FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSIONWashington, D. C. 20549
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIESEXCHANGE ACT OF 1934
**for the fiscal year ended March 31, 2004**
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIESEXCHANGE ACT OF 1934

for the transition period from to 

Commission File Number: 0-12716

Clinical Data, Inc.(Name of small business issuer in its charter)
 

**DELAWARE****04-2573920**             (State or other jurisdictionof incorporation) (I.R.S. Employer Identification No.)
**One Gateway    Center, Suite 411, 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 Exchange Act: None

Securities registered pursuant to Section 12(g) of the Exchange Act:Common Stock, $.01 par value

Check whether the issuer (1) has filed all reports required to be filedby Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) has beensubject to such filing requirement for the past 90 days.       Yes X      No __
Check if there is no disclosure of delinquent filers in response toItem 405 of Regulation S-B is not contained herein, and no disclosure will be contained,to the best of registrant's knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-KSB or any amendment to this Form10-KSB. [X]

Issuer's revenues for the most recent fiscal year: $52,519,597

The aggregate market value of the voting Common Stock held bynon-affiliates of the registrant was approximately $29,282,000 based on the average priceof the Common Stock as reported by NASDAQ on June 23, 2004.

As of June 23, 2004, there were 4,407,099 shares of the Registrant'sCommon Stock outstanding.

Documents Incorporated by Reference: Certain sections of theregistrant’s definitive Proxy Statement for its 2004 Annual Meeting of Stockholdersto be held on September 13, 2004, are incorporated by reference in Part III of this Form10-KSB to the extent stated therein.

Transitional Small Business Disclosure Format:    Yes___      No X 

** **
Clinical Data, Inc**.**

ANNUAL REPORT ON FORM 10-KSBFor the Year Ended March 31, 2004

Table of Contents
     
Page   **PART I  
Item 1
Description of    Business
1
Item 2
Description of    Properties
14
Item 3
Legal Proceedings
14
Item 4
Submission of    Matters to a Vote of Security Holders
14          **PART II    
Item 5
Market for Common    Equity and Related Stockholder Matters
15
Item 6
Management's    Discussion and Analysis or Plan of Operation
16
Item 7
Financial    Statements
23
Item 8
Changes in and    Disagreements with Accountants on Accounting and Financial Disclosure
23
Item 8A
Controls and    Procedures
23  **PART III    
Item 9
Directors and    Executive Officers, Promoters and Control Persons Compliance with Section 16(a) of the    Exchange Act
23
Item 10
Executive    Compensation
23
Item 11
Security Ownership    of Certain Beneficial Owners and Management and Related Stockholders Matters
24
Item 12
Certain    Relationships and Related Transactions
24
Item 13
Exhibits and    Reports on Form 8-K
24
Item 14
Principal    Accountant Fees and Services
24    **Signatures  
25** **
**PART I**

This annual report on Form 10-KSB and the documents incorporated hereinby reference contain forward-looking statements within the meaning of Section 27A ofthe Securities Act of 1933, as amended, and Section 21E of the Securities ExchangeAct of 1934, as amended. In particular, forward-looking statements regarding the Company'sexpected performance and financial results in future periods – which include wordssuch as "expect(s)", "feel(s)", "believe(s)","will", "would", "may", "anticipate(s)", andsimilar expressions – are based upon management's current expectations and beliefsand are subject to a number of risks and uncertainties that could cause actual results todiffer materially from those described in the preceding forward-looking statements. Youare cautioned not to place undue reliance on these forward-looking statements which speakonly as of the date of the filing of this 10-KSB. The following factors known tomanagement, among others, could cause actual results to differ materially from thosedescribed in such forward-looking statements: our ability to continue to attract newcustomers and obtain new and expanded business opportunities from existing customers;management of our growth and successful integration of our operations; continued growth indemand in the United States and abroad for products and consulting services such as thoseoffered by the Company; and the effect of intensifying competition among a rising numberof companies offering products and services similar to those offered by the Company.Unless required by law, the Company undertakes no obligation to update publicly andforward-looking statements, whether as a result of new information, future events, orotherwise. In addition, we encourage you to review the risk factors contained in thisAnnual Report on Form 10-KSB and in the Company's other reports, registration statementsand other documents filed from time to time with the SEC which describe a number ofadditional risks and uncertainties that could cause actual results to differ materiallyfrom those expected in the forward-looking statements made in this Form 10-KSB. Allreferences to "us," "we," "our," "Clinical Data,""the Company," and other similar expressions, unless otherwise defined herein,refer to Clinical Data, Inc., its predecessors and subsidiaries.
** 

Item 1. Description of Business

General**
Clinical Data, Inc. ("Clinical Data"), formerly NovitronInternational, Inc., through our domestic and foreign subsidiaries, focuses on theoperational needs of physician’s office laboratories ("POLs") and othersmall to medium sized clinical laboratories and hospitals. We provide a complete range oftechnical products and consulting services to the growing domestic POL market and offerblood analysis instrumentation and diagnostic reagents for use in clinics and hospitalsinternationally. 

Globally, clinical laboratories are seeking "total systemsupport" from instrument and diagnostic reagent manufacturers to enable them toestablish a pre-determined cost per patient outcome. The link between reagents andinstrumentation is a major driver in today’s diagnostics market. In addition, moretesting is being done at or near the patient and in doctors’ offices to enhancepatient service and practice income. 

Through a Dutch subsidiary, we manufacture and distribute bloodchemistry and coagulation analyzers. Worldwide we have an installed base of over 15,000units, but until this past year our business was conducted almost exclusively outside ofthe United States. In April 2003, we completed the acquisition of certain of the assets ofElan Diagnostics, Inc., ("Elan"), a domestic manufacturer of clinical chemistryreagents and a distributor of instrumentation. As a result of this acquisition, we securedan installed base of over 700 systems in the domestic POL market, our Dutch manufacturedanalyzers now have a distribution channel in the U.S. market, and our domesticallyproduced reagents have a potential for sale worldwide through our internationaldistribution capabilities.

In April 2003, we also completed a merger with Group Practice ServicesIncorporated ("GPSI"), which was primarily engaged in helping medical grouppractices identify, implement and manage their clinical laboratories to enhance quality ofcare and operating efficiencies, and to provide additional revenue opportunities for thegroup practice. Also in April 2003, we completed a merger with Landmark Scientific, Inc.("Landmark"), a laboratory equipment, supply and reagent distribution company.

As a result of these transactions, the Company is now capable ofsupplying a complete range of products and services, from equipment and reagents to labmanagement and consulting services, to small and medium sized medical laboratories bothdomestically and internationally. To underscore and promote the enhanced breadth and depthof our products and services, in October 2003 the Company was renamed Clinical Data, Inc. 

In the United States, the operations of Elan, GPSI and Landmark, as ofApril 29, 2004, have been integrated into a single wholly-owned subsidiary, Clinical DataSales & Service, Inc. ("CDSS"). In the Netherlands, our wholly-ownedsubsidiary Vital Scientific NV ("Vital Scientific") designs and manufacturesscientific and clinical laboratory instrumentation marketed worldwide through distributorsand OEM partnerships. Our Australian subsidiary, Vital Diagnostics Pty. Ltd. ("VitalDiagnostics") distributes diagnostic instruments and assays in the South Pacificregion. NovaChem BV ("NovaChem"), our wholly-owned subsidiary also located inthe Netherlands, develops and markets photometric process monitors with applications inpetrochemical production and environmental monitoring.
**Company History**
We were established in 1972 to offer ambulatory diagnosticphysiological monitoring for clinical and research applications. In 1984, we acquired athirty-three percent (33%) equity interest in Vital Scientific. From 1985 to 1991, ourequity position in this Dutch company was increased to ninety-four percent (94%) and inOctober 1997, Vital Scientific became a wholly owned subsidiary. In June 1992, we investedin NovaChem, a Dutch company formed to develop and market spectrophotometric processmonitoring technology. In March 1995, NovaChem became a wholly owned subsidiary. VitalDiagnostics was established in July 1992 as Clinical Data (Australia) Pty. Ltd. todistribute diagnostic products in Australia and the South Pacific. As described in Note 1of the accompanying notes to the consolidated financial statements, the Company has sold7.5% of this subsidiary to an officer of the Company. In December 2000, the name of thesubsidiary was changed to Vital Diagnostics Pty. Ltd.

On April 29, 2003, we executed an Amended and Restated Agreementand Plan of Merger (the "Landmark Merger Agreement"), pursuant to which weacquired 100% of Landmark, a corporation controlled by Randal J. Kirk, a member of theBoard of Directors of the Company ("Mr. Kirk"), by means of a merger (the"Landmark Merger") of Landmark with and into Spectran Holdings, Inc., awholly-owned subsidiary, which subsequently changed its name to Landmark Scientific, Inc.The Landmark Merger was consummated on April 29, 2003. In consideration of theLandmark Merger, we issued 25,000 shares of Series A Preferred Stock with an aggregatefair value of approximately $1,200,000. Transaction costs totaled approximately $179,000.We determined the fair value of the Series A Preferred Stock to be equal to $48.63 pershare. On April 29, 2004, Landmark was merged with and into CDSS.

