You should read the following discussion of our financial condition and results of operations in conjunction with our financial statements and related notes. In addition to historical information, the following discussion and other parts of this report contain forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated by such forward-looking statements due to various factors, including, but not limited to, those set forth under "Risk Factors" in Part II, Item 1A, and elsewhere, in this report.

OVERVIEW

We provide software and related services that allow our clients to more effectively manage their contract-based, business-to-business relationships through the entirety of the contract management lifecycle. We operate our business in two segments: health and life sciences and industry solutions. The health and life sciences line of business markets and sells our products and services to companies in the life sciences industries, including pharmaceutical and medical product companies, wholesale distributors and managed care organizations. The industry solutions line of business targets all other industries.

Our primary products and services were originally developed to manage complex contract purchasing relationships in the healthcare industry. Our software is currently licensed by 19 of the 20 largest world-wide pharmaceutical manufacturers, ranked according to 2007 annual pharmaceutical company revenues. As the depth and breadth of our product suites have expanded, we have added companies in the industry solutions markets to our customer base.

We have generated revenues from both products and services. Recurring revenue, which consists of maintenance, support and hosting fees directly related to our licensed software products and product subscription revenues, accounted for 59.7% of net revenues in the nine months ended September 30, 2008 versus 48.7% of net revenues in the nine months ended September 30, 2007. Services revenue, which is comprised of professional service fees derived from consulting, installation, business analysis and training services related to our software, accounted for 29.1% of net revenues in the nine months ended September 30, 2008 versus 33.3% of net revenues in the nine months ended September 30, 2007. License revenue, which consists of non-recurring license fees generated from perpetual license agreements, accounted for 11.2% of net revenues in the nine months ended September 30, 2008 versus 18.0% of net revenues in the nine months ended September 30, 2007.

We implemented a number of employee headcount reductions and office downsizings during the period June 2001 through March 2004, after which our aggregate quarterly spending on cost of products and services, sales and marketing, research and development and general and administrative expenses (excluding acquisition-related charges and noncash stock compensation) remained fairly steady - ranging from $9.2 million to $10.4 million-through the first quarter of 2006. In early 2006, we began to increase our spending, primarily on research and development and professional services, in order to (i) accelerate development of future releases of our product offerings in the health and life sciences segment, (ii) work on resolving defects in one of our software products, as explained in further detail in "Critical Accounting Policies - Revenue Recognition" in this Item 2, and (iii) augment staff levels at a number of professional services engagements, primarily in connection with implementations of the software product with performance defects at customer sites. This spending reached its peak at $12.5 million during the three-month period ended June 30, 2007, subsequently falling to $11.4 million during the three-month period ended December 31, 2007. Meanwhile, our revenues had been increasing for six consecutive quarters through the three-month period ended December 31, 2007, resulting in our lowest quarterly operating loss that quarter since the three-month period ended September 30, 2004 and our second lowest quarterly operating loss since our initial public offering in July 2000.

In 2008, our sales have decreased significantly. We believe that general economic conditions affecting the life science industries, a relatively small and recent base of customers using our next generation products, weak sales force execution and competitive pressures are the primary causes behind this decrease. Meanwhile, our expenses had increased during the first six months of 2008, largely as a direct result of our acquisitions of the ClaimRight business and Edge Dynamics. In response to this deterioration in our sales results and our increased operating losses, we reduced our headcount by a total of 28 employees during the three-month period ended June 30, 2008, incurring $346,000 in estimated severance costs, and cut back on projected future hiring plans. Our total employee headcount has increased from 199 at December 31, 2007 to 209 at September 30, 2008, but all of this growth was comprised of additional staffing of our development center in India. And our spending on cost of products and services, sales and marketing, research and development and general and administrative expenses (excluding acquisition-related charges and noncash stock compensation) in the third quarter of 2008 decreased to $10.3 million, which is in the range of our quarterly spending levels during the two year period ended March 31, 2006.

