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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended March 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the transition period from                      to
 Commission File No. 0-12716
 CLINICAL DATA, INC.
 (Exact Name of Registrant as Specified in its Charter)
 Delaware
    
    04-2573920(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)One Gateway Center, Newton, Massachusetts
    
    02458(Address of Principal Executive Offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (617) 527-9933
 Securities registered pursuant to Section 12(b) of the Act:
 NONE
 Securities registered pursuant to Section 12(g) of the Act:
 Common Stock, $.01 par value  (Title of Class)
  ̈ þ
  ̈ þ
 þ  ̈
  ̈
   ̈  ̈ þ
  ̈ þ
   DOCUMENTS INCORPORATED BY REFERENCE




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INDEX TO FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 2006
 PAGEPART 1
    
    
    1ITEM 1. Business
    
    
    1ITEM 1A. Risk Factors
    
    
    30ITEM 2. Properties
    
    
    43ITEM 3. Legal Proceedings
    
    
    44ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    44PART II
    
    
    44ITEM 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    44ITEM 6. Selected Consolidated Financial Data
    
    
    46ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    48ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    61ITEM 8. Financial Statements and Supplementary Data
    
    
    62ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    62ITEM 9A. Controls and Procedures
    
    
    62ITEM 9B. Other Information
    
    
    63PART III
    
    
    63ITEM 10. Directors and Executive Officers of the Registrant
    
    
    63ITEM 11. Executive Compensation
    
    
    63ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    63ITEM 13. Certain Relationships and Related Transactions
    
    
    63ITEM 14. Principal Accounting Fees and Services
    
    
    63PART IV
    
    
    64ITEM 15. Exhibits and Financial Statement Schedules
    
    
    64SIGNATURES
    
    
    65EX-4.2 Specimen Series A Preferred Stock CertificateEX-10.6 Form of Stock Option Grant Notice and AgreementEX-10.31 Letter Agreement with Kevin RakinEX-14.1 Code of Business Conduct and EthicsEX-21.1 Subsidiaries of the CompanyEX-23.1 Consent of Deloitte & Touche, LLPEX-31.1 Section 302 CEO CertificationEX-31.2 Section 302 CFO CertificationEX-32.1 Section 906 CEO and CFO Certifications
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PART I
  
 ITEM 1. BUSINESS
 General
  tm
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Company History
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 
   
 OUR INDUSTRIES:
 In Vitro Diagnostic (IVD) Testing
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Development and Marketing of Drugs
    TM
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
    
    5% of all hospital admissions (1.5 million cases);
    
    106,000 deaths in the U.S. annually;
    
    2.2 million patients suffering serious, but not deadly, side effects;
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
    
    increased length of hospital stays;
    
    increased cost per patient of about $2,500; and
    
    total associated costs to the U.S. healthcare system of $177 billion.
     Diagnostic and Genetic Testing Industries
  g
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
    
    the need for education on how and when to use the information;
    
    the difficulty and expense of performing tests and assays;
    
    the lack of demonstrated cost-effectiveness in comparison to traditional empiric monitoring;
    
    the rarity of a single-gene cause for drug response variability;
    
    uncertainty about the predictive value of genetic tests to accurately identify patients; and
    
    ethical, legal and social considerations.
 OUR COMPANIES:
  CDSS
Vital Scientific
Vital Diagnostics
Electa Lab
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Our Products & Services
   Clinical Chemistry
   
    
    The Vitalab Selectra-XL, a floor model 360 test per hour random-access, walk-away
clinical chemistry analyzer offering a wide range of testing including clinical chemistry,
special proteins, drugs of abuse (DOA), therapeutic drug monitoring (TDM), and
electrolytes.
    
    The Vitalab Selectra E, (also trade-named Selectra II and Vitalab Flexor-E), a
walk-away 180 test per hour clinical chemistry analyzer, capable of performing over 70
different diagnostic tests using reagents from almost all manufacturers.
    
    The Vitalab Junior a walk-away 90 test per hour clinical chemistry analyzer, also
capable of performing over 70 different diagnostic tests using reagents from a wide range
of producers.
    
    The Viva series of analyzers, dedicated systems designed for TDM and for the detection
of DOA, which are marketed by Dade Behring in over thirty countries worldwide These
analyzers were designed specifically for use with the Dade Behring Emit® line
of diagnostic assays for TDM and DOA.
    
    The HY-TEC 288 is a fully automated enzyme immunoassay system that was developed and is
manufactured for Stratagene Corporation (formerly Hycor Biomedical, Inc.) of La Jolla,
California. The HY-TEC 288 is a reagent system that permits the testing of 8 autoimmune
tests and 900 allergens.
    
    The Vitalab 300 semi-automated clinical chemistry analyzer, which permits a full range
of testing including endpoints, kinetic and bichromatic measurements.
    
    The Envoy, a 350 test per hour bench top, walk-away clinical chemistry analyzer
offering a wide range of clinical chemistry and electrolytes.
    
    A complete menu of over 20 clinical chemistry tests formulated and/or packaged by us
for our range of clinical chemistry instruments.
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Specialized Diagnostic Assays
  in vitro
   Hematology
 ESR
   Hemostasis
  in vitro
 Blood Cell Counting
    -9-




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Distribution
 POL Segment
  Clinics and Small Hospitals Segment
   Product Development
    Manufacturing
   Our Strategy
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Pharmacogenomics and Molecular Services
  
    
    isolating and banking DNA and RNA samples;
    
    sequencing DNA samples and providing related molecular services (see below);
    
    measuring the genetic variation present in DNA samples;
    
    development and provision of home-brew assays to assist data generation and
analysis during clinical trials; and
    
    gene expression profiling and analysis.
 Developing and Commercializing Genetic Tests
 FAMILION
 Pursue Strategic Acquisitions
  Our Offering: Pharmacogenomics and Molecular Biology Services
  Pharmacogenomics Services
   
    
    Good Laboratory Practices (GLP) compliant laboratory services including DNA and tissue
banking, sequencing, genotyping, and related molecular biology services, utilized in over
550 clinical trials;
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
    
    DNA testing laboratories licensed by the states of Connecticut and North Carolina under
Clinical Laboratory Improvement Amendments of 1988 (CLIA) and GLP-compliant;
    
    designs to permit pharmaceutical and biotechnology companies to apply genomics in a
variety of ways for drug development and commercialization, as well as for our own
development purposes primarily in the area of genetic tests;
    
    the HAPTM Database, which contains highly informative, proprietary measures
of genetic variation, or HAPMarkers, for more than 8,000 pharmaceutically relevant genes;
    
    a method to deduce haplotypes from a patients genetic variation which we call HAP
Builder;
    
    a proprietary informatics system, which we call DecoGen, including unique algorithms for
identifying biomarkers of drug response or biomarkers of disease risk ;
    
    a strong knowledge and ability to research genetic variation and deduce value of these
biomarkers in the clinical care setting;
    
    RuleFinder, a method for high-throughput statistical analysis of genotype-phenotype associations ; and
    
    clinical genetics development skills.
  
    
    assessing efficiently the genomic variation among patients in a clinical trial,
thereby permitting pharmaceutical and biotechnology companies to incorporate genomic
variation information in the decision making process required during the course of a
clinical trial and/or a drug development program;
    
    creating better informed, or smarter, clinical trials through the design of
protocols that result in enrichment for response via the inclusion of those patients most
likely to benefit from the proposed therapeutic product;
    
    facilitating earlier go/no-go decisions on whether to proceed to the next phase of
clinical trial testing, which should result in more efficient use of clinical resources;
and
    
    reducing the size and, hence, the cost, of late-stage clinical trials by enrolling
patients who are most likely to respond to a drug and/or are least likely to suffer an
adverse reaction.
  
    
    identifying biomarkers that define the patient population with the best response
and/or with less risk of an adverse reaction;
    
    integrating genomic variation information into marketing strategies to sustain and
enhance a market leading position or to address problems such as poor market penetration,
competitive pricing issues, safety, risk of therapeutic substitution and limited patent
life;
    
    targeting new markets and obtaining approval for new indications; and
    
    providing the means via our CLIA laboratories to develop and market a genetic
test to identify the responder group of patients.
  
    
    a feasibility assessment for using pharmacogenomics in developing a particular
compound;
    
    assistance in designing an informed consent, developing or modifying a protocol for
incorporating the use of pharmacogenomics and banking DNA;
    
    guidance in selecting genes and SNPs especially minimal SNPs, choosing proprietary
HAPMarkers and determining the number of patients required for a pharmacogenomic study;
    
    design, development and validation of assays and laboratory analysis (genotyping or
sequencing) of samples with these validated assays;
    
    analysis of data to detect an association between a clinical response and HAPMarkers;
    
    validation of the results under GLP-compliant conditions; and
    
    development of molecular tests and assays for performance in our CLIA laboratories.
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HAP
   GLP-Compliant DNA Banking Service
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GLP-Compliant Genotype Testing
  Custom DNA Sequencing Services
  
    
    FDA submission quality sequencing This sequencing work is designed for
presentation in a report that can be incorporated into an application to be submitted to the
FDA or other regulatory agencies;
    
    Express Sequencing This service is designed to give customers a quick look at high
accuracy double or single strand sequence data from one or multiple clones, in which the data
is returned to the customer within a very short period of time after receiving the sample;
    
    High throughput sequencing services This service involves sequencing many clones
from a genomic or an expressed sequence tag library utilizing high-throughput automated
systems; and
    
    Large scale genomic sequencing services In this service, we construct libraries
from a variety of genomic constructs and assemble them into full-length sequences, which can
represent hundreds or thousands of genes.
 Genetic Stability Testing (GST) Services
  
    
    DNA sequencing We offer a number of alternative strategies to circumvent issues
associated with having insufficient DNA and provide our clients with complete sequence
data.
    
    Copy number A service we provide that monitors the number of copies of a gene
contained within a cell. Demonstrating that cells experience predictable changes in their
copy number during production scale-up assures regulatory authorities that the process is
well controlled.
    
    Insertion number A service that is similar to copy number but it is an additional
analysis that is utilized to measure the stability of a cell bank.
    
    Plasmid loss or rearrangement A plasmid is an artificial stretch of DNA used to
insert specified genes into a cell. For plasmid-based gene expression systems, the loss or
rearrangement of the plasmid can be a major practical problem in high yielding strains,
affecting the growth of cells. We have assays to detect the percentage of cells that are
missing or have undergone a loss or rearrangement of their plasmid.
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
    
    Phage detection Phages are bacterial viruses, which can kill or alter the
bacteriums growth cycle or expression levels. Our phage detection service is designed to
detect contamination of a bacterial cell bank.
 Genetically Modified Organism (GMO) Testing Services
  
    
    Polymerase chain reaction (PCR) analysis PCR can be used to determine the
presence of foreign (non-native) genes.
    
    Southern blot analysis This analysis is used to determine the gene copy number and
map the insertion location.
    
    Sequence verification of the expression cassette This is used to ensure the accuracy
of the DNA quality.
 Gene Expression and Deletion Services
 quantitative polymerase chain reaction (QPCR
 Custom Core Molecular Biology Services
  
    
    Nucleic acid extraction services All of our services involve the manipulation of
nucleic acids, the starting material for molecular biology research and development. We
offer a variety of extraction procedures to analyze DNA and/or RNA from blood, tissue, and
other fluids, as well as from bacterial, plant and cell culture samples.
    
    Subcloning A procedure used to transfer a DNA region of interest into a vector
that is more suitable for procedures such as DNA sequencing and gene expression. We can
provide a strategy for subcloning a variety of different sequence fragments, including PCR
products, into standard vector systems.
    
    Library screening During the gene discovery process, customers may find only a
portion of a gene of interest. We can use such a gene fragment to screen a library of
clones and isolate the full-length cDNA of interest.
    
    Polymerase chain reaction PCR can be used to amplify a specific sequence of
interest from plasmid, viral, or genomic DNA. We also have the expertise to provide reverse
transcription PCR for amplification of an RNA product.
    
    DNA preparation Many of our customers need large amounts of DNA for sequencing or
probe generation. We have the ability to isolate DNA on a large-scale basis.
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Our Offering: Genetic Tests
  
    
    The FAMILION Test a marketed genetic test for cardiac ion channel mutations (cardiac
channelopathies). Cardiac channelopathies, including familial Long QT (LQT) and Brugada
Syndromes, are conditions that affect the electrical system of the heart. These conditions
are caused by genetic mutations that result in structural abnormalities in the potassium
and sodium channels of the heart and predispose affected individuals to an abnormal heart
rhythm (arrhythmia). Familial LQT and Brugada Syndromes are commonly seen in apparently
healthy, active adolescent patients. If left undiagnosed and untreated, these conditions
can be fatal. Treatment options include life-style modification, the prescription or
avoidance of specific classes of drugs and the insertion of an implantable
cardioverter/defibrillator. In May 2004, we launched the FAMILIONTest, our genetic test
for cardiac ion channel mutations, through our CLIA licensed laboratory in New Haven,
Connecticut, to assist physicians in choosing the most appropriate course of treatment for
each patient. We have intellectual property rights relating to the five genes that have
been identified as explaining the majority of two cardiac channelopathies, familial LQT and
Brugada Syndromes, with each of the genes having multiple causative mutations. Acquired LQT
Syndrome can also result from the administration of a medication or can occur in patients
with other disorders, such as congestive heart failure. More than 50 approved prescription
drugs, in various therapeutic classes, are known to prolong the QT-interval. Drug-induced
LQT has led to the withdrawal from the market of such well-known drugs as the heartburn
agent Propulsid® and the antihistamine Seldane®. In December 2004, we entered into a
license agreement with Vanderbilt University, which grants us exclusive commercial rights
to a patent that claims screening patients for susceptibility to drug-induced cardiac
arrhythmias by testing for the presence of a common polymorphism in KCNE1, an important
cardiac ion-channel gene. We have recently begun marketing to pharmaceutical companies the
ability to include LQT genetics in drug development.In support of our efforts to develop and launch tests with respect to cardiac
channelopathies, including familial LQT and Brugada Syndromes, we have royalty-bearing
intellectual property and material transfer agreements with the Mayo Foundation for Medical
Education and Research and the University of Rochester under which we obtained access to
clinical expertise, clinical research samples and associated data, from which identities
have been removed, and intellectual property related to disease-associated mutations.
    