Also on April 29, 2003, we executed an Agreement and Plan of Merger(the "GPSI Merger Agreement") pursuant to which GPSI, a corporation alsocontrolled by Mr. Kirk, merged with and into CDSS and we acquired 100% of GPSI (the"GPSI Merger"). The GPSI Merger was consummated on April 29, 2003. Inconsideration of the GPSI Merger, we issued 222,250 shares of Series A Preferred Stockwith an estimated aggregate fair value of approximately $10,800,000. Transaction coststotaled approximately $243,000. We determined the fair value of the Series A PreferredStock to be equal to $48.63 per share. 

On April 29, 2003, we acquired substantially all of the assets of ElanDiagnostics, Inc.. The acquisition was made pursuant to an Asset Purchase Agreement, datedas of December 9, 2002, as amended on February 10, 2003, March 18, 2003, March 31, 2003and April 29, 2003, among Elan Pharmaceuticals, Inc. (the parent company of Elan), Elan,and Clinical Data (as amended, the "Asset Purchase Agreement"). The aggregatepurchase price was $7,500,000 and transaction costs totaled approximately $801,000.
**Our Industry: In Vitro Diagnostic ("IVD") Testing

The worldwide market for human blood testing is estimated at $22billion per year with approximately 15 billion diagnostic tests performed inhospitals, physicians’ offices and commercial laboratories. Clinical chemistrytesting of blood, which includes such tests as cholesterol and glucose, representsapproximately forty percent (40%) of the total testing market, immunoassay testingaccounts for another thirty-five percent (35%). Approximately fifty (50) assays accountfor seventy-five percent (75%) of all blood testing. 

The United States continues to be the largest single market for IVDtesting with an estimated thirty-seven percent (37%) of the world market. The European IVDsector comes a close second representing thirty-five percent (35%) of the global market.Japan is also a significant market with an estimated share of twelve percent (12%) and the"Rest of World" market is currently estimated at sixteen percent (16%).

The present focus on reducing health care costs and increasing healthcare availability has encouraged the movement of blood testing from centralizedlaboratories into the patient care setting. Revenues from clinical laboratory testing aregrowing as a result of the aging of the population, increased healthcare awareness, andexpanding insurance coverage. In addition, the physician market continues to benefit fromthe shift of diagnostic testing from hospitals to alternate sites.  

Worldwide there is an increasing need for greater efficiency in diseasemanagement. Clinical laboratories, both large and small, are seeking "Total SystemSupport" from instrument and reagent manufacturers to enable them to establish apre-determined cost per patient outcome. This important link between reagents andinstrumentation is a major driver in the diagnostics market of today and for theforeseeable future.

The Company’s primary focus is to provide a complete range oftechnical products and consulting services to the growing domestic POL market and to offerblood analysis instrumentation and diagnostic assays for use in clinics and hospitalsinternationally. 

The healthcare industry is subject to extensive government regulation.Government and private insurance carriers fund the cost of a significant portion ofmedical care offered in the United States and government funding is a major source ofhealthcare spending internationally. The impact of cost containment on healthcareexpenditures in the future is difficult to predict. The Company’s technology issubject to regulatory control by the U.S. Food and Drug Administration ("Food andDrug Administration" or "FDA"), the European IVD Directive and otherregulatory agencies in various countries around the world.
**Products**
As noted above, in the United States, the activities of Elan, GPSI andLandmark have been integrated into a single subsidiary, CDSS. CDSS supplies a completerange of products and services to the POL and small and medium sized medical laboratoriesin the U.S., including equipment and reagents and lab management and consulting services.Capable of delivering everything from the spot sale of consumables to total laboratorymanagement, CDSS offers an entryway into the approximately 5,200 physician’s officelaboratories currently conducting clinical chemistry testing in the U.S. and to thepotential 15,000 physician’s offices which could justifiably provide such services.Whether a practice is considering establishing a new lab, consolidating lab resources frommultiple sites, or improving the quality and efficiency of an existing in-office lab, CDSScan be of assistance.

We currently provide POLs and small laboratories in the United Stateswith a choice of three private labeled blood chemistry analyzers, over twenty differentFDA approved diagnostic assays, and consumables, as well as technical support. Ourtechnology is tailored for the small to medium size laboratory. The broad testing menu ofour manufactured product line includes lipid, hepatic, electrolyte, and metabolicprofiles. We also offer a line of private labeled Erythrocyte Sedimentation Rate("ESR") analyzers and related consumables. In addition, through licensing anddistribution arrangements with third parties, we provide a laboratory information softwaresystem for efficient management and control of smaller laboratories.
***Clinical Chemistry***
Clinical chemistry systems use photometric or electrochemical detectionprinciples to quantify substances of diagnostic interest (referred to as"analytes") in patient blood, urine, and other body fluids. Commonly performedtests include cholesterol, triglycerides, electrolytes, and glucose. We offer a range ofautomated and semi-automated clinical chemistry systems to meet the testing requirementsof the smaller laboratory. 

Our line of clinical chemistry systems is a family of products whichinclude modular automated diagnostic instruments and the reagents, standards and otherconsumable products required to perform commonly requested diagnostic tests. Each of theproducts listed below, has been approved for marketing in the United States by the FDA.These include:
- The Vitalab Selectra-XL, a 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, Selectra II, and Vitalab Flexor, 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 Viva, a dedicated system designed for TDM and for the detection of DOA, is    marketed by Dade Behring in over thirty countries worldwide. The distribution agreement,    originally signed in 1997, was extended in March 2000 **.** This Viva analyzer    was 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 Hycor Biomedical, Inc. of Garden Grove, California. The HY-TEC 288 is a    reagent system that permits the testing of eight (8) autoimmune tests and nine hundred    (900) allergens
- The Vitalab 300 semi-automated clinical chemistry analyzer, which permits a full range    of testing including endpoints, kinetic and bichromatic measurements. 
- The ATAC-8000, a clinical chemistry analyzer designed and manufactured on an OEM basis    for us as exclusive U.S. distributor. Over 800 ATAC-8000’s have been sold in the U.S.
- A complete menu of over twenty (20) clinical chemistry tests formulated and/or packaged    by the Company for its range of clinical chemistry instruments.
***Hematology**
ESR*
ESR is a time honored laboratory method for determining the acute phaseresponse to inflammation. It measures the rate at which red blood cells in a test tubeseparate from blood serum over time, becoming sediment in the bottom of the test tube. Thesedimentation rate increases with more inflammation.

The Company offers the MiniVes and Vesmatic 20 ESR analyzers anddisposables produced for the Company on an OEM basis for exclusive distribution in theU.S.
*Hemostasis*
Hemostasis is a biochemical process that protects the body from bloodloss caused by vascular damage. Within seconds of damage constriction of the vessel andformation of a temporary hemostatic platelet plug occurs. Platelet aggregation triggersthe coagulation cascade that leads to clot formation. Coagulation systems provide detailedinformation used to diagnose bleeding and clotting disorders.

The Company offers the Fibron-1 Coagulometer and related assays for invitro coagulation testing of citrated human plasma in the clinical laboratory. 
**Distribution***POL Segment*
In the United States, we sell predominantly through a well-establishednetwork of national, regional and local distributors specializing in the POL market. Wesupport these distributors with a field sales force. In some markets and in somegeographic areas we sell certain products directly to the end customer. Our consultingservices are typically sold directly to the POL.
*Clinic and Small Hospital Segment*
We market to clinics and small hospitals through a dealer network inEurope, the United States, the Far East, Latin America, Eastern Europe, and China.

In March 2002, we signed an agreement with Spinreact SA of Sant Esteved'en Bas, Spain to distribute on an OEM basis certain instrumentation products in Europe,Africa, and certain Spanish speaking countries of Latin America. 

In Australia and New Zealand we distribute the diagnostic product linesof a number of European, American, and Australian companies to clinics and smallhospitals. 
**Competition**
In the sale of clinical laboratory technology, we are subject tointense competition in the worldwide marketplace. Blood analysis is a well-establishedfield in which there are a number of competitors, which have substantially greaterfinancial resources and larger, more established marketing, sales and serviceorganizations. We believe that we compete favorably on our capabilities, the quality ofour products, and our ability to manufacture and produce our products in a timely fashion.

In offering products and services to smaller laboratories, we competewith numerous other companies. These include much larger and well-financed companies suchas Bayer, Roche Diagnostics, Alfa Wasserman and with companies such as, Polestar Labs,Polymedco, and many other smaller American and European companies, who distribute in thisfield.

