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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

Form 10-Q

|(Mark One)                                                    |                                                                                                                                      
|------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------
|ý                                                             | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004
|OR                                                           
|o                                                             | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934                                             
|For the transition period
from                             to

Commission File Number 0-24320

TAPESTRY PHARMACEUTICALS, INC.(Exact name of Registrant as specified in its charter)

|Delaware(State or other jurisdiction of
incorporation or organization)                                                |  | 84-1187753(I.R.S. Employer
Identification No.)
|--------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------
|4840 Pearl East Circle, Suite 300W
Boulder, Colorado 80301(Address of principal executive office, including zip code)
|(303) 516-8500(Registrant's telephone number, including area code)                                                   
|NaPro BioTherapeutics, Inc.(Former name, if changed since last report)                                               

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
Act). Yes ý    No o

As of April 30, 2004, the registrant had 33,297,217 shares of common stock, $0.0075 par value, outstanding.



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Tapestry Pharmaceuticals, Inc. and Subsidiaries  Table of Contents



|Part I       |  | Financial Information                                                                                                               
|------------ |  | ------------------------------------------------------------------------------------------------------------------------------------
|             |  | Item 1                                                                                                                              
|             |  | Item 2                                                                                                                              
|             |  | Item 3                                                                                                                              
|             |  | Item 4                                                                                                                              
|Part II      |  | Other Information                                                                                                                   
|             |  | Item 1                                                                                                                              
|             |  | Item 2                                                                                                                              
|             |  | Item 3                                                                                                                              
|             |  | Item 4                                                                                                                              
|             |  | Item 5                                                                                                                              
|             |  | Item 6                                                                                                                              
|Signatures  
|Exhibits     |  |                                                                                                                                     
|Exhibit 10.1 |  | Stock Purchase Agreement dated March 25, 2004 by and among the Company and the institutional investors named therein.               
|Exhibit 31.1 |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended.
|Exhibit 31.2 |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended.
|Exhibit 32.1 |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).        
|Exhibit 32.2 |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).        

2

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Part I  FINANCIAL INFORMATION

Item 1. Financial Statements

Tapestry Pharmaceuticals, Inc. and Subsidiaries        Consolidated Condensed Balance Sheets        (In thousands, except per share data)

|                                           |                                                                                                                                                             | March 31,
2004 |        | December 31,
2003 |  
|------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------ | ----------------- | -
|
|ASSETS                                     |                                                                                                                                                             |                |        |                   |  
|Current assets:                            |                                                                                                                                                             |                |        |                   |  
|                                           | Cash and cash equivalents                                                                                                                                   |                | $      | 6,609             |  
|                                           | Short-term investments                                                                                                                                      |                |        | 40,000            |  
|                                           | Accounts receivable, net                                                                                                                                    |                |        |                  |  
|                                           | Assets of discontinued operations                                                                                                                           |                |        | 250               |  
|                                           | Prepaid expense and other current assets                                                                                                                    |                |        | 573               |  
|                                           | Assets held for sale                                                                                                                                        |                |        |                  |  
|                                           |                                                                                                                                                             |                |        |                   |  
|Total current assets                       |                                                                                                                                                             |                | 47,432 |                   |  
|Property, plant and equipment, net         |                                                                                                                                                             |                | 1,111  |                   |  
|Long-term investments                      |                                                                                                                                                             |                | 3,243  |                   |  
|Other assets                               |                                                                                                                                                             |                | 3,464  |                   |  
|                                           |                                                                                                                                                             |                |        |                   |  
|Total assets                               |                                                                                                                                                             | $              | 55,250 |                   | $
|                                           |                                                                                                                                                             |                |        |                   |  
|LIABILITIES AND STOCKHOLDERS' EQUITY       |                                                                                                                                                             |                |        |                   |  
|Current liabilities:                       |                                                                                                                                                             |                |        |                   |  
|                                           | Accounts payable and accrued liabilities                                                                                                                    |                | $      | 1,541             |  
|                                           | Accrued payroll and payroll taxes                                                                                                                           |                |        | 1,457             |  
|                                           | Notes payablecurrent portion                                                                                                                               |                |        | 65                |  
|                                           | Deferred income                                                                                                                                             |                |        | 130               |  
|                                           |                                                                                                                                                             |                |        |                   |  
|Total current liabilities                  |                                                                                                                                                             |                | 3,193  |                   |  
|Notes payablelong term                    |                                                                                                                                                             |                | 33     |                   |  
|Convertible debentures                     |                                                                                                                                                             |                | 5,852  |                   |  
|Stockholders' equity:                      |                                                                                                                                                             |                |        |                   |  
|                                           | Preferred stock, $.001 par value; 2,000,000 shares authorized; none issued                                                                                  |                |        |                  |  
|                                           | Common stock, $.0075 par value; 64,000,000 shares authorized; 33,034,239 and 30,953,952 shares issued at March 31, 2004 and December 31, 2003, respectively |                |        | 248               |  
|                                           | Additional paid-in capital                                                                                                                                  |                |        | 116,615           |  
|                                           | Accumulated deficit                                                                                                                                         |                |        | (70,525           | )
|                                           | Accumulated other comprehensive income                                                                                                                      |                |        | 15                |  
|                                           | Treasury stock, 54,306 shares at cost at March 31, 2004 and December 31, 2003                                                                               |                |        | (181              | )
|                                           |                                                                                                                                                             |                |        |                   |  
|Total stockholders' equity                 |                                                                                                                                                             |                | 46,172 |                   |  
|                                           |                                                                                                                                                             |                |        |                   |  
|Total liabilities and stockholders' equity |                                                                                                                                                             | $              | 55,250 |                   | $
|                                           |                                                                                                                                                             |                |        |                   |  

