three  Months Ended  March 31,** |   |
|---------------------------------------------------------|--------|------------------------------------|--------|
|                                                    |   | **2003**                           |   | **2002** |   |
|                                                    |   |                               |   |   |   |
| REVENUES:                                               |   |                               |   |   |   |
| Software fees                                           |   | $                                  | 174    |   | $ | 1,440 |   |
| Software  services                                      |   | 16,636                             |   | 20,848 |   |
| Interactive  marketing                                  |   | 18,005                             |   | 22,672 |   |
| TOTAL REVENUES                                          |   | 34,815                             |   | 44,960 |   |
|                                                    |   |                               |   |   |   |
| OPERATING COSTS:                                        |   |                               |   |   |   |
| Software fees                                           |   | 62                                 |   | 726 |   |
| Software  services                                      |   | 13,155                             |   | 15,106 |   |
| Interactive  marketing                                  |   | 15,598                             |   | 19,259 |   |
| TOTAL OPERATING  COSTS                                  |   | 28,815                             |   | 35,091 |   |
|                                                    |   |                               |   |   |   |
| Research &  development                             |   | 1,308                              |   | 1,939 |   |
| Selling and  administrative expenses                    |   | 8,397                              |   | 7,596 |   |
| Restructuring  costs                                    |   | 500                                |   | — |   |
| Depreciation and  amortization                          |   | 1,881                              |   | 1,838 |   |
| OPERATING LOSS                                          |   | (6,086                             | )      | (1,504 | ) |
| Other  expense—net                                 |   | (1,023                             | )      | (100 | ) |
| LOSS BEFORE  PROVISION FOR INCOME TAXES                 |   | (7,109                             | )      | (1,604 | ) |
| Income tax  provision                                   |   | (349                               | )      | (341 | ) |
| NET LOSS                                                |   | $                                  | (7,458 | ) | $ | (1,945 | ) |
|                                                    |   |                               |   |   |   |
| Net loss per  share of common stock: basic and diluted  |   | $                                  | (0.49  | ) | $ | (0.13 | ) |
| Weighted average  shares outstanding: basic and diluted |   | 15,243                             |   | 15,067 |   |

 

See accompanying Notes tothe Consolidated Financial Statements (unaudited).

 

4

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**SYNAVANT Inc.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

***(Dollar amounts in thousands)***

*** ***
|                                                                                                                                          |   | **Three  Months Ended  March 31,** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                                                                                                          |   | **2003**                           |   | **2002** |   |
|                                                                                                                                          |   |                               |   |   |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                                                                        |   |                               |   |   |   |
| Net loss                                                                                                                                      |   | $                                  | (7,458 | ) | $ | (1,945 | ) |
| Adjustments to  reconcile net loss to net cash provided (used) by operating activities:                                                       |   |                               |   |   |   |
| Depreciation and  amortization                                                                                                                |   | 1,881                              |   | 1,838 |   |
| Amortization of  capitalized computer software                                                                                                |   | 42                                 |   | 595 |   |
| Restructuring  charge                                                                                                                         |   | 500                                |   | — |   |
| Restructuring  payments                                                                                                                       |   | (1,235                             | )      | (688 | ) |
| Changes in  operating assets and liabilities:                                                                                                 |   |                               |   |   |   |
| Accounts and  other receivable                                                                                                                |   | 6,083                              |   | (227 | ) |
| Accounts payable                                                                                                                              |   | 2,805                              |   | (1,557 | ) |
| Accrued  liabilities and other current liabilities                                                                                            |   | (1,734                             | )      | 347 |   |
| Accrued income  taxes                                                                                                                         |   | 623                                |   | 632 |   |
| Deferred  revenues                                                                                                                            |   | 1,513                              |   | 3,886 |   |
| Other                                                                                                                                         |   | (2,327                             | )      | (573 | ) |
| NET CASH  PROVIDED BY OPERATING ACTIVITIES                                                                                                    |   | 693                                |   | 2,308 |   |
|                                                                                                                                          |   |                               |   |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                                                                        |   |                               |   |   |   |
| Capital  expenditures                                                                                                                         |   | (536                               | )      | (456 | ) |
| Additions to  computer software                                                                                                               |   | (79                                | )      | — |   |
| NET CASH USED IN  INVESTING ACTIVITIES                                                                                                        |   | (615                               | )      | (456 | ) |
|                                                                                                                                          |   |                               |   |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                                                                        |   |                               |   |   |   |
| Payments for  capital leases                                                                                                                  |   | (218                               | )      | (65 | ) |
| Increase in  Restricted Cash                                                                                                                  |   | (1,364                             | )      | — |   |
| Borrowings from  line of credit                                                                                                               |   | 4,500                              |   | — |   |
| NET CASH  PROVIDED (USED) IN FINANCING ACTIVITIES                                                                                             |   | 2,918                              |   | (65 | ) |
|                                                                                                                                          |   |                               |   |   |   |
| Effect of  exchange rate changes on cash and cash equivalents                                                                                 |   | 156                                |   | 14 |   |
| Increase in cash  and cash equivalents                                                                                                        |   | 2,996                              |   | 1,801 |   |
| Cash and cash  equivalents, beginning of period                                                                                               |   | 6,994                              |   | 9,578 |   |
| Cash and cash  equivalents, end of period                                                                                                     |   | $                                  | 10,146 |   | $ | 11,379 |   |
|                                                                                                                                          |   |                               |   |   |   |
| Supplemental  Disclosure of Cash Flow Information:                                                                                            |   |                               |   |   |   |
| Cash payments  for foreign, state and local income taxes were $228 and $31 for the three  months ended March 31, 2003 and 2002, respectively. |   |                               |   |   |   |

 

See accompanying Notes tothe Consolidated Financial Statements (unaudited).

 

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**SYNAVANT Inc.**

### **NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

 

**NOTE 1.ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

*Basisof Presentation.*  Theaccompanying unaudited consolidated financial statements have been prepared inaccordance with U.S. generally accepted accounting principles (“US GAAP”) forinterim financial information and with the rules and regulations of theSecurities and Exchange Commission (the “SEC”).  The consolidated financial statements and related notes should beread in conjunction with the consolidated financial statements and relatednotes of SYNAVANT Inc. (the “Company” or “SYNAVANT”) onForm 10-K.  These consolidatedfinancial statements include estimates and assumptions that affect the reportedamounts of assets and liabilities, disclosure of contingent assets, and amountsof revenues and expenses.  Actualresults may differ from those estimated. In the opinion of management, all adjustments of a normal recurringnature considered necessary for a fair presentation of financial position,results of operations and cash flows for the periods presented have beenincluded.  Certain information andfootnote disclosures have been condensed or omitted pursuant to SEC rules andregulations.  However, managementbelieves that the disclosures made are adequate for a fair presentation of theresults for all interim periods reported herein.

 

*Organization.*  SYNAVANT serves the biopharmaceutical andhealthcare industries through implementing and supportingpharmaceutical-specific customer relationship management (“CRM”) solutions anddeveloping interactive marketing programs and medical professionaldatabases.  SYNAVANT is composed of theautomated sales and marketing support businesses which were formerly part ofIMS HEALTH INCORPORATED (“IMS HEALTH”) which operated under the name IMS HEALTHStrategic Technologies, Inc. (“ST”); certain other former foreign subsidiariesof IMS HEALTH; substantially all of IMS HEALTH’s former interactive and directmarketing businesses, including the business of Clark-O’Neill, Inc. (“ClarkO’Neill”), formerly a wholly owned subsidiary of IMS HEALTH; and a 51% interestin Permail Pty., Ltd. (“Permail”).  OnAugust 31, 2000, shares of SYNAVANT were distributed to shareholders of IMSHEALTH following the conveyance of assets and stock of entities comprising theSYNAVANT business into SYNAVANT Inc., a Delaware corporation.

 

On March 16, 2003, the Company announced a definitiveagreement to sellits Global Interactive Marketing Business to Cegedim for $43.5 million incash.  Further, the definitive agreementand other transaction related documents were filed through a Form 8-K on March17, 2003.  However, this agreement hasbeen superseded by a subsequent definitive agreement with DendriteInternational Inc. (“Dendrite”) on May 9, 2003 (See Note 7).

 

On March 21, 2003,the Company reached an agreement to sell its 51% interest in Permail Pty. Ltd.to its minority partner for approximately $1.8 Million (the “PermailTransaction”).  The transaction wascompleted on April 30, 2003.

 

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

 

*EarningsPer Share.*  Basic anddiluted earnings per share (“EPS”) are calculated in accordance with Statementof Financial Standards No. 128. For the Company’s calculation, the numeratoris the same for the calculation of both basic and diluted EPS. The denominatorfor basic and diluted EPS is the same for the three month period endedMarch 31, 2003 as the loss from operations would otherwise cause theinclusion of common stock options to be anti-dilutive.  Options to purchase 7,680,397 shares ofcommon stock at a weighted average price of $8.54 were outstanding but notincluded in the computation of diluted EPS for the three months ended March 31,2003.

 

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*RecentlyIssued Accounting Standards.*   In June of 2002, the FASB issued SFAS No. 146, Accounting forCosts Associated with Exit or Disposal Activities.  FAS 146 requires that a liability for a cost that is associatedwith an exit or disposal activity be recognized when the liability isincurred.  It nullifies the guidance ofthe Emerging Issues Task Force (EITF) in EITF Issue No. 94-3, LiabilityRecognition for Certain Employee Termination Benefits and Other Costs to Exitan Activity (including Certain Costs Incurred in a Restructuring). Under EITFIssue No. 94-3, an entity recognized a liability for an exit cost on the datethat the entity committed itself to an exit plan.  In FAS 146, the Board acknowledges that an entity’s commitment toa plan does not, by itself, create a present obligation to other parties thatmeets the definition of a liability. FAS 146 also establishes that fair value is the objective for theinitial measurement of the liability. FAS 146 is effective for exit or disposal activities that are initiatedafter December 31, 2002.

 

There has been no material impact related to theimplementation of this recently issued statement on the Company’s results ofoperations, financial position and cash flows.

 

**NOTE 2.CONTINGENCIES**

 

SYNAVANT has from time to time been involved in legalproceedings and litigation arising in the ordinary course of business. In theopinion of management, the outcome of all current proceedings, claims andlitigation will not materially affect SYNAVANT’s consolidated financialposition. In addition to these immaterial items, the Company is subject tocertain other contingencies discussed below.