On November 6, 2006, we completed a private placement of our securities, issuing 3,535,566 shares of our common stock and common stock purchase warrants to purchase up to an additional 1,060,663 shares of common stock. The per unit price of the private placement offering was $1.98, with each unit comprised of one share of common stock and a warrant to purchase three-tenths of a share of common stock. The warrants are exercisable at $2.11 per share until November 2011. Net proceeds to the Company were approximately $6.5 million, after deducting commissions and other fees.

On December 31, 2007, we completed a private placement of $17.0 million of senior convertible notes, which bear interest at 6.5% per annum, payable quarterly in arrears, and will mature on December 31, 2012. The notes are convertible into shares of the Company's common stock at a conversion price of $3.8192 per share, subject to adjustment in the event of a merger or other change in control of the Company. Also, the notes can be redeemed at par by the investors on December 31, 2010, or redeemed at par by us at any time beginning on December 31, 2010. Net proceeds to the Company from the sale of the notes were approximately $15.8 million, after deducting commissions and other fees. We will be in default under these notes in the event that our common stock is delisted from the NASDAQ Capital Market and we are unable to obtain a waiver from the holders of the notes. See note 4 to the condensed consolidated financial statements above.

On February 20, 2008, we completed our purchase of the assets related to the ClaimRight data validation software business from Global Healthcare Exchange LLC and Global HealthCare Exchange, Inc. for up to $2.2 million in cash, including up to $600,000 which is being held back pending the achievement of certain defined performance milestones during the first 12 months after the closing. The initial purchase consideration of $1.8 million consisted of $1.4 million in cash, assumed liabilities of $206,000, and transaction costs of $181,000. The ClaimRight business was located in Ambler, Pennsylvania and marketed software to pharmaceutical providers for the processing and validating of pharmaceutical claim submissions. This purchase provided us with an established customer base and technology that will enhance our product offering to our pharmaceutical manufacturing clients.

On May 5, 2008, we completed our acquisition of all of the outstanding capital stock of Edge Dynamics, a privately-held developer of channel- and demand-management software based in Redwood City, California, for a purchase price of $500,000 plus the repayment and assumption of other obligations. The total merger consideration of approximately $5.1 million consisted of $500,000 in cash paid to the shareholders of Edge Dynamics, $1.7 million in cash paid to extinguish Edge Dynamics' outstanding bank debt, the assumption of Edge Dynamics' liabilities of approximately $2.9 million, and transaction costs of approximately $290,000, less Edge

Dynamics' cash balance of $231,000. The Edge Dynamics acquisition provided products and technology that we believe will enhance our product offerings to our customers in the health and life sciences segment.

CRITICAL ACCOUNTING POLICIES

Revenue Recognition

We generate revenues from licensing our software and providing professional services, training and maintenance and support services. Software license revenues are attributable to the addition of new customers and the expansion or renewal of existing customer relationships through licenses covering additional users, licenses of additional software products and license renewals.

We recognize software license fees upon execution of a signed license agreement and delivery of the software to customers, provided there are no significant post-delivery obligations, the payment is fixed or determinable and collection is probable. In multiple-element arrangements, we allocate a portion of the total fee to professional services, training and maintenance and support services based on the fair value of those elements, which is defined as the price charged when those elements are sold separately. The residual amount is then allocated to the software license fee. In cases where we agree to deliver unspecified additional products in the future, the license fee is recognized ratably over the term of the arrangement beginning with the delivery of the first product. In cases where we agree to deliver specified additional products or upgrades in the future, recognition of the entire license fee, including any related maintenance and support fees, is deferred until after the specified additional products or upgrades are delivered and made generally available to all customers. If an acceptance period is required, revenues are deferred until customer acceptance. In cases where collection is not deemed probable, we recognize the license fee as payments are received. In cases where significant production or customization is required prior to attaining technological feasibility of the software, license fees are recognized on a percentage-of-completion basis and are credited to research and development expenses as a funded development arrangement. After the software attains technological feasibility, recognizable license fees are reported as license revenue.