See
accompanying notes to Consolidated Condensed Financial Statements.

3

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Tapestry Pharmaceuticals, Inc. and Subsidiaries        Consolidated Condensed Statements of Operations        (In thousands, except per share data)        (Unaudited)

|                                                                                |                                     | Quarter Ended |       
|------------------------------------------------------------------------------- | ----------------------------------- | ------------- | ------
|
|Operating expenses:                                                             |                                     |               |       
|                                                                                | Research and development            |               | $     
|                                                                                | General and administrative          |               |       
|                                                                                |                                     |               |       
|Operating loss                                                                  |                                     |               | 4,933 
|                                                                                |                                     |               |       
|Other income (expense):                                                         |                                     |               |       
|                                                                                | Interest income                     |               |       
|                                                                                | Interest expense                    |               |       
|                                                                                |                                     |               |       
|Net loss from continuing operations                                             |                                     |               | (5,015
|Discontinued operations:                                                        |                                     |               |       
|                                                                                | Income from discontinued operations |               |       
|                                                                                |                                     |               |       
|Net loss                                                                        |                                     | $             | (4,975
|                                                                                |                                     |               |       
|Basic and diluted loss per share from continuing operations                     |                                     | $             | (0.16 
|                                                                                |                                     |               |       
|Basic income per share from discontinued operations                             |                                     | $             |      
|                                                                                |                                     |               |       
|Diluted income per share from discontinued operations                           |                                     | $             |      
|                                                                                |                                     |               |       
|Basic and diluted loss per share                                                |                                     | $             | (0.16 
|                                                                                |                                     |               |       
|Basic and diluted weighted average shares outstanding                           |                                     |               | 31,068
|                                                                                |                                     |               |       
|Diluted weighted average shares outstanding relating to discontinued operations |                                     |               | 32,382
|                                                                                |                                     |               |       

See
accompanying notes to Consolidated Condensed Financial Statements.