 

In connection with IMS HEALTH’s spin-off of theCompany to its stockholders (the “Distribution”), SYNAVANT is jointly andseverally liable to other parties in connection with prior IMS HEALTHDistribution Agreements for the liabilities relating to certain tax matters aswell as a legal matter (“Distribution Liabilities”). Under the DistributionAgreement, IMS HEALTH and SYNAVANT agreed that SYNAVANT would have a maximumliability of $9.0 million for the Distribution Liabilities.  Management believes it is probable that atleast one of these matters will have an unfavorable outcome and as a result theCompany recorded a $9.0 million liability associated with these matters aspart of the Distribution in 2000.  TheDistribution Agreement required that if an unfavorable outcome occurred, theamount due up to $9.0 million is due and payable in January 2003.  As of March 31, 2003, the Company hasdetermined that approximately $2.0 million of the $9.0 million described aboveis now certain.  The $2.0 millionrelates solely to the legal fees associated with these matters, as all mattersare still unresolved as of March 31, 2003. In concurrence with the Foothill Facility obtained by the Company (See *“Management’sDiscussion and Analysis—Liquidity and Capital Resources”*), IMSHEALTH agreed to defer any payments associated with the DistributionLiabilities until January 2005.  Thedeferral of the Distribution Liabilities has also been agreed to in concurrencewith the CapitalSource Facility (See *“Management’s Discussion and Analysis—Liquidity andCapital Resources”*).  Underthe Distribution Agreement, SYNAVANT would be liable for amounts in excess of$9.0 million, related to the Distribution Liabilities, only to the extentthat all of the parties involved do not have sufficient combined assets tosettle such contingencies.  While thesematters are ongoing, as of March 31, 2003, IMS HEALTH has made payments inexcess of $200 million in anticipation of final resolution of certain of thesematters in order to avoid incurring additional penalties and interest.

 

Pursuant to a letter of agreement signed with IMSHEALTH and Dendrite in May 2003, SYNAVANT has agreed to settle theseDistribution Liabilities.  Thesettlement accelerates payments from January 2005 upon completion of the tenderoffer and merger with Dendrite (See Note 7). $2.0 million of the $9.0 million has already been incurred by IMS HEALTHbut not yet reimbursed by the Company. Applying a discount rate of 6.5% on the remaining $7.0 million not yetincurred is expected to result in a total payment to IMS HEALTH ofapproximately $8.4 million to settle the remaining Distribution Liability.

 

**NOTE 3.RESTRUCTURING CHARGE**

 

On August 16, 2001, the Company announced that, in anattempt to optimize customer responsiveness 

 

7

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and organizational effectiveness, it would simplify its seniorleadership structure as well as eliminate certain other positions in itsinternational and domestic operations. The Company completed the first two steps in the restructuring process,resulting in the elimination of 100 positions that is reflected in the chargeof $7.5 million for 2001 (the “2001 Restructuring”).  These reductions included six senior management positions withthe remainder being operating, technical and administrative staff.  The charge for the 2001 Restructuring iscomposed entirely of employee severance and separation related costs, such asextended benefits and outplacement fees. Of the $7.5 million charge, $0.1 million remains to be paid as of March31, 2003.

 

During 2002, the Company took additional restructuringcharges related to both severance and separation related costs for theelimination of approximately 45 positions and real estate actions, as theCompany has terminated certain real estate leases and subleased other officespace made available by the restructuring actions (the “2002Restructuring”).  These personnelreductions included three senior management positions with the remainder beingoperating, technical and administrative staff. The 2002 Restructuring resulted in a charge of $2.2 million, of which$1.1 million remains to be paid as of March 31, 2003.  All remaining severance and related personnel costs are expectedto be paid in 2003, with the real estate payments continuing over the life ofthe related lease agreements.

 

During the first quarter of 2003, the Company took anadditional restructuring charge related to severance and separation costs forthe elimination of 9 positions relating to operating, technical andadministrative staff.  These actionsresulted in a charge of $0.5 million, of which $0.2 million remains to be paidas of March 31, 2003. The remaining payments related to this charge areexpected to be paid in 2003.

 

**NOTE 4.INCOME TAX**

 

The Company’s consolidated tax provision was$0.3 million for the three months ended March 31, 2003 and 2002.  The Company’s effective tax rate isdifferent from the U.S. federal statutory tax rate due to taxable income incertain foreign jurisdictions and losses for which a full valuation has beenprovided.

 

**NOTE 5.OPERATIONS BY SEGMENT**

 

The Company delivers pharmaceutical customerrelationship management solutions and interactive marketing programs globallyand does business in approximately 30 countries.  The Company’s management evaluates the business on a global basiswith consideration of resource allocation on a geographic basis.  The Americas Segment principally consists ofoperations for the United States, the Company’s country of domicile.  The Europe Segment includes, but is notlimited to, the operations of the United Kingdom, which is the largest regionin this segment.  The Asia PacificSegment consists principally of the operations of Australia.  For further information on materialindividual countries see the additional disclosure in the second table of thisnote.

 
|                                         |   | **Americas**                       |       | **Europe** |       | **Asia  Pacific** |       | **Total** |       |
|----------------------------------------------|--------|------------------------------------|------------|------------|------------|-------------------|------------|-----------|------------|
|                                         |   | **(Dollar  amounts in thousands)** |       |
| **Three Months Ended March 31, 2003**        |   |                               | ** ** |       | ** ** |              | ** ** |      | ** ** |
| Operating  revenues                          |   | $                                  | 17,518     |       | $          | 13,905            |       | $         | 3,392      |   | $ | 34,815 |   |
| Segment  operating loss                      |   | (5,318                             | )          | (717       | )          | (51               | )          | (6,086    | )          |
| Non-operating  income (loss)                 |   | (487                               | )          | (637       | )          | 101               |       | (1,023    | )          |
| Income / (loss)  before income taxes         |   | (5,805                             | )          | (1,354     | )          | 50                |       | (7,109    | )          |
| Provision for  income taxes                  |   |                               |       |       |       |              |       | (349      | )     |
| Net loss                                     |   |                               |       |       |       |              |       | (7,458    | )     |
| Segment total  depreciation and amortization |   | 1,564                              |       | 222        |       | 95                |       | 1,881     |       |
| Segment capital  expenditures                |   | 277                                |       | 252        |       | 17                |       | 546       |       |
| Identifiable  assets at March 31, 2003       |   | 73,588                             |       | 28,460     |       | 5,119             |       | 107,167   |       |
|                                              |        |                                    |            |            |            |                   |            |           |            |  |  |  |  |

 

8

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|                                         |   | **Americas** |   | **Europe** |   | **Asia  Pacific** |   | **Total** |   |
|----------------------------------------------|--------|--------------|--------|------------|--------|-------------------|--------|-----------|--------|
| **Three Months Ended March 31, 2002**        |   |         |   |       |   |              |   |      |   |
| Operating  revenues                          |   | $            | 29,786 |       | $      | 12,254            |   | $         | 2,920  |   | $ | 44,960 |   |
| Segment  operating loss                      |   | (843         | )      | (355       | )      | (306              | )      | (1,504    | )      |
| Non-operating  income (loss)                 |   | 218          |   | (342       | )      | 24                |   | (100      | )      |
| Loss before  income taxes                    |   | (625         | )      | (697       | )      | (282              | )      | (1,604    | )      |
| Provision for  income taxes                  |   |         |   |       |   |              |   | (341      | )      |
| Net loss                                     |   |         |   |       |   |              |   | (1,945    | )      |
| Segment total  depreciation and amortization |   | (1,986       | )      | (333       | )      | (114              | )      | (2,433    | )      |
| Segment capital  expenditures                |   | 293          |   | 141        |   | 22                |   | 456       |   |
| Identifiable  assets at March 31, 2002       |   | $            | 85,356 |       | $      | 28,230            |   | $         | 5,499  |   | $ | 119,085 |   |

 

Information about the Company’s operations and long-lived assets bygeography is as follows:

 
|                                  |   | **US** |   | **UK** |   | **Australia** |   | **Rest of  World(2)** |   | **Total** |   |
|---------------------------------------|--------|--------|--------|--------|--------|---------------|--------|-----------------------|--------|-----------|--------|
|                                  |   |   |   |   |   |          |   |                  |   |      |   |
| **Three Months Ended March 31, 2003** |   |   |   |   |   |          |   |                  |   |      |   |
| Operating  revenues                   |   | $      | 16,409 |   | $      | 4,048         |   | $                     | 2,946  |      | $      | 11,412 |   | $ | 34,815 |   |
| Long-lived  assets(1)                 |   | 49,575 |   | 3,398  |   | 574           |   | 2,499                 |   | 56,046    |   |
|                                  |   |   |   |   |   |          |   |                  |   |      |   |
| **Three Months Ended March 31, 2002** |   |   |   |   |   |          |   |                  |   |      |   |
| Operating  revenues                   |   | $      | 28,126 |   | $      | 4,848         |   | $                     | 2,679  |      | $      | 9,307 |   | $ | 44,960 |   |
| Long-lived  assets(1)                 |   | 52,741 |   | 3,138  |   | 669           |   | 2,407                 |   | 58,955    |   |

 

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(1)                                  Long-livedassets in the U.S. and the U.K. are comprised predominantly of goodwillassociated with the acquisition of Walsh International Inc. inJune 1998.

 

(2)                                  Restof World is primarily comprised of operations in Europe.

 

**NOTE 6.  FAIR VALUE OF STOCK OPTIONS**

 

SFAS No. 123, “Accounting for Stock-BasedCompensation”, requires that companies with stock-based compensation planseither recognize compensation expense based on the fair value of optionsgranted or continue to apply the existing accounting rules and disclosepro forma net income and earnings per share assuming the fair value method hadbeen applied. The Company has chosen to continue applying Accounting PrinciplesBoard Opinion No. 25 (“APB No. 25”) and related interpretations in accountingfor its stock incentive plans.  No compensation cost has been recognized forthe fixed stock option plans for the three months ended March 31, 2003 and2002.  Had compensation cost for theSYNAVANT stock incentive plans been determined based on the fair value at thegrant dates for awards under those plans, consistent with the method of SFAS123, the Company’s net loss and loss per share would have increased to the proforma amounts indicated below:

 
|                                                                                                                   |   | **March 31,  2003** |   | **March 31,  2002** |   |
|------------------------------------------------------------------------------------------------------------------------|--------|---------------------|--------|---------------------|--------|
|                                                                                                                   |   |                |   |                |   |
| Net Loss:                                                                                                              |   |                |   |                |   |
| As reported                                                                                                            |   | $                   | (7,458 | )                   | $      | (1,945 | ) |
| Deduct:  Total stock-based employee compensation  expense determined under fair value based method for all awards |   | $                   | (496   | )                   | $      | (1,510 | ) |
| Pro forma                                                                                                              |   | $                   | (7,954 | )                   | $      | (3,455 | ) |
| Loss Per Share –  Basic and Diluted:                                                                              |   |                |   |                |   |
| As reported                                                                                                            |   | $                   | (0.49  | )                   | $      | (0.13 | ) |
| Pro forma                                                                                                              |   | $                   | (0.52  | )                   | $      | (0.23 | ) |

 

9

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### **NOTE 7. SUBSEQUENT EVENTS**

 

On April 12, 2003, the Company entered into adefinitive agreement for Cegedim to purchase all the issued and outstandingSYNAVANT stock at a price of $2.30 per share in cash (the “CegedimAgreement”).  Under the definitiveagreement, Cegedim agreed to commence a tender offer for any and all SYNAVANTshares at the offer price of $2.30 per share in cash.  The Cegedim Agreement supersedes the agreement announced on March16, 2003 for the sale of SYNAVANT’s Global Interactive Marketing Business (SeeNote 1).  Further, the definitiveagreement and other transaction related documents were filed through a Form 8-Kon April 15, 2003.  The CegedimAgreement has been superseded by the Dendrite Agreement (See below).