    Thiopurine S-methyltransferase (TPMT) genetic test The TPMT test provides a genetic
assessment of a patients ability to metabolize the thiopurine class of drugs, which are
commonly used in a wide range of therapeutic areas, including such fields as oncology,
rheumatology, organ transplantation and vasculitis therapy. The activity of the TPMT enzyme
varies significantly among individuals who have different haplotypes of the TPMT gene.
Pursuant to license agreements that we acquired from DNA Sciences in May 2003, we receive
royalties based on net sales of the home-brew test.
    
    CARING Study (Clozapine and Agranulocytosis Relationships Investigated by Genetics (HAP
Markers) In December 2004, we reported the discovery of genetic markers that we believe
predict who is at risk of developing clozapine-induced agranulocytosis, a life-threatening
decrease of white blood cells that requires frequent blood testing of patients and in 2005
embarked on a study to validate these markers in an independently collected cohort. We
believe that the findings may apply to other drugs that also affect white blood cell
counts. A test for clozapine-induced agranulocytosis might be used as a risk assessment
tool by
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physicians for patients contemplating beginning treatment with clozapine or for
patients whose white blood cell counts are falling. Clozapine, which is no longer under
patent protection, is a highly effective therapeutic for treating certain patients with
schizophrenia. During the first six months of treatment with clozapine, a patient must
undergo weekly blood monitoring, a requirement that results in poor patient compliance. We
believe that clozapines third-line therapy status and the requirement for repeated blood
testing are the primary reasons that the market share for all clozapine products is only
approximately $135 million in the United States. Sales of antipsychotic drugs in the United States reached an
estimated $9 billion in 2004 with an annual growth rate of 12% (Source: IMS Health, IMS
National Sales PerspectivesTM, February 2005).
    
    Vilazodone In September 2004, through our subsidiary, Genaissance, we acquired an
exclusive worldwide license from Merck KGaA, Darmstadt, Germany, to develop and
commercialize a small molecule compound, vilazodone, which is a selective serotonin
reuptake inhibitor (SSRI) and a 5HT1A partial agonist. Vilazodone has been assessed in 15
Phase I and five Phase II trials involving a total of 369 healthy subjects and 1,163
depressed patients. It has been found to have an acceptable safety profile for this stage
of development. In previous trials with positive controls, vilazodone failed to demonstrate
significant efficacy against placebo but demonstrated efficacy comparable to that of the
positive controls, approved antidepressants in wide use. After receiving an indication from
the FDA that our proposed study was appropriately designed as a pivotal Phase III study, we
initiated enrollment in February 2006 for a Phase III randomized, double-blind,
placebo-controlled trial of vilazodone that includes pharmacogenomic characterization of
patients, with anticipated enrollment of approximately 400 patients diagnosed with Major
Depressive Disorder at eight to ten centers in the United States. We will apply our HAP
Technology and clinical genetics experience and leverage the existing knowledge of the
genetics of depression and response to antidepressants, especially to SSRIs, to find
genetic markers that can be used to identify a population of patients who will respond to
vilazodone. The genetic analysis will be performed in-house by Clinical Datas GLP- and
CLIA-approved facilities. We anticipate having initial results from this study available in
mid-calendar 2007. At least one long-term safety study and one additional pivotal study
will be required prior to filing a New Drug Application (NDA) which could be accomplished
by the first half of calendar 2009. We have also presented the vilazodone biomarker
development plan to the FDAs IPRG.
 Our Offering: HAP Technology
 HAP
 HAP HAP HAP
 DecoGen HAP
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HAP
  Our Strategy
     Healthcare Markets
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Our Offerings
  
    
    Gene Expression Profiling Gene expression profiling provides a snapshot of the
genes expressed in an organism, tissue or cell at a specific time. By comparing the
expression of genes in a normal organism to a mutant organism, for example, we can
ascertain information about the function of those genes with modified expression patterns,
as well as gain insight into the effect of such genes. By determining how a modified gene,
exposed to a chemical agent, or other biological perturbations affect the expression
patterns of large complement of genes, we gain insight into biochemical and biological
pathways that may be relevant to the development of therapeutics and diagnostics.
    
    Metabolomics Biochemical profiling provides a way of measuring the net change in the
abundance of small molecules, and therefore addresses systemic changes at the biochemical
level. Metabolomics provides a functional readout of biochemical changes which, when
combined with gene expression results, enable us to construct a more comprehensive picture
of the mechanisms that are altered within biological systems. We utilize proprietary
methods to separate the thousands of components present in a biological sample according to
both their physicochemical characteristics and their mass. The complex data from these
analyses is deconvoluted using proprietary methods developed by Icoria.
    
    Quantitative Tissue Analysis We use our proprietary quantitative tissue analysis
software for the precise identification and quantification of changes in tissue structure.
This process involves digitally imaging pathology slides to capture the entire tissue image
in a computer file. We then apply our software to analyze the tissue image in terms of
color, shape and textures, so that we can locate and quantify all of the important physical
components of the tissue in relative space.
    
    Pathway Informatic Despite the wealth of genomics and other omic data now available
(e.g. proteomic and metabolomic), life science researchers are challenged to translate that
information into clear measures of safety and efficacy of lead compounds. We believe the
key lies in integrating these various data types in such a way that scientists can
simultaneously see all the data, identify relationships between them and draw meaningful
conclusions. We believe we are one of the first companies developing such data integration
and data coherence tools. Additionally, we have developed an extensive informatics system
to intelligently store, retrieve, analyze and mine the data we collect.
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Computational Biology
  
    
    processing and analyzing metabolomic data generated using mass spectrometry;
    
    processing and analyzing transcript profiling data generated using microarrays;
    
    processing and analyzing tissue feature data using computer vision histomorphometry;
    
    mining high-dimensional data sets for the discovery of biomarkers and drug targets;
    
    constructing networks of biological regulation and biochemical reaction networks and
inferring pathway based mechanisms for disease, drug action and patient response; and
    
    transforming, merging, mining and performing concurrent analysis of multiple data
streams including, for example, metabolomic, quantitative tissue feature and gene
expression data, coupled with clinical end-points and pathway analysis for biomarker,
target and drug discovery.
 Biomarker Discovery
  
    
    Transcript profiling Icoria has adopted a multi-platform approach to the analysis of
transcript profiles, using Agilent, Affymetrix and Arcturus systems to generate high
quality gene expression data.
    
    Metabolomics Icoria has been a pioneer in the development of mass spectrometry methods
for the detection and analysis of the bodys endogenous biochemicals, and the mining of
these data to construct diagnostic panels of classifiers of disease and drug action.
 Microarray Services
  ® 
 Partnerships
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Healthcare
 Agriculture
 Our Partnerships and Collaborations
  
    
    a research collaboration with the University of Pittsburgh Cancer Institute to identify
biomarkers to improve the diagnosis of non-small cell carcinoma;
    
    a research collaboration with the University of North Carolina at Chapel Hill (UNC-CH)
and the NIEHS to study the mechanism of acetaminophen toxicity in the liver. The research
is focused on identifying better diagnostics for assessing liver damage and individual
patient response to therapeutic treatment;
    
    a research collaboration with the Bowles Center for Alcohol Studies (UNC-CH) to identify
markers for alcohol-induced liver and brain damage and dependence, using Icorias systems
biology platform; and
    
    a master research agreement with Duke University Medical Center in the area of
metabolomics and biomarker discovery.
 Advanced Technology Program
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National Institute of Environmental Health Sciences
   Pioneer Hi-Bred
 GeneFunction Factory ® Arabidopsis thaliana
 COMPETITION
 IVD Testing
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Genaissance
 HAP
  -23-




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
    
    our ability to attract and retain customers;
    
    our ability to commercialize our intellectual property and the intellectual property we
in-license including vilazodone;
    
    our ability to attract and retain qualified personnel;
    
    the ability of our customers to develop and commercialize genetic testing products based
upon our HAPTechnology;
    
    our ability to secure and protect our HAPTechnology for commercialization programs and
internal use;
    
    our ability to lower our direct cost for the provision of pharmacogenomics and molecular
services and bring new higher margin products to market
    
    our ability to protect against unauthorized use of our HAPTechnology under various
intellectual property laws and contractual obligations;
    
    our ability to grow our business in agricultural and other genotyping;
    
    the wide breadth of custom molecular and pharmacogenomics services we offer through our
four facilities;
    
    our ability to expand into new territories; and
    
    our ability to invest in new technologies and information technology and services.
 Icoria
    OTHER BUSINESS MATTERS
 Government Regulation
 IVD Testing
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Genaissance and Icoria
     
    
    preclinical laboratory and animal tests;
    
    submission to the FDA of an investigational new drug application, which must become
effective before clinical trials may begin;
    
    adequate and well-controlled human clinical trials to establish the safety and efficacy
of the product for its intended indication;
    
    submission to the FDA of a new drug application (NDA) if the FDA classifies the
product as a new drug, or a biologic license application (BLA) if the FDA classifies the
product as a biologic; and
    
    FDA review of the NDA or BLA in order to determine, among other things, whether the
product is safe and effective for its intended uses.
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
    
    the FDAs delay in granting marketing clearance or refusal to grant marketing
clearance of a product;
    
    withdrawal of a product from the market; or
    
    the imposition of civil or criminal penalties against the manufacturer and holder of
the marketing clearance.
  HAP HAP
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FAMILION
 Intellectual Property
 IVD Testing
  Genaissance
    
    
    vilazodone, our lead therapeutic product;
    
    detection of familial Long QT Syndrome;
    
    detection of drug-induced Long QT Syndrome;
    
    associations between genetic markers and drug response (efficacy and safety) and disease
endpoints, specifically including clozapine-induced agranulocytosis, thiopurine metabolism,
statin response, and progression and onset of Alzheimers disease; and
    
    components of our DecoGenInformatics System, including the processes for assembling
genetic markers and for determining clinical associations
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Icoria
 .
  
    
    key elements, processes and supporting technologies in our biochemical profiling platform;
    
    methods relating to phenotype analysis, gene expression profiling, metabolic profiling
and other methods for biomarker discovery and pathway analysis;
    
    bioinformatic technologies;
    
    function specific patterns of gene expression we identify; and
    
    individual genes and targets we discover.
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Warranty and Product Liability
   Production and Availability of Raw Materials
  Backlog
  Seasonality
  Employees
  Environmental Matters
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Significant Customers
    
 ITEM 1A. RISK FACTORS
  Risk factors relating to our business and operations
 We do not have sufficient cash resources available to fund our current level of activities through
the end of the third quarter of fiscal 2007 and beyond, including our Phase III clinical trial
program for our lead product candidate, vilazodone. Over the near-term, we will need to satisfy
substantial capital requirements to pursue our development and commercialization strategies and to
further optimize operations.
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We are currently seeking a partner with which to design and conduct a Phase III clinical program
for vilazodone, as we have neither the experience necessary nor sufficient cash to complete such a
clinical program.
  Our biopharmaceutical or diagnostic product candidates must undergo rigorous clinical trials and
regulatory approvals, which could substantially delay or prevent their development or marketing.
   
    
    we must demonstrate through clinical trials that the proposed product is safe and
effective for its intended use;
    
    we have limited experience in conducting the clinical trials necessary to obtain
regulatory approval; and
    
    data obtained from pre-clinical and clinical activities are susceptible to varying
interpretations, which could delay, limit or prevent regulatory approvals.
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We recently acquired both Genaissance Pharmaceuticals, Inc. and Icoria, Inc., each of which has
historically incurred significant net losses, and we expect to incur net losses for some time.
  We are entering into new business areas and may not have the expertise, experience and resources to
pursue all of our businesses at once.
  Due to recent merger activity, it may be more difficult to obtain additional financing at favorable
terms, if at all.
  We may be unable to integrate successfully the businesses of Genaissance, Genome Express and Icoria
with our own business.
  -32-




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
    
    retaining existing customers and strategic partners of each company;
    
    retaining and integrating management and other key employees;
    
    coordinating research and development activities to enhance introduction of new products
and technologies, especially in light of rapidly evolving markets for those products and
technologies;
    
    preserving the value of various research and development, collaboration, distribution,
manufacturing and other important relationships;
    
    coordinating the headquarter operations of Genome Express in France, as well as its
research and development facilities in France, which are geographically distant from the
operations of our corporate headquarters and most of our subsidiaries in the United States;
    
    effectively managing the diversion of management attention from business matters to
integration issues;
    
    combining product offerings and incorporating acquired technology and rights into
product offerings effectively and quickly;
    
    integrating sales efforts so that customers can do business easily with us;
    
    coordinating and combining international operations, relationships and facilities, which
may be subject to additional constraints imposed by local laws and regulations;
    
    persuading employees that the business cultures of Clinical Data, Genaissance, Genome
Express and Icoria are compatible;
    
    effectively offering products of Clinical Data, Genaissance, Genome Express and Icoria
to each others customers;
    
    anticipating the market needs and achieving market acceptance of Clinical Data,
Genaissance, Genome Express and Icoria products;
    
    bringing together the companies marketing efforts so that the industry receives useful
information about the acquisitions and customers perceive value in our products; and
    
    developing and maintaining uniform standards, controls, procedures, and policies.
 Our acquisition of Genome Express, and our mergers with Genaissance and Icoria may fail to achieve
expected beneficial synergies.
  
    
    the potential disruption of ongoing business and distraction of our management;
    
    the risk that it may be more difficult to retain key management, marketing, and
technical personnel after the acquisitions;
    
    the risk that costs and expenditures for retaining personnel, eliminating unnecessary
resources and integrating the businesses are greater than anticipated;
    
    the risk that we cannot increase sales of our products; and
    
    the risk that integrating and changing our businesses will impair our relationships with
our existing customers and business partners.
 -33-




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Because a significant portion of our total assets will be represented by goodwill and other
intangible assets that are subject to mandatory annual impairment evaluations, we could be required
to write-off some or all of this goodwill and other intangibles, which may adversely affect our
financial condition and results of operations.
  The uncertainty of patent and proprietary technology protection may adversely affect us.
   If we are unable to protect effectively our intellectual property, we may not be able to operate
our business and third parties may use our technology, both of which would impair our ability to
compete in our markets.
  -34-




