SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549


Form 10-Q

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

For the quarterly period ended March 31, 2002

[   ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

For the transition period from ___ to ___

Commission File Number  0-26138

Dendrite International, Inc.

(Exact name of registrant as specified in charter)

New Jersey 22-2786386

(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date: at May 3, 2002 there were 39,881,902 shares of common stock outstanding.

DENDRITE INTERNATIONAL, INC.

INDEX

PAGE NO

PART I. FINANCIAL INFORMATION 3

ITEM 1. Financial Statements (unaudited) 3

Consolidated Statements of Operations
           Three months ended March 31, 2002 and 2001 3

Consolidated Balance Sheets
           March 31, 2002 and December 31, 2001 4

Consolidated Statements of Cash Flows
           Three months ended March 31, 2002 and 2001 5

Notes to Unaudited Consolidated Financial Statements
           6

ITEM 2. Management’s Discussion and Analysis of
        Financial Condition and Results of Operations 8

PART II. OTHER INFORMATION 16

ITEM 5. Other Information 16

ITEM 6. Exhibits and Reports on Form 8-K 16

Signatures 17

PART I.     FINANCIAL INFORMATION

ITEM 1.   Financial Statements

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

	Three Months Ended March 31,
		2002	2001
Revenues:
License fees		$ 3,179	$ 3,003
Services		54,264	49,809
		57,443	52,812
Cost of revenues:
Cost of license fees		924	963
Cost of services		29,227	27,099
		30,151	28,062
Gross margin		27,292	24,750
Operating expenses:
Selling, general and administrative		19,500	20,462
Research and development		2,629	2,867
		22,129	23,329
Operating income		5,163	1,421
Interest income		304	926
Other income/(expense)		57	(26	)
Income before income		5,524	2,321
Income taxes		1,989	836
Net income		$  3,535	$  1,485
Net income per share:
Basic		$     .09	$     .04
Diluted		$     .09	$     .04
Shares used in computing net income
per share:
Basic		39,713	40,249
Diluted		40,216	41,159

The accompanying notes are an integral part of these statements.

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

	March 31, 2002		December 31, 2001
Assets
Current Assets:
Cash and cash equivalents	$   63,600		$   65,494
Short-term investments	6,355		6,383
Accounts receivable, net	32,691		35,009
Prepaid expenses and other	5,951		5,258
Prepaid taxes	3,540		3,888
Deferred taxes	6,106		6,106
Total current assets	118,243		122,138
Property and equipment, net	25,993		23,594
Facility held for sale	8,732		8,732
Other assets	100		100
Goodwill, net	4,830		4,830
Capitalized software development costs, net	5,463		5,518
Deferred taxes	1,571		1,571
	$ 164,932		$ 166,483
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$     3,228		$     2,455
Accrued compensation and benefits	5,081		6,024
Other accrued expenses	13,211		16,241
Accrued restructuring charge	2,551		2,950
Deferred rent	29		--
Deferred revenues	7,510		9,479
Total current liabilities	31,610		37,149
Other non-current liabilities	517		487
Stockholders’ Equity
Preferred Stock, no par value, 10,000,000 shares
authorized, none issued	--		--
Common Stock, no par value, 150,000,000 shares authorized,
41,707,375 and 41,598,923 shares issued; 39,762,175 and
39,653,723 shares outstanding	90,215		89,613
Retained earnings	65,013		61,478
Deferred compensation	(108	)	(133	)
Accumulated other comprehensive loss	(2,908	)	(2,704	)
Less treasury stock, at cost	(19,407	)	(19,407	)
Total stockholders' equity	132,805		128,847
	$ 164,932		$ 166,483

The accompanying notes are an integral part of these statements.

