|SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, DC 20549



Form 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934


[ X ] ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2002  
OR[    ] TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the transition period from _____ to_____.


Commission File Number
0-26138


_________________


Dendrite
International, Inc.


_________________


(Exact Name of
Registrant as Specified in Its Charter)
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|New Jersey
 (State or Other Jurisdiction of Incorporation or Organization) |  | 22-2786386
(I.R.S. Employer Identification No.)
|-------------------------------------------------------------------------- |  | -----------------------------------------------

|1200 Mt. Kemble Avenue
Morristown, NJ 07960-6797


_________________


(Address of Principal Executive Offices)
Registrants telephone number, including area code 973-425-1200


SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:  NONE


SECURITIES REGISTERED
PURSUANT TO SECTION 12(g) OF THE ACT:


Title of Class


Common Stock, no par
value


Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.  [ X ]


Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.  [  X  ]


Indicate by checkmark whether the registrant is
an accelerated filer (as defined in Exchange Act Rule 12b-2).  [ X ]


The aggregate market value of the shares of the common stock
held by non-affiliates of the registrant as of June 28, 2002 was approximately $357,004,000 based upon the closing price of the
common stock, which was $9.67, on June 28, 2002. The number of shares of common stock outstanding as of March 18, 2003
was 40,468,641.


DOCUMENTS INCORPORATED
BY REFERENCE


Portions
of the Registrants Proxy Statement for the 2003 Annual Meeting of Shareholders are
incorporated by reference into Part III.


Note:  
Dendrite®, ForceAdministrator®, ForceAnalyzer®, ForceAnalyzerCG, ForceCG,
ForceConfigurator, ForceMobile, ForceMobileCG, ForcePharma, j-force, j-forceMOBILE,
j-forceNET, j-forceWEB,  Medicheck, NUCLEUS Pharma, Organization Manager,
Sample Allocations, SampleEnforcer, Sample Guardian, Sample Reporting, ScripMaxIQ,
VisiForce, , WebForceCG, are either trademarks or
registered trademarks of Dendrite International, Inc. All other service marks, trademarks
and trade names referred to in this document are the property of their respective owners.
The Company and any of its U.S. or international subsidiaries are sometimes collectively
referred to as Dendrite, we, ouror the Company.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|TABLE OF CONTENTS
|-----------------

|         | 
|-------- | 
|PART I   | 
|ITEM 1   | 
|ITEM 2   | 
|ITEM 3   | 
|ITEM 4   | 
|PART II  | 
|ITEM 5   | 
|ITEM 6   | 
|ITEM 7   | 
|ITEM 7A  | 
|ITEM 8   | 
|ITEM 9   | 
|PART III | 
|ITEM 10  | 
|ITEM 11  | 
|ITEM 12  | 
|ITEM 13  | 
|ITEM 14  | 
|PART IV  | 
|ITEM 15  | 

---

|PART I


ITEM 1.  BUSINESS.



GENERAL


Incorporated
in 1987, Dendrite International, Inc. (collectively, with its subsidiaries, the
Company or Dendrite) was established to provide sales force
automation solutions for the pharmaceutical industry. Since then, Dendrite has broadened
its offerings to include multiple sales and marketing solutions and related services to
life sciences clients. In 2002, with the strategic acquisition of Software Associates
International (SAI), the Company further expanded its offerings. They now comprise a broad
array of knowledge-based, technology-driven solutions that increase the effectiveness of
sales, marketing, and clinical processes for pharmaceutical and other life sciences
clients and include: Customer Relationship Management (CRM) Solutions, Information
Management, Business Intelligence and Analytics, and Commercial Operations Management.


We
believe that our extensive knowledge of the complex and unique selling processes in the
life sciences industry and our demonstrated ability to meet customers business needs
have given us a strong position in our target market. With sales representatives and
managers from 50 countries and more than 150 companies using Dendrite products and
services, we are the worlds leading supplier of such solutions to the
prescription-only pharmaceutical industry. Our customers include 19 of the worlds
top 20 pharmaceutical companies. Our customers sales forces range in size from
regional sales forces in developing markets around the world to those greater than several
thousand representatives in the United States.


Our
solutions are highly configurable and designed to interface with other customer-facing
software utilized by life sciences manufacturers, including proprietary systems or those
designed by Dendrite or third parties. Our software products integrate and process large
volumes of time-sensitive, sales-related data for use in developing sales strategies and
campaigns. Our solutions enable customers to maximize the return on investment related to
sales and promotional activities and improve operational profitability by allowing them
to:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | centralize data to maintain a
history of all contacts with each physician;
| | - |  | --------------------------------------------------------------------------

| |  |  | analyze
prescriber patterns to ensure delivery of the right message at the right time;
| | - |  | --------------------------------------------------------------------------------------

| |  |  | provide
integrated data from multiple sources quickly to direct individual sales representatives;
| | - |  | -------------------------------------------------------------------------------------------------

| |  |  | share data among all
company departments including other sales forces or execution channels interacting
with the same physician;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------

| |  |  | realign sales territories
and reallocate sales personnel on a customer or formulary basis;
| | - |  | ------------------------------------------------------------------------------------------

| |  |  | provide
technical and support services to maximize the selling time of the sales representatives;
and
| | - |  | -----------------------------------------------------------------------------------------------------

| |  |  | provide
Internet-based training and support to minimize out-of-territory time of sales
representatives and significantly reduce training costs.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------

|Our product offerings allow customers
to select many different combinations of features for different types of sales forces.  Our software products typically do
not require customization (i.e., modification of source code) in order to be implemented; however; they are generally
configured to address data, market, and other customer requirements.  Our product offerings also include configuration and
administration tools that enable customers to configure and administer several of our software products.


Dendrite also supplies solutions to manufacturers
of consumer goods, with products targeted at manufacturers whose sales representatives call on retail outlets.  They enable sales
representatives to manage all aspects of their call-reporting obligations, including the collection of pricing, promotions, and product
placement information.  In addition, our products also integrate sales information from a number of data sources.  By using
our products, consumer goods manufacturers can measure the effect of promotional activities and effectively plan and execute
sales strategies in ways that bring them significant competitive benefits.



PRINCIPAL PRODUCTS


CRM Solutions. These include
software and service solutions that enable customers to effectively execute their sales and
marketing strategies. They are designed to capture and provide information
to personnel involved in sales and sales management, marketing and
to other levels within each clients organization, including senior management. These
software products are described below.



3
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

| | WebForce.  A comprehensive suite of sales force tools with data sharing, analysis, and
     interfacing capabilities,  WebForce is intended to serve as the basis      of
 the  CRM  environment  for  mid to  large,  national  or  multinational
     pharmaceutical   customers.   With  country-specific   functionality,   the
     WebForce  product suite offers a common  architecture with interfaces
     that can be configured to support software  solutions for every user market
     within the pharmaceutical arena.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
WebForce product suite includes the following components:

| |  ForcePharma.   This
desktop, laptop or tablet based solution is available in multiple configurations to
support a variety of field forces, including field sales, account sales, institution
sales, managers, and home office users, and can be additionally configured to address a
customers specific business requirements.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  ForceMobile.   This
Windows CE-based handheld application provides functionality comparable to many
laptop applications at a reduced cost. It is optimized for growth-focused organizations
of all sizes that require greater portability, instant data access, and lower cost of
hardware ownership.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  ForceAnalyzer.   A
flexible, easy-to-use data viewing and analysis tool, ForceAnalyzer standardizes
the decision support and reporting process for all levels of a pharmaceutical sales
organization. It enables territory representatives to track the effects of promotional
activities, and enables managers to achieve sales objectives, assure call-plan
compliance, and manage promotional program implementation.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  ForceAdministrator.   This
interactive territory-management tool enables pharmaceutical companies to align sales
representatives to the right customer, at the right time, with the right product and the
right message. It manages product, user, and alignment field force changes.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  ForceConfigurator.  
Permitting pharmaceutical companies to configure WebForce to the exact requirements
of individual sales forces, ForceConfigurator creates uniquely personalized
interfaces by enabling users to configure screens, amend text, and change parameters.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4
|-

---

| |  SampleEnforcer.  
This home office administration tool is specifically designed to manage sampling activity
and assist compliance with Prescription Drug Marketing Act (PDMA) and 21 Code of Federal
Regulations (CFR) Part 11 guidelines.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | j-forceWEB.
          Specifically   developed   for  the
     Japanese  market and containing  functionality  similar to  WebForce,
     j-forceWEB  is highly configured to meet local requirements unique to
     the Japanese  prescription-only  pharmaceutical  market.  Dendrite has also
     launched j-forceNET and j-forceMOBILE, web-based solutions that
     utilize new broadband communications in Japan.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | VisiForce.Designed  for  developing  markets
     around the world,  VisiForce  is a complete  sales  force  management
     system  that  can be  rapidly  deployed  and  is  highly  configurable  and
     scalable.  VisiForce  combines the business model of  Dendrites
     popular Medicheck  solution with the superior and flexible technology
     platform of Dendrites industry-leading WebForce solution. Fully
     functional on PDAs and laptops,  VisiForce  also allows  companies to
     use technology appropriate to their budgets and specific market conditions.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Medicheck.
            Operating    with     independent
     architecture, Medicheck is a pharmaceutical sales force solution that
     Dendrite has  historically  sold in diverse  developing  markets around the
     world.  Currently,  more  than  11,000  drug  representatives  in  over  40
     countries  use the system to enhance the  effectiveness  of their sales and
     marketing activities.  Medicheck is being replaced by Dendrites
     VisiForce solution.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Information Management.  These
offerings permit customers to construct, integrate, and manage data to provide enterprise
decision support. Our primary information management solutions are described below:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | NUCLEUS Pharma.
 A comprehensive customer management system that enables users to
capture, centralize, and manage all customer-related information, NUCLEUS Pharma provides
sales organizations with a complete view of each customer based on all available data
from any and every source. It enables pharmaceutical companies to define and store unique
customer views to support enterprise-wide business activities. This provides sales
forces, management, operations, and home office personnel with accurate, timely, and
comprehensive information for making critical business decisions.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Validator.
This solution keeps pharmaceutical customer data clean, up-to-date, and
          verified, allowing it to be standardized, updated, matched, and merged.
          Validator enables pharmaceutical companies to validate prescribers to ensure
          that only client-defined prescribers are in a database; repair incorrect or
          vacant DEA, ME, and state license numbers; repair incorrect or outdated address
          information; remove duplicates and merge data into one unique entity, or define
          other entities; and validate addresses to ensure the accuracy and efficiency of
          sales representatives.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Business Intelligence and
Analytics. These offerings include software and service solutions for analyzing data
that can be used to optimize promotional effectiveness or conduct post-marketing
surveillance. Certain of our business intelligence and analytical solutions are described
below:


5
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | ScripMaxIQ.
A comprehensive marketing application
     that can be used to  improve  the  return  on all  channels  of  promotion,
     ScripMaxIQ  enables  companies to increase  sales and market share by
     identifying  opportunities to develop powerful competitive strategies based
     on specific patterns of prescribing  events as determined  through analysis
     of Dendrites longitudinal prescription data. Through a secure-access,
     web-based portal, ScripMaxIQ  generates key event reports through the
     timely  delivery  of  actionable  information,  enabling  clients  to  make
     critical  business  decisions  based on the  latest  physician  prescribing
     habits and market patterns.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Analytics and Consulting.
 Dendrite also provides analytical and consulting services based on
the development of a customer specific database and the application of unique tools. The
Company has developed strategic partnerships with a consortium of chain and independent
retail pharmacies that are demographically and geographically diverse across the United
States. These pharmacy data partners deliver a new level of timely, accurate, and
anonymous data (an estimated 140 million prescriptions each month) for incorporation into
Dendrites proprietary algorithms and tools. Through this alliance, Dendrite offers
clients access to unique data, that when combined with advanced analytics and predictive
modeling capabilities, provides information regarding prescriber behavior not typically
available from standard forms of analysis. Dendrites analytical and consulting
services include:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Promotional
     response   modeling   and  ROI   analysis,   forecasting   and   targeting,
     segmentation, and early adopter studies;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Incentive and compensation plan design, quota setting and allocation, territory
optimization, sales force sizing and structure, and business process engineering;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Sample allocation, sample management, and reconciliation; and
| | - |  | -------------------------------------------------------------

| |  |  | Safety surveillance, pharmacovigilance/risk management, and investigator recruitment.
| | - |  | -------------------------------------------------------------------------------------

| | Our
approach to advanced analytics recognizes that each customers portfolio of products
possesses unique characteristics that must be represented in the analysis in order to
produce meaningful and actionable results. Therefore, when a client chooses to implement
modeling for one or more of its brands, our consultants work with the clients
managers and analysts to identify and quantify those aspects of the market and product
conditions that need to be represented in the analysis. We then tailor the models to the
clients specific business and marketing needs. Once this tailoring has been
completed, the resulting models and tools can be incorporated into the clients
overall solution for ongoing use. The clients business can be positively impacted
when the analytics drive actions which, when implemented, result in changed behavior to
enhance business performance in a measurable way.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Commercial Operations Management.
These solutions consist of software and services that enable clients to manage
mission-critical business processes in support of their sales and marketing.  They include:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Sample Guardian.
  This sample tracking and auditing system total management solution
for accountability, compliance, and maintenance of critical sample information provides
all the tools and strategic management information needed by drug companies to comply
with PDMA regulations.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6
|-

---

| | Sample Allocations.
A comprehensive intranet-based solution to enable pharmaceutical
personnel to manage product sample allocations to the field, Sample Allocationsautomates
all tasks, at the home office and in the field, involved in initiating, managing, and
processing sample fulfillment.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Sample Reporting.
This reporting solution is designed to provide easy and rapid access
to home office users in order to analyze, report, and trend sample information collected
by Dendrites Sample Guardian solution. Based on an optimized query
infrastructure, reports are designed, delivered, and presented using industry-leading
third-party business intelligence tools.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Organization Manager.
Enabling pharmaceutical companies to quickly and effectively respond
to changing market conditions and business requirements by simplifying the task of
capturing and maintaining sales force demographic information and aligning disparate
field forces, Organization Manager lets users create centralized representative
rosters that are easily accessible across the entire organization. This permits the
efficient management of sales force information in order to effectively deploy and direct
field force resources.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|CONSUMER GOODS INDUSTRY
PRODUCTS



Our
consumer goods (CG) software products are generally configured in a manner similar to our
pharmaceutical software products. However, consumer goods sales representatives are more
likely to use handheld or palmtop computing devices than laptop and desktop personal
computers. The Companys solution offerings are described below:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | WebForceCG.
          This   comprehensive,   web-enabled
     product suite guides consumer goods companies in effectively  managing
     objective-driven,  bi-directional  communication  among home office,  sales
     management,  and remote field sales  forces.  WebForceCG  facilitates
     effective product promotions,  management objectives, event activities, and
     funds management.  Simultaneously,  it provides sales forces with a single,
     centralized  location  from  which to  access  product  information,  enter
     orders, report shelf conditions, evaluate competitors, record and catalogue
     client and prospect data, and access  customer and account  databases.  The
     WebForceCG    suite    consists    of   three    core    applications
     (ForceCG, ForceMobileCG and
     ForceAnalyzerCG)  for sales  and  marketing  units  within
     traditional CG companies,  over-the-counter/consumer health care units, and
     generic pharmaceutical divisions.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|PRINCIPAL SERVICES


In
addition to product offerings, Dendrite offers a comprehensive range of services that may
be used in conjunction with Dendrite products or as stand-alone offerings. We also provide
data-related services, including data scrubbing, match, merge, and purge activities, and
data analysis services. Nearly all of our customers engage Dendrite to provide all or some
of these services, including software-defect resolution.


When
a major customer licenses a Dendrite sales force software product, the Company typically
establishes an implementation services group for that customer, as well as a separate
support service group composed of both customer support and technical support personnel
dedicated to servicing that customer. For customers with smaller sales forces or sales
forces with specialized needs, such as non-home country language capability, the service
group may have responsibility for more than one client.


7
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|Typically,
we provide services under multi-year contracts. In North America, we enter into service
agreements directly with customers. Outside North America, we enter into service
agreements through our local wholly owned subsidiary or branch. Depending upon the size of
the customer and scope of services to be performed, a dedicated service group may be
comprised of five to 300 persons. Our services are described below:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Implementation Services.
These services include: the implementation and, if applicable,
configuration, of a Dendrite software product to meet customer requirements;
customization of source code; creation of the customers specific version of the
Dendrite data model; creation of the customers integrated database; loading of data
onto the customers remote computer hardware; and training customer employees on the
use and capabilities of Dendrite sales force software products.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Technical and Hardware Support Services.
These offerings include technical support for Dendrites
software products; continuing support of the customers database; loading and
linking new releases of third party data purchased by the customer; identifying new
functional segments for data analysis; providing software defect resolution and issuing
performance enhancements; and developing business
interruption plans for management of any unforeseen interference with Dendrites
provision of ongoing support services. In addition, at the request of certain customers,
we may resell computer hardware and third-party software.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Data Center Services.
 Dendrite provides clients with data storage and cleansing,
retrieval, and analysis, enabling them to seamlessly manage large volumes of critical
information. The Company also operates and maintains Company and client servers.  The Companys state-of-the-art data center, strategically located in
Chesapeake, Virginia, offers a secure and protected environment conducive to multiple
production applications.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Call Center Services.
The Company delivers comprehensive help desk support service to home
office and field users, providing responses to support requests and offering a single
point of contact and accountability through its call center technology and support
personnel.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Asset
Management Services. From its facility in Bethlehem, Pennsylvania, Dendrites
hardware management department provides complete repair, maintenance, asset control and upgrade support
for a wide variety of computing devices and components to keep sales forces effective and
operational.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Sales Force Support Services. These services include project management; ongoing training
on the use and capabilities of Dendrites products; assistance in planning and
executing realignments of sales territories or functional (e.g., formulary-based)
segments to allow more effective resource allocation; direct customer service telephone
support for Dendrite and most third party software products (available seven days a week
and in many foreign languages); proactive prescription data analysis at a territory and
physician level to a customers sales representatives to improve sales and
promotional campaigns; and data integration and data management services with data our
customers obtain from third party sources.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Clinical
Trial Services.Dendrite offers a broad range of clinical trial services to
pharmaceutical companies, enabling them to conduct these trials more efficiently and
expeditiously. Areas of clinical expertise include:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | designing and implementing integrated risk management/safety plans for the
pharmaceutical industry which include: risk identification, evaluation of potential
hazards, communication of risk information and messages to motivate compliance, and
management systems that include testing of message approach;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | streamlining and supporting eClinical processes such as patient randomization,
electronic and mobile data capture, document management, worldwide serious adverse event
reporting, and investigator coordination through its global multilingual 24x7 help desks;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8
|-

---

| |  |  | optimizing
investigator recruitment and identifying appropriate investigators and sites using
proprietary data and analytic engines; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------

| |  |  | managing
the eLearning process by providing application sharing of eClinical solutions for
investigators, clinical research coordinators, and clinical research associates.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|CUSTOMERS


Our
major customers consist of large, multinational pharmaceutical or other life sciences
companies, including: Abbott; Allergan; AstraZeneca; Aventis; Bristol-Myers Squibb;
Celltech Medeva; Dai-nippon; Eli Lilly; Ethicon Endo-Surgery; Forest Laboratories;
GlaxoSmithKline; Kissei; Merck, Mitsubishi Tokyo; Novartis; Novo Nordisk; Ono
Pharmaceuticals; Pfizer; Procter & Gamble; Sanofi; Solvay; Takeda Pharma; Teijin;
Tokyo Tanabe; Torii; Tsumura; and Wyeth Lederle. In addition, in the consumer goods
market, our major customers include: Bacardi/Martini Triodis; JTI MacDonald; Nestle
Purina; PepsiCo; Prodirest; and Rayovac.


Approximately
45% of our total revenues in 2002 came from our two largest clients: Pfizer and
Bristol-Myers Squibb. Approximately 51% of our total revenues in 2001 came from Pfizer and
Bristol-Myers Squibb. Approximately 52% of our total revenues in 2000 came from Pfizer,
Johnson & Johnson and Bristol-Myers Squibb.


COMPETITION


The
market for the type of solutions we provide, including CRM and sales force effectiveness
(SFE) and related support services, is highly competitive and rapidly changing. Many
companies offer CRM and SFE products and/or services in the pharmaceutical and consumer
goods industries. We also compete with many companies that provide support services
similar to our own.


Although
there are a number of other companies that sell CRM and SFE products, both within and
outside the pharmaceutical industry (including Siebel, Synavant, Stay-in-Front, and
Cegedim), certain companies attempt to adapt their products across a broad number of
industries and uses. Dendrite, however, believes that it has distinguished itself and is
well positioned in the pharmaceutical market by reason of its unique combination of deep
pharmaceutical business knowledge, recognized technical support and depth of personnel
experienced in the pharmaceutical industry, and proprietary products and product
architecture uniquely suited to the pharmaceutical industry.


Our
products and services compete with others principally on the basis of industry
applicability, product flexibility and configuration, as well as platform configuration.
They also compete on the basis of name recognition, global competence, service standards,
cost, breadth of customer base, and technical support and service.


We
believe that our solutions compete favorably with respect to these factors, and that we
are particularly well positioned to maintain strong market leadership through innovative
new product and application developments, and continued focus on support services.


We
expect competition to increase as new competitors enter the market to supply CRM and SFE
products and/or services and as existing competitors expand their product lines,
consolidate, or offer more compelling solutions. Some of our competitors and potential
competitors are part of large corporate groups and have longer operating histories and
significantly greater financial, sales, marketing, and technology resources than Dendrite.
We also expect to encounter additional competition in the future from firms offering
outsourcing of information technology services and from vendors of software products
providing specialized applications not offered by us, including enterprise resource
planning vendors.



9
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|We
may also face competition from vendors that do not currently compete within our vertical
markets. In addition, we face potential competition from current customers and potential
customers who may elect to design and install or operate their own systems.


RESEARCH AND DEVELOPMENT


Dendrite
continues to take advantage of new technologies in developing new products and services.
We recorded approximately $10,396,000, $11,104,000 and $10,875,000 of research and
development expense in the years ended December 31, 2002, 2001 and 2000, respectively.


We
have capitalized certain costs related to the development of new software products and the
enhancement of existing software products consistent with Statement of Financial
Accounting Standards 86, Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed. Capitalized software development costs net of
accumulated amortization were $5,605,000 and $5,518,000 at December 31, 2002 and 2001,
respectively.


PROPRIETARY RIGHTS


Dendrite
relies on a combination of methods to protect our proprietary intellectual technology,
including:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | trade secret, copyright, and trademark laws;
| | - |  | --------------------------------------------

| |  |  | license agreements with customers containing confidentiality provisions;
| | - |  | ------------------------------------------------------------------------

| |  |  | confidentiality agreements with consultants, vendors, and suppliers;
| | - |  | --------------------------------------------------------------------

| |  |  | non-disclosure agreements with each of our executive officers and technical
employees; and
| | - |  | ------------------------------------------------------------------------------------------

| |  |  | restrictive covenants with our executive officers and with many of our other key
employees.
| | - |  | -------------------------------------------------------------------------------------------

|Existing
United States copyright laws provide only limited protection, and even less protection may
be available under foreign laws.


EMPLOYEES


As
of December 31, 2002, the Company employed 1,559 employees: 1,106 in the United States and
Canada; 216 in Europe; 132 in the Pacific Rim; and 105 in Latin America.