In 2007, we began to classify our reported net revenues into three revenue categories - Recurring, Services and License revenues - after having previously reported our revenues as being either Product or Service. Recurring revenue consists of (i) fees generated from the provision of maintenance, support, and hosting services and (ii) subscription revenues. Services revenue is now comprised of professional service and training fees and reimbursable out-of-pocket expenses. License revenue consists of non-recurring license fees generated from perpetual license agreements.

We offer current and prospective customers the option to enter into a subscription agreement as an alternative to our standard perpetual license contract model. We believe our subscription offering has expanded the market to customers that find regular subscription payments an easier and more flexible implementation of our software, and subscription arrangements have the potential to provide us with smoother and more predictable revenue growth. The standard subscription arrangement is presently a fixed fee agreement over three to five years, covering license fees, unspecified new product releases and maintenance and support, generally payable in equal quarterly or annual installments commencing upon execution of the agreement. Prior to 2006, more than half of the executed subscription arrangements included a provision allowing the agreement to convert free-of-charge to a perpetual license after the completion of the initial term plus any extensions, generally after five years, after which time the customer would have the option of paying for the continuation of maintenance and support. Beginning in 2006, we have generally discontinued including free-of-charge perpetual conversion

provisions in new subscription arrangements. Also included in subscription revenues are license fees generated from perpetual license arrangements with rights to unspecified additional products, which are treated as subscription arrangements for accounting purposes. For subscription arrangements which include rights to specified products which are not yet generally available to customers, revenue recognition is deferred until all elements of the arrangement including any such specified products have been delivered. For all other subscription arrangements, we recognize all revenue ratably over the term of the subscription agreement commencing upon delivery of the initial product. Subscription installment amounts that are not yet contractually billable to customers are not reflected in deferred revenues on our consolidated balance sheet.

Maintenance and customer support fees are recognized ratably over the term of the maintenance contract, which is generally twelve months. When maintenance and support is included in the total license fee, we allocate a portion of the total fee to maintenance and support based upon the price paid by the customer when sold separately, generally as renewals in the second year.

Professional service revenues are recognized as the services are performed. If conditions for acceptance exist, professional service revenues are recognized upon customer acceptance. For fixed fee professional service contracts, we provide for anticipated losses in the period in which the loss is probable and can be reasonably estimated. Training revenues are recognized as the services are provided. Included in training revenues are registration fees received from participants in our annual off-site user training conferences.

Payments received from customers at the inception of a maintenance period are treated as deferred service revenues and recognized ratably over the maintenance period. Payments received from customers in advance of product shipment or revenue recognition are treated as deferred product revenues and recognized when the product is shipped to the customer or when otherwise earned.

Subscription arrangements, including a small number of perpetual license arrangements with rights to unspecified additional products that are treated as subscriptions for accounting purposes, represent a significant proportion of our new licenses. In 2007, 18 of the 35 license contracts (minimum value of $50,000) that were sold were treated as subscription arrangements for accounting purposes. And in the nine months ended September 30, 2008, five of the 10 license deals (minimum value of $50,000) that were sold are likewise being accounted for as subscriptions. During the nine months ended September 30, 2008 and 2007, we recognized $4.1 million and $3.3 million, respectively, in recurring revenue related to such agreements.