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

	Three Months Ended March 31,
		2002		2001
Operating activities:
Net income		$   3,535		$   1,485
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		3,275		3,534
Amortization of deferred compensation		13		64
Changes in assets and liabilities, net of effect from acquisition:
Decrease in accounts receivable		2,259		14,560
Increase in prepaid expenses and other		(853	)	(1,539	)
Increase in other assets		--		(17	)
Decrease (increase) in prepaid income taxes		440		(1,916	)
(Decrease) increase in accounts payable and accrued expenses		(3,086	)	1,614
Increase (decrease) in deferred rent		29		(25	)
Decrease in accrued restructuring charge		(399	)	--
(Decrease) increase in deferred revenues		(1,926	)	2,472
Increase in other non-current liabilities		46		--
Net cash provided by operating activities		3,333		20,232
Investing activities:
Purchases of short-term investments		(6,354	)	(10,876	)
Sales of short-term investments		6,382		7,585
Purchases of property and equipment		(4,914	)	(1,532	)
Additions to capitalized software development costs		(593	)	(817	)
Net cash used in investing activities		(5,479	)	(5,640	)
Financing activities:
Purchase of treasury stock		--		(9,996	)
Issuance of common stock		514		1,980
Net cash provided by (used in) financing activities		514		(8,016	)
Effect of exchange rate changes on cash		(262	)	(110	)
Net (decrease) increase in cash and cash equivalents		(1,894	)	6,466
Cash and cash equivalents, beginning of period		65,494		73,230
Cash and cash equivalents, end of period		$ 63,600		$ 79,696

The accompanying notes are an integral part of these statements.

DENDRITE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.  Basis of Presentation

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

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

2.  Net Income Per Share

     Basic net income per share was computed by dividing the net income for each period by the weighted average number of shares of common stock outstanding for each period. Diluted net income per share was computed by dividing net income for each period by the weighted average number of shares of common stock and common stock equivalents (stock options) outstanding during each period. For the three months ended March 31, 2002 and 2001, common stock equivalents used in computing diluted net income per share were 503,000 and 910,000 shares, respectively.

3.  Comprehensive Income

     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 translation adjustments are included as “Accumulated other comprehensive loss” and are reflected as a separate component of stockholders’ equity. Total after-tax comprehensive income for the three months ended March 31, 2002 and 2001 was $3,331,000 and $959,000, respectively.

4.  Reclassifications

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

5.  Restructuring Charge

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

     During the second quarter of 2001, the Company recorded a charge of $6,134,000 associated with this restructuring. This charge was reduced by $24,000 to $6,110,000 in the fourth quarter of 2001 due to the variance between the amounts originally recorded and management’s current estimate of the total costs of the restructuring. Of the restructuring charge, $2,551,000 related primarily to severance has not been paid as of March 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 anticipates that the accrued restructuring balance of $2,551,000 as of March 31, 2002 will be paid during 2002. The activity on the accrued restructuring charge balance as of March 31, 2002 is summarized in the table below:

	Accrued Restructuring as of December 31, 2001	Cash Payments in 2002	Accrued Restructuring as of March 31, 2002
Termination payments to employees	$2,218,000	$   134,000	$2,084,000
Facility exit costs	495,000	62,000	433,000
Contract termination and other
restructuring costs	237,000	203,000	34,000
	$2,950,000	$   399,000	$2,551,000

6.  Customer and Geographic Segment Data

     In the three months ended March 31, 2002, the Company derived approximately 49% of its revenues from its two largest customers. In the three months ended March 31, 2001, the Company derived approximately 43% of its revenues from its two largest customers.

     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 Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosure About Segments of an Enterprise and Related Information”.

	For the Three Months Ended March 31,
	2002	2001
Revenues:
United States	$  46,805,000	$  41,742,000
All Other	10,638,000	11,070,000
	$  57,443,000	$  52,812,000
	March 31, 2002	December 31, 2001
Identifiable assets:
United States	$139,664,000	$145,321,000
All Other	25,268,000	21,162,000
	$164,932,000	$166,483,000

     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.

7.  Impact Of Recently Issued Accounting Standards

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

     Intangible assets with identifiable useful lives that are subject to amortization consist of developed capitalized software development costs. Accumulated amortization related to developed capitalized software development costs was $9,996,000 and $9,348,000 at March 31, 2002 and December 31, 2001, respectively.

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

Year ending December 31,
2002	$2,601,000
2003	2,048,000
2004	1,264,000
2005	198,000
2006	--
2007 and thereafter	--
	$6,111,000

     There were no changes in the carrying amount of goodwill during the three months ended March 31, 2002.