GEOGRAPHICAL AREAS


See
Note 17 to the Consolidated Financial Statements concerning information relating to the
Companys geographic areas.


EXECUTIVE OFFICERS


The
following table identifies the current executive officers of the Company:



10
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|Name                    |  | Age |  | Capacities in Which Serve                          | 
|----------------------- |  | --- |  | -------------------------------------------------- | 
|John E. Bailye          |  | 49  |  | Chairman of the Board and Chief
Executive Officer  | 
|Paul L. Zaffaroni       |  | 56  |  | President and Chief Operating Officer              | 
|Kathleen E. Donovan     |  | 42  |  | Senior Vice President and Chief Financial Officer  | 
|Marc Kustoff            |  | 47  |  | Senior Vice President and Chief Technology Officer | 
|Christine A. Pellizzari |  | 35  |  | Vice President, General Counsel and
Secretary      | 
|Brent J. Cosgrove       |  | 38  |  | Vice President and Corporate Controller            | 

|Each
executive officer serves at the discretion of the Board of Directors.


John
E. Bailyehas served as Chief Executive Officer and Director since the Companys
founding in 1987 and since 1991 in the additional position of Chairman of the Board. Prior
to 1987, Mr. Bailye served as Managing Director of Foresearch Pty., Limited
(Foresearch), a consulting company to the pharmaceutical industry in
Australia. Mr. Bailye served in that capacity from the time he acquired Foresearch in 1976
until he sold the company in 1986. Mr. Bailye served as a market researcher for Foresearch
prior to 1976. Mr. Bailye holds a Bachelor of Commerce in Finance, Marketing and Business
from the University of New South Wales.


Paul
L. Zaffaronihas served as President and Chief Operating Officer of Dendrite since
October 2001. Prior to joining the Company, Mr. Zaffaroni spent 10 years at Acxiom
Corporation, serving in various capacities including Corporate Sales Leader, Division
Leader and Senior Vice President. Prior to Acxiom, Mr. Zaffaroni spent 21 years at IBM
Corporation. Mr. Zaffaroni holds a Bachelor of Science in Business Administration from
Youngstown State University.


Kathleen
E. Donovan has served as Senior Vice President and Chief Financial Officer since
March 2003. Ms. Donovan has been with Dendrite since 1997 and has previously served as
Vice President and Acting Chief Financial Officer, Vice President and Treasurer, Vice
President and Chief Financial Officer of American Operations, Vice President and Corporate
Controller, and Vice President of Financial Operations. Prior to joining the Company, Ms.
Donovan spent 14 years at Unisys Corporation, most recently as Director of Corporate
Financial Planning. Ms. Donovan holds a Bachelor of Science in Finance from Georgetown
University.


Marc
Kustoff has served as Senior Vice President and Chief Technology Officer since
November 2000. Prior to joining Dendrite, Mr. Kustoff served as Vice President,
Information Systems at Parke-Davis Pharmaceutical Co., and has held information technology
management positions at Corning Life Sciences, Inc. and Rhone-Poulenc Rorer, Inc. Mr.
Kustoff holds a Bachelors degree from the State University of New York, and
Masters degrees from Michigan State and Long Island Universities.



11
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|Christine
A. Pellizzari has served as Vice President, General Counsel and Secretary since August
2000. Ms. Pellizzari served as Associate Counsel from 1998 to 2000. Prior to joining the
Company, Ms. Pellizzari was an Associate at Wilentz, Goldman & Spitzer, P.A. from 1995
to 1998 and was a law clerk to the Honorable Reginald Stanton, Superior Court of New
Jersey, from 1994 to 1995. Ms. Pellizzari holds a Bachelor of Arts in Legal Studies from
the University of Massachusetts at Amherst and a Juris Doctorate from the University of
Colorado School of Law.


Brent
J. Cosgrove has served as Vice President and Corporate Controller since June 2001. Mr.
Cosgrove has been with Dendrite since 1997 and previously served as Director of Investor
Relations and Director of European Finance. Mr. Cosgrove holds a Bachelor of Science in
Accountancy from Ferris State University.


ADDITIONAL INFORMATION


For
additional information regarding the Companys business, see Item 7,
Managements Discussion and Analysis of Financial Condition and Results of
Operations.


AVAILABLE INFORMATION


We make available free of
charge through our website, www.dendrite.com, all materials that we file
electronically with the SEC, including our annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
soon as reasonably practicable after electronically filing such materials with, or
furnishing them to, the SEC. As of March 13, 2003, we made all such materials available
through our website as soon as reasonably practicable after filing such materials with the
SEC.


You may also read and copy
any materials filed by the Company with the SEC at the SECs Public Reference Room at
450 Fifth Street, NW, Washington, DC 20549, and you may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition,
the SEC maintains an Internet website, www.sec.gov, that contains reports, proxy
and information statements and other information which the Company files electronically
with the SEC.


ITEM  2.  PROPERTIES.


The
Company leases a 101,500 square foot building in Morristown, New Jersey, which serves as
our corporate headquarters; a 100,000 square foot facility in Chesapeake, Virginia, which
houses our data and call centers; a 33,000 square foot facility in Bridgewater, New
Jersey, which serves as administrative offices; 10,038 square feet of office space in
Stroudsburg, Pennsylvania, which houses customer support personnel; a 26,280 square foot
building in Basking Ridge, New Jersey, which houses customer support personnel; a 37,745
square foot building in Bethlehem, Pennsylvania and a 15,000 square foot warehouse in
Somerset, New Jersey, both of which serve as hardware repair and maintenance facilities;
and a 9,490 square foot office in Durham, North Carolina, which houses certain employees
in our SAI Business Unit. We also lease a total of 90,812 square feet for local
management, sales offices and customer support operations in seventeen foreign locations:
Australia, Belgium, Brazil, Colombia, China, Ecuador, France, Germany, Hungary, Italy,
Japan (two locations), Mexico, The Netherlands, New Zealand, Portugal and the United
Kingdom. The Company owns a 145,000 square foot building in Piscataway, New Jersey, which
was purchased for the purpose of establishing a new U.S. operations facility to
accommodate the Companys growth. In connection with its second quarter 2001
restructuring plan, the Company determined to shift its operations to other existing
facilities and therefore determined to sell this facility. See Notes 1, 2 and 3 to the
Companys Consolidated Financial Statements.


12
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|Servers
located at our facilities are commonly maintained in a secured area and are subject to
regular audit and inspection by our customers. The Company maintains database servers
located at our facilities for substantially all of our U.S. customers and many of our
international customers.


ITEM 3.  LEGAL PROCEEDINGS.


Dendrite
is from time to time involved in litigation relating to personnel and other claims arising
in the ordinary course of business. The Company is not currently engaged in any legal
proceedings that are expected, individually or in the aggregate, to have a material
adverse effect on our business.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS.


Not applicable.


PART II


ITEM 5.  MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.


The
Companys common stock, no par value, is quoted on the Nasdaq National Market System
under the symbol DRTE. As of March 18, 2003, there were approximately 296
holders of record of our common stock.


The
following table sets forth for the periods indicated the high and low sale prices for our
common stock as reported by the Nasdaq National Market System.




13
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|Period                           |  | High     |     | Low      |    
|-------------------------------- |  | -------- | --- | -------- | ---
|Quarter Ended March 31, 2002     |  | $     15 | .80 | $     9  | .79
|Quarter Ended June 30, 2002      |  | 14       | .04 | 9        | .36
|Quarter Ended September 30, 2002 |  | 10       | .46 | 4        | .80
|Quarter Ended December 31, 2002  |  | 8        | .38 | 5        | .10
|Quarter Ended March 31, 2001     |  | $     27 | .19 | $     11 | .63
|Quarter Ended June 30, 2001      |  | 13       | .34 | 7        | .42
|Quarter Ended September 30, 2001 |  | 13       | .65 | 6        | .56
|Quarter Ended December 31, 2001  |  | 15       | .15 | 6        | .90

|The
Company has never paid any cash dividends on its common stock and does not intend to pay
any cash dividends on common stock in the foreseeable future. If the Company were to
consider paying cash dividends, certain of the covenants of the Companys line of
credit may limit the amount of any such dividends we may pay. See Note 11 to the
Consolidated Financial Statements and Liquidity and Capital Resources in Item
7 for a discussion of our line of credit agreement.


ITEM 6. SELECTED
CONSOLIDATED FINANCIAL DATA.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                           | YEAR ENDED DECEMBER 31,
|------------------------------------------ | -----------------------
|                                           |                        
|
|                                           |                        
|
|                                           |                        
|STATEMENT OF OPERATIONS DATA:              |                        
|Revenues:                                  |                        
|License fees                               |                        
|                                           |                        
|Services                                   |                        
|                                           |                        
|                                           |                        
|                                           |                        
|Costs of revenues:                         |                        
|Cost of license fees                       |                        
|Purchased software impairment (a)          |                        
|                                           |                        
|Cost of services                           |                        
|                                           |                        
|                                           |                        
|                                           |                        
|Gross margin                               |                        
|                                           |                        
|Operating expenses:                        |                        
|Selling, general and administrative        |                        
|Research and development                   |                        
|Mergers and acquisitions                   |                        
|Restructuring charge (b)                   |                        
|Asset impairments (c)                      |                        
|Write-off of in-process research and       |                        
|Development                                |                        
|                                           |                        
|                                           |                        
|                                           |                        
|Operating (loss) income                    |                        
|Interest income                            |                        
|                                           |                        
|Other income (expense)                     |                        
|                                           |                        
|Income (loss) before income taxes          |                        
|                                           |                        
|Income tax (benefit) expense               |                        
|                                           |                        
|Net income (loss)                          |                        
|                                           |                        
|Net income (loss) per share:               |                        
|Basic                                      |                        
|                                           |                        
|Diluted                                    |                        
|                                           |                        
|Shares used in computing net income (loss) |                        
|per share:                                 |                        
|Basic                                      |                        
|                                           |                        
|Diluted                                    |                        
|                                           |                        

|14
|--

---

|                                               | DECEMBER 31,
|---------------------------------------------- | ------------
|                                               |             
|
|                                               |             
|
|BALANCE SHEET DATA:                            |             
|Working capital                                |             
|Total assets                                   |             
|Capital lease obligation, less current portion |             
|Stockholders equity                           |             

| | (a)
             Purchased software impairment is
     discussed in Note 3 to the Consolidated Financial Statements.
| | --------------------------------------------------------------------------------------------------------------------

| | (b)
       Restructuring  charge is discussed in Note 2 to the Consolidated  Financial
     Statements.
| | -------------------------------------------------------------------------------------------------------

| | (c)
       Asset impairment is discussed in Notes 3 and 6 to the Consolidated Financial
Statements.
| | ---------------------------------------------------------------------------------------------------

|ITEM 7.   MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.


FORWARD-LOOKING STATEMENTS


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


OVERVIEW


Co-founded
in 1986 by John E. Bailye, the Companys Chairman and Chief Executive Officer, and
incorporated in 1987, Dendrite was established to provide sales force automation solutions
for the pharmaceutical industry. Since then, it has broadened its offerings to include
multiple sales and marketing solutions and related services to life sciences clients.
Dendrites solutions now comprise a broad array of knowledge-based, technology-driven
solutions that increase the effectiveness of sales, marketing, and clinical processes for
pharmaceutical and other life sciences clients, including: Customer Relationship
Management (CRM) Solutions, Information Management, Business Intelligence and Analytics,
and Commercial Operations Management.



15
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|Our
primary markets are currently in the United States, Japan, France and United Kingdom. We
bill services provided by our foreign branches and subsidiaries in local currencies.
Operating results generated in local currencies are translated into U.S. dollars at the
average exchange rate in effect for the reporting period. We generated total revenues
outside the United States of approximately 21%, 19% and 23% during the years ended
December 31, 2002, 2001 and 2000, respectively. Our revenues and operating profits by
geographic areas are shown in Note 17 of Notes to Consolidated Financial
Statements.


CRITICAL ACCOUNTING
POLICIES, JUDGMENTS AND ESTIMATES


Securities
and Exchange Commission Financial Reporting Release 60, requires companies to include a
discussion of critical accounting policies or methods used in the preparation of financial
statements. A critical accounting policy is one that is both very important to the
portrayal of a companys financial position and results of operations, and requires
managements most difficult, subjective or complex judgments. The Company believes
its critical accounting policies to be revenue recognition, accounting for restructuring and
impairments and income taxes. See Note 1 to the Consolidated Financial Statements for a
summary of the significant accounting policies and methods used in the preparation of our
Consolidated Financial Statements.


Revenue Recognition


The
area of revenue recognition requires the Companys management to make significant
judgments and estimates. AICPA Statement of Position (SOP) 97-2, Software Revenue
Recognition,governs revenue recognition for arrangements that include
software, which is more than incidental to the arrangement. Under SOP 97-2, if a sale of
software includes services that are essential to the functionality of the software, then
the entire arrangement is to be accounted for using contract accounting as described in
Accounting Research Bulletin 45, Long-Term Construction-Type ContractsandSOP 81-1, Accounting for Performance of Construction-Type and Certain
Production-Type Contracts. The determination of whether or not services are
essential to the functionality of the software can differ from arrangement to arrangement,
and requires the use of significant judgment by management. Factors used in determining
whether or not services are essential to the functionality may include: whether or not
physical changes are being made to the softwares underlying source code; the
complexity of software configuration services; the level of effort required to build
interfaces; the overall relationship of the service fees to the license fees; the length
of time expected to complete the services and whether or not the services can be obtained
by a customer from their internal resources or another third-party vendor. If services are
not considered to be essential to the software, SOP 97-2 generally allows companies to
recognize revenue for software licenses upon delivery of the licenses, prior to
configuration or implementation services, provided that the other requirements of the SOP
are met. In managements judgment, the Companys configuration and
implementation services generally are essential to the functionality of its software.
Therefore, the Company typically recognizes revenues using the percentage-of-completion
method as detailed in SOP 81-1.



16
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|The
Companys arrangements are segmented, in accordance with SOP 81-1, into two primary
elements or profit centers, one being the license fee and implementation service element
and the other being an ongoing sales force support services element. The Company believes
that its arrangements meet all of the criteria under SOP 81-1 to allow for the
segmentation of the two elements. If the segmentation criteria could not be met, it would
result in recognition of the Companys license and implementation service revenues
over the term of its multi-year support service agreements.


The
percentage-of-completion method of revenue recognition requires management to use
significant estimates in measuring the progress-to-completion for each project. For its
license fee and implementation service projects, the Company uses the input measure of
labor incurred as compared with total expected labor for the entire project. The
determination of total project labor requires the use of significant judgment and
estimates. We review these estimates on a monthly basis. Actual results could differ from
these estimates, which would have impacted the amount of revenue previously recognized,
had better estimates been available at the time.


Accounting for
Restructuring


During
2001, the Company recognized costs in connection with a restructuring plan which involved
a reduction in size of the Companys work-force, downsizing of certain facilities and
relocation of certain activities. The restructuring-related costs were based upon formal
plans approved by the Companys management using the information available at the
time. See Note 2 to the Consolidated Financial Statements for further discussion of the
restructuring and related charges.


Accounting for
Impairments


We
review long-lived assets other than goodwill and capitalized software development costs for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset might not be recoverable. If
indicators of impairment are present, we evaluate the recoverability of the long-lived
assets by estimating future undiscounted cash flows that are directly associated with and
that are expected to arise as a direct result of the use and eventual disposition of the
long-lived asset. If this estimate of future undiscounted cash flows demonstrates that
recoverability is not probable, an impairment loss would be calculated and recognized. An
impairment loss would be calculated based on the excess carrying amount of the long-lived
asset over the long-lived assets fair value. The estimate of the fair value and the
future undiscounted cash flows of the underlying long-lived assets are based on
significant judgment and assumptions.


We
review capitalized software development costs and purchased capitalized development
software costs for impairment at each balance sheet date to determine if the unamortized
capitalized costs of a computer software product is greater than the net realizable value
of that product. In those instances where the unamortized capitalized costs are greater
than the net realizable value, we will record an impairment.


We
assess the impairment of goodwill and other identifiable intangibles on an annual basis
(October 1 of each year) and whenever events or changes in circumstances indicate that
the carrying value may not be recoverable. Some factors we consider important which could
trigger an impairment review include the following:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Significant underperformance
relative to expected historical or projected future operating results;
| | - |  | ---------------------------------------------------------------------------------------------------

| |  |  | Significant changes
in the manner of our use of the acquired assets or the strategy for our overall business; and
| | - |  | -----------------------------------------------------------------------------------------------------------------

| |  |  | Significant negative
industry or economic trends.
| | - |  | -------------------------------------------------

|On
an annual basis or when we determine that the carrying value of goodwill and other
identified intangibles may not be recoverable based upon the existence of one or more of
the above indicators of impairment, we compare the fair value of the reporting unit to its
carrying value, including goodwill (step one of the required test). If the carrying value
exceeds fair value, we would perform step two of the required test and record the
impairment charge in our statement of operations.


Income taxes


We
recognize deferred tax assets and liabilities based on the differences between the
financial statement carrying amounts and the tax bases of assets and liabilities. The
Company regularly reviews its deferred tax assets for recoverability and establishes a
valuation allowance based on historical taxable income, projected future taxable income,
and the expected timing of the reversals of existing temporary differences, all of which
require significant management judgments. Realization is dependent on generating
sufficient taxable income of a correct character prior to the expiration of the loss
carryforwards, capital loss and foreign tax credit carryforwards. Although realization is
not assured, management currently believes it is more likely than not that the recorded
net deferred tax asset will be realized; however, the asset could be reduced in the near
term if estimates of future taxable income during the carryforward period are reduced.


17
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|MERGERS AND ACQUISITIONS


We
regularly evaluate opportunities to acquire products or businesses that represent
strategic enhancements to our operations. Such acquisition opportunities, if they arise,
may involve the use of cash or equity instruments. The Company has made the following
acquisitions over the last three years:


Software Associates
International


On
September 19, 2002, the Company acquired Software Associates International
(SAI), a privately held company based in New Jersey. SAI provided software
products and solutions that enabled corporate level sales and marketing analysis for
pharmaceutical companies. These solutions are complementary to the Companys core
suite of business products. The results of SAIs operations have been included in the
Consolidated Financial Statements since the acquisition date.


The
aggregate purchase price was approximately $16,739,000 which included: cash of
approximately $15,092,000; accrued professional service fees of approximately $410,000; and
options to purchase Dendrite common stock valued at approximately $1,237,000. The fair
value of the stock options was estimated using the Black-Scholes valuation model. The
Company is in the process of finalizing a third-party valuation of certain intangible
assets and its evaluation of acquired facilities and personnel for redundancy, and
therefore, the purchase price allocation is preliminary and subject to adjustment.


The
Company recorded $7,523,000 of goodwill and $4,694,000 of acquired intangible assets, of
which approximately $732,000 was assigned to registered trademarks that are not subject to
amortization. The remaining $3,962,000 of acquired intangible assets includes purchased
software development costs of approximately $2,441,000, approximately $328,000 of
non-compete agreements and approximately $1,193,000 of customer relationship assets.


In
connection with the acquisition of SAI, the Company developed an exit plan. The exit plan
consisted of closing a facility in Mt. Arlington, New Jersey and relocating the operations
to the Companys other facilities in New Jersey. The Company accrued as part of the
acquisition costs the costs to terminate certain leases amounting to $3,252,000. The
Company anticipates finalizing the close of the facility during the first quarter of 2003.


Pharma Vision


On
August 12, 2002, the Company acquired Pharma Vision for cash consideration of
approximately $700,000, which included approximately $50,000 of professional service fees.
Pharma Vision collected and sold data for customer targeting that pharmaceutical
representatives use in Europe and provided support to pharmaceutical customers in Belgium
and The Netherlands. The results of Pharma Visions operations have been included in
the consolidated financial statements from the date of acquisition.


Analytika


On
January 6, 2000, the Company purchased all of the assets and assumed certain liabilities
of Analytika, Inc. (Analytika), a provider of advanced analytical products,
consulting services and outsourced operations services to the pharmaceutical industry.
Under the terms of the acquisition agreement, the Company paid $2,318,000 in cash, which
included transaction costs, and Dendrite common stock valued at $6,506,000. The
acquisition has been accounted for using the purchase method with the purchase price
allocated to the fair value of the assets acquired and liabilities assumed based on their
respective fair market values at the acquisition date. Of the purchase price, $2,890,000
was allocated to purchased capitalized software development costs. The excess of the
purchase price over the fair value of the net assets acquired was allocated to goodwill
($5,979,000) based upon a third party valuation. Analytikas results of operations
have been included in the Companys Consolidated Financial Statements from the date
of acquisition.



18
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|RESULTS OF OPERATIONS


The
following table sets forth our results of operations expressed as a percentage of total
revenues for the periods indicated:
|-------------------------------------------------------------------------------------------------------------------------------------------------------

|                                    | YEAR ENDEDDECEMBER 31
|----------------------------------- | ---------------------
|                                    |                      
|                                    |                      
|                                    |                      
|Revenues:                           |                      
|License fees                        |                      
|Services                            |                      
|                                    |                      
|Costs of Revenues:                  |                      
|Cost of license fees                |                      
|Purchased software impairment       |                      
|Cost of services                    |                      
|                                    |                      
|Gross Margin                        |                      
|Operating Expenses:                 |                      
|Selling, general and administrative |                      
|Research and development            |                      
|Restructuring charge                |                      
|Asset impairments                   |                      
|                                    |                      
|Operating income (loss)             |                      
|Interest and other income           |                      
|Income (loss) before income taxes   |                      
|Income tax (benefit) expense        |                      
|                                    |                      
|Net Income (loss)                   |                      
|                                    |                      

|The
discussion of our results in this Managements Discussion and Analysis of Financial
Condition and Results of Operations includes and, where so indicated, excludes, the impact
of the restructure and asset impairment charges and other non-comparable items. In
discussing its period to period results, the Company believes it is useful, for investors
and management, in reviewing financial performance, to understand the impact on operating
results and financial condition (including on a comparative basis) of actions, events and
items which the Company believes are not normally part of its operations or are otherwise
unusual events. It supplements, and is not intended to represent, GAAP presentation.


YEARS ENDED DECEMBER 31,
2002 AND 2001


     REVENUES.       
          Total revenues decreased $1,606,000 to $225,756,000 in 2002, down 1% from
          $227,362,000 in 2001.


License
fee revenues decreased $5,188,000 to $13,507,000 in 2002, down 28% from $18,695,000 in
2001. License fee revenues as a percentage of total revenues were 6% in 2002 as compared
to 8% in 2001. License fees are, by nature, non-recurring items and fluctuate from year to
year. The majority of license fee revenue recognized during the year ended December 31,
2002 related to sales to new clients as well as purchases of additional user licenses by
existing customers who increased the size of their sales forces . The decrease in license
fee revenues from 2001 to 2002 was primarily due to fewer software upgrades by existing
customers in 2002 as compared to 2001. License fee revenues increased during the fourth
quarter of 2002 by 106% from the fourth quarter of 2001 and 152% from the third quarter of
2002. This increase was caused by both additional user purchases by a large existing
customer as well as a sale to a new customer.


