##### 



SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

|    |  |                                                                                        
|--- |  | ---------------------------------------------------------------------------------------
|[X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For The Quarterly Period Ended March 31, 2002

OR

|      |  |                                                                                         
|----- |  | ----------------------------------------------------------------------------------------
|[   ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

Commission file number 000-31577



---



INFORMAX, INC.



---

|                                                              |  |                        
|------------------------------------------------------------- |  | -----------------------
|Delaware                                                      |  | 52-1687783             
|(State or
Other Jurisdiction of Incorporation orOrganization) |  | (IRS EmployerID Number)
|                                                              |  |                        
|                                                             
|7600 Wisconsin Avenue, 11th Floor, Bethesda, MD               |  | 20814                  
|(Address of Principal Executive Offices)                      |  | (Zip Code)             



|(240) 747-4000
(Registrants telephone number, including area code)
|-------------------------------------------------------------------

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 [X]   No [   ]

The registrant had 25,484,522 shares of common stock outstanding as of May 1,
2002.





---



##### 



INFORMAX, INC.

FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2002

INDEX

|                                                                      |                                                                                                                                                            |   
|--------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------- | --
|                                                                      |                                                                                                                                                            |   
|PART I
                              
          FINANCIAL INFORMATION
|                                                                      | Item 1.
          Financial Statements                                                                                                                     | 1 
|                                                                      | Condensed
          Consolidated Balance Sheets as of December 31, 2001 and
          March 31, 2002 (unaudited)                                           | 1 
|                                                                      | Condensed
          Consolidated Statements of Operations for the
          Three-Month Periods Ended March 31, 2001 and 2002 (unaudited)                  | 2 
|                                                                      | Condensed
          Consolidated Statements of Comprehensive Income (Loss) for the
          Three-Month Periods Ended March 31, 2001 and 2002 (unaudited) | 3 
|                                                                      | Condensed
          Consolidated Statements of Cash Flows for the
          Three-Month Periods Ended March 31, 2001 and 2002 (unaudited)                  | 4 
|                                                                      | Notes
          to Condensed Consolidated Financial Statements                                                                                             | 5 
|                                                                      | Risk Factors                                                                                                                                               | 7 
|                                                                      | Item 2.
          Managements Discussion and Analysis of Financial Condition and
          Results of Operations                                          | 13
|                                                                      | Item 3.
          Qualitative and Quantitative Discussion of Market Risk                                                                                   | 19
|PART II
           OTHER INFORMATION                                 | 20                                                                                                                                                        
|                                                                      | Item 1.
          Legal Proceedings                                                                                                                        | 20
|                                                                      | Item 2.
          Changes in Securities and Use of Proceeds                                                                                                | 20
|                                                                      |                                                                                                                                                           
|SIGNATURES                                                            | 21                                                                                                                                                        