4

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Tapestry Pharmaceuticals, Inc. and Subsidiaries        Consolidated Condensed Statements of Cash Flows        (In thousands)        (Unaudited)

|                                                                            |                                                              | Quarter Ended                            |       
|--------------------------------------------------------------------------- | ------------------------------------------------------------ | ---------------------------------------- | ------
|
|Operating activities:                                                       |                                                              |                                          |       
|Net loss                                                                    |                                                              | $                                        | (4,975
|Adjustments to reconcile net loss to net cash used in operating activities: |                                                              |                                          |       
|                                                                            | Depreciation and amortization                                |                                          |       
|                                                                            | Accretion of debt issue cost                                 |                                          |       
|                                                                            | Amortization of debt discount                                |                                          |       
|                                                                            | Accretion of license fee income                              |                                          |       
|                                                                            | Interest paid with common stock                              |                                          |       
|                                                                            | Compensation paid with common stock and options              |                                          |       
|                                                                            | Impairment loss on assets held for sale                      |                                          |       
|                                                                            | Changes in operating assets and liabilities:                 |                                          |       
|                                                                            |                                                              | Accounts receivable                      |       
|                                                                            |                                                              | Assets of discontinued operations        |       
|                                                                            |                                                              | Inventory                                |       
|                                                                            |                                                              | Prepaid expense and other assets         |       
|                                                                            |                                                              | Accounts payable and accrued liabilities |       
|                                                                            |                                                              | Accrued payroll and payroll taxes        |       
|                                                                            |                                                              | Deferred income                          |       
|                                                                            |                                                              |                                          |       
|Net cash (used in) provided by operating activities                         |                                                              |                                          | (5,740
|Investing activities:                                                       |                                                              |                                          |       
|                                                                            | Additions to property and equipment                          |                                          |       
|                                                                            | Purchases of investment                                      |                                          |       
|                                                                            | Proceeds from sale of investments                            |                                          |       
|                                                                            | Acquisition of patents                                       |                                          |       
|                                                                            |                                                              |                                          |       
|Net cash used in investing activities                                       |                                                              |                                          | 5,214 
|Financing activities:                                                       |                                                              |                                          |       
|                                                                            | Proceeds from notes payable                                  |                                          |       
|                                                                            | Payments of notes payable                                    |                                          |       
|                                                                            | Proceeds from the sale of common stock, net of issuance cost |                                          |       
|                                                                            | Proceeds from the exercise of common stock options           |                                          |       
|                                                                            |                                                              |                                          |       
|Net cash provided by financing activities                                   |                                                              |                                          | 4,854 
|                                                                            |                                                              |                                          |       
|Net decrease in cash and cash equivalents                                   |                                                              |                                          | 4,328 
|Cash and cash equivalents at beginning of period                            |                                                              |                                          | 2,281 
|                                                                            |                                                              |                                          |       
|Cash and cash equivalents at end of period                                  |                                                              | $                                        | 6,609 
|                                                                            |                                                              |                                          |       
|Supplemental disclosure of cash flow information:                           |                                                              |                                          |       
|Interest paid                                                               |                                                              | $                                        | 4     
|Non-cash investing and financing activities:                                |                                                              |                                          |       
|                                                                            | Issuance of common stock for payment of interest             |                                          |       

See
accompanying notes to Consolidated Condensed Financial Statements.

5

---





Tapestry Pharmaceuticals, Inc.        Notes to Consolidated Condensed Financial Statements        March 31, 2004        (Unaudited)

Note 1. Basis of Presentation

The accompanying financial statements are unaudited. However, in the opinion of management, the financial statements reflect all adjustments, consisting of only
normal recurring adjustments, necessary for fair presentation. Interim results of operations may not be indicative of results for the full year. These financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K, as amended, for the year ended December 31, 2003.

On
May 4, 2004, the Company changed its corporate name to Tapestry Pharmaceuticals, Inc. from NaPro BioTherapeutics, Inc. On May 5, 2004, our stock began
trading on the Nasdaq SmallCap Market under the symbol "TPPH".

Note 2. Reclassifications

Certain data in the consolidated condensed financial statements of the prior year has been reclassified to conform to the current year presentation.

Note 3. Discontinued Operations

Sale of Paclitaxel Business

On December 12, 2003, the Company sold its worldwide generic injectable paclitaxel business to Mayne Pharma (USA) Inc. (f/k/a/ Faulding
Pharmaceutical Co.) ("Mayne Pharma"), a subsidiary of Mayne Group Limited, for cash in the amount of $71.7 million minus an inventory adjustment of $4.6 million to reflect the Company's
actual inventory as of the closing. The sale resulted in a gain of $54.6 million before taxes, and $54.1 million after taxes. Proceeds from the sale are being used to fund the
development of products based on Tapestry's proprietary oncology and genomics platforms and for general corporate purposes. In addition, approximately $21.9 million of the proceeds was paid to
Abbott Laboratories ("Abbott") to retire all outstanding debt, interest and payables the Company owed to Abbott. The assets sold to Mayne Pharma included paclitaxel manufacturing assets, yew
plantations, domestic and international issued and pending paclitaxel patents, a worldwide registration dossier, worldwide development and supply agreements, inventories and settlement of accounts
receivable. The Company retained all of its intellectual property not used in connection with the business sold.