Service
revenues increased $3,582,000 to $212,249,000 in 2002, up 2% from $208,667,000 in 2001.
Service revenues as a percentage of total revenues were 94% in 2002 as compared to 92% in
2001. The Companys results reflected growth in technical and hardware support
services and international operations offset by a decrease in its domestic sales support
services of approximately 13% compared to 2001. The decrease in domestic sales support services was primarily attributable
to the roll-off of a large customer.



19
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|Service
revenues were atypically  high in the fourth quarter of 2001. This was a result of our
largest customer completing a major rollout for their entire user base during the fourth
quarter of 2001. The rollout resulted in significant increases in the services rendered to
our customers for initial training and peak period hardware and help desk support.


COST
OF REVENUES. Cost of revenues decreased $13,276,000 to $111,547,000 in 2002, down 11%
from $124,823,000 in 2001.


Cost
of license fees decreased $167,000 to $4,730,000 in 2002, down 3% from $4,897,000 in 2001.
Cost of license fees for the year ended December 31, 2002 is comprised of the amortization
of capitalized software development costs of $2,766,000 and third party vendor license
fees of $1,964,000. Cost of license fees for the year ended December 31, 2001 is comprised
of the amortization of purchased software and capitalized software development costs of
$3,601,000 and third party vendor license fees of $1,296,000. The decrease in the
amortization of capitalized software development costs in the year ended December 31, 2002
was primarily attributable to the Company entering into a new product strategy in 2001
which resulted in accelerated amortization of the remaining purchased capitalized software
by the end of 2001. The new strategy called for the features and functionality of the Marketing Management International, Inc.
("MMI") products to be incorporated under the current WebForce umbrella. The Company estimated the
net realizable value of the MMI product to be greater than our carrying value in
accordance with Statement of Financial Accounting, Standard 86, Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed (SFAS
86); however, due to the new version of WebForce which was to replace the MMI
product, the estimated useful life of the MMI capitalized software was reduced to
approximately six months. As a result, we accelerated the amortization to coincide with
the estimated useful life of the product and recorded an additional $678,000 of
amortization expense. The remaining decrease in amortization relates to amortization
recorded in 2001 on purchased capitalized software costs from the Companys
acquisition of Analytika and Associated Business Computing, N.V (ABC). These
were fully written-off in the second quarter of 2001 and therefore there was no
amortization expense in 2002. The increase in the third party vendor license fees is
directly related to the increase in sales of third party licenses during the fourth
quarter of 2002.


During
the second quarter of 2001, the Company recorded an impairment charge of $2,614,000
related to its purchased capitalized software costs from its acquisitions of Analytika and
ABC. As discussed above, the Company entered into a new product strategy in 2001. This new
strategy called for the retirement of the ABC and Analytika products since features and
functionality were not being incorporated under the new WebForce umbrella. At that time,
we determined that we would no longer offer the Analytika and ABC products, but would
continue to support both products until existing customer contract terms expired. As a
result, no revenues were forecasted for either product in the future other than those
under existing contracts. Further, despite the lack of future revenue we needed to
maintain the infrastructure required to support our Analytika and ABC products for the term
of each contract. Since the forecasted revenue base was significantly reduced yet the
infrastructure and administrative costs remained relatively fixed, these operations
transitioned from positive to negative cash flows. In accordance with SFAS 86 we compared
the unamortized capitalized software developments costs to the net realizable value of
that product. In our analysis, the net realizable value for the Analytika and ABC products
was determined to be negative due to the fact that estimated future revenues generated
from new sales were zero. As a result all of the purchased capitalized software associated
with Analytika and ABC was determined to be impaired during the quarter ended June 30, 2001.
See Note 3 to the Consolidated Financial Statements and Restructuring
Charge and Asset Impairment below for a discussion of the restructuring
charges and asset impairments recorded in the year ended December 31, 2001.


Cost
of services decreased $10,495,000 to $106,817,000 in 2002, down 9% from $117,312,000 in
2001. This decrease was due primarily to $1,434,000 of unusual costs recorded in the year
ended December 31, 2001, which related to the recognition of future losses on selected
contracts for which we expected the costs of providing the future services would exceed
the revenue to be received from the performance of the services, which was identified
while examining the restructuring of our Stroudsburg, PA facility, and $3,118,000 which
related to other exit costs, primarily retention bonuses. The retention bonuses were paid
to those employees who would lose their jobs at a future date as a result of the
restructuring, discussed below under "Restructuring Charge", but who were needed during the transition to complete
assigned tasks related to the exit plan. During 2002, the Company reversed
approximately $939,000 of the unusual costs related to future loss contracts as the
Companys future obligations with respect to these contracts were favorably resolved
in 2002. There was an additional decrease in cost of services primarily due to
efficiencies gained from the Companys 2001 restructuring plan which resulted in
relocation of certain services to locations with lower operating expenses.




20
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|Gross
margin for license fees was 65% in 2002 up from 60% in 2001. The gross margin in 2001 was
impacted significantly by the $2,614,000 asset impairment and $678,000 of accelerated
amortization of MMI purchased capitalized software costs that were recorded in 2001.
Excluding these items, the gross margin would have been 78% for 2001. As a result, gross
margin from 2002 actually decreased from 2001 due primarily to the increase in the sale of
third party licenses as a percentage of total license fee revenue.


Gross
margin for services was 50% in 2002 up from 44% in 2001. The gross margin in 2001 was
impacted significantly by the $4,552,000 of unusual costs described above within cost of
services that was recorded in 2001. Excluding these items, the gross margin would have
been 46% for 2001. The improvement in gross margin during the year ended December 31, 2002
was due to the reversal in the year ended December 31, 2002 of approximately $939,000 of
non-recurring costs previously recorded relating to the recognition of future losses on
selected contracts, for which the Companys future obligations with respect to these
contracts were favorably resolved. Also contributing to the improvement was a favorable
mix shift within our services business and the efficiencies gained from the Companys
restructuring plan and the relocation of certain services to locations with lower
operating expenses that took place during 2001.


Total
gross margin for 2002 was 51%, up from 45% in 2001 for the reasons set forth above.


SELLING,
GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES. SG&A expenses decreased
$17,277,000 to $77,301,000 in 2002, down 18% from $94,578,000 in 2001. As a percentage of
revenues, SG&A expenses decreased to 34% for 2002, as compared to 42%
in 2001. The decrease in SG&A expenses for the year ended December 31, 2002 was
partially attributed to approximately $7,481,000 of unusual costs incurred during the year
ended December 31, 2001. These costs consisted of the following: a) start up costs
associated with the new facilities of approximately $2,513,000, which included payments to
outside consultants for consulting services related to the reorganization of our business
of approximately $1,400,000 and $1,113,000 of duplicate employee service costs relating to
employee overlap during the transition phase; b) transfer of operations of approximately
$1,660,000, which included costs that were required to be paid to certain customers for
costs incurred by those customers as part of the relocation of some of our services,
bonuses paid to employees for their assistance with the transition and transfer of
operations, and the accrual of real estate commissions for a building held for sale; c)
duplicate facility costs of approximately $2,100,000, resulting from costs incurred to
have both facilities operating simultaneously for a period of time during the transition
(i.e., rent, utilities, real estate taxes, insurance, etc.) and d) relocation and moving
costs of approximately $1,208,000. Excluding these costs, SG&A expenses would have
been $87,097,000 for the year ended December 31, 2001, which would have resulted in a
decrease of $9,796,000 or 11% for the year ended December 31, 2002. The remaining decrease
was principally due to: i) $4,782,000 of costs associated with the Companys CRM
launch in partnership with Oracle Corporation during the year ended December 31, 2001; ii)
a decrease in employment costs due to operating efficiencies and lower management bonuses
in the year ended December 31, 2002; and iii) the implementation of SFAS 142,
Goodwill and Other Intangible Assets, which would have resulted in a reduction
of goodwill amortization expenses of approximately $1,302,000 had the provisions been
retroactively applied for the year ended December 31, 2001. These decreases were partially
offset by approximately $1,355,000 of costs incurred during the year ended December 31,
2002 related to a reduction in the size of the workforce completed in the third quarter of
2002.


RESEARCH
AND DEVELOPMENT (R&D) EXPENSES. R&D expenses decreased $708,000 to $10,396,000
in 2002, down 6% from $11,104,000 in 2001. As a percentage of revenues, R&D expenses
remained constant at 5% in 2002 and 2001.


RESTRUCTURING
CHARGE. On June 14, 2001, the Company announced a restructuring of its business
operations to reflect a lower expected revenue growth model in the near term. As a result,
the Company re-examined its cost structure and determined that there were duplicate
employee costs and excess overhead costs of approximately $8 to $10 million annually. The
restructuring plan consisted of a reduction of 155 delivery and staff positions and the
termination of 35 independent contractors across various departments in the United States
and Europe. In addition 192 additional positions were eliminated as part of the closing of
the Companys facility in Stroudsburg, PA. The Stroudsburg, PA operations were
relocated to other Company facilities in New Jersey, Virginia and a new facility in
Bethlehem, PA. The exit costs, consisting of costs to retrofit the Stroudsburg facility,
lease termination costs and the write-off of leasehold improvements, were included in the
restructuring charge while the moving and other start-up costs were not included in this
restructuring charge and were expensed as incurred.



21
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|During
the second quarter of 2001, the Company recorded a charge of $6,134,000 associated with
this restructuring. This charge was reduced by $24,000 to $6,110,000 in the fourth quarter
of 2001 due to the variance between the amounts originally recorded and managements
revised estimate of the total costs of the restructuring. This reduction of $24,000 was
recorded within the restructuring charge on the accompanying consolidated statements of
operations. During the fourth quarter of 2002, the Company reduced the restructuring
accrual by an additional $47,000 due to revised estimates of the total costs of the
restructuring. Of the restructuring charge, $260,000 related primarily to severance that had
not been paid as of December 31, 2002 and, accordingly, is classified as accrued
restructuring charge in the accompanying consolidated balance sheet. The restructuring
charges were based upon formal plans approved by the Companys management using the
information available at the time. Management of the Company believes this provision will
be adequate to cover the costs incurred relating to the restructuring. The Company
currently anticipates that the accrued restructuring balance of $260,000 as of December
31, 2002 will be paid in 2003. The activity on the accrued restructuring charge balance
for the year ended December 31, 2002 is summarized in the table below:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                  | Accrued restructuringas of January 1, 2002 | Cash Paymentsin 2002 | Reversal ofaccrual in2002 | AccruedRestructuringas of December 31, 2002
|--------------------------------- | ------------------------------------------ | -------------------- | ------------------------- | -------------------------------------------
|                                  |                                            |                      |                           |                                            
|Termination payments to employees |                                            |                      | $                         | 2,218,000                                  
|Facility exit costs               |                                            |                      |                           | 495,000                                    
|Contract termination and other    |                                            |                     
|restructuring costs               |                                            |                      |                           | 237,000                                    
|                                  |                                            |                      |                           |                                            
|                                  |                                            |                      | $                         | 2,950,000                                  
|                                  |                                            |                      |                           |                                            

|ASSET
IMPAIRMENT. During the year ended December 31, 2002, the Company reviewed the carrying
value of its long-lived assets including the facility held for sale. Based upon this
review, the carrying value of the facility held for sale was adjusted. The new fair value
less costs to sell, of approximately $6,900,000, was determined based upon a third-party
valuation. The resulting $1,832,000 impairment loss has been recorded as a separate line
item in the statement of operations.


During
the year ended December 31, 2001, the Company reviewed the carrying values of its
long-lived assets, including its minority investments in start-up ventures, identifiable
intangibles and goodwill. During the review of two start-up ventures, the Company became
aware of a series of operating losses and the need of each start-up venture to obtain
additional financing to continue operations which became especially severe in the second
quarter of 2001. In addition, prior to the end of 2001 both start-up ventures filed for
bankruptcy. As a result, during the year ended December 31, 2001, the Company wrote off
$3,450,000 of cost method investments it had in these two start-up ventures due to an
other than temporary decline in the fair value of these investments.



22
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|As
part of its partnership with Oracle Corporation, the Company announced on June 14, 2001,
its intention to market an integrated CRM solution to meet the specialized needs of the
worldwide pharmaceutical industry. As a result, the Companys vision and product
platform changed. As discussed above in Cost of Revenues we determined that we
would no longer offer the Analytika and ABC products, but would continue to support both
products until existing customer contract terms expired. As a result, no revenues were
forecasted for either product for the future other than those under existing contracts. In
accordance with SFAS 121, Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed Of, we reviewed the future undiscounted net cash
flows for our Analytika and ABC products and determined the cash flows to be negative due
to the fact the projected revenue generated from new sales for each operation was zero. As
a result, all the goodwill associated with Analytika and ABC was impaired during the
quarter ended June 30, 2001. Accordingly, the Company recorded an impairment charge of
$6,173,000 of goodwill during the year ended December 31, 2001. See Note 3 to the
Consolidated Financial Statements.


In
connection with its second quarter 2001 restructuring, the Company made the decision not to
occupy a recently acquired facility and instead shifted its operations to other existing
facilities. The Company therefore decided to sell a recently acquired facility. An asset
impairment of $2,100,000 was recorded to reduce the carrying value of its facility held
for sale to its then current estimated fair market value including selling costs. See Notes 1 and 3 to
the Consolidated Financial Statements.


INTEREST
INCOME.  Interest income decreased to $1,085,000 in the
year ended December 31, 2002, down $1,354,000 or 55% from $2,439,000 in the year ended
December 31, 2001. The decrease was primarily due to lower short term interest rates
versus last year which adversely impacted interest income during the year ended December
31, 2002.


PROVISION
FOR INCOME TAXES. The effective tax expense rate recorded for the year ended December
31, 2002 was 40%, as compared with an effective tax benefit rate of 33% for the year ended
December 31, 2001. In July 2002, the State of New Jersey enacted new tax legislation that
adversely impacts the effective state tax rate of most companies operating in New Jersey.
This legislation is retroactive to January 1, 2002. The effect of this legislation
increased the Companys effective tax rate from 36% to 40% for the 2002 tax year. The
higher effective tax rate resulted in approximately $1,026,000 of additional income tax
expense in 2002. The difference in rates also resulted from the net loss position and the
write-off of certain goodwill amounts which were not deductible for tax purposes, both of
which occurred during 2001.


YEARS ENDED DECEMBER 31,
2001 AND 2000


     REVENUES.       
          Total revenues increased $9,303,000 to $227,362,000 in 2001, up 4% from
          $218,059,000 in 2000.


License
fee revenues decreased $5,271,000 to $18,695,000 in 2001, down 22% from $23,966,000 in
2000. License fee revenues as a percentage of total revenues were 8% in 2001 as compared
to 11% in 2000. License fees are, by nature, non-recurring items. The overall decrease
related to fewer licenses signed with new customers.


Service
revenues increased $14,574,000 to $208,667,000 in 2001, up 8% from $194,093,000 in 2000.
Service revenues as a percentage of total revenues were 92% in 2001 as compared to 89% in
2000. In addition, during the three months ended December 31, 2001 service revenues increased to
$60,909,000 from $49,276,000 for the three months ended September 30, 2001. This increase
in service revenues was the result of our largest customer completing a major rollout for
its entire user base. The rollout resulted in significant increases in the services
rendered to our customer for initial training, peak period hardware and help desk support.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|COST
OF REVENUES. Cost of revenues increased $29,436,000 to $124,823,000 in 2001, up 31%
from $95,387,000 in 2000.


Cost
of license fees increased $1,477,000 to $4,897,000 in 2001, up 43% from $3,420,000 in
2000. Cost of license fees includes the amortization of capitalized software development
costs and third party vendor license fees. The costs associated with third party vendor
licenses increased due to an increase in the number of third party software products
embedded in our WebForce product suite. As of June 2001, the Company reduced the
remaining useful life of the purchased capitalized software related to the MMI acquisition
to six months which resulted in additional amortization expense of approximately $678,000
during the year ended December 31, 2001 as compared to the year ended December 31, 2000. This
acceleration was brought on by the Company developing a new product strategy in 2001. The
features and functionality of the MMI products were incorporated under the current
WebForce umbrella. The Company estimated the net realizable value of the MMI product to be
greater than our carrying value in accordance with SFAS 86. However, due to the new
version of WebForce which was to replace MMI, the estimated useful life of the MMI
capitalized software costs changed. We anticipated the estimated useful life to be
approximately six months. As a result, we accelerated the amortization to coincide with
the estimated useful life of the product.


During
the second quarter of 2001, the Company recorded an impairment charge of $2,614,000
related to its purchased capitalized software costs from its acquisitions of Analytika and
ABC As discussed above, the Company entered into a new product strategy in 2001. This new
strategy called for the retirement of the Analytika and ABC products since features and
functionality were not going to be incorporated under the WebForce umbrella. At that time,
we determined that we would no longer offer the Analytika and ABC products, but would
continue to support both products until existing customer contract terms expired. As a
result, no revenues were forecasted for either product in the future other than those
under existing contracts. Further, despite the lack of future revenue we needed to
maintain the infrastructure required to support our Analytika and ABC product for the term
of each contract. Since the forecasted revenue base was significantly reduced yet the
infrastructure and administrative costs remained relatively fixed, these operations
transitioned from positive to negative cash flows. In accordance with SFAS 86 we compared
the unamortized capitalized software development costs to the net realizable value of
that product. In our analysis, the net realizable value for the Analytika and ABC products
was determined to be negative due to the fact that estimated future revenues generated
from new sales were zero. As a result all of the purchased capitalized software associated
with Analytika and ABC was determined to be impaired during the quarter ended June 30, 2001.
See Note 3 to the Companys Consolidated Financial Statements and Restructuring
Charge and Asset Impairment below for a discussion of the restructuring
charges and asset impairments recorded in the year ended December 31, 2001.


Cost
of services increased $25,345,000 to $117,312,000 in 2001, up 28% from $91,967,000 in
2000. This increase was due to a combination of factors, including unusual costs recorded
during the year ended December 31, 2001 of $1,434,000 related to the recognition of future
losses on selected contracts for which we expected the costs of providing the future
services to exceed the revenue to be received from the performance of the services, which
was identified while examining the restructuring of our Stroudsburg, PA facility and
$3,118,000 which related to other exit costs, primarily retention bonuses. The retention
bonuses were paid to those employees who would lose their jobs at a future date as a
result of the restructuring, discussed below under Restructuring Charge, but
who were needed during the transition to complete assigned tasks related to the exit plan.
The remaining increase in cost of services was primarily due to overstaffing within our
service areas in anticipation of higher levels of growth than were realized during the
first six months of 2001.


24
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|Gross
margin for license fees was 60% in 2001 down from 86% in 2000. The gross margin was
impacted significantly by the $2,614,000 asset impairment and $678,000 of accelerated
amortization of MMI purchased capitalized software costs that were recorded in 2001.
Excluding these items, the gross margin would have been 78% for 2001. This was lower than
the gross margin in 2000, primarily due to the increase in third party licenses sold
during 2001.


Gross
margin for services was 44% in 2001 down from 52% in 2000. The gross margin was impacted
significantly by $4,552,000 of unusual costs within cost of services that was recorded in
2001. If not for the effects of these items, the gross margin would have been 46% for
2001. This was significantly lower than the gross margin in 2000, primarily due to
overstaffing within our service areas in anticipation of higher levels of growth than were
realized during the first six months of 2001.


Total
gross margin for 2001 was 45%, down from 56% in 2000 for the reasons set forth above.


SELLING,
GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES. SG&A expenses increased
$26,694,000 to $94,578,000 in 2001, up 39% from $67,884,000 in 2000. As a percentage of
revenues, SG&A expenses increased to 42% for 2001, as compared to 31%
in 2000. The increase in SG&A expenses was caused by several factors, most notably
$4,782,000 of costs associated with the Companys CRM launch in partnership with
Oracle Corporation, $14,431,000 of costs including higher facility costs principally due to
the opening of a new facility, higher depreciation, and higher salaries and related costs
due to the addition of certain key management and changes in our global sales organization
and approximately $7,481,000 of unusual costs. These unusual costs consisted of a) start
up costs associated with the new facilities of approximately $2,513,000, which included
payments to outside consultants for consulting services related to the reorganization of
our business of approximately $1,400,000 and $1,113,000 of duplicate employee service
costs relating to employee overlap during the transition phase; b) transfer of operations
of approximately $1,660,000, which included costs that were required to be paid to certain
customers for costs incurred by those customers as part of the relocation of our services,
bonuses paid to employees for their assistance with the transition and transfer of
operations, and the accrual of real estate commissions for a building held for sale; c)
duplicate facility costs of approximately $2,100,000, which resulted from costs incurred
to have both facilities operating simultaneously for a period of time during the
transition (i.e., rent, utilities, real estate taxes, insurance, etc.) and d) relocation
and moving costs of approximately $1,208,000


RESEARCH
AND DEVELOPMENT (R&D) EXPENSES. R&D expenses increased $229,000 to $11,104,000
in 2001, up 2% from $10,875,000 in 2000. As a percentage of revenues, R&D expenses
remained constant at 5% in 2001 and 2000.


RESTRUCTURING
CHARGE. On June 14, 2001, the Company announced a restructuring of its business
operations to reflect a lower expected revenue growth model in the near term. As a result,
the Company re-examined its cost structure and determined that there were duplicate
employee costs and excess overhead costs of approximately $8 to $10 million annually. The
restructuring plan consisted of a reduction of 155 delivery and staff positions and the
termination of 35 independent contractors across various departments in the United States
and Europe. In addition 192 additional positions were eliminated as part of the closing of
the Companys facility in Stroudsburg, PA. The Stroudsburg, PA operations were
relocated to other Company facilities in New Jersey, Virginia and a new facility in
Bethlehem, PA. The exit costs, consisting of costs to retrofit the Stroudsburg facility,
lease termination costs and the write-off of leasehold improvements were included in the
restructuring charge while the moving and other start-up costs were not included in this
restructuring charge and were expensed as incurred.


25
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|During
the second quarter of 2001, the Company recorded a charge of $6,134,000 associated with
this restructuring. This charge was reduced by $24,000 to $6,110,000 in the fourth quarter
of 2001 due to the variance between the amounts originally recorded and managements
revised estimate of the total costs of the restructuring. This reduction of $24,000 was
recorded within the restructuring charge on the accompanying consolidated statements of
operations. Of the restructuring charge, $2,950,000 related primarily to severance that had not
been paid as of December 31, 2001, and, accordingly, was classified as accrued
restructuring charge in the accompanying consolidated balance sheet. The restructuring
charges were based upon formal plans approved by the Companys management using the
information available at the time. Management of the Company believes this provision will
be adequate to cover the costs incurred relating to the restructuring. The activity on the
accrued restructuring charge balance as of December 31, 2001 is summarized in the table
below:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                  | Restructuring Charge | Cash Payments in 2001 | AccruedRestructuring as ofDecember 31, 2001
|--------------------------------- | -------------------- | --------------------- | -------------------------------------------
|                                  |                      |                       |                                            
|Termination payments to employees |                      | $5,064,000            |                                            
|Facility exit costs               |                      | 623,000               |                                            
|Contract termination and other    |                     
|restructuring costs               |                      | 423,000               |                                            
|                                  |                      |                       |                                            
|                                  |                      | $6,110,000            |                                            
|                                  |                      |                       |                                            

|ASSET
IMPAIRMENT. During the year ended December 31, 2001, the Company reviewed the carrying
values of its long-lived assets, including its minority investments in start-up ventures,
identifiable intangibles and goodwill. During the review of two start-up ventures, the
Company became aware of a series of operating losses and the need of each start-up venture
to obtain additional financing to continue operations, which became especially severe in
the second quarter of 2001. In addition, prior to the end of 2001 both start-up ventures
filed for bankruptcy. As a result, during the year ended December 31, 2001, the Company
wrote off $3,450,000 of cost method investments it had in these two start-up ventures due
to an other than temporary decline in the fair value of these investments.