     The pro forma results of operations for the three months ended March 31, 2001 assuming the provisions of SFAS No. 142 were applied as follows:

	March 31, 2001
Income from continuing operations (as reported)	$    1,485,000
Add back amortization of goodwill, net of income tax effect	380,000
Adjusted income from continuing operations	$    1,865,000
Basic and diluted net loss per common share:
Income from continuing operations (as reported)	$         .04
Add back amortization of goodwill, net of income tax effect	.01
Adjusted income from continuing operations	$         .05

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

     In November 2001, the Financial Accounting Standards Board issued Emerging Issues Task Force Rule No. 01-14, “Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred”  (“EITF 01-14”). EITF 01-14 requires that in cases where the contractor acts as a principal, reimbursements received for out-of-pocket expenses incurred be characterized as revenue and the associated costs be included as cost of services in the income statement.

     The Company applied EITF 01-14 for the quarter ended March 31, 2002 and, as required, has also reclassified comparative financial information for the quarter ended March 31, 2001. The impact of applying this pronouncement was to increase revenues and cost of services by $1,532,000 for the three months ended March 31, 2002 and to increase revenues and cost of services by $933,000 for the three months ended March 31, 2001. The implementation of EITF 01-14 has no impact upon earnings.

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

FORWARD-LOOKING STATEMENTS

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

OVERVIEW

     In 1991, Dendrite succeeded a business co-founded in 1986 by John E. Bailye, the Company’s Chairman and Chief Executive Officer. The business was established to provide sales force automation solutions, which has expanded into our current solutions offerings. These solutions enable companies to manage, coordinate, and control the activities of large sales forces in complex selling environments, primarily in the pharmaceutical industry. Today, our solutions combine software products with a wide range of specialized support services. These services include software implementation, technical and hardware support, and sales force support. We also offer analytical and consulting services and clinical trial services. We develop, implement, and service sales force software products through our own sales, support, and technical personnel located in 29 offices worldwide.

     The United States, the United Kingdom, France and Japan are currently our main markets. We bill services provided by our foreign branches and subsidiaries in local currencies. Operating results generated in local currencies are translated into U.S. dollars at the average exchange rate in effect for the reporting period. We generated approximately 19% and 21% of our total revenues outside the United States during the three months ended March 31, 2002 and 2001, respectively. Our operating profits by geographic segment are shown in Note 5 of the “Notes to Unaudited Consolidated Financial Statements.”

CRITICAL ACCOUNTING POLICIES

     Financial Reporting Release No. 60, which was recently released by the Securities and Exchange Commission, 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 the company’s financial position and results of operations, and requires management’s most difficult, subjective or complex judgments. The Company believes its critical accounting policies to be revenue recognition, accounting for restructuring and impairments and income taxes.

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

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

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

     We review long-lived assets 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 carrying value of our long lived assets, including intangibles and goodwill, in relation to estimates of future undiscounted cash flows of the underlying business, which are based on judgment and assumptions.

     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. Although realization is not assured, management believes it is more likely than not that the recorded net deferred tax asset will be realized.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2002 AND 2001

     REVENUES.   Total revenues increased to $57,443,000 in the three months ended March 31, 2002, up $4,631,000 or 9% from $52,812,000 in the three months ended March 31, 2001.

     License fee revenues increased to $3,179,000 in the three months ended March 31, 2002, up $176,000 or 6% from $3,003,000 in the three months ended March 31, 2001. License fee revenues as a percentage of total revenues remained the same at 6%. License fees are, by nature, non-recurring items. The majority of license fees recognized during the three months ended March 31, 2002 resulted from our performance of services related to licenses being recognized using the percentage-of-completion method.

     Service revenues increased to $54,264,000 in the three months ended March 31, 2002, up $4,455,000 or 9% from $49,809,000 in the three months ended March 31, 2001. Service revenues as a percentage of total revenues remained constant at 94% in the three months ended March 31, 2002. The increase in service revenues related to growth within our traditional business of approximately $3,500,000 and growth in our clinical services business of approximately $2,500,000. These increases in revenue were partially offset by a one-time payment during the three months ended March 31, 2001 relating to a contractual adjustment from an existing customer that had merged with another company.

     COST OF REVENUES.   Total cost of revenues increased to $30,151,000 in the three months ended March 31, 2002, up $2,089,000 or 7% from $28,062,000 in the three months ended March 31, 2001.

     Cost of license fees decreased to $924,000 in the three months ended March 31, 2002 down $39,000 or 4% from $963,000 in the three months ended March 31, 2001. Cost of license fees for the three months ended March 31, 2002 is comprised of the amortization of capitalized software development costs of $648,000 and third party vendor license fees of $276,000. Cost of license fees for the same period in 2001 is comprised of the amortization of purchased software and capitalized software development costs of $805,000 and third party vendor license fees of $158,000. The decrease in the amortization of capitalized software development costs in the three months ended March 31, 2002 was primarily due to the charge for impairment of purchased capitalized software that was recorded during the second quarter of 2001. The costs associated with third party vendor license fees increased due to an upgrade purchased by an existing customer during the three months ended March 31, 2002.