With respect to domestic sales to the POL market, our competitionincludes hospitals and independent laboratories, since most medical testing is performedin these settings. Clinical laboratories have traditionally been effective at processinglarge numbers of tests using highly trained technicians and complex equipment. Ourproducts compete with clinical laboratories with respect to range of tests offered, theimmediacy of results and cost effectiveness.

In developing instruments for private-label sales by third parties, andin marketing directly to distributors, the Company competes with numerous other companies.These include much larger and well-financed companies such as Bayer, Roche Diagnostics,and Thermo Electron, who are direct marketers in this field, and with companies such asIntegrated Technologies Ltd., Medical Innovations, Inc., and many other smaller Europeanand American companies, which are OEM marketers in this field. The Company believes thatit competes favorably on its capabilities, the quality of its products, and its ability tomanufacture and produce its products in a timely fashion.
**Product Development**
To develop new products, we employ chemists, mechanical, electronic andsystems engineers, augmented by specialized contract vendors, and further supported by astaff of professionals from a central-European contract software group. Research anddevelopment is performed at a number of our companies and may be shared between companiesthrough licensing agreements when appropriate. We maintain mechanical prototyping andautomated assembly operations in the Netherlands. 

Research and development spending including capitalization of certainsoftware development costs, we spent approximately $2,850,000 during fiscal year 2004 and$1,361,000 during fiscal year 2003.

The Company has developed the V-Twin which is being offered on an OEMbasis by Dade Behring and will soon introduce a second analyzer, the Viva-E. The V-twinand Viva-E are OEM versions of the Selectra-XL and Selectra-E which are dedicated for DOAand TDM testing. The Company is completing development of the "Vitalab Junior,"a 100 test per hour, "walk-away" clinical chemistry analyzer offering a widerange of testing including clinical chemistry, special proteins, DOA, TDM, andelectrolytes, designed primarily for POL’s, "stat" applications and smallerlaboratories.

Research and development efforts during fiscal 2005 are expected to bemaintained at a level consistent with fiscal 2004. 

We intend to develop new products where we perceive a demand andbelieve that the products may be effectively marketed. There is no assurance that anydevelopments or enhancements will be successfully completed or that, if developed, any ofthe products will be successfully marketed.
**Manufacturing

We have been manufacturing instrumentation for the commercial marketsince 1956. To produce and commercially ship reagent products, our California facility islicensed and inspected by the State of California, and has approval from the FDA. Our twoU.S. facilities and European operations have all received ISO 9001 and EN13485certification and are FDA registered.
**OTHER BUSINESS MATTERS

Government Regulation**
Where necessary, we obtain government approval to market our productsand may have to obtain prior approval of certain European regulatory bodies or the Foodand Drug Administration to market products that we develop. In the U.S., certain of ourproducts are classified as medical devices under the Federal Food, Drug and Cosmetics Act.As such, when these products are offered for sale in the United States, these products aresubject to regulation by the FDA. In Europe, we are subject to EN13485 and CE  marking and IVD registration requirements. The cost of obtaining approvals for newproducts may be high and the process lengthy, with no assurance that new product approvalswill be obtained. 

To date, neither the FDA nor the European medical regulatory bodieshave developed industry-wide performance standards with respect to the safety andeffectiveness of the products presently marketed by us. Although we intend to use our bestefforts to comply with domestic and international standards, when and if developed, therecan be no assurance that all of our products will be compliant. Any failure to receiveapprovals for our future products, or noncompliance with any international performancestandards promulgated in the future could have a material adverse effect on us and ourresults of operations. Furthermore, any material change in the existing rules andregulations or any new regulations developed might adversely affect us and our results ofoperations.
**RISK FACTORS**
Investment in our securities involves a high degree of risk. Investorsshould carefully consider the following factors, among others, relating to Clinical Data: 
**Risk factors relating to Clinical Data’s common stock
*Ownership of Clinical Data isconcentrated among a small number of stockholders.***
Our ownership is concentrated among a small numberof stockholders, including Randal J. Kirk, Mr. Kirk’s affiliates and Israel M. Stein,M.D., our Chief Executive Officer. Together with Dr. Stein, Mr. Kirk and Mr. Kirk’saffiliates hold approximately 76% of our outstanding common stock. Under Delaware law, Dr.Stein, Mr. Kirk and Mr. Kirk’s affiliates collectively own the requisite number ofshares of our outstanding common stock to take action with respect to virtually anycorporate matter without seeking the approval of any other stockholders. This means that,although Dr. Stein and Mr. Kirk have no agreement to act in concert, together they and Mr.Kirk’s affiliates could take such action by written consent and would be required toprovide notice to the other stockholders only after they had taken such action. Althoughthey presently have the ability to act without the consent of other stockholders, Mr. Kirkand Dr. Stein, as directors of Clinical Data, have fiduciary duties under Delaware law toall the stockholders of our company. Delaware law also imposes certain fiduciary duties onMr. Kirk and Dr. Stein by virtue of their status as majority stockholders, and by virtueof Dr. Stein’s status as an officer of our company. 
***Theprice of our common stock is volatile and could cause investors to lose a substantial partof their investment.***
The stock market in general and the stock pricesof technology companies in particular, experience volatility, which has often beenunrelated to the operating performance of any particular company or companies. Our commonstock is lightly traded and its price could decline regardless of our company’sactual operating performance. Investors also could lose a substantial part of theirinvestment as a result of industry or market-based fluctuations. If a more active publicmarket for our common stock is not created, it may be difficult for stockholders toresell their shares. A number of additional factors also could cause the prevailing marketprices of our common stock to fluctuate significantly and could adversely impact suchprices and the ability of our company to raise additional equity capital. Such factorsinclude but are not limited to the following:
-  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
-  sales of substantial amounts of our common stock into the public    market, or the perception that such sales might occur.
**Risk factors relating toour business and operations
*The businesses of Clinical Data and Elan must beintegrated.***
There can be no assurance that we will be able tocontinue to successfully integrate the business of Elan into our business. In particular,we could have difficulty integrating Elan’s products and services into ouroperations, including integrating Elan’s reagent products with the instrumentationmanufactured by Vital Scientific, our wholly- owned Dutch subsidiary. Although VitalScientific’s instruments have successfully performed with reagents produced by anumber of different third-party manufacturers, and Elan’s reagents have successfullyperformed with instruments produced by a number of different third-party manufacturers,Elan’s reagent products must be validated on the instruments presently manufacturedby Vital Scientific. The cost of obtaining such validation may be high and the processlengthy, with no assurance that such validation process may not necessitate changes in theformulation of the assays being developed. Any delay in obtaining such validation, or thenecessity of changing the formulation of our assays could materially and adversely affectour cash flows and results of operations. 
***The businesses of Clinical Data, GPSI andLandmark must be integrated.***
There can be no assurance that we will be able tocontinue to successfully integrate the businesses of GPSI and Landmark into our business.We believe Landmark’s business is similar to the line of business in which ClinicalData has been engaged historically. The acquisition of GPSI’s business, however,represents a shift by us into a different segment of the clinical diagnostics business– namely, the provision of management consulting services for clinical diagnosticlaboratories. We could yet have difficulty assimilating GPSI’s and Landmark’sproducts and services into our operations. 
***If we choose to acquire new and complementarybusinesses, products or technologies, we may be unable to complete such acquisition(s) orto integrate an acquired business or technology in a cost-effective manner.***
Our success depends on our ability to continuallyenhance and broaden our product offerings in response to changing technologies, customerdemands and competitive pressures. To this end, instead of developing them, from time totime we have acquired and may yet acquire additional complementary businesses, products,or technologies or may enter into cooperative ventures. We do not know if we will be ableto complete such acquisitions, or whether we will be able to successfully integrate anacquired business, operate it profitably, or retain its key employees. Integrating anyacquired business, product or technology, or any venture into which we may enter could beexpensive and time-consuming and could disrupt our ongoing business, distract ourmanagement and materially and adversely affect our cash flows and results of operations. 
***If we are required to seek financing for an acquisition or otherventure, or to enhance our working capital, we may not be able to obtain such additionalfinancing on acceptable terms.***
In order to finance any acquisitions or other ventures, or to enhanceour working capital, we may need to raise additional funds through public or privateequity or debt financings. In that event, we could be required to obtain financing onterms that are unfavorable to us and, in the case of equity or equity-linked financing, onterms that may result in dilution to our existing stockholders. If we cannot sell oursecurities or obtain additional financing on acceptable terms, we may not be able to:
- 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.