The
paclitaxel business has been reported as a discontinued operation in 2003, and results from the prior year have been reclassified to reflect this. Summary results of the paclitaxel
business's first quarter operations were (in thousands):

March 31,
2004

April 2,
2003Product sales

$


$
6,885Net income

$
251

$
2,745


Paclitaxel
income in 2004 consisted primarily of a $250,000 business interruption insurance claim filed in 2004 for losses sustained in the third quarter of 2003, which resulted from a
hurricane that disrupted operations of a contract manufacturer employed by Tapestry.

6

---



Gene Isolation and Service Business

In December 2003, the Company made the decision to sell its gene isolation and service business and, therefore, has accounted for it as a discontinued
operation. Net operating loss related to this business totaled $211,000 and $159,000 during the first quarter of 2004 and 2003, respectively. In the first quarter of 2004, the Company recorded an
impairment loss of $205,000 for assets that had been identified as held for sale.

Assets
held for sale at December 31, 2003 that related to the discontinued operations of the gene isolation business were as follows (in thousands):

Property, plant and equipment, net

$
122Other assets


83Assets held for sale

$
205


Note 4. Investments

Short-term
investments consisted of investment grade commercial paper due within one year. Investments with maturities beyond one year may be classified as
short-term based on their highly liquid nature and because such investments represent the investment of cash that is available for current operations. Long-term investments
consisted of investment grade commercial paper with maturities beyond one year. All investments are classified as available-for-sale and are recorded at market value.
Unrealized gains and losses are reflected in other comprehensive income.

The
following table sets for the change in accumulated other comprehensive income (in thousands):

Balance, December 31, 2003

$
Unrealized gain on investments


15Balance, March 31, 2004

$
15


Note 5. Property, Plant and Equipment

Property,
plant and equipment consisted of the following (in thousands):

March 31,
2004

December 31,
2003Furniture, fixtures and office equipment

$
676

$
528Laboratory equipment


1,048


754Leasehold improvements


45


38Construction in progress





3911,769


1,711Less accumulated depreciation and amortization


(658
)

(555
)Property, plant and equipment, net

$
1,111

$
1,156


7

---



Note 6. Stockholders' Equity

On
March 26, 2004, the Company sold 2,000,000 shares of common stock issued at $2.60 per share to two investors. Advisory fees and legal fees were paid in connection with the
transaction. The net proceeds from the sale were $4.9 million.

Note 7. Net Income (Loss) Per Share

Basic earnings per share is measured as the income or loss available to common stockholders divided by the weighted average outstanding common shares for the
period. Diluted earnings per share is similar to basic earnings per share but presents the dilutive effect on a per share basis of potential common shares (e.g. stock options, warrants and convertible
securities) as if they had been converted at the beginning of the periods presented. Potential common shares that have an antidilutive effect are excluded from diluted earnings per share. Net loss per
common share is computed using the weighted average number of shares of common stock outstanding. The following is a reconciliation of the shares (denominator) of the basic and diluted per share
computations:

|                                                                                           |  | March 31,
2004 |  | April 2,
2003
|------------------------------------------------------------------------------------------ |  | -------------- |  | -------------
|Basic weighted average common shares outstanding                                           |  | 31,068         |  | 29,937       
|Effect of dilutive securities:                                                             |  |                |  |              
|Employee stock options                                                                     |  | 1,314          |  | 3            
|                                                                                           |  |                |  |              
|Diluted weighted average common shares outstanding for income from discontinued operations |  | 32,382         |  | 29,940       
|                                                                                           |  |                |  |              

Note 8. Stock Options

Tapestry
accounts for its stock options to employees and directors in accordance with Accounting Principles Board Opinion No. 25 ("APB 25"), Accounting for Stock Issued to
Employees, and related interpretations. Pursuant to APB 25, compensation expense to employees is recorded only if the fair value of the underlying stock exceeds the exercise price. Stock
options granted to consultants are accounted for under the fair value method, in accordance with Statement of Financial Accounting Standards No. 123 ("SFAS 123"), Accounting for
Stock-Based Compensation.