---



##### 



PART I  FINANCIAL
INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

INFORMAX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

|                |                                                                                                                                      |                                                                                                                                                                         |                            |                                                  |         |        |      |        |         |        | 
|--------------- | ------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------------ | ------- | ------ | ---- | ------ | ------- | ------ | 
|ASSETS          |                                                                                                                                      | At December 31,                                                                                                                                                         |                            | At March 31,                                    
|                |                                                                                                                                      |                                                                                                                                                                         |                            |                                                  | 2001    |        | 2002
|                |                                                                                                                                      |                                                                                                                                                                         |                            |                                                  |         |        |     
|                |                                                                                                                                      |                                                                                                                                                                         |                            | (Dollars in thousands, except per share amounts)
|Current assets: |                                                                                                                                      |                                                                                                                                                                         |                            |                                                  |         |        |      |       
|                | Cash and cash equivalents                                                                                                            |                                                                                                                                                                         | $                          | 61,348                                           |         |        | $    | 34,610 |        
|                | Investments available for sale                                                                                                       |                                                                                                                                                                         |                            |                                                 |         |        |      | 22,614 |        
|                | Accounts receivable (net of allowance for doubtful accounts of
$557 and $832 for December 31, 2001 and March 31, 2002,
respectively) |                                                                                                                                                                         |                            | 9,672                                            |         |        |      | 5,307  |        
|                | Prepaid expenses and other current assets                                                                                            |                                                                                                                                                                         |                            | 1,253                                            |         |        |      | 850    |        
|                |                                                                                                                                      |                                                                                                                                                                         |                            |                                                  |         |        |      |       
|                |                                                                                                                                      |                                                                                                                                                                         | Total current assets       |                                                  |         | 72,273 |      |        |         | 63,381 | 
|                | Property and equipment  net                                                                                                         |                                                                                                                                                                         |                            | 9,205                                            |         |        |      | 8,728  |        
|                | Deposits and other assets                                                                                                            |                                                                                                                                                                         |                            | 1,333                                            |         |        |      | 1,694  |        
|                | Restricted cash                                                                                                                      |                                                                                                                                                                         |                            | 1,667                                            |         |        |      | 1,667  |        
|                | Investment in strategic alliance                                                                                                     |                                                                                                                                                                         |                            |                                                 |         |        |      | 1,500  |        
|                |                                                                                                                                      |                                                                                                                                                                         |                            |                                                  |         |        |      |       
|                | Total assets                                                                                                                         |                                                                                                                                                                         | $                          | 84,478                                           |         |        | $    | 76,970 |        
|                |                                                                                                                                      |                                                                                                                                                                         |                            |                                                  |         |        |      |       
|                | LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                 |                                                                                                                                                                         |                            |                                                  |         |        |      |        |        
|                | Current liabilities:                                                                                                                 |                                                                                                                                                                         |                            |                                                  |         |        |      |        |        
|                |                                                                                                                                      | Accounts payable                                                                                                                                                        |                            | $                                                | 408     |        |      | $      | 451     |       
|                |                                                                                                                                      | Accounts payable to related parties                                                                                                                                     |                            |                                                  | 3       |        |      |        | 179     |       
|                |                                                                                                                                      | Accrued liabilities                                                                                                                                                     |                            |                                                  | 4,408   |        |      |        | 4,116   |       
|                |                                                                                                                                      | Borrowings and capital lease obligations  current portion                                                                                                              |                            |                                                  | 852     |        |      |        | 675     |       
|                |                                                                                                                                      | Deferred revenue  current portion                                                                                                                                      |                            |                                                  | 4,189   |        |      |        | 4,416   |       
|                |                                                                                                                                      |                                                                                                                                                                         |                            |                                                  |         |        |      |       
|                |                                                                                                                                      |                                                                                                                                                                         | Total current liabilities  |                                                  |         | 9,860  |      |        |         | 9,837  | 
|                | Borrowing and capital lease obligations  less current portion                                                                       |                                                                                                                                                                         |                            | 405                                              |         |        |      | 300    |        
|                | Deferred revenue  less current portion                                                                                              |                                                                                                                                                                         |                            | 1,739                                            |         |        |      | 1,688  |        
|                | Other liabilities                                                                                                                    |                                                                                                                                                                         |                            | 29                                               |         |        |      | 28     |        
|                |                                                                                                                                      |                                                                                                                                                                         |                            |                                                  |         |        |      |       
|                |                                                                                                                                      |                                                                                                                                                                         | Total liabilities          |                                                  |         | 12,033 |      |        |         | 11,853 | 
|                | Stockholders equity:                                                                                                                |                                                                                                                                                                         |                            |                                                  |         |        |      |        |        
|                |                                                                                                                                      | Common stock, voting; $.001 par value authorized 100,000
shares; issued and outstanding 24,506 and 25,142
shares for December 31, 2001 and March 31, 2002, respectively |                            |                                                  | 24      |        |      |        | 25      |       
|                |                                                                                                                                      | Additional paid-in capital                                                                                                                                              |                            |                                                  | 107,207 |        |      |        | 107,018 |       
|                |                                                                                                                                      | Deferred compensation                                                                                                                                                   |                            |                                                  | (515    | )      |      |        | (81     | )     
|                |                                                                                                                                      | Accumulated other comprehensive income                                                                                                                                  |                            |                                                  |        |        |      |        | (10     | )     
|                |                                                                                                                                      | Accumulated deficit                                                                                                                                                     |                            |                                                  | (34,271 | )      |      |        | (41,835 | )     
|                |                                                                                                                                      |                                                                                                                                                                         |                            |                                                  |         |        |      |       
|                |                                                                                                                                      |                                                                                                                                                                         | Total stockholders equity |                                                  |         | 72,445 |      |        |         | 65,117 | 
|                |                                                                                                                                      |                                                                                                                                                                         |                            |                                                  |         |        |      |       
|                | Total liabilities and stockholders equity                                                                                           |                                                                                                                                                                         |                            | 84,478                                           |         |        | $    | 76,970 |        
|                |                                                                                                                                      |                                                                                                                                                                         |                            |                                                  |         |        |      |       

