**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, DC  20549**

 

**FORM10-Q/A**

 

**(Amendment No. 1)**

 
| **ý** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|------------|----------------------------------------------------------------------------------------------------|
|       |                                                                                               |
|       | **For The  Quarterly Period Ended September 30, 2003**                                        |
|       |                                                                                               |
| **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. 000-30981**

 

**GENAISSANCEPHARMACEUTICALS, INC.**

(Exact Name of Registrant as Specified in its Charter)

 
| **Delaware**                                                    |   | **06-1338846**                        |
|-----------------------------------------------------------------|--------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |

 

**Five Science Park, New Haven, Connecticut  06511**

(Address of principal executive office and zip code)

 

**(203) 773-1450**

(Registrant’s telephone number, including area code)

 

Indicate bycheck mark whether the registrant:  (1)has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days:
| Yes ý |   | No o |
|-----------------|--------|-----------|

 

Indicate bycheck mark whether the registrant is an accelerated filer (as defined in rule12b-2 of the Exchange Act):
| Yes o |   | No ý |
|------------|--------|----------------|

 

The number ofshares of the registrant’s outstanding common stock as of November 10,2003, was 23,052,227 shares.

 

 

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** **

**EXPLANATORY NOTE**

 

The purpose of this Form 10-Q/A isto amend and restate in its entirety Item 2 of our Quarterly Report on Form10-Q for the quarter ended September 30, 2003 entitled “Management’s Discussionand Analysis of Financial Condition and Results of Operations” in response tocomments received by the Securities and Exchange Commission (the “SEC”) to ourRegistration Statement on Form S-3 as filed with the SEC on November 14, 2003,as amended.  This Amendment No. 1 to Form10-Q does not reflect events occurring after the filing of the original Form 10-Qor modify or update those disclosures affected by subsequent events.  No other modifications or changes have beenmade to the Form 10-Q as originally filed or the exhibits filed therewith,except for changes to the certifications required by (i) Rules 13a-14(a)/15d-14(a)promulgated under the Securities Exchange Act of 1934, as amended, and (ii) 18U.S.C. Section 1350.

 

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**Item 2****– Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.**

 

*Thefollowing discussion and analysis of our financial condition and the results ofoperations should be read in conjunction with the financial statements andrelated notes appearing elsewhere in this Quarterly Report on Form 10-Q.  This Quarterly Report on Form 10-Q containsforward-looking statements within the meaning of Section 21E of theSecurities Exchange Act of 1934, as amended, that involve risks anduncertainties, including, but not limited to, statements about management’sexpectations as to revenues, costs and our liquidity position.  These expectations are based on certainassumptions regarding our research and development activities, projectedexpenditures, the ability of our technologies to improve the drug developmentprocess, success of our commercialization efforts and growth in our revenuesand other factors relating to our business. These expectations may not materialize if development efforts aredelayed or suspended or if other assumptions prove incorrect.  These factors are more fully discussed belowunder the heading “Factors Affecting Future Operating Results” and in our otherfilings with the Securities and Exchange Commission.  Readers are cautioned not to place unduereliance on these or other forward-looking statements, which reflectmanagement’s analysis, judgment, belief or expectation only as of the date onwhich they are made.  While we may electto update forward-looking statements at some time in the future, wespecifically disclaim any obligation to do so, even if our estimates change.*

 

**Common Terms**

 

*HAP*TM Technology – the key components of our *HAP*TM Technologyare:  a database of highly-informative,proprietary measures of genomic variation, or haplotypes, which we call *HAP*TM Markers, for pharmaceutically relevant genes; a proprietary informaticssystem, which we call *DecoGen*®, including unique algorithms, for defining patient populations withdifferent drug responses; a cost-effective, efficient process for measuringgenomic variation in clinical DNA samples, which we call *HAP*TM Typing; GLP compliant DNA banking and genotyping services and clinicalgenetics development skills.

 

STRENGTH program (Statin Response Examined byGenetic *HAP*TM Markers) – this program is designed to applyour *HAP*TM Technology and our clinical geneticsdevelopment skills to the statin class of drugs, which doctors use to treatpatients with high cholesterol and lipid levels and who are, therefore, at riskfor cardiovascular disease.

 

CARING program (Clozapine *HAP*TM Marker Discovery Study) – this program is designed to identify which ofour *HAP*TM Markers define the patients who are mostlikely to develop agranulocytosis, a potentially life-threatening depletion ofwhite blood cells, if treated with clozapine.

 

Long QT program – This program is designed todevelope a CLIA compliant diagnostic test for familial Long QT syndrome, whichis responsible for heart arrhythmias and sudden death.  This DNA-based test utilizes intellectualproperty that we acquired when we purchased substantially all of the assets ofDNA Sciences.  We will also seek todiscover genetic markers that are predictive of QT prolongation andarrhythmias, that are drug induced and result from heart disease.

 

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**Overview**

 

Since our inception, we have incurred significant operatinglosses and, as of September 30, 2003, we had an accumulated deficit of $208.0million.  The majority of our operatinglosses have resulted from costs we incurred in developing our *HAP*TM Technology, includingour clinical trials and administrative costs associated with operations.  As part of our *HAP*TMTechnology platform, we continue to populate our database with *HAP*TMMarker information for pharmaceutically relevant genes.  As of September 30, 2003 we had a total of7,450 genes in our database with 256 and 1,262 of these genes added during thethree months and nine months ended September 30, 2003, respectively.  There is not necessarily any correlationbetween the costs incurred in any period and the number of genes added to thedatabase in that period.  This is due tothe fact that the size of the gene and, therefore, the amount of work involvedvaries from gene to gene.  In addition,after a gene is sequenced it must be analyzed and go through an internalquality assurance check before it is added to the database.  This process may cause a gene sequenced inone period to be added to the database in a different period.  Furthermore, since additional informationabout genes continues to be discovered, we may resequence genes previouslyincluded in the database and do further quality assurance analysis.  We expect to dedicate a significant portionof our resources for the foreseeable future to servicing our *HAP*TM Partnership programpartners, our pharmacogenomic support service customers, our CARING and Long QTprograms and to maintain our *HAP*TM Technology.  To date, our revenue has been primarily fromlicensing and service fees from our agreements with Biogen, Inc. (Biogen), GeneLogic, Inc. (GLI), Johnson & Johnson Pharmaceutical Research & Development,a division of Janssen Pharmaceuticals, N.V., (J&J PRD), MillenniumPharmaceuticals, Inc. (Millennium) and Pfizer, Inc., as well as a sublicensingagreement with Visible Genetics, Inc. (a part of Bayer AG), a one timelicensing fee from Prometheus Laboratories, Inc. and government grants.

 

In October 2003, we sold 270,000 shares of newly designatedSeries A redeemable convertible preferred stock (Preferred Stock), $.001 parvalue per share, to an accredited investor for $22.50 per share resulting in proceedsof approximately $5.9 million, net of issuance costs of approximately$175,000.  In addition, the investor wasgranted a warrant to purchase an additional 190,000 shares of Preferred Stockthrough December 31, 2005 at $22.50 per share. We will record the warrant at its estimated fair market value as adiscount to the Preferred Stock carrying value. The discount will be amortized over the period from the date of issuanceto the redemption date and will result in a higher recorded dividend charge.  The investor is required to exercise thewarrant if our stock closes above $4.00 for 23 consecutive business days.  The Preferred Stock earns dividends at therate of 2% per annum payable in cash semi-annually in January and July.  Each share of Preferred Stock is convertibleinto ten shares of common stock at the option of the shareholder.  On or after October 29, 2006, we can requirethe conversion of the Preferred Stock if our stock has traded above $7.00 for23 consecutive business days.  Under theterms of the agreement we will be required to redeem, unless the holders of atleast 66 2/3% if the Preferred Stockholders elect otherwise, all of theoutstanding shares if a significant event, as defined, occurs.  If the significant event occurs prior to October29,2008, all of the unpaid cash dividends through October 29, 2008 also becomepayable.  In addition, the investor hasthe option to require that we redeem all of the outstanding shares of PreferredStock on either October 29, 2006, 2007 or 2008. We may delay such payment for up to one year, in which case the dividendrate would increase to 10% per annum. During the fourth quarter of 2003, we will recognize the beneficialconversion features embedded in the Preferred Stock.  The valuation of the warrant,

 

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coupled with the accounting for the beneficial conversionfeature, could have a material effect on our results and earnings available tocommon shareholders in future periods.

 

In September2003, we entered into a $5.0 million Loan and Security Agreement withComerica.  The agreement requires equalmonthly payments of principal over a 36-month period and bears interest atprime (4.0% at September 30, 2003) plus 2.5%. Borrowings under the agreement are secured by certain of ourassets.  Under the terms of theagreement, we are required to satisfy certain financial covenants, includingmaintenance of a minimum unrestricted cash balance and a minimum quick ratio, asdefined.  We were in compliance with suchfinancial covenants as of September 30, 2003.