     Cost of services increased to $29,227,000 in the three months ended March 31, 2002, up $2,128,000 or 8% from $27,099,000 in the three months ended March 31, 2001. This increase was due primarily to the corresponding increase in service revenue during the period.

     Total gross margin was 48% for the three months ended March 31, 2002 compared with 47% for the three months ended March 31, 2001. Excluding the impact of recording reimbursable out-of-pocket expenses within service revenue and cost of services, the gross margin would have been 49% during the three months ended March 31, 2002. Excluding the reimbursable out-of-pocket expenses within service revenue and cost of services and the one-time payment during the three months ended March 31, 2001, relating to a contractual adjustment from an existing customer that had merged with another company, the gross margin would have been 46% for the three months ended March 31, 2001. The improvement in gross margin during the three month period ended March 31, 2002 was due to efficiencies gained from the Company’s restructuring plan that took place during 2001.

     SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES.   SG&A expenses decreased to $19,500,000 in the three months ended March 31, 2002, down $962,000 or 5% from $20,462,000 in the three months ended March 31, 2001. As a percentage of revenues, SG&A expenses decreased to 34% in the three months ended March 31, 2002, as compared to 39% in the three months ended March 31, 2001. The decrease in SG&A expenses was primarily attributable to the implementation of the FASB’s Statement of Financial Accounting Standards No. 142, which resulted in a reduction of goodwill amortization expenses of approximately $594,000 for the three months ended March 31, 2002. The decrease in SG&A expenses was also impacted by operating efficiencies achieved during the period as the result of our corporate restructuring plan.

     RESEARCH AND DEVELOPMENT (R&D) EXPENSES.   R&D expenses decreased to $2,629,000 in the three months ended March 31, 2001 down $238,000 or 8% from $2,867,000 in the three months ended March 31, 2001. As a percentage of revenues, R&D expenses were consistent at 5% in the three month period ended March 31, 2002 and March 31, 2001.

     INTEREST INCOME.  Interest income decreased to $304,000 in the three months ended March 31, 2002, down $622,000 or 67% from $926,000 in the three months ended March 31, 2001. The overall decrease related to a lower balance of investable cash on hand, which resulted from our purchases of treasury stock and our investments in new facilities during 2001. Additionally, lower short term interest rates versus last year adversely impacted interest income during the three months ended March 31, 2002.

     PROVISION FOR INCOME TAXES.   The effective tax rate remained the same at 36% in the three months ended March 31, 2002 as compared to the three months ended March 31, 2001.

LIQUIDITY AND CAPITAL RESOURCES

     We finance our operations primarily through cash generated by operations. Net cash provided by operating activities was $3,333,000 for the three months ended March 31, 2002, compared to $20,232,000 for the three months ended March 31, 2001. This decrease in cash provided by operating activities was due primarily to cash generated from the reduction of accounts receivable during the three months ended March 31, 2001, due to the collection of an unusually high accounts receivable balance as of December 31, 2000. Cash provided by operating activities during the three months ended March 31, 2002 was roughly in line with net income for the period of $3,535,000.

     Cash used in investing activities remained fairly consistent at $5,479,000 in the three months ended March 31, 2002 compared to $5,640,000 in the three months ended March 31, 2001. Cash used in investing activities during the three months ended March 31, 2002 primarily related to unusually high capital expenditures which were necessary to fund the completion of our new facilities. Cash used in investing activities during the three months ended March 31, 2001 primarily related to net purchases of short term investments, and also included a normal level of capital expenditures.

     Cash provided by financing activities was $514,000 in the three months ended March 31, 2002 compared to cash used in financing activities of $8,016,000 in the three months ended March 31, 2001. The difference of $8,530,000 was due primarily to purchases of treasury stock under the stock repurchase program announced on January 31, 2001 for approximately $10,000,000 during the three months ended March 31, 2001. The remaining difference primarily relates to an overall decrease in the level of stock option exercises for the three months ended March 31, 2002 compared to the three months ended March 31, 2001.