See accompanying notes to unaudited condensed consolidated financial statements

1



---



##### 



INFORMAX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

|                                                               |                                       |                              |            |                                                  |        |      |            |       |        | 
|-------------------------------------------------------------- | ------------------------------------- | ---------------------------- | ---------- | ------------------------------------------------ | ------ | ---- | ---------- | ----- | ------ | 
|                                                               |                                       |                              |            | Three months ended March 31,                    
|                                                               |                                       |                              |            | 2001                                             |        | 2002
|                                                               |                                       |                              |            |                                                  |        |     
|                                                               |                                       |                              |            | (Dollars in thousands, except per share amounts)
|Revenues:                                                      |                                       |                              |            |                                                  |        |      |            |      
|                                                               | Software license and customer support |                              | $          | 5,663                                            |        |      | $          | 2,775 |       
|                                                               | Professional services                 |                              |            | 927                                              |        |      |            | 950   |       
|                                                               |                                       |                              |            |                                                  |        |      |            |      
|                                                               |                                       | Total revenues               |            |                                                  | 6,590  |      |            |       | 3,725  | 
|                                                               |                                       |                              |            |                                                  |        |      |            |      
|Cost of revenues:                                              |                                       |                              |            |                                                  |        |      |            |      
|                                                               | Software license and customer support |                              |            | 518                                              |        |      |            | 146   |       
|                                                               | Professional services (1)             |                              |            | 469                                              |        |      |            | 452   |       
|                                                               |                                       |                              |            |                                                  |        |      |            |      
|                                                               |                                       | Total cost of revenues       |            |                                                  | 987    |      |            |       | 598    | 
|                                                               |                                       |                              |            |                                                  |        |      |            |      
|Gross profit                                                   |                                       |                              | 5,603      |                                                  |        |      | 3,127      |      
|Operating expenses:                                            |                                       |                              |            |                                                  |        |      |            |      
|                                                               | Selling                               |                              |            | 2,776                                            |        |      |            | 2,554 |       
|                                                               | General and administrative (2)        |                              |            | 5,432                                            |        |      |            | 4,043 |       
|                                                               | Research and development (3)          |                              |            | 1,978                                            |        |      |            | 2,855 |       
|                                                               | Stock-based compensation              |                              |            | 267                                              |        |      |            | 18    |       
|                                                               | Depreciation and amortization         |                              |            | 442                                              |        |      |            | 739   |       
|                                                               | Restructuring costs                   |                              |            |                                                 |        |      |            | 775   |       
|                                                               |                                       |                              |            |                                                  |        |      |            |      
|                                                               |                                       | Total operating expenses     |            |                                                  | 10,895 |      |            |       | 10,984 | 
|                                                               |                                       |                              |            |                                                  |        |      |            |      
|Loss from operations                                           |                                       |                              | (5,292     | )                                                |        |      | (7,857     | )    
|                                                               |                                       |                              |            |                                                  |        |      |            |      
|Other income (expense):                                        |                                       |                              |            |                                                  |        |      |            |      
|                                                               | Investment earnings                   |                              |            | 1,163                                            |        |      |            | 320   |       
|                                                               | Interest and other expense            |                              |            | (44                                              | )      |      |            | (27   | )     
|                                                               |                                       |                              |            |                                                  |        |      |            |      
|                                                               |                                       | Total other income (expense) |            |                                                  | 1,119  |      |            |       | 293    | 
|                                                               |                                       |                              |            |                                                  |        |      |            |      
|Loss before income taxes                                       |                                       |                              | (4,173     | )                                                |        |      | (7,564     | )    
|Income tax (benefit) expense                                   |                                       |                              |           |                                                  |        |      |           |      
|                                                               |                                       |                              |            |                                                  |        |      |            |      
|Net loss                                                       |                                       |                              | (4,173     | )                                                |        |      | (7,564     | )    
|                                                               |                                       |                              |            |                                                  |        |      |            |      
|Basic and diluted net loss per common share                    |                                       | $                            | (0.21      | )                                                |        | $    | (0.30      | )    
|                                                               |                                       |                              |            |                                                  |        |      |            |      
|Weighted average common shares outstanding -
basic and diluted |                                       |                              | 20,396,461 |                                                  |        |      | 25,142,024 |      
|                                                               |                                       |                              |            |                                                  |        |      |            |      