 

Prior to closingthe loan agreement with Comerica, we elected to prepay certain capital leaseobligations with Finova and Newcourt and paid all amounts due, including anyend of lease buy out provisions for equipment retained.  In connection with the Finova agreement, wepaid a total of $4.2 million, which included a prepayment discount ofapproximately $88,000 that was credited to interest expense during the quarterended September 30,2003.  Under their originalterms, the lease schedules covered by the Finova agreement would have expiredbetween November 2003 and August 2004. In connection with the Newcourt agreement, we paid a total ofapproximately $173,000 which represented all future interest and principal dueunder the lease schedules which, by their original terms, would have expired inNovember and December 2003.  We disposedof certain equipment financed under certain of the lease schedules and recordedan additional charge of approximately $368,000 related to this equipment.  In connection with the buyout, Finova andNewcourt released their liens on all purchased equipment.  In October 2003, as required under theComerica agreement, we terminated our capital lease obligations with GE andpaid all outstanding obligations due to GE, including the end of lease buy outprovisions.  Under their original terms,the lease schedules covered by the GE agreement would have expired betweenOctober 2003 and February 2005.  We madea payment of $1.7 million to GE, which represented all principal and interestthrough the date of buyout as well as a prepayment penalty of approximately$126,000.  As a result of the terminationof the lease, the $2.1 million of restricted cash was released and we receivedfull title to the equipment.  During thefourth quarter we will record a charge of approximately $60,000 in connectionwith the termination.  As a result of thetermination of the GE lease and the issuance of the Preferred Stock in October2003, our cash and cash equivalents and marketable securities increased by $4.2million, after expenses, as compared to the amounts shown in the accompanyingunaudited financial statements as of September 30, 2003.

 

On May 15, 2003, under order of the United States BankruptcyCourt, we acquired certain assets and liabilities of DNA Sciences, Inc. for$1.8 million, inclusive of related fees and expenses.  Included in the fees and expenses is $74,700which represents the fair value of warrants exercisable for up to an aggregateof 75,000 shares of our common stock at an exercise price of $2.00 per shareissued in connection with investment banking services performed, as well as$35,000 which represents the fair value of 25,000 shares we issued to alicensor in connection with a license modification.  The primary assets acquired consisted of aGLP compliant DNA banking and a GLP compliant and CLIA licensed genotypingservices business and licenses and patent estates surrounding Long QT Syndromeand a thiopurine S-methyltransferase (TPMT) diagnostic test as well as certaintrade accounts receivable and fixed assets. Subsequent to the closing, we entered into an amendment to an existinglicense agreement (the TPMT Amendment) with Prometheus under which weprovide certain additional rights to the TPMT test for a $675,000 cash payment,which is included in License and Service Revenue in the accompanying statementof operations for the nine months ended September 30, 2003.  By combining DNA Sciences’ offerings of GLPcompliant DNA Banking and GLP compliant genotyping services

 

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with our *HAP*TM Technology and high-throughput researchgenotyping capabilities, we seek to provide a complete range of offerings forthe application of DNA tests to the clinical development and marketing ofdrugs.

 

In August 2002, we announced a restructuring and costreduction program to revise our business focus and to better align ouroperating cost structure with our current and projected partner needs andprojected revenues from our current and projected partners. The cost reductionprogram included a realignment of management responsibilities, a reduction inour workforce and a decision at that time to seek partners for all internalproduct development programs. The workforce was reduced by 20 percent to 110employees in the third fiscal quarter of 2002, with the majority of theworkforce reductions occurring in our DNA sequencing facility and relatedinformatics support.  We incurred acharge for severance and related costs of approximately $200,000, which wasrecorded in operating results in the third fiscal quarter of 2002.  All severance obligations associated withthis workforce reduction had been paid by December 31, 2002.

 

During the second quarter of 2002, we recorded a $6.0million charge for the impairment of fixed assets.  This charge was related to sequencingequipment, computer hardware and software and leasehold improvements in our DNAsequencing facility that we determined needed to be reviewed for potentialimpairment.  As a result of our review,we determined that the carrying value of the assets was in excess of expecteddiscounted future cash flows to be generated by the asset group and we recordeda write down of $6.0 million.

 

**Critical Accounting Policies**

 

The preparation of financial statements in conformity withgenerally accepted accounting principles requires management to make certainestimates and assumptions that affect the reported amounts of assets andliabilities, the disclosure of contingent liabilities at the date of thefinancial statements and the reported amounts of revenues and expenses duringthe reporting period.

 

We believe the following critical accounting policies affectthe more significant judgments and estimates used in the preparation of ourfinancial statements:

•      revenuerecognition;

•      valuationof long-lived assets; and

•      researchand development expenses

 

Revenue recognition.  Weearn our revenues primarily through the licensing of our *HAP*TMTechnology and by providing *HAP*TM Typing services and GLPcompliant DNA banking and genotyping services. We have also entered into agreements which provide for future milestonesand royalty payments.  We recognizerevenue in accordance with Staff Accounting Bulletin No. 101, *Revenue Recognitionin Financial Statements* (SAB 101), in accordance with Statement of Position97-2, *Software Revenue Recognition* (SOP 97-2), as amended by Statementof Position 98-9 (SOP 98-9), and in accordance with Emerging Issues Task ForceIssue 00-21 (EITF 00-21), *Accounting for Revenue Arrangements with MultipleDeliverables*.  In accordancetherewith, we recognize annual license and subscription fees over the term ofthe agreement and service fees as the services are performed.  For agreements with multiple deliverables, wedo not recognize revenue unless the fair value of the undelivered elements canbe determined and the elements delivered have stand-alone value to thecustomer.  Future milestones and royaltypayments, if any, will be recognized when received provided that the milestoneis substantive and a

 

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culmination of the earnings process has occurred.  Revenues derived from the achievement ofmilestones or recognition of related work performed under the terms of acontract, as well as the access period of the license agreement, may cause ouroperating results to vary considerably from period to period.  Deferred revenue results from cash receivedor amounts receivable in advance of revenue recognition.

 

Valuation of long-livedassets. We assess the impairment of long-lived assets whenever events orchanges in circumstances indicate that the carrying value may not berecoverable.  Factors we considerimportant, which could trigger an impairment review, include, among others, thefollowing:

 

•      a significant adverse change in the extentor manner in which a long-lived asset is being used;

 

•      a significant adverse change in thebusiness climate that could affect the value of a long-lived asset; and

 

•      a significant decrease in the market valueof assets.

 

If we determine that thecarrying value of long-lived assets may not be recoverable, based upon theexistence of one or more of the above indicators of impairment, we compare thecarrying value of the asset group to the undiscounted cash flows expected to begenerated by the group.  If the carryingvalue exceeds the undiscounted cash flows, an impairment charge may beneeded.  To determine the amount of theimpairment charge, we compare the carrying value of the applicable fixed assetgroup to its fair value.  We determinethe fair value of the fixed asset group by discounting expected future cashflow using a discount rate determined by us to be commensurate with the risk inherentin our current business.  If the fairvalue is less than the carrying value, such amount is recognized as animpairment charge.

 

Research and developmentexpenses. We record research and development expenses when they areincurred or, in the case of clinical trial expenses, based upon information wereceive from third party clinical research organizations.  Research and development expenses include thefollowing major types of costs: salaries and benefits, material and reagentcosts, research license fees, clinical trial expenses, depreciation andamortization of laboratory equipment and leasehold improvements and buildingand utility costs related to research space. We expense clinical trial costs as incurred based on information wereceive from third parties and estimates that we make.  Our estimates may change as additionalinformation becomes available, which could cause results to vary from period toperiod.

 

**Results of Operations**

 

**Three Months EndedSeptember 30, 2003 and 2002**

 

License and service revenue consists primarily of revenuerecognized in connection with the licensing of our *HAP*TM Technology and from *HAP*TM Typing and GLPcompliant DNA banking and genotyping services. Revenue increased toapproximately $2.6 million in the three months ended September 30, 2003, from$1.8 million in the three months ended September 30, 2002.  Approximately $625,000 of the increase inrevenue is attributable to the revenue recognized for services provided by ourGLP and CLIA compliant laboratory which we acquired through the purchase ofcertain of the assets of DNA Sciences on May 15, 2003.  The cost of services

 

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provided by our GLP and CLIA compliant laboratory totaledapproximately $686,000 for the three months ended September 30, 2003 and are includedin research and development expense discussed below. The increase is also dueto the increased commercialization of our *HAP*TM TechnologyPartnership program and our *HAP*TM Drug-Specific Partnershipprogram, including agreements entered into with Millennium in 2003, which waspartially offset by the expiration of a contract with a customer in the fourthquarter of 2002.  The agreement with acustomer who accounted for 32% of our revenue for the three months endedSeptember 30, 2003, will expire in November 2003 under its original term.