Our failure to do any of these things could seriously harm ourfinancial condition by preventing us from being able to effectively grow our business orto take advantage of new business opportunities. 
***We are dependent upon anasset-based line of credit for much of our working capital. That loan imposes conditionsthat could adversely affect us.***
We used an asset-based line of credit to finance a portion of theassets we purchased from Elan. As of March 31, 2004, there was $1,818,000 outstanding onthat line. This debt may adversely affect our future operations in several important ways,including the following:
- 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 currencyexchange rate fluctuation risks.***
The costs of importation of instruments and other products are subjectto foreign currency fluctuations. In fiscal 2003, prior to the Landmark Merger, GPSIMerger, and Elan asset acquisition, sales to customers outside the United States accountedfor approximately 97% of our revenues. In fiscal year 2004, sales to customers outside theUnited States accounted for approximately 49% of our revenues. We anticipate thatinternational sales will continue to account for a significant portion of ourrevenues.  Most of our sales to international distributors are denominated in Euros.To the extent that our sales and operating expenses are denominated in foreign currencies,our operating results may be affected by changes in exchange rates.  We cannotpredict whether such gains and losses will be material, nor can we predict the effect ofexchange rate fluctuations on our future operating results.  We sometimes engage inlimited, transaction specific, foreign currency hedging transactions to reduce our risk,but we cannot assure you that any such hedging transaction will allow us to avoid anycurrency exchange rate fluctuation risks.
***Our international operations and sales expose us to political andeconomic risks.***
Our international operations and reliance on international sales exposeus to foreign political and economic risks, including: 
- regulatory approvals;
- import and export license requirements and restrictions; 
- disruptions in international transport or delivery;  
- difficulties in collecting receivables; and   
- potentially adverse tax consequences.

If any of these risks materializes, our international sales coulddecrease and our foreign operations could suffer.
***We are dependent upon certain key personnel.***
We are highly dependent upon the principalmembers of our management, engineering and scientific staff, including Israel M. Stein,M.D., our Chairman, Chief Executive Officer and President. The loss of the service of anyof these persons could seriously harm our product development and commercializationefforts. 
***Our products require government approval to bemarketed.***
We have obtained all necessary governmentapprovals to market our current products in the United States and the European Union.However, we must obtain approval of certain European regulatory bodies and the FDA tomarket any new products that we may develop. Domestically, certain of our products areclassified as medical devices under the Food, Drug and Cosmetics Act. As such, if and whenthese products are offered for sale in the United States, these products will be subjectto continuing regulation and oversight by the FDA. The cost of obtaining such approvals may be high and the processlengthy, with no assurance that such approvals will be obtained.

To date, neither the FDA nor the European medicalregulatory bodies have developed industry-wide performance standards with respect to thesafety and effectiveness of the products that we presently market. Although we intend touse reasonable efforts to comply with international standards, when and if developed,there can be no assurance that our products as currently configured will be in compliance.Any failure to receive and maintain approvals for our products, or noncompliance with anyinternational performance standards promulgated in the future, could have a materialadverse effect on our business. Furthermore, any material change in the existing rules andregulations or the adoption of any new regulations could adversely affect us.
***Physician’s office laboratories must comply with governmentregulations.***
Clinical laboratories, including POLs, aresubject to significant governmental regulation at the federal, state and sometimes locallevels. These regulations govern licensure and operation of clinical laboratories, paymentfor laboratory services, health care fraud and abuse, security and confidentiality ofhealth information, and environmental and occupational safety. 

The Clinical Laboratory Improvement Amendments of 1988, or CLIA,extended federal oversight to virtually all clinical laboratories by requiring that theybe certified by the federal government or by a federally-approved accreditation agency.Pursuant to CLIA, clinical laboratories must meet quality assurance, quality control andpersonnel standards. Laboratories also must undergo proficiency testing and are subject toinspections. Standards for testing under CLIA are based on the complexity of the testsperformed by the laboratory, with all tests classified as either high complexity, moderatecomplexity, or waived. We specialize in providing moderate complexity test products andconsulting services for such testing, and POLs purchasing such products and services alsorequire CLIA certificates to perform such testing. Any material change in the existingrules and regulations or the adoption of any new regulations could adversely affect us bymaking our customers less willing or able to remain in the business. Thesanction for failure to comply with CLIA requirements may be suspension, revocation orlimitation of a laboratory's CLIA certificate, which is necessary to conduct business, aswell as significant fines and/or criminal penalties. The loss or suspension of a license,imposition of a fine or other penalties, or future changes in the CLIA law or regulations(or interpretation of the law or regulations) related to smaller labs could have amaterial adverse effect on our business. 

We are further regulated by the Health Insurance Portability andAccountability Act of 1996 ("HIPAA"), as amended. HIPAA includes standards ofpractice for the protection of the privacy of individually identifiable healthinformation. Failure to comply with HIPAA could result in significant fines and criminalliability. In addition, future changes in federal, state or local regulations or policies(or in the interpretation of current regulations) could adversely affect our ability tosell products and services to POLs.
***Physician’s office laboratories are dependenton third-party payers.***
Future changes in federal, state and localregulations (or in the interpretation of current regulations) affecting government paymentfor clinical laboratory testing could have a material adverse effect on the profitabilityof POLs and would adversely affect the sale of our products and services. We are unable topredict what type of legislation, if any, will be enacted into law. In addition, changesin rates of reimbursement made by private insurers and other third-party payers may have asimilar detrimental effect on our business.
***Manufacturing problems or delays could result in lost revenue.***
We manufacture most of our instruments in Dieren,The Netherlands and most of our reagents in Brea, California. In addition, Landmarkcontracts with third party manufacturers to produce instruments sold under the LandmarkScientific brand. These manufacturing processes are complex and, as a result, anyprolonged disruption in our manufacturing operations or the manufacturing operations ofour third party manufacturers could seriously harm our ability to satisfy ourcustomer order deadlines. If we cannot deliver our systems in a timely manner, ourrevenues will likely suffer.

As we develop new products,we must transition the manufacture of each new product from the development stage tocommercial production. We cannot predict whether we will be able to complete suchtransitions on a timely basis and with commercially reasonable costs. We also cannotassure that manufacturing or quality control problems will not arise as we attempt toscale-up our production for any future new products or that we can scale-up manufacturingand quality control in a timely manner or at commercially reasonable costs. If we areunable to consistently manufacture our products on a timely basis due to these or otherfactors, our product sales will decline.***Intense competition could reduce our market share or limit our abilityto increase market share, which could harm our financial performance.       *
The medical products industry is rapidly evolving and developments areexpected to continue at a rapid pace. Competition in this industry, which includes ourmedical instrumentation, reagent and consulting services businesses, is intense andexpected to increase as new products, technologies and services become available and newcompetitors enter the market. Our competitors in the United States, Europe andPacific-Asia are numerous and include, among others, large, multi-national diagnostictesting and medical products companies. Our future success depends upon maintaining acompetitive position in the development of products, technologies and services in ourareas of focus in POLs and smaller clinical laboratories. Our competitors may: 
- 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.         

Also, the possibility of intellectual property rights disputes withcompetitors holding domestic and foreign patent and other intellectual property rights maylimit or delay expansion possibilities for our businesses. In addition, many of ourexisting or potential competitors have or may have substantially greater financial andmanagerial resources, research and development capabilities, and clinical, manufacturing,regulatory and marketing experience.         
***We rely on distributors for product sales and support.***
Our sales are primarily made throughdistributors. We often rely upon distributors to provide customer support to the ultimateend users of our products. As a result, our success depends on the continued sales andcustomer support efforts of our network of distributors. The use of distributors involvescertain risks, including risks that distributors will not effectively sell or support ourproducts, or will be unable to satisfy financial obligations to us and cease theiroperations. Any reduction, delay or loss of orders from our significant distributors couldharm our business. There can be no assurance that we will continue to engage qualifieddistributors, and the failure to do so could have a material adverse effect on ourbusiness, financial condition and results of operations. 
***Our results of operations will be adversely affected if we fail torealize the full value of our intangible assets.***
As of March 31, 2004, our total assets included $8.5 million of netintangible assets. Net intangible assets consist principally of (i) goodwill associatedwith acquisitions; (ii) costs associated with capitalized software; and (iii) purchasedintangibles consisting of customer relationships, net of accumulated amortization.Goodwill is not being amortized while the purchased intangibles are being amortized overtheir estimated useful lives. Amortization of capitalized software is provided based onthe greater of the ratio that current gross revenues for a product bear to the total ofcurrent and anticipated future gross revenues for that product, or the straight-line basisover the estimated useful life of the product. The estimated useful life for thestraight-line method is generally four years. Goodwill will be tested, at a minimum, on anannual basis for potential impairment by comparing the carrying value to the fair marketvalue of the reporting unit to which the goodwill is assigned, while amortizableintangibles, including capitalized software, are subject to impairment reviews when thereare indications of impairment.

The fair value of our recorded intangibles can be impacted by theCompany’s operating results and cash flows, economic conditions, market risks, andthe volatility in the markets in which the Company and its customers operate. Changes infair value could result in future impairment charges if the fair value of the reportingunits or asset groups to which these long-lived assets are associated are determined to beless than the carrying value of such assets. The annual assessment of goodwill or theperiodic impairment testing considerations may result in impairment charges or additionalintangible asset write-offs, respectively, which could adversely affect our results ofoperations. As of December 31, 2003, the most recent evaluation date, there was noimpairment of goodwill. Additionally, there were no indicators of impairment that wouldrequire an assessment of the impairment of our acquired intangible assets.