|(1) |  | Cost of revenues  professional services includes stock-based
compensation of $0.7 and $0 for the three months ended March 31, 2001 and
2002, respectively.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | General and administrative expense excludes stock-based compensation of
$265 and $0 for the three months ended March 31, 2001 and 2002,
respectively.      
|   
|(3) |  | Research and development expense excludes stock-based compensation of $2
and $0 for the three months ended March 31, 2001 and 2002, respectively.          

See accompanying notes to unaudited condensed consolidated financial statement

2



---



##### 



INFORMAX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

|                                                                                           |                                                  |                              |        |      |  |  |        |  
|------------------------------------------------------------------------------------------ | ------------------------------------------------ | ---------------------------- | ------ | ---- |  |  | ------ | -
|                                                                                           |                                                  | Three months ended March 31,
|                                                                                           |                                                  | 2001                         |        | 2002
|                                                                                           |                                                  |                              |        |     
|                                                                                           | (Dollars in thousands, except per share amounts)
|Net loss                                                                                   |                                                  |                              | (4,173 | )    |  |  | (7,564 | )
|Other
comprehensive income (loss)
Unrealized gain (loss) on available for sale
investments |                                                  |                              |       |      |  |  | (10    | )
|                                                                                           |                                                  |                              |        |      |  |  |        |  
|Comprehensive income (loss)                                                                |                                                  |                              | (4,173 | )    |  |  | (7,574 | )
|                                                                                           |                                                  |                              |        |      |  |  |        |  