 

Research and development expenses consist primarily ofpayroll and benefits for research and development personnel, material andreagent costs, costs incurred in connection with depreciation and maintenancecosts for equipment used for *HAP*TMMarker discovery and *HAP*TMTyping and facility-related costs.  Weexpense our research and development costs as incurred.  Research and development expenses increasedto approximately $6.1 million in the three months ended September 30, 2003,from approximately $4.7 million in the three months ended September 30,2002.  Except for clinical trial expensesand, in 2003, expenses associated with the GLP and CLIA compliant laboratoryservices, substantially all of our research and development expenditures areincurred in processing and analyzing gene information added to the *HAP*TMdatabase.  The following is a breakdownof research and development expense (in thousands):

 
| ** **                     | ** ** | **Three months ended September  30, 2003** | ** ** | **Three months ended September 30,  2002** | ** ** |
|--------------------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|
| Payroll and  related expenses  |       | $                                          | 2,540      |                                       | $          | 1,960 |   |
| Depreciation  and amortization |       | 1,610                                      |       | 1,580                                      |       |
| Consumables                    |       | 730                                        |       | 220                                        |       |
| Technology  license fees       |       | 320                                        |       | 930                                        |       |
| Clinical  trial expenses       |       | —                                     |       | (580                                       | )          |
| Other                          |       | 900                                        |       | 590                                        |       |
| Total                          |       | $                                          | 6,100      |                                       | $          | 4,700 |   |

 

The increase in expenses is attributable to an increase ofapproximately $580,000 in payroll and payroll related expenses for research anddevelopment personnel who joined us in connection with the DNA Sciencesacquisition for a full quarter and due to the resignation of our ChiefScientific Officer during the quarter who will receive one year of salary asseverance in accordance with his employment agreement.  In addition, there was an increase ofapproximately $510,000 in consumables and supplies used in our laboratoriesprimarily as a result of an increase in production in our *HAP*TM Typing and sequencing laboratories.  Expenses in the third quarter of 2003 alsoincreased over the same period last year as a result of the reversal of accruedexpenses related to our clinical trails of approximately $580,000 recorded inthe third quarter of 2002.  Theseincreases were partially offset by a decrease of approximately $610,000 intechnology license fees.  This decreaseis primarily attributable to the expiration of a license agreement in December2002.  We expect depreciation andamortization expense to decrease in the second half of 2004, as a significantportion of our assets will be fully depreciated at June 30, 2004.  We do not necessarily expect a decrease intotal research and development expense for 2004.

 

General and administrative expenses consist primarily ofpayroll and benefits for executive, business development, finance and otheradministrative personnel as well as facility-related costs and outsideprofessional fees incurred in connection with corporate development and general

 

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legal and financial matters. General and administrative expenses increased to approximately $2.1million in the three months ended September 30, 2003, from approximately $2.0million in the three months ended September 30, 2002.  The increase is primarily attributable to anincrease in payroll related to the inclusion for a full quarter of personnel atour North Carolina facility, which we acquired in the DNA Sciences acquisition.

 

Loss on leased equipment was approximately $368,000 in thethree months ended September 30, 2003, as a result of our disposition of assetsupon termination of the capital lease agreements.

 

Interest income decreased to approximately $52,000 in thethree months ended September 30, 2003, from approximately $219,000 for the sameperiod in 2002.  The decrease is theresult of higher cash, cash equivalent and short-term investment balances in2002 and lower interest rates on investments during 2003.

 

Interest expense decreased to approximately $122,000 in thethree months ended September 30, 2003, from approximately $487,000 in the threemonths ended September 30, 2002.  Thedecrease is primarily the result of the recording of all future interestassociated with the Finova capital leases in the quarter ended December 31,2002.  We recorded this charge to reflectthe fact that all future interest could be due and payable under the Finovalease agreement as a result of their default claim.  In September 2003, we prepaid certainoutstanding capital lease obligations, including Finova.  Please see the “Overview” section of “Management’sDiscussion and Analysis of Financial Condition” and Note 7 of “Notes toUnaudited Financial Statements” included herein for further details.

 

Income tax benefit increased to $200,000 for the threemonths ended September 30, 2003, from an expense of approximately $28,000 forthe three months ended September 30, 2002. The benefit is the result of legislation passed in August 2003 by theState of Connecticut that reinstated the research and development tax creditexchange program for the 2003 and 2004 tax years.  The legislation allows companies to exchangeresearch and development tax credits earned in the tax year for a cash refundfrom the State at a rate of 65% of the research tax credit, as defined.

 

**Nine Months EndedSeptember 30, 2003 and 2002**

 

Revenue increased to approximately $7.8 million in the ninemonths ended September 30, 2003, from $5.5 million in the nine months endedSeptember 30, 2002.  The increase inrevenue is primarily attributable to the $675,000 license fee received fromPrometheus for their expanded rights to the TPMT test under the TPMT Amendmentand approximately $1.0 million of revenue recognized for services which wereprovided by our GLP compliant laboratory, which we acquired through thepurchase of certain of the assets of DNA Sciences on May 15, 2003.  The cost of services provided by our GLP andCLIA compliant laboratory totaled approximately $1.0 million for the ninemonths ended September 30, 2003 and are included in research and developmentexpense discussed below.  The increase isalso due to the increased commercialization of our *HAP*TM Technology Partnership program and our *HAP*TM Drug-SpecificPartnership program, including agreements entered into with Millennium in 2003and Pfizer in 2002, which was partially offset by the expiration of a contractwith a customer in the fourth quarter of 2002. The agreement with the customer who accounted for 30% of our revenue forthe nine months ended September 30, 2003, will expire in November 2003 underits original term.

 

Research and development expenses decreased to approximately$15.9 million in the nine months ended September 30, 2003, from approximately$19.6 million in the nine months ended September 30, 2002.  Except for the clinical trial expenses and,in 2003, expenses associated with

 

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the GLP and CLIA compliant laboratory services,substantially all of our research and development expenditures are incurred inprocessing and analyzing gene information added to the *HAP*TMdatabase.  The following is a breakdownof research and development expense (in thousands): 

 
| ** **                     | ** ** | **Nine months ended September  30, 2003** | ** ** | **Nine months ended September 30,  2002** | ** ** |
|--------------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|
| Payroll and  related expenses  |       | $                                         | 6,470      |                                      | $          | 6,490 |   |
| Depreciation  and amortization |       | 4,810                                     |       | 5,800                                     |       |
| Consumables                    |       | 1,770                                     |       | 1,590                                     |       |
| Technology  license fees       |       | 480                                       |       | 2,630                                     |       |
| Repair and  maintenance        |       | 440                                       |       | 940                                       |       |
| Other                          |       | 1,930                                     |       | 2,150                                     |       |
| Total                          |       | $                                         | 15,900     |                                      | $          | 19,600 |   |

 

The decrease in expenses is primarily attributable to adecrease of approximately $2.2 million in technology license fees and adecrease of approximately $1.5 million in depreciation and repair andmaintenance expenses.  The decrease intechnology license fees is primarily due to a license agreement that expired inthe fourth quarter of 2002.  Thedecreases in depreciation and repair and maintenance expenses are primarily dueto a reduction in DNA sequencing, consistent with the removal of the majorityof our DNA analyzers from production and the asset impairment charge recordedin the quarter ended June 30, 2002. Payroll expense remained constant during the two periods due to theadditional personnel associated with the DNA Sciences acquisition and theresignation of our Chief Scientific Officer in the third quarter of 2003, whichwas offset by our workforce reduction as part of our restructuring program in thethird quarter of 2002.  We expectdepreciation and amortization expense to decrease in the second half of 2004,as a significant portion of our assets will be fully depreciated at June 30,2004.  We do not necessarily expect adecrease in total research and development expense for 2004.

 

General and administrative expenses decreased toapproximately $6.2 million in the nine months ended September 30, 2003, fromapproximately $7.0 million in the nine months ended September 30, 2002.  The decrease is primarily attributable to a$288,000 sales and use tax refund recorded in the second quarter of 2003 and ageneral reduction in expenses as part of our cost reduction program initiatedduring the quarter ended September 30, 2002.

 

The impairment of fixed assets charge relates tosequencing equipment, computer hardware and software and leasehold improvementsused in our DNA sequencing facility. During the quarter ended June 30, 2002, we determined that certainconditions had arisen during the quarter that triggered the need for a reviewof our long-lived assets for potential impairment.  These conditions included, but were notlimited to, the overall business climate in which we were operating and asignificant change in the manner in which we were utilizing our DNA sequencingfacility and related assets.  Inparticular, during the quarter ended June 30, 2002, we determined that ourproduction capacity significantly exceeded our forecasted demand for theforeseeable future, which resulted in our decision to remove from productionthe majority of our DNA analyzers, the primary asset of the group.  Accordingly, we performed an impairmentreview on

 

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our sequencing long-lived assets.  As a result of our review, we determined thatthe carrying value of the assets was in excess of the projected undiscountedcash flows to be generated by the asset group. To determine the impairment charge we compared the carrying value of theapplicable fixed assets to their fair value.  We determined the fair value of the fixedassets by discounting expected future cash flows using a discount ratedetermined by us to be commensurate with the risk inherent in our currentbusiness.  As a result of our analysis,we determined that the carrying value of the assets was in excess of discountedfuture cash flow to be generated by the asset group and we recorded awrite-down of $6.0 million.  Theimpairment charge was allocated to the individual assets on a pro-ratabasis.  The revised carrying value ofeach of the assets is being depreciated over the remaining life of the primaryasset of the group.

 

Loss on leased equipment was approximately $368,000 in thenine months ended September 30, 2003, as a result of our disposition of assetsupon termination of the capital lease agreements.

 

Interest income decreased to approximately $276,000 in thenine months ended September 30, 2003, from $858,000 in the nine months endedSeptember 30, 2002.  The decrease is theresult of higher cash, cash equivalent and short-term investment balances in2002 and lower interest rates on investments during 2003.

 

Interest expense decreased to approximately $514,000 inthe nine months ended September 30, 2003, from an expense of approximately $1.5million in the nine months ended September 30, 2002.  The decrease is primarily the result of therecording of all future interest associated with the Finova capital leases inthe quarter ended December 31, 2002.  Werecorded this charge to reflect the fact that all future interest could be dueand payable under the Finova lease agreement as a result of their defaultclaim.  Please see the “Overview” sectionof “Management’s Discussion and Analysis of Financial Condition” and Note 7 of“Notes to Unaudited Financial Statements” included herein for further details. 