 

On April 21, 2003, Dendrite announced publicly itsdesire to acquire SYNAVANT pursuant to a tender offer followed by a merger, for$2.50 per share in cash.  On the sameday that it made its announcement, Dendrite commenced litigation againstSYNAVANT generally alleging that SYNAVANT’s Board of Directors failed tosatisfy its fiduciary duties, among other things, in connection with theapproval of the merger between SYNAVANT and Cegedim (the “DendriteLitigation”).  SYNAVANT’s Board ofDirectors authorized the Company’s management and representatives to conductfurther discussions and negotiations with Dendrite and Cegedim.

 

On May 9, 2003, the Company entered into a definitiveagreement for Dendrite to purchase all the issued and outstanding SYNAVANTstock at a price of $2.83 per share in cash (the “Dendrite Agreement”).  Under the definitive agreement, Dendriteagreed to commence a tender offer for any and all SYNAVANT shares at the offerprice of $2.83 per share in cash.  TheDendrite Agreement supersedes the Dendrite’s offer of $2.50 per share announcedon April 21, 2003 and also results in the termination of the Cegedim Agreement.  It also suspends the Dendrite Litigation,with termination of the litigation upon closing.  The definitive agreement and other transaction related documentswere filed through a Form 8-K on May 12, 2003.

 

The Dendrite tender offer is subject to shareholdersrepresenting a majority of SYNAVANT's outstanding common stock ownershiptendering their shares, as well as other customary conditions.

 

On May 13, 2003, the Company received a proposal fromCegedim to acquire all of SYNAVANT's outstanding common stock for $3.15 pershare in cash.  In accordance with theDendrite Agreement, the SYNAVANT board of directors has authorized theCompany's management and advisors to enter into discussions and negotiationswith Cegedim regarding its proposal. This authorization does not constitute approval or recommendation ofCegedim's bid by SYNAVANT's board of directors nor has the SYNAVANT boardwithheld, modified or changed its approval or its recommendation in favor ofthe Dendrite Agreement.

 

 

 

**ITEM 2.****               MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

The following “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” includes forward-lookingstatements within the meaning of the Private Securities Litigation Reform Actof 1995.  All statements other thanstatements of historical fact made in this Form 10-Q are forward-looking, whichcan be identified by the use of forward-looking terminology such as “may,”“will,” “expect,” “anticipate,” “estimate,” “believe,” “continue” or othersimilar words. Such forward-looking statements are based on management’scurrent plans and expectations and are subject to risks and uncertainties thatcould cause actual results to differ materially from those described in theforward-looking statements. Factors that could cause or contribute to suchdifferences include, but are not limited to: the ability to obtain additionalfinancing on satisfactory terms to meet future capital requirements; risksassociated with competition from other providers of customer relationshipmanagement solutions; success with the Siebel Alliance; loss of key personnel;failure to introduce new or enhanced products in a timely manner; defects inour products and delays related to market adoption of our software; strength ofthe pharmaceutical industry; fluctuations in quarterly operating results thatmay adversely affect the market price of its common stock; operating on aglobal basis; exposure to certain Distribution liabilities and the ability tofund them; governmental regulation of the ability to distribute controlledsubstances through the mail; the ability to protect its intellectual property;product infringement claims; the ability to identify, consummate and integrateacquisitions, alliances and ventures on satisfactory terms; the ability todevelop new or advanced technologies, systems or products; and regulatory,legislative and enforcement initiatives. These risks and uncertainties are not intended to be exhaustive andshould be read in conjunction with other cautionary statements made herein

 

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including, but not limited to, the risk factors set forth herein underthe heading “Factors That May Affect Future Performance.” The Company assumesno obligation to update any such forward-looking statements.

 

This discussion and analysis should be read inconjunction with the consolidated financial statements and related notescontained in Item I of this report and with the Company’s Annual Report onForm 10-K for the year ended December 31, 2002.

 

**OVERVIEW**

 

On August 31, 2000, SYNAVANT was spun off from IMSHEALTH, a provider of information solutions to the biopharmaceutical andhealthcare industries.  Pursuant to thespin-off, shares of SYNAVANT common stock were distributed to the shareholdersof IMS HEALTH.  This transaction wasstructured as a tax-free dividend to the stockholders of IMS HEALTH, whoreceived one share of SYNAVANT common stock (together with the associatedpreferred share purchase right) for every 20 shares of IMS HEALTH common stockheld as of the record date for the Distribution.

 

This discussion and analysis should be read inconjunction with the accompanying consolidated financial statements and relatednotes.

 

**SUBSEQUENT EVENTS**

 

On April 12, 2003, the Company entered into adefinitive agreement for Cegedim to purchase all the issued and outstandingSYNAVANT stock at a price of $2.30 per share in cash.  Under the definitive agreement, Cegedim agreed to commence atender offer for any and all SYNAVANT shares at the offer price of $2.30 pershare in cash.  The Cegedim Agreementsupersedes the agreement announced on March 16, 2003 for the sale of SYNAVANT’sGlobal Interactive Marketing Business (See Note 1).  Further, the definitive agreement and other transaction relateddocuments were filed through a Form 8-K on April 15, 2003.  The Cegedim Agreement has been superseded bythe Dendrite Agreement (See below).

 

On April 21, 2003, Dendrite announced publicly itsdesire to acquire SYNAVANT pursuant to a tender offer followed by a merger, for$2.50 per share in cash.  On the sameday that it made its announcement, Dendrite commenced litigation againstSYNAVANT generally alleging that SYNAVANT’s Board of Directors failed to satisfyits fiduciary duties, among other things, in connection with the approval ofthe merger between SYNAVANT and Cegedim. SYNAVANT’s Board of Directors authorized the Company’s management andrepresentatives to conduct further discussions and negotiations with Dendriteand Cegedim.

 

On May 9, 2003, the Company entered into a definitiveagreement for Dendrite to purchase all the issued and outstanding SYNAVANTstock at a price of $2.83 per share in cash. Under the definitive agreement, Dendrite agreed to commence a tenderoffer for any and all SYNAVANT shares at the offer price of $2.83 per share incash.  The Dendrite Agreement supersedesthe Dendrite’s offer of $2.50 per share announced on April 21, 2003 and also resultsin the termination of the Cegedim Agreement. It also suspends the Dendrite Litigation, with termination of thelitigation upon closing.  The definitiveagreement and other transaction related documents were filed through a Form 8-Kon May 12, 2003.

 

The Dendrite tender offer is subject to shareholdersrepresenting a majority of SYNAVANT's outstanding common stock ownershiptendering their shares, as well as other customary conditions.

 

On May 13, 2003, the Company received a proposal fromCegedim to acquire all of SYNAVANT's outstanding common stock for $3.15 pershare in cash.  In accordance with theDendrite Agreement, the SYNAVANT board of directors has authorized theCompany's management and advisors to enter into discussions and negotiationswith Cegedim regarding its proposal. This authorization does not constitute approval or recommendation ofCegedim's bid by SYNAVANT's board of directors nor has the SYNAVANT boardwithheld, modified or changed its approval or its recommendation in favor ofthe Dendrite Agreement.

 

**SIEBELALLIANCE**

 

On July 14, 2000, SYNAVANT entered into a strategicalliance with Siebel Systems Inc. (“Siebel”), a leading provider of eBusinessapplication software. This alliance agreement was updated and amended (the“Alliance”) on December 31, 2001.  TheAlliance resulted in the following:

 

•                  SYNAVANT isdesignated as a “Strategic Consulting Partner”;

 

11

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•                  SYNAVANT is ableto support a product set including Siebel *e*Medical,*e*Clinical as well as EmployeeRelationship Management (“ERM”);

 

•                  SYNAVANT has norestrictions on its product development, including Cornerstone and Premiere;and

 

•                  SYNAVANT is notrequired to exclusively support Siebel software.

 

###### **CRITICALACCOUNTING POLICIES**

 

“Management’s Discussion and Analysis of FinancialCondition and Results of Operations” are based upon the Company’s consolidatedfinancial statements and the notes thereto, which have been prepared inaccordance with generally accepted accounting principles in the United States(“US GAAP”).  The preparation of thesefinancial statements requires management to make estimates and judgments thataffect the reported amounts of assets and liabilities and the disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reported periods.  On an on-going basis, management evaluatesits estimates and judgments, most significantly those related to revenuerecognition, allowance for uncollectible accounts, goodwill and otherintangible assets, income taxes, restructuring costs, and litigation.

 

Management bases its estimates and judgments onhistorical experience and on various other factors that are believed to bereasonable under the circumstances, the results of which form the basis formaking judgments about the carrying values of assets and liabilities that arenot readily apparent from other sources. There can be no assurance that actual results will not differ from thoseestimates.

 

The Company has identified the significant estimatesand judgments below as critical to our business operations and theunderstanding of our results of operations. For a detailed discussion on the application of these significantestimates and judgments and our accounting policies, also see Note 1 of theConsolidated Financial Statements.

 

*Revenuerecognition*.* *The Company recognizes revenueswhen persuasive evidence of an arrangement exists, services have been rendered,the price to the buyer is fixed or determinable, and collectibility isreasonably assured.  Revenues consist ofsoftware license fees, related maintenance and software service fees, databaseand information services fees, and interactive marketing program fees.  Deferred revenue consists of maintenancebillings due in advance of service periods, and other software and projectbillings for which services have not yet been completed.  The Company’s revenue recognition policiesare consistent with the guidance in Staff Accounting Bulletin (“SAB”) No. 101,“Revenue Recognition in Financial Statements”, as amended by SAB No. 101A and101B, and AICPA Statement of Position (“SOP”) No. 97-2 “Software RevenueRecognition”, as amended by SOP Nos. 98-4 and 98-9, as well as TechnicalPractice Aids issued from time to time by the American Institute of CertifiedPublic Accountants.

 

In cases where services to be provided are notessential to the functionality of the software, the Company determinessufficient vendor specific objective evidence (“VSOE”) of fair value of theelements to recognize the revenue separately. The Company has determined the VSOE of its software license fee based onthe consistent per user license fee charged to its customers. The VSOE of thesoftware service element is based on the price of the software services whensold separately. The Company accounts for the maintenance and support elementseparately using VSOE, which is determined based on the customer renewal feesfor such services.  When services areessential to the functionality of the software, revenue is recognized inaccordance with SOP 97-2.

 

The Company’s software services business derives aportion of its revenue from contracts recorded using the percentage ofcompletion method of accounting based on labor input measures, which requirethe accurate estimation of the cost, scope and duration of eachengagement.  If the Company does notaccurately estimate the resources required or the scope of work to beperformed, or does not manage its projects properly within the 

 

12

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planned periods of time or satisfy its obligations under the contracts,then future software service margins may be significantly and negativelyaffected and losses on existing contracts may need to be recognized.  Any such resulting reductions in margins orcontract losses could be material to the Company’s results of operations.   Should changes in conditions causemanagement to determine these criteria are not met for certain futuretransactions, revenue recognized for any reporting period could be adverselyaffected.