See accompanying notes to unaudited condensed consolidated financial statements

3



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##### 



INFORMAX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

|                                                     |                                                                             |                                                                 |                                           |        |                        |        |         |         |     |       |  
|---------------------------------------------------- | --------------------------------------------------------------------------- | --------------------------------------------------------------- | ----------------------------------------- | ------ | ---------------------- | ------ | ------- | ------- | --- | ----- | -
|                                                     |                                                                             |                                                                 |                                           |        | Three Months ended    
|                                                     |                                                                             |                                                                 |                                           |        | March 31,             
|                                                     |                                                                             |                                                                 |                                           |        | 2001                   |        | 2002   
|                                                     |                                                                             |                                                                 |                                           |        |                        |        |        
|                                                     |                                                                             |                                                                 |                                           |        | (Dollars in thousands)
|Cash flows from operating activities:                |                                                                             |                                                                 |                                           |        |                        |        |         |        
|                                                     | Net loss                                                                    |                                                                 | $                                         | (4,173 | )                      |        | $       | (7,564  | )  
|                                                     | Adjustments to reconcile net loss to net cash
used in operating activities: |                                                                 |                                           |        |                        |        |         |         |    
|                                                     |                                                                             | Depreciation expense                                            |                                           |        | 442                    |        |         |         | 739 |      
|                                                     |                                                                             | Loss on disposal of property and equipment                      |                                           |        | 100                    |        |         |         | 15  |      
|                                                     |                                                                             | Expense related to stock options, restricted stock
and warrants |                                           |        | 267                    |        |         |         | 17  |      
|                                                     |                                                                             | Changes in assets and liabilities:                              |                                           |        |                        |        |         |         |     |      
|                                                     |                                                                             |                                                                 | Accounts receivable                       |        |                        | (1,138 | )       |         |     | 3,954 |  
|                                                     |                                                                             |                                                                 | Prepaid expenses and other current assets |        |                        | (643   | )       |         |     | 404   |  
|                                                     |                                                                             |                                                                 | Deposits                                  |        |                        | 301    |         |         |     | 49    |  
|                                                     |                                                                             |                                                                 | Accounts payable                          |        |                        | (282   | )       |         |     | 219   |  
|                                                     |                                                                             |                                                                 | Accrued liabilities                       |        |                        | 426    |         |         |     | (292  | )
|                                                     |                                                                             |                                                                 | Deferred revenue                          |        |                        | 652    |         |         |     | 176   |  
|                                                     |                                                                             |                                                                 |                                           |        |                        |        |         |        
|Cash flows from operating activities                 |                                                                             |                                                                 | (4,048                                    | )      |                        |        | (2,283  | )      
|                                                     |                                                                             |                                                                 |                                           |        |                        |        |         |        
|Cash flows from investing activities:                |                                                                             |                                                                 |                                           |        |                        |        |         |        
|                                                     | Purchase of available for sale investments                                  |                                                                 |                                           |       |                        |        |         | (22,624 | )  
|                                                     | Investment
in strategic alliance                                            |                                                                 |                                           |       |                        |        |         | (1,500  | )  
|                                                     | Purchase of property and equipment                                          |                                                                 |                                           | (2,918 | )                      |        |         | (278    | )  
|                                                     |                                                                             |                                                                 |                                           |        |                        |        |         |        
|Cash flows from investing activities                 |                                                                             |                                                                 | (2,918                                    | )      |                        |        | (24,402 | )      
|                                                     |                                                                             |                                                                 |                                           |        |                        |        |         |        
|Cash flows from financing activities:                |                                                                             |                                                                 |                                           |        |                        |        |         |        
|                                                     | Repayments on capital lease obligations                                     |                                                                 |                                           | (55    | )                      |        |         | (69     | )  
|                                                     | Repayments on borrowings                                                    |                                                                 |                                           | (213   | )                      |        |         | (213    | )  
|                                                     | Increase in restricted cash                                                 |                                                                 |                                           | (93    | )                      |        |         |        |    
|                                                     | Proceeds from share options exercised                                       |                                                                 |                                           | 266    |                        |        |         | 228     |    
|                                                     | Proceeds from stock issuance                                                |                                                                 |                                           | (119   | )                      |        |         | 1       |    
|                                                     |                                                                             |                                                                 |                                           |        |                        |        |         |        
|Cash flows from financing activities                 |                                                                             |                                                                 | (214                                      | )      |                        |        | (53     | )      
|                                                     |                                                                             |                                                                 |                                           |        |                        |        |         |        
|Net increase (decrease) in cash and cash equivalents |                                                                             |                                                                 | (7,180                                    | )      |                        |        | (26,738 | )      
|Beginning cash and cash equivalents                  |                                                                             |                                                                 | 82,656                                    |        |                        |        | 61,348  |        
|                                                     |                                                                             |                                                                 |                                           |        |                        |        |         |        
|Ending cash and cash equivalents                     |                                                                             | $                                                               | 75,476                                    |        |                        | $      | 34,610  |        
|                                                     |                                                                             |                                                                 |                                           |        |                        |        |         |        
|Supplemental cash flow information:                  |                                                                             |                                                                 |                                           |        |                        |        |         |        
|                                                     | Cash paid for interest                                                      |                                                                 | $                                         | 39     |                        |        | $       | 7       |    
|                                                     |                                                                             |                                                                 |                                           |        |                        |        |         |        

See accompanying notes to unaudited condensed consolidated financial statements.

4



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##### 



INFORMAX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE QUARTER ENDED MARCH 31, 2002

Note 1  Interim Financial Statements

The accompanying condensed consolidated financial statements of InforMax, Inc.
(the Company) have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information. These financial statements should be read together with the
audited financial statements and notes for the year ended December 31, 2001
contained in the Companys Annual Report on Form 10-K filed with the Securities
and Exchange Commission (SEC). Certain information and footnote disclosures
normally included in financial statements have been condensed or omitted. In
the opinion of the Companys management, the financial statements reflect all
adjustments necessary to present fairly the results of operations for the three
month periods ended March 31, 2002 and 2001, the Companys financial position
at March 31, 2002, and the cash flows for the three month periods ended March
31, 2002 and 2001. The results of operations for the interim periods are not
necessarily indicative of the results of the entire year.

In June 2001, the FASB issued SFAS No. 143 (SFAS 143), Accounting for Asset
Retirement Obligations. SFAS 143 addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets
and the associated asset retirement costs. SFAS 143 is effective for fiscal
years beginning after June 15, 2002. The adoption of SFAS No. 143 is not
expected to have any impact on the Companys financial position or results of
operations.