 

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Income taxbenefit increased to $520,000 for the nine months ended September 30, 2003 froman expense of approximately $28,000 for the nine months ended September 30,2002.  The benefit is the result oflegislation passed by the State of Connecticut in June 2003 that reinstated theresearch and development tax credit exchange program for the 2002 tax year.  In addition, in August 2003 the state passedlegislation to reinstate the research and development tax credit exchangeprogram for the 2003 and 2004 tax years. The legislation allows companies to exchange research and developmenttax credits earned in the year for a cash refund from the state at a rate of65% of the research tax credit, as defined.

 

**Liquidity and Capital Resources**

 

We havefinanced our operations primarily through the sale of common and preferredstock, payments received under licensing and service agreements, loans andcapital leases.  From inception throughSeptember 30, 2003, we have received aggregate gross proceeds ofapproximately $163.2 million from issuance of common and preferred stock.  In addition, through September 30, 2003,we have received $24.7 million from license and service fees, royalties andresearch contracts.  We have alsoreceived $26.2 million****from capitallease financing arrangements and $13.2 million from other loans.  We have acquired, through September 30,2003, $42.9 million of property and

 

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equipment.  The majority of these assets were financedthrough capital lease financing arrangements and other loans.

 

InOctober 2003, the Company sold 270,000 shares of Preferred Stock to anaccredited investor for $22.50 per share resulting in proceeds of approximately$5.9 million, net of issuance costs of approximately $175,000.  Please see Note 14 of the “Notes to theUnaudited Financial Statements” and “Management’s Discussion and Analysis ofFinancial Condition” for further details of this transaction.

 

For the next18 months, we expect to continue to finance our operations from cash wereceived in 2000 and in October 2003 from the sale of our common andpreferred stock and revenue from our *HAP*TM Technology Partnership program and our pharmacogenomicsupport service customers.  During thisperiod, we expect to expend substantialfunds to conduct research and development activities and other general andadministrative activities. Our expenditures for these activities will include requiredpayments under operating leases and licensing and service agreements as notedin the table below.

 

For periodsbeyond 18 months, we may seek to raise additional funds through the issuance ofdebt and/or equity securities.  Ourbusiness strategy depends on, among other things, entering into partnershipagreements with pharmaceutical and biotechnology companies and growing therevenue from our pharmacogenomic support services business.  If we are unsuccessful in entering into newpartnership programs, growing the revenue from our pharmacogenomic supportservices business, or obtaining additional financing funds, we may not generatesufficient funds to sustain our operations at planned levels.

 

Cash used inoperations for the nine months ended September 30, 2003, was $9.8 millioncompared with $17.6 million for the same period in 2002.  The cash used in operations for the ninemonths ended September 30, 2003, resulted primarily from a net loss of$14.4 million and a decrease in deferred revenue of $1.7 million, partiallyoffset by $5.9 million of non-cash charges for depreciation and amortizationexpense, stock-based compensation and the loss on disposal of equipment.  Cash used in operations for the nine monthsended September 30, 2002 resulted primarily from a net loss of $27.7million and a $4.2 million decrease in accounts payable and accruedliabilities, partially offset by $12.5 million of non-cash charges fordepreciation and amortization expense, stock-based compensation and impairmentof fixed assets as well as a $2.4 million decrease in other currentassets.  The decrease in other currentassets for the nine months ended September 30, 2002 includes the receiptof $1.0 million from the State of Connecticut for the research and developmenttax credit exchange program.

 

Cash providedby investing activities for the nine months ended September 30, 2003, was$6.3 million compared with $26.0 million for the same period in 2002.  Net proceeds from the sale of marketablesecurities totaled $8.8 million for the nine months ended September 30,2003, compared to $26.1 million for the same period in 2002.  During the nine months endedSeptember 30, 2003, we used $1.7 million of cash for the purchase ofcertain net assets of DNA Sciences.  Inaddition, during the nine months ended September 30, 2003, we used$840,000 of cash for the purchase of property and equipment compared to $85,000for the same period in 2002.

 

Cash used forfinancing activities for the nine months ended September 30, 2003, was$4.7 million compared with $5.6 million for the same period in 2002.  The cash used in financing activities for thenine months ended September 30, 2003, primarily resulted from therepayment of capital lease obligations of $9.5 million, which was partiallyoffset by proceeds received from long-term debt of $5.0 million.  The primary use of cash from financingactivities for the nine months ended September 30, 2002 was the repaymentof long-term debt and capital lease obligations.

 

Our contractual cash obligations as ofSeptember 30, 2003, are as follows:

 
| **Contractual  Obligations**                  | ** ** | **Payments  Due by Period  (in thousands)** | ** ** |
|-----------------------------------------------|------------|---------------------------------------------|------------|
| **Total  Amounts  Committed**                 | ** ** | **Total  for  remainder of  Fiscal 2003**   | ** ** | **Total  for  Fiscal Years  2004 and 2005** | ** ** | **Total  for  Fiscal Years  2006 and 2007** | ** ** | **Total  for  Fiscal Year  2008 and later** | ** ** |
| Long-Term  Debt, including interest           |       | $                                           | 11,445     |   | $ | 672 |   | $ | 5,130 |   | $ | 2,692 |   | $ | 2,951 |   |
| Capital  Lease Obligation, including interest |       | 1,716                                       |       | 1,716 |   | — |   | — |   | — |   |
| Operating  Leases                             |       | 8,345                                       |       | 293 |   | 2,235 |   | 2,025 |   | 3,792 |   |
| Minimum  License Obligations                  |       | 490                                         |       | 78 |   | 206 |   | 206 |   | — |   |
| Total  Contractual Cash Obligations           |       | $                                           | 21,996     |   | $ | 2,759 |   | $ | 7,571 |   | $ | 4,923 |   | $ | 6,743 |   |

 

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Long-term debt consists of three financingagreements with a stockholder, Connecticut Innovations Inc. (CII), and anagreement with Comerica.  The fundsreceived from CII were used to finance certain leasehold improvements and othercosts associated with our facility expansion. Each CII agreement provided for interest only with principal payments,based on a 120-month amortization beginning April 2001 throughOctober 2002, with final balloon payments due in March 2009 throughJune 2011.  Borrowings under theagreements bear interest at 6.5% and are collateralized by the relatedleasehold improvements.  We are incompliance with all debt covenants as of September 30, 2003.  The funds received from Comerica were used torefinance certain of the amounts due under several capital leaseagreements.  The agreement requiresratable repayment of the amounts due over a 36-month period and bears interestat prime plus 2.5%.  Borrowings under theagreement are secured by certain of our assets.

 

Capital lease obligationrelates to equipment purchased under an agreement with GE .  All outstanding balances due under thisagreement were repaid in October 2003. Borrowings under the agreement were secured by the underlying leasedequipment.

 

We lease ouroperating facilities located in New Haven, Connecticut and Morrisville, NorthCarolina.  The Connecticut leaseagreements currently require annual lease payments of approximately $1.1million per year over the original term, which expires in 2006.  We have two five-year renewal options toextend the lease agreements beyond the initial term.  We are recording the expense associated withthe leases on a straight-line basis over the expected term of the leasesthrough September 2011.  We arecurrently a tenant-at-will in the North Carolina facility and we are in theprocess of negotiating a new lease agreement. In addition to the operating lease agreements for our currentfacilities, we also have operating leases for certain of our office equipment.

 

In addition, we periodically enter intoagreements with third parties to obtain exclusive or non-exclusive licenses forcertain technologies.  The terms ofcertain of these agreements require us to make future royalty payments andcertain milestone payments based on product sales or sublicense incomegenerated from the applicable technologies, if any, and include provisionsrequiring future minimum payments, whether or not the technology iscommercialized.  The amount of suchpayments will depend upon successful commercialization of applicabletechnologies, if any.  The future minimumpayments (assuming non-termination of these agreements) are included in theminimum license obligations above.

 

Based on our current business plans, capitalexpenditures are not expected to exceed $1.5 million for each of fiscal 2003and 2004.

 

Our cashrequirements will vary depending upon a number of factors, many of which arebeyond our control, including:

 

•                  the demand for our *HAP* TM Technology;

 

•                  the efforts and success of our *HAP* TM partnership program;

 

•                  the commercialization of intellectualproperty derived from our associations;

 

•                  the growth of our pharmacogenomic supportservices business;

 

•                  the level of competition we face;

 

•                  our ability to maintain our *HAP*TM Technology; and

 

•                  our ability to effectively manage ouroperating expenses.

 

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AtSeptember 30, 2003, our cash and cash equivalents and short-terminvestments totaled $17.1 million compared to approximately $34.2 million atDecember 31, 2002.  As a result ofthe termination of the GE lease and the issuance of the Preferred Stock inOctober 2003, our cash and cash equivalents and marketable securitiesincreased by $4.2 million, after expenses, as compared to the amounts shown inthe accompanying unaudited financial statements as of September 30,2003.  Our cash reserves are held ininterest-bearing high-grade corporate bonds and money market accounts.  We believe that our existing cash reserveswill be sufficient to support our expected net losses, debt obligations andcapital expenditures for at least 18 months. To execute our long-term business plan, we will need to grow ourrevenues significantly each year and we may need to seek additional fundingthrough public or private equity offerings or debt financings or throughcommercial partners.  We cannot assureyou that we will obtain additional partners or capital funding on acceptableterms, if at all.