**Patents**

We own or have applied for patents and trademarks on certain of ourproducts. However, we do not believe that our business, as a whole, is or will bematerially dependent upon the protection afforded by such patents or trademarks, and asubstantial majority of our revenues is attributable to products without patentprotection. 
**Warranty and Product Liability**
Substantially all of our instrumentation products are covered by awarranty for workmanship which is the earlier of 12 months from first installation or 15months from delivery. Reagents, electrodes and other consumables have varying lengthwarranties depending upon the expected life of the product. 

We maintain product liability insurance for sales of our laboratoryinstrumentation in amounts we believe are adequate, given our past sales levels and ouranticipated sales levels for the fiscal year ending March 31, 2005. We will reevaluate theadequacy of this coverage when and if our sales level substantially increases. To date, noproduct liability claims have been brought against us. However, there can be no assurancethat product liability insurance will continue to be available to us on acceptable terms,or that product liability claims in excess of our insurance coverage, if any, will not besuccessfully asserted against us. 
**Production and Availability of Raw Materials**
Our manufacturing operations require a variety of purchased componentsand supplies. We purchase these items in sufficient quantities to take advantage of pricediscounts and currently have an adequate inventory. Most of the components and suppliesare available from multiple sources and we anticipate that they will continue to bereadily available. Certain components and supplies are available from single sources only.If such suppliers should fail in deliveries, delays in production could result. However,these components and supplies are generally not manufactured to our specifications, butare produced for other applications, and we believe that they will continue to beavailable in the foreseeable future. Where appropriate, we place a sufficient number ofsuch components in inventory or provide vendors with greater lead time for filling ordersfor such components.
**Backlog**
At the close of the fiscal year ended March 31, 2004, we had aninstrumentation backlog (or order book) of approximately $7,770,000 as compared to$1,582,000 in 2003 in the Clinics and Small Hospitals segment. It is anticipated that allof the existing backlog will be filled by shipments during the first quarter of fiscalyear 2005. The POL segment operates with limited backlog because products are shippedshortly after orders are received.
**Seasonality**
Our second fiscal quarter includes the months of July, August andSeptember. Our European facility normally closes its operations for two weeks during thisperiod. In the United States medical practices also experience a decline in voluntaryprocedures such as examinations, resulting in a decline in testing. Consequently, we mayexperience a decline in revenue and net income from first fiscal quarter levels during ourfiscal second quarter, reflecting this slowdown in business activity. This seasonality isexpected to effect only the second fiscal quarter.
**Employees**
The Company had two hundred eighteen (218) full, part-time, andcontract employees as of March 31, 2004. One hundred nineteen (119) of these employees areemployed by CDSS, eighty-seven (87) of these employees are employed by Vital Scientific,one (1) by NovaChem, ten (10) by Vital Diagnostics, and one (1) by Clinical Data. 
**Environmental matters**
We do not believe that compliance with federal, state or localregulations relating to the protection of the environment have any material effect on ourfinancial or competitive position.
**Significant Customers**
During fiscal year 2004, we had sales of scientific and blood analysisequipment and reagents to two significant customers amounting to approximately 14% and 13%of consolidated revenues. Approximately 25% of accounts receivable at March 31, 2004 werereceivable from these two customers. During fiscal year 2003, we had sales of scientificand process monitoring equipment to one significant customer approximating 13% ofconsolidated revenues.
**Item 2. Description of Properties**
We lease approximately 500 square feet of corporate office space inNewton, Massachusetts, under a short-term lease.

CDSS leases approximately 30,000 square feet in Smithfield, RhodeIsland. The facility in Smithfield is comprised of corporate office space, research anddevelopment facilities and facilities for warehousing and distribution. The facility isleased until 2007. CDSS also leases approximately 33,000 square feet in Brea, Californiaunder a lease expiring in 2010. The Brea facility is largely utilized for manufacturingand distribution.

Vital Scientific leases approximately 35,000 square feet in Dieren, TheNetherlands. The facility, which is largely a manufacturing and distribution facility, isleased until 2008 with renewal and expansion options. 

NovaChem occupies approximately 300 square feet of corporate officespace in Newton, Massachusetts and in Dieren, The Netherlands, under short-term leases.

Vital Diagnostics occupies approximately 3,000 square feet of officeand warehousing space in Castle Hill, New South Wales, under a lease expiring in December2004.

We believe our current facilities are adequate for our planned needs inthe near future.
**Item 3. Legal Proceedings**
None.
**Item 4. Submission of Matters to a Vote of Security Holders**
No matters were submitted to our stockholders during the fourthquarter.

 
**PART II

Item 5. Market for Common Equity and Related Stockholder Matters**a) Market information: Our common stock trades on the NASDAQ Stock Market      under the symbol CLDA. The following table sets forth the range of high and low sale      prices per share of common stock for each quarter in fiscal 2004 and 2003 as reported by      the NASDAQ Stock Market.    
Prices
Fiscal Year Ended March 31,    2004
High
Low
First Quarter
$ 6.20
$3.80
Second Quarter
$10.50
$7.00
Third Quarter
$ 9.65
$7.49
Fourth Quarter
$22.70
$9.20            
Fiscal Year Ended March 31,    2003
High
Low
First Quarter
$7.20
$3.72
Second Quarter
$5.30
$2.40
Third Quarter
$5.50
$3.50
Fourth Quarter
$5.05
$3.60            b)b) As of March 31, 2004, there were approximately 490 holders of record of      our common stock.
 c)
c) We have paid a quarterly dividend of $0.01 per share      in each quarter since March 2001, resulting in an annual dividend of $0.04 per share. The      payment of future dividends will be dependent upon financial results and other relevant      factors to be considered by the Board of Directors. In addition, as discussed in Note 5 in      the consolidated financial statements, our revolving credit facility restricts our ability      to pay dividends in excess of the $0.01 per share currently being paid by us quarterly.

We did not repurchase any of our common stock during the year ended      March 31, 2004.

 d)
d) We have authorized common stock for issuance under      equity compensation plans as follows as of March 31, 2004: **Equity Compensation Plan Information**
 

**Plan Category**
**Number of securities    to be issued upon exercise of outstanding options, warrants and rights**
**Weighted average    exercise price of outstanding options, warrants and rights**
**Number of securities    remaining available for future issuance**
Equity compensation plans    approved by security holders
199,100
$5.58
117,000
Equity compensation plans not    approved by security holders
N/A
N/A
N/A
Total
199,100
$5.58
117,000
The authorized plans are more fully described in Note 7 in the    accompanying consolidated financial statements. 
** 

Item 6. Management's Discussion and Analysis or Plan of Operation**
The following discussion should be read in conjunction with theconsolidated financial statements and notes there included in Item 7 in this Annual Reporton Form 10-KSB. This item contains forward-looking statements that involve risks anduncertainties. Actual results may differ materially from those indicated in suchforward-looking statements. Factors that may cause such a difference include, but are notlimited to, those discussed in "Item 1: Description of the Business - RiskFactors." 
**Critical Accounting Policies and Estimates

The preparation of consolidated financial statements requiresmanagement to make estimates and judgments that affect the reported amounts of assets,liabilities, revenues and expenses, and related disclosure of contingent assets andliabilities. On an ongoing basis, management evaluates these estimates, including thoserelated to uncollectible accounts, inventories, product warranty, income taxes, andcontingencies and litigation. We base our estimates on historical experience and onvarious other assumptions that are believed to be reasonable under the circumstances, theresults of which form the basis for making judgments about the carrying values of assetsand liabilities that are not readily apparent from other sources. Actual results maydiffer from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affectmanagement’s more significant judgments and estimates used in preparation of theconsolidated financial statements.

*Revenue recognition -*Our product sales are recorded at the timewhen persuasive evidence of an arrangement exists, delivery has occurred, the price to thebuyer is fixed or determinable and collectibility is reasonably assured. A provision forthe estimated cost of product warranties is made at the time the related revenue isrecognized. Historically, product warranties have not been significant. Future changes inwarranty costs could increase or decrease our profitability. 

*Inventory valuation -*Inventory is valued at the lower of theactual cost to purchase and/or manufacture the inventory or the current estimated marketvalue of the inventory. Inventory quantities on hand are regularly reviewed and, whennecessary, provisions for excess and obsolete inventory are recorded based primarily onour estimated forecast of product demand for the next twelve months. A significantincrease in the demand for our products could result in a short-term increase in the costof inventory purchases due to expediting costs while a significant decrease in demandcould result in an increase in the amount of excess inventory quantities on hand requiringinventory write-downs. 