As
part of its partnership with Oracle Corporation, the Company announced on June 14, 2001,
its intention to market an integrated CRM solution to meet the specialized needs of the
worldwide pharmaceutical industry. As a result the Companys vision and product
platform changed. As discussed above in Cost of Revenues we determined that we
would no longer offer the Analytika and ABC products, but would continue to support both
products until existing customer contract terms expired. As a result, no revenues were
forecasted for either product for the future other than those under existing contracts. In
accordance with SFAS 121, we reviewed the future undiscounted net cash flows for our ABC
and Analytika products and determined the cash flows to be negative due to the fact the
projected revenue generated from new sales for each operation was zero. As a result, all
the goodwill associated with ABC and Analytika was deemed to be impaired during the
quarter ended June 30, 2001. Accordingly, the Company recorded an impairment charge of
$6,173,000 of goodwill during the year ended December 31, 2001. See Note 3 to the
Consolidated Financial Statements.


In
connection with its second quarter 2001 restructuring, the Company made the decision to shift
its operations to other existing facilities and therefore decided to sell a recently
acquired facility. An expected sale, scheduled to close in the fourth quarter did not
occur and the Company wrote down the building to its fair market value. An asset
impairment of $2,100,000 was recorded to reduce the carrying value of its facility held
for sale to its then current estimated fair market value including selling costs. See Notes 1 and 3 to
the Consolidated Financial Statements.


26
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|PROVISION
FOR INCOME TAXES. The effective tax benefit rate recorded for the year ended December
31, 2001 was 32.7%, as compared with an effective tax expense rate of 35.5% for the year
ended December 31, 2000. The difference in rates resulted primarily from the write-off of
certain goodwill amounts in 2001 which were not deductible for tax purposes.


QUARTERLY RESULTS OF
OPERATIONS


The
following table sets forth certain unaudited consolidated statement of operations data
expressed in U.S. dollars for 2002 and 2001. Our quarterly results have varied
considerably in the past and are likely to vary from quarter to quarter in the future.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                              | 
|----------------------------- | 
|
|
|Statement of Operations Data: | 
|Revenues:                     | 
|License fees                  | 
|                              | 
|Services                      | 
|                              | 
|Costs of Revenues:            | 
|Cost of license fees          | 
|Purchased software            | 
|impairment                    | 
|                              | 
|Cost of services              | 
|                              | 
|                              | 
|Gross margin                  | 
|Operating Expenses:           | 
|Selling, general, and         | 
|administrative                | 
|Research and development      | 
|Restructuring charge          | 
|Asset impairment              | 
|                              | 
|Operating income (loss)       | 
|Interest income               | 
|                              | 
|Other income (expense)        | 
|Income (loss) before          | 
|income tax expense            | 
|(benefit)                     | 
|                              | 
|Income tax expense (benefit)  | 
|                              | 
|Net income (loss)             | 
|Net income (loss) per share:  | 
|                              | 
|Basic                         | 
|                              | 
|Diluted                       | 
|Shares used in computing      | 
|Net income (loss) per share:  | 
|                              | 
|Basic                         | 
|                              | 
|Diluted                       | 

|LIQUIDITY AND CAPITAL
RESOURCES


We finance our operations primarily
through cash generated by operating activities. Net cash provided by operating activities
was $24,189,000 for 2002, compared to $39,891,000 for 2001. This decrease in net cash
provided by operating activities was due largely to cash generated in 2001 from the
collection of an unusually high accounts receivable balance as of December 31, 2000. In
other areas, accounts payable and accrued expenses, including accrued restructuring
charges, decreased by $7,765,000 during the year ended December 31, 2002 due to continued
payments of unusual costs and restructuring accruals as well as lower year end accruals
for 2002 management bonuses. Deferred revenue decreased significantly in 2002 due to the
fact that three customers elected to pay us in advance for contracted services to be
performed in 2002, prior to the end of 2001. These factors were offset by the
Companys net income in the year ended December 31, 2002 compared with its net loss
in the year ended December 31, 2001.


27
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|Net
cash used in investing activities was $22,520,000 for 2002 as compared to $33,997,000 in
2001. The significant decrease was due primarily to the purchase of a facility during 2001
which is currently held for sale and higher purchases of property and equipment in 2001
related to the completion of our facility moves. This decrease is partially offset by the
acquisition of SAI and PharmaVision and the redemption of short-term investments of $
5,088,000 in 2002.


Net
cash provided by financing activities of $1,008,000 in 2002 includes approximately
$2,900,000 of cash proceeds primarily from the exercise of stock options offset by
approximately $1,500,000 of repurchases of common stock under the stock repurchase program
announced on July 31, 2002. Net cash used in financing activities of $13,047,000 in 2001
includes approximately $4,400,000 of cash proceeds from the issuance of common stock
offset by approximately $17,500,000 of repurchases of common stock under the stock
repurchase program announced on January 31, 2001.


At
December 31, 2002, our working capital was approximately $84,933,000. Total cash and
investments were 37% of total assets as of December 31, 2002 compared with 43% as of
December 31, 2001. The Companys days sales outstanding in accounts receivable was 73
days as of December 31, 2002 compared with 49 days as of December 31, 2001. The December
31, 2002 days sales outstanding was adversely impacted due to the inclusion of the
contracted long-term receivables with a major customer. Excluding the contracted long-term
receivable, the Companys days sales outstanding would have been 63 days as of
December 31, 2002. We believe that available funds, anticipated cash flows from operations
and our line of credit will satisfy our currently projected working capital and capital
expenditure requirements, exclusive of cash required for possible acquisitions of
businesses, products and technologies, for the foreseeable future.


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


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


Contractual Obligations
and Commitments


We
maintain a $15.0 million revolving line of credit agreement with The Chase Manhattan Bank,
N.A. The agreement is available to finance working capital needs and possible future
acquisitions. The terms of this agreement require us to maintain a minimum consolidated
net worth, among other covenants, measured quarterly, which is equal to $105,000,000, plus
50% of our net income earned after January 1, 2002 and 75% of the net proceeds to us of
any stock offerings after September 30, 2001 (as defined in the agreement). This covenant
effectively limits the amount of cash dividends we may pay. The credit facility expires on
November 30, 2003. At December 31, 2002, there were no borrowings outstanding under the
agreement and we were in compliance with all of our covenant obligations.


28
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|As
of December 31, 2002, we did not have any material commitments for capital expenditures.
Our principal commitments at December 31, 2002 consisted primarily of obligations under
operating and capital leases. Future minimum rental payments on these leases, including
amounts accrued for in purchase accounting restructuring accruals, are as follows:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                 | Payments due by period
|---------------- | ----------------------
|                
|
|                
|Capital Lease    |                       
|Obligations      |                       
|                
|Operating Leases |                       
|                
|Total            |                       
|                
|                 |                       

|As
of December 31, 2002, letters of credit for approximately $475,000 were outstanding.


The
Company has an agreement with a venture capital fund with a commitment to contribute
$1,000,000 to the fund, callable in $100,000 increments. As of December 31, 2002, $300,000
has been paid and included in other assets on the accompanying Consolidated Balance Sheet
with $700,000 of commitment remaining. The agreement has a termination date of December
11, 2010, subject to extension by the limited partners.


RECENT ACCOUNTING
PRONOUNCEMENTS


In
December 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) 148, Accounting for
Stock-Based Compensation  Transition and Disclosure. SFAS 148 amends SFAS 123
Accounting for Stock-Based Compensation to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, SFAS 148 amends the disclosure
requirements of SFAS 123 to require more prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. The additional disclosure
requirements of SFAS 148 are effective for fiscal years ending after December 15, 2002.
The Company has elected to continue to follow the intrinsic value method of accounting as
prescribed by Accounting Principles Board Opinion 25 (APB 25),
Accounting for Stock Issued to Employees, to account for employee stock
options.



29
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|In
June 2002, the FASB issued SFAS 146 Accounting for Costs Associated with Exit or
Disposal Activities effective for exit or disposal activities initiated after
December 31, 2002. SFAS 146 nullifies Emerging Issues Task Force (EITF) Issue
94-3 Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring). Under
SFAS 146 a liability for a cost associated with an exit or disposal activity shall be
recognized and measured initially at its fair value in the period in which the liability
is incurred rather than the date an entity commits to an exit plan. We expect the adoption
of SFAS 146 will have an impact on the timing of the recording of any future restructuring
charges.


In
October 2001, the FASB issued SFAS 144 Accounting for the Impairment or Disposal of
Long-lived Assets, which superceded SFAS 121, Accounting for the Impairment of
Long-lived Assets and for Long-Lived Assets to be Disposed Of, and addresses
financial accounting and reporting for the impairment or disposal of long-lived assets.
This statement is effective for fiscal years beginning after December 15, 2001. The
Company adopted this statement on January 1, 2002, which did not have an impact on the
Companys financial position or results of operations.


Effective
July 1, 2001 the Company adopted SFAS 141, Business Combinations, and
effective January 1, 2002 the Company adopted SFAS 142, Goodwill and other
Intangible Assets. SFAS 141 requires business combinations initiated after June 30,
2001 to be accounted for using the purchase method of accounting. It also specifies the
types of acquired intangible assets that are required to be recognized and reported
separate from goodwill. SFAS 142 requires that goodwill and certain intangibles no longer
be amortized, but instead tested for impairment at least annually. For the years ended
December 31, 2001 and 2000, amortization of goodwill, net of income taxes was $833,000 and
$1,533,000, respectively. SFAS 142 also requires that intangible assets with finite useful
lives be amortized over their respective estimated useful lives and reviewed for
impairment in accordance with SFAS 121, which was superceded by SFAS 144. The Company
intends to conduct its annual impairment testing of goodwill on October 1 of each year.
Based on the Companys analysis, there was no impairment of goodwill in fiscal 2002.


In
November 2002, the FASB issued Interpretation 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others (FIN 45). FIN 45 changes current practice in the accounting for, and
disclosure of, guarantees. The Interpretation requires certain guarantees to be recorded
at fair value, which is different from current practice, which is generally to record a
liability only when a loss is probable and reasonably estimable, as those terms are
defined in FASB Statement 5, Accounting for Contingencies (SFAS 5). The
Interpretation also requires a guarantor to make significant new disclosures, even when
the likelihood of making any payments under the guarantee is remote, which is another
change from current practice. The Company has not issued any guarantee that meets the
initial recognition and measurement requirements of FIN 45. The Company has adopted the
disclosure requirements of FIN 45 for the year ended December 31, 2002, as required.


In
November of 2002, the FASB issued Emerging Issues Task Force Issue 00-21, Accounting for
Revenue Arrangements with Multiple Deliverables (EITF 00-21). EITF
00-21 addresses the accounting for arrangements that involve the delivery or performance
of multiple products, services or rights to use assets. This consensus is applicable to
arrangements entered into on or after June 15, 2003 and permits companies to account for
existing arrangements as the cumulative effect of a change in accounting principles in
accordance with APB Opinion 20, Accounting Changes. The Company is currently
assessing the impact of EITF 00-21, but does not believe that it will have a material
impact on its consolidated financial statements or liquidity.


In
November 2001, the FASB issued EITF 01-14, Income Statement Characterization of
Reimbursements Received for Out-of-Pocket Expenses Incurred. EITF 01-14
requires that in cases where the contractor acts as a principal, reimbursements received
for out-of-pocket expenses incurred be characterized as revenue and the associated costs
be included as cost of services in the income statement. The Company applied EITF 01-14
and, as required, has also reclassified comparative financial information for the years
ended December 31, 2001 and 2000. The impact of applying this pronouncement was to
increase both revenues and cost of services by $3,989,000, $3,405,000 and $3,733,000 for
the years ended December 31, 2002, 2001 and 2000, respectively. The implementation of EITF
01-14 had no impact upon earnings.



30
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|FACTORS THAT MAY AFFECT
FUTURE OPERATING RESULTS


OUR BUSINESS IS HEAVILY
DEPENDENT ON THE PHARMACEUTICAL INDUSTRY


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

| |  |  | the  significant  consolidation  of the  pharmaceutical  industry as well as the
     timing and  sequencing  of sales to our  customers may reduce the number of
     our existing and potential customers;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | regulatory changes that permit the over-the-counter sale of formerly
prescription-only drugs;
| | - |  | ---------------------------------------------------------------------------------------------

| |  |  | increasing Food and Drug Administration activism; and
| | - |  | -----------------------------------------------------

| |  |  | competitive
pressure on the pharmaceutical industry resulting from the continuing shift to delivery
of healthcare through managed care organizations.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

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


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


Historically,
a limited number of our customers have contributed a significant percentage of the
Companys revenues. The Company anticipates that its operating results in any given
period will continue to depend significantly upon revenues from a small number of
customers. The loss of any of these customers (which could include loss through mergers
and acquisitions) could have a materially adverse effect on the Companys business.
We cannot make any assurances that we will retain our existing customers or attract new
customers that would replace the revenue that could be lost if one or more of these
customers failed to renew its agreement(s) with the Company.


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


Business
and economic pressures on our major customers may result in budget constraints that
directly impact their ability to purchase the Companys new products and services
offerings. We cannot assure you that any decrease in demand caused by these pressures will
not have a material adverse effect on our business, operating results or financial
condition.


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


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


31
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

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


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


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


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


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

| |  |  | use  available  technologies  and data  sources  to  develop  new  products  and
     services and to enhance our current products and services;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | introduce new solutions that keep pace with developments in our target markets; and
| | - |  | -----------------------------------------------------------------------------------

| |  |  | address the changing and increasingly sophisticated needs of our customers.
| | - |  | ---------------------------------------------------------------------------

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


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


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


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



32
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

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


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


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


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

| |  |  | the number and success of new market entrants supplying competing CRM products or
support services;
| | - |  | ---------------------------------------------------------------------------------------------------

| |  |  | expansion of product lines by, or consolidation among, our existing competitors;
and
| | - |  | ------------------------------------------------------------------------------------

| |  |  | development  and/or  operation of in-house CRM software  products or services by
     our customers and potential customers.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------

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


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


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


OUR INTERNATIONAL
OPERATIONS HAVE RISKS THAT OUR DOMESTIC OPERATIONS DO NOT


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


33
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

| |  |  | any adverse change in the political or economic environments in these countries or
regions;
| | - |  | -------------------------------------------------------------------------------------------

| |  |  | any adverse change in tax, tariff and trade or other regulations;
| | - |  | -----------------------------------------------------------------

| |  |  | the absence or
     significant   lack  of   legal   protection   for   intellectual   property
     rights;
| | - |  | ------------------------------------------------------------------------------------------------------------

| |  |  | exposure to exchange rate risk for service  revenues  which are  denominated  in
     currencies other than U.S. dollars; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------

| |  |  | difficulties   in    managing    an    organization    spread    over    various
     jurisdictions.
| | - |  | ----------------------------------------------------------------------------------------------------

|WE MAY FACE RISKS
ASSOCIATED WITH ACQUISITIONS


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

| |  |  | the effect of the acquisition on our financial and strategic position;
| | - |  | ----------------------------------------------------------------------

| |  |  | the failure of an acquired business to further our strategies;
| | - |  | --------------------------------------------------------------

| |  |  | the difficulty of integrating the acquired business;
| | - |  | ----------------------------------------------------

| |  |  | the diversion of our management's attention from other business concerns;
| | - |  | -------------------------------------------------------------------------

| |  |  | the impairment of relationships with customers of the acquired business;
| | - |  | ------------------------------------------------------------------------

| |  |  | the potential loss of key employees of the acquired company; and
| | - |  | ----------------------------------------------------------------

| |  |  | the maintenance of uniform, company-wide standards, procedures and policies.
| | - |  | ----------------------------------------------------------------------------

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


AN INABILITY TO MANAGE
GROWTH COULD ADVERSELY AFFECT OUR BUSINESS


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


WE MAY FACE RISKS
ASSOCIATED WITH EVENTS WHICH MAY AFFECT THE WORLD ECONOMY


The
terrorist attacks of September 11, 2001 and subsequent world events weakened the world
economy. While we did not experience any material impact to our business during the time
period immediately following September 11, 2001, we cannot assure you that the resulting
impact which the terrorist attacks, threat of future terrorist activity, the current military action in the Middle East or threat
of other hostilities in the Middle East, Asia and other geographical areas may have on the U.S. and world economies will not adversely affect our
business or the businesses of our customers.




34
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|CATASTROPHIC EVENTS
COULD NEGATIVELY AFFECT OUR INFORMATION TECHNOLOGY INFRASTRUCTURE


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


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


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


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


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


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


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


35
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

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


THE RESULTS  DERIVED FROM  CURRENT AND FUTURE  STRATEGIC
  RELATIONSHIPS  MAY PROVE TO BE LESS  FAVORABLE  THAN ANTICIPATED


We
are involved in a number of strategic relationships with third parties and are frequently
pursuing others. Should these relationships, or any of them, prove to be more costly than
anticipated or fail to meet revenue expectations or other anticipated synergies, we cannot
guarantee that such events will have no material impact upon our business, operating
results or financial condition.


OUR DATA SOLUTIONS ARE
DEPENDENT UPON STRATEGIC RELATIONSHIPS WHICH, IF NOT MAINTAINED, COULD UNDERMINE THE CONTINUED
VIABILITY OF THESE SOLUTIONS


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


FEDERAL AND STATE LAWS
AND REGULATIONS COULD DEPRESS THE DEMAND FOR SOME OF OUR SOLUTIONS


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


DIFFICULTIES IN
SUBLEASING, SELLING OR OTHERWISE DISPOSING OF CERTAIN OF OUR FACILITIES MAY NEGATIVELY
IMPACT UPON OUR EARNINGS


We
are currently marketing our Piscataway, New Jersey facility. We also expect to sublease
all or a portion of certain other facilities. If the recent real estate downturn
continues, it could negatively impact upon our ability to effectively market these
facilities. An inability to successfully dispose of any of these facilities or to obtain
favorable pricing terms could negatively impact our earnings.


UNANTICIPATED CHANGES IN
OUR ACCOUNTING POLICIES MAY BE REQUIRED BECAUSE OF MANDATES BY ACCOUNTING STANDARDS SETTING
ORGANIZATIONS AND COULD HAVE A MATERIAL IMPACT ON OUR FINANCIAL STATEMENTS


In
reporting our financial results we rely upon the accounting policies and standards then in
effect at the time of our report. Future regulations, standards or interpretations may
require us to adjust or restate financial results previously reported. A required
restatement could have an unfavorable impact upon past financial results or current
comparison to previous results.


36
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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


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


OUR COMMON STOCK MAY BE
SUBJECT TO PRICE FLUCTUATIONS


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

| |  |  | the announcement or the introduction of new products by us or our competitors;
| | - |  | ------------------------------------------------------------------------------

| |  |  | quarter-to-quarter  variations  in our  operating  results or changes in revenue
or earnings  estimates or               failure to meet or exceed revenue or earnings
estimates;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | market conditions in the technology, healthcare and other growth sectors; and
| | - |  | -----------------------------------------------------------------------------

| |  |  | general
consolidation in the healthcare information industry which may result in the market
perceiving us or other comparable companies as potential acquisition targets.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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


ITEM 7A.   QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK


FOREIGN CURRENCY RISK


Because
we have operations in a number of countries and our service agreements in such countries
are denominated in a foreign currency, we face exposure to adverse movements in foreign
currency exchange rates. As currency rates change, translation of the income statements of
our international entities from local currencies to U.S. dollars affects year-over-year
comparability of operating results. We do not hedge translation risks because we generally
reinvest the cash flows from international operations.


Management
estimates that a 10% change in foreign exchange rates would impact reported operating
profit by less than $500,000. This sensitivity analysis disregards the possibility that
rates can move in opposite directions and that losses from one area may be offset by gains
from another area.





37
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|INTEREST RATE RISK


We
earn interest income from our balances of cash and short-term investments. This interest
income is subject to market risk related to changes in interest rates, which primarily
affects our investment portfolio. We invest in instruments that meet high credit quality
standards, as specified in our investment policy. The policy also limits the amount of
credit exposure to any one issue, issuer and type of investment.


As
of December 31, 2002, our short-term investments consisted primarily of commercial paper
maturing over the following three months. Due to the average maturity and conservative
nature of our investment portfolio, a sudden change in interest rates would not have a
material effect on the value of the portfolio. Management estimates that if the average
yield of the Companys investments decreased by 100 basis points, our interest income
for the year ended December 31, 2002 would have decreased by less than $700,000. This
estimate assumes that the decrease occurred on the first day of 2002 and reduced the yield
of each investment instrument by 100 basis points. The impact on our future interest
income, of future changes in investment yields will depend largely on the gross amount of
our investments.


ITEM 8.   FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.


The
Companys 2002 Consolidated Financial Statements, together with the report thereon of
Ernst & Young LLP, are included in Item 15. The supplementary financial
information required by this Item 8 is included in the Managements Discussion
and Analysis of Financial Conditions and Results of Operations under Item 7
above.


ITEM 9.   CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.


See
the Companys Current Report on Form 8-K, filed with the Commission on April 10, 2002
pertaining to changes in the Companys certifying accountant.


PART III


ITEM 10.   DIRECTORS AND
EXECUTIVE OFFICERS OF THE REGISTRANT.


Information
concerning the Companys directors under the caption Election of
Directors in the Companys Proxy Statement for the 2003 Annual Meeting of
Shareholders, the information concerning the Companys executive officers set forth
in Part I, Item 1 above under the caption Executive Officers, and the
information under the caption Section 16(a) Beneficial Ownership Reporting
Compliance in the Companys Proxy Statement for the Companys 2003 Annual
Meeting of Shareholders, are incorporated herein by reference.



38
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|ITEM 11.   EXECUTIVE
COMPENSATION.


The
information set forth under the caption Executive Compensation and Related
Information and the information concerning director compensation under the caption
Director Compensation in the Companys Proxy Statement for the
Companys 2003 Annual Meeting of Shareholders, are incorporated herein by reference.
The information included under Report of the Compensation Committee,
Report of the Audit Committee and Performance Graph is not
incorporated in this Item 11.


ITEM 12.   SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.


The
information set forth under the caption Beneficial Ownership of Common Stock
in the Companys Proxy Statement for the Companys 2003 Annual Meeting of
Shareholders is incorporated herein by reference.