 

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**Factors Affecting Future Operating Results**

 

*This Quarterly Report on Form 10-Q contains“forward-looking statements” within the meaning of Section 21E of theSecurities Exchange Act of 1934, as amended. These statements are subject to risks and uncertainties and are based onthe beliefs and assumptions of our management based on information currentlyavailable to our management.  Use ofwords, such as “believes,” “expects,” “anticipates,” “intends,” “plans,”“estimates,” “should,” “likely” or similar expressions, indicate aforward-looking statement. Forward-looking statements involve risks, uncertainties andassumptions.  Certain of the informationcontained in this Quarterly Report on Form 10-Q consists of forward-lookingstatements.  Important factors that couldcause actual results to differ materially from the forward-looking statementsinclude the following:*

 

**We are an early stage company with a history of lossesand we expect to incur net losses for the foreseeable future such that we maynever be profitable**.

 

We have incurred substantial operating losses since our inception.  As of September 30, 2003, we havegenerated only minimal revenue from our *HAP*TM Partnership program and ourpharmacogenomic support services, and we do not expect to generate significantrevenues for several years, if ever. From inception through September 30, 2003, we had an accumulateddeficit of approximately $208.0 million. Our losses to date have resulted principally from costs we incurred inthe development of our *HAP*TM Technology, in our clinical trials and fromgeneral and administrative costs associated with operations. We expect todevote substantially all of our resources to service our *HAP*TMPartnership program and STRENGTH program partners, our pharmacogenomic supportservices customers and our CARING and Long QT programs and to maintain our *HAP*TMTechnology.

 

We expect to incur additional losses this year and in future years, andwe may never achieve profitability.  Inaddition, pharmaceutical and biotechnology companies are only now beginning touse products such as ours in their drug and diagnostic development or marketingefforts and, accordingly, they may not choose to use our *HAP*TMTechnology. We do not expect our losses to be substantially mitigated byrevenues from our *HAP*TM Partnership and STRENGTH programs and our CARINGand Long QT programs, if any, or from our pharmacogenomic support services fora number of years.

 

**We currently rely on a limited number of licensing andservice arrangements for substantially all of our revenues.  As a result, the loss of one major customeror our inability to secure additional significant customers during a givenperiod would have an adverse effect on our business and operating results.**

 

We are dependent upon a limited number of licensing and servicearrangements that represent substantially all of our revenues. In the quarterended September 30, 2003, two of our customers accounted for 47% of ourtotal revenues.  The agreement with theone of the two customers expires in the fourth quarter of 2003.  If we are unable to replace, uponsubstantially similar terms, the agreement that expires in the fourth quarterof 2003, or if we lose any of our other remaining significant customers, itwould have a material adverse effect on our revenues and on our business ingeneral and could cause volatility or a decline in our stock price.

 

**To generate significant revenues, we must obtainadditional customers for our *HAP*TM Partnership program andour STRENGTH, CARING and Long QT programs and for our pharmacogenomic supportservices.**

 

Our strategy depends on entering into agreements with pharmaceutical andbiotechnology companies for our *HAP*TM Partnership program and ourSTRENGTH, CARING and Long QT programs and obtaining additional customers forour pharmacogenomic support services.  Wecurrently have a *HAP*TM Partnership program with five pharmaceutical andbiotechnology companies as well as an agreement with a major diagnostic companyto commercialize exclusively the diagnostic rights and non-exclusively theproduct development rights from our STRENGTH program.  Our contracts for our pharmacogenomic supportservices are specific limited-term projects. We may not be successful in obtaining additional partners for our *HAP*TMPartnership program and our STRENGTH program or obtaining any partners for ourCARING or Long QT programs or obtain sufficient new customers for ourpharmacogenomic support services to replace our current projects.  If we are unsuccessful in finding additionalpartners for our *HAP*TM Partnership program and our STRENGTH program or infinding any partners for our CARING or Long QT programs or new customers forour pharmacogenomic support services, we may never generate sufficient revenuesto sustain our operations.  In addition,we expect that some of our future *HAP*TM

 

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Partnershipprogram collaborations, like some of our current *HAP*TMPartnership program collaborations, will be limited to specific, limited-termprojects or that some of these collaborations may not be renewed.  Accordingly, we must continually obtain newcustomers to be successful.  To date, theintegration of pharmacogenomics into drug development and marketing has notachieved widespread market acceptance.

 

**If the estimates we make, and the assumptions on whichwe rely, in preparing our financial statements prove inaccurate, our actualresults may vary from those reflected in our projections.**

 

Our financial statements have been prepared in accordance with accountingprinciples generally accepted in the United States of America.  The preparation of these financial statementsrequires us to make estimates and judgments that affect the reported amounts ofour assets, liabilities, revenues and expenses, the amounts of charges accruedby us and related disclosure of contingent assets and liabilities.  We base our estimates on historicalexperience and on various other assumptions that we believe to be reasonable atthat time under the circumstances.  Therecan be no assurance, however, that our estimates or the assumptions underlyingour estimates will be correct.

 

**We may require additional funding to fund operations andrepay debt and we may not be able to obtain any.**

 

We have used substantial amounts of cash to fund our research anddevelopment activities.  We will continueto spend funds to service our *HAP*TM Partnership program andSTRENGTH program partners, our pharmacogenomic support services customers andour CARING and Long QT programs and to maintain our *HAP*TMTechnology.  We plan to pay for theseactivities with funds from:

 

•                  our existing cash and investment securities;and

 

•                  income that we may receive from our *HAP*TMPartnership program and STRENGTH program partners and pharmacogenomic supportservices customers.

 

We intend to rely on our current *HAP*TM Partnershipprogram and STRENGTH program partners and future partners, if any, and ourcurrent pharmacogenomic support services customers and future customers, ifany, for significant funding in the future to support our developmentefforts.  To execute our business plans,we will need to grow our revenues significantly each year.  We cannot be certain when we will begin toreceive additional income, if at all, from our *HAP*TMPartnership and STRENGTH programs and our pharmacogenomic support services andincome, if any, from our CARING and Long QT programs.  If we do not receive this income or do notreceive it as rapidly as we expect, we would spend our existing cash andinvestment securities more rapidly than we currently plan.

 

We believe that our existing cash reserves will be sufficient to supportour expected net losses, debt obligations and capital expenditures for at least18 months.  We cannot assure you that wewill be able to obtain new partners or to generate the increased revenuesrequired to meet our business plan objectives. In addition, to execute our business plans, we may need to seekadditional funding through public or private equity offerings, debt financingsor through commercial partners.  Wecannot assure you that we will obtain additional partners or capital funding onacceptable terms, if at all.  If we areunable to generate sufficient revenues or access capital on acceptable terms,we may be required to obtain funds on unfavorable terms that may require us torelinquish rights to certain of our technologies or that would significantlydilute our stockholders and/or significantly scale back currentoperations.  Either of these two possibilitieswould have a material adverse effect on our business.

 

**Our *HAP*TM Technology may not allow ourpartners to develop commercial products or to increase sales of their marketedproducts.**

 

We developed our *HAP*TM Technology on the assumptionthat information about gene variation and gene variation associated with drugresponse may help drug development professionals better understand the drugresponse of particular populations and complex disease processes.  Although the pharmaceutical and biotechnologyindustries are increasing their use of genomics in analyzing drug response anddiseases, we are aware of only one successful drug program applying populationgenomics.

 

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We discover *HAP*TM Markers for pharmaceutically relevantgenes.  If we are unable to find *HAP*TMMarkers for pharmaceutically relevant genes in a timely manner, our potentialpartners may lose confidence in our *HAP*TM Technology and ourcompany, which could decrease our ability to generate revenues.  Even if we are able to discover *HAP*TMMarkers for pharmaceutically relevant genes, this information may not prove tobe superior to genomic variation information discovered by ourcompetitors.  Furthermore, pharmaceuticaland biotechnology companies may not choose our *HAP*TMTechnology over competing technologies.

 

Our *DecoGen*® Informatics System may also be lesseffective than we expect or may not allow our partners or us to determine acorrelation between drug response and genomic variation.  Furthermore, even if our partners or we aresuccessful in identifying such a correlation, our partners may not be able todevelop or sell commercially viable products nor may our partners be able toincrease the sales of their marketed products using this correlation.  Accordingly, our *HAP*TMMarkers and *HAP*TM Technology may not improve the development,marketing and prescribing of drugs or the development and marketing ofdiagnostics developed by our *HAP*TM Partnership program andSTRENGTH program partners.

 

**If we are unable to obtain intellectual propertyprotection for our *HAP*TM Technology, trade secrets or knowhow, we may not be able to operate our business profitably.**

 

Our success depends, in part, on our ability to protect our *HAP*TMTechnology, any associations that we find between clinical outcomes and geneticvariation and any other proprietary software, methods and technologies that wedevelop, either as a trade secret or under the patent and other intellectualproperty laws of the United States and other countries, so that we can preventunauthorized entities from using our inventions and proprietaryinformation.  Because patent applicationsthat were filed prior to November 29, 2000 in the United States areconfidential until patents issue, third parties may have filed patentapplications for technology covered by our pending patent applications withoutour being aware of those applications, and our patent applications may not havepriority over any patent applications of others.  We are aware that there are other firms orindividuals who have discovered, or are currently discovering, informationsimilar to the information we are discovering, who may have filed, and in thefuture are likely to file, patent applications that are similar or identical toour *HAP*TM Technology patent applications.

 

Our pending patent applications may not result in issued patents.  The patent positions of pharmaceutical andbiotechnology companies, including ours, are generally uncertain as a result ofthe uncertain state of the patent law in the biotechnology field.  There is no uniform, worldwide policyregarding the subject matter and scope of claims granted or allowable inbiotechnology patents, particularly those involving genomics.  In addition, some interest groups arelobbying for restrictions on patenting of genetic tests.