*Allowance for doubtful accounts -*Allowances for doubtfulaccounts are maintained for estimated losses resulting from the inability of our customersto make required payments. These estimated allowances are periodically reviewed, analyzingthe customers' payment history and information known to us regarding customers' creditworthiness. If the financial condition of our customers were to deteriorate, resulting inan impairment of their ability to make payments, additional allowances may be required. Wehave not, in recent history, experienced any significant uncollectible accounts. 
*Valuation of intangibles - As discussed in Note 3 to theconsolidated financial statements, the Company completed three business combinations inApril 2003. In accordance with SFAS No. 141, the Company has accounted for thetransactions based on the fair value of the assets purchased. As a result of the purchaseprice allocations, the Company has recorded purchased intangibles of $1.5 million andgoodwill totaling $6.4 million.

In accordance with the requirements of SFAS No. 142, the Companyperforms an annual impairment test of the carrying value of goodwill and the acquiredintangible assets. The fair value of our recorded intangibles can be impacted by theCompany’s operating results and cash flows, economic conditions, market risks, andthe volatility in the markets in which the Company and its customers operate. Changes infair value could result in future impairment charges if the fair value of the reportingunits or asset groups to which these long-lived assets are associated are determined to beless than the carrying value of such assets. As of December 31, 2003, the most recentevaluation date, there was no impairment of goodwill. 

In accordance with the requirements of SFAS No. 144, when facts andcircumstances suggest that there may be an impairment, the Company will assess thecarrying value of amortizing intangibles, including purchased intangibles and capitalizedsoftware. When a potential impairment has been identified, forecasted undiscounted netcash flows of the operations to which the asset relates are compared to the currentcarrying value of the assets present in that operations. If such cash flows are less thansuch carrying amounts, such intangibles are written down to their respective fair values.The results of these periodic impairment tests can be impacted by the Company’soperating results and cash flows, economic conditions, market risks, and the volatility inthe markets in which the Company and its customers operate. No impairment charges havebeen recognized for the periods presented in this annual report.
*Income taxes - Historically, our operations in the United Stateshave not been profitable and therefore we had not received any tax benefit from our netoperating losses. However, with the acquisitions of Elan, GPSI and Landmark, our domesticoperations are profitable and are expected to have taxable income, resulting in ourability to utilize previously incurred operating losses. We have recorded a benefit of$618,000 in the consolidated statement operations for 2004 related to a change invaluation allowance, primarily due to the facts that led management to conclude that thebenefits of net operating loss carryforwards were now realizable. Net operating losscarryforwards at foreign entities continue to be subject to a valuation allowance becausethe realization of these tax benefits more likely will not occur. See Note 8 in theaccompanying notes to the consolidated financial statements for further details.
**Liquidity and Capital Resources We have cash and cash equivalentsof approximately $1.8 million and working capital of approximately $9.5 million at March31, 2004. Approximately $6,109,000 of cash was provided from operations during the fiscalyear ended March 31, 2004. The net cash flows from operations were primarily from netincome and non-cash expenses offset by working capital uses (primarily the increase ininventory levels offset by the decrease in accounts receivable and accounts payable).During fiscal 2004, approximately $7,049,000 was used in investing activities chiefly forthe acquisition of Elan and the purchase of equipment. Financing activities during theyear ended March 31, 2004 provided approximately $1,875,000, principally from net proceedsof $1,949,000 from the credit facility.

In April 1998, we entered into a relationship with a Dutch bank thatprovides for a €1,815,000 (approximately $2,222,000) line of credit. The line ofcredit bears interest at 1.25% above the base rate as reported by the Netherlands CentralBank with a minimum base rate of 3.25%. At March 31, 2004, the base rate was 4.0%,therefore the cost to borrow under this line of credit would be 5.25%. Outstandingprincipal is secured by the trade receivables and inventory of the Dutch operations. Theline of credit requires us to comply with certain financial covenants. As of March 31,2004, we were in compliance with such covenants, and there was no principal outstanding.

In March 2003, we entered into a line of credit agreement with a U.S.bank which provides for revolving availability for up to $10,000,000. The line of creditbears interest at the rate of either one quarter of one percent in excess of prime or 300basis points above the LIBOR rate. The loan agreement has an original term of three yearsand automatically renews from year to year if neither we nor the bank terminate the loanagreement. Trade receivables and inventory of CDSS are provided as collateral for thisfacility. The facility was obtained in connection with the acquisitions described in theCompany History. Approximately $5,500,000 was drawn on the credit facility to assist infunding the business combinations in April 2003. $1,818,000 was outstanding and anadditional $3,740,000 was available for borrowing at March 31, 2004. The prime rate onthat date was 4% resulting in an effective interest rate on the loan of 4.25% per annum.

In August 2003, the Company entered into a relationship with anAustralian bank that provides for an A$300,000 (approximately $230,000) line of credit.The line of credit bears interest at 2.98% above the base rate as reported by thebank’s Business Mortgage Index (8.15% at March 31, 2004). Outstanding principal issecured by the assets of our Australian subsidiary. The line of credit requires us tocomply with certain financial covenants. There are no amounts outstanding at March 31,2004.

Our sources of cash include cash balances and the aforementioned linesof credit. We believe that available funds and cash flows from operations will provide uswith sufficient liquidity for the next 12 months.

A significant portion of our balance sheet is denominated in Euros, thefunctional currency of our Dutch operations, and a minor portion of our balance sheet isdenominated in Australian dollars. The effect of translation of these local currenciesinto U.S. dollars for reporting purposes is reflected as a separate component ofstockholders' equity. The gains or losses from foreign currency transactions are includedin other income (expense) and have not been material to the financial statements. The Eurostrengthened against the U.S. dollar by 18.2% during fiscal year 2004 and 12.5% duringfiscal year 2003 from the respective prior fiscal year closing rates. The translation ofthe Company’s results of operations from the Euro to the U.S. dollar has beensignificantly impacted by the changes in these foreign exchange rates.

Periodically we enter into foreign exchange forward contracts to reducethe exposure to currency fluctuations on customer accounts receivable denominated inforeign currency. The objective of these contracts is to minimize the impact of foreigncurrency exchange rate fluctuations on operating results. Derivative financial instrumentsare not used for speculative or trading purposes. There were foreign exchange forwardcontracts with a notional of $700,000 outstanding at March 31, 2004. The fair value ofthese instruments at March 31, 2004 was $700,000. Gains and losses related to thesederivative instruments for fiscal years 2004 and 2003 were not significant. We do notanticipate any material adverse effect on our consolidated financial position, results ofoperations, or cash flows resulting from the use of these instruments. However, there canbe no assurance that these strategies will be effective or that transaction losses can beminimized or forecasted accurately.
**Contractual Commitments and Commercial Obligations

The following table summarizes our contractual obligations at March 31,2004 and the effects we expect those obligations to have on our liquidity and cash flow infuture fiscal years.
       
**Operating Leases**
**Government Funded    Development Credits**
**Revolving Debt    Facilities**
**Long-term    Debt**
**Total**
2005
$ 1,410,000
$95,000
$1,818,000
$52,000
$3,375,000
2006
1,211,000
80,000
-
55,000
1,346,000
2007
1,081,000
80,000
-
58,000
1,219,000
2008
744,000
80,000
-
53,000
877,000
2009
342,000
79,000
-
12,000
433,000
2010 and beyond
338,000
-
-
-
338,000
Total
$5,126,000
$414,000
$1,818,000
$ 230,000
$7,588,000
We entered into a financing arrangement with a Netherlands governmentalagency in connection with the development of a new product. The grant is to be repaid as apercentage (13.6%) of the product's gross revenues as long as the product is a commercialsuccess. We began to ship this product during fiscal year 1998, evidencing its commercialsuccess. We have deferred all funding received and reported those amounts as developmentcredits included in accrued expenses, $417,000 at March 31, 2004. When we make a paymentto the Netherlands government, the recorded liability is reduced. There is no obligationto repay any remaining amounts after 2008.

In October 2001, we entered into an employment agreement with our chiefexecutive officer that expires on October 28, 2005. This agreement is automaticallyrenewed for successive one-year periods thereafter unless either party provides writtennotice of nonrenewal at least six months in advance of the expiration date.

During fiscal 2005, we expect to make capital expenditures ofapproximately $600,000 primarily to introduce new products, and improve production ofexisting products. We expect to use our available cash, credit lines and capital leases tofund these expenditures.
**Indemnifications**
In connection with the April 29, 2003 business combinations, we agreedto indemnify Elan Pharmeceuticals, Inc. with respect to certain customer and vendoragreements and, in connection therewith, pledged our shares of Landmark as collateralsecurity for our performance of such indemnification obligations. Management does notbelieve these indemnifications will have a material adverse effect on its consolidatedfinancial position or results of operations. As such, the liabilities recorded in respectof these indemnification arrangements were de minimus. These indemnification obligationsexpired on April 29, 2004 and no claims were made against us.

In addition, in connection with the April 29, 2003, businesscombinations, we assumed indemnification arrangements related to one of Elan’sthird-party leasing programs. Such indemnifications require us to assume theresponsibility for payment to the customer’s lessor on certain equipment sold byElan, if the customer chooses to terminate the lease. At the acquisition date the Companyestimated the fair value of this obligation and recorded a liability totaling $387. AtMarch 31, 2004, the recorded liability totaled $253.