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
    
    our pending patent applications may not result in issued patents;
    
    the claims of any issued patents may not provide meaningful protection;
    
    we may be unsuccessful in developing additional proprietary technologies that are patentable;
    
    our patents may not provide a basis for commercially viable products or provide us with
any competitive advantages and may be challenged by third parties; and
    
    others may have patents that relate to our technology or business.
   If third parties make or file claims of intellectual property infringement against us, or otherwise
seek to establish their intellectual property rights, we may have to spend time and money in
response and cease some of our operations.
  If we were sued for product liability, we could face substantial liabilities that may exceed our
resources.
  -35-




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Any product that we, or our commercial partners may develop using the gene function, metabolomics,
or biomarker information we provide, may be subject to a lengthy and uncertain government
regulatory process that may not result in the necessary approvals, may delay the commercialization
of these products or may be costly, any of which could seriously reduce our revenues or exceed our
financial ability to meet such obligations.
   If we are unable to develop new and enhanced products that achieve widespread market acceptance, we
may be unable to recoup product development costs, and our revenues and earnings may decline.
  We operate in a very competitive environment.
  
    
    health care and other companies that manufacture laboratory-based tests and analyzers;
    
    diagnostic and pharmaceutical companies;
    
    molecular services business;
    
    companies developing drug discovery technologies;
    
    companies developing molecular diagnostic and genetic tests; and
    
    companies developing point-of-care diagnostic and genetic tests.
 -36-




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We may not be able to successfully integrate companies that we acquire in the future.
   
    
    difficulties in integrating the operations, technologies and products of the acquired company;
    
    the risk of diverting managements attention from normal daily operations of the business;
    
    potential difficulties in completing projects associated with in-process research and development;
    
    risks of entering markets in which we have no or limited direct prior experience and
where competitors in such markets have stronger market positions;
    
    initial dependence on unfamiliar supply chains or relatively small supply partners;
    
    insufficient revenues to offset increased expenses associated with the acquisition; and
    
    the potential loss of key employees of the acquired company.
 Our ownership is concentrated among a small number of stockholders.
  -37-




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We will continue to shift our Icoria subsidiarys traditional business model away from
agriculture-based research and areas of historical revenue.
  Our Icoria business exposes us to risks of environmental liabilities.
   If we choose to acquire new and complementary businesses, products or technologies, we may be
unable to complete such acquisition(s) or to integrate an acquired business or technology in a
cost-effective manner.
  If we are required to seek financing for an acquisition or other venture, or to enhance our working
capital, we may not be able to obtain such additional financing on acceptable terms.
  -38-




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
    
    expand our product line and service offerings;
    
    hire and train new staff ;
    
    increase our sales and marketing presence in existing and new markets; or
    
    respond to competitive pressures or unanticipated requirements.
  We are dependent upon an asset-based line of credit for certain of our working capital. That loan
imposes conditions that could adversely affect us.
  
    
    our ability to obtain additional financing may be impaired;
    
    if we do not satisfy the financial covenants in the loan agreement, we would be in
default under our loan agreement and be required to immediately repay outstanding loan
balances; and
    
    because we do not have a fixed rate of interest for our loans, rising interest rates
will increase our interest costs and reduce our earnings.
 Our international operations and sales expose us to foreign currency exchange rate fluctuation
risks.
  Our international operations and sales expose us to political and economic risks.
  
    
    regulatory approvals;
    
    import and export license requirements and restrictions;
    
    disruptions in international transport or delivery;
    
    difficulties in collecting receivables; and
    
    potentially adverse tax consequences.
  We are dependent upon certain key personnel.
  -39-




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Our products require government approval to be marketed.
   Physicians office laboratories must comply with government regulations.
    Physicians office laboratories are dependent on third-party payers.
 -40-




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Manufacturing problems or delays could result in lost revenue.
   Intense competition could reduce our market share or limit our ability to increase market share,
which could harm our financial performance.
  
    
    develop technologies, products and services that are more effective than our products or
services, or that render our technologies, products or services obsolete or noncompetitive;
    
    obtain patent protection or other intellectual property rights that would prevent us
from developing our potential products; or
    
    obtain regulatory approval for the commercialization of their products more rapidly or
effectively than we do.
  We rely on distributors for product sales and support.
  -41-




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Our results of operations will be adversely affected if we fail to realize the full value of our
intangible assets.
 st
  Risk factors relating to Clinical Datas common stock
 The price of our common stock is volatile and could cause investors to lose a substantial part of
their investment.
  
    
    the timing of our announcements or of our competitors announcements regarding
significant products, contracts or acquisitions;
    
    variations in results of operations;
    
    changes in earnings estimates by securities analysts;
    
    general economic and market conditions; and
 -42-




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
    
    sales of substantial amounts of our common stock into the public market, or the
perception that such sales might occur.
 If the average closing price of our common stock were to decline significantly, we may be required
to issue in excess of 20% of our outstanding capital stock upon conversion of the Series A
Preferred Stock we issued to the preferred stockholder of Genaissance in our recent merger with
that company.
  
 ITEM 2. PROPERTIES
  ApproximateSquare
    
    
    
    ExpirationLocation
    
    Footage
    
    Use
    
    DateOne Gateway Center
Newton, Massachusetts
    
    
    6,700
    
    
    Corporate office
    
    7/31/2011Two Thurber Blvd.
Smithfield, Rhode Island
    
    
    30,000
    
    
    Office, research and
development,
ware-housing and distribution
    
    6/30/20071075 W. Lambert Rd.
Brea, California
    
    
    33,000
    
    
    Manufacturing and
distribution
    
    5/31/20105 Science Park
New Haven, Connecticut
    
    
    29,000
    
    
    Office and laboratory
    
    1/31/2010100 Perimeter Park Drive,
Morrisville, North Carolina
    
    
    37,000
    
    
    Office and laboratory
    
    2/28/2015100 Alexander Drive
Research Triangle Park,
North Carolina
    
    
    50,000
    
    
    Laboratory
    
    11/18/2010
 -43-




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ApproximateSquare
    
    
    
    ExpirationLocation
    
    Footage
    
    Use
    
    Date9441 West Sam Houston
Parkway, Houston, Texas
    
    
    15,000
    
    
    Office and laboratory
    
    12/31/2009Van Rensselaerweg 4
Dieren, The Netherlands
    
    
    35,000
    
    
    Office, manufacturing and
research and
development
    
    2/1//200811 chemin des Pres
Meylan, France
    
    
    1,100
    
    
    Office and laboratory
    
    7/31/200912 chemin des Pres 
Meylan, France
    
    
    160
    
    
    Laboratory
    
    3/31/2011via Balzilla 41/G/4
Forli, Italy
    
    
    4,800
    
    
    Office and
manufacturing
    
    10/7/2011Hope End, Takeley
United Kingdom
    
    
    10,000
    
    
    Office and laboratory
    
    6/30/201438/5 Anella Way, Castle Hill
 New South Wales, Australia
    
    
    10,000
    
    
    Office,
manufacturing and
warehousing
    
    8/31/2007
  
 ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 Market Information
  -44-




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##### Table of Contents



Sales Prices
    
    DividendsHigh
    
    Low
    
    PaidFiscal Year Ended March 31, 2006First Quarter
    
    $
    22.00
    
    
    $
    13.50
    
    
    $
    0.04Second Quarter
    
    $
    24.71
    
    
    $
    17.45
    
    
    $
    0.00Third Quarter
    
    $
    23.73
    
    
    $
    16.64
    
    
    $
    0.00Fourth Quarter
    
    $
    25.87
    
    
    $
    17.17
    
    
    $
    0.00Fiscal Year Ended March 31, 2005First Quarter
    
    $
    19.00
    
    
    $
    11.00
    
    
    $
    0.01Second Quarter
    
    $
    20.98
    
    
    $
    13.50
    
    
    $
    0.01Third Quarter
    
    $
    16.82
    
    
    $
    12.50
    
    
    $
    0.03Fourth Quarter
    
    $
    17.85
    
    
    $
    11.41
    
    
    $
    0.03
 Holders of Common Stock
  Dividends
  Securities Authorized for Issuance under Equity Compensation Plans
  Equity Compensation Plan Information
 Number of securities to
    
    
    Weighted average
    
    
    Numberbe issued upon exercise
    
    
    exercise price of
    
    
    of securitiesof outstanding options,
    
    
    outstanding options,
    
    
    remaining availablePlan Category
    
    warrants and rights
    
    
    warrants and rights
    
    
    for future issuanceEquity compensation
plans approved by
security holders
    
    
    612,000
    
    
    $
    30.17
    
    
    
    813,000Equity compensation
plans not approved
by security holders
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/ATotal
    
    
    612,000
    
    
    $
    30.17
    
    
    
    813,000
  -45-




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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
  -46-




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##### Table of Contents



Year Ended March 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002(In thousands, except per share amounts)Consolidated Statements of Operations Data:Revenues:Products
    
    $
    50,625
    
    
    $
    49,808
    
    
    $
    48,994
    
    
    $
    15,870
    
    
    $
    13,324Services
    
    
    18,123
    
    
    
    6,592
    
    
    
    3,526
    
    
    
    
    
    
    
    Total revenues
    
    
    68,748
    
    
    
    56,400
    
    
    
    52,520
    
    
    
    15,870
    
    
    
    13,324Cost of revenues:Products
    
    
    33,289
    
    
    
    32,901
    
    
    
    34,160
    
    
    
    10,929
    
    
    
    8,936Services
    
    
    12,714
    
    
    
    3,146
    
    
    
    1,835
    
    
    
    
    
    
    
    Total cost of revenues
    
    
    46,003
    
    
    
    36,047
    
    
    
    35,995
    
    
    
    10,929
    
    
    
    8,936Gross profit
    
    
    22,745
    
    
    
    20,353
    
    
    
    16,525
    
    
    
    4,941
    
    
    
    4,388Operating expenses:Sales and marketing
    
    
    7,696
    
    
    
    5,455
    
    
    
    5,321
    
    
    
    1,618
    
    
    
    1,362Research and development
    
    
    6,167
    
    
    
    2,687
    
    
    
    2,391
    
    
    
    1,074
    
    
    
    1,292General and administrative
    
    
    17,315
    
    
    
    6,647
    
    
    
    6,195
    
    
    
    1,862
    
    
    
    1,416Purchased research and development
    
    
    39,700
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total operating expenses
    
    
    70,878
    
    
    
    14,789
    
    
    
    13,907
    
    
    
    4,554
    
    
    
    4,070(Loss) income from operations
    
    
    (48,133
    )
    
    
    5,564
    
    
    
    2,618
    
    
    
    387
    
    
    
    318Interest expense
    
    
    (667
    )
    
    
    (208
    )
    
    
    (240
    )
    
    
    (30
    )
    
    
    (17
    )Interest income
    
    
    211
    
    
    
    76
    
    
    
    72
    
    
    
    49
    
    
    
    61Other income (expense), net
    
    
    (40
    )
    
    
    97
    
    
    
    25
    
    
    
    (33
    )
    
    
    48(Loss) income before provision for taxes and
minority interest
    
    
    (48,629
    )
    
    
    5,529
    
    
    
    2,475
    
    
    
    373
    
    
    
    410Provision for income taxes
    
    
    (2,232
    )
    
    
    (2,118
    )
    
    
    (287
    )
    
    
    (243
    )
    
    
    (141
    )Minority interest
    
    
    (20
    )
    
    
    (16
    )
    
    
    (17
    )
    
    
    (14
    )
    
    
    (11
    )Net (loss) income
    
    
    (50,881
    )
    
    
    3,395
    
    
    
    2,171
    
    
    
    116
    
    
    
    258Preferred stock dividends
    
    
    (97
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Preferred stock deemed dividend
    
    
    
    
    
    
    
    
    
    
    (525
    )
    
    
    
    
    
    
    Net (loss) income applicable to common stockholders
    
    $
    (50,978
    )
    
    $
    3,395
    
    
    $
    1,646
    
    
    $
    116
    
    
    $
    258Basic net (loss) income per share
    
    $
    (8.54
    )
    
    $
    0.77
    
    
    $
    0.60
    
    
    $
    0.06
    
    
    $
    0.14Diluted net (loss) income per share
    
    $
    (8.54
    )
    
    $
    0.75
    
    
    $
    0.51
    
    
    $
    0.06
    
    
    $
    0.14Cash dividends paid per share
    
    $
    0.04
    
    
    $
    0.07
    
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.04Weighted average shares:Basic
    
    
    5,969
    
    
    
    4,389
    
    
    
    2,746
    
    
    
    1,847
    
    
    
    1,818Diluted
    
    
    5,969
    
    
    
    4,507
    
    
    
    4,266
    
    
    
    1,913
    
    
    
    1,892
 -47-




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2006
    
    2005
    
    2004
    
    2003
    
    2002(In thousands)Consolidated Balance Sheet Data:Cash and cash equivalents
    
    $
    7,225
    
    
    $
    4,171
    
    
    $
    1,800
    
    
    $
    798
    
    
    $
    1,776Working capital
    
    
    4,849
    
    
    
    12,735
    
    
    
    9,522
    
    
    
    3,340
    
    
    
    3,299Total assets
    
    
    108,227
    
    
    
    39,146
    
    
    
    38,318
    
    
    
    11,198
    
    
    
    8,812Revolving credit facility
    
    
    3,980
    
    
    
    798
    
    
    
    1,818
    
    
    
    
    
    
    
    Notes payable and current portion of long-term
debt and capital leases
    
    
    3,929
    
    
    
    501
    
    
    
    54
    
    
    
    29
    
    
    
    7Long-term debt and capital leases, net of current portion
    
    
    7,063
    
    
    
    1,929
    
    
    
    176
    
    
    
    24
    
    
    
    15Total stockholders equity
    
    
    59,789
    
    
    
    23,809
    
    
    
    20,264
    
    
    
    5,346
    
    
    
    4,313
  Acquiree
    
    Date of Acquisition
    
    Corporate LocationGenome Express, S.A.
    
    March 7, 2006
    
    Meylan, FranceIcoria, Inc.
    
    December 20, 2005
    
    Research Triangle Park, NCElecta Lab s.r.l
    
    October 7, 2005
    
    Forli, ItalyGenaissance Pharmaceuticals, Inc.
    
    October 6, 2005
    
    New Haven, CTElan Diagnostics, Inc.
    
    April 29, 2003
    
    Smithfield, RILandmark Scientific, Inc.
    