 

**We may be unable to develop or commercialize our *HAP*TMTechnology if we cannot establish additional collaborative relationships and wewill depend on our partners to develop or to co-develop products.**

 

We currently have a *HAP*TM Partnership program with five pharmaceutical and biotechnologycompanies as well as an agreement with a major diagnostic company tocommercialize exclusively the diagnostic rights and non-exclusively the productdevelopment rights from our STRENGTH program. We do not currently have any partners for our CARING or Long QTprograms.  As a result, part of ourcurrent and future revenues will depend on payments from our current *HAP*TMPartnership program and STRENGTH program partners and our future *HAP*TMPartnership, STRENGTH, CARING and Long QT program partners, if any, for eitherthe new products they may develop, or for increased sales of their existingproducts, made possible through the use of our *HAP*TMTechnology.  If we are unable to attractnew *HAP*TM Partnership program and STRENGTH program partnersor any partners for our CARING and Long QT programs, we may never generatesufficient revenues to sustain our operations.

 

Our partners for our *HAP*TM Partnership program andSTRENGTH program and our partners, if any, for our CARING and Long QT programs,will be responsible for pre-clinical study and clinical development oftherapeutic and diagnostic products and for regulatory approval, manufacturingand marketing of any products or enhanced marketing claims that result from theapplication of our *HAP*TM Technology.  Our current agreements with these partners,and we anticipate that any future agreements with partners, will allow themsignificant discretion in pursuing these activities.  We cannot control the amount and timing ofresources that any such current or potential partners will devote to ourprograms or potential products.  Our *HAP*TMPartnership program and STRENGTH

 

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programarrangements and our CARING and Long QT program arrangements, if any, may alsohave the effect of limiting the areas of research that we may pursue eitheralone or with others.  Because part ofour revenues will be dependent on the successful commercialization ordevelopment of our partners’ products, if, for any reason, a *HAP*TMPartnership program partner or our STRENGTH program partner delays or abandonsits development or commercialization of a product developed using our *HAP*TMTechnology, we may receive reduced royalty or other payments or no royalty orother payments at all.  In addition,because part of our future revenues will be dependent on the successfulcommercialization of additional aspects of our *HAP*TMPartnership and STRENGTH programs with partners and the successfulcommercialization of our CARING and Long QT programs with partners, if, for anyreason, a partner delays or abandons its development or commercialization ofthese additional aspects of our *HAP*TM Partnership program orSTRENGTH program or its development or commercialization of our CARING and LongQT programs, we may receive reduced royalty or other payments or no royalty orother payments at all.

 

Although we intend to retain the rights to all *HAP*TMMarkers, which we discover as well as to any *HAP*TM Markersdiscovered jointly with our *HAP*TM Partnership and STRENGTHprogram partners and with our CARING and Long QT program partners, if any, wehave not always and may not always be able to negotiate the retention of theserights.  Furthermore, disputes may arisein the future over the ownership of rights to *HAP*TM Markersas well as any other technology we develop with our *HAP*TMPartnership and STRENGTH program partners or with our CARING and Long QTprogram partners, if any.  These andother possible disagreements between our *HAP*TM Partnershipand STRENGTH program partners and us or between our CARING and Long QT programpartners, if any, and us could lead to delays in the research, development orcommercialization of their products. These disagreements could also result in litigation or requirearbitration to resolve.  Any of theseevents could prevent us from effectively marketing our *HAP*TMTechnology.

 

**We investconsiderable amounts of time, effort, and money to license our *HAP***TM**Technology and, if we are unable to license our technology, we may not generatesufficient revenue to sustain our operations**.

 

Our ability to obtain partners for our *HAP*TMPartnership program and our STRENGTH, CARING and Long QT programs will dependin significant part upon the pharmaceutical and biotechnology industries’acceptance that our *HAP*TM Technology can help accelerate orimprove their drug and diagnostic development and marketing efforts.  To achieve market acceptance, we mustcontinue to educate the pharmaceutical and biotechnology industries and thepublic in general as to the potential benefits of our *HAP*TMPartnership, STRENGTH, CARING and Long QT programs.  Most importantly, we must convince theresearch and development, clinical and marketing departments of pharmaceuticaland biotechnology companies that our *HAP*TM Technology canaccelerate and improve the processes for developing, marketing and prescribingdrugs and for developing and marketing diagnostics and that our *HAP*TMPartnership, STRENGTH, CARING and Long QT programs will be commerciallyviable.  If we fail to gain thisacceptance, we may never generate sufficient revenues to sustain ouroperations.  We may expend substantialfunds and management effort to market our *HAP*TM Partnership,STRENGTH, CARING and Long QT programs, without any resulting revenues.

 

**Our ability to make any acquisition is dependent on theavailability of adequate cash and the attractiveness of our stock price.**

 

Weanticipate that any future acquisitions of businesses or technologies will befinanced through cash from operations, the issuance of shares of our commonstock and/or seller financing.  We cannotassure you that we will have sufficient existing capital resources or that wewill be able to raise sufficient additional capital resources on terms satisfactoryto us, if at all, in order to meet our capital requirements for suchacquisitions.

 

We also believe that a significantfactor in our ability to close acquisitions using stock as consideration willbe the attractiveness of our common stock for potential acquisitioncandidates.  This attractiveness may, inlarge part, be dependent upon the relative market price and capitalappreciation prospects of our common stock compared to the equity securities ofour competitors.  The trading price ofour common stock on the NASDAQ National Market could in the future materiallyadversely affect our acquisition program.

 

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**Integration or acquisitions or strategic investmentscould interrupt our business and our financial condition could be harmed.**

 

Fromtime to time, we may acquire or make strategic investments in other businessesor technologies.  For example, onMay 15, 2003, pursuant to the approval of the United States BankruptcyCourt, we purchased substantially all of the assets and assumed certainliabilities of DNA Sciences.  The DNASciences acquisition, as well as any other acquisitions or strategicinvestments we may make in the future, entail numerous risks that include thefollowing:

 

•                  difficulties integrating any acquiredoperations, personnel, technologies or products;

•                  diversion of management’s focus from ourcore business concerns;

•                  entering markets in which we have no orlimited prior experience or knowledge;

•                  exposure to litigation from stockholders orcreditors of, or other parties affiliated with, the target company orcompanies;

•                  dilution to existing stockholders andearnings per share; and

•                  incurrence of substantial debt.

 

Any such difficultiesencountered as a result of a merger, acquisition or strategic investment couldadversely affect our business, operating results and financial condition.

 

**If we are unable to prevent others from unauthorized useof, or are unable to defend our use of, our *HAP*TM Technology,trade secrets or know how, we may not be able to operate our businessprofitably.**

 

Despite our efforts to protect our proprietaryrights, unauthorized parties may be able to obtain and use information that weregard as proprietary.  The issuance of apatent does not guarantee that it is valid or enforceable.  Thus, even if we obtain patents, they may notbe valid or enforceable against third parties.

 

We also rely upon unpatented trade secrets and improvements, unpatentedknow-how and continuing technological innovation to develop and maintain ourcompetitive position.  We generallyprotect this information with reasonable security measures, includingconfidentiality agreements signed by our employees, academic collaborators andconsultants that provide that all confidential information developed or madeknown to others during the course of the employment, consulting or businessrelationship will be kept confidential except in specified circumstances.  Agreements with employees, consultants andcollaborators generally provide that all inventions conceived by the individualwhile employed by us are our exclusive property.  If employees, consultants or collaborators donot honor these agreements, we may not have adequate remedies for breach.  Furthermore, our trade secrets may otherwisebecome known or be independently discovered by competitors.

 

Further, a patent does not provide the patent holder with freedom tooperate in a way that infringes the patent rights of others.  A third party may sue us for infringing onits patent rights.  Likewise, we may needto resort to litigation to enforce a patent issued to us or to determine thescope and validity of third party proprietary rights.  The cost to us of any litigation or otherproceeding relating to intellectual property rights, even if resolved in ourfavor, could be substantial, and the litigation would divert our management’sfocus from our core business concerns. Some of our competitors may be able to sustain the costs of complexpatent litigation more effectively than we can because they have substantiallygreater resources.  Uncertaintiesresulting from the initiation and continuation of any litigation could limitour ability to continue our operations.

 

If any party should successfully claim that the creation or use of our *HAP*TMTechnology or *HAP*TM Marker association data infringe upontheir intellectual property rights, in addition to any damages we might have topay, a court could require us to stop the infringing activity or obtain alicense on unfavorable terms.  Moreover,any legal action against us or any of our program partners claiming damages orseeking to enjoin commercial activities relating to the affected products andprocesses could, in addition to subjecting us to potential liability fordamages, require us or our *HAP*TM Partnership and STRENGTHprogram partners or any CARING and Long QT program partners, if any, to obtaina license in order to continue to manufacture or market the affected productsand processes.  Any license requiredunder any patent may not be made available on commercially acceptable terms, ifat all.  In addition, some licenses maybe non-exclusive and, therefore, our competitors may have access to the sametechnology licensed to us.  If we fail toobtain a required license or are unable to design around a patent, we may beunable to market effectively some of our *HAP*TM Technology,which could limit our profitability and possibly prevent us from generatingrevenue sufficient to sustain our operations.