The
following table provides equity compensation plan information as of the end of our 2002
fiscal year with respect to compensation plans under which the Companys equity
securities are authorized for issuance:


Equity Compensation Plan Information
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Plan category               | Number of securities to beissued upon exercise of
outstanding options, warrants and rights | Weighted-average exercise priceof outstanding options,
 warrants and rights | Number of securities remainingavailable for future issuance
under equity compensation plans(excluding securities reflected incolumn (a))
|--------------------------- | ------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------
|
|                           
|Equity compensation plans   |                                                                                            | 6,691,993                                                                   |                                                                                                                                         
|approved by security        |                                                                                           
|holders (1)                 |                                                                                           
|                           
|Equity  compensation  plans |                                                                                            | 1,156,902                                                                   |                                                                                                                                         
|not  approved  by  security |                                                                                           
|holders (2)                 |                                                                                           
|                           
|Total                       |                                                                                            | 7,848,895                                                                   |                                                                                                                                         
|                           

|(1) | Includes the Companys 1992 Stock Plan,  1992 Senior  Management  Incentive  Stock  Option  Plan,  1997
     Employee Stock Purchase Plan and 1997 Stock Incentive Plan.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes  1994  Incentive  and
     Non-Qualified Stock Plan of CorNet International (CorNet Plan),
     First  Amended SAI  Holding,  Inc.  Long Term  Incentive  Stock Option Plan
     (SAI  Plan)  and New  Hire  Option  Grant  Authorization  Plan (New Hire Plan).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The CorNet Plan was assumed by the Company with its acquisition of CorNet International, Ltd.
on May 27, 1999. 10,611 shares are available to be issued upon exercise of outstanding
options under the CorNet Plan. No securities are remaining for future issuance. The CorNet
Plan is a stock option plan under which certain options granted may qualify as incentive
stock options.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The SAI Plan was assumed by the Company with its acquisition of Software
Associates International on September 19, 2002. 466,291 shares are available to be issued
upon exercise of outstanding options under the SAI Plan. 533,709 shares are remaining for
future issuance. The SAI Plan is a stock option plan under which certain options granted
may qualify as incentive stock options.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Transactions under the New Hire Plan were
registered with the Securities and Exchange Commission on Form S-8. Pursuant to and in
accordance with the requirements of NASDAQ Rule 4350(i) (or any subsequent successor
NASDAQ rule permitting such new hire grants without shareholder approval), new hires may
be granted non-qualified stock options under the new hire stock option authorization by
the Companys Board of Directors. The option exercise price will be the fair market
value of the Companys common stock on the date of the grant. The other terms and
conditions of such new hire options are generally the same as for non-qualified stock
options granted under the 1997 Stock Incentive Plan, except as otherwise approved by the
Board of Directors and shall otherwise comply with current or future NASDAQ rules
regarding shareholder approval as well as, if necessary, approval by a compensation
committee consisting solely of independent directors or approval by a majority of the
Companys independent directors. The options are not subject to the Employee
Retirement Income Security Act of 1974, as amended.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Includes
419,511 shares available for issuance under the 1997 Employee Stock Purchase Program.
|--- | ----------------------------------------------------------------------------------------------

|39
|--

---

|ITEM 13.   CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS.


The
information set forth under the caption Executive Compensation and Related
Information  Certain Transactions with Related Parties in the Companys
Proxy Statement for the Companys 2003 Annual Meeting of Shareholders is incorporated
herein by reference.


ITEM 14.   CONTROLS AND
PROCEDURES.


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


40
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|PART IV


ITEM 15.   EXHIBITS,
FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
|-------------------------------------------------------------------------------------

|(a) | The
following documents are filed as part of this report:
|--- | ---------------------------------------------------------

|1. | Financial
Statements:
|-- | ---------------------

| | Report of Independent Auditors         
Consolidated Balance Sheets         
Consolidated Statements of Operations         
Consolidated Statements of Stockholders' Equity
        Consolidated Statements of Cash Flows
         Notes to Consolidated Financial Statements
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | Financial Statement Schedules:
|-- | ------------------------------

| | (a) | Schedule II - Valuation and Qualifying Accounts
| | --- | -----------------------------------------------

|3. | Exhibits:
|-- | ---------

| | The
exhibits in the accompanying Exhibit Index are incorporated herein by
reference.
| | --------------------------------------------------------------------------------------

|(b) | Reports on Form 8-K.
|--- | --------------------

| | None
| | ----

|41
|--

---

|SIGNATURES


Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Date:  March 31, 2003 |  | DENDRITE INTERNATIONAL, INC.By: JOHN E. BAILYE
     John E. Bailye     Chairman of the Board and Chief
     Executive Officer
|--------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------

|PURSUANT TO THE REQUIREMENTS OF THE
SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Name | Title | Date
|---- | ----- | ----

| | JOHN E. BAILYE

John E. Bailye | Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer) | March 31, 2003
| | ------------------------------------------ | ------------------------------------------------------------------------------- | --------------

| | KATHLEEN E. DONOVAN

Kathleen E. Donovan | Senior Vice President and
Chief Financial Officer
(Principal Financial Officer) | March 31, 2003
| | ---------------------------------------------------- | ------------------------------------------------------------------------------- | --------------

| | BRENT J. COSGROVE

Brent J. Cosgrove | Vice President and
Corporate Controller
(Principal Accounting Officer) | March 31, 2003
| | ------------------------------------------------ | ---------------------------------------------------------------------- | --------------

| | JOHN A. FAZIO

John A. Fazio | Director | March 31, 2003
| | ---------------------------------------- | -------- | --------------

| | BERNARD M. GOLDSMITH

Bernard M. Goldsmith | Director | March 31, 2003
| | ------------------------------------------------------ | -------- | --------------

| | EDWARD J. KFOURY

Edward J. Kfoury | Director | March 31, 2003
| | ---------------------------------------------- | -------- | --------------

| | PAUL A. MARGOLIS

Paul A. Margolis | Director | March 31, 2003
| | ---------------------------------------------- | -------- | --------------

| | JOHN H. MARTINSON

John H. Martinson | Director | March 31, 2003
| | ------------------------------------------------ | -------- | --------------

| | TERENCE H. OSBORNE

Terence H. Osborne | Director | March 31, 2003
| | -------------------------------------------------- | -------- | --------------

| | PATRICK J. ZENNER

Patrick J. Zenner | Director | March 31, 2003
| | ------------------------------------------------ | -------- | --------------

|42
|--

---

# CERTIFICATIONS

I, John E. Bailye, certify that:

1.    
          I have reviewed this annual report on Form 10-K of Dendrite International, Inc.;

2.    
          Based on my knowledge, this annual report does not contain any untrue statement
          of a material fact or omit to state a material fact necessary to make the
          statements made, in light of the circumstances under which such statements were
          made, not misleading with respect to the period covered by this annual report;

3.    
          Based on my knowledge, the financial statements, and other financial information
          included in this annual report, fairly present in all material respects the
          financial condition, results of operations and cash flows of the registrant as
          of, and for, the periods presented in this annual report;

4.    
          The registrants other certifying officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

|a) | Designed such disclosure controls and procedures to ensure that material
          information relating to the registrant, including its consolidated subsidiaries,
          is made known to us by others within those entities, particularly during the
          period in which this annual report is being prepared;
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b) | Evaluated the effectiveness of the registrants disclosure controls and
          procedures as of a date within 90 days prior to the filing date of this annual
          report (the Evaluation Date); and
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|c) | Presented in this annual report our conclusions about the effectiveness of the
          disclosure controls and procedures based on our evaluation as of the Evaluation
          Date;
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5.    
          The registrants other certifying officers and I have disclosed, based on
          our most recent evaluation, to the registrants auditors and the audit
          committee of registrants board of directors (or persons performing the
          equivalent functions):

|a) | All significant deficiencies in the design or operation of internal controls
          which could adversely affect the registrants ability to record, process,
          summarize and report financial data and have identified for the
          registrants auditors any material weaknesses in internal controls; and
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b) | Any fraud, whether or not material, that involves management or other employees
          who have a significant role in the registrants internal controls; and
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

6.    
          The registrants other certifying officers and I have indicated in this
          annual report whether there were significant changes in internal controls or in
          other factors that could significantly affect internal controls subsequent to
          the date of our most recent evaluation, including any corrective actions with
          regard to significant deficiencies and material weaknesses.

|Dated:  March 31, 2003 |  | By:  JOHN E. BAILYE
[Signature]Chairman and Chief Executive Officer
|---------------------- |  | ---------------------------------------------------------------------------------

|43
|--

---

|I, Kathleen E. Donovan, certify that:


     1.    
          I have reviewed this annual report on Form 10-K of Dendrite International, Inc.;


     2.    
          Based on my knowledge, this annual report does not contain any untrue statement
          of a material fact or omit to state a material fact necessary to make the
          statements made, in light of the circumstances under which such statements were
          made, not misleading with respect to the period covered by this annual report;


     3.    
          Based on my knowledge, the financial statements, and other financial information
          included in this annual report, fairly present in all material respects the
          financial condition, results of operations and cash flows of the registrant as
          of, and for, the periods presented in this annual report;


     4.    
          The registrants other certifying officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|a) | Designed such disclosure controls and procedures to ensure that material
          information relating to the registrant, including its consolidated subsidiaries,
          is made known to us by others within those entities, particularly during the
          period in which this annual report is being prepared;
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b) | Evaluated the effectiveness of the registrants disclosure controls and
          procedures as of a date within 90 days prior to the filing date of this annual
          report (the Evaluation Date); and
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|c) | Presented in this annual report our conclusions about the effectiveness of the
          disclosure controls and procedures based on our evaluation as of the Evaluation
          Date;
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5.    
          The registrants other certifying officers and I have disclosed, based on
          our most recent evaluation, to the registrants auditors and the audit
          committee of registrants board of directors (or persons performing the
          equivalent functions):

|a) | All significant deficiencies in the design or operation of internal controls
          which could adversely affect the registrants ability to record, process,
          summarize and report financial data and have identified for the
          registrants auditors any material weaknesses in internal controls; and
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b) | Any fraud, whether or not material, that involves management or other employees
          who have a significant role in the registrants internal controls; and
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

6.    
          The registrants other certifying officers and I have indicated in this
          annual report whether there were significant changes in internal controls or in
          other factors that could significantly affect internal controls subsequent to
          the date of our most recent evaluation, including any corrective actions with
          regard to significant deficiencies and material weaknesses.

|Dated:  March 31, 2003 |  | By:  KATHLEEN E. DONOVAN
[Signature] Senior Vice President and 
Chief Financial Officer
|---------------------- |  | -----------------------------------------------------------------------------------------------------

|44
|--

---

|REPORT OF INDEPENDENT
AUDITORS


The Board of Directors
and StockholdersDendrite International, Inc.


We have audited the accompanying consolidated
balance sheet of Dendrite International, Inc. (the Company) and subsidiaries as of
December 31, 2002 and the related consolidated statements of income, stockholders
equity and cash flows for the year then ended. Our audit also included the financial
statement schedule listed in the Index at Item 15(a)2. These financial statements and
schedule are the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements and schedule based on our audit. The
consolidated financial statements of Dendrite International, Inc. as of December 31, 2001
and for the years ended December 31, 2001 and 2000 were audited by other auditors who have
ceased operations and whose report dated February 1, 2002 expressed an unqualified opinion
on those statements before the restatement adjustments described in Note 1.


We conducted our audit in accordance
with auditing standards generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit also includes assessing
the accounting principles used and significant estimates made by management as well as
evaluating the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.


In our opinion, the 2002 consolidated
financial statements referred to above present fairly, in all material respects, the
financial position of Dendrite International, Inc. and subsidiaries as of December 31,
2002 and the results of their operations and cash flows for the year ended, in conformity
with accounting principles generally accepted in the United States. Also, in our opinion,
the related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects the
information set forth therein.


As discussed above, the consolidated
financial statements of Dendrite International, Inc. as of December 31, 2001 and for the
years ended December 31, 2001 and 2000 were audited by other auditors who have ceased
operations. As described in Note 1, in 2002 the Company adopted the provisions of EITF
01-14, Income Statement Characterization of Reimbursements Received for
Out-of-Pocket Expenses Incurred which requires reclassification of comparative
financial statements for prior periods. We audited the adjustments that were applied to
restate revenues and cost of revenues in the 2001 and 2000 financial statements. Our
procedures included (a) agreeing the amount of reimbursable expenses incurred to the
Companys underlying records obtained from management, and (b) testing the
mathematical accuracy of the restated revenues and cost of revenues. In our opinion, such
adjustments are appropriate and have been properly applied. In addition, as described in
Note 1, these financial statements have been further revised to include the transitional
disclosures required by Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets, which was adopted by the Company as of January 1, 2002. Our
audit procedures with respect to the disclosures in Note 1 with respect to 2001 and 2000
included (a) agreeing the previously reported net income (loss) to the previously issued
financial statements and the adjustments to reported net income (loss) representing
amortization expense (including any related tax effects) recognized in those periods
related to goodwill, to the Companys underlying records obtained from management,
and (b) testing the mathematical accuracy of the reconciliation of adjusted net income
(loss) to reported net income (loss), and the related earnings-per-share amounts. In our
opinion, the disclosures for 2001 and 2000 in Note 1 are appropriate. However, we were not
engaged to audit, review or apply any procedures to the 2001 or 2000 financial statements
of the Company other than with respect to such adjustments and, accordingly, we do not
express an opinion or any other form of assurance on the 2001 or 2000 financial statements
taken as a whole.


As discussed in Note 1 to the
financial statements, in 2002 the Company changed its method of accounting for goodwill.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | /s/ Ernst & Young LLP
| |  | ---------------------

|MetroPark, New Jersey
January 29, 2003


46
|-------------------------------------------

---

|THIS IS A COPY OF AN
ACCOUNTANTS REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP, AND HAS NOT BEEN
REISSUED BY ANDERSEN. SEE EXHIBIT 23.2 FOR FURTHER INFORMATION.





REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS


To Dendrite
International, Inc.:


We
have audited the accompanying consolidated balance sheets of Dendrite International, Inc.
(a New Jersey corporation) and subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of operations, stockholders equity and cash flows
for each of the three years in the period ended December 31, 2001. These financial
statements are the responsibility of the Companys management. Our responsibility is
to express an opinion on these financial statements based on our audits.


We
conducted our audits in accordance with auditing standards generally accepted in the
United States. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.


In
our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of Dendrite International, Inc. and subsidiaries as of
December 31, 2001 and 2000, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | /s/ Arthur Andersen LLP
| |  | -----------------------

|Philadelphia, Pa.,
 February 1, 2002



47
|------------------------------------------

---

|DENDRITE INTERNATIONAL,
INC. AND SUBSIDIARIES 
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
|------------------------------------------------------------------------------------------------------------

|ASSETS                                                     |  | 
|---------------------------------------------------------- |  | 
|
|
|                                                           |  | 
|CURRENT ASSETS:                                            |  | 
|Cash and cash equivalents                                  |  | 
|Short-term investments                                     |  | 
|Accounts receivable, net of allowance for doubtful         |  | 
|accounts of $926,000 and $736,000                          |  | 
|Prepaid expenses and other current assets                  |  | 
|Prepaid taxes                                              |  | 
|Deferred taxes                                             |  | 
|Facility Held for Sale                                     |  | 
|                                                           |  | 
|Total current assets                                       |  | 
|PROPERTY AND EQUIPMENT, net                                |  | 
|OTHER ASSETS                                               |  | 
|LONG-TERM RECEIVABLE                                       |  | 
|GOODWILL                                                   |  | 
|INTANGIBLE ASSETS, net                                     |  | 
|PURCHASED CAPITALIZED SOFTWARE, net                        |  | 
|CAPITALIZED SOFTWARE DEVELOPMENT COSTS, net                |  | 
|DEFERRED TAXES                                             |  | 
|                                                           |  | 
|                                                           |  | 
|                                                           |  | 
|                                                           |  | 
|LIABILITIES AND STOCKHOLDERS EQUITY                       |  | 
|CURRENT LIABILITIES:                                       |  | 
|Accounts payable                                           |  | 
|Income Taxes Payable                                       |  | 
|Capital Lease Obligation                                   |  | 
|Accrued compensation and benefits                          |  | 
|Other accrued expenses                                     |  | 
|Purchase accounting restructuring accrual                  |  | 
|Accrued restructuring charge                               |  | 
|Deferred revenues                                          |  | 
|                                                           |  | 
|Total current liabilities                                  |  | 
|                                                           |  | 
|CAPITAL LEASE OBLIGATIONS                                  |  | 
|OTHER NON-CURRENT LIABILITIES                              |  | 
|                                                           |  | 
|STOCKHOLDERS EQUITY:                                      |  | 
|Preferred stock, no par value,
15,000,000 shares           |  | 
|authorized, none issued or outstanding                     |  | 
|Common stock, no par value, 150,000,000 shares authorized: |  | 
|authorized; 42,156,344 and 41,598,923 shares issued;       |  | 
|39,933,644 and 39,653,723.shares outstanding               |  | 
|Retained earnings                                          |  | 
|Deferred compensation                                      |  | 
|Accumulated other comprehensive loss                       |  | 
|Less treasury stock, at cost                               |  | 
|                                                           |  | 
|Total stockholders equity                                 |  | 
|                                                           |  | 
|                                                           |  | 
|                                                           |  | 

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


48
|-------------------------------------------------------------------------------

---

|DENDRITE INTERNATIONAL,
INC. AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
|----------------------------------------------------------------------------------------------------------------------

|                                                      | YEAR ENDED DECEMBER 31,
|----------------------------------------------------- | -----------------------
|                                                      |                        
|
|                                                      |                        
|REVENUES:                                             |                        
|License fees                                          |                        
|Services                                              |                        
|                                                      |                        
|                                                      |                        
|                                                      |                        
|COSTS OF REVENUES:                                    |                        
|Cost of license fees                                  |                        
|Purchased software impairment                         |                        
|Cost of services                                      |                        
|                                                      |                        
|                                                      |                        
|                                                      |                        
|Gross margin                                          |                        
|                                                      |                        
|OPERATING EXPENSES:                                   |                        
|Selling, general and administrative                   |                        
|Research and development                              |                        
|Restructuring (benefit) charge                        |                        
|Asset impairment                                      |                        
|                                                      |                        
|                                                      |                        
|                                                      |                        
|Operating income (loss)                               |                        
|INTEREST INCOME, net                                  |                        
|OTHER (EXPENSE) INCOME                                |                        
|                                                      |                        
|Income (loss) before income tax expense (benefit)     |                        
|INCOME TAX EXPENSE (BENEFIT)                          |                        
|                                                      |                        
|NET INCOME (LOSS)                                     |                        
|                                                      |                        
|NET INCOME (LOSS) PER SHARE:                          |                        
|Basic                                                 |                        
|                                                      |                        
|Diluted                                               |                        
|                                                      |                        
|SHARES USED IN COMPUTING NET INCOME (LOSS) PER SHARE: |                        
|Basic                                                 |                        
|                                                      |                        
|Diluted                                               |                        
|                                                      |                        

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


49
|-------------------------------------------------------------------------------

---

|DENDRITE INTERNATIONAL,
INC. AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY 
(IN THOUSANDS)
|--------------------------------------------------------------------------------------------------------------

|                            | Common Stock | Retained | Deferred | AccumulatedOtherComprehensive | Comprehensive | Treasury | TotalStockholders
|--------------------------- | ------------ | -------- | -------- | ----------------------------- | ------------- | -------- | ------------------
|
|                            |              |          |          |                               |               |          |                   
|BALANCE, JANUARY 1, 2000    |              |          | 38,441   |                               |               | $61,550  |                   
|Acquisition of Analytika    |              |          | 216      |                               |               | 6,506    |                   
|Issuance of common stock    |              |          | 1,471    |                               |               | 9,050    |                   
|Changes in deferred         |              |         
|Compensation                |              |          | __       |                               |               | __       |                   
|Stock option                |              |         
|tax benefits                |              |          | __       |                               |               | 6,264    |                   
|Comprehensive income:       |              |         
|Net income                  |              |          | __       |                               |               | __       |                   
|Currency translation        |              |         
|adjustment                  |              |          | __       |                               |               | __       |                   
|                            |              |          |          |                               |               |          |                   
|Comprehensive income        |              |          | __       |                               |               | __       |                   
|                            |              |          |          |                               |               |          |                   
|BALANCE, DECEMBER 31, 2000  |              |          | 40,128   |                               |               | 83,370   |                   
|Purchase of treasury shares |              |          | (1,344   | )                             |               | __       |                   
|Issuance of common stock    |              |          | 870      |                               |               | 4,309    |                   
|Changes in deferred         |              |         
|Compensation                |              |          | __       |                               |               | __       |                   
|Stock option                |              |         
|tax benefits                |              |          | __       |                               |               | 1,934    |                   
|Comprehensive loss:         |              |         
|Net loss                    |              |          | __       |                               |               | __       |                   
|Currency translation        |              |         
|adjustment                  |              |          | __       |                               |               | __       |                   
|                            |              |          |          |                               |               |          |                   
|Comprehensive loss          |              |          | __       |                               |               | __       |                   
|                            |              |          |          |                               |               |          |                   
|BALANCE, DECEMBER 31, 2001  |              |          | 39,654   |                               |               | 89,613   |                   
|Purchase of treasury shares |              |          | (277     | )                             |               | __       |                   
|Issuance of common stock    |              |          | 557      |                               |               | 2,807    |                   
|Changes in deferred         |              |         
|Compensation                |              |          | __       |                               |               | __       |                   
|Stock option                |              |         
|tax benefits                |              |          | __       |                               |               | 856      |                   
|Acquisition of SAI          |              |          | __       |                               |               | 1,237    |                   
|Stock options tax benefit   |              |         
|adjustment                  |              |          | __       |                               |               | (1,476   | )                 
|Comprehensive income:       |              |          | __       |                               |               | __       |                   
|Net income                  |              |          | __       |                               |               | __       |                   
|Currency translation        |              |         
|adjustment                  |              |          | __       |                               |               | __       |                   
|                            |              |          |          |                               |               |          |                   
|Comprehensive income        |              |          | __       |                               |               | __       |                   
|                            |              |          |          |                               |               |          |                   
|BALANCE, DECEMBER 31, 2002  |              |          | 39,934   |                               |               | $93,037  |                   
|                            |              |          |          |                               |               |          |                   

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


50
|-------------------------------------------------------------------------------

---

|DENDRITE INTERNATIONAL, INC. AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
|---------------------------------------------------------------------------------------------------

|                                                               | YEAR ENDED DECEMBER 31,
|-------------------------------------------------------------- | -----------------------
|                                                               |                        
|
|                                                               |                        
|OPERATING ACTIVITIES:                                          |                        
|Net income (loss)                                              |                        
|Adjustments  to  reconcile  net  income  (loss)  to  net  cash |                        
|provided by operating activities:                              |                        
|Depreciation and amortization                                  |                        
|Asset impairment                                               |                        
|Restructuring (benefit) charge                                 |                        
|Amortization of
deferred compensation                          |                        
|Deferred income taxes (benefit)                                |                        
|Changes in assets and liabilities, net of effect from          |                        
|acquisitions:                                                  |                        
|(Increase) decrease in accounts receivable                     |                        
|Decrease (increase)  in  prepaid expenses and other            |                        
|current assets                                                 |                        
|Increase in other assets                                       |                        
|Decrease (increase) in prepaid income taxes                    |                        
|(Decrease) increase  in  accounts  payable  and  accrued       |                        
|expenses                                                       |                        
|Payments relating to restructuring charge                      |                        
|Increase in income taxes payable                               |                        
|(Decrease) increase in deferred revenues                       |                        
|Increase in other non-current liabilities                      |                        
|                                                               |                        
|Net cash provided by operating activities                      |                        
|                                                               |                        
|INVESTING ACTIVITIES:                                          |                        
|Purchases of short-term investments                            |                        
|Sales of short-term investments                                |                        
|Acquisitions, net of cash acquired                             |                        
|Increase in other non-current assets                           |                        
|Purchases of property and equipment                            |                        
|Investment in facility held for sale                           |                        
|Additions to capitalized software development costs            |                        
|                                                               |                        
|Net cash used in investing activities                          |                        
|                                                               |                        
|FINANCING ACTIVITIES:                                          |                        
|Payments on capital lease obligations                          |                        
|Purchase of treasury shares                                    |                        
|Issuance of common stock                                       |                        
|                                                               |                        
|Net cash provided by (used in) financing activities            |                        
|                                                               |                        
|EFFECT OF EXCHANGE RATE CHANGES ON CASH                        |                        
|                                                               |                        
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS           |                        
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                   |                        
|                                                               |                        
|CASH AND CASH EQUIVALENTS, END OF YEAR                         |                        
|                                                               |                        
|                                                               |                        

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


51
|-------------------------------------------------------------------------------

---

|DENDRITE INTERNATIONAL,
INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


1.  THE COMPANY AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES:


THE COMPANY


Dendrite
International, Inc. and its subsidiaries (the Company) provide a broad array
of sales force effectiveness solutions for the global life sciences industry. These
solutions enable companies to manage, coordinate, and control activities of sales forces
in complex selling environments, primarily in the pharmaceutical industry. The
Companys solutions combine software products with a wide range of specialized
support services: software implementation, technical and hardware support, and help desk
support.


SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES


Principles of
Consolidation


The
consolidated financial statements include the accounts of Dendrite International, Inc. and
its wholly-owned subsidiaries. All intercompany balances and transactions have been
eliminated in consolidation.


Foreign Currency


The
functional currency of the Companys foreign operations are deemed to be the local
countrys currency. As a result, assets and liabilities of the Companys
wholly-owned international subsidiaries are translated at their respective year-end
exchange rates and revenues and expenses are translated at average currency exchange rates
for the period. The resulting balance sheet translation adjustments are included in
Other Comprehensive Income (Loss) and are reflected as a separate component of
stockholders equity. Foreign currency transaction gains and losses are included in
other expense on the accompanying statements of operations and are immaterial in each
year. To date, the Company has not engaged in any foreign currency hedging activities.


52
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|Use of Estimates


The
preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. On an ongoing basis, the Company
evaluates its estimates, including those related to bad debts. The Company bases its
estimates on historical experience and on various other assumptions that are believed to
be reasonable under the circumstances. Actual results could differ from those estimates.
The Company believes its critical accounting policies to be revenue recognition,
accounting for restructuring and impairments and income taxes.


Revenue Recognition


The
Company provides a comprehensive range of customer relationship management software
products and support services to the pharmaceutical industry. New customers generally
enter into a license contract and a services contract with the Company. The Companys
software licenses typically provide for a perpetual right to use the Companys
software and are contracted for within a license agreement that provides for license fees
billable upon contract execution. When purchasing new software, customers also purchase
implementation services, which are essential to the functionality of the Companys
software. These services are contracted for in a services contract, which generally
provides for payment terms over the course of the implementation project.


The
Company generally recognizes license fees as revenues using the percentage-of-completion
method as prescribed by AICPA Statement of Position 81-1 (SOP 81-1),
Accounting for Performance of Construction-Type and Certain Production-Type Contracts and
pursuant to paragraph 7 of AICPA Statement of Position 97-2 (SOP 97-2). The
Companys arrangements are segmented, in accordance with paragraphs 40 and 41 of SOP
81-1, into two primary elements or profit centers; one being the perpetual license fee and
implementation service element and the other being an ongoing sales force support services
element. The Company does not defer performance costs related to its arrangements, as
revenues are generally recognized as the associated costs are incurred. The Company uses a
consistent methodology to measure progress-to-completion for all contract accounting
arrangements. For the license fee and implementation services element, the input measure
of labor incurred is used to monitor progress-to-completion. The Company uses the output
measure of value delivered (i.e. completion of a months services) to measure
progress-to-completion for the ongoing sales force support services element in contract
accounting, partially due to the inherent difficulties in establishing input values for
measuring progress-to-completion for recurring monthly services. Under the terms of its
contracts with customers, the Company does not have the right to invoice for claims
relating to overruns in its fixed fee implementation projects. To the extent that a
customer submits a signed change of scope document, the Company will add the budgeted
revenues and costs to its existing percentage-of-completion model, as a change in
estimate, for that particular project. The expected gross margin for changes of scope
generally approximates that for the overall project, and therefore project revenue
recognition has not historically been impacted significantly by the addition of change of
scope work orders. The Company evaluates its contract elements for losses using the same
segmentation elements that it uses for revenue recognition. When it becomes evident that a
contract element will result in a loss, the Company will provide for this loss in the
period that such loss becomes evident. Contract profitability is measured at the gross
margin level, with no allocation of overhead or other inclusion of indirect costs.  The Company has offered
limited price protection under services agreements.  Any right to a future refund from such price protection is entirely
within the Company's control.  It is estimated that the likelihood of a future  payout due to price protection
is remote.


53
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|From
time to time, the Companys customers will expand their field sales force, and
consequently, purchase additional user licenses from the Company. When the customer orders
these additional licenses, there is no additional work effort required by the Company, the
customer wishes only to extend their previously developed software to new users. The
customer generally has the ability to create its own copies of the software for the new
users, and therefore, there is no need for the Company to deliver anything. Based upon
this, the related revenue is recognized at the time of the customer order.


The
Company only relies on Vendor Specific Objective Evidence of fair value (VSOE)
to allocate the portion of the arrangement fee that relates to post-contract customer
support (PCS). The PCS-related services offered consist only of software
maintenance and warranty services. The Companys maintenance services consist
primarily of the correction of errors in the software and the delivery of unspecified
upgrades and enhancements over the maintenance term. The Company establishes VSOE of fair
value for PCS using the maintenance renewal rate that is present in each of its service
contracts. The Companys maintenance is offered at a fee that is based upon a
percentage of license fees paid. All elements other than PCS are accounted for under
contract accounting.


The
Company will sometimes provide for a warranty period within its arrangements. The services
provided during the warranty period are the same as those provided under software
maintenance. These activities include correcting errors or bugs in the software, ensuring
that the software complies with defined specifications and providing unspecified upgrades
or enhancements on a when-and-if-available basis, during the term of the warranty period.
The warranties included in the Companys arrangements generally coincide with the
length of the projected software implementation period, typically 180 days from the
execution of the license contract and always end on a specific date. The Company allocates
a portion of the related license fee revenues to the value of services during the warranty
period, and recognizes such amounts ratably over the warranty period. VSOE for the
Companys warranty services is established using the maintenance renewal rate that is
present in each of the Companys service contracts.


Deferred Revenues


Deferred
revenues represent amounts collected from, or invoiced to, customers in excess of revenues
recognized. This predominantly occurs in two situations a) annual billings of software
maintenance fees; and b) upfront billings of license fees that are recognized over time.
The value of deferred revenue will increase and decrease based on the timing of invoices
and recognition of license revenues.



54
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|Cash and Cash Equivalents


The
Company considers all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.


Supplemental Cash Flow
Information


For
the years ended December 31, 2002, 2001 and 2000, the Company paid interest of approximately $15,000, $0
and $13,000, respectively. For the years ended December 31, 2002, 2001 and 2000, the
Company paid income taxes of approximately $5,895,000, $3,622,000, and $11,840,000, respectively.


The
following table lists assets (other than cash) that were acquired and liabilities that
were assumed as a result of the acquisitions in 2002 and 2000 as discussed in Note 4:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                            | December 31,
|------------------------------------------- | ------------
|
|                                            |             
|Assets:                                     |             
|Accounts receivable                         |             
|Prepaid expenses and other current assets   |             
|Deferred taxes                              |             
|Property and equipment                      |             
|Capitalized software development costs      |             
|Intangible assets                           |             
|Goodwill                                    |             
|                                            |             
|                                            |             
|Assumed liabilities:                        |             
|Accounts payable and other accrued expenses |             
|Capital leases                              |             
|Deferred revenues                           |             
|                                            |             
|Net assets acquired                         |             
|Value of stock options issued               |             
|Purchase price paid in stock                |             
|                                            |             
|Cash paid, net of cash acquired             |             
|                                            |             

|55
|--

---

|Short-Term Investments


The
Company holds investments in highly rated corporate and municipal bonds. These investments
are carried at cost which approximates fair value.


Customer Acquisition
Costs


Commissions
related to execution of new contracts are deferred and recognized over the period of
revenue recognition. All other commissions are expensed as incurred. Deferred commissions
at December 31, 2002 and 2001 were less than 1/2% of current assets.


Impairment of Long-Lived
Assets


In
October 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) 144, Accounting for the
Impairment or Disposal of Long-Lived Assets which became effective in fiscal 2002.
SFAS 144 supersedes certain provisions of Accounting Principles Board (APB)
Opinion 30, Reporting the Results of Operations-Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions (APB 30) and supersedes SFAS 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
Although retaining many of the fundamental recognition and measurement provisions of SFAS
121, the new rules significantly change the criteria that would have to be met to classify
an asset as held-for-sale. The adoption of SFAS 144 had no impact on the Companys
consolidated financial statements.


The
Company reviews its long-lived assets, including property and equipment, and intangible
assets subject to amortization for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be fully recoverable. To determine
the recoverability of its long-lived assets, the Company evaluates the estimated future
undiscounted cash flows that are directly associated with and that are expected to arise
as a direct result of the use and eventual disposition of the long-lived asset. If the
estimated future undiscounted cash flows demonstrate that recoverability is not probable,
an impairment loss would be recognized. An impairment loss would be calculated based on
the excess carrying amount of the long-lived asset over the long-lived assets fair
value. See Note 3.


56
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|Property and Equipment


Fixed
assets, including software developed for internal purposes, are stated at cost, net of
depreciation. Depreciation and amortization are provided on a straight-line basis over the
estimated useful lives of the respective assets, which range from two to ten years.
Leasehold improvements are amortized on a straight-line basis over the estimated useful
life of the asset or the lease term, whichever is shorter. Maintenance, repairs and minor
replacements that do not extend the life or functionality of the related assets are
charged to expense as incurred.


Capitalized Software
Development Costs


In
accordance with SFAS 86, Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed, the Company capitalizes certain costs related to the
development of new software products or the enhancement of existing software products for
sale or license. These costs are capitalized from the point in time that technological
feasibility has been established, as evidenced by a working model or a detailed working
program design, to the point in time that the product is available for general release to
customers. Capitalized software development costs are amortized on a straight-line basis
over the estimated economic lives of the products (no longer than four years), beginning
with general release to customers. Research and development costs incurred prior to
establishing technological feasibility and costs incurred subsequent to general product
release to customers are charged to expense as incurred. The Company periodically
evaluates whether events or circumstances have occurred that indicate that the remaining
useful lives of the capitalized software development costs should be revised or that the
remaining balance of such assets may not be recoverable. As of December 31, 2002,
management believes that no revisions to the remaining useful lives or write-down of
capitalized development costs are required.


Capitalized
software development costs are presented in the accompanying consolidated balance sheets
net of accumulated amortization of $11,949,000 and $9,348,000 at December 31, 2002 and
2001, respectively. Amortization of capitalized software development costs for the years
ended December 31, 2002, 2001 and 2000 was $2,601,000, $2,072,000 and $1,627,000,
respectively, and is included in cost of license fees in the accompanying consolidated
statements of operations.


In
connection with certain business acquisitions (see Note 4), the Company purchased software
that was determined to have reached technological feasibility. The amount of purchased
capitalized software remaining as of December 31, 2002 and 2001 is as follows:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                  | December 31,
|--------------------------------- | ------------
|
|ABC                               |             
|MMI                               |             
|Analytika                         |             
|SAI                               |             
|                                  |             
|                                  |             
|Less -- Accumulated  amortization |             
|                                  |             
|                                  |             
|                                  |             

|During
the second quarter of 2001, the Company recorded an impairment charge relating to
purchased capitalized software costs. See Note 3.



57
|------------------------------------------------------------------------------------------------------------------------------------------------

---

|Subsequent
to the Marketing Management International, Inc. (MMI) acquisition, the Company
decided to offer the mid-tier pharmaceutical market a product more compatible with the
Companys vision of integrated customer relationship management (CRM)
solutions. Accordingly, during 2001, the Company reduced the remaining useful life of the
purchased capitalized software related to the MMI acquisition so that this asset was fully
amortized as of December 31, 2001. Amortization expense of purchased capitalized software
for the years ended December 31, 2002, 2001 and 2000 was $166,000, $1,530,000 and
$1,145,000, respectively, and is included in cost of license fees in the accompanying
consolidated statement of operations. Amortization for the year ended December 31, 2001
included $678,000 of accelerated amortization relating to the purchased capitalized
software of MMI. See Note 3.


Goodwill and Intangible
Assets


In
July 2001, the FASB issued SFAS  142, Goodwill and Other Intangible
Assets(SFAS 142). SFAS 142 requires goodwill to be tested for impairment
on an annual basis and between annual tests in certain circumstances, and written down
when impaired, rather than being amortized as previous accounting standards required.
Furthermore, SFAS 142 requires purchased intangible assets other than goodwill to be
amortized over their useful lives unless these lives are determined to be indefinite.


SFAS
142 is effective for fiscal years beginning after December 15, 2001. In accordance
with SFAS 142, the Company ceased amortizing goodwill. Amortization of goodwill for the
years ended December 31, 2002, 2001 and 2000 was $0, $1,302,000, and $2,390,000,
respectively and is included within selling, general and administrative expenses in the
accompanying consolidated statements of operations. Based on the impairment tests
performed, there was no impairment of goodwill in fiscal 2002; however, there can be no
assurance that future goodwill impairment tests will not result in a charge to earnings.


Purchased
intangible assets are carried at cost less accumulated amortization. Amortization is
computed over the estimated useful lives of the respective assets, generally two to five
years.


The
following table presents the impact of SFAS 142 on net income (loss) and net income
(loss) per share had the accounting standard been in effect for years ended:



58
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|                                                            | December 31,
|----------------------------------------------------------- | ------------
|
|                                                            |             
|Net (loss) income (as reported)                             |             
|Add  back  amortization
of  goodwill,  net of  income  tax  |             
|effect                                                      |             
|                                                            |             
|Adjusted net (loss) income                                  |             
|                                                            |             
|Basic net (loss) income per common share:                   |             
|Net (loss) income (as reported)                             |             
|Add  back  amortization
of  goodwill,  net of  income  tax  |             
|effect                                                      |             
|                                                            |             
|Adjusted net (loss) income                                  |             
|                                                            |             
|Diluted net (loss) income per common share:                 |             
|Net (loss) income (as reported)                             |             
|Add  back  amortization  of  goodwill,  net of  income  tax |             
|effect                                                      |             
|                                                            |             
|Adjusted net (loss) income                                  |             
|                                                            |             

|In
the second quarter of 2001, the Company determined that the future undiscounted cash flows
from goodwill associated with its acquisitions of Associated Business Computing, N.V.
(ABC) and Analytika, Inc. (Analytika) would be negative, due
primarily to the lack of future revenue to be generated and the costs required to support
current contractual levels (see Note 3). Accordingly, the Company recorded an impairment
charge of $6,173,000 relating to the goodwill of ABC and Analytika to reduce the
respective net intangible assets to zero. This impairment charge is included within asset
impairment in the accompanying consolidated statements of operations.


Guarantees


The
Company provides certain indemnification provisions within its software licensing
agreements, to protect its customers from any liabilities or damages resulting from a
claim of misappropriation or infringement by third parties relating to its software. These
provisions continue in perpetuity, along with the Companys software licensing
agreements. The Company has never incurred a liability relating to one of these
indemnification provisions in the past and management believes that the likelihood of any
future payout relating to these provisions is remote. Therefore, the Company has not
recorded a liability during any period for these indemnification clauses.


Income Taxes


The
Company accounts for income taxes in accordance with SFAS 109, Accounting for Income
Taxes. Under SFAS 109, deferred tax assets and liabilities are based on differences
between the financial reporting and tax basis of assets and liabilities and are measured
using the enacted tax rates that are expected to be in effect when the differences
reverse. In addition, in accordance with SFAS 109, a valuation allowance is required to be
recognized if it is not believed to be more likely than not that a deferred
tax asset will be realized.


59
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|At
December 31, 2002, there were approximately $5,479,000 of undistributed earnings of
non-U.S. subsidiaries that are considered to be reinvested indefinitely. If such earnings
were remitted to the Company, the applicable United States federal income and foreign
withholding taxes may be wholly or partially offset by foreign tax credits. As a result,
the determination of potential U.S. deferred income taxes on these unremitted earnings is
not practicable at December 31, 2002.


Concentration of Credit
Risk


Financial
instruments that potentially subject the Company to concentration of credit risk consist
principally of cash and short-term investment balances and trade accounts receivable. The
Company invests its excess cash with large banks. The Companys customer base
principally comprises companies within the ethical pharmaceutical industry. As a result,
the Company derives its revenues from a limited number of large pharmaceutical companies.
The Company performs evaluations of its customers financial condition. The Company
does not require collateral from its customers. See Note 17.


Stock Based Compensation


In
December 2002, the FASB issued SFAS 148, Accounting for Stock-Based Compensation
 Transition and Disclosure (SFAS 148). SFAS 148 amends SFAS 123,
Accounting for Stock-Based Compensation (SFAS 123) to provide
alternative methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS 148 amends the
disclosure requirements of SFAS 123 to require more prominent disclosures in both annual
and interim financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The additional
disclosure requirements of SFAS 148 are effective for fiscal years ending after December
15, 2002. The Company has elected to continue to follow the intrinsic value method of
accounting as prescribed by APB 25, Accounting for Stock Issued to Employees,
to account for employee stock options. In accordance with SFAS 148 the following table
illustrates the effects on net income/(loss) and income/(loss) per share if the Company
had applied the fair value recognition provisions of SFAS 123 to stock-based employee
compensation:


60
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|                                                        | December 31,
|------------------------------------------------------- | ------------
|                                                        |             
|
|                                                        |             
|Net income (loss) as reported                           |             
|Add: Deferred compensation                              |             
|recognized in accordance  with APB                      |             
|25, net of related tax effects                          |             
|                                                       
|Deduct: Total stock-based employee compensation expense |             
|determined  under  the fair  value                      |             
|based  method for all awards,  net                      |             
|of related tax effects                                  |             
|                                                        |             
|Pro forma net income (loss)                             |             
|                                                        |             
|Earnings (loss) per share:                              |             
|Basic - as reported                                     |             
|Basic - pro forma                                       |             
|Diluted - as reported                                   |             
|Diluted - pro forma                                     |             
|                                                        |             

|Advertising Costs


Advertising
costs are expensed as incurred. Advertising expense was $3,245,000, $4,351,000 and
$1,755,000 for the years ended December 31, 2002, 2001 and 2000, respectively.


Net Income (Loss) Per
Share


The
Company calculates net income (loss) per share pursuant to SFAS 128, Earnings Per
Share.


Basic
net income (loss) per share was computed by dividing the net income (loss) for each year
by the weighted average number of shares of common stock outstanding for each year.
Diluted net income per share was computed by dividing net income for each year by the
weighted average number of shares of common stock and common stock equivalents outstanding
during each year. For the year ended December 31, 2001, approximately 601,000 common stock
equivalents were anti-dilutive and were, therefore, excluded from the computation of net
loss per share.


The
computation of basic and diluted net income (loss) per share is as follows:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                    | Year Ended December 31,
|------------------- | -----------------------
|                    |                        
|
|                    |                        
|
|                    |                        
|
|                    |                        
|Net income (loss)   |                        
|Basic net income    |                        
|(loss) per share    |                        
|                    |                        
|Effect of dilutive  |                        
|stock options       |                        
|                    |                        
|Diluted  net income |                        
|(loss) per share    |                        
|                    |                        

|                   | Year Ended December 31, 2000
|------------------ | ----------------------------
|                   |                             
|
|                   |                             
|
|                   |                             
|Net income         |                             
|Basic net income   |                             
|per share          |                             
|                   |                             
|Effect of dilutive |                             
|stock options      |                             
|                   |                             
|Diluted net income |                             
|per share          |                             
|                   |                             

|61
|--

---

|Reclassifications


Certain
reclassifications have been made to prior year amounts to conform with current year
presentation.


Recent Accounting
Pronouncements


In
June 2002, the FASB issued SFAS 146, Accounting for Costs Associated with Exit or
Disposal Activities effective for exit or disposal activities initiated after
December 31, 2002. SFAS 146 nullifies Emerging Issues Task Force (EITF) Issue
94-3 Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring). Under
SFAS 146 a liability for a cost associated with an exit or disposal activity shall be
recognized and measured initially at its fair value in the period in which the liability
is incurred rather than the date an entity commits to an exit plan. We expect the adoption
of SFAS 146 will have an impact on the timing of the recording of any future restructuring
charges.


In
November 2002, the FASB issued Interpretation 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others (FIN 45). FIN 45 changes current practice in the accounting for, and
disclosure of, guarantees. The Interpretation requires certain guarantees to be recorded
at fair value, which is different from current practice, which is generally to record a
liability only when a loss is probable and reasonably estimable, as those terms are
defined in FASB Statement 5, Accounting for Contingencies (SFAS 5). The
Interpretation also requires a guarantor to make significant new disclosures, even when
the likelihood of making any payments under the guarantee is remote, which is another
change from current practice. The Company has not issued any guarantee that meets the
initial recognition and measurement requirements of FIN 45. The Company has adopted the
disclosure requirements of FIN 45 for the year ended December 31, 2002, as required.


In
November 2002, the FASB issued EITF Issues 00-21, Accounting for Revenue
Arrangements with Multiple Deliverables (EITF 00-21). EITF 00-21
addresses the accounting for arrangements that involve the delivery or performance of
multiple products, services or rights to use assets. This consensus is applicable to
arrangements entered into on or after June 15, 2003 and requires companies to account for
existing arrangements as the cumulative effect of a change in accounting principles in
accordance with APB Opinion 20, Accounting Changes. The Company is currently
assessing the impact of EITF 00-21, but does not believe that it will have a material
impact on its consolidated financial statements.


In
November 2001, the FASB issued EITF 01-14, Income Statement Characterization of
Reimbursements Received for Out-of-Pocket Expenses Incurred  (EITF 01-14). EITF 01-14
requires that in cases where the contractor acts as a principal, reimbursements received
for out-of-pocket expenses incurred be characterized as revenue and the associated costs
be included as cost of services in the income statement. The Company applied EITF 01-14
and, as required, has reclassified comparative financial information for the years ended
December 31, 2001 and 2000. The impact of applying this pronouncement was to increase both
revenues and cost of services by $3,989,000, $3,405,000 and $3,733,000 for the years
December 31, 2002, 2001 and 2000, respectively. The implementation of EITF 01-14 had no
impact upon earnings.


2.  RESTRUCTURING CHARGE


On
June 14, 2001, the Company announced a restructuring of its business operations to reflect
a lower expected revenue growth model in the near term. As a result the Company
re-examined its cost structure and determined that there were duplicate employee costs and
excess overhead costs. The restructuring plan consisted of a reduction of 155 delivery and
staff positions and the termination of 35 independent contractors across various
departments in the United States and Europe. In addition, 192 additional positions were
eliminated as part of the closing of other Company facility in Stroudsburg, PA. The
Stroudsburg, PA operations were relocated to the Companys facilities in New Jersey,
Virginia and a new facility in Bethlehem, PA. The exit costs consisting of costs to
retrofit the Stroudsburg facility, lease termination costs and the write-off of leasehold
improvements were included in the restructuring charge while the moving and other start-up
costs were not included in this restructuring charge and were expensed as incurred.