Pro
forma information regarding net income and earnings per share is required by SFAS 123 and Statement of Financial Accounting Standards No. 148, Accounting for
Stock-Based Compensation Transition and Disclosure, which requires that the information be determined as if the Company had accounted for employee stock options granted subsequent to
December 31, 1994 under the fair value method of that statement. Tapestry estimated the fair value for these options at the date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions for the quarters ended March 31, 2004 and April 2, 2003, respectively: risk-free interest rates of 2.84% to 3.55% and 2.49% to 3.18%;
no expected dividend; volatility factors of 1.047 and 1.187, and an estimated expected life range of three to six years.

8

---



For
purposes of pro forma disclosures, the Company amortizes to expense the estimated fair value of the options over the options' vesting period. Tapestry's pro forma information is as
follows (in thousands, except per share amounts):

Quarter EndedMarch 31,
2004

April 2,
2003Net loss as reported

$
(4,975
)
$
(2,750
)Deduct: Total stock based employee compensation expense determined under fair value based method for all awards


(881
)

(996
)Pro forma net loss

$
(5,856
)
$
(3,746
)Basic and diluted loss per shareas reported

$
(0.16
)
$
(0.09
)Pro forma basic and diluted loss per share

$
(0.19
)
$
(0.13
)


9

---





Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of the financial condition and
results of operations of Tapestry Pharmaceuticals, Inc. You should read this discussion in conjunction with the Financial Statements and Notes included elsewhere in this report and with
Management's Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2003 contained in our 2003 Annual Report on Form 10-K,
as amended. Certain statements set forth below constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. See "Special Note Regarding
Forward-Looking Statements", below.

General

Tapestry Pharmaceuticals, Inc., formerly known as NaPro BioTherapeutics, Inc. ("we", "Tapestry" or "the Company"), is a pharmaceutical company focused on
the development of proprietary therapies for the treatment of cancer and hereditary disease. We are in the early stages of six development programs; four that we believe have promise as
anti-cancer agents, and two that address the inherited diseases of Sickle Cell Disease and Huntington's Disease. We believe that all of these products function by novel biological and/or
chemical mechanisms and, therefore, if successful in clinical trials, may add to the amelioration of their specific disease targets.

We
are also actively engaged in evaluating the in-licensing or purchase of potential new anti-cancer agents and/or drug delivery technologies. Our evaluation of
new products and technologies may involve the examination of individual molecules, classes of compounds or platform technologies in cancer as well as other therapeutic areas. Acquisitions of new
products or technologies may involve the purchase of such products or technologies, or the acquisition of, or merger with, other companies.

Historically,
the focus of our business was the production, approval and sale of paclitaxel (a naturally occurring chemotherapeutic anti-cancer agent found in certain species
of yew, orTaxus,trees) in the United States and other countries around the world. The majority of our efforts had been devoted to this endeavor. Prior
to the sale of paclitaxel business in December 2003, we had accumulated approximately $115 million of losses over the course of 13 years, principally through expenditures in
research and development, establishing a sound intellectual property portfolio, worldwide registration dossiers, the creation of reliable Yew plantations, and the development and implementation of
Good Manufacturing Practice manufacturing facilities so that we could supply bulk paclitaxel to our marketing partners, Mayne Pharma (USA) Inc. (f/k/a/ Faulding Pharmaceutical Co.) ("Mayne
Pharma"), a subsidiary of Mayne Group Limited, and Abbott Laboratories ("Abbott").