 

*Allowancefor uncollectible accounts.* Prior to the recognition of revenue, the Company makes a decision thatcollectibility is reasonably assured. Over time, management analyzes accounts receivable balances, historicalbad debts, customer concentrations, customer credit-worthiness, currenteconomic trends, and changes in our customer payment terms and trends whenevaluating the adequacy of the allowance for uncollectible accounts receivable.  Significant management judgment andestimates must be made and used in connection with establishing the allowancefor uncollectible accounts receivable in any accounting period.  The Company provides specific amounts forknown individual accounts that have deteriorated and general amounts forchanges that are indicators of future deterioration.  If the financial condition of the Company’s customers were todeteriorate, resulting in an impairment of their ability to make payments,additional allowances may be required.

 

*Goodwilland other long-lived assets. *Purchaseaccounting requires extensive use of accounting estimates and judgments toallocate the purchase price to the fair market value of the assets andliabilities purchased.  The Companyevaluates its intangible assets for potential impairment indicators wheneverevents or changes in circumstances indicate that the carrying value may not berecoverable. Factors that management consider important, which could trigger animpairment review include, but are not limited to, the following:

 

•                  Significantdecrease in the market value of an asset;

 

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

 

•                  Significantadverse change in legal factors or negative industry or economic trends;

 

•                  Significantunderperformance relative to current period and/or projected future operatingprofits or cash flows associated with an asset;

 

•                  Significantdecline in the Company’s stock price for a sustained period; and

 

•                  Our marketcapitalization relative to net book value.

 

Statement of Financial Accounting Standards (“SFAS”)No. 142, “Goodwill and Other Intangible Assets” became effective January 1,2002, and as a result, the Company ceased amortization of the remaining $41.2million of goodwill.  In lieu ofamortization, the Company is required to perform a periodic impairment reviewof the goodwill.  Future events couldcause management to conclude that impairment indicators exist and that goodwillassociated with the acquired businesses is impaired.  Any resulting impairment loss could have a material adverseimpact on the balance sheet and results of operations.  Other intangible assets with finite livesthat do not meet the criteria of SFAS No. 142 will continue to be amortized inaccordance with the adoption of SFAS No. 144, “Accounting for the Impairment orDisposal of Long-Lived Assets”.  Thisamortization is based on the estimated useful lives of the underlying acquiredbusiness or underlying assets.

 

When the Company determines that the carrying value oflong-lived assets, intangibles and related goodwill may not be recoverablebased upon the existence of one or more of the indicators of impairment, theCompany recognizes an impairment loss. The impairment loss, if applicable, is then calculated based on the fairvalue or the sum of the discounted cash flows compared with the carryingvalue.  The discounted cash flow methodwould use a discount rate determined by management to be commensurate with therisk inherent in the current business model.

 

13

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*Incometaxes. *As part of theprocess of preparing the consolidated financial statements, the Company isrequired to estimate taxes in each of the jurisdictions in which the Companyoperates.  This process involvesmanagement estimating the actual current tax exposure together with assessingtemporary differences resulting from differing treatment of items for tax andUS GAAP purposes.  These differencesresult in deferred tax assets and liabilities, which are included within theconsolidated balance sheet.  The Companymust then assess the likelihood that deferred tax assets will be recovered fromfuture taxable income and to the extent management believes that recovery isnot likely, a valuation allowance must be established.  To the extent the Company establishes avaluation allowance or increases this allowance in a period, an expense isrecorded within the tax provision in the consolidated statement of operations.

 

Significant management judgment is required indetermining our provision for income taxes, our deferred tax assets andliabilities and any valuation allowance recorded against our net deferred taxassets.  The Company has recorded avaluation allowance due to uncertainties related to the ability to utilize someof it’s deferred tax assets, primarily consisting of certain net operatinglosses carried forward and foreign tax credits, before they expire.  The valuation allowance is based on ourestimates of taxable income by jurisdiction in which the Company operates andthe period over which our deferred tax assets could be recoverable.  In the event that actual results differ fromthese estimates or the Company adjusts these estimates in future periods,management may need to establish an additional valuation allowance that couldmaterially impact our financial condition and results of operations.

 

The Company also records a reserve for certaininternational, federal and state tax contingencies based on the likelihood ofobligation, when needed.  In the normalcourse of business, the Company is subject to challenges from U.S. and non-U.S.tax authorities regarding the amount of taxes due. These challenges may resultin adjustments of the timing or amount of taxable income or deductions or theallocation of income among tax jurisdictions. Management believes SYNAVANT has appropriately accrued for taxexposures.  If the Company prevails in amatter for which an accrual has been established or is required to pay anamount exceeding its reserves, the financial impact will be reflected in theperiod in which the matter is resolved. In the event that actual results differ from these estimates or theCompany adjusts these estimates in future periods, management may need toestablish an additional valuation allowance that could materially impact thefinancial condition and results of operations.

 

*Restructuringcosts. *Therestructuring accruals are based on certain estimates and judgments related tocontractual obligations and related costs. In the event that actual results differ from these estimates or theCompany adjusts these estimates in future periods, management may need toestablish an additional restructuring accrual or reverse accrual amountsaccordingly.

 

*Legalcontingencies. *TheCompany is currently involved in certain legal proceedings as disclosed in Note2.  When probable, the Company accruesan estimate for the resolution of these claims.  This estimate is developed in consultation with outside counselhandling our defense in these matters and is based upon an analysis ofpotential results, assuming a combination of litigation and settlementstrategies.  With the exception of theDendrite Litigation (See Note 7), the Company does not believe these proceedingswill materially affect SYNAVANT’s financial position, although no assurance canbe given as to the ultimate outcome of any such proceedings.

 

*Fair Value of Stock Options. *SFAS No. 123, “Accounting for Stock-BasedCompensation”, requires that companies with stock-based compensation plans eitherrecognize compensation expense based on the fair value of options granted orcontinue to apply the existing accounting rules and disclose pro forma netincome and earnings per share assuming the fair value method had been applied.The Company has chosen to continue applying Accounting Principles Board OpinionNo. 25 (“APB No. 25”) and related interpretations in accounting for its stockincentive plans.  No compensation cost has been recognized forthe fixed stock option plans for the three months ended March 31, 2003 and2002.  Had compensation cost for theSYNAVANT stock incentive plans been determined based on the fair value at thegrant dates for awards under those plans, consistent with the method of 

 

14

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SFAS 123, the Company’s net loss and loss pershare would have increased to the pro forma amounts indicated below:

 
|                                                                                                                   |   | **March 31,  2003** |   | **March 31,  2002** |   |
|------------------------------------------------------------------------------------------------------------------------|--------|---------------------|--------|---------------------|--------|
|                                                                                                                   |   |                |   |                |   |
| Net Loss:                                                                                                              |   |                |   |                |   |
| As reported                                                                                                            |   | $                   | (7,458 | )                   | $      | (1,945 | ) |
| Deduct:  Total stock-based employee compensation  expense determined under fair value based method for all awards |   | $                   | (496   | )                   | $      | (1,510 | ) |
| Pro forma                                                                                                              |   | $                   | (7,954 | )                   | $      | (3,455 | ) |
| Loss Per Share –  Basic and Diluted:                                                                              |   |                |   |                |   |
| As reported                                                                                                            |   | $                   | (0.49  | )                   | $      | (0.13 | ) |
| Pro forma                                                                                                              |   | $                   | (0.52  | )                   | $      | (0.23 | ) |

 

The above listing is not intended to be acomprehensive list of all the Company’s estimates and judgments or accountingpolicies.  In many cases, the accountingtreatment of a particular transaction is specifically dictated by US GAAP, withno need for management’s judgment in their application.  There are also areas in which management’sjudgment in selecting any available alternative would not produce a materiallydifferent result.

 

**RESULTSOF OPERATIONS**

 

**THREE MONTHS ENDED MARCH 31, 2003COMPARED WITH THREE MONTHS ENDED MARCH 31, 2002.**

 

**REVENUE**

 

Total revenues for the three months ended March 31,2003 decreased by $10.2 million and 22.7% to $34.8 million from$45.0 million for the three months ended March 31, 2002.  The overall revenue decrease was primarilydriven by a decrease in software services and interactive marketing.

 

*SOFTWAREFEES.*  Software feesdecreased to $0.2 million for the three months ended March 31, 2003 from$1.4 million for the three months ended March 31, 2002, a decrease of$1.2 million and 85.7%.  Thedecrease in software fees is primarily due to the Company’s shift to focus onsoftware services rather than on proprietary software development and sale oflicenses.

 

*SOFTWARESERVICES.*  Softwareservices revenue decreased to $16.6 million for the three months endedMarch 31, 2003 from $20.8 million for the three months ended March 31,2002, a decrease of $4.2 million or 20.2%.  The decrease in revenue from software services is principally dueto the transition of certain customers in the U.S. who selected alternativesuppliers for their software services, and the absence of a Siebelimplementation for a U.S. customer which occurred in the first quarter of 2002.

 

*INTERACTIVEMARKETING.* Interactive marketing revenue decreased to $18.0 million for the threemonths ended March 31, 2003 from $22.7 million for the three months ended March31, 2002, a decrease of $4.7 million or 20.7%. The decrease is primarily due to the absence of a large productcommunications program implemented for a customer in the U.S. that occurred inthe first quarter of 2002.

 

**OPERATINGCOSTS**

 

*COSTOF SOFTWARE FEES.* Cost of software fees decreased to $0.1 million for the threemonths ended March 31, 2003, from $0.7 million for the three months endedMarch 31, 2002, a decrease of $0.6 million 

 

15

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and 85.7%.  The decrease relatesto the decline in software fee revenue and the decrease in amortization ofcapitalized software costs as certain proprietary software products becamefully amortized as of the end of 2002.

 

*COST OF SOFTWARE SERVICES.*  Cost of software services decreased to$13.2 million for the three months ended March 31, 2003, from$15.1 million for the three months ended March 31, 2002, a decrease of$1.9 million and 12.6%.  The decrease incost of software services is primarily due to lower software services revenueand a change in product mix.

 

*COST OF INTERACTIVE MARKETING.*  Cost of interactive marketing revenuedecreased to $15.6 million for the three months ended March 31, 2002 from$19.3 million for the same period in the prior year. These costs decreased dueto the decrease in revenue and the absence of postage costs associated with thelarge product communications program implemented for a customer in the U.S. inthe first quarter of 2002.