During
the second quarter of 2001, the Company recorded a charge of $6,134,000 associated with
this restructuring. This charge was reduced by $24,000 to $6,110,000 in the fourth quarter
of 2001 due to the variance between the amounts originally recorded and managements
revised estimate of the total costs of the restructuring. This reduction of $24,000 was
recorded within restructuring charge on the accompanying consolidated statements of
operations. During the fourth quarter of 2002, the Company again reduced the restructuring
accrual by an additional $47,000 due to a revised estimate of the total costs of the
restructuring. Of the restructuring charge, $260,000 and $2,950,000 related primarily to
severance that had not been paid as of December 31, 2002 and 2001, respectively and,
accordingly, is classified as accrued restructuring charge in the accompanying
consolidated balance sheet. The restructuring charges were based upon formal plans
approved by the Companys management using the information available at the time.
Management of the Company believes this provision will be adequate to cover the costs
incurred relating to the restructuring. The Company anticipates that the accrued
restructuring balance of $260,000 as of December 31, 2002 will be paid in 2003. The
activity in accrued restructuring for the periods ended December 31, 2002 and 2001 is
summarized in the tables below:


62
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|                                  | Accruedrestructuring asof January 1, 2002 | Cash Paymentsin 2002 | Reversal ofaccrualin 2002 | AccruedRestructuringas of December 31, 2002
|--------------------------------- | ----------------------------------------- | -------------------- | ------------------------- | -------------------------------------------
|
|Termination payments to employees |                                           |                      | $                         | 2,218,000                                  
|Facility exit costs               |                                           |                      |                           | 495,000                                    
|Contract termination and ther     |                                           |                     
|restructuring costs               |                                           |                      |                           | 237,000                                    
|                                  |                                           |                      |                           |                                            
|                                  |                                           |                      | $                         | 2,950,000                                  
|                                  |                                           |                      |                           |                                            

|                                  |  |  |  
|--------------------------------- |  |  | -
|
|                                  |  |  |  
|Termination payments to employees |  |  | $
|Facility exit costs               |  |  |  
|Contract termination and otherr   |  | 
|restructuring costs               |  |  |  
|                                  |  |  |  
|                                  |  |  | $
|                                  |  |  |  

|3. ASSET IMPAIRMENTS


During
the year ended December 31, 2001, the Company reviewed the carrying values of its
long-lived assets, including its minority investments in start-up ventures, identifiable
intangibles and goodwill. In connection with the Companys investments in two
start-up ventures, the Company followed APB 18, The Equity Method of Accounting for
Investments in Common Stock, which states that when a series of operating losses of
an investee or other factors indicate that a decrease in value of the investment has
occurred which is other than temporary, an impairment should be recognized. During the
review of both start-up ventures, the Company became aware of a series of operating losses
and the need of each start-up venture to obtain additional financing to continue
operations which became especially severe in the second quarter of 2001. In addition,
prior to the end of 2001 both start-up ventures filed for bankruptcy. As a result, during
the year ended December 31, 2001, the Company wrote off $3,450,000 of cost method
investments in these two start-up ventures due to an other than temporary decline in the
fair value of these investments.


As
part of its partnership with Oracle Corporation the Company announced on June 14, 2001 its
intention to market an integrated CRM solution to meet the specialized needs of the
worldwide pharmaceutical industry. As a result, the Companys vision and product
platform changed. The Company determined that it would no longer offer the Analytika and
ABC products, but would continue to support both products until existing customer contract
terms expired. As a result, no revenues were forecasted for either product for the future
other than those under existing contracts. Further, despite the lack of future revenue the
Company needed to maintain the infrastructure required to support our Analytika and ABC
product for the term of each contract. Since the forecasted revenue base was significantly
reduced yet the infrastructure and administrative costs remained relatively fixed, these
operations transitioned from positive to negative cash flows. In accordance with SFAS 121
the Company reviewed the future undiscounted net cash flows of the ABC and Analytika
products and determined the cash flows to be negative due to the fact the projected
revenue generated from new sales for each operation was zero. As a result, all of the
goodwill associated with ABC and Analytika was impaired during the quarter ended June 30,
2001. Accordingly, the Company recorded a goodwill impairment charge of $6,173,000 during
the year ended December 31, 2001.


During
the third quarter of 2002 and the fourth quarter of 2001, the Company recorded an asset
impairment of $1,832,000 and $2,100,000, respectively, related to a facility held for
sale. See Note 7.


63
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|4. ACQUISITIONS


On
September 19, 2002, the Company acquired Software Associates International
(SAI), a privately held company based in New Jersey. SAI provided software
products and solutions that enabled corporate-wide sales and marketing analysis and
complements the CRM initiatives of pharmaceutical companies. These solutions are generally
complementary to the Companys core suite of business products. The results of
SAIs operations have been included in the Consolidated Financial Statements since
the acquisition date.


The
aggregate purchase price was approximately $16,739,000 which included: cash of
approximately $15,092,000 (approximately $1,600,000 in escrow as of December 31, 2002);
accrued professional service fees of approximately $410,000 and options to purchase
Dendrite common stock valued at approximately $1,237,000. The fair value of the stock
options was estimated using the Black-Scholes valuation model. The Company is in the
process of finalizing a third-party valuation of certain intangible assets, its evaluation
of acquired facilities and personnel for redundancy, and therefore, the purchase price
allocation is preliminary and subject to adjustment.


The
Company recorded $7,523,000 of goodwill and $4,694,000 of acquired intangible assets, of
which approximately $732,000 was assigned to registered trademarks that are not subject to
amortization. The remaining $3,962,000 of acquired intangible assets includes purchased
software development costs of approximately $2,441,000 (4 year estimated useful life),
approximately $328,000 of non-compete agreements (3 year estimated useful life) and
approximately $1,193,000 of customer relationship assets (3 year estimated useful life).
The weighted-average amortization period for the intangible assets subject to amortization
is approximately 3 years.


The
following table summarizes the estimated fair value of the assets acquired and the
liabilities assumed in connection with the SAI acquisition:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                               | 
|------------------------------ | 
|
|Current Assets                 | 
|Property, plant, and equipment | 
|Intangible assets              | 
|Goodwill                       | 
|Deferred tax assets            | 
|Other non-current assets       | 
|                               | 
|Total assets acquired          | 
|Current liabilities            | 
|Purchase restructuring reserve | 
|Lease Obligations-LT           | 
|                               | 
|Total liabilities assumed      | 
|                               | 
|Net assets acquired            | 
|                               | 
|                               | 

|On
August 12, 2002, the Company acquired Pharma Vision LLC (Pharma Vision) for
cash consideration of approximately $700,000 which includes approximately $50,000 of
professional service fees. Pharma Vision collected and sold data for customer targeting
that pharmaceutical representatives use in Europe and support to pharmaceutical customers
in Belgium and The Netherlands. The results of Pharma Visions operations have been
included in the Consolidated Financial Statements from the date of acquisition.


On
January 6, 2000, the Company purchased all of the assets and assumed certain liabilities
of Analytika, Inc., a provider of advanced analytical products, consulting services and
outsourced operations services to the pharmaceutical industry. Under the terms of the
acquisition agreement, the Company paid $2,318,000 in cash, which included transaction
costs, and Dendrite common stock valued at $6,506,000. The acquisition was accounted for
using the purchase method with the purchase price allocated to the assets acquired and
liabilities assumed based on their respective fair market values at the acquisition date.
Of the purchase price, $2,890,000 was allocated to purchased capitalized software
development costs. The excess of the purchase price over the fair value of the net assets
acquired was allocated to goodwill ($5,979,000) based upon a third-party appraisal.
Analytikas results of operations have been included in the Companys
Consolidated Financial Statements from the date of acquisition.


The
Companys unaudited pro forma results of operations for the years ended December 31,
2002, 2001 and 2000 assuming that the acquisition of SAI described above occurred on
January 1, 2000 are as follows (in thousands, except per share data):
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                | December 31,
|------------------------------- | ------------
|                                |             
|
|                                |             
|Revenue                         |             
|Net Income/(Loss)               |             
|Basic Income/(Loss) per share   |             
|Diluted Income/(Loss) per share |             
|                                |             

|(A)    
          Net income includes a gain recognized by SAI on the sale of common units in a
          subsidiary, net of tax, of approximately $2,100,000.



5.   PURCHASE ACCOUNTING
RESTRUCTURING ACCRUAL


In
connection with the acquisition of SAI, discussed in Note 4, the Company developed an exit
plan to close the facility in Mt. Arlington, New Jersey and to relocate the operations to
the Companys facilities in New Jersey. The Company accrued as part of the
acquisition costs, the costs to terminate certain leases amounting to $3,252,000. The
Company anticipates finalizing the close of the facility during the first quarter of 2003.
As of December 31, 2002, the Company has made no payments or adjustments to the accrual.



6.  PROPERTY AND EQUIPMENT
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                      | December 31,
|------------------------------------- | ------------
|                                      |             
|
|                                      |             
|Computer hardware, software and other |             
|equipment                             |             
|Furniture and fixtures                |             
|Leasehold improvements                |             
|Capital Leases                        |             
|                                      |             
|                                      |             
|Less -- Accumulated depreciation and  |             
|Amortization                          |             
|                                      |             
|                                      |             
|                                      |             
|                                      |             

|Depreciation
expense, including amortization expense of capital leases, for the years ended December
31, 2002, 2001 and 2000 was $11,161,000, $10,082,000 and $5,898,000, respectively.


7.  FACILITY HELD FOR SALE


In
April 2001, the Company paid $10,832,000 to purchase a 145,000 square foot building in New
Jersey for the purpose of establishing a new U.S. operations facility to accommodate the
Companys growth. In connection with its 2001 restructuring, the Company made the
decision to shift its operations to other existing facilities and therefore decided to
sell the new facility (see Note 2). This building is classified as facility held for sale
in the accompanying consolidated balance sheets. This facility has been actively for sale
since the second quarter of 2001. Due to economic events, and the related impact on the
value of real estate, the Company recorded an asset impairment of $2,100,000 to reduce the
carrying value of this facility to its estimated fair market value during the fourth
quarter of 2001. During the third quarter of 2002, the Company determined an additional
impairment existed due to the continued increase in vacancy rates in the surrounding area.
Accordingly, the carrying value of the facility held for sale was adjusted the new fair
value less costs to sell of approximately $6,900,000, based upon a third party valuation.
The resulting $1,832,000 impairment loss is included in the asset impairment charge within
the accompanying consolidated statements of operations. See Note 3.


64
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|8.  GOODWILL AND INTANGIBLE ASSETS


Effective
July 1, 2001 the Company adopted SFAS 141, Business Combinations, and
effective January 1, 2002 the Company adopted SFAS 142, Goodwill and other
Intangible Assets. SFAS 141 requires business combinations initiated after June 30,
2001 to be accounted for using the purchase method of accounting. It also specifies the
types of acquired intangible assets that are required to be recognized and reported
separate from goodwill. SFAS 142 requires that goodwill and certain intangibles no longer
be amortized, but instead tested for impairment at least annually. SFAS 142 also requires
that intangible assets with finite useful lives be amortized over their respective
estimated useful lives and reviewed for impairment in accordance with SFAS 121, which was
superceded by SFAS 144. Based on the Companys analysis, there was no impairment of
goodwill upon adoption of SFAS 142 on January 1, 2002. The Company conducts its annual
impairment testing of goodwill on October 1 of each year. For the year ended December 31,
2002 there was no impairment recorded.


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

|                               | As of December 31, 2002 | As of December 31, 2001
|------------------------------ | ----------------------- | -----------------------
|
|                               |                         |                        
|INANGIBLE  ASSETS  SUBJECT  TO |                         |                        
|AMORTIZATION                   |                         |                        
|Purchased capitalized software |                         |                        
|Capitalized software           |                         |                        
|development costs              |                         |                        
|Customer relationship assets   |                         |                        
|Non-compete covenants          |                         |                        
|                               |                         |                        
|Total                          |                         |                        
|INTANGIBLE  ASSETS NOT SUBJECT |                         |                        
|TO AMORTIZATION                |                         |                        
|Goodwill                       |                         |                        
|Trademarks                     |                         |                        
|                               |                         |                        
|Total                          |                         |                        
|                               |                         |                        
|Total goodwill and intangible  |                         |                        
|assets                         |                         |                        
|                               |                         |                        

|The changes in the carrying
amount of goodwill for the year ended December 31, 2002 are as follows:
|---------------------------------------------------------------------------------------------------

|                                | 
|------------------------------- | 
|
|Balance as of January 1, 2002   | 
|Goodwill acquired               | 
|                                | 
|Balance as of December 31, 2002 | 
|                                | 

|Aggregate annual amortization expense
for intangible assets is estimated to be:
|-------------------------------------------------------------------------------

|                         | 
|------------------------ | 
|Year ending December 31, | 
|2003                     | 
|2004                     | 
|2005                     | 
|2006                     | 
|2007                     | 
|Thereafter               | 
|                         | 

|9.   LONG TERM RECEIVABLE


During
the year ended December 31, 2002, the Company recorded a long term receivable of
$6,314,000 from a major U.S. pharmaceutical company as part of a five-year contract. This
long term receivable will be paid as the scheduled maturities come due through January 2005. The
Company has imputed interest and accordingly, interest income will be recognized as earned
within interest income on the Consolidated Statement of Operations.


10.   NOTE RECEIVABLE FROM
OFFICER OF THE COMPANY


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


11.  REVOLVING CREDIT


The
Company maintains a revolving line of credit agreement with The Chase Manhattan Bank,
N.A., which provides for borrowings of up to $15,000,000 and is available to finance
working capital needs and possible future acquisitions. The agreement requires, among
other covenants, that the Company maintain a minimum consolidated net worth, measured
quarterly, equal to $105,000,000 plus 50% of the Companys net income earned after
January 1, 2002, and 75% of the net proceeds to the Company of any stock offerings after
September 30, 2001. This covenant has the effect of limiting the amount of cash dividends
the Company may pay. As of December 31, 2002 and 2001, approximately $31,092,000 and
$23,013,000, respectively, were available for the payment of dividends under this
covenant. The line of credit expires on November 30, 2003. The Company has never had any
borrowings under this revolving line of credit.





65
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|As
of December 31, 2002, the Company also had letters of credit for approximately $475,000
outstanding.


12.  
          INCOME TAXES


The
components of income before income tax expense (benefit) were as follows:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|         | December 31,
|-------- | ------------
|         |             
|
|         |             
|Domestic |             
|Foreign  |             
|         |             
|         |             
|         |             

The components of income taxes were as follows:

|                   | December 31,
|------------------ | ------------
|                   |             
|
|                   |             
|Current Provision  |             
|(Benefit):         |             
|Federal            |             
|State              |             
|Foreign            |             
|                   |             
|                   |             
|Deferred Provision |             
|(Benefit):         |             
|Federal            |             
|State              |             
|Foreign            |             
|                   |             
|                   |             
|                   |             
|                   |             
|                   |             
|                   |             

|The reconciliation of the statutory
Federal income tax rate to the Companys effective income tax rate is as follows:
|---------------------------------------------------------------------------------------------------------------------

|                                               | December 31,
|---------------------------------------------- | ------------
|                                               |             
|
|                                               |             
|Federal statutory tax rate                     |             
|Difference between U.S. and non-U.S. rates     |             
|State income taxes, net of federal tax benefit |             
|Nondeductible expenses                         |             
|Tax credits utilized                           |             
|Other                                          |             
|                                               |             
|                                               |             
|                                               |             

|The
tax effect of temporary differences that give rise to deferred income assets and
liabilities is as follows:


66
|--------------------------------------------------------------------------------------------------------------------

---

|                                       | December 31,
|-------------------------------------- | ------------
|                                       |             
|
|                                       |             
|Gross deferred tax asset:              |             
|Depreciation and amortization          |             
|Foreign net operating losses           |             
|State net operating losses             |             
|Federal capital loss carryover         |             
|Federal foreign tax credit             |             
|carryover                              |             
|Accruals and reserves not currently    |             
|deductible                             |             
|Other                                  |             
|                                       |             
|                                       |             
|Less:  Valuation allowance             |             
|                                       |             
|                                       |             
|                                       |             
|Gross deferred tax liability:          |             
|Capitalized software development costs |             
|Other                                  |             
|                                       |             
|                                       |             
|                                       |             

|As
of December 31, 2002 and 2001, the Company has recorded a valuation allowance against its
net deferred tax assets of approximately $4,482,000 and $3,336,000 respectively. The
valuation allowance relates primarily to the state net operating loss carryforwards,
foreign tax credit carryforwards and capital loss carryforwards.


As of December 31, 2002, the Company
has available state net operating loss carryforwards of approximately $35,000,000 and
foreign net operating loss carryforwards of approximately $8,600,000 which expire in
varying amounts beginning in 2003 through 2022. Additionally, the Company also has
available foreign tax credit carryforwards of approximately $763,000 which expire in 2007.


     13.    
STOCKHOLDERS EQUITY


STOCK OPTION PLANS


The
Company has various stock option plans (the Plans) that provide for the
granting of options, the awarding of stock and the purchase of stock. Under the Plans, the
total number of shares of common stock that may be granted is 14,050,002. During 2002, the
Company obtained shareholder approval to increase the number of options available under
the Plans by 1,500,000 shares to 15,550,002 shares. Options granted under the
Plans generally vest over a four-year period and are exercisable over a period not to
exceed ten years as determined by the Board of Directors. Incentive stock options are
granted at fair value. Nonqualified options are granted at exercise prices determined by
the Board of Directors.


Information
with respect to the options under the Plans is as follows:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                              |  | 
|----------------------------- |  | 
|
|                              |  | 
|Outstanding December 31, 1999 |  | 
|Granted                       |  | 
|Exercised                     |  | 
|Canceled                      |  | 
|                              |  | 
|Outstanding December 31, 2000 |  | 
|Granted                       |  | 
|Exercised                     |  | 
|Canceled                      |  | 
|                              |  | 
|Outstanding December 31, 2001 |  | 
|Granted                       |  | 
|Exercised                     |  | 
|Canceled                      |  | 
|                              |  | 
|Outstanding December 31, 2002 |  | 
|                              |  | 

|67
|--

---

|At
December 31, 2002, 2001 and 2000 there were 4,871,509, 3,361,772 and 2,325,272 options
exercisable with a weighted average exercise price of $14.81, $14.92 and $9.95,
respectively. As of December 31, 2002 there were 4,179,521 shares available for future
grants under the Plans.


The
Company has adopted the disclosure requirements of SFAS 123 as amended by SFAS 148. The
Company applies APB 25 and related interpretations in accounting for stock options granted
under the Plans. Accordingly, compensation cost has been computed for the Plans based on
the intrinsic value of the stock option at the date of grant, which represents the
difference between the exercise price and the fair value of the Companys stock. As
the exercise price of all stock options granted equaled the fair value of the
Companys stock at the date of option issuance, no compensation cost has been
recorded in the accompanying statements of operations. The pro forma information presented
in Note 1 has been determined as if employee stock options were accounted for under the
fair value method of SFAS 123. The fair value for these options were estimated at the date
of grant using a Black-Scholes option pricing model with the following assumption:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                | December 31,
|------------------------------- | ------------
|                                |             
|
|                                |             
|Expected dividend yield         |             
|Expected stock price volatility |             
|Risk free interest rate         |             
|Expected life of the option     |             

|The
weighted average fair value of options granted was $7.98, $8.96 and $17.26 for the years
ended December 31, 2002, 2001 and 2000, respectively.


Information
with respect to the options outstanding under the Plans at December 31, 2002 is as follows:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                |  |  |  |          
|--------------- |  |  |  | ---------
|
|                |  |  |  |          
|$0.00 - $3.32   |  |  |  | 41,112   
|$3.33 - $6.64   |  |  |  | 956,052  
|$6.65 -- $9.95  |  |  |  | 1,508,666
|$9.96 - $13.27  |  |  |  | 1,783,354
|$13.28 - $16.60 |  |  |  | 556,336  
|$16.61 - $19.91 |  |  |  | 1,238,496
|$19.92 - $23.23 |  |  |  | 630,531  
|$23.24 - $26.55 |  |  |  | 529,070  
|$26.56 - $29.87 |  |  |  | 169,200  
|$29.88 - $34.00 |  |  |  | 436,078  
|                |  |  |  |          
|                |  |  |  | 7,848,895
|                |  |  |  |          

|EMPLOYEE STOCK PURCHASE
PLAN


In
1997, the Company established an employee stock purchase plan that provides full-time
employees the opportunity to purchase shares at 85% of fair value on dates determined by
the Board of Directors, up to a maximum 10% of their eligible compensation or $21,250,
whichever is less. During 2002, the Company obtained shareholder approval to increase the
number of authorized shares available for purchase under this plan from 450,000 to
900,000, of which 150,048, 156,876 and 93,687 were purchased in 2002, 2001 and 2000,
respectively. There were 419,511 and 119,559 shares available for issuance under the plan
as of December 31, 2002 and 2001, respectively.




68
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|ANNIVERSARY STOCK PROGRAM


The
Company grants 200 shares of the Companys common stock to all employees who
commenced employment prior to December 31, 1998 in July following their fifth anniversary
of employment. The cost of the anniversary stock plan is accrued over the employment
period of the employees.


COMMON STOCK REPURCHASE
PROGRAM


On
January 31, 2001, the Company announced that its Board of Directors authorized a stock
repurchase program of up to $20,000,000 of its outstanding common stock over a two-year
period (the 2001 Stock Repurchase Plan). As of December 31, 2001, the Company
has repurchased a total of 1,343,700 shares under the 2001 Stock Repurchase Plan for a
total value of $17,480,000. On July 29, 2002, the Board of Directors cancelled the 2001
Stock Repurchase Plan.


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


SHAREHOLDER RIGHTS PLAN


On
February 16, 2001, the Companys Board of Directors adopted a shareholder rights plan
(the Rights Plan). The Rights Plan is designed to deter coercive or unfair
takeover tactics and to prevent a person or group from acquiring control of the Company
without offering a fair price to all shareholders. The adoption of the Rights Plan was not
in response to any known effort to acquire control of the Company.


Under
the Rights Plan, each shareholder of record on March 5, 2001 received a distribution of
one Right for each share of common stock of the Company (Rights). At present,
the Rights are represented by the Companys common stock certificates, are not traded
separately from the common stock and are not exercisable. The Rights will become
exercisable only if a person acquires, or announces a tender offer that would result in
ownership of 15% or more of the Companys common stock, at which time each Right
would enable the holder to buy one one-hundredth of a share of the Companys Series A
preferred stock at an exercise price of $120, subject to adjustment. Following the
acquisition of 15% or more of the Companys common stock, the holders of Rights
(other than the acquiring person or group) will be entitled to purchase shares of the
Companys common stock at one-half of the market price, and in the event of a
subsequent merger or other acquisition of the Company, to buy shares of common stock of
the acquiring entity at one-half of the market price of those shares.



69
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|The
Company may redeem the Rights for $0.01 per Right, subject to adjustment, at any time
before the acquisition by a person or group of 15% or more of the Companys ordinary
shares. The Rights will expire on February 20, 2011.