Due
to the decline in price of paclitaxel in consequence of the generic competition in the United States, on December 12, 2003, we sold our worldwide generic injectable paclitaxel
business to Mayne Pharma for cash in the amount of $71.7 million minus an inventory adjustment of $4.6 million to reflect the Company's actual inventory as of the closing. In addition,
Mayne Pharma assumed certain liabilities associated with our paclitaxel business. Approximately $21.9 million of the proceeds of the transaction were paid to Abbott to retire all outstanding
debt and payables we owed to Abbott. The remaining proceeds from the sale are being used to fund the development of products based on our proprietary oncology and gene editing platforms, and for
general corporate purposes.

The
assets sold to Mayne Pharma included our paclitaxel manufacturing assets, yew plantations, domestic and international issued and pending paclitaxel patents, a worldwide registration
dossier, worldwide development and supply agreements, inventories and settlement of accounts receivable. Tapestry has retained all of its intellectual property not used in connection with the business
sold, and we retained intellectual property rights to research, develop, make, use and sell paclitaxel (and other taxanes) in any field or territory other than paclitaxel to be used to compete in the
generic injectable paclitaxel business. We also retained liabilities related to our ongoing business, including those relating

10

---



to
our employees, our contracts and license agreements unrelated to the paclitaxel business, and certain leases and purchase orders. In addition, we retained certain other liabilities related to our
manufacturing and sale of paclitaxel that arose prior to the closing of the asset sale. Upon closing of the asset sale, we exited the generic paclitaxel business worldwide, terminated the development
agreements with Abbott and Mayne Pharma, and transferred our other generic paclitaxel marketing agreements to Mayne Pharma.

Going
forward we will incur substantial research and development expense related to the development of our proprietary anti-cancer agents, and the development of our
proprietary genomic technologies. We have incurred significant losses, including losses from continuing operations of $5.0 million for the three months ended March 31, 2004. Our
accumulated deficit was $70.5 million as of March 31, 2004. We anticipate that losses will continue until such time, if ever, as we are able to generate sufficient sales to support our
development operations, including the research and development activity mentioned above.

Our
ability to generate sufficient sales to support our operations currently depends upon the successful development and commercialization of products based on our proprietary oncology
and genomic technologies. Our oncology program consists of developing both targeted as well as
non-targeted chemical compounds for the treatment of cancer. Our genomic program consists of developing therapeutic programs that address hereditary diseases and developing the double D
Loop technology for diagnostic use. Currently, we are engaged in developing two such programs, one for the treatment of Huntington's Disease and the other to treat Sickle Cell Disease. All of our
products and technologies are in the early stages of development and we cannot assure you that our efforts will be successful.

Research and Development

Our current business is focused on research and development of proprietary therapies for the treatment of cancer and hereditary disease. In 2003, we were also
engaged in research and development related to our paclitaxel business which is aggregated in discontinued operations, below (in thousands):

Three months endedMarch 31,
2004

April 2, 2003Oncology

$
1,470

$
1,230Genomics


1,318


1,096Discontinued operations





669$
2,788

$
2,995


Research
and development expense, including that related to our clinical programs, is expected to be our most significant expense going forward. We anticipate beginning clinical testing
of two of our products in 2004, and to move an additional two products into clinical testing in the first half of 2005. All of our clinical programs will be subject to the success of our
pre-clinical development activity, and regulatory clearance and approvals. We cannot be sure that we will begin clinical testing for these programs at the times we have projected. We also
cannot estimate the cost of the effort necessary to complete these programs or when, if ever, we will receive material revenues from these programs. The completion of the development of these programs
to an approved product for sale in the United States and offshore is dependent upon raising additional capital. We cannot be certain that we will be able to obtain capital on acceptable terms. We have
included a number of the risks and uncertainties associated with completing our product development plans in the Special Note Regarding Forward-Looking Statements, below.

11

---



Quarter
Ended March 31, 2004 Compared to Quarter Ended April 2, 2003

Research and Development Expense.Research and development expense for the first quarter of 2004 was $2.8 million, a
decrease of $200,000 from the first quarter of 2003. The decrease was due to the elimination of expenditures related to discontinued operations. Research and development expense relating to the
paclitaxel business was $669,000 in 2003, and is included in discontinued operations. Oncology research and development expense increased $200,000 to $1.5 million in the first quarter of 2004,
and genomics research and development expense increased $200,000 to $1.3 million in the first quarter of 2004. Increased oncology and genomics expense was due to our pre-clinical
development activities and primarily consisted of higher consulting and outside services expense.