 

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**Regulatory oversight of our *HAP*TMTechnology and public opinion regarding ethical issues surrounding the use ofgenetic information may adversely affect our ability to market our products andservices.**

 

Currently, there is limited Food and Drug Administration (FDA) regulationof genetic tests.  The Secretary’sAdvisory Committee on Genetic Testing, an advisory panel to the Secretary ofthe U.S. Department of Health and Human Services, has recommended that the FDAexpand its regulation of genetic testing to require FDA approval for all newgenetic tests and labeling of genetic tests. If the FDA adopts this recommendation, it may require that we, or ourpartners, apply for FDA approval as a prerequisite to marketing genetic teststhat incorporate our products and services. If the FDA were to deny any application of this kind, it could adverselyaffect our business and we may be unable to generate sufficient revenues tosustain our operations.

 

The FDA has only once required that a physician must have genomic variationinformation determined about a patient before the doctor prescribes adrug.  In this one instance, the FDA hasstipulated that this requirement can be fulfilled with either gene expressioninformation or genomic variation information. On November 3, 2003, theFDA issued draft guidance that encourages drug and biologic developers toconduct pharmacogenomic tests during drug development and clarified how the FDAwill evaluate the resulting data.  Theguidance provides specific criteria and recommendations on the submission ofpharmacogenomic data in connection with Investigational New Drug Applications,New Drug Applications and Biological License Applications.  The guidance includes information on the typeof data needed and how the FDA will or will not use such data in regulatorydecisions.  The FDA asked for voluntarysubmissions of research information in order to gain experience as the field ofpharmacogenomics evolves.  The FDAadvised that the agency would not use information from voluntary reports forregulatory decisions on the drug or biologic with which the voluntary data isassociated.  In addition, the FDA held aworkshop on November 13 and 14, 2003 to discuss its draft guidance and statedthat the agency plans in the near future to issue further guidance on theco-development of a pharmacogenomic test and a drug.  Our success will depend, in part, on howrapidly the pharmaceutical and biotechnology industry implements the guidanceand, accordingly, the validity of our products and services as a basis foridentifying genomic variation and for correlating drug response with genomicvariation.  Without this implementationby the pharmaceutical and biotechnology industry, we may be unable to marketeffectively any products we may have as well as any of our services and we maynot generate sufficient revenues to sustain our operations.

 

Within the field of personalized health and medicine, governmental andother entities may enact patient privacy and healthcare laws and regulationsthat may limit the use of genomic variation data.  To the extent that these laws and regulationslimit the use of our products and services or impose additional costs on ourpartners, we may be unable to market effectively our *HAP*TMPartnership, STRENGTH, CARING and Long QT programs and we may not generatesufficient revenues to sustain our operations.

 

Additionally, public opinion on ethical issues related to theconfidentiality and appropriate use of genetic testing results may influencegovernmental authorities to call for limits on, or regulation of the use of,genetic testing.  In addition,governmental authorities or other entities may call for limits on, orregulation of the use of, genetic testing or prohibit testing for geneticpredisposition to certain conditions, particularly for those that have no knowncure.  The occurrence of any of theseevents could reduce the potential markets for our products and services, whichcould prevent us from generating sufficient revenues to sustain our operations.

 

Furthermore, we may be directly subject to regulations as a provider ofdiagnostic information.  To the extentthat these regulations restrict the sale of our products and services or imposeother costs, we may be unable to provide our products and services to our customerson terms sufficient to recover our expenses.

 

**If our partners do not seek, or do not receive,marketing approval for products developed, if any, using our *HAP*TMTechnology, we may receive delayed royalty or other payments or no royalty orother payments at all.**

 

Any new drug, biologic or new drug or biologic indication our partnersdevelop using our *HAP*TM Technology must undergo an extensiveregulatory review process in the United States and other countries before a newproduct or indication of this kind could be marketed.  This regulatory process can take many yearsand require substantial expense.  Changesin FDA policies and the policies of similar foreign regulatory bodies canprolong the regulatory review of each new drug or biologic license applicationor prevent approval of the application. We expect similar delays and risks in the regulatory review process forany diagnostic product developed by our partners, whenever this regulatoryreview is required.  Even if a productobtains marketing clearance, a marketed

 

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product andits manufacturer are subject to continuing review.  A manufacturer may be forced to withdraw aproduct from the market if a previously unknown problem with a product becomesapparent.  Because our future revenueswill be dependent on the successful commercialization or development ofproducts using our *HAP*TM Technology, any delay of ourpartners in obtaining, failing to obtain, or failing to maintain regulatoryapproval for a product developed using our *HAP*TM Technologymay delay our receipt of royalty or other payments or prevent us from receivingroyalty or other payments sufficient to recover our expenses.

 

**If our partners are unable to obtain FDA approval fortherapeutic or diagnostic products developed using our *HAP*TMTechnology, the lack of regulatory approval will diminish the value of our *HAP*TMTechnology.**

 

To date, no one has developed or commercialized any therapeutic productor commercialized any diagnostic product using our *HAP*TMTechnology.  We expect to rely on ourprogram partners to file applications for regulatory approval and generallydirect the regulatory review process and obtain FDA acceptance of productsdeveloped with our *HAP*TM Partnership and STRENGTH programsand our CARING and Long QT programs, if any. Our program partners may not submit an application for regulatoryreview.  Even if they do submitapplications, they may not be able to obtain marketing clearance for anyproducts on a timely basis, if at all. If our partners fail to obtain required governmental clearances fortherapeutic or diagnostic products, they will not be able to market theseproducts unless and until they obtain these clearances.  As a result, we may not receive royalty orother payments from our customers.  Theoccurrence of any of these events may prevent us from generating revenuessufficient to sustain our operations.

 

**If we do not successfully distinguish and commercializeour *HAP*TM Technology, we may be unable to compete successfullywith our competitors or to generate revenue significant to sustain ouroperations**.

 

Numerous entities are attempting to identify genomic variation predictiveof specific diseases and drug response and to develop products and servicesbased on these discoveries.  We facecompetition in these areas from pharmaceutical, biotechnology and diagnosticcompanies, academic and research institutions and government and otherpublicly-funded agencies, both in the United States and abroad, most of whichhave substantially greater capital resources, research and development staffs,facilities, manufacturing and marketing experience, distribution channels andhuman resources than we do.

 

These competitors may discover, characterize or develop important technologiesapplying population genomics before us or our partners for our *HAP*TMPartnership and STRENGTH programs that are more effective than thosetechnologies which we develop or which our partners for our *HAP*TMPartnership and STRENGTH programs develop, or these competitors may obtainregulatory approvals of their drugs and diagnostics more rapidly than ourpartners for our *HAP*TM Partnership and STRENGTH programs do,any of which could limit our ability to market effectively our *HAP*TMTechnology.

 

Some companiesand governments are marketing or developing a number of databases andinformatics tools to assist participants in the healthcare industry andacademic researchers in the management and analysis of genomic data.  Entities such as Perlegen Sciences, CeleraGenomics Group and the International HapMap Project have developed or plan todevelop databases containing gene sequence, genomic variation or other genomicinformation and are marketing or plan to market their data to pharmaceuticaland biotechnology companies or plan to make freely available theirdatabases.  In addition, numerouspharmaceutical and biotechnology companies, such as GlaxoSmithKline plc, eitheralone or in partnership with our competitors, are developing genomic researchprograms that involve the use of information that can be found in thesedatabases.  Furthermore, companies, suchas deCODE genetics, Inc., have technologies for using genetic variation indiagnostics and in the drug development process and have partnerships withcompanies employing these technologies.

 

Genomic technologies have undergone, and are expected to continue toundergo, rapid and significant change. Our future success will depend in large part on maintaining acompetitive position in the genomics field. Others may rapidly develop new technologies that may result in ourproducts or technologies becoming obsolete before we recover the expenses thatwe incur in connection with the development of these products.  Our *HAP*TM Technology couldbecome obsolete if our competitors offer less expensive or more effective drugdiscovery and development technologies, including technologies that may beunrelated to genomics.

 

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**We depend on third-party products and services andlimited sources of supply for our sequencing and genotyping laboratories.**

 

We rely on outside vendors to supply certain software,products and materials used in our laboratories. Some of these products andmaterials are obtained from a single supplier or a limited group ofsuppliers.  Our reliance on outsidevendors generally and a sole or a limited group of suppliers in particularinvolves several risks, including:

 

•                  the inability to obtain anadequate supply of required software, products and materials due to capacityconstraints, product defects, a discontinuance of a product by a supplier orother supply constraints;

•                  reduced control over qualityand pricing of software, products and materials; and

•                  delays and long lead timesin receiving software, products, or materials from vendors.

 

**If we fail to maintain our computer hardware, softwareand related infrastructure, we could experience loss of, or delay in, revenuesand market acceptance.**

 

Because our business requires manipulating and analyzing large amounts ofdata, we depend on the continuous, effective, reliable and secure operation ofour computer hardware, software and related infrastructure.  To the extent that our hardware or softwaremalfunctions, we will experience reduced productivity.  We protect our computer hardware throughphysical and software safeguards. However, our computer hardware is still vulnerable to fire, weather,earthquake, or other natural disaster and power loss, telecommunications failures,physical or software break-ins and similar events.  In addition, the software and algorithmiccomponents of our *DecoGen*® Informatics System are complex andsophisticated, and as such, could contain data, design or software errors thatcould be difficult to detect and correct. Users of our system may find software defects in current or futureproducts.  If we fail to maintain thenecessary computer capacity and data to support our computational needs and ourcustomers’ drug and diagnostic discovery and development efforts, we couldexperience a loss in revenues, or a delay in receiving revenues and a delay inobtaining market acceptance for our technology.