     14.    
SAVINGS AND DEFERRED COMPENSATION PLANS


The
Company maintains Employee Savings Plans (the Plans) that cover substantially
all of its full-time U.S., U.K. and Belgium employees. All eligible employees may elect to
contribute a portion of their wages to the Plans, subject to certain limitations. In
addition, the Company contributes to the plans at the rate of 50% of the employees
contributions up to a maximum of 3% of the employees salary. The Companys
contributions to the Plans were $1,233,000, $1,191,000 and $773,000 in the years ended
December 31, 2002, 2001 and 2000, respectively.


The
Company also maintains a noncontributory pension plan that covers substantially all of its
full-time Japanese employees. All contributions to this pension plan are made by the
Company in accordance with prescribed statutory requirements. The Companys
contributions to the plan were $169,000, $24,000 and $421,000 for the years ended December
31, 2002, 2001 and 2000, respectively.


In
1998, the Company created a deferred compensation plan. Under the plan, eligible, highly
compensated employees (as defined) can elect to defer a portion of their compensation and
determine the nature of the investments, which will be used to calculate earnings on the
deferred amounts.


     15.    
COMMITMENTS AND CONTINGENCIES


The
Company leases office facilities and equipment under various capital and operating leases
with remaining lease terms generally in excess of one year. Rent expense was $11,438,000,
$10,547,000 and $8,410,000 for the years ended December 31, 2002, 2001 and 2000,
respectively. Future minimum rental payments on these leases including amounts accrued for
in purchase accounting restructuring accruals are as follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                |  | 
|------------------------------- |  | 
|
|                                |  | 
|2003                            |  | 
|2004                            |  | 
|2005                            |  | 
|2006                            |  | 
|2007                            |  | 
|Thereafter                      |  | 
|                                |  | 
|Total                           |  | 
|                                |  | 
|Less: Amount representing       |  | 
|interest                        |  | 
|                                |  | 
|Present value of net minimum    |  | 
|lease payments                  |  | 
|                                |  | 
|Less: Current portion of        |  | 
|obligation under capital leases |  | 
|                                |  | 
|Obligations under capital       |  | 
|leases, excluding current       |  | 
|portion                         |  | 
|                                |  | 

|70
|--

---

|From
time to time, the Company is involved in certain legal actions arising in the ordinary
course of business. In the Companys opinion, the outcome of such actions will not
have a material adverse effect on the Companys financial position or results of
operations.


The
Company has employment agreements with certain officers that provide for, among other
things, salary, bonus, severance and change in control provisions.


The
Company has an agreement with a venture capital fund with a commitment to contribute
$1,000,000 to the fund, callable in $100,000 increments. As of December 31, 2002, $300,000
has been paid with $700,000 of commitment remaining. The agreement has a termination date
of December 11, 2010, subject to extension by the limited partners.


     16.    
RELATED-PARTY TRANSACTIONS


For
the years ended December 31, 2002, 2001 and 2000, the Company incurred approximately
$434,000, $304,000 and $257,000, respectively, of costs for rental and use of aircraft for
Company business payable to certain third party charter companies. While none of these
third party charter companies are affiliated with the Company or any of its officers or
directors, in some instances, the aircraft provided by these third party companies was
leased from an entity whose members are the Companys Chairman and Chief Executive
Officer and his spouse. As of December 31, 2002 and 2001 approximately $0 and $127,000,
respectively, of rental charges were included in other accrued expenses.


For
the years ended December 31, 2002, 2001 and 2000, the Company also incurred approximately
$236,000, $592,000 and $338,000, respectively, of costs for air travel for Company
business payable to the entity owned by the Chairman and Chief Executive Officer and his
spouse. These costs, which were incurred either directly or indirectly through expense
reimbursements, were charged to the Company on a reimbursement rate basis, in accordance
with FAA expense reimbursement rates. As of December 31, 2002 and 2001 approximately $0
and $192,000, respectively, of air travel costs were included in other accrued expenses.


During
the year ended December 31, 2002 and 2001, the Company incurred $173,000 and $1,432,000,
respectively, to a subcontractor for certain outsourcing activities related to its
clinical services. The Chairman and Chief Executive Officer of the Company and a member of
the Companys Board of Directors serve on the Board of Directors of this
subcontractor. One of the Companys Directors is also the Managing Partner of a
venture fund which is a 52% shareholder of this subcontractor. The Company terminated its
relationship with this subcontractor in October 2002. As of December 31, 2002 and 2001,
approximately $426,000 and $644,000, respectively, of outsourcing activities were included
in other accrued expenses.


For
the years ended December 31, 2002, 2001, and 2000, the Company incurred approximately
$912,000, $851,000 and $459,000, respectively, to a third party contractor that provides
consultants for computer programming services. The father of the Chairman and Chief
Executive Officer of the Company was a 43% shareholder of this contractor; however, during
the third quarter of 2002 he divested himself of all such ownership interest. As of
December 31, 2002 and 2001 approximately $89,000 and $200,000, respectively, of consulting
costs were included in other accrued expenses.


71
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|17.    
CUSTOMER AND GEOGRAPHIC INFORMATION


For
the year ended December 31, 2002, the Company derived approximately 36% and 9% of its
revenue from its two largest customers. In the year ended December 31, 2001, the Company
derived approximately 41% and 10% of its revenue from its two largest customers. In the
year ended December 31, 2000, the Company derived approximately 31%, 11% and 10% of its
revenues from its three largest customers.


See
Note 1 for a brief description of the Companys business. The Company is organized by
geographic locations and has one reportable segment. All transfers between geographic
areas have been eliminated from consolidated revenues. Operating income consists of total
revenues recorded in the location less operating expenses and does not include interest
income, other expense or income taxes. This data is presented in accordance with SFAS 131,
Disclosure About Segments of an Enterprise and Related Information.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                         | December 31,
|------------------------ | ------------
|                         |             
|
|                         |             
|Revenues:                |             
|United States            |             
|All Other                |             
|                         |             
|                         |             
|                         |             
|Operating (loss) income: |             
|United States            |             
|All Other                |             
|                         |             
|                         |             
|                         |             
|Identifiable assets:     |             
|United States            |             
|All Other                |             
|                         |             
|                         |             
|                         |             
|                         |             

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


72
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|DENDRITE INTERNATIONAL, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
|---------------------------------------------------------------------------------------------------------------------------------

|                              | Balance at theBeginning of the year | Additions chargedto expense or other accounts | Deductions fromreserves | Balance at theEnd of the year
|----------------------------- | ----------------------------------- | --------------------------------------------- | ----------------------- | -----------------------------
|                              |                                     |                                               |                         |                              
|Year Ended December 31, 2002: |                                     |                                               |                         |                              
|Allowance  for  doubtful      |                                    
|accounts                      |                                     | $   736,000                                   |                         | $   348,000                  
|Deferred  tax  valuation      |                                    
|allowance                     |                                     | $3,336,000                                    |                         | $1,146,000                   
|                              |                                    
|Year Ended December 31, 2001: |                                    
|Allowance  for  doubtful      |                                    
|accounts                      |                                     | $   593,000                                   |                         | $   180,000                  
|Deferred  tax  valuation      |                                    
|allowance                     |                                     | $1,171,000                                    |                         | $2,165,000                   
|                             
|Year Ended December 31, 2000: |                                    
|Allowance  for  doubtful      |                                    
|accounts                      |                                     | $   415,000                                   |                         | $   362,000                  
|Deferred  tax  valuation      |                                    
|allowance                     |                                     | $1,091,000                                    |                         | $   169,000                  

|73
|--

---

---

|EXHIBIT INDEX


     3.    
          Exhibits:


Articles of
Incorporation and By-Laws:
|----------------------------------------------------------------------------------------

| |  | 3.1 |  | Restated
Certificate of Incorporation of Dendrite  International,  Inc.  (incorporated herein by
                        reference  to  Exhibit  3.1 to the  Company's  Quarterly  Report
on Form  10-Q,  filed  with the                         Securities and Exchange
Commission (the "Commission") on August 14, 1996)
| |  | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 3.1 |  | (a)
        Certificate   of  Amendment  to  the  Restated   Certificate   of   Incorporation
  of  Dendrite                         International,  Inc.  (incorporated  herein by
 reference  to  Exhibit  3.1(a) to the  Company's                         Current Report
on Form 8-K, filed with the Commission on March 30, 2001)
| |  | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 3.1 |  | (b)
        Certificate   of  Amendment  to  the  Restated   Certificate   of   Incorporation
  of  Dendrite                         International,  Inc.  (incorporated  herein by
 reference  to Exhibit  3.1 (b) to the  Company's                         Current Report
on Form 8-K, filed with the Commission on March 30, 2001)
| |  | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 3.1 |  | (c)
Certificate of Amendment to the Restated Certificate of Incorporation of Dendrite
International, Inc. Setting Forth the Terms of Series A Junior Participating Preferred
Stock (incorporated herein by reference to Exhibit 3.1 (c) to the Companys Current
Report on Form 8-K, filed with the Commission on March 30, 2001)
| |  | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 3.2 |  | Amended
and Restated By-laws of Dendrite  International,  Inc. (incorporated herein by reference
                        to Exhibit 3 to the Company's  Current Report on Form 8-K, filed
with the Commission on February                         21, 2001)
| |  | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Instruments
Defining Rights of Security Holders, including Indentures:

| |  | 4.1 |  | Specimen
of Stock Certificate (incorporated herein by reference to Exhibit 4.1 to the Companys
Registration Statement on Form S-1, filed with the Commission on May 17, 1995)
| |  | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 4.2 |  | Registration
Rights Agreement dated October 2, 1991 between the several purchasers named therein and
the Company (incorporated herein by reference to Exhibit 4.2 to the Companys
Registration Statement on Form S-1, filed with the Commission on May 17, 1995)
| |  | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 4.3 |  | Amendment
to Registration Rights Agreement dated April 23, 1992 between the Company and the parties
named therein as shareholders of the Company (incorporated herein by reference to Exhibit
4.3 of Amendment 1 to the Companys Registration Statement on Form S-1, filed with
the Commission on May 17, 1995)
| |  | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 4.4 |  | Rights
Agreement dated as of February 20, 2001 between Dendrite International, Inc. and
Registrar and Transfer Company, as Rights Agent, which includes, as Exhibit A the Form of
Certificate of Amendment to Restated Certificate of Incorporation, as Exhibit B the Form
of Rights Certificate and as Exhibit C the Form of Summary of Rights (incorporated herein
by reference to Exhibit 4 of the Companys Current Report on Form 8-K, filed with
the Commission on February 21, 2001)
| |  | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|74
|--

---

Material
Contracts and Compensatory Plans and Arrangements:

| |  | 10.1 |  | 1992
Stock Plan, as amended (incorporated herein by reference to Exhibit 10.36 to the Companys
Registration Statement on Form S-1, filed with the Commission on May 17, 1995; Exhibit A
to the Companys Definitive Proxy Statement for the 1999 Annual Meeting of
Shareholders, filed with the Commission on April 16, 1999; and Exhibit 10.1 to the Companys
Annual Report on Form 10-K, filed with the Commission on March 30, 2000)*
| |  | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.2 |  | 1992
Senior Management Incentive Stock Option Plan, as amended (incorporated herein by
reference to Exhibit 10.37 to the Companys Registration Statement on Form S-1,
filed with the Commission on May 17, 1995; Exhibit B to the Companys Definitive
Proxy Statement for the 1999 Annual Meeting of Shareholders, filed with the Commission on
April 16, 1999; and Exhibit 10.2 to the Companys Annual Report on Form 10-K, filed
with the Commission on March 30, 2000)*
| |  | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.3 |  | 1997
Stock Incentive Plan, as amended (incorporated herein by reference to Exhibit 10.4 to the
Companys Quarterly Report on Form 10-Q, filed with the Commission on August 14,
1997; Exhibit 4.2 to the Companys Registration Statement on Form S-8, filed with
the Commission on September 16, 1997; Exhibit 4.2 to the Companys Registration
Statement on Form S-8, filed with the Commission on November 10, 1997; Exhibit 10.2 to
the Companys Quarterly Report on Form 10-Q, filed with the Commission on November
14, 1997; Exhibit 4.2 to the Companys Registration Statement on Form S-8, filed
with the Commission on April 21, 1998; Exhibit A to the Companys Definitive Proxy
Statement for the 1998 Annual Meeting of Shareholders, filed with the Commission on April
30, 1998; Appendix A to the Companys Definitive Proxy Statement for the 1999 Annual
Meeting of Shareholders, filed with the Commission on April 16, 1999; Exhibit 10.3 to the
Companys Annual Report on Form 10-K, filed with the Commission on March 30, 2000;
Appendix A to the Companys Definitive Proxy Statement for the 2000 Annual Meeting
of Shareholders, filed with the Commission on April 17, 2000; Exhibit 4 to the Companys
Registration Statement on Form S-8, filed with the Commission on October 20, 2000; and
Appendix A to the Companys Definitive Proxy Statement for the 2001 Annual Meeting
of Shareholders, filed with the Commission on April 13, 2001 )*
| |  | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|75
|--

---

| |  | 10.4 |  | 1997
Employee Stock Purchase Plan (incorporated herein by reference to; Exhibit 4.2 to the
Companys Registration Statement on Form S-8, filed with the Commission on April 1,
1997; Exhibit 10.3 to the Companys Quarterly Report on Form 10-Q, filed with the
Commission on August 14, 1997; and Exhibit A to the Companys Definitive Proxy
Statement for the 1999 Annual Meeting of Shareholders, filed with the Commission on April
16, 1999)*
| |  | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.5 |  | Lease
of 1200 Mount Kemble Avenue, Morristown, New Jersey (incorporated herein by reference to
Exhibit 10.40 to the Companys Registration Statement on Form S-1, filed with the
Commission on May 17, 1995)
| |  | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.6 |  | Amended
and Restated Credit Agreement, entered into as of November 30, 1998, between the Company
and The Chase Manhattan Bank, N.A. (incorporated herein by reference to Exhibit 10.7 to
the Companys Annual Report on Form 10-K, filed with the Commission on March 26,
1999)
| |  | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.7 |  | Employment
 Agreement  dated  as of  March  25,  1997,  between  Dendrite
International,  Inc.  and John  E.  Bailye  (incorporated  herein  by  reference  to
 Exhibit  10.1  to the  Company's                         Quarterly Report on Form
10-Q/A, filed with the Commission on May 16, 1997)*
| |  | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.8 |  | Employment
Agreement dated as of June 2, 1997, between Dendrite  International,  Inc. and George
                        T. Robson  (incorporated  herein by reference to Exhibit 10.1 to
the Company's  Quarterly Report                         on Form 10-Q, filed with the
Commission on August 14, 1997)*1
| |  | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.9 |  | Deferred
Compensation Plan dated as of September 1, 1998 (incorporated herein by reference to
Exhibit 10.1 of the Companys Quarterly Report on Form 10-Q, filed with the
Commission on August 14, 1998)*
| |  | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.10 |  | Deferred
Compensation Plan Trust Agreement dated as of September 1, 1998 (incorporated herein by
reference to Exhibit 10.2 of the Companys Quarterly Report on Form 10-Q, filed with
the Commission on August 14, 1998)*
| |  | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.11 |  | Employment
Agreement dated as of August 7, 1997, between Dendrite International, Inc. and Kathleen
Donovan (incorporated herein by reference to Exhibit 10.17 of the Companys Current
Report on Form 8-K, filed with the Commission on March 30, 2001)*
| |  | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.12 |  | Employment
Agreement dated as of September 8, 1998, between Dendrite International, Inc. and
Christine Pellizzari (incorporated herein by reference to Exhibit 10.18 of the Companys
Current Report on Form 8-K, filed with the Commission on March 30, 2001)*
| |  | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.13 |  | Amendment
to Employment Agreement dated as of May 26, 1999, between Dendrite International, Inc.
and George T. Robson (incorporated herein by reference to Exhibit 10.22 of the Companys
Current Report on Form 8-K, filed with the Commission on March 30, 2001)*1
| |  | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|76
|--

---

| |  | 10.14 |  | Amendment
to Employment Agreement dated as of January 25, 2000, between Dendrite International,
Inc. and Kathleen Donovan (incorporated herein by reference to Exhibit 10.23 of the
Companys Current Report on Form 8-K, filed with the Commission on March 30, 2001)*
| |  | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.15 |  | Amendment
to Employment Agreement dated as of August 1, 2000, between Dendrite International, Inc.
and Christine Pellizzari (incorporated herein by reference to Exhibit 10.24 of the Companys
Current Report on Form 8-K, filed with the Commission on March 30, 2001)*
| |  | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.16 |  | Employment
Agreement dated as of August 7, 2000, between Dendrite International, Inc. and Marc
Kustoff (incorporated herein by reference to Exhibit 10.25 of the Companys Current
Report on Form 8-K, filed with the Commission on March 30, 2001)*
| |  | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.17 |  | Agreement
of Purchase and Sale between Dendrite International, Inc. and Townsend Property Trust
Limited Partnership dated January 5, 2001 (incorporated herein by reference to Exhibit
10.26 of the Companys Current Report on Form 8-K, filed with the Commission on
March 30, 2001)*
| |  | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.18 |  | Deed
of Lease between Liberty Property Limited Partnership and Dendrite International, Inc.
for Dendrite Building I of the Liberty Executive Park in Chesapeake, Virginia
(incorporated herein by reference to Exhibit 10.27 of the Companys Current Report
on Form 8-K, filed with the Commission on March 30, 2001)
| |  | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.19 |  | Deed
of Lease between Liberty Property Limited Partnership and Dendrite International, Inc.
for Dendrite Building II of the Liberty Executive Park in Chesapeake, Virginia
(incorporated herein by reference to Exhibit 10.28 of the Companys Current Report
on Form 8-K, filed with the Commission on March 30, 2001)
| |  | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.20 |  | Employment
Agreement (including Amendment), dated as of May 16, 2001, between Dendrite
International, Inc. and Paul Zaffaroni (incorporated herein by reference to Exhibit 10.29
of the Companys Current Report on Form 8-K, filed with the Commission on March 19,
2002)*
| |  | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.21 |  | Indemnification
Agreement, dated as of October 1, 2001, between Dendrite International, Inc. and Paul
Zaffaroni (incorporated herein by reference to Exhibit 10.30 of the Companys
Current Report on Form 8-K, filed with the Commission on March 19, 2002)*
| |  | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.22 |  | Employment
Agreement, dated as of June 19, 1997, between Dendrite International, Inc. and Brent
Cosgrove (incorporated herein by reference to Exhibit 10.33 of the Companys Current
Report on Form 8-K, filed with the Commission on March 19, 2002)*
| |  | ----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|77
|--

---

| |  | 10.23 |  | Amendment
to Employment Agreement, dated as of November 8, 2001, between Dendrite International,
Inc. and Brent Cosgrove (incorporated herein by reference to Exhibit 10.34 of the Companys
Current Report on Form 8-K, filed with the Commission on March 19, 2002)*
| |  | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.24 |  | Indemnification
Agreement, dated as of November 8, 2001, between Dendrite International, Inc. and Brent
Cosgrove (incorporated herein by reference to Exhibit 10.35 of the Companys Current
Report on Form 8-K, filed with the Commission on March 19, 2002)*
| |  | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.25 |  | Agreement
 of Lease,  dated as of February  12,  2001,  between  SCC II,  L.L.C.  and  Dendrite
                        International,  Inc.  (incorporated  herein by  reference  to
 Exhibit  10.36 of the  Company's                         Current Report on Form 8-K,
filed with the Commission on March 19, 2002)
| |  | ----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.26 |  | First
Amendment to Lease, dated as of August 17, 2001, between 1200 Mount Kemble Limited
Partnership and Dendrite International, Inc. (incorporated herein by reference to Exhibit
10.37 of the Companys Current Report on Form 8-K, filed with the Commission on
March 19, 2002)
| |  | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.27 |  | November
2001 Amendment  to Credit  Agreement,  dated as of  November  6,  2001,  between
     Dendrite   International,   Inc.  and  The  Chase   Manhattan   Bank,  N.A.
     (incorporated herein by reference to Exhibit 10.38 of the Company's Current
     Report  on Form  8-K,  filed  with  the  Commission  on  March  19,  2002)
| |  | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.28 |  | Indemnification
Agreement, dated as of October 28, 1998, between Dendrite International, Inc. and John
Bailye (incorporated herein by reference to Exhibit 10.39 of the Companys Current
Report on Form 8-K, filed with the Commission on March 19, 2002)*
| |  | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.29 |  | Indemnification
Agreement, dated as of October 28, 1998, between Dendrite International, Inc. and George
Robson (incorporated herein by reference to Exhibit 10.40 of the Companys Current
Report on Form 8-K, filed with the Commission on March 19, 2002)*1
| |  | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.30 |  | Indemnification
Agreement, dated as of January 25, 2001, between Dendrite International, Inc. and
Christine Pellizzari (incorporated herein by reference to Exhibit 10.41 of the Companys
Current Report on Form 8-K, filed with the Commission on March 19, 2002)*
| |  | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.31 |  | Indemnification
Agreement, dated as of January 25, 2001, between Dendrite International, Inc. and
Kathleen Donovan (incorporated herein by reference to Exhibit 10.42 of the Companys
Current Report on Form 8-K, filed with the Commission on March 19, 2000)*
| |  | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|78
|--

---

| |  | 10.32 |  | 1994
Incentive and Non-Qualified Stock Plan of CorNet International,  Ltd. (incorporated
herein                         by reference to Exhibit 4.2 of the  Companys
 Registration  Statement on Form S-8,  filed with                         the Commission
on June 29, 1999)*
| |  | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.33 |  | First
Amended SAI Holdings,  Inc. Long-Term Incentive Stock Option Plan (incorporated herein by
                        reference to Exhibit 99.1 of the Company's  Registration
 Statement on Form S-8, filed with the                         Commission on October 25,
2002)*
| |  | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.34 |  | Dendrite
International, Inc. New Hire Option Grant Authorization  (incorporated herein by
     reference to Exhibit 99.1 of the Companys  Registration  Statement on
     Form S-8, filed with the Commission on November 6, 2002)*
| |  | ----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.35 |  | Indemnification
Agreement, dated as of April 6, 2001, between Dendrite  International,  Inc. and
     Patrick J. Zenner (incorporated herein by reference to Exhibit 10.37 of the
     Companys  Current  Report on Form 8-K,  filed with the  Commission on
     March 26, 2003)*
| |  | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.36 |  | Retirement
Agreement and  General  Release,  dated as of June 30,  2002,  between  Dendrite
     International,  Inc. and George Robson (incorporated herein by reference to
     Exhibit 10.38 of the Companys  Current Report on Form 8-K, filed with
     the Commission on March 26, 2003)*1
| |  | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.37 |  | November
2002 Amendment  to Credit  Agreement,  dated as of  November  6,  2001,  between
     Dendrite   International,   Inc.  and  The  Chase   Manhattan   Bank,   N.A
     (incorporated herein by reference to Exhibit 10.39 of the Companys Current
     Report  on Form  8-K,  filed  with the  Commission  on March  26,  2003)
| |  | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Subsidiaries:

| |  | 21 |  | Subsidiaries
of the Registrant
| |  | -- |  | ------------------------------

Consent of Independent Auditors:

| |  | 23.1 |  | Consent
of Ernst & Young LLP
| |  | ---- |  | ----------------------------

| |  | 23.2 |  | Notice
regarding Consent of Arthur Andersen LLP
| |  | ---- |  | -----------------------------------------------

* Management contract or compensatory plan.

1 Ceased as executive
officer.

79