In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
of Long-Lived Assets, which supersedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
and the accounting and reporting provisions of APB No. 30, Reporting the
Results of Operations  Reporting and Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions for the disposal of a segment of a business. SFAS No. 144
retained many of the provisions of SFAS No. 121, but addresses certain
implementation issues associated with that Statement. The adoption of SFAS No.
144, effective January 1, 2002, had no impact on the Companys financial
position or results of operations.

Note 2  Investments

Available for sale investments at March 31, 2002 were as follows:

|                                                       |                |          |                  |                  |                |   |   |  |  |   |     |   |  |   |        | 
|------------------------------------------------------ | -------------- | -------- | ---------------- | ---------------- | -------------- | - | - |  |  | - | --- | - |  | - | ------ | 
|                                                       |                |          |                 
|                                                       |                | Adjusted | Gross Unrealized | Gross Unrealized | Estimated Fair
|                                                       |                | Cost     | Gains            | Losses           | Value         
|                                                       |                |          |                 
|                                                       | (in thousands)
|                                                       |                |          |                 
|Commercial Paper                                       |                | $        | 2,978            |                  |                | $ |  |  |  | $ |    |   |  | $ | 2,978  | 
|                                                       |                |          |                 
|United States Government
Agencies                      |                |          | 19,646           |                  |                |   |  |  |  |   | (10 | ) |  |   | 19,636 | 
|                                                       |                |          |                 
|Total available-for-sale
investments  current portion |                | $        | 22,624           |                  |                | $ |  |  |  | $ | (10 | ) |  | $ | 22,614 | 
|                                                       |                |          |                 
|                                                      
|                                                       |                |          |                 
|Preferred Stock                                        |                |          | 1,500            |                  |                |   |  |  |  |   |    |   |  |   | 1,500  | 
|                                                       |                |          |                 
|Total available-for-sale
investments                   |                | $        | 24,124           |                  |                | $ |  |  |  | $ | (10 | ) |  | $ | 24,114 | 
|                                                       |                |          |                 

The Companys investments consist primarily of investment-grade marketable debt
securities and redeemable convertible preferred stock in strategic alliances,
all of which are classified as available-for-sale and recorded at fair value.
Current available-for-sale marketable securities are carried at

5



---



##### 



their estimated fair value based on current market quotes. The fair value of
redeemable convertible preferred stock in TissueInformatics, Inc., as part of
our strategic alliance, is estimated based on current rates for instruments
with similar terms, degree of risk and remaining maturities. Unrealized holding
gains and losses are recorded, as a separate component of accumulated other
comprehensive income.

Note 3  Commitments and Contingencies

Employment Agreements  Certain employees have employment agreements that
entitle them to two weeks of severance in case of termination. In addition,
three senior executive officers and two officers of the Company have employment
agreements that entitle these individuals to specified amounts of severance if
such individuals are terminated.

Government Audits  Payments to the Company on subcontracts with prime U.S.
Government contracts are subject to adjustment upon audit by various agencies
of the U.S. Government. No audits of costs and the related payments have been
performed by the various agencies. At March 31, 2002, there were no liabilities
accrued related to the billing in excess of cost. In the opinion of management,
the final determination of these costs and related payments will not have a
material effect on the Companys financial position, results of operations, or
liquidity.

Litigation  In the ordinary course of conducting its business, the Company
becomes involved in litigation and administrative proceedings.

On November 28, 2001, the Company received notice that Barry S. Kantrowitz
initiated a securities class action lawsuit in the United States District
Court, Southern District of New York against eight underwriters of the
Companys initial public offering, the Company, and two former executive
officers of the Company.

Similar complaints have been filed against approximately 310 other issuers that
have had initial public offerings since 1998 and all such actions have been
included in a single coordinated proceeding for pre-trial purposes. A
consolidated amended complaint was filed on approximately April 19, 2002. The
amended complaint alleges, among other things, that certain of the underwriters
of the Companys initial public offering violated the securities laws by
failing to disclose certain alleged compensation arrangements (such as
commissions paid to them by the underwriters customers) in the offerings
registration statement and by engaging in manipulative practices to
artificially inflate the price of the Companys stock in the after-market
subsequent to the IPO. The Company is named in the amended complaint pursuant
to Section 11 of the Securities Act of 1933, and Section 10(b) and Rule 10b-5
of the Securities Exchange Act of 1934 on the basis of an alleged failure to
disclose the underwriters alleged compensation arrangements and allegedly
manipulative practices. The complaint seeks unspecified damages.