    April 29, 2003
    
    Greensboro, NCGroup Practice Services Incorporated
    
    April 29, 2003
    
    Greensboro, NC
  
 ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 You should read the following discussion and analysis of financial condition and results of
operations together with the Selected Consolidated Financial Data included in Item 6 above and
our consolidated financial statements and related notes appearing elsewhere in this Annual Report
on Form 10-K. In addition to historical financial information, the following discussion contains
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995, as amended, and within the meaning of Section 27A of the Securities Act of 1933, as amended,
that reflect our plans, estimates and beliefs. Our actual results could differ materially from
those discussed in the forward-looking statements. Factors that could cause or contribute to these
differences include those discussed below and elsewhere in this document, particularly in the
section entitled Risk Factors.
 Readers are cautioned that any forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause our actual results, performance or achievements to
be materially different from any future results, performance or achievements expressed or implied
by such forward-looking statements. The forward-looking statements in this Annual Report on Form 10-K are subject to risks, uncertainties
and assumptions including, among other things:
 -48-




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
    
    our ability to raise the necessary capital to fund our operations and to develop and
commercialize our products;
    
    our ability to successfully design and conduct our planned clinical trials;
    
    our ability to achieve expected synergies and operating efficiencies in our
acquisitions, and to successfully integrate the operations, business and technology
obtained in our acquisitions;
    
    general economic and business conditions in our markets;
    
    the impact of current, pending or future legislation and regulation of our businesses in
the U.S. and abroad;
    
    our expectations and estimates concerning future financial performance, financing plans
and the impact of competition; and
    
    the impact of technological developments and competition.
 In light of these risks and uncertainties, the forward-looking events and circumstances discussed
in this Annual Report on Form 10-K might not occur. The Company undertakes no obligation to
publicly update or revise any forward-looking statements made herein because of new information,
future events or otherwise.
 Overview
     -49-




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Financial Operations Overview
 Revenues.
  Cost of Revenues.
  Sales and Marketing Expense.
 -50-




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Research and Development Expense.
 General and Administrative Expense.
 Purchased Research and Development Expense. Business Combinations 
 Interest and Other Income (Expense), Net.
 Preferred Stock Dividends. th th
 Changes in Foreign Currency Rates
   -51-




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Critical Accounting Policies and Significant Judgments and Estimates
  Revenue Recognition 
   Allowance for Doubtful Accounts 
 Inventory Valuation 
 -52-




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Valuation of Intangibles  Business Combinations
 Goodwill and Intangible Assets
 Accounting for the Impairment or Disposal of
Long-Lived Assets
 Accrued Expenses 
 Income Taxes 
 -53-




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Results of Operations
 Fiscal Year Ended March 31, 2006 Compared to Fiscal Year Ended March 31, 2005
 Revenues
   Gross Profit
  Sales and Marketing Expense
 Research and Development Expense
 -54-




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General and Administrative Expense
 Purchased Research and Development Expense
 Interest and Other Income (Expense), Net
   Provision For Income Taxes
 Preferred Stock Dividends
 Fiscal Year Ended March 31, 2005 Compared to Fiscal Year Ended March 31, 2004
 Revenues
   Gross Profit
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Research and Development Expense Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed
 Sales and Marketing Expense
 General and Administrative Expense
 Interest and Other Income (Expense), Net
  Provision for Income Taxes
  Liquidity and Capital Resources
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March 31,
    
    
    March 31,(In thousands)
    
    2006
    
    
    2005    Notes payable, bearing interest at
4.0%-10.4%, with maturities between April 2008
and December 2009 and secured by related
equipment
    
    $
    301
    
    
    $
    284    Note payable, bearing interest at 4.0%,
with maturity on January 2010 and monthly
payments of $17 and secured by related software
    
    
    724
    
    
    
    894    Euro note payable, bearing interest at
5.5%, with maturity on September 2007 and
quarterly payments of $76 and secured by a bank
guarantee
    
    
    452
    
    
    
    Icoria Acquired Debt    Convertible note payable, bearing
interest at 10.0%, with maturity on October
2007 and secured by certain of Icorias fixed assets
    
    
    3,227
    
    
    
    Genaissance Acquired Debt    Notes payable, bearing interest at 6.5%, with
maturities between February 2009 and May 2011 and
secured by Genaissances leasehold improvements
    
    
    3,520
    
    
    
    Genome Express Acquired Debt
   Interest-free advance from lending institution with
respect to research tax credits, with maturity
in May 2006
    
    
    340
    
    
    
    
   Interest-free advance from French government under a program to
stimulate national innovations, with maturities
between September 2007 and September 2008
    
    
    1,134
    
    
    
    9,698
    
    
    
    1,178Less: current portion
    
    
    (3,425
    )
    
    
    (249
    )$
    6,273
    
    
    $
    929
 -57-




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
     -58-




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Line of Credit Agreements
  
   Payments Due by Period
 Fiscal 2008
    
    
    Fiscal 2010Through
    
    
    Through
    
    
    After(In thousands)
    
    Total
    
    
    Fiscal 2007
    
    
    Fiscal 2009
    
    
    Fiscal 2011
    
    
    Fiscal 2011Contractual Obligations:Short and
long-term debt (1)
    
    $
    12,109
    
    
    $
    4,560
    
    
    $
    4,733
    
    
    $
    2,777
    
    
    $
    39Capital lease obligations (1)
    
    
    1,544
    
    
    
    606
    
    
    
    739
    
    
    
    199
    
    
    
    Operating lease obligations
    
    
    14,910
    
    
    
    4,182
    
    
    
    5,671
    
    
    
    2,881
    
    
    
    2,176Government funded development
credits
    
    
    256
    
    
    
    82
    
    
    
    174
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    26,408
    
    
    $
    8,295
    
    
    $
    10,061
    
    
    $
    5,647
    
    
    $
    2,405
 
 (1)
    
    Includes interest expense  -59-




---



##### Table of Contents



-60-




---



##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Risk
  Foreign Exchange
  -61-




---



##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL STATEMENT DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Controls
  -62-




---



##### Table of Contents



ITEM 9B. OTHER INFORMATION
  
 PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  www.clda.com
 
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  -63-




---



##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 (a) 1.
    
    Consolidated Financial StatementsThe Consolidated Financial Statements are filed as part of this report.2.
    
    Consolidated Financial Statement SchedulesAll schedules are omitted because of the absence of conditions under which they are
required or because the required information is included in the Consolidated
Financial Statements or notes thereto.3.
    
    Exhibits
 -64-




---



##### Table of Contents



SIGNATURES
  CLINICAL DATA, INC./s/
    
    Andrew J. FromkinDated: June 28, 2006
    
    
    
    Andrew J. FromkinPresident and Chief Executive OfficerPrincipal Executive Officer/s/
    
    Israel M. Stein, M.D.Dated: June 28, 2006
    
    
    
    Israel M. Stein, M.D.Executive Vice ChairmanPrincipal Financial and Accounting Officer
  Dated: June 28, 2006
    
    /s/
    
    Randal J. KirkRandal J. KirkChairman of the BoardDated: June 28, 2006
    
    /s/
    
    Israel M. Stein, M.D.Israel M. Stein, M.D.Executive Vice Chairman of the Board, DirectorDated: June 28, 2006
    
    /s/
    
    Larry D. HornerLarry D. HornerDirectorDated: June 28, 2006
    
    /s/
    
    Arthur B. MalmanArthur B. MalmanDirectorDated: June 28, 2006
    
    /s/
    
    Joseph Klein, IIIJoseph Klein, IIIDirectorDated: June 28, 2006
    
    /s/
    
    Burton E. SobelBurton E. SobelDirectorDated: June 28, 2006
    
    /s/
    
    Kevin RakinKevin RakinDirector
 -65-




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##### Table of Contents



Consolidated Financial Statements
    
    PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets at March 31, 2006 and 2005
    
    
    F-3Consolidated Statements of Operations for the Years Ended March 31, 2006, 2005 and 2004
    
    
    F-4Consolidated Statements of Stockholders Equity for the Years Ended March 31, 2006, 2005 and 2004
    
    
    F-5Consolidated Statements of Cash Flows for the Years Ended March 31, 2006, 2005 and 2004
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-9
 F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
 F-2




---



##### Table of Contents



CONSOLIDATED BALANCE SHEETS
 March 31,(in thousands, except share and per share amounts)
    
    2006
    
    
    2005ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    7,225
    
    
    $
    4,171Accounts receivable, net
    
    
    17,291
    
    
    
    9,883Inventories, net
    
    
    14,090
    
    
    
    9,451Deferred income taxes
    
    
    54
    
    
    
    727Prepaid expenses and other current assets
    
    
    5,135
    
    
    
    1,176Total current assets
    
    
    43,795
    
    
    
    25,408Property, plant and equipment, net
    
    
    10,904
    
    
    
    3,648Goodwill
    
    
    27,547
    
    
    
    6,350Intangible assets, net
    
    
    24,268
    
    
    
    2,782Other assets, net
    
    
    1,713
    
    
    
    958Total assets
    
    $
    108,227
    
    
    $
    39,146LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Revolving credit facility
    
    $
    3,980
    
    
    $
    798Current portion of long-term debt
    
    
    3,425
    
    
    
    249Current portion of capital leases
    
    
    504
    
    
    
    252Accounts payable
    
    
    10,838
    
    
    
    4,322Accrued expenses
    
    
    14,678
    
    
    
    4,633Customer advances and deferred revenue
    
    
    3,813
    
    
    
    1,761Other current liabilities
    
    
    1,708
    
    
    
    658Total current liabilities
    
    
    38,946
    
    
    
    12,673Long-Term Liabilities:Long-term debt, net of current portion
    
    
    6,273
    
    
    
    929Capital leases, net of current portion
    
    
    790
    
    
    
    1,000Deferred income taxes
    
    
    350
    
    
    
    366Other long-term liabilities
    
    
    1,964
    
    
    
    274Total long-term liabilities
    
    
    9,377
    
    
    
    2,569Minority Interest
    
    
    115
    
    
    
    95Commitments
and Contingencies (Note 9)Stockholders Equity:Preferred stock, $.01 par value, 1,500,000 shares authorized
Series A voting, convertible preferred stock, 234,000 shares issued and
outstanding at March 31, 2006, liquidation preference of $5,337
    
    
    2
    
    
    
    Common stock, $.01 par value, 14,000,000 and 12,000,000 shares
authorized at March 31, 2006 and 2005, respectively; 8,520,000 shares
issued and 8,510,000 shares outstanding at March 31, 2006; 4,405,000 shares
issued and 4,395,000 shares outstanding at March 31, 2005
    
    
    85
    
    
    
    44Additional paid-in capital
    
    
    105,145
    
    
    
    16,995(Accumulated deficit) retained earnings
    
    
    (45,810
    )
    
    
    5,344Treasury stock, 10,000 shares at cost
    
    
    (47
    )
    
    
    (47
    )Deferred compensation
    
    
    (318
    )
    
    
    Accumulated other comprehensive income
    
    
    732
    
    
    
    1,473Total stockholders equity
    
    
    59,789
    
    
    
    23,809TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    108,227
    
    
    $
    39,146
 .
 F-3




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##### Table of Contents



CONSOLIDATED STATEMENTS OF OPERATIONS
 Years Ended March 31,(in thousands, except per share amounts)
    
    2006
    
    
    2005
    
    
    2004REVENUESProducts
    
    $
    50,625
    
    
    $
    49,808
    
    
    $
    48,994Services
    
    
    18,123
    
    
    
    6,592
    
    
    
    3,526Total
    
    
    68,748
    
    
    
    56,400
    
    
    
    52,520COST OF REVENUESProducts
    
    
    33,289
    
    
    
    32,901
    
    
    
    34,160Services
    
    
    12,714
    
    
    
    3,146
    
    
    
    1,835Total
    
    
    46,003
    
    
    
    36,047
    
    
    
    35,995Gross profit
    
    
    22,745
    
    
    
    20,353
    
    
    
    16,525OPERATING EXPENSES:Sales and marketing
    
    
    7,696
    
    
    
    5,455
    
    
    
    5,321Research and development
    
    
    6,167
    
    
    
    2,687
    
    
    
    2,391General and administrative
    
    
    17,315
    
    
    
    6,647
    
    
    
    6,195Purchased research and development
    
    
    39,700
    
    
    
    
    
    
    
    Total operating expenses
    
    
    70,878
    
    
    
    14,789
    
    
    
    13,907(Loss) income from operations
    
    
    (48,133
    )
    
    
    5,564
    
    
    
    2,618Interest expense
    
    
    (667
    )
    
    
    (208
    )
    
    
    (240
    )Interest income
    
    
    211
    
    
    
    76
    
    
    
    72Other income (expense), net
    
    
    (40
    )
    
    
    97
    
    
    
    25(Loss) income before provision for income taxes
and minority interest
    
    
    (48,629
    )
    
    
    5,529
    
    
    
    2,475Provision for income taxes
    
    
    (2,232
    )
    
    
    (2,118
    )
    
    
    (287
    )Minority interest
    
    
    (20
    )
    
    
    (16
    )
    
    
    (17
    )Net (loss) income
    
    
    (50,881
    )
    
    
    3,395
    
    
    
    2,171Preferred stock dividend
    
    
    (97
    )
    
    
    
    
    
    
    (525
    )Net (loss) income applicable to common stockholders
    
    $
    (50,978
    )
    
    $
    3,395
    
    
    $
    1,646Basic net (loss) income per share
    
    $
    (8.54
    )
    
    $
    0.77
    
    
    $
    0.60Diluted net (loss) income per share
    
    $
    (8.54
    )
    
    $
    0.75
    
    
    $
    0.51Weighted average shares:Basic
    
    
    5,969
    
    
    
    4,389
    
    
    
    2,746Diluted
    
    
    5,969
    
    
    
    4,507
    
    
    
    4,266
  F-4




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##### Table of Contents



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED MARCH 31, 2006, 2005 AND 2004
(
 Preferred
    
    
    
    
    
    
    Common
    
    
    
    
    
    
    (Accumulated
    
    
    
    
    
    
    
    
    
    
    AccumulatedPreferred
    
    
    Stock
    
    
    Common
    
    
    Stock
    
    
    Additional
    
    
    Deficit)
    
    
    
    
    
    
    Deferred
    
    
    OtherStock
    
    
    Par
    
    
    Stock
    
    
    Par
    
    
    Paid-in
    
    
    Retained
    
    
    Treasury
    
    
    Compen-
    
    
    Comprehensive
    
    
    