Pursuant to the provisions of some of our distribution and end-useragreements, we agree, subject to certain limitations and conditions, to defend any suit orproceeding brought against a distributor or end user based on a claim that our productinfringes the intellectual property rights of a third party. We have never incurred coststo defend lawsuits or settle claims related to these contract provisions. As such theliabilities recorded in respect of these indemnification arrangements are de minimus.
**Results of Operations**
The following discussion of our financial condition and results ofoperation should be read in conjunction with our financial statements and the notesthereto. In addition to the historical information presented, there are forward-lookingstatements contained in this discussion and in other parts of this report. Such statementsinvolve risks and uncertainties including, but not limited to, competitive, governmental,economic and technological factors that may affect our operations, products, markets andservices. Our actual results could be materially different from those statementsanticipated by such forward-looking statements.

Our business was affected by the three acquisitions completed on April29, 2003. Our traditional business was multinational, focusing on scientificinstrumentation used in medical, veterinary and analytical laboratories and in processmonitoring. We wanted to add the capability to serve a growing market of small andmedium-sized medical laboratories in the United States and around the world. Theacquisitions of GPSI, Landmark and substantially all the assets of Elan (described inCompany History and in Note 3 in the accompanying notes to consolidated financialstatements) will enable us to offer a full range of products and services to this market.We can now provide equipment and reagents in addition to laboratory management andconsulting services to create a complete solution for our customers.

In connection with the Landmark Merger and the GPSI Merger, the Companyauthorized 250,000 shares and issued 247,250 shares of Series A Preferred Stock. TheSeries A Preferred Stock provided an initial preference value of $40.01 per share and wassenior in right of payment and on liquidation to the common stock. On January 12, 2004 theSEC declared effective a registration statement filed by the Company to register forresale the shares of common stock issuable upon conversion of the Series A PreferredStock. Prior to that date, each holder of shares of Series A Preferred Stock had theright, at any time after the stockholders approved the convertibility of the Series APreferred Stock on September 25, 2003, to voluntarily convert any or all shares of theSeries A Preferred Stock held by such holder into shares of common stock. Certain holdersof Series A Preferred Stock voluntarily converted their shares into 2,025,650 shares ofcommon stock on November 10, 2003. On January 12, 2004, the balance of the issued andoutstanding shares of Series A Preferred Stock was automatically converted into 445,850shares of common stock. 
**Fiscal Year Ended March 31, 2004 Compared to Fiscal Year Ended March31, 2003**
The operations of the Company have been significantly effected by thebusiness combinations discussed above. The reported operations and business segments nowreflect these business combinations. The Company manages its business as three operatingsegments: sales of instruments and consumables to Clinics and Small Hospitals; sales ofinstruments, consumables and services to Physician’s Office Laboratories and AllOther. All Other includes corporate related items, results of insignificant operations andincome and expense not allocated to reportable segments. 

The Clinic and Small Hospital segment includes the activities of VitalDiagnostics and Vital Scientific. The Physician’s Office Laboratories segmentconsists of the business created through the acquisition of the assets of Elan Diagnosticsand the mergers of GPSI and Landmark. As the Physician’s Office Laboratories segmentis a new operation for the Company, comparative analysis is not meaningful. Managementclosed the operations of GPSI and Landmark in Greensboro, North Carolina and consolidatedthem into the Company’s operations in Smithfield, Rhode Island and Brea, Californiaduring the second quarter of fiscal 2004. Results for the year ended March 31, 2004,include the expenses of operating the Greensboro, North Carolina facility through the endof July 2003. 

While analyzing the comparative revenues and expenses of the Clinic andSmall Hospital segment, which is primarily international operations, consideration shouldbe given to the strengthening of the Company's predominant foreign functional currency,the Euro, against the U.S. Dollar. The Euro spot rate on March 31, 2004 is up 12.5% ascompared to the spot rate on March 31, 2003. For year ended March 31, 2004 and 2003, theaverage Euro/dollar exchange rate is up 18.2% against the U.S. Dollar for the year thenended. 

Results include operations of the businesses acquired in the businesscombination from April 30, 2003, through March 31, 2004, or approximately eleven months ofoperations.

The following table presents our operating results for the years endedMarch 31, 2004 and 2003 (all amounts in thousands):

                 

          
**2004**
**2004 as a Percent    of Revenues**
**2003**
**2003 as a Percent    of Revenues**
REVENUES
$52,520
100.0%
$ 15,870
100.0%
COST OF REVENUES 
35,995
68.5%
10,929
68.9%
Gross profit
16,525
31.5%
4,941
31.1%
OPERATING EXPENSES:                 
Sales and marketing
5,357
10.2%
1,618
10.2%
Research and development
2,391
4.6%
1,074
6.8%
General and administrative
6,159
11.7%
1,862
11.7%
Total operating expenses
13,907
26.5%
4,554
28.7%
Income from operations
2,618
5.0%
387
2.4%
Interest expense
(240)
(0.4%)
(31)
(0.2%)
Interest income 
72
0.1%
49
0.3%
Other income (expense), net
25
0.0%
(33)
(0.2%)
Income before provision for    income taxes and minority interest
2,475
4.7%
372
2.3%
Provision for income taxes
(287)
(0.6%)
(242)
(1.5%)
Minority interest 
(17)
(0.0%)
(14)
(0.1%)
Net income 
$ 2,171
4.1%
$ 116
0.7%
Consolidated revenues for fiscal year 2004 increased from $15,870,000to $52,520,000 or 231.0% when compared to fiscal year 2003. Before foreign currencyeffects, revenues at the Clinics and Small Hospital segment increased by €6,135,000($7,206,000) or 38.4% for the year. The increase comes from the introduction of newproducts and improved pricing. The remainder of the increase in sales was a result of theacquisition of Elan, GPSI and Landmark.

In terms of revenue growth by reporting segment, revenue from ourClinics and Small Hospitals segment increased $10,096,000 between fiscal 2003 and 2004.The Physician’s Office Laboratory segment did not exist in prior years.

The gross margin as a percentage of revenues increased from 31.1% infiscal 2003 to 31.5% in fiscal 2004. The fiscal 2003 gross margin at the Clinics and SmallHospitals segment decreased from 31.3% to 30.6%, when compared to fiscal 2004. This is dueto the product mix sold as well as the significant increase in the value of the Euroaffecting the price of inventory acquired in US dollars. The overall margins wereincreased from the addition of the reagents and services to the POL market. Theconsolidated fiscal year 2004 gross profit margin would have been 34.7% had the operatingresults not been impacted by a $1,700,000 charge to cost of goods sold from the write-upof inventory in accordance with purchase accounting, reflecting the elimination of themanufacturing profit on the acquired inventories.

Sales and marketing expenses increased from $1,618,000 to $5,357,000 or231.1% as compared to fiscal 2003. Sales and marketing expense for businesses comparableto fiscal 2003 increased from $1,618,000 to $1,712,000 commensurate with the increase insales. The balance of the increase, $3,645,000 can be attributed to the newly combinedcompanies. We expect sales and marketing expense in 2005 to remain consistent as apercentage of revenue with that expended in 2004.

Research and development costs increased from $1,074,000 in fiscal 2003to $2,391,000 in fiscal 2004 or 122.7%. Research and development costs for businessescomparable to fiscal 2003 increased from $1,071,000 to $1,493,000 because of the timing ofthe development of certain projects. $898,000 of the increase in research and developmentcosts are attributable to new research and development projects at the POL segment tointegrate our legacy products with those of Elan and GPSI and to a lesser extent tointegrate the Elan and GPSI product and service offerings with our legacy products.

During fiscal years 2004 and 2003, certain software development costs,totaling $459,000 and $287,000, respectively, were capitalized in accordance withStatement of Financial Accounting Standards ("SFAS") No. 86, "Accountingfor the cost of Computer Software to be Sold, Leased or Otherwise Marketed."Amortization of these costs is included in cost of revenues and totaled $64,000 and$154,000 for fiscal years 2004 and 2003, respectively.

General and administrative expense increased in the current fiscal yearfrom $1,862,000 to $6,315,000 or 239.2%. $3.8 million of the increase are associated withgeneral and administrative expenses in the newly combined businesses. $200,000 of theincrease is the result of growth in revenue at the businesses existing before the businesscombination. $245,000 of the increase in general and administrative expenses is directlyattributable to non-capitalizable expenses from the mergers and acquisition. Included inthis expense are costs of a financing transaction that was discontinued, legal costsassociated with additional SEC filings that were required during the year, and additionalNASDAQ fees required for additional stock issued. 

Interest income increased from $49,000 in the prior fiscal year to$72,000 in the current year. This increase in income is attributable to certain salescontracts which we financed. Interest expense increased from $31,000 in the prior year to$240,000 in fiscal 2004. This increase is a result of the new financing obtained topurchase the Elan assets. 