 

**GROSS MARGIN**

 

The Companycalculates gross margin as revenue less operating costs as categorized in theCompany’s consolidated financial statements. The following table summarizes the Company’s gross margin information indollars and as a percentage of the associated revenues for the three monthsended March 31, 2003 and the comparable period for the prior year.

 
|                                   |   | **3/31/03** |   | **3/31/02** |   |
|----------------------------------------|--------|-------------|--------|-------------|--------|
| Software fees                          |   |        |   |        |   |   |   |   |   |
| Software fees  revenue                 |   | $           | 174    |        | 100.0  | % | $ | 1,440 |   | 100.0 | % |
| Software fees  operating costs         |   | 62          |   | 35.6        | %      | 726 |   | 50.4 | % |
| Software fees  gross margin            |   | $           | 112    |        | 64.4   | % | $ | 714 |   | 49.6 | % |
|                                   |   |        |   |        |   |   |   |   |   |
| Software  services                     |   |        |   |        |   |   |   |   |   |
| Software  services revenue             |   | $           | 16,636 |        | 100.0  | % | $ | 20,848 |   | 100.0 | % |
| Software  services operating costs     |   | 13,155      |   | 79.1        | %      | 15,106 |   | 72.5 | % |
| Software  services gross margin        |   | $           | 3,481  |        | 20.9   | % | $ | 5,742 |   | 27.5 | % |
|                                   |   |        |   |        |   |   |   |   |   |
| Interactive  marketing                 |   |        |   |        |   |   |   |   |   |
| Interactive  marketing revenue         |   | $           | 18,005 |        | 100.0  | % | $ | 22,672 |   | 100.0 | % |
| Interactive  marketing operating costs |   | 15,598      |   | 86.6        | %      | 19,259 |   | 84.9 | % |
| Interactive  marketing gross margin    |   | $           | 2,407  |        | 13.4   | % | $ | 3,413 |   | 15.1 | % |
|                                   |   |        |   |        |   |   |   |   |   |
| Total                                  |   |        |   |        |   |   |   |   |   |
| Total revenue                          |   | $           | 34,815 |        | 100.0  | % | $ | 44,960 |   | 100.0 | % |
| Total operating  costs                 |   | 28,815      |   | 82.8        | %      | 35,091 |   | 78.0 | % |
| Total gross  margin                    |   | $           | 6,000  |        | 17.2   | % | $ | 9,869 |   | 22.0 | % |

 

Total gross marginfor the three months ended March 31, 2003 decreased by $3.9 million to$6.0 million and as a percentage of revenue by 4.8% to 17.2%.  The Company experienced lower margins insoftware services and interactive marketing, due to lower revenues in theseareas as discussed above.  The grossmargins deteriorated as a percentage of revenue as certain product costs arefixed in nature.

 

**OPERATINGEXPENSES**

 

*RESEARCH AND DEVELOPMENT.*  Research and development expenses declinedby $0.6 million or 31.6% to $1.3 million for the three months ended March31, 2003 from $1.9 million for the three months ended March 31, 2002.  The decline in research and developmentcosts is principally attributable to a de-emphasis of proprietary softwaredevelopment.

 

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*SELLING AND ADMINISTRATIVE.*  Selling and administrative expensesincreased to $8.4 million for the three months ended March 31, 2003 from $7.6million in the same period in the prior year, principally due to $0.6 millionof transaction related expenses associated with the Dendrite Agreement (SeeNote 7).  The Company has also investedin new sales resources, which has been partially offset by the impact ofadministrative cost containment actions.

 

*DEPRECIATION AND AMORTIZATION.*  Depreciation and amortization for the threemonths ended March 31, 2003 increased to $1.9 million from$1.8 million for the same period in the prior year.  This increase is primarily due to capitalexpenditures related to the relocation of certain facilities in the U.S. andthe U.K. which occurred during 2002, partially offset by the impact of certainof the Company’s assets that have become fully depreciated.

 

**OPERATINGLOSS**

 

Operating lossincreased to $6.1 million for the three months ended March 31, 2003compared with an operating loss of $1.5 million for the three months endedMarch 31, 2002.  The loss increased by$4.6 million primarily due to lower revenues and gross margins, transactioncosts of $0.6 million and restructuring charges of $0.5 million incurred in2003, partially offset by cost containment actions.

 

**RESTRUCTURING**

 

On August 16,2001, the Company announced that, in an attempt to optimize customerresponsiveness and organizational effectiveness, it would simplify its seniorleadership structure as well as eliminate certain other positions in itsinternational and domestic operations. The Company completed the first twosteps in the restructuring process, resulting in the elimination of 100positions that is reflected in the charge of $7.5 million for 2001 (the “2001Restructuring”).  These reductionsincluded six senior management positions with the remainder being operating, technicaland administrative staff.  The chargefor the 2001 Restructuring is composed entirely of employee severance andseparation related costs, such as extended benefits and outplacement fees.  Of the $7.5 million charge, $0.1 millionremains to be paid as of March 31, 2003.

 

During 2002, the Companytook additional restructuring charges related to both severance and separationrelated costs for the elimination of approximately 45 positions and real estateactions, as the Company has terminated certain real estate leases and subleasedother office space made available by the restructuring actions (the “2002Restructuring”).  These personnelreductions included three senior management positions with the remainder beingoperating, technical and administrative staff. The 2002 Restructuring resulted in a charge of $2.2 million, of which$1.1 million remains to be paid as of March 31, 2003.  All remaining severance and related personnel costs are expectedto be paid in 2003, with the real estate payments continuing over the life ofthe related lease agreements.

 

During the firstquarter of 2003, the Company took an additional restructuring charge related toseverance and separation costs for the elimination of 9 positions relating tooperating, technical and administrative staff. These actions resulted in a charge of $0.5 million, of which $0.2million remains to be paid as of March 31, 2003. The remaining payments relatedto this charge are expected to be paid in 2003.

 

**TAXES**

 

The Company had aconsolidated tax provision of $0.3 million for the three months endedMarch 31, 2003 and 2002.  The Company’seffective tax rate is different from the U.S. federal statutory tax rate due totaxable income in certain foreign jurisdictions and losses for which a fullvaluation has been provided.

 

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**RESULTSBY SEGMENT**

 

*THE AMERICAS.*  Revenue for the three months endedMarch 31, 2003 was $17.5 million compared with $29.8 million for thesame period in the prior year.  Thedecline is due to certain customer transitions and the absence of both a Siebelimplementation in the U.S. and a large product communications program thatoccurred in the first quarter of 2002. The operating loss for the three months ended March 31, 2003 was$5.3 million compared to a loss of $0.8 million for the three monthsended March 31, 2002 primarily due to the decline in revenue, partially offsetby cost containment actions taken during 2002 and 2003.

 

*EUROPE.*  Revenue for the three months ended March 31,2003 was $13.9 million compared with $12.3 million for the threemonths ended March 31, 2002.  Improvedinteractive marketing volume was the primary factor for revenue increasing by$1.6 million, partially offset by lower software services revenue.  Operating loss for the three months ended March31, 2003 increased slightly to $0.7 million from $0.4 million in thethree months ended March 31, 2002.  Theincrease in the operating loss, despite increased revenues, relates to productmix and the additional resources required to launch a strategic consultingcapability in Europe.

 

*ASIA PACIFIC.*  Revenue for the three months ended March 31,2003, increased to $3.4 million compared to $2.9 million for thethree months ended March 31, 2002.  Theincrease in revenue was primarily the result of better interactive marketingrevenues in Australia in the first quarter of 2003.  As a result of improved revenues, the operating loss for thethree months ended March 31, 2003 was $0.1 million compared with anoperating loss of $0.3 million for the three months ended March 31, 2002.

 

**NON-U.S.OPERATING AND MONETARY ASSETS**

 

SYNAVANT operatesglobally, deriving 49.7% of its revenues in the first three months of 2003 fromnon-U.S. operations.  As a result,fluctuations in the value of foreign currencies relative to the U.S. Dollar mayincrease the volatility of reported U.S. Dollar operating results.

 

Non-U.S. monetaryassets are maintained in currencies other than the U.S. Dollar, principallythose of the Euro, the Pound Sterling and the Australian Dollar.  Changes in the value of these currenciesrelative to the U.S. Dollar are charged or credited to stockholders’equity.  The effect of exchange ratechanges during the three months ended March 31, 2003 increased the U.S. Dollaramount of cash and cash equivalents by $0.2 million.

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

On April 27,2001, SYNAVANT Inc. entered into a revolving credit facility with FoothillCapital Corporation (“the Foothill Facility”), a wholly-owned subsidiary ofWells Fargo & Company.  The FoothillFacility had a term of five years with a maximum credit line of$20 million. The available line was determined based on a percentage ofthe eligible accounts receivable in the U.S. Any borrowing against the line would have been at a rate of Prime plus100 basis points.  The Company wasrequired to maintain certain financial covenants relating to earnings, networth and capital expenditures. Concurrent with the Foothill Facility, IMS HEALTH agreed to defer anypayments associated with the Distribution Liabilities (See Note 2) untilJanuary 1, 2005.

 

On March 31, 2003, the Company signed a $15.0 MillionRevolving Credit and Security Agreement with CapitalSource Finance LLC (the“CapitalSource Facility”).  The newagreement replaces the Foothill Facility, and increases the Company’s availablecapital compared with the Foothill Facility. The available credit line is based on a percentage of eligible accountsreceivable in the U.S.  Any borrowingagainst the credit line will be at a rate of Prime plus 200 basis points.  The Company is required to maintain certainfinancial covenants relating to financial performance such as earnings, networth, cash collections and fixed charge coverage ratios, among others.** **Asof March 31, 2003 the Company had a balance of $4.5 million for borrowings fromthe CapitalSource Facility and was in compliance with all financialcovenants.  On April 3, 2003, theCompany filed an 8-K related to the closing of the CapitalSource Facility.

 

As of March 31,2003, the Company had cash and cash equivalents of $11.5 million, whichincludes $1.4 million

 

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of restricted cash and$4.5 million of borrowings under the line of credit.  The Company also maintained additional availability under theCapitalSource Facility.  The restrictedcash relates to cash collateralizing letters of credit from Foothill CapitalCorporation for the Company’s Permail operation in Australia and for realestate leases in New Jersey.  Upon theclose of the Permail Transaction, it was agreed that the associated letter ofcredit would be cancelled, which is expected to occur during May 2003.  In addition, the letter of credit associatedwith the New Jersey real estate lease is expected to be transferred toCapitalSource Finance LLC during the second quarter of 2003, reducing theoutstanding loan balance of the CapitalSource Facility.

 

If the Companyincurs the Distribution liability of $9.0 million and payment is required inJanuary 2005 (See Note 2) pursuant to the agreement with IMS HEALTH, our cashflows may need to exceed our projected income in order to meet our financialobligations.

 

In addition, theCompany’s short-term liquidity is expected be affected by the following items:

 

•                                          CertainU.S. based customers have notified the Company that they have selectedalternative suppliers for their software services and, as a result, thefinancial impact of these transitions will vary throughout 2003.  The Company estimates that in the U.S. approximately$20 million to $23 million of 2002 software services revenue associated withthese customers will not recur in 2003. Although the Company is expected to partially offset these revenuereductions with new opportunities, further cost containment actions are beingconsidered.

 

•                                          TheCompany is expecting that revenue will increase throughout the balance of2003.  The extent to which revenueincreases will directly affect the cash flows in the period as well as theCompany’s access to capital and the CapitalSource Facility, which is based oneligible domestic accounts receivable. If management’s expectations are not met, or change due to marketconditions, strategic opportunities or otherwise, capital requirements may varymaterially from those currently anticipated.