    
    
    
    ComprehensiveShares
    
    
    Value
    
    
    Shares
    
    
    Value
    
    
    Capital
    
    
    Earnings
    
    
    Stock
    
    
    sation
    
    
    Income
    
    
    Total
    
    
    (Loss) IncomeBALANCE at April 1, 2003
    
    
    
    
    
    $
    
    
    
    
    1,873
    
    
    $
    19
    
    
    $
    4,938
    
    
    $
    305
    
    
    $
    (56
    )
    
    $
    
    
    
    $
    140
    
    
    $
    5,346Series A preferred stock
issued in connection with
acquisitions
    
    
    248
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    12,022
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,024Conversion of Series A
preferred stock into common
stock
    
    
    (248
    )
    
    
    (2
    )
    
    
    2,472
    
    
    
    24
    
    
    
    (22
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    60
    
    
    
    1
    
    
    
    57
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58Dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (173
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (173
    )Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    838
    
    
    
    838
    
    
    $
    838Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,171
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,171
    
    
    
    2,171Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,009BALANCE at March 31, 2004
    
    
    
    
    
    
    
    
    
    
    4,405
    
    
    
    44
    
    
    
    16,995
    
    
    
    2,303
    
    
    
    (56
    )
    
    
    
    
    
    
    978
    
    
    
    20,264Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    9Dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (354
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (354
    )Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    495
    
    
    
    495
    
    
    $
    495Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,395
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,395
    
    
    
    3,395Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,890BALANCE at March 31, 2005
    
    
    
    
    
    
    
    
    
    
    4,405
    
    
    $
    44
    
    
    $
    16,995
    
    
    $
    5,344
    
    
    $
    (47
    )
    
    $
    
    
    
    $
    1,473
    
    
    $
    23,809
 F-5




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##### Table of Contents



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED MARCH 31, 2006, 2005 AND 2004
(
 Preferred
    
    
    
    
    
    
    Common
    
    
    
    
    
    
    (Accumulated
    
    
    
    
    
    
    
    
    
    
    AccumulatedPreferred
    
    
    Stock
    
    
    Common
    
    
    Stock
    
    
    Additional
    
    
    Deficit)
    
    
    
    
    
    
    Deferred
    
    
    OtherStock
    
    
    Par
    
    
    Stock
    
    
    Par
    
    
    Paid-in
    
    
    Retained
    
    
    Treasury
    
    
    Compen-
    
    
    Comprehensive
    
    
    
    
    
    
    ComprehensiveShares
    
    
    Value
    
    
    Shares
    
    
    Value
    
    
    Capital
    
    
    Earnings
    
    
    Stock
    
    
    sation
    
    
    Income
    
    
    Total
    
    
    (Loss) IncomeBALANCE at March 31, 2005
    
    
    
    
    
    
    
    
    
    
    4,405
    
    
    $
    44
    
    
    $
    16,995
    
    
    $
    5,344
    
    
    $
    (47
    )
    
    $
    
    
    
    $
    1,473
    
    
    $
    23,809Series A preferred stock
issued in connection with
acquisitions
    
    
    484
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    9,512
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,517Conversion of Series A
preferred stock into common
stock
    
    
    (250
    )
    
    
    (3
    )
    
    
    250
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity issued in
connection with
acquisitions
    
    
    
    
    
    
    
    
    
    
    3,040
    
    
    
    30
    
    
    
    62,504
    
    
    
    
    
    
    
    
    
    
    
    (572
    )
    
    
    
    
    
    
    61,962Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    42
    
    
    
    
    
    
    
    331
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    331Private placement of
equity, net of transaction
costs of $83
    
    
    
    
    
    
    
    
    
    
    614
    
    
    
    6
    
    
    
    11,930
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,936Exercise of stock warrants
    
    
    
    
    
    
    
    
    
    
    153
    
    
    
    2
    
    
    
    3,587
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,589Issuance of restricted stock
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    286
    
    
    
    
    
    
    
    
    
    
    
    (143
    )
    
    
    
    
    
    
    143Dividends paid on common
stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (176
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (176
    )Dividends paid on preferred
stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (97
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (97
    )Amortization of deferred
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    397
    
    
    
    
    
    
    
    397Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (741
    )
    
    
    (741
    )
    
    $
    (741
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50,881
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50,881
    )
    
    
    (50,881
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (51,522
    )BALANCE at March 31, 2006
    
    
    234
    
    
    $
    2
    
    
    
    8,520
    
    
    $
    85
    
    
    $
    105,145
    
    
    $
    (45,810
    )
    
    $
    (47
    )
    
    $
    (318
    )
    
    $
    732
    
    
    $
    59,789




---



##### Table of Contents



CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years ended March 31,(in thousands)
    
    2006
    
    
    2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income
    
    $
    (50,881
    )
    
    $
    3,395
    
    
    $
    2,171Adjustments to reconcile net (loss) income
to net cash (used in) provided by operating activities:Depreciation and amortization
    
    
    6,292
    
    
    
    1,343
    
    
    
    1,317Purchased research and development costs
    
    
    39,700
    
    
    
    
    
    
    
    Stock based compensation
    
    
    540
    
    
    
    
    
    
    
    Loss (gain) on sale of equipment
    
    
    17
    
    
    
    11
    
    
    
    (7
    )Deferred income taxes
    
    
    967
    
    
    
    730
    
    
    
    (763
    )Minority interest
    
    
    20
    
    
    
    16
    
    
    
    17Changes in current assets and liabilities, net of
acquired businesses:Accounts receivable
    
    
    (61
    )
    
    
    2,638
    
    
    
    (1,933
    )Inventories
    
    
    (3,911
    )
    
    
    70
    
    
    
    3,181Prepaid expenses and other current assets
    
    
    954
    
    
    
    511
    
    
    
    942Accounts payable
    
    
    2,935
    
    
    
    (2,680
    )
    
    
    1,707Accrued expenses
    
    
    (3,483
    )
    
    
    (1,048
    )
    
    
    (408
    )Customer advances and deferred revenue
    
    
    440
    
    
    
    (572
    )
    
    
    (428
    )Other current liabilities
    
    
    289
    
    
    
    (26
    )
    
    
    313Net cash (used in) provided by operating activities
    
    
    (6,182
    )
    
    
    4,388
    
    
    
    6,109CASH FLOWS FROM INVESTING ACTIVITIES:Acquisition of companies, net of cash acquired
    
    
    (322
    )
    
    
    
    
    
    
    (6,050
    )Purchase of equipment
    
    
    (1,074
    )
    
    
    (751
    )
    
    
    (643
    )Proceeds from sales of equipment
    
    
    127
    
    
    
    68
    
    
    
    103Capitalization of software development costs
    
    
    (175
    )
    
    
    (247
    )
    
    
    (459
    )Net cash used in investing activities
    
    
    (1,444
    )
    
    
    (930
    )
    
    
    (7,049
    )
  F-7




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##### Table of Contents



CONSOLIDATED STATEMENTS OF CASH FLOWS
  Years ended March 31,(in thousands)
    
    2006
    
    
    2005
    
    
    2004CASH FLOWS FROM FINANCING ACTIVITIES:Net proceeds from (payments on) revolving credit facility
    
    $
    3,182
    
    
    $
    (1,020
    )
    
    $
    1,818Proceeds from long-term debt
    
    
    121
    
    
    
    173
    
    
    
    242Payments on debt and capital lease obligations
    
    
    (7,331
    )
    
    
    (194
    )
    
    
    (70
    )Stockholder dividends
    
    
    (231
    )
    
    
    (354
    )
    
    
    (173
    )Proceeds from the sale of common stock and warrants
    
    
    11,936Proceeds from the exercise of warrants
    
    
    3,589Exercise of stock options
    
    
    331
    
    
    
    9
    
    
    
    58Net cash provided by (used in) financing activities
    
    
    11,597
    
    
    
    (1,386
    )
    
    
    1,875EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS
    
    
    (917
    )
    
    
    299
    
    
    
    66NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    3,054
    
    
    
    2,371
    
    
    
    1,001CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
    
    
    4,171
    
    
    
    1,800
    
    
    
    799CASH AND CASH EQUIVALENTS, END OF YEAR
    
    $
    7,225
    
    
    $
    4,171
    
    
    $
    1,800Supplemental disclosure of cash flow information:Cash paid during the year for:Interest
    
    $
    666
    
    
    $
    200
    
    
    $
    219Income taxes
    
    $
    1,331
    
    
    $
    2,028
    
    
    $
    610Non-cash transactions:Accrued acquisition costs
    
    $
    60
    
    
    $
    
    
    
    $
    407Equity issued in business acquisitions
    
    $
    71,479
    
    
    $
    
    
    
    $
    12,024Debt issued
in business acquisitions
    
    $
    607
    
    
    $
    
    
    
    $
    Equipment acquired through capital leases and
long-term debt
    
    $
    149
    
    
    $
    1,355
    
    
    $
    Intangible assets acquired through long-term debt
    
    $
    
    
    
    $
    923
    
    
    $
    
 (Concluded)
 F-8




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED MARCH 31, 2006, 2005 AND 2004
 (1) Operations and Summary of Significant Accounting Policies
     Principles of Consolidation
  F-9




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##### Table of Contents



(1) Operations and Summary of Significant Accounting Policies
 Use of Estimates
  Cash and Cash Equivalents
  Accounts Receivable
   (in thousands)
    
    2006
    
    
    2005
    
    
    2004Allowance for uncollectible accounts  beginning of year
    
    $
    536
    
    
    $
    371
    
    
    $
    97Provisions
    
    
    1,124
    
    
    
    252
    
    
    
    272Less: deductions
    
    
    (444
    )
    
    
    (87
    )
    
    
    (98
    )Allowance for uncollectible accounts  end of year
    
    $
    1,216
    
    
    $
    536
    
    
    $
    371
 Inventories
    F-10




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##### Table of Contents



(1) Operations and Summary of Significant Accounting Policies
  (in thousands)
    
    2006
    
    
    2005Raw materials
    
    $
    6,425
    
    
    $
    3,896Work-in-process
    
    
    1,643
    
    
    
    746Finished goods
    
    
    6,022
    
    
    
    4,809$
    14,090
    
    
    $
    9,451
 Depreciation and Amortization
  Asset Classification
    
    Useful LivesManufacturing and computer equipment
    
    3-7 yearsLaboratory equipment
    
    5-7 yearsLeasehold improvements
    
    Lesser of useful life or life of leaseFurniture and fixtures
    
    2-7 yearsVehicles
    
    3-5 years
   Goodwill and Intangibles
  Goodwill and other Intangible Assets
 F-11




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##### Table of Contents



(1) Operations and Summary of Significant Accounting Policies
 Software Development Costs
 Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed.
  Warranties
   (in thousands)
    
    2006
    
    
    2005
    
    
    2004Accrued warranty  beginning of year
    
    $
    605
    
    
    $
    1,018
    
    
    $
    123Assumed during the purchase of assets of Elan Diagnostics
    
    
    
    
    
    
    
    
    
    
    1,354Assumed during the purchase assets of Electa Lab
    
    
    25
    
    
    
    
    
    
    
    Provisions
    
    
    451
    
    
    
    379
    
    
    
    619Less: warranty claims
    
    
    (591
    )
    
    
    (792
    )
    
    
    (1,078
    )Accrued warranty  end of year
    
    $
    490
    
    
    $
    605
    
    
    $
    1,018
 Minority Interest
  Derivatives
  F-12




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##### Table of Contents



(1) Operations and Summary of Significant Accounting Policies
 Revenue Recognition
    Research and Development Costs
  Income Taxes
  Comprehensive (Loss) Income
  F-13




---



##### Table of Contents



(1) Operations and Summary of Significant
Accounting Policies
 Foreign Currency
   Equity-Based Compensation
 Accounting for Stock Issued to Employees
 Accounting for Stock-Based
Compensation
 (in thousands, except per share amounts)
    
    2006
    
    
    2005
    
    
    2004Net (loss) income applicable to common stockholders, as
reported
    
    $
    (50,978
    )
    
    $
    3,395
    
    
    $
    1,646Add: total stock-based compensation included in reported net
income, net of taxes
    
    
    540
    
    
    
    
    
    
    
    Less: total stock-based employee compensation expense
determined under fair value based method for all awards, net
of related tax effects
    
    
    (889
    )
    
    
    (108
    )
    
    
    (101
    )Pro-forma net (loss) income applicable to common stockholders
    
    $
    (51,327
    )
    
    $
    3,287
    
    
    $
    1,545Reported basic net (loss) income per share
    
    $
    (8.54
    )
    
    $
    0.77
    
    
    $
    0.60Pro forma basic net (loss) income per share
    
    $
    (8.60
    )
    
    $
    0.75
    
    
    $
    0.56Reported diluted net (loss) income per share
    
    $
    (8.54
    )
    
    $
    0.75
    
    
    $
    0.51Pro forma diluted net (loss) income per share
    
    $
    (8.60
    )
    
    $
    0.73
    
    
    $
    0.49
 F-14




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##### Table of Contents



(1) Operations and Summary of Significant Accounting Policies
  2006
    
    2004Risk-free interest rate
    
    
    3.88  4.75
    %
    
    
    2.0  3.0
    %Expected dividend yield
    
    
    0.00
    %
    
    
    0.44
    %Expected lives
    
    3 5 years
    
    3 5 yearsExpected volatility
    
    
    32  43
    %
    
    
    43 66
    %Weighted average grant date fair value
    
    $
    30.17
    
    
    $
    2.64
 Share-Based Payment.
   Concentration of Credit Risk
  Fair Value of Financial Instruments
  F-15




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##### Table of Contents



(2) Net (Loss) Income per Share
   (in thousands)
    
    2006
    
    2005
    
    2004Basic weighted average common shares outstanding
    
    
    5,969
    
    
    
    4,389
    
    
    
    2,746Dilutive effect of common stock options
    
    
    
    
    
    
    118
    
    
    
    121Dilutive effect of voting convertible Series A
preferred stock
    
    
    
    
    
    
    
    
    
    
    1,399Diluted weighted average shares outstanding
    
    
    5,969
    
    
    
    4,507
    
    
    
    4,266
  (in thousands)
    