The Company believes that meritorious defenses to these claims are available
and intends to vigorously contest and defend against them. However, due to
the inherent uncertainties of litigation, the Company cannot accurately predict
the ultimate outcome of the litigation. Any unfavorable outcome of this
litigation could have a negative impact on the Companys business, financial
condition, results of operations or cash flows.

Note 4  Related Party Transaction

In the quarter ended March 31, 2002 the Company wrote off a related party
receivable of $0.2 million.

6



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Note 5  Restructuring

The Company announced two restructurings of its operations effective January
2002 and May 2002. In connection with these restructurings a $0.78 million
charge was recorded in the quarter ended March 31, 2002 and a $0.5 million
charge is expected to be recorded in the quarter ending June 30, 2002. The
first quarter charge consisted of cash severance and related payroll costs of
$0.54 million and legal and other services fees of $0.24 million for over 30 terminated employees. The second quarter charge is
expected consist of cash severance and related payroll costs of approximately
$0.4 million and legal and outplacement fees of approximately $0.1 million for
over 30 terminated employees. Approximately, $0.03 million of the first quarter
charge remains unpaid and is included in accrued expenses as of March 31,
2002.

Risk Factors

Statements in this report that are not strictly historical are
forward-looking statements, which involve a high degree of risk and
uncertainty. Such statements are only predictions, and the actual events or
results may differ materially from those projected in such forward-looking
statements. Factors that could cause or contribute to differences include, but
are not limited to, the risks detailed below. These factors and others are more
fully described in our Annual Report on Form 10-K, as filed with the Securities
and Exchange Commission on April 2, 2002.

We must develop software products that keep pace with rapid technological
advances, that are cost effective to produce and for which there is a market
growth opportunity. Our inability to produce such products will cause our
competitive position to suffer, our products to be less attractive to customers
and adversely affect our revenues and results of operations.

The market for our life science informatics products is in the midst of
rapid technological change. Advances in life science research include the
expanded use and application of proteomic data and its increasing availability
to researchers. In order for us to maintain a competitive position in our
industry and develop and market life science informatics software products that
are attractive to customers, we must:



| |  |  | Continue to enhance the analytical functions, versatility and
ease of use of our existing software products;                                                                                  
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Expand the functions of our existing software products to
ensure that they enable researchers to work with new biomolecular
data, including proteomic data, in various formats;               
|
| |  |  | Continue to be involved with and receive feedback from our
customer relating to their life science informatics and discovery
needs and preferences; and                                       
|
| |  |  | Develop and introduce new software products and complementary
services that meet evolving customer needs and preferences and
incorporate new life science and information technology advances.

Difficulty in our ability to address these factors could result in our
informatics software products being unable to keep pace with technological
change and the needs and preferences of the evolving market for life science
informatics.

We may not be able to identify in a timely manner important evolving
industry standards and may invest considerable financial resources and research
and development time in technologies that rapidly become obsolete or for which
there is a waning, or no, commercial market.

7



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We have recently announced a product development strategy that will
include a stronger emphasis upon leveraging and building upon our desktop
software product. There can be no assurance that these products will be more
attractive to customers than the products of our competitors. Even if our
products gain market acceptance, they may become obsolete due to our
competitors introduction of products containing advanced technology,
applications and functionality. If we do not keep pace with technological
change and produce cost effective software products in growth markets, our
competitive position and revenue from software sales would be seriously harmed.

We must add new customers and retain and expand upon existing customer
relationships in order to generate revenues to support the growth of our
business.

In order to generate revenues sufficient to support research and
development for new products, expanded professional services and continued
growth of our business, we must add new customers and retain, and expand upon,
our existing customer relationships. These efforts depend significantly upon
our successful development of new products, product versions and complementary
professional services that respond to the evolving needs of the genomic
research community, as well as the success of our sales and marketing efforts.
In addition, our ability to avoid a decline in our revenues in 2002 in
comparison to 2001 is heavily dependent upon the level of sales of our GenoMax
enterprise product. At March 31, 2002, we had 41 customers of our GenoMax
product, however we did not close any sales of GenoMax in the quarter ended
March 31, 2002. GenoMax sales are significantly dependent upon the enhancement
and improvement of our enterprise product and the ability of our sales force to
leverage our existing Vector NTI franchise. If we are unable to add revenues
from additional or expanded customer relationships, particularly as such
revenues relate to GenoMax sales, we may experience a decline in 2002 revenues
in comparison to 2001 and the growth of our business could suffer.