 

•                                          OnApril 21, 2003, Dendrite announced publicly its desire to acquire SYNAVANTpursuant to a tender offer followed by a merger, for $2.50 per share in cash(See Note 7).  On the same day Dendritecommenced litigation against SYNAVANT generally alleging that SYNAVANT’s Boardof Directors failed to satisfy its fiduciary duties, among other things, inconnection with the approval of the Merger between SYNAVANT and Cegedimannounced on April 12, 2003. This action was taken after the Company had spenta significant amount of management time and costs on assessing strategicalternatives for the Company.  Theadditional disruption and cost to the business associated with this litigationis a significant concern of SYNAVANT’s management.

 

Should a tenderoffer not be accepted by the shareholders, the Company would need to seekadditional sources of liquidity to meet its cash and working capital needs forthe next twelve months.

 

**CASHFLOWS**

 

Net cash providedby operating activities totaled $0.7 million for the three months endedMarch 31, 2003 compared with net cash provided by operating activities of$2.3 million for the three months ended March 31, 2002.  The decrease of $1.6 million primarilyreflects a larger net loss, partially offset by significant improvements inworking capital.

 

Net cash used ininvesting activities totaled $0.6 million related to capital expendituresfor the three months ended March 31, 2003 and was basically unchanged ascompared with cash used in investing activities of $0.5 million for thethree months ended March 31, 2002.

 

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Net cash providedby financing activities totaled $4.3 million for the three months endedMarch 31, 2003 as compared to cash used in financing activities of $0.1 millionin the same period in the prior year. The cash inflow in 2003 was attributable to $4.5 million in borrowingsfrom the CapitalSource Facility, partially offset by increased paymentsrelating to capital leases.

 

**CHANGES IN FINANCIAL POSITION ATMARCH 31, 2003 COMPARED WITH DECEMBER 31, 2002**

 

Cash and cashequivalents, including restricted cash, were $11.5 million as of March 31,2003 compared with $7.0 million as of December 31, 2002.  The increase in cash and cash equivalents of$4.5 million was due to borrowings from the CapitalSource Facility.

 

*Accounts and Other Receivables—Net.*  Decreased to $31.1 million at March 31,2003 from $36.8 million at December 31, 2002.  The decrease is due to improved collections and lower revenues.

 

*Other Current Assets.*  Increased to $6.5 million at March 31, 2003from $5.5 million as of December 31, 2002. The increase relates to higher prepaid expenses related to real estatedeposits in Europe and prepaid insurance.

 

*Property,Plant and Equipment – Net*. Decreased to $12.2 million at March 31, 2003 from $12.8 million atDecember 31, 2002.  The decrease is dueto straight-line depreciation of the assets over their estimated useful lives,partially offset by capital purchases during the period.

 

*Computer Software.*  Decreased $0.4 million to $2.3 milliondue to amortization of the remaining book value based on the greater ofstraight line or revenue based amortization.

 

*Goodwill—Net.*  Remained unchanged as this balance is nolonger amortized in accordance with FAS 142.

 

*AccountsPayable*.  Increased by$2.9 million as the Company took actions to manage its working capital.

 

*Accrued Restructuring.*  Decreased by $0.7 million due to severancepayments made during the quarter, partially offset by a $0.5 million chargeaccrued in the first quarter of 2003.

 

*Accrued and Other CurrentLiabilities.* Decreased to $14.7 million at March 31, 2003 from$16.2 million at December 31, 2002. The decrease reflected the payment of certain year end accruals and inclusionof items into accounts payable previously classified as accrued liabilities.

 

*AccruedIncome Taxes*. Decreased to $2.0 million at March 31, 2003 from $2.1 million atDecember 31, 2002.  The decrease isrelated to a reclass from the deferred tax accounts, cash payments for taxesrelated to prior periods, partially offset by the quarterly accrual of incometaxes.

 

*Deferred Revenue.*  Increased to $9.8 million at March 31,2003 from $8.2 million at December 31, 2002.  The increase relates primarily toprepayments on projects from certain customers in the U.S.

 

*Total Equity.*  Decreased to $52.0 million at March 31,2003 from $60.0 million at December 31, 2002. The reduction wasprimarily due to the net loss during the period and the impact of foreigncurrency fluctuations.

 

**FACTORSTHAT MAY AFFECT FUTURE PERFORMANCE**

 

*Inaddition to other information in this quarterly report on Form 10-Q, thefollowing risk factors should be carefully considered in evaluating our Companyand our business because such factors currently*

 

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*mayhave a significant impact on our business, operating results and financialcondition. As a result of the risk factors set forth below, actual resultscould differ materially from those projected in any forward-looking statements.*

 

**THECOMPANY MAY NEED ADDITIONAL FINANCING TO MEET OUR FUTURE CAPITAL REQUIREMENTS.**

 

The Companyinvests in research and development as well as in capital projects to enhanceexisting products and services and develop new products and services inresponse to technological and marketplace changes.  As of March 31, 2003, the Company had cash and cash equivalentsof $11.5 million, which includes $1.4 million of restricted cash and $4.5million of borrowings under the line of credit.  The Company also maintained additional availability under theCapitalSource Facility (See Item 2 – Liquidity and Capital ResourcesSection).  The restricted cash relatesto cash collateralizing letters of credit from Foothill Capital Corporation forthe Company’s Permail operation in Australia and for real estate leases in NewJersey.  Upon the close of the PermailTransaction, it was agreed that the associated letter of credit would becancelled, which is expected to occur during May 2003.  In addition, the letter of credit associatedwith the New Jersey real estate lease is expected to be transferred toCapitalSource Finance LLC during the second quarter of 2003, reducing theoutstanding loan balance of the CapitalSource Facility (See Item 2 – Liquidityand Capital Resources Section).

 

If the Companyincurs the Distribution liability of $9.0 million and payment is required inJanuary 2005 (See Note 2) pursuant to the agreement with IMS HEALTH, our cashflows may need to exceed our projected income in order to meet our financialobligations.

 

In addition, theCompany’s short-term liquidity is expected be affected by the following items:

 

•                                          CertainU.S. based customers have notified the Company that they have selectedalternative suppliers for their software services and, as a result, the financialimpact of these transitions will vary throughout 2003.  The Company estimates that in the U.S.approximately $20 million to $23 million of 2002 software services revenueassociated with these customers will not recur in 2003.  Although the Company is expected topartially offset these revenue reductions with new opportunities, further costcontainment actions are being considered.

 

•                                          TheCompany is expecting that revenue will increase throughout the balance of2003.  The extent to which revenueincreases will directly affect the cash flows in the period as well as theCompany’s access to capital and the CapitalSource Facility, which is based oneligible domestic accounts receivable. If management’s expectations are not met, or change due to market conditions,strategic opportunities or otherwise, capital requirements may vary materiallyfrom those currently anticipated.

 

•                                          OnApril 21, 2003, Dendrite announced publicly its desire to acquire SYNAVANTpursuant to a tender offer followed by a merger, for $2.50 per share in cash(See Note 7).  On the same day Dendritecommenced litigation against SYNAVANT generally alleging that SYNAVANT’s Boardof Directors failed to satisfy its fiduciary duties, among other things, inconnection with the approval of the Merger between SYNAVANT and Cegedimannounced on April 12, 2003. This action was taken after the Company had spenta significant amount of management time and costs on assessing strategicalternatives for the Company.  Theadditional disruption and cost to the business associated with this litigationis a significant concern of SYNAVANT’s management.

 

Should a tenderoffer not be accepted by the shareholders, the Company would need to seekadditional sources of liquidity to meet its cash and working capital needs forthe next twelve months.

 

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**COMPETITIONFROM OTHER PROVIDERS OF CUSTOMER RELATIONSHIP MANAGEMENT SOLUTIONS MAY REDUCEDEMAND FOR SYNAVANT’S PRODUCTS AND SERVICES OR CAUSE IT TO REDUCE THE PRICE OFPRODUCTS AND SERVICES.**

 

SYNAVANT competeswith other companies that sell sales force software products and services andinteractive marketing services that specifically target the pharmaceuticalindustry.  The Company also facescompetition from many vendors that market and sell CRM solutions in theconsumer packaged goods industry. In addition, the Company competes withvarious companies that provide support services and interactive marketingservices similar to SYNAVANT’s services.

 

The Company maynot compete effectively in the market. Competitive pressure may result in reducing the price of products andservices, which would negatively affect revenues and operating margins. If theCompany is unable to compete effectively in its markets, its business, resultsof operations and financial condition would be materially and adverselyaffected.

 

Increasedcompetition is anticipated based on the growing strategic focus on CRM and thesuccess of Siebel’s *e*Businesssolutions.  Large established companies,such as Oracle, SAP and Microsoft, that are well established providers ofenterprise resource planning (“ERP”) software solutions either offer or areexpected to offer new CRM solutions that may compete with SYNAVANT solutionsbased on Siebel technology.

 

The Companytypically contracts with customers for a three year license and supportagreement for software products.  At theend of the contract, the customer may renew its agreement, normally for a oneto two year period.  Past experience hasindicated that the Company’s customers typically reassess these contracts everythree to five years.  As customersreassess their requirements, the Company may not be able to renew theagreements, and may not be selected to provide implementation and/or supportservices even if a Siebel solution is selected by the customer.

 

Some of theCompany’s competitors and potential competitors are part of large corporategroups and have longer operating histories and significantly greater financial,sales and marketing, technology and other resources than SYNAVANT.  In the event that the Company is unable tocompete successfully with these companies, it could have a material adverseeffect on its business, operating results or financial condition.

 

**THEREVISED ALLIANCE WITH SIEBEL IS CRITICAL TO SUCCESS IN GENERATING CRM SERVICESREVENUE.**

 

You should notethe following risk factors relating to the alliance with Siebel:

 

•                  Customers maychoose to purchase software services directly from Siebel or another providerand not as part of an integrated solutions offering from SYNAVANT;

 

•                  The Company maynot be able to implement successfully the changes to its business modelnecessitated by the Siebel alliance;

 

•                  The Company maynot successfully develop and differentiate our value added services andproducts together with Siebel software products; and

 

•                  Other Siebelpartners and/or providers of CRM services may effectively compete to sellportions of a total solution offering such as integration services, help desksupport or data services to potential customers of SYNAVANT.

 

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**THECOMPANY HAS EXPERIENCED LOSSES, AND EXPECTS TO INCUR LOSSES IN THE NEAR TERM.**

 

The Company experienced a net loss of $7.5 million, or 21.4% of its totalrevenue, in the three months ended March 31, 2003.  At March 31, 2003, the Company had an accumulated deficit of$58.9 million.  The Company anticipatesthat potential restructuring and planned expenditures on sales, marketing, andproduct development will result in additional losses in the near term.  Future expenditures on sales, marketing, andproduct development will be driven primarily by the Company’s ability toachieve our targeted revenue goals.