During the third quarter of 2005, we became aware of certain defects in the then-current version of one of our software products, which was first shipped to customers in the fourth quarter of 2004. These defects, which were not identified in pre-release product testing, affected the performance of the software for a portion of our customers depending on each customer's particular implementation environment and its intended use of the software. Because certain concessions had been made to customers in connection with these defects, we have generally not recognized revenue from sales of this software product and related implementation services since the beginning of the third quarter of 2005, except in those cases in which it was determined that the customer was not likely to be affected by the known, unresolved software defects. During 2006, new versions of the software were released, but we continued to experience problems with implementations at several customer sites. In 2007, we released new versions of the software which were designed to resolve known performance defects with minimal additional functionality. During the quarters ended June 30 and September 30, 2007, we successfully completed implementations of the newest version of this software at multiple customer sites and made progress with other customer implementations, and accordingly have begun recognizing revenue from this software on a limited basis. However, we are continuing to defer all recurring, services and license revenue in connection with (i) implementations of this software program that are not yet complete, and (ii) any customers for

which a concession is probable and an agreement formalizing a concession amount has not been executed. As of September 30, 2008 and December 31, 2007, we have reversed and deferred $625,000 and $671,000, respectively, of otherwise-recognizable product and service revenue, based in part on our estimate of the fair value of concessions to be made until the remaining defects are resolved, and partly on our determination that license fees were not fixed and determinable because of the possibility of future concessions.

Stock-based Compensation:

On January 1, 2006, we adopted Statement of Financial Accounting Standards ("FAS") No. 123 (revised 2004) ("FAS 123(R)"), "Share-based Payment." Under FAS
123(R), we measure and record the compensation cost of employee and director services received in exchange for stock option grants and other equity awards based on the grant-date fair value of the awards. The values of the portions of the awards that are ultimately expected to vest are recognized as expense over the requisite service periods. We account for stock options and awards granted to non-employees other than directors using the fair-value method.

Under the fair-value method, compensation associated with equity awards is determined based on the estimated fair value of the award itself, measured using either current market data or an established option pricing model. The measurement date for employee and director awards is generally the date of grant. The measurement date for awards granted to non-employees other than directors is generally the date that performance of certain services is complete.

Our estimates of the fair value of stock option grants were made using the Black-Scholes option pricing model with the following assumptions and resulted in the following weighted average grant-date fair values of options granted during the nine months ended September 30:

                                                             2008                  2007
Risk-free interest rates                                    2.15-3.40 %           4.35-5.10 %
Dividend yield                                                     -                     -
Expected volatility                                             55-70 %               55-60 %
Expected term (in years)                                    3.75-7.25             5.29-7.50
Weighted average grant-date fair value of options
granted during the period                                 $      1.03           $      1.17

The risk-free interest rate is derived quarterly from the published US Treasury yield curve, based on expected term, in effect as of the last several days of the quarter. We use historical volatility of the Company's common stock to estimate expected volatility. For the nine months ended September 30, 2007, the expected term of options granted was estimated to be equal to the average of the contractual life of the options and the grant's average vesting period. For the nine months ended September 30, 2008, the expected term of options was derived from Company historical data, including, among other things, option exercises, forfeitures and cancellations.

Allowance for Doubtful Accounts

We record provisions for doubtful accounts based on a detailed assessment of our accounts receivable and related credit risks. In estimating the allowance for doubtful accounts, management considers the age of the accounts receivables, our historical write-off experience, the credit worthiness of customers and the economic conditions of the customers' industries and general economic conditions, among other factors. Should any of these factors change, the estimates made by management will also change, which could affect the level of our future provision for doubtful accounts. If the assumptions we used to calculate these estimates do not properly reflect future collections, there could be an impact on future reported results of operations. The provisions for doubtful accounts are included in general and administrative expenses in the consolidated statements of operations.

Acquired Intangible Assets

Acquired intangible assets (excluding goodwill) are amortized on a straight-line basis over their estimated useful lives and reviewed for impairment on an annual basis, or on an interim basis if an event or circumstance occurs between annual tests indicating that the assets might be impaired. The impairment test will consist of comparing the cash flows expected to be generated by the acquired intangible asset to its carrying amount. If the asset is considered to be impaired, an impairment loss will be recognized in an amount by which the carrying amount of the asset exceeds its fair value.