General and Administrative Expense.General and administrative expense for the current year quarter was $2.1 million,
a decrease of $900,000 from the prior year quarter. Approximately $200,000 of our general and administrative expense in 2003 was incurred in connection with our paclitaxel business and is included in
discontinued operations. The $900,000 decrease was primarily due to lower compensation expense due to fewer employees ($300,000), lower consulting and outside services ($300,000), one-time
costs incurred in 2003 associated with terminating a lease for one of our corporate facilities in Boulder, Colorado ($200,000), and lower depreciation expense resulting from the disposition of fixed
assets ($100,000).

Interest Income.Interest income for the first quarter of 2004 increased by $100,000 compared to the prior year quarter. The
increase was attributable to higher average balances of interest-bearing investments.

Interest Expense.Interest expense for the current year quarter was $200,000. Prior year interest on debt owed to Abbott of
$300,000 is included in discontinued operations.

Discontinued Operations.Income from discontinued operations was $40,000 for the current year quarter, a decrease of
$2.5 million from the prior year quarter. As a result of the sale of our paclitaxel business in December 2003, we anticipate having no sales revenue in 2004. The revenue recognized in
2004 related to a business interruption insurance claim filed in 2004 for a loss sustained in the third quarter of 2003. We recorded an impairment loss of $205,000 related to assets that previously
had been classified as held for sale. There was no license fee income in 2004 compared with $283,000 in the prior year quarter. All of our deferred revenue relating to license fees was recognized as
income in connection with the sale of our paclitaxel business in December 2003.

Liquidity and Capital Resources

Our working capital requirements for research and development have been, and will continue to be, significant. As of March 31, 2004, we had a working
capital balance of $44.2 million and long-term investments of $3.2 million, compared to a working capital balance of $47.1 million at December 31, 2003. From
inception, we have funded our capital requirements primarily with the net proceeds of public offerings of common stock of approximately $21.1 million, with private placements of equity
securities of approximately $67.5 million, with the exercise of warrants and options of $8.0 million and with net borrowing of $8.1 million.

In
August 2003, we filed an equity shelf registration statement with the U.S. Securities and Exchange Commission ("SEC") covering the issuance of up to 6.5 million shares
of our common stock and 1.0 million shares of our preferred stock. This registration statement is intended to give us the flexibility to take advantage of financing opportunities from time to
time when market conditions are favorable. We may sell the stock covered by this registration statement at prices and in a manner we determine from time to time.

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On
March 26, 2004, the Company sold 2,000,000 shares of common stock at $2.60 per share to two investors. Advisory fees and legal fees were paid in connection with the
transaction. The net proceeds from the transaction were $4.9 million.

In
March 2004, we filed a registration statement with the SEC covering the issuance of up to 500,000 shares of our common stock upon the conversion of our 4% convertible
subordinated debentures held by TL Ventures, one of our primary institutional investors, and in the event we elect to pay interest on
those debentures in shares of our common stock in lieu of cash. In February 2004, we issued 61,425 shares of common stock to TL Ventures for payment of interest in lieu of cash.

TL
Ventures has advised us that it believes that the completion of the sale of our paclitaxel business to Mayne Pharma entitles it to have its $8.0 million of Company 4%
convertible subordinated debentures redeemed. We dispute this position and engaged in discussions with TL Ventures regarding this matter. On September 8, 2003, TL Ventures reasserted its
position and informed us that, if we could not resolve this issue promptly, it intended to pursue legal remedies. On September 11, 2003, we filed a complaint in a case captioned NaPro BioTherapeutics, Inc. v. TL
Ventures V L.P. and TL Ventures V Interfund L.P., Case No. 2003-CV-1812,
District Court, Boulder County, Colorado. In our complaint, we seek a declaratory judgment from the court that the asset sale to Mayne Pharma did not permit TL Ventures to have the 4% convertible
subordinated debentures redeemed. TL Ventures has filed a motion to dismiss the suit, and has filed an action in a case captionedTL Ventures V L.P. and TL Ventures V Interfund
L.P. v. NaPro BioTherapeutics, Inc., Case No. 110-N, Delaware Court of Chancery, alleging that TL Ventures is entitled to redeem its 4% convertible
subordinated debentures. One of our former directors, Marc Ostro, is a general partner in certain of the TL Ventures Funds. Dr. Ostro resigned from our Board of Directors effective
March 11, 2004.