 

**THE LOSSOF KEY PERSONNEL COULD NEGATIVELY IMPACT THE BUSINESS AND RESULTS OFOPERATIONS.**

 

The Company’ssuccess depends on its continuing ability to attract, hire, train and retain asubstantial number of highly skilled managerial, technical, sales, marketingand customer support personnel.  Inparticular, SYNAVANT’s Chairman and Chief Executive Officer, Wayne P. Yetter,is integral to the Company’s future success and is not currently bound by anemployment agreement.  Competition forqualified personnel is intense, and the Company may fail to retain keyemployees or to attract or retain other highly qualified personnel.  Even if it is able to attract qualifiedpersonnel, new hires frequently require extensive training before they achievedesired levels of productivity.  If itis unable to hire or fails to retain competent personnel, the business, resultsof operations and financial condition could be materially and adverselyaffected.

 

**FAILURETO INTRODUCE NEW OR ENHANCED PRODUCTS IN A TIMELY MANNER COULD RENDER THECOMPANY’S PRODUCTS OBSOLETE AND UNMARKETABLE.**

 

SYNAVANT competesin businesses that develop and market sophisticated information systems,software and other technology.  It isexpected that these systems, software and other technology will be subject torefinements as such systems and underlying technologies are upgraded andadvanced.  As various systems andtechnologies become outdated, the Company may not be able to enhance or replacethem, to enhance or replace them as quickly as the competition, or to developand market new or enhanced products and services in the future on schedule andon a cost-effective basis.  Failure todevelop and market new or enhanced products and services that compete withother available offerings could materially and adversely affect the business,results of operations and financial condition.

 

Success willdepend in part upon our ability to:

 

•                  continue toprovide best-in-class enterprise solutions;

 

•                  enter newmarkets; and

 

•                  develop and/orprovide new solutions that satisfy increasingly sophisticated customerrequirements, that keep pace with technological developments expected by themarket (including, in particular, developments related to the Internet).

 

**DEFECTSIN THE COMPANY’S PRODUCTS COULD DELAY MARKET ADOPTION OF THE SOFTWARE OR CAUSETHE COMPANY TO COMMIT SIGNIFICANT RESOURCES TO REMEDIAL EFFORTS.**

 

Software productsfrequently contain errors or failures, especially when first introduced or whennew versions or enhancements are released. The Company could be forced to delay the commercial release of productsuntil software problems have been corrected. SYNAVANT could lose revenues as a result of software errors ordefects.  These products are intendedfor use in sales and marketing applications that may be critical to acustomer’s business.  As a result, it isexpected that customers and potential customers will have a greater sensitivityto product defects than the market for software products generally. Testingerrors may also be found in

 

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new products,enhancements or releases after commencement of commercial shipments, resultingin loss of revenue or delay in market acceptance, damage to our reputation, orincreased service and warranty costs, any of which could have a materialadverse effect on the business, operating results or financial condition.  The foregoing would also be applicable toSiebel and other alliance partner’s products around which future services wouldbe based.  With respect to suchproducts, the Company would also depend on Siebel and other alliance partnersfor the correction of errors and the delivery of any required modificationsrelating to such products.

 

**SUCCESSDEPENDS ON THE STRENGTH OF THE PHARMACEUTICAL INDUSTRY.**

 

The Company’sproducts and services are primarily used in connection with the marketing andsale of prescription-only drugs, particularly to support the launch andadoption of new pharmaceutical products. The market for prescription-only drugs is undergoing a number ofsignificant changes, including:

 

•                  consolidationsand mergers, which may reduce the number of existing customers and the size oftheir combined sales forces, and could also alter implementation and purchasecycles;

 

•                  reclassificationof formerly prescription-only drugs to permit over-the-counter sales;

 

•                  competitivepressures on our pharmaceutical customers resulting from the continuing shiftto delivery of healthcare through managed care organizations;

 

•                  changes in law,such as government-mandated price reductions for prescription-only drugs, thataffect the healthcare systems in the countries where our customers andpotential customers are located; and

 

•                  slower growth ofpharmaceutical sales forces and fewer new product approvals by the FDA.

 

Failure to respondeffectively to any or all of these and other changes in the marketplace forprescription-only drugs could have a material and adverse effect on thebusiness, operating results and financial condition.

 

**SIGNIFICANTFLUCTUATIONS IN THE COMPANY’S QUARTERLY OPERATING RESULTS MAY ADVERSELY AFFECTTHE MARKET PRICE OF ITS COMMON STOCK.**

 

The Company’squarterly operating results could fluctuate significantly in the future, andresults of operations could fall below the expectations of securities analystsand investors.  If this occurs or ifmarket analysts perceive that it will occur, market value could decreasesubstantially.  The selection of a CRMsoftware product and service partners often entails an extended decision-makingprocess because of the strategic implications and substantial costs associatedwith a customer’s license of the software and project implementation.  As a result, the decision-making processtypically takes nine to eighteen months, although in some cases it may takeeven longer.  Accordingly, the Companycannot control or predict the timing of execution of contracts withcustomers.  In addition, animplementation process of three to nine months is customary before the softwareis rolled out to a customer’s sales force. Other factors may cause significant fluctuationsin our quarterly operating results, including:

 

•                  changes in thedemand for products;

 

•                  the timing,composition and size of orders from customers;

 

•                  customerspending patterns and budgetary resources;

 

•                  lower marginsassociated with a significant reduction in license fee revenue;

 

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•                  success inobtaining new customers;

 

•                  the timing ofintroductions of or enhancements to products;

 

•                  changes inpricing policies or those of competitors;

 

•                  the ability toanticipate and adapt effectively to developing markets and rapidly changingtechnologies;

 

•                  the ability toattract, retain and motivate qualified personnel, particularly within sales andmarketing and research and development organizations;

 

•                  the publicationof opinions or reports about the Company and its products, or competitors andtheir products;

 

•                  changes ingeneral economic conditions;

 

•                  actions taken bycompetitors, including new product introductions and enhancements; and

 

•                  the ability tocontrol costs.

 

The Company establishesexpenditure levels for product development, sales and marketing and otheroperating expenses based in large part on expected future revenues andanticipated competitive conditions.  Inparticular, staff may be added in advance of new business to permit adequatetime for training.  If the new businessis delayed or cancelled, the Company will incur expenses without the associatedrevenues.  In addition, sales andmarketing expenses may be increased if competitive pressures become greaterthan currently anticipated.  Becauseonly a small portion of expenses varies directly with actual revenues in thenear term, operating results and profitability are likely to be adversely anddisproportionately affected if revenues fall below expectations.

 

**DUE TOTHE COMPANY’S INTERNATIONAL SALES AND MARKETING ACTIVITIES, THE BUSINESS WILLBE SUSCEPTIBLE TO NUMEROUS RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS.**

 

SYNAVANT operatesglobally, deriving 49.7% of its revenues in the first three months of 2003 fromforeign operations.  As a result,fluctuations in the value of foreign currencies relative to the U.S. dollar mayincrease the volatility of the operating results.  The business is subject to a number of risks associated withinternational business activities.  Theserisks generally include:

 

•                  currencyexchange rate fluctuations;

 

•                  seasonalfluctuations in purchasing patterns;

 

•                  the effects ofterrorist acts, the war on terrorism, potential conflict or crisis and otherglobal developments;

 

•                  unexpectedchanges in regulatory requirements;

 

•                  tariffs, exportcontrols and other trade barriers;

 

•                  longer accountsreceivable payment cycles and difficulties in collecting accounts receivable;

 

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•                  difficulties inmanaging and staffing international operations;

 

•                  potentiallyadverse tax consequences, including restrictions on the repatriation ofearnings;

 

•                  the burdens ofcomplying with a wide variety of foreign laws, including data privacy laws; and

 

•                  political instability.

 

**EXPOSURETO CERTAIN DISTRIBUTION LIABILITIES MAY MATERIALLY AND ADVERSELY AFFECT THECOMPANY.**

 

SYNAVANT issubject to certain material liabilities associated with certain mattersrelating to activities prior to the Distribution.  As a condition to the Distribution, the Company is required toundertake to be jointly and severally liable to certain corporate predecessorsof IMS HEALTH for IMS HEALTH’s obligations under certain agreements with suchentities, including potential liability relating to a complaint filed againstsuch entities alleging violations of federal antitrust laws and seeking $350million in damages.  Pursuant to theagreement with IMS HEALTH, IMS HEALTH will indemnify the Company for any liabilityincurred in connection with such Distribution liabilities in excess of $9.0million, which has been recorded in the consolidated financial statements.  Any failure of IMS HEALTH to fulfill itsindemnification obligations that resulted in the obligation to fund asubstantial portion of such excess liabilities could have a material adverseeffect on the business, operating results and financial condition.

 

Pursuant to aletter of agreement signed with IMS HEALTH and Dendrite in May 2003, SYNAVANThas agreed to settle these Distribution Liabilities.  The settlement accelerates payments from January 2005 uponcompletion of the tender offer and merger with Dendrite (See Note 7).  $2.0 million of the $9.0 million has alreadybeen incurred by IMS HEALTH but not yet reimbursed by the Company.  Applying a discount rate of 6.5% on theremaining $7.0 million not yet incurred is expected to result in a totalpayment to IMS HEALTH of approximately $8.4 million to settle the remainingDistribution Liability.

 

**THE COMPANY MAY BE UNABLE TO GENERATESUFFICIENT CASH FLOWS TO ADEQUATELY FUND CERTAIN DISTRIBUTION LIABILITIES.**

 

If the Companyincurs the Distribution Liability of up to $9.0 million, pursuant to theagreement with IMS HEALTH, in connection with the alleged violations of federalantitrust laws by our corporate predecessors, the Company’s cash flows may needto be over and above the projected income in order to meet the Company’sfinancial obligations.  There is noassurance that there will be a sufficient amount of pre-tax income to meet thefinancial obligations in respect to such Distribution Liabilities, which couldhave a material and adverse effect on the business, operating results andfinancial condition.

 

Pursuant to aletter of agreement signed with IMS HEALTH and Dendrite in May 2003, SYNAVANThas agreed to settle these Distribution Liabilities.  The settlement accelerates payments from January 2005 uponcompletion of the tender offer and merger with Dendrite (See Note 7).  $2.0 million of the $9.0 million has alreadybeen incurred by IMS HEALTH but not yet reimbursed by the Company.  Applying a discount rate of 6.5% on theremaining $7.0 million not yet incurred is expected to result in a totalpayment to IMS HEALTH of approximately $8.4 million to settle the remainingDistribution Liability.

 

**SYNAVANT MAY BE SUBJECT TO TAXATIONIF THE SPIN-OFF DOES NOT QUALIFY AS A TAX FREE TRANSACTION**

 

If thedistribution of SYNAVANT shares of common stock to IMS HEALTH shareholders,pursuant to the spin-off, were not to qualify under Section 355 of the InternalRevenue Code, the aggregate corporate tax liability could be approximately $100million and SYNAVANT could be severally liable for such tax.  In the

 

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event that SYNAVANT wereobligated to fund a substantial portion of such liability, it would have amaterial adverse effect on SYNAVANT’S financial condition.  Moreover, each IMS HEALTH stockholder thatreceived shares of SYNAVANT common stock in the spin-off would be treated as ifsuch stockholder had received a taxable distribution in an amount equal to thefair market value of the SYNAVANT common stock received.