Goodwill

Goodwill is tested for impairment at the reportable segment level using a two-step approach. The first step is to compare the fair value of a reporting unit to its carrying amount, including goodwill. If the fair value of the reporting unit is greater than its carrying amount, goodwill is not considered impaired and the second step is not required. If the fair value of the reporting unit is less than its carrying amount, the second step of the impairment test measures the amount of the impairment loss, if any, by comparing the implied fair value of goodwill to its carrying amount. If the carrying amount of goodwill exceeds its implied fair value, an impairment loss is recognized equal to that excess. The implied fair value of goodwill is calculated in the same manner that goodwill is calculated in a business combination, whereby the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets), with the excess "purchase price" over the amounts assigned to assets and liabilities representing the implied fair value of goodwill. Goodwill is tested for impairment at least annually, or on an interim basis if an event occurs or circumstances change that would likely reduce the fair value of a reporting unit below its carrying value. If the assumptions we used to estimate fair value of goodwill change, there could be an impact on future reported results of operations.

Deferred Tax Assets

A deferred tax asset or liability is recorded for temporary differences in the bases of assets and liabilities for book and tax purposes and loss carry forwards based on enacted tax rates expected to be in effect when these temporary items are expected to reverse. Valuation allowances are provided to the extent it is more likely than not that all or a portion of the deferred tax assets will not be realized.

Product Indemnification

Our agreements with customers generally include certain provisions obligating us to indemnify the customer against losses, expenses, and liabilities from damages that may be awarded against the customer in the event that our products are found to infringe upon a patent, copyright, trademark, or other proprietary right of a third party. The agreements generally seek to limit the scope of remedies for such indemnification obligations in a variety of industry-standard respects, including our right to replace an infringing product. To date, we have not had to reimburse any of our customers for any losses related to these indemnification provisions and no claims were outstanding as of September 30, 2008. We do not expect that any significant impact on financial position or the results of operations will result from these indemnification provisions.

Research and Development Costs

Research and development costs are charged to operations as incurred. Based on our product development process, technological feasibility is established upon completion of a working model. Costs incurred by the Company between completion of the working model and the point at which the product is ready for general release have not been material. As such, all software development costs incurred to date have been expensed as incurred.

We incurred research and development expenses of $12.3 million for the nine months ended September 30, 2008, which included amounts assigned to acquired in-process technology for the quarters ended March 31, 2008 and June 30, 2008 of $760,000 and $800,000, respectively. The values assigned to acquired in-process technology were determined by identifying those acquired specific in-process research and development projects that would be continued and for which
(a) technological feasibility had not been established at the acquisition date,
(b) there was no alternative future use, and (c) the fair value was estimable with reasonable reliability.

RESULTS OF OPERATIONS

COMPARISON OF THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 2008 AND 2007

NET REVENUES

Net revenues decreased by $2.5 million, or 23.0%, to $8.2 million for the quarter ended September 30, 2008 from $10.7 million for the quarter ended September 30, 2007. License revenue decreased by $1.7 million, or 78.4%, when compared to the year earlier period. Also, service revenue decreased by $909,000, or 25.8%, to $2.6 million versus $3.5 million in the year earlier period as demand for implementation services decreased in both of our operating segments, which we believe is primarily a result of the decrease in new license contracts sold during the first nine months of 2008 as compared to the same period in 2007.

As indicated in the table below, the gross value of license contracts sold during the third quarter of 2008 decreased by $3.4 million, or 86.6%, to $520,000 versus $3.9 million sold during the third quarter of 2007, due to a significant decrease in the number of license transactions (minimum value of $50,000) from 10 to one. We believe that general economic conditions affecting the life science industries, a relatively small and recent base of customers using our next generation products, weak sales force execution and competitive pressures are the primary causes behind this decrease. See Risk Factors in Part II, Item 1A of this filing.

  Reconciliation of Gross Value of License Transactions to Reportable License
                                    Revenue



                                                         Three months ended        Nine months ended
. . .