We
believe existing capital will be adequate to fund our operations and capital expenditures for at least the next 24 months. However, pharmaceutical development is a costly,
risky and time consuming process. As a result we may seek additional capital. We cannot assure you that we will be able to obtain such capital on terms that are acceptable to us. In addition, we may
seek to in-license or purchase new products or technologies. The cost of acquiring and developing such resources, and related capital expenditures, may be very large, and we may not be
able to obtain capital for these products on terms acceptable to us, either.

Working Capital and Cash Flow.Cash and cash equivalents increased $4.3 million to $6.6 million at
March 31, 2004 from $2.3 million at December 31, 2003. This increase was primarily due to the proceeds from the sale of investments totaling $5.3 million and by
$4.9 million in proceeds from the sale of common stock, offset by $5.7 million of net cash used in operating activities. With the sale of the paclitaxel business in December 2003,
we no longer generate any cash from operating activities.

In
connection with the sale of the paclitaxel business, all related inventories were sold with the business. The majority of our accounts receivable were settled with the sale of the
paclitaxel business, as were certain liabilities. We do not anticipate having any accounts receivable or inventories during 2004 as we do not anticipate any sales revenue during that period.

Critical Accounting Policies

The Company's critical accounting policies are presented in its Annual Report on Form 10-K, as amended, for the year ended December 31,
2003. There were no changes to these critical accounting policies during the quarter ended March 31, 2004.

Special Note Regarding Forward-Looking Statements

The statements in this report that are not historical facts are forward-looking statements that represent management's beliefs and assumptions as of the date of
this report, based on currently

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available
information. Forward-looking statements can be identified by the use of words such as "believe", "intend", "estimate", "may", "will", "should", "anticipated", "expected", "trusts" or
comparable terminology or by discussions of strategy. Such forward-looking statements may include, among others:



Although
we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct. Such
forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements, or industry results, to be materially
different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the following:

Risks Related to Research and Development



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Risks Related to the Pharmaceutical Business We May Develop in the Future



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Risks Related to Financing Our Operations



Risks Related to Our Status as a Public Company



Other Risks Related to Our Business



These
and other factors related to the Company's business are described in more detail under the caption "Risk Factors" or "Special Note Regarding Forward-Looking Statements" in
the Company's documents filed from time to time with the Securities and Exchange Commission. Should one or more of these risks materialize (or the consequences of such a development worsen), or should
the underlying assumptions prove incorrect, actual results could differ materially from those forecasted or expected. We undertake no obligation to update any of the forward-looking statements after
the date of this Quarterly Report on Form 10-Q to conform such statements to actual results, except to the extent required by law.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

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Item 4. Controls and Procedures



Any
system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of
any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that
any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

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Part IIOTHER INFORMATION

Item 1. Legal Proceedings

There have been no material developments in legal proceedings.

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

Not applicable.

Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits and Reports on Form 8-K



|Exhibit
Number |  | Description of Exhibit                                                                                                              
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------
|10.1*          |  | Stock Purchase Agreement dated March 25, 2004 by and among the Company and the institutional investors named therein.               
|31.1**         |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended.
|31.2**         |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended.
|32.1**#        |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).        
|32.2**#        |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).        

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We
filed a Current Report on Form 8-K dated February 27, 2004 reporting item 9.

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We
filed a Current Report on Form 8-K dated March 19, 2004 reporting item 9.

We
filed a Current Report on Form 8-K dated March 25, 2004 reporting item 5.

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SIGNATURES

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

|            |  | TAPESTRY PHARMACEUTICALS, INC.
|----------- |  | ------------------------------
|May 7, 2004 |  | By:                           
|May 7, 2004 |  | By:                           
|May 7, 2004 |  | By:                           

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