 

**GOVERNMENTALREGULATION MAY MATERIALLY AND ADVERSELY AFFECT THE COMPANY’S ABILITY TODISTRIBUTE CONTROLLED SUBSTANCES THROUGH THE MAIL.**

 

SYNAVANT currentlydistributes controlled substances to doctors’ offices through the mail as partof certain interactive marketing programs provided on behalf of pharmaceuticalmanufacturers.  It is important to thebusiness that this practice of distributing prescription-only drugs continues.Future legislation may restrict the Company’s ability to provide these types ofservices.  If any such legislation isenacted, it could have a material and adverse effect on the business, operatingresults and financial condition.

 

**THECOMPANY RELIES ON THE ABILITY TO PROTECT ITS INTELLECTUAL PROPERTY.**

 

SYNAVANT relies ona combination of trade secret, copyright and trademark laws, non-disclosure andother contractual agreements, and technical measures to protect its proprietarytechnology. The steps taken or that will be taken in the future may not preventmisappropriation of the Company’s technology. Further, protective actions taken in the future may not preventcompetitors from developing products with features similar to the Company’sproducts.  In addition, effectivecopyright and trade secret protection may be unavailable or limited in certainforeign countries.  Despite efforts toprotect the products’ proprietary rights, unauthorized parties may attempt tocopy aspects of the Company’s products or to obtain and use information that isregarded as proprietary.  Litigation maybe necessary to enforce intellectual property rights, to protect our tradesecrets, to determine the validity and scope of the proprietary rights ofothers or to defend against claims of infringement or invalidity.  Such litigation could result in substantialcosts and diversion of resources and could harm the business, operating resultsand financial condition.

 

**CLAIMSAGAINST THE COMPANY REGARDING PROPRIETARY TECHNOLOGY COULD REQUIRE THE COMPANYTO PAY LICENSING OR ROYALTY FEES OR TO MODIFY OR DISCONTINUE CERTAIN PRODUCTS.**

 

Any claim that theCompany’s products infringe on the intellectual property rights of others couldmaterially and adversely affect the business, results of operations andfinancial condition.  Because knowledgeof a third party’s patent rights is not required for a determination of patentinfringement and because the United States Patent and Trademark Office issuesnew patents on an ongoing basis, infringement claims against SYNAVANT are acontinuing risk.

 

Infringementclaims against the Company could cause product release delays, require redesignof the Company’s products, or require royalty or license agreements.  These agreements may be unavailable on termsacceptable to the Company.  Litigation,regardless of the outcome, could result in substantial cost, divert managementattention and delay or reduce customer purchases.  Claims of infringement are becoming increasingly common as thesoftware industry matures and as courts apply expanded legal protections tosoftware products. Third parties may assert infringement claims against theCompany regarding our proprietary technology and intellectual property licensedfrom others.  Generally, third-partysoftware licensors indemnify the Company from claims of infringement.  However, licensors may be unable toindemnify the Company fully for such claims, if at all.

 

If a courtdetermines that one of the Company’s products violates a third party’s patentor other intellectual property rights, there is a material risk that therevenue from the sale of the infringing product will be significantly reducedor eliminated, as the Company may have to:

 

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•                  pay licensingfees or royalties to continue selling the product;

 

•                  incursubstantial expense to modify the product so that the third party’s patent orother intellectual property rights no longer apply to the product; or

 

•                  stop selling theproduct.

 

In addition, if acourt finds that one of the products infringes a third party’s patent or otherintellectual property rights, then SYNAVANT may be liable to that third partyfor actual damages and attorneys’ fees. If a court finds that the Company has willfully infringed on a thirdparty’s patent, the third party may be able to recover treble damages, plusattorneys’ fees and costs.

 

**SYNAVANT’SCERTIFICATE OF INCORPORATION, BYLAWS AND AGREEMENT WITH IMS HEALTH CONTAINPROVISIONS THAT MAY DISCOURAGE A TAKEOVER.**

 

SYNAVANT’s Amendedand Restated Certificate of Incorporation and Amended and Restated By-Lawscontain provisions that may have the effect of discouraging an acquisition ofcontrol of the Company not approved by the Company’s Board of Directors.  Such provisions may also have the effect ofdiscouraging third parties from making proposals involving an acquisition orchange of control of the Company, although such proposals, if made, might beconsidered desirable by a majority of the stockholders.  Such provisions could further have theeffect of making it more difficult for third parties to cause the replacementof the Company’s Board of Directors. These provisions include:

 

•                  the availabilityof capital stock for issuance from time to time at the discretion of the Boardof Directors;

 

•                  prohibitionsagainst stockholders calling a special meeting of stockholders or acting bywritten consent in lieu of a meeting;

 

•                  requirements foradvance notice for raising business or making nominations at stockholders’meetings;

 

•                  the ability ofour Board of Directors to increase the size of the Board and to appointdirectors to newly created directorships;

 

•                  a classifiedBoard of Directors; and

 

•                  higher thanmajority requirements to make certain amendments to our By-Laws and Certificateof Incorporation.

 

These provisionshave been designed to enable the Company to develop the businesses and fosterthe long-term growth without disruptions caused by the threat of a takeover notdeemed by the Board of Directors to be in the best interests of the Company andits stockholders.

 

The Company has astockholder rights plan that is designed to protect the stockholders in theevent of an unsolicited offer and other takeover tactics that, in the opinionof the Company’s Board of Directors, could impair the Board’s ability torepresent stockholder interests. The provisions of the stockholder rights planmay render an unsolicited takeover of the Company more difficult or less likelyto occur or might prevent such a takeover.

 

Pursuant to theDistribution Agreement with IMS HEALTH, the Company is subject to certainnon-competition arrangements that restrict our respective business activitiesfor a specified period after the Distribution. Pursuant to the terms of the DistributionAgreement, the restrictions would generally be binding on an entity thatacquires SYNAVANT or is the survivor in a business combination with theCompany.  Such restrictions may have theeffect of discouraging third parties from making proposals involving anacquisition or

 

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change in control of theCompany.  SYNAVANT is also subject tothe provisions of Delaware corporate law, which may restrict certain businesscombination transactions.

 

Pursuant to aletter of agreement signed with IMS HEALTH and Dendrite in May 2003, IMS HEALTHhas agreed to eliminate the non-compete restrictions contained in Section 2.16of the Distribution Agreement upon consummation of the Dendrite Agreement (SeeNote 7).

 

**ITEM3.****QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Information inresponse to this Item is set forth in “Non-U.S. Operating and Monetary Assets”under Management’s Discussion and Analysis of Financial Condition and Resultsof Operations.

 

**ITEM 4. CONTROLS AND PROCEDURES**

 

Based on theevaluation of the Company’s disclosure controls and procedures as of a datewithin 90 days of the filing date of this quarterly report, each of Wayne P.Yetter, the Chief Executive Officer of the Company and Clifford A. Farren, Jr.,the Chief Financial Officer of the Company, have concluded that the Company’sdisclosure controls and procedures are effective in ensuring that informationrequired to be disclosed by the Company in the reports that it files or submitsunder the Securities Exchange Act of 1934, as amended, is recorded, processed,summarized and reported, within the time period specified by the Securities andExchange Commission’s rules and forms.

 

There were nosignificant changes in the Company’s internal controls or in other factors thatcould significantly affect these controls subsequent to the date of theirevaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 

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**PART II.****OTHERINFORMATION**

 

**Item 1.****           LegalProceedings**

 

Information inresponse to this Item is also set forth in “Note 2 Contingencies” of theNotes to Consolidated Financial Statements.

 

**Item 2.****           ChangesIn Securities**

 

None.

 

**Item 3.****           DefaultUpon Senior Securities**

 

None.

 

**Item 4.****           Submissionof Matters to a Vote of Security Holders**

 

None.

 

**Item 5.****           OtherInformation**

 

None.

 

**Item 6.****           Exhibitsand Reports on Form 8-K**

 

(a) Exhibits

 
| **Exhibit  Number** |   | **Exhibit**                                                                                                             |
|---------------------|--------|-------------------------------------------------------------------------------------------------------------------------|
|                |   |                                                                                                                    |
| 99.1                |   | Certification pursuant to 18 U.S.C. Section 1350, as  Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|                |   |                                                                                                                    |
| 99.2                |   | Certification pursuant to 18 U.S.C. Section 1350, as  Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |

 

(b) Reports onForm 8-K

 

OnMarch 17, 2003, the Company filed Form 8-K under Item 5 announcing theexecution of a definitive Purchase Agreement with Cegedim S.A. to sell itsglobal interactive marketing business (File 0-30822).

 

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 

**SYNAVANT Inc.**

 

 
| **Signature** |                         | **Title** |                                               | **Date** |
|---------------|------------------------------|-----------|----------------------------------------------------|----------|
|          |                         |      |                                               |     |   |
| By:           | /s/ WAYNE P. YETTER          |      | Chairman and Chief  Executive Officer              |     | May 15, 2003 |
|          | Wayne P. Yetter              |      | (Principal Executive  Officer)                     |     |   |
|          |                         |      |                                               |     |   |
|          |                         |      |                                               |     |   |
| By:           | /s/ CLIFFORD A. FARREN,  JR. |      | Senior Vice President  and Chief Financial Officer |     | May 15, 2003 |
|          | Clifford A. Farren, Jr.      |      | (Principal Financial  and Accounting Officer)      |     |   |

 

**SYNAVANTINC.**

 

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**CERTIFICATION**

 

I, Wayne P.Yetter, President and Chief Executive Officer of SYNAVANT Inc. certify that:

 

1.                                       Ihave reviewed this quarterly report on Form 10-Q of SYNAVANT Inc.

 

2.                                       Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.                                       Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

 

4.                                       Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

a)                                      designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

 

b)                                     evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c)                                      presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the Evaluationdate;

 

5.                                       Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

a)                                      allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)                                     anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

6)                                      Theregistrant’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 
| Date:  May  15, 2003 |   | By:    |         /s/  Wayne P. Yetter |                                  |
|---------------------------|--------|--------|----------------------------------------------------------------------|---------------------------------------|
|                      |   |   |                                                                 | Wayne P. Yetter                       |
|                      |   |   |                                                                 | President and Chief Executive Officer |
|                           |        |        |                                                                      |                                       |  |

 

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I, Clifford A.Farren, Jr., Chief Financial Officer of SYNAVANT Inc. certify that:

 

1.                                       Ihave reviewed this quarterly report on Form 10-Q of SYNAVANT Inc.

 

2.                                       Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.                                       Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

 

4.                                       Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

a)                                      designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

 

b)                                     evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c)                                      presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the Evaluationdate;

 

5.                                       Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

a)                                      allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)                                     anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

6)                                      Theregistrant’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 
| Date:  May  15, 2003 |   | By:    |         /s/  Clifford A. Farren, Jr. |                    |
|---------------------------|--------|--------|------------------------------------------------------------------------------|-------------------------|
|                      |   |   |                                                                         | Clifford A. Farren, Jr. |
|                      |   |   |                                                                         | Chief Financial Officer |
|                           |        |        |                                                                              |                         |  |

 

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