 

**The issuance and sale of oursecurities could have the effect of substantially diluting the interests of ourcurrent stockholders.**

On October 29, 2003, we issued and sold an aggregateof 270,000 shares of our series A preferred stock and granted thepurchaser of such shares a warrant, exercisable at any time until December 31,2005, to purchase an additional 190,000 shares of our series A preferred stockat $22.50 per share.  Under specifiedcircumstances, the purchaser is required to exercise the preferred stockwarrant.  Each share of our series Apreferred stock is currently convertible into ten shares of our commonstock.  Consequently, assuming theexercise of the preferred stock warrant, on an as-converted basis, an aggregateof 4,600,000 shares of our common stock may be issued to the series Apurchaser.  Any issuance of shares of ourcommon stock upon conversion of shares of our series A preferred stock couldhave the effect of substantially diluting the interests of our currentstockholders.  Moreover, any sale ofthese shares of common stock into the public market could cause a decline in thetrading price of our common stock.

**Our redemption obligationsunder our series A preferred stock could have a material adverse effect on ourfinancial condition.**

Under the terms of ourseries A preferred stock, we are required, unless the holders of at least 662/3% of our outstanding series A preferred stock elect otherwise, to redeem allthen outstanding shares of our series A preferred stock if one or more of thefollowing events occurs:

•      our common stock is delisted from TheNASDAQ National Market;

•      we issue shares of our common stock or securitiesconvertible into common stock, with a purchase price of less than $2.25 pershare, other than in limited circumstances;

•      we breach any representation or warrantycontained in the series A purchase agreement or the registration rightsagreement that has a material adverse effect on the holders of our series Apreferred stock;

•      we breach any covenant or fail to performany of our obligations under the series A purchase agreement or theregistration rights agreement that has a material adverse effect on the holdersof our series A preferred stock;

•      an involuntary case is commenced againstus under any bankruptcy, insolvency or other similar law or we commence avoluntary case under any bankruptcy, insolvency or other similar law or consentto any receivership, liquidation or assignment for the benefit of creditors;

•      we default under any agreement enteredinto on or after October 7, 2003 under which we have incurred indebtedness forborrowed money in excess of $500,000;

•      we fail in good faith to attempt to causethis registration statement to become effective by February 26, 2004; or

•      we, prior to October 29, 2008, liquidate,dissolve or wind-up, transfer all or substantially all of our assets or areparty to a merger or other change in control transaction in which ourstockholders do not own a majority of our outstanding voting securities aftersuch transaction.

 

If we are required to redeem our series A preferredstock due to any of the foregoing events, we are required to pay each holder ofour series A preferred stock the original purchase price, plus an amount equalto the dividends that would otherwise have accrued and been payable on suchshares through October 29, 2008 that have not otherwise been paid as of theredemption date.

In addition, the holders of at least 66 2/3% of theoutstanding shares of our series A preferred stock may elect to require us toredeem all outstanding shares of our series A preferred stock for the originalpurchase price, plus all accrued but unpaid dividends as of the redemptiondate, on either October 29, 2006, 2007 or 2008.

A redemption of the series Apreferred stock will reduce the cash we have available to fund operations,research and product development, capital expenditures and other generalcorporate purposes.  In addition, we haveincurred net losses in the past and expect to incur losses in the future, whichmay impair our ability to generate the cash required to meet our obligationsunder our series A preferred stock.  Ifwe cannot generate sufficient cash to meet these obligations, we may berequired to incur additional indebtedness or raise additional capital, whichmay negatively impact our stockholders.

 

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**The purchaser of ourseries A preferred stock owns a substantial portion of our capital stock,which may afford the purchaser significant influence over our affairs.**

As of November 10, 2003, the purchaser of ourseries A preferred stock held or had the right to acquire 19.7% of ouroutstanding common stock (as converted to common stock), including shares ofour common stock which the purchaser previously purchased in the openmarket.  As a result, this stockholderhas significant influence over any change in control of us that may be favoredby other stockholders and could otherwise exercise significant influence overall corporate actions requiring stockholder approval, including the approval ofsome mergers and other significant corporate transactions, such as a sale ofsubstantially all of our assets or the defeat of any non-negotiated takeoverattempt that might otherwise benefit the public stockholders.

**The agreements andinstruments governing the rights and preferences of our series A preferredstock impose restrictions on our business and limit our ability to undertakecertain corporate actions.**

                Ourcharter and the series A purchase agreement govern the terms of our series Apreferred stock and impose significant restrictions on our business.  These restrictions may limit our ability tooperate our business and to take advantage of potential business opportunitiesas they arise.  Our charter placesrestrictions on our ability to, without the consent of the holders of at least66 2/3% of the outstanding shares of our series A preferred stock, among otherthings:

 

•       alter or change the rights, preferencesor privileges of our series A preferred stock, including any increase in thenumber of authorized shares of our series A preferred stock;

•       incur more than a specified level ofindebtedness;

•       create, incur or assume specified liens;or

•       declare or pay dividends, redeem stock ormake other distributions to stockholders, other than in limited circumstances.

Events beyond our control,including prevailing economic, financial and industry conditions, may affectour ability to comply with these restrictions. In addition, the holders of our series A preferred stock have the rightto participate in future capital raising transactions of ours.  The existence of this right may substantiallyreduce our ability to establish terms with respect to, or enter into, anyfinancing with parties other than the series A purchaser.  The terms of any additional financing we mayenter into may impose constraints on our ability to operate our business as wedeem appropriate.  These restrictions andcovenants could limit our ability to take advantage of financing, merger andacquisitions or other corporate opportunities, which could adversely affect ourbusiness and financial condition and your investments in our common stock.

 

**Our operating results may fluctuate significantly andany failure to meet financial expectations may disappoint securities analystsor investors and result in a decline in our common stock price.**

 

Our operating results have fluctuated in the past and we expect they willfluctuate in the future. These fluctuations could cause our common stock priceto decline.  Some of the factors thatcould cause our operating results to fluctuate include:

 

•                  recognition of non-recurring revenues due toreceipt of license fees, achievement of milestones, completion of contracts orother revenues;

•                  demand for and market acceptance of our *HAP*TMPartnership, STRENGTH, CARING and Long QT programs;

•                  timing of the execution of agreements on our*HAP*TM Partnership, STRENGTH, CARING and Long QT programs andother material contracts;

•                  our competitors’ announcements orintroduction of new products, services or technological innovations;

•                  disputes regarding patents or otherintellectual property rights;

•                  securities class actions or otherlitigation;

•                  adverse changes in the level of economicactivity in the United States and other major regions in which we do business;and

•                  general and industry-specific economicconditions, which may affect our partners’ use of our *HAP*TMTechnology.

 

Due to volatile and unpredictable revenues and operating expenses, webelieve that period-to-period comparisons of our results of operations may notbe a good indication of our future performance. It is possible that our operating results may be below the expectationsof securities analysts or investors.  Inthis event, the market price of our common stock could fluctuate significantlyor decline.

 

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**Item 6 – Exhibits and Reports on Form 8-K.**

 

(a) Exhibits

 

See Index to Exhibits attached hereto.

 

(b) Reports on Form 8-K

 

On August 13, 2003, we furnished aCurrent Report on Form 8-K, containing a copy of our earnings release for theperiod ended June 30, 2003 (including financial statements) pursuant toItem 12 (Results of Operations and Financial Condition).

 

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**GENAISSANCEPHARMACEUTICALS, INC.**

 

**SIGNATUR****E**

 

 

Pursuant tothe requirements of the Securities Exchange Act of 1934, as amended, theRegistrant has duly caused this Amendment No. 1 to its Quarterly Report on Form10-Q to be signed on its behalf by the undersigned thereunto duly authorized.

 
|                          |   | GENAISSANCE  PHARMACEUTICALS, INC.                 |            |
|-------------------------------|--------|----------------------------------------------------|-----------------|
|                          |   |                                               |            |
|                          |   |                                               |            |
| Date:  February 11, 2004 |   | By:                                                | /s/ Ben  Kaplan |   |   |
|                          |   | Ben Kaplan                                         |            |
|                          |   | Senior Vice  President and Chief Financial Officer |            |
|                          |   | (Principal  Financial and Accounting Officer)      |            |
|                               |        |                                                    |                 |  |  |

 

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**EXHIBIT INDEX**

 
| **Exhibit No.** | ** ** | **Description of Document**                                                                                                                  |
|-----------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------|
|            |       |                                                                                                                                         |
| 10.1(1)         |       | Loan and Security  Agreement entered into as of September 30, 2003, by and between Comerica  Bank and Genaissance Pharmaceuticals, Inc. |
| 31.1            |       | Certification pursuant  to Rules 13a-14(a)/15d-14(a) promulgated under the Securities Exchange Act of  1934, as amended. Filed herewith.     |
| 31.2            |       | Certification pursuant  to Rules 13a-14(a)/15d-14(a) promulgated under the Securities Exchange Act of  1934, as amended. Filed herewith.     |
| 32.1            |       | Certification pursuant  to 18 U.S.C. Section 1350. Filed herewith.                                                                      |
| 32.2            |       | Certification pursuant  to 18 U.S.C. Section 1350. Filed herewith.                                                                      |

 

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(1)   Filed as anExhibit to the Registrant’s Quarterly Report on Form 10-Q (File No. 000-30981)for the quarter ended September 30, 2003 and incorporated herein by reference.

 

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