     We maintain a $15.0 million revolving line of credit agreement with JP Morgan Chase, 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, 2002. There were no borrowings outstanding under the agreement and we were in compliance with all of our covenant obligations as of March 31, 2002 and December 31, 2001.

     As of March 31, 2002, we did not have any material commitments for capital expenditures. Our principal commitments at March 31, 2002 consisted primarily of obligations under operating leases. These leases provide for us to make aggregate guaranteed payments in the following estimated amounts:

Year ending December 31,
2002	$6,472,000
2003	7,599,000
2004	6,069,000
2005	3,943,000
2006	3,944,000
2007 and thereafter	11,601,000
	$39,628,000

     As of March 31, 2002, letters of credit for approximately $500,000 were outstanding.

     At March 31, 2002, our working capital was approximately $86,633,000. Total cash and investments were 42% of total assets as of March 31, 2002 compared with 43% as of March 31, 2001. The Company’s days sales outstanding in accounts receivable was 51 days as of March 31, 2002 compared with 60 days as of March 31, 2001. 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 next twelve months.

     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.

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; 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.

PROBLEMS IN THE TRANSITION OF OUR INTERNAL JOB-COST AND FINANCIAL SYSTEMS MAY NEGATIVELY IMPACT OUR ABILITY TO TIMELY REPORT ACCURATE FINANCIAL RESULTS FOR THE THIRD QUARTER 2002, BILL OUR CUSTOMERS AND PAY OUR VENDORS

     We are currently transitioning our internal job-cost and financial systems for our U.S. operations to an Oracle-based system. The actual transfer to Oracle is currently planned to occur in August 2002. While we are taking significant measures to ensure a successful transition, we cannot assure you that, despite our efforts, the transition will be free from problems. Problems in the implementation could impact our ability to timely report accurate financial results for the third quarter of 2002 and could also negatively impact our ability to bill our customers and pay our vendors in a timely manner. Accordingly, we cannot assure you that the transition of our internal job-cost and financial systems will have no material adverse effect on our business, operating results or financial condition.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

     While we believe that the CRM and SFE software products and/or services offered by most of our competitors do not address the variety of pharmaceutical customer needs that our solutions address, increased competition may require us to reduce the prices for our products and services. Increased competition may also result in decreased demand for our products and services. We face similar risks from the competition of vendors that market and sell CRM and SFE solutions in the consumer packaged goods (“CPG”) market.

     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.

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:

• any adverse change in the political or economic environments in these countries;

• 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.

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

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

OUR SUCCESS DEPENDS ON RETAINING OUR KEY SENIOR MANAGEMENT TEAM AND 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. Competition for such personnel is intense. We have at times experienced difficulties in recruiting qualified personnel and we may experience such difficulties in the future. Any such difficulties could adversely affect our business, operating results or financial condition.

AN INABILITY TO MANAGE OUR GROWTH COULD ADVERSELY AFFECT OUR BUSINESS

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

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

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

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

THERE ARE CHARACTERISTICS IN THE CONSUMER PACKAGED GOODS MARKET THAT DIFFER FROM THE PHARMACEUTICAL MARKET

     We market and sell CRM solutions to companies in the CPG market. The selling environment in this market has unique characteristics that differentiate it from the pharmaceutical market. In addition, we believe that the CPG market is composed of sub-markets, each of which may have unique characteristics. Accordingly, we cannot assure you that we will be able to replicate in this market the success we have achieved in the ethical pharmaceutical market.

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

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

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

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

CATASTROPHIC EVENTS COULD NEGATIVELY AFFECT OUR INFORMATION TECHNOLOGY INFRASTRUCTURE

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

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

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

OUR COMMON STOCK MAY BE SUBJECT TO PRICE FLUCTUATIONS

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

• 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.

PART II.  OTHER INFORMATION

Item 5.  Other Information

     None

Item 6.  Exhibits and Reports on Form 8-K

(i) Exhibits

None

(ii) Reports on Form 8-K

(a) The Company filed a Current Report on Form 8-K on March 19, 2002, pursuant to “Item 5. Other Events” relating to certain employment agreements, indemnification agreements, leases and related amendments.

SIGNATURES

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

Date:  May 15, 2002

By: /s/ John E. Bailye
——————————————
John E. Bailye,
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)

By: /s/ Luke M. Beshar
——————————————
Luke M. Beshar,
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)