Other income and expense in fiscal 2004 and 2003 is principally due tothe respective net gain and loss on foreign currency transactions. 

The provision for income tax increased from $242,000 in fiscal 2003 to$287,000 in fiscal 2004. The effective rate was 65.0% in 2003 as compared to 11.6% in2004. The tax rate in fiscal year 2004 was favorably impacted by the reversal ofpreviously established valuation allowances on domestic net operating loss carryforwardsas such net operating losses were deemed to be realizable beginning in 2004. In prioryears, we were not able to utilize domestic operating losses due to little or no domestictaxable income; however, the acquisitions of Elan and GPSI are expected to result infuture domestic taxable income that will allow us to utilize these previously reserved netoperating losses. It is anticipated in the future that the effective tax rates willapproximate statutory rates.

As a result of the factors described above, net income increased from$116,000 in the prior fiscal year to $2,171,000 in the current year.
**Recently Issued Accounting Standards**
In January and December 2003, the FASB issued FASB Interpretation No.46 ("FIN 46") and No. 46, revised ("FIN 46R), *Consolidation of VariableInterest Entities.* These statements, which address accounting for entities commonlyknown as special-purpose or off-balance-sheet entities, require consolidation of certaininterests or arrangements by virtue of holding a controlling financial interest in suchentities. Certain provisions of FIN 46R related to interests in special-purpose entitieswere applicable for the period ended March 31, 2004. We must apply FIN 46R to ourinterests in all entities subject to the interpretation as of the first interim or annualperiod ending after March 15, 2004. We have considered the application of FIN46 and FIN46Rto our business relationships and concluded that the adoption of this new method ofaccounting for variable interest entities did not and is not expected to have a materialimpact on our consolidated results of operations and financial position.
**Item 7. Financial Statements**
See Index to the Company's Financial Statements filed as part of thisForm 10-KSB.
**Item 8. Changes in and Disagreements with Accountants on Accounting andFinancial Disclosure**
None
**Item 8A. Controls and Procedures.**
As of March 31, 2004, our Chief Executive Officer and our ChiefFinancial Officer evaluated the effectiveness of the design and operation of ourdisclosure controls and procedures pursuant to Rule 13a-15b under the Securities ExchangeAct of 1934. Based on their review of our disclosure controls and procedures, they haveconcluded that our disclosure controls and procedures are designed to be and are effectivein timely alerting each of them to material information relating to us that is required tobe included in our periodic SEC filings. Further, there were no significant changes in theinternal controls or in other factors that could significantly affect these disclosurecontrols after the evaluation date and the date of this report. 
**PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons;Compliance With Section 16(a) of the Exchange Act.**
The information required by this item is incorporated herein byreference from the table appearing under the caption "Election of Directors" andthe table appearing under the caption "Executive Officers of the Registrant" inthe Company's definitive 2004 Proxy Statement for its Annual Meeting of Stockholders to beheld on September 13, 2004.
**Item 10. Executive Compensation**
The information required by this item is incorporated herein byreference from the section entitled "Compensation of Executive Officers" in theCompany's definitive 2004 Proxy Statement for its Annual Meeting of Stockholders to beheld on September 13, 2004.
**Item 11. Security Ownership of Certain Beneficial Owners and Management**
The information required by this item is incorporated herein byreference from the table appearing under the caption "Principal and ManagementStockholders" in the Company's definitive 2004 Proxy Statement for its Annual Meetingof Stockholders to be held on September 13, 2004.
**Item 12. Certain Relationships and Related Transactions**
The information required by this item is incorporated herein byreference from the section entitled "Certain Transactions and Relationships" inthe Company's definitive 2004 Proxy Statement for its Annual Meeting of Stockholders to beheld on September 13, 2004.
**Item 13. Exhibits, Financial Statement Schedules and Reports on Form8-K
(a) Documents filed as part of this Form 10-KSB 
1. Financial Statements. The Financial Statements listed in      the Index to Consolidated Financial Statements are filed as part of this Form 10-KSB.

2. Financial Statement Schedule. The Financial Statement      Schedule listed in the Index to Consolidated Financial Statements are filed as part of      this Form 10-KSB.

3. Exhibits. The exhibits which are filed with this Report or      which are incorporated herein by reference are listed in the Exhibit Index filed as part      of this Form 10-KSB.
(b) Reports on Form 8-K
1. On January 16, 2004, the Company filed a Current Report on Form      8-K reporting under Item 5 that, the Board of Directors of the Company declared a      quarterly cash dividend of $0.01 per common share, payable on March 26, 2004, to      shareholders of record on February 20, 2004.

2. On February 26, 2004, the Company filed a Current Report on Form 8-K      reporting under Item 5 that (a) on February 24, 2004, the Company, subject to certain      conditions, offered to acquire all of the issued and outstanding stock of Moore Medical      Corp. based upon a fixed ratio of 0.698 shares of Company Common Stock for each issued and      outstanding share of Moore Medical Common Stock; and (b) on February 26, 2004, the      Company, subject to the same conditions, was prepared to enhance its offer for Moore      Medical by $2.00 per share in cash.

3. On March 3, 2004, the Company filed a Current Report on Form 8-K      reporting under Item 5 that the Company terminated its offer to acquire the issued and      outstanding stock of Moore Medical Corp.
****
** **
Item 14. **Principal Accountant Fees and Services**

The information required by this item is incorporated herein byreference from the section entitled "Independent Accounts Fees" in the Company'sdefinitive 2004 Proxy Statement for its Annual Meeting of Stockholders to be held onSeptember 13, 2004.
** 

**SIGNATURES**

Pursuant to the requirements of the    Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed    on its behalf by the undersigned, thereunto duly authorized.**CLINICAL DATA, INC.********Israel M. Stein, M.D.**Israel M. Stein, M.D.**Dated: June 25, 2004 
Chairman of the Board**Principal Financial and Accounting Officer** 

Pursuant to the    requirements of the Securities Exchange Act of 1934, this Report has been signed below by    the following persons on behalf of the Registrant in the capacities and on the dates    indicated.**Date: June 25, 2004 Israel M. Stein, M.D.**Israel M. Stein, M.D.**Chairman of the Board**Principal Executive Officer****Date: June 25, 2004 
Larry D. Horner**Larry D. Horner**Director****Date: June 25, 2004Randal J. Kirk**Randal J. Kirk**Director ****Date: June 25, 2004
Arthur B. Malman**Arthur B. Malman**Director****
 
 

Clinical Data, Inc.AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
**Consolidated Financial    Statements
Page
Report of Independent    Registered Public Accounting Firm
F-2
Consolidated Balance Sheets at    March 31, 2004 and 2003
F-3
Consolidated Statements of    Operations for the Years Ended March 31, 2004 and 2003
F-5
Consolidated Statements of    Stockholders' Equity for the Years Ended March 31, 2004 and 2003 
F-6
Consolidated Statements of    Cash Flows for the Years Ended March 31, 2004 and 2003 
F-7
Notes to Consolidated    Financial Statements
F-9**Consolidated Financial    Statement Schedule 
Schedule II – Valuation    and Qualifying Accounts
F-26
 
** 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
To the Stockholders and Board of Directors of Clinical Data, Inc.:

We have audited the accompanying consolidated balance sheets ofClinical Data, Inc. (formerly Novitron International, Inc.) and subsidiaries (the"Company") as of March 31, 2004 and 2003, and the related consolidatedstatements of operations, stockholders' equity and cash flows for the years then ended.Our audits also included the financial statement schedule listed in the Index at Item 13.These financial statements and the financial statement schedule are the responsibility ofthe Company's management. Our responsibility is to express an opinion on these financialstatements and the financial statement schedule based on our audits. 

We conducted our audits in accordance with standards of the PublicCompany Accounting Oversight Board (United States). Those standards require that we planand perform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financial statements. Anaudit also includes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statement presentation. Webelieve that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly,in all material respects, the financial position of the Company as of March 31, 2004 and2003, and the results of its operations and its cash flows for the years then ended, inconformity with accounting principles generally accepted in the United States. Also, inour opinion, such financial statement schedule, when considered in relation to the basicconsolidated financial statements taken as a whole, presents fairly in all materialrespects the information set forth therein.

/s/ DELOITTE & TOUCHE LLP

Boston, MassachusettsJune 23, 2004

 

 
**CONSOLIDATED BALANCE SHEETSMARCH 31, 2004 AND 2003

ASSETS(in thousands, except for per share data) 
                              
**2004**
**2003****CURRENT ASSETS:                        
Cash and cash    equivalents
$ 1,800
$ 799
Accounts    receivable, less allowances for uncollectible accounts of $ 371 and $97 in 2004 and 2003,    respectively
11,600
3,461
Inventories,    net 
9,630
4,148
Deferred tax    asset************************************************************************************