    2006Common stock options
    
    
    612Common stock warrants
    
    
    452Restricted common stock
    
    
    16Convertible
note payable
    
    
    95Convertible Series A preferred stock
    
    
    234Potentially dilutive shares outstanding
    
    
    1,409
  (3) Business Combinations
 Genaissance Pharmaceuticals, Inc.
   F-16




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##### Table of Contents



(3) Business Combinations
   (in thousands)Value of the Companys common stock
    
    $
    45,570Value of the Companys Series A preferred stock
    
    
    9,517Fair value of stock options and warrants
    
    
    2,846Transaction costs
    
    
    1,248Less: cash acquired
    
    
    (978
    )$
    58,203
   Purchase Price Allocation (in thousands)Accounts receivable
    
    $
    4,717Inventories
    
    
    517Other current assets
    
    
    1,269Equipment
    
    
    6,040Intangible assets
    
    
    53,150Long-term assets
    
    
    373Accounts payable
    
    
    (1,621
    )Current portion of long-term debt and capital lease obligations
    
    
    (5,104
    )Accrued expenses and other current liabilities
    
    
    (8,217
    )Long-term debt and capital lease obligations
    
    
    (3,338
    )Long-term liabilities
    
    
    (1,593
    )Deferred compensation for
unvested options, restricted common stock and warrants
    
    
    521Goodwill
    
    
    11,489Total purchase price
    
    $
    58,203
 F-17




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##### Table of Contents



(3) Business Combinations
  WeightedIncrease
    
    
    Average(in thousands)
    
    in Value
    
    
    Useful LifeCompleted technology
    
    $
    9,000
    
    
    4.6 yearsIn-process research and development
    
    
    36,300Customer relationships
    
    
    7,500
    
    
    7.9 yearsOther
    
    
    350
    
    
    3.9 years$
    53,150
 Electa Lab s.r.l
  
   Purchase Price Allocation (in thousands)Cash
    
    $
    214Accounts receivable
    
    
    217Inventories
    
    
    554Other current assets
    
    
    10Equipment
    
    
    310Long-term assets
    
    
    2Accounts payable
    
    
    (260
    )Accrued expenses and other current liabilities
    
    
    (275
    )Goodwill
    
    
    1,153Total purchase price
    
    $
    1,925
 Icoria, Inc.
   F-18




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##### Table of Contents



(3) Business Combinations
   (in thousands)Value of the Companys common stock
    
    $
    11,329Fair value of stock options and warrants
    
    
    308Transaction costs
    
    
    367Less: cash acquired
    
    
    (1,901
    )$
    10,103
   Purchase Price Allocation (in thousands)Accounts receivable
    
    $
    2,603Inventories
    
    
    329Other current assets
    
    
    2,360Equipment
    
    
    1,715Intangible assets
    
    
    10,500Long-term assets
    
    
    667Accounts payable
    
    
    (780
    )Current portion of long-term debt and capital lease obligations
    
    
    (3,010
    )Accrued expenses and other current liabilities
    
    
    (5,705
    )Long-term debt and capital lease obligations
    
    
    (2,531
    )Deferred compensation for unvested options and warrants
    
    
    52Goodwill
    
    
    3,903Total purchase price
    
    $
    10,103
 F-19




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##### Table of Contents



(3) Business Combinations
  Increase in
    
    
    Weighted Average(in thousands)
    
    value
    
    
    Useful LifeCompleted technology
    
    $
    3,400
    
    
    7.6 yearsIn-process research and development
    
    
    3,400Customer relationships
    
    
    3,300
    
    
    5.3 yearsOther
    
    
    400
    
    
    3.0 years$
    10,500
 Genome Express S.A.
 
  (in thousands)Value of the Companys common stock
    
    $
    2,485Value of the Companys contingently issuable stock
    
    
    361Transaction costs
    
    
    490Less: net cash acquired
    
    
    (9
    )$
    3,327
  F-20




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##### Table of Contents



(3) Business Combinations
  Purchase Price Allocation (in thousands)Accounts receivable
    
    $
    599Inventories
    
    
    146Other current assets
    
    
    887Equipment
    
    
    726Long-term assets
    
    
    18Accounts payable
    
    
    (438
    )Current portion of long-term debt and capital lease obligations
    
    
    (629
    )Accrued expenses and other current liabilities
    
    
    (1,618
    )Long-term debt
    
    
    (1,016
    )Goodwill
    
    
    4,652Total purchase price
    
    $
    3,327
  Restructuring and Integration Reserves
  (in thousands)
    
    Severance
    
    
    Lease Termination
    
    
    TotalAmounts accrued on acquisition
    
    $
    3,098
    
    
    $
    1,495
    
    
    $
    4,593Less: payments
    
    
    748
    
    
    
    405
    
    
    
    1,153$
    2,350
    
    
    $
    1,090
    
    
    $
    3,440
 In-Process Research and Development
    F-21




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##### Table of Contents



(3) Business Combinations
  
    
    Clozapine: In December 2004, Genaissance reported the discovery of genetic markers that
are believed to predict who is at risk of developing Clozapine-induced agranulocytosis, a
life threatening decrease of white blood cells that requires frequent blood testing of
patients. Genaissance is in the process of organizing another clinical trial to further
support its findings. This IPRD project was estimated to be 60% complete as of the
acquisition date. The estimated fair value of this IPRD project was $17.9 million as of
October 6, 2005.
    
    Vilazodone: In September 2004, Genaissance acquired an exclusive license from Merck AG
to develop and commercialize vilazodone, which is under development for the treatment of
depression. Genaissance is attempting to identify the genetic marker that defines patients
who are more likely to respond to vilazodone and develop a genetic test. This project was
estimated to be 25% complete as of the acquisition date. The estimated fair value of this
IPRD project was $18.4 million as of October 6, 2005
    
    Acute liver injury and liver-disease-related research projects: Icoria had several
research projects underway to identify biomarkers. These projects were estimated to be 75%
complete relative to Icorias role. The estimated fair value of these IPRD projects was
$3.4 million as of December 20, 2005.
  (Unaudited) Pro Forma Summary Operating Information
  (in thousands, except per share amounts)
    
    2006
    
    2005Revenues
    
    $
    91,760
    
    
    $
    106,667Net loss
    
    
    (67,058
    )
    
    
    (62,988
    )Net loss per basic share
    
    $
    (11.26
    )
    
    $
    (9.23
    )Net loss per diluted share
    
    $
    (11.26
    )
    
    $
    (9.23
    )
  (4) Property, Plant and Equipment
  (in thousands)
    
    2006
    
    2005Manufacturing and computer equipment
    
    
    9,597
    
    
    
    6,991Leasehold improvements
    
    
    3,933
    
    
    
    1,074Laboratory equipment
    
    
    3,506
    
    
    
    Furniture and fixtures
    
    
    1,321
    
    
    
    588Vehicles
    
    
    114
    
    
    
    12118,471
    
    
    
    8,774Less: Accumulated depreciation and amortization
    
    
    7,567
    
    
    
    5,12610,904
    
    
    
    3,648
 F-22




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##### Table of Contents



(5) Goodwill and Intangible Assets
  Clinics & Small
    
    
    Physicians
    
    
    Molecular(in thousands)
    
    Hospitals
    
    
    Office Labs
    
    
    Services
    
    
    TotalBalance at March 31, 2004
    
    $
    
    
    
    $
    6,350
    
    
    $
    
    
    
    $
    6,350Balance at March 31, 2005
    
    
    
    
    
    
    6,350
    
    
    
    
    
    
    
    6,350Additions:Genaissance Pharmaceuticals
    
    
    
    
    
    
    
    
    
    
    11,489
    
    
    
    11,489Electa Lab
    
    
    1,153
    
    
    
    
    
    
    
    
    
    
    
    1,153Icoria
    
    
    
    
    
    
    
    
    
    
    3,903
    
    
    
    3,903Genome Express
    
    
    
    
    
    
    
    
    
    
    4,652
    
    
    
    4,652Balance at March 31, 2006
    
    $
    1,153
    
    
    $
    6,350
    
    
    $
    20,044
    
    
    $
    27,547
 Accounting for the Impairment or Disposal of Long-Lived Assets
  (in thousands)
    
    2006
    
    
    2005Purchased intangibles Completed technology
    
    $
    12,400
    
    
    $
     Customer relationships
    
    
    12,245
    
    
    
    1,445 Other
    
    
    803
    
    
    
    3425,448
    
    
    
    1,479Less: accumulated amortization
    
    
    (4,123
    )
    
    
    (790
    )Net purchased intangibles
    
    
    21,325
    
    
    
    689Capitalized software
    
    
    1,609
    
    
    
    1,530Less: accumulated amortization
    
    
    (443
    )
    
    
    (303
    )Net capitalized software
    
    
    1,166
    
    
    
    1,227ERP implementation and software
    
    
    1,777
    
    
    
    866Intangibles, net
    
    $
    24,268
    
    
    $
    2,782
  F-23




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##### Table of Contents



(6) Other Assets
  (in thousands)
    
    2006
    
    
    2005Restricted cash
    
    $
    785
    
    
    $
    Deposits
    
    
    365
    
    
    
    102Long-term lease receivables
    
    
    147
    
    
    
    194Deferred income tax asset
    
    
    
    
    
    
    305Other
    
    
    416
    
    
    
    357$
    1,713
    
    
    $
    958
  (7) Accrued Expenses
  (in
thousands)
    
    2006
    
    
    2005Payroll and payroll-related expenses
    
    $
    3,372
    
    
    $
    1,765Accrued severance and other acquisition costs
    
    
    4,180
    
    
    
    407Accrued dividends assumed in acquisition
    
    
    1,211
    
    
    
    Accrued facility costs
    
    
    1,257
    
    
    
    120Commissions, royalty and license fees
    
    
    1,052
    
    
    
    350Accrued professional fees
    
    
    797
    
    
    
    290Unvouchered invoices
    
    
    589
    
    
    
    362Warranty reserve
    
    
    304
    
    
    
    232Accrued VAT and sales taxes
    
    
    269
    
    
    
    Development credits
    
    
    256
    
    
    
    348Other
    
    
    1,391
    
    
    
    759$
    14,678
    
    
    $
    4,633
  F-24




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##### Table of Contents



(8) Debt
 Long-term Debt
  (in thousands)
    
    2006
    
    
    2005   Notes payable, bearing interest at
4.0%-10.4%, with maturities between April 2008 and
December 2009 and secured by related equipment
    
    $
    301
    
    
    $
    284   Note payable, bearing interest at 4.0%,
with maturity on January 2010 and monthly payments
of $17 and secured by related software
    
    
    724
    
    
    
    894   Euro note payable, bearing interest at
5.5%, with maturity on September 2007 and quarterly
payments of $76 and secured by a bank guarantee
    
    
    452
    
    
    
    Icoria Acquired Debt   Convertible note payable, bearing interest
at 10.0% with maturity on October 2007 and secured
by certain of Icorias fixed assets
    
    
    3,227
    
    
    
    Genaissance Acquired Debt   Notes payable, bearing interest at 6.5%,
with maturities between February 2009 and May 2011
and secured by Genaissances leasehold improvements
    
    
    3,520
    
    
    
    Genome Express Acquired Debt   Interest-free advance from lending
institution with respect to research tax credits
and which matures in May 2006
    
    
    340
    
    
    
       Interest-free advance from the French
government under a program to stimulate national
innovations with maturities between September 2007
and September 2008.
    
    
    1,134
    
    
    
    9,698
    
    
    
    1,178Less: current portion
    
    
    (3,425
    )
    
    
    (249
    )$
    6,273
    
    
    $
    929
   
  F-25




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##### Table of Contents



(8) Debt
    2007
    
    $
    3,4252008
    
    
    2,2822009
    
    
    1,1952010
    
    
    1,0612011
    
    
    1,506After
    
    
    229Total
    
    $
    9,698
 Line of Credit Agreements
  
 F-26




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##### Table of Contents



(8) Debt
  (9) Commitments and Contingencies
 Contractual Commitments and Commercial Obligations
  Year Ending
    
    Operating
    
    
    CapitalizedMarch
31,
    
    Leases
    
    
    Leases2007
    
    $
    4,182
    
    
    $
    6062008
    
    
    3,120
    
    
    
    4052009
    
    
    2,551
    
    
    
    3342010
    
    
    1,934
    
    
    
    1992011
    
    
    947
    
    
    
    Thereafter
    
    
    2,176
    
    
    
    Total
    
    $
    14,910
    
    
    
    1,544Less: amount representing interest
    
    
    
    
    
    
    (250
    )Total principal obligations
    
    
    
    
    
    
    1,294Less: current portion
    
    
    
    
    
    
    (504
    )Long-term capital lease
    
    
    
    
    
    $
    790
   (10) Significant Customers
    F-27




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##### Table of Contents



(11) Equity
 Preferred Stock
  Dividends 
 Voting 
 Conversions 
  Redemption 
 Private Placement
  F-28




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##### Table of Contents



(11) Equity
  (12) Income Taxes
  (in thousands)
    
    2006
    
    
    2005
    
    
    2004United States
    
    $
    (53,000
    )
    
    $
    2,300
    
    
    $
    (216
    )Foreign
    
    
    4,371
    
    
    
    3,229
    
    
    
    2,691$
    (48,629
    )
    
    $
    5,529
    
    
    $
    2,475
  (in thousands)
    
    2006
    
    
    2005
    
    
    2004Current:Federal
    
    $
    (244
    )
    
    $
    355
    
    
    $
    212State
    
    
    46
    
    
    
    77
    
    
    
    122Foreign
    
    
    1,463
    
    
    
    956
    
    
    
    716Total Current
    
    
    1,265
    
    
    
    1,388
    
    
    
    1,050Deferred:Federal
    
    
    91
    
    
    
    304
    
    
    
    (249
    )State
    
    
    18
    
    
    
    17
    
    
    
    (44
    )Foreign
    
    
    (57
    )
    
    
    93
    
    
    
    148Change in valuation allowance
    
    
    915
    
    
    
    316
    
    
    
    (618
    )Total Deferred
    
    
    967
    
    
    
    730
    
    
    
    (763
    )$
    2,232
    
    
    $
    2,118
    
    
    $
    287
  (in thousands)
    
    2006
    
    
    2005
    
    
    2004(Benefit from) provision for taxes at statutory rate
    
    $
    (16,534
    )
    
    $
    1,881
    
    
    $
    841Losses not benefited
    
    
    4,032
    
    
    
    
    
    
    
    State taxes
    
    
    46
    
    
    
    94
    
    
    
    78Non-U.S. rate differential, net
    
    
    (143
    )
    
    
    (25
    )
    
    
    (46
    )Change in valuation reserves
    
    
    915
    
    
    
    316
    
    
    
    (618
    )Write-off of purchased research and development
    
    
    13,498
    
    
    
    
    
    
    
    Other
    
    
    418
    
    
    
    (148
    )
    
    
    (32
    )$
    2,232
    
    
    $
    2,118
    
    
    $
    287
 F-29




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##### Table of Contents



(12) Income Taxes
  (in thousands)
    
    2006
    
    
    2005Deferred tax assets:Net operating loss carryforwards
    
    $
    130,549
    
    
    $
    1,926Capitalized research costs
    
    
    9,738
    
    
    
    Tax credits
    
    
    2,413
    
    
    
    Fixed assets
    
    
    1,931
    
    
    
    Severance and accrued payroll
    
    
    1,267
    
    
    
    Other reserves and accrued liabilities
    
    
    4,617
    
    
    
    1,165Total assets
    
    
    149,248
    
    
    
    3,091Deferred tax liabilities:Purchased intangibles
    
    
    (8,027
    )
    
    
    Capitalized software
    
    
    (448
    )
    
    
    (396
    )Other
    
    
    (22
    )
    
    
    (177
    )Total liabilities
    
    
    (8,497
    )
    
    
    (573
    )Net deferred tax asset
    
    
    140,751
    
    
    
    2,518Less: valuation allowance
    
    
    (141,055
    )
    
    
    (1,923
    )$
    (304
    )
    
    $
    595
 Accounting for Income Taxes
    F-30




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##### Table of Contents



(12) Income Taxes
 
 (13) Stock Option Plans
     WeightedNumber of
    
    
    Average(in thousands, except for per share amounts)
    
    Shares
    
    
    PriceOutstanding at April 1, 2003
    
    
    156
    
    
    $
    2.66Granted
    
    
    142
    
    
    
    6.67Forfeited
    
    
    (39
    )
    
    
    4.94Exercised
    
    
    (60
    )
    
    
    0.97Outstanding at March 31, 2004
    
    
    199
    
    
    
    5.58Exercised
    
    
    (11
    )
    
    
    1.63Outstanding at March 31, 2005
    
    
    188
    
    
    
    5.82Granted
    
    
    304
    
    
    
    18.54Issued in business combinations
    
    
    392
    
    
    
    62.82Forfeited
    
    
    (230
    )
    
    
    55.14Exercised
    
    
    (42
    )
    
    
    7.93Outstanding at March 31, 2006
    
    
    612
    
    
    $
    30.17Exercisable at March 31, 2006
    
    
    242
    
    
    $
    26.25Exercisable at March 31, 2005
    
    
    128
    
    
    $
    5.36
 F-31




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##### Table of Contents



(13) Stock Option Plans
  Outstanding
    
    ExercisableNumber
    
    Weighted Average
    
    Weighted
    
    Number of
    
    Weightedof Shares
    
    Remaining
    
    Average
    
    Shares
    
    AveragePrice Range
    
    (in thousands)
    
    Contractual Life
    
    Exercise Price
    
    (in thousands)
    
    Exercise PriceClinical Data$3.09 - $3.40
    
    
    53
    
    
    1.22 years
    
    $
    3.38
    
    
    
    53
    
    
    $
    3.38$4.82 - $5.32
    
    
    67
    
    
    4.14 years
    
    
    5.05
    
    
    
    50
    
    
    
    5.05$9.00 - $9.20
    
    
    16
    
    
    7.76 years
    
    
    9.00
    
    
    
    3
    
    
    
    9.08$11.00
    
    
    13
    
    
    4.70 years
    
    
    11.00
    
    
    
    13
    
    
    
    11.00$17.89 - $17.90
    
    
    250
    
    
    9.59 years
    
    
    17.89
    
    
    
    14
    
    
    
    17.90$19.86
    
    
    12
    
    
    10.00 years
    
    
    19.86
    
    
    
    
    
    
    
    $21.34
- $23.47
    
    
    42
    
    
    7.85 years
    
    
    21.98
    
    
    
    18
    
    
    
    21.89453
    
    
    7.45 years
    
    $
    14.24
    
    
    
    151
    
    
    $
    8.29Genaissance$6.15 - $25.69
    
    
    30
    
    
    5.87 years
    
    $
    16.40
    
    
    
    17
    
    
    $
    16.13$30.46 - $58.46
    
    
    75
    
    
    7.76 years
    
    
    42.27
    
    
    
    54
    
    
    
    42.92$60.92 - $92.15
    
    
    8
    
    
    5.77 years
    
    
    74.61
    
    
    
    6
    
    
    
    73.30$118.27 - $151.92
    
    
    1
    
    
    4.72 years
    
    
    133.31
    
    
    
    
    
    
    
    $163.85 - $201.23
    
    
    29
    
    
    4.10 years
    
    
    185.09
    
    
    
    
    
    
    
    $230.77 - $495.23
    
    
    
    
    
    4.76 years
    
    
    322.19
    
    
    
    
    
    
    
    143
    
    
    6.48 years
    
    $
    68.88
    
    
    
    77
    
    
    $
    39.07Icoria$9.02 - $28.99
    
    
    9
    
    
    5.45 years
    
    $
    16.36
    
    
    
    7
    
    
    $
    16.12$31.57
 $53.47
    
    
    2
    
    
    3.69 years
    
    
    49.81
    
    
    
    2
    
    
    
    50.33$67.00 - $88.91
    
    
    2
    
    
    4.78 years
    
    
    81.38
    
    
    
    2
    
    
    
    81.56$99.87 - $161.06
    
    
    1
    
    
    3.42 years
    
    
    107.24
    
    
    
    1
    
    
    
    107.26$253.71 - $644.26
    
    
    2
    
    
    1.35 years
    
    
    390.84
    
    
    
    2
    
    
    
    467.04$805.32 - $1,145.49
    
    
    
    
    
    1.76 years
    
    
    820.62
    
    
    
    
    
    
    
    820.62$1,814.87 - $1,966.27
    
    
    
    
    
    4.29 years
    
    
    1,856.25
    
    
    
    
    
    
    
    1,856.25$3,630.38
    
    
    
    
    
    5.08 years
    
    
    3,630.38
    
    
    
    
    
    
    
    3,630.38$4,537.49
    
    
    
    
    
    4.06 years
    
    
    4,537.49
    
    
    
    
    
    
    
    4,537.4916
    
    
    4.45 years
    
    
    134.95
    
    
    
    14
    
    
    $
    150.24612
    
    
    7.15 years
    
    $
    30.17
    
    
    
    242
    
    
    $
    26.25
 (14) Pension Plan
  F-32




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##### Table of Contents



(15) Segment Information
 Disclosures about Segments of an
Enterprise and Related Information
  Clinics and
    
    
    
    
    
    Molecular
    
    All(in thousands)
    
    Small Hosp.
    
    POL
    
    Services
    
    Other
    
    TotalRevenues2006
    
    $
    31,246
    
    
    $
    25,146
    
    
    $
    12,332
    
    
    $
    24
    
    
    $
    68,7482005
    
    
    28,210
    
    
    
    28,109
    
    
    
    
    
    
    
    81
    
    
    
    56,4002004
    
    
    25,181
    
    
    
    27,018
    
    
    
    
    
    
    
    321
    
    
    
    52,520Cost of revenues and operating expenses2006
    
    $
    27,817
    
    
    $
    24,145
    
    
    $
    62,322
    (a)
    
    $
    2,597
    
    
    $
    116,8812005
    
    
    25,309
    
    
    
    24,524
    
    
    
    
    
    
    
    1,003
    
    
    
    50,8362004
    
    
    22,950
    
    
    
    26,092
    
    
    
    
    
    
    
    860
    
    
    
    49,902Interest expense2006
    
    $
    50
    
    
    $
    308
    
    
    $
    256
    
    
    $
    53
    
    
    $
    6672005
    
    
    9
    
    
    
    173
    
    
    
    
    
    
    
    26
    
    
    
    2082004
    
    
    20
    
    
    
    184
    
    
    
    
    
    
    
    36
    
    
    
    240Interest income2006
    
    $
    118
    
    
    $
    1
    
    
    $
    29
    
    
    $
    63
    
    
    $
    2112005
    
    
    67
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    762004
    
    
    25
    
    
    
    6
    
    
    
    
    
    
    
    41
    
    
    
    72Income tax provision (benefit)2006
    
    $
    1,247
    
    
    $
    837
    
    
    $
    199
    
    
    $
    (51
    )
    
    $
    2,2322005
    
    
    1,003
    
    
    
    1,140
    
    
    
    
    
    
    
    (25
    )
    
    
    2,1182004
    
    
    864
    
    
    
    62
    
    
    
    
    
    
    
    (639
    )
    
    
    287Net income (loss)2006
    
    $
    2,258
    
    
    $
    (165
    )
    
    $
    (50,520
    )
    
    $
    (2,454
    )
    
    $
    (50,881
    )2005
    
    
    1,842
    
    
    
    2,322
    
    
    
    
    
    
    
    (769
    )
    
    
    3,3952004
    
    
    1,676
    
    
    
    (24
    )
    
    
    
    
    
    
    519
    
    
    
    2,171
 
 (a)
    
    Includes $39,700 of purchased research and development costs written off after
the acquisitions of Genaissance on October 6, 2005 and Icoria on December 21, 2005. F-33




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##### Table of Contents



(15) Segment Information
 Clinics and
    
    
    
    
    
    Molecular
    
    All(in thousands)
    
    Small Hosp.
    
    POL
    
    Services
    
    Other
    
    TotalCapital
expenditures and
capitalized
software2006
    
    $
    985
    
    
    $
    520
    
    
    $
    104
    
    
    $
    4
    
    
    $
    1,6132005
    
    
    801
    
    
    
    191
    
    
    
    
    
    
    
    6
    
    
    
    9982004
    
    
    888
    
    
    
    128
    
    
    
    
    
    
    
    86
    
    
    
    1,102Total assets2006
    
    $
    21,631
    
    
    $
    20,066
    
    
    $
    63,127
    
    
    $
    3,403
    
    
    $
    108,2272005
    
    
    15,952
    
    
    
    22,073
    
    
    
    
    
    
    
    1,121
    
    
    
    39,146
  North(in thousands)
    
    America
    
    Europe
    
    Asia
    
    All Other
    
    ConsolidatedRevenues2006
    
    $
    34,910
    
    
    $
    16,907
    
    
    $
    6,388
    
    
    $
    10,543
    
    
    $
    68,7482005
    
    
    27,546
    
    
    
    14,053
    
    
    
    6,556
    
    
    
    8,245
    
    
    
    56,4002004
    
    
    26,587
    
    
    
    12,677
    
    
    
    4,842
    
    
    
    8,414
    
    
    
    52,520Property, Plant and
Equipment, net2006
    
    $
    8,047
    
    
    $
    2,517
    
    
    $
    
    
    
    $
    340
    
    
    $
    10,9042005
    
    
    2,552
    
    
    
    799
    
    
    
    
    
    
    
    297
    
    
    
    3,648Goodwill and
intangibles, net2006
    
    $
    49,128
    
    
    $
    2,687
    
    
    $
    
    
    
    $
    
    
    
    $
    51,8152005
    
    
    7,983
    
    
    
    1,149
    
    
    
    
    
    
    
    
    
    
    
    9,132
 (16) Related Parties
   F-34




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##### Table of Contents



(17) Subsequent Events
    F-35




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##### Table of Contents



(18) Quarterly
Summarized Financial Information (unaudited)
 First
    
    Second
    
    Third Quarter
    
    Fourth Quarter(in thousands except per share amounts)
    
    Quarter 2006
    
    Quarter 2006
    
    2006 (1)
    
    2006 (2)Total revenues
    
    $
    12,773
    
    
    $
    12,888
    
    
    $
    19,901
    
    
    $
    23,186Gross margin
    
    
    4,594
    
    
    
    4,639
    
    
    
    7,988
    
    
    
    5,525Operating income (loss) (1)
    
    
    660
    
    
    
    648
    
    
    
    (42,109
    )
    
    
    (7,332
    )Net income (loss) (1)
    
    
    407
    
    
    
    377
    
    
    
    (42,717
    )
    
    
    (8,948
    )Net income (loss) attributable to common
stockholders
    
    
    407
    
    
    
    377
    
    
    
    (42,769
    )
    
    
    (8,993
    )Net income (loss) per share:Basic
    
    $
    0.09
    
    
    $
    0.09
    
    
    $
    (6.25
    )
    
    $
    (1.10
    )Diluted
    
    $
    0.09
    
    
    $
    0.08
    
    
    $
    (6.25
    )
    
    $
    (1.10
    )First
    
    Second
    
    Third
    
    FourthQuarter 2005
    
    Quarter 2005
    
    Quarter 2005
    
    Quarter 2005Total revenues
    
    $
    16,338
    
    
    $
    13,024
    
    
    $
    14,360
    
    
    $
    12,678Gross margin
    
    
    5,642
    
    
    
    4,992
    
    
    
    5,420
    
    
    
    4,299Operating
income (1)
    
    
    1,973
    
    
    
    1,549
    
    
    
    1,755
    
    
    
    287Net income (1)
    
    
    1,271
    
    
    
    910
    
    
    
    1,016
    
    
    
    197Net income per share:Basic
    
    $
    0.29
    
    
    $
    0.21
    
    
    $
    0.23
    
    
    $
    0.04Diluted
    
    $
    0.28
    
    
    $
    0.20
    
    
    $
    0.23
    
    
    $
    0.04
 
 (1)
    
    For the three months ended December 31, 2005, includes $40,100 of purchased research
and development costs related to the acquisition of Genaissance on October 6, 2005 and
Icoria on December 20, 2005.(2)
    
    For the three months ended March 31, 2006, includes $400 adjustment to the value of the
purchased research and development costs related to the acquisition of Genaissance on
October 6, 2005. F-36




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description2.1
    
    Amended and Restated Agreement and Plan of Merger, dated as of
April 29, 2003, among Clinical Data, Landmark and Spectran.
Previously filed as Exhibit 2.1 to the Companys Current Report
on Form 8-K, as filed with the Commission on May 12, 2003, and
incorporated herein by reference.2.2
    
    Agreement and Plan of Merger, dated as of April 29, 2003, among
CDSS, GPSI and Clinical Data. Previously filed as Exhibit 2.2 to
the Companys Current Report on Form 8-K, as filed with the
Commission on May 12, 2003, and incorporated herein by reference.2.3
    
    Asset Purchase Agreement, dated as of December 9, 2002, among
Elan Pharmaceuticals, Inc., Elan, CDSS and Clinical Data.
Previously filed as Exhibit 2.1 to the Companys Current Report
on Form 8-K, as filed with the Commission on December 9, 2002,
and incorporated herein by reference.2.4
    
    Amendment No. 1 to Original Asset Purchase Agreement, dated as of
February 10, 2003, among Elan Pharmaceuticals, Inc., Elan, CDSS
and Clinical Data. Previously filed as Exhibit 2.4 to the
Companys Current Report on Form 8-K, as filed with the
Commission on May 12, 2003, and incorporated herein by reference.2.5
    
    Amendment No. 2 to Original Asset Purchase Agreement, dated as of
March 18, 2003, among Elan Pharmaceuticals, Inc., Elan, CDSS and
Clinical Data. Previously filed as Exhibit 2.5 to the Companys
Current Report on Form 8-K, as filed with the Commission on May
12, 2003, and incorporated herein by reference.2.6
    
    Amendment No. 3 to Original Asset Purchase Agreement, dated as of
March 31, 2003, among Elan Pharmaceuticals, Inc., Elan, CDSS and
Clinical Data. Previously filed as Exhibit 2.6 to the Companys
Current Report on Form 8-K, as filed with the Commission on May
12, 2003, and incorporated herein by reference.2.7
    
    Amendment No. 4 to Original Asset Purchase Agreement, dated as of
April 29, 2003, among Elan Pharmaceuticals, Inc., Elan, CDSS and
Clinical Data. Previously filed as Exhibit 2.7 to the Companys
Current Report on Form 8-K, as filed with the Commission on May
12, 2003, and incorporated herein by reference.2.8
    
    Agreement and Plan of Merger, dated as of June 20, 2005, among
Clinical Data, Safari Acquisition Corporation and Genaissance
Pharmaceuticals, Inc. Previously filed as Exhibit 2.1 to the
Companys Current Report on Form 8-K, as filed with the
Commission on June 28, 2005, and incorporated herein by
reference.2.9
    
    First Amendment to Agreement and Plan of Merger, dated as of July
28, 2005, among Clinical Data, Safari Acquisition Corporation and
Genaissance Pharmaceuticals, Inc. Previously filed as Exhibit
2.1 to the Companys Current Report on Form 8-K, as filed with
the Commission on August 2, 2005, and incorporated herein by
reference.2.10
    
    Agreement and Plan of Merger, dated as of September 19, 2005,
among Clinical Data, Inc., Irides Acquisition Corporation and
Icoria, Inc. Previously filed as Exhibit 2.1 to the Companys
Current Report on Form 8-K, as filed with the Commission on
September 22, 2005, and incorporated herein by reference.3.1
    
    Certificate of Incorporation. Filed as Exhibit 3.1 to the
Companys Registration Statement on Form S-1 (File No. 2-82494),
as filed with the Commission on March 17, 1983, and incorporated
herein by reference.3.2
    
    Certificate of Amendment of Certificate of Incorporation filed
with the Secretary of State of the State of Delaware on October
1, 2003. Filed as Exhibit 3.1 to the Companys Quarterly Report
on Form 10-Q, as filed with the Commission on February 17, 2004,
and incorporated herein by reference.3.3
    
    Certificate of Elimination of the Series A Nonvoting Convertible
Preferred Stock filed with the Secretary of State of the State of
Delaware on July 7, 2005. Filed as Exhibit 3.1 to the Companys
Current Report on Form 8-K, as filed with the Commission on July
11, 2005, and incorporated herein by reference.




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##### Table of Contents



ExhibitNumber
    
    Description3.4
    
    Certificate of Designation of the Series A Preferred Stock filed
with the Secretary of State of the State of Delaware on October
4, 2005. Filed as Exhibit 3.2 to the Companys Current Report on
Form 8-K, filed with the Commission on October 11, 2005, and
incorporated herein by reference.3.5
    
    Certificate of Amendment of Certificate of Incorporation filed
with the Secretary of State of the State of Delaware on October
6, 2005. Filed as Exhibit 3.1 to the Companys Current Report on
Form 8-K, filed with the Commission on October 11, 2005, and
incorporated herein by reference.3.6
    
    Amended and Restated By-laws of the Company, as of June 20, 2005.
Filed as Exhibit 3.1 to the Companys Current Report on Form
8-K, filed with the Commission on June 24, 2005, and incorporated
herein by reference.4.1
    
    Specimen Common Stock Certificate. Filed as Exhibit 4.1 to the
Companys Registration Statement on Form S-1 (File No. 2-82494),
as filed with the Commission on March 17, 1983, and incorporated
herein by reference.4.2
    
    Specimen Series A Preferred Stock Certificate. Filed herewith.10.1
    
    1991 Directors Option Plan and Forms of Option Agreement. Filed
as Exhibits to the Companys Registration Statement on Form S-8,
filed with the Commission on March 5, 1992, and incorporated
herein by reference.10.2
    
    2002 Incentive and Stock Plan. Filed as Exhibit A to the
Companys Proxy Statement on Schedule 14A filed with the
Commission on July 29, 2002, and incorporated herein by
reference.10.3
    
    Form of Incentive Stock Option Certificate under the 2002 Equity
Incentive and Stock Plan for all U.S. employees, including
executive officers. Filed as Exhibit 10.5 to the Companys
Quarterly Report on Form 10-Q, filed with the Commission on
November 14, 2005, and incorporated herein by reference.10.4
    
    Form of Non-Statutory Stock Option Certificate under the 2002
Incentive and Stock Plan for all U.S. employees, including
executive officers. Filed as Exhibit 10.6 to the Companys
Quarterly Report on Form 10-Q, filed with the Commission on
November 14, 2005, and incorporated herein by reference.10.5
    
    2005 Equity Incentive Plan. Filed as Exhibit 99.1 to the
Companys Current Report on Form 8-K, filed with the Commission
on October 11, 2005, and incorporated herein by reference.10.6
    
    Form of Stock Option Grant Notice and Stock Option Agreement
under the Companys 2005 Equity Incentive Plan for all U.S.
employees, including executive officers, and directors. Filed
herewith.10.7*
    
    Employment Agreement of Israel M. Stein dated October 29, 2001.
Filed as Exhibit 10.3 to the Companys Quarterly Report on Form
10-QSB, filed with the Commission on February 14, 2002, and
incorporated herein by reference.10.8*
    
    Amendment No. 1 dated December 16, 2004 to Employment Agreement
of Israel M. Stein dated October 29, 2001. Filed as Exhibit 10.1
to the Companys Current Report on Form 8-K, filed with the
Commission on December 22, 2004, and incorporated herein by
reference.10.9*
    
    Form of Amended and Restated Indemnification Agreement between
the Company and Israel M. Stein, M.D. and Arthur Malman,
respectively. Filed as Exhibit 99.1 to the Companys Current
Report on Form 8-K, filed with the Commission on July 11, 2005,
and incorporated herein by reference.10.10*
    
    Form of Indemnification Agreement between the Company and certain
executive officers and directors of the Company. Filed as
Exhibit 99.2 to the Companys Current Report on Form 8-K, filed
with the Commission on July 11, 2005, and incorporated herein by
reference.10.11
    
    Loan and Security Agreement, dated March 31, 2003, among LaSalle,
as lender, and CDSS, BioClinical Concepts, Inc. and GSPI
Acquisition, Inc. as Borrowers. Filed as Exhibit 10.1 to the
Companys Current Report on Form 8-K, filed with the Commission
on May 12, 2003, and incorporated herein by reference.




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##### Table of Contents



ExhibitNumber
    
    Description10.12
    
    $10,000,000 Demand Revolving Note, dated March 31, 2003, issued
by CDSS in favor of LaSalle. Filed as Exhibit 10.3 to the
Companys Current Report on Form 8-K, filed with the Commission
on May 12, 2003, and incorporated herein by reference.10.13
    
    Amendment No. 3 to Loan and Security Agreement, dated November
12, 2003, among LaSalle, CDSS, BioClinical Concepts, Inc. and
GSPI Acquisition, Inc. Filed as Exhibit 10.5 to the Companys
Quarterly Report on Form 10-QSB, filed with the Commission on
November 14, 2003, and incorporated herein by reference.10.14
    
    Amendment No. 5 to Loan and Security Agreement, dated October 25,
2004, among LaSalle, as lender, and Clinical Data Sales &
Service, Inc., as borrower. Filed as Exhibit 10.2 to the
Companys Quarterly Report on Form 10-QSB, filed with the
Commission on February 11, 2005, and incorporated herein by
reference.10.15
    
    Amendment No. 6 to Loan and Security Agreement, dated January 28,
2005, among LaSalle, as lender, and Clinical Data Sales &
Service, Inc., as borrower. Filed as Exhibit 10.10 to the
Companys Annual Report on Form 10-KSB, filed with the Commission
on June 27, 2005, and incorporated herein by reference.10.16
    
    Amendment No. 7 to Loan and Security Agreement, dated as of
December 2, 2005, between Clinical Data Sales & Service, Inc. and
La Salle Business Credit, LLC. Filed as Exhibit 10.11 to the
Companys Quarterly Report on Form 10-Q, filed with the
Commission on February 14, 2006, and incorporated herein by
reference.10.17
    
    Investor Rights Agreement, dated as of June 20, 2005, between the
Company and RAM Trading, Ltd. Filed as Exhibit 99.1 to the
Companys Current Report on Form 8-K, filed with the Commission
on June 24, 2005, and incorporated herein by reference.10.18
    
    Form of Securities Purchase Agreement among the Company and the
Investors listed therein, dated as of November 17, 2005. Filed as
Exhibit 99.1 to the Companys Current Report on Form 8-K, filed
with the Commission on November 21, 2005, and incorporated herein
by reference.10.19
    
    Form of Common Stock Purchase Warrant issued in connection with
the Securities Purchase Agreement, dated as of November 17, 2005.
Filed as Exhibit 99.2 to the Companys Current Report on Form
8-K, filed with the Commission on November 21, 2005, and
incorporated herein by reference.10.20
    
    Form of Registration Rights Agreement among the Company and the
Investors listed therein, dated as of November 17, 2005. Filed as
Exhibit 99.3 to the Companys Current Report on Form 8-K, filed
with the Commission on November 21, 2005, and incorporated herein
by reference.10.21
    
    Securities Purchase Agreement, by and between Icoria, Inc. and
Laurus Master Fund, Ltd., dated as of October 19, 2004. Filed as
Exhibit 10.5 to the Companys Quarterly Report on Form 10-Q,
filed with the Commission on February 14, 2006, and incorporated
herein by reference.10.22
    
    Master Security Agreement, by and between Icoria, Inc. and Laurus
Master Fund, Ltd., dated as of October 19, 2004. Filed as
Exhibit 10.6 to the Companys Quarterly Report on Form 10-Q,
filed with the Commission on February 14, 2006, and incorporated
herein by reference.10.23
    
    Registration Rights Agreement, by and between Icoria, Inc. and
Laurus Master Fund, Ltd., dated as of October 19, 2004. Filed as
Exhibit 10.7 to the Companys Quarterly Report on Form 10-Q,
filed with the Commission on February 14, 2006, and incorporated
herein by reference.10.24
    
    Form of Two Year Warrant, dated as of October 19, 2004. Filed as
Exhibit 10.8 to the Companys Quarterly Report on Form 10-Q,
filed with the Commission on February 14, 2006, and incorporated
herein by reference.10.25
    
    Form of Five Year Warrant, dated as of October 19, 2004. Filed
as Exhibit 10.9 to the Companys Quarterly Report on Form 10-Q,
filed with the Commission on February 14, 2006, and incorporated
herein by reference.10.26
    
    Secured Convertible Term Note, by and between Icoria, Inc. and
Laurus Master Fund, Ltd., dated as of October 19, 2004. Filed as
Exhibit 10.10 to the Companys Quarterly Report on Form 10-Q,
filed with the Commission on February 14, 2006, and incorporated
herein by reference.




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##### Table of Contents



ExhibitNumber
    
    Description10.27
    
    Form of Securities Purchase Agreement among the Company and the
Investors, dated as of June 13, 2006. Filed as Exhibit 99.1 to
the Companys Current Report on Form 8-K, filed with the
Commission on June 15, 2006, and incorporated herein by
reference.10.28
    
    Form of Common Stock Purchase Warrant issued in connection with
the Securities Purchase Agreement, dated as of June 13, 2006.
Filed as Exhibit 99.2 to the Companys Current Report on Form
8-K, filed with the Commission on June 15, 2006, and incorporated
herein by reference.10.29
    
    Form of Registration Rights Agreement among the Company and the
Investors, dated as of June 13, 2006. Filed as Exhibit 99.3 to
the Companys Current Report on Form 8-K, filed with the
Commission on June 15, 2006, and incorporated herein by
reference.10.30
    
    License, Development and Cooperation Agreement by and between
Merck KGaA and Genaissance Pharmaceuticals, Inc., dated September
22, 2004. Filed as Exhibit 99.1 to Genaissances Current Report
on Form 8-K/A, filed with the Commission on October 13, 2004, and
incorporated herein by reference.10.31*
    
    Letter Agreement between the Companys subsidiary, Genaissance
Pharmaceuticals, Inc., and Kevin Rakin, a director of the
Company. Filed herewith.14.1
    
    Code of Business Conduct and Ethics. Filed herewith.21.1
    
    Subsidiaries of the Company. Filed herewith.23.1
    
    Consent of Deloitte & Touche LLP, an independent registered
public accounting firm. Filed herewith.31.1
    
    Certification of Chief Executive Officer Pursuant to §240.13a-14
or §240.15d-14 of the Securities Exchange Act of 1934, as
amended. Filed herewith.31.2
    
    Certification of Chief Financial Officer Pursuant to §240.13a-14
or §240.15d-14 of the Securities Exchange Act of 1934, as
amended. Filed herewith.32.1
    
    Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350. Filed herewith.
 
 *
    
    Indicates a contract with management.
    
    Confidential treatment requested as to certain portions, which portions have been filed
separately with the Commission.