If we cannot effectively manage our growth, our future prospects and results of
operations would be harmed.

In recent years, we have experienced significant growth in the size of our
customer base and the scope of our products and services. During this same
period, we have also experienced an increase in our headcount and significant
turnover in our senior management personnel. These factors have placed, and
will continue to place a significant strain on our management and our
administrative, financial and operational systems. Efforts to more efficiently
manage the growth of our business or reduce expenses, including restructuring
our organization, reducing our headcount, closing offices or reducing or
eliminating certain administrative functions, often result in increased
near-term expenses. In January 2002, in an effort to streamline our
organization and reduce costs, we reduced our headcount by over 30 employees, or
approximately 14% of our work force. As a result of this reduction, we incurred
an accounting charge of approximately $0.78 million in the first quarter of
2002. In May 2002, in an effort to further streamline our organization and more
closely align our resources with our current product delivery strategy we
further reduce our headcount by over 30 employees, or approximately 15% of our
work force. As a result, we expect to incur an accounting charge of $0.5
million in the second quarter of 2002. Our ability to manage our growth, and
our expenses related to this growth, will depend upon the ability of our
officers and key employees to continue to implement and improve our
operational, administrative and financial control systems and to expand, train
and manage our workforce. Our inability to manage this growth effectively would
negatively impact our future prospects and results of operations.

8



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We have incurred operating losses in the past resulting in an accumulated
deficit and may not achieve or maintain profitability in the
future.

We have incurred operating losses in most periods since our inception. We
incurred net losses of approximately $8.0 million for the quarter ended March
31, 2002 and approximately $4.0 million for the quarter ended March 31, 2001.
As of March 31, 2002, we had an accumulated deficit of approximately $42.0
million. A considerable portion of our expenses are fixed and consist of
contractual obligations related to operating leases, primarily associated with
our office space leases. For expense analysis and a discussion of our
contractual obligations related to leases see Item 7, Managements Discussion
and Analysis of Financial Condition and Results of Operations
included in our Annual Report on Form 10-K filed with the SEC on
April 2, 2002. We expect to invest substantial financial and other resources to:



| |  |  | Execute our product development strategy, including the
development and introduction of new products and product versions;
| | - |  | --------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Expand our professional service offerings; and                                                                            
|
| |  |  | Consider appropriate acquisitions and strategic relationships.                                                            

As a result, we expect that our expenses will continue to increase. We
cannot assure that we will be able to generate sufficient additional revenues
from these investments in new products and services in order to achieve
profitability. Even if we are able to achieve profitability, we may not be able
to sustain profitability on a quarterly or annual basis. Failure to achieve
consistent profitability may limit the growth potential of our business and the
trading price of our common stock.

The continued enhancement and development of our life science informatics
products and related services depend upon the retention of our research and
product development group and our ability to recruit, motivate and retain
highly skilled research and development personnel.

The number of technical personnel with experience in the field of life
science informatics is limited and competition for qualified employees is
intense. In connection with our January and May 2002 headcount reductions, we
reduced the size of our research and development staff to 73 employees from 93
employees at December 31, 2001. There can be no assurance that such reductions
will not be disruptive to or negatively impact our product development strategy
and its implementation. We are also unsure of the effect that such reduction
may have on our personnel retention efforts or the continuity of our
development efforts. We may not be successful in motivating or retaining our
technical employees or recruiting and training additional skilled personnel.
The loss of a significant number of employees in our research and product
development group, occurring at one instance or over a period of time, could
seriously harm our product development and enhancement efforts.

If we are unable to collect receivables from our development stage biotech and
life science customers, our operating results may be materially harmed.

We frequently license our informatics software to smaller, development
stage biotech and life sciences customers. Often these customers have a
limited, or no operating history and require considerable funding to launch
their business. As a result, transactions with these customers carry a higher
degree of financial risk. Our customers, particularly our development stage
customers, are also vulnerable to, and may be impacted by, the current
tightening of available credit and general economic slowdown that has occurred
in the United States. As a result of these conditions, our customers may be
unable to pay, or may delay payment, for software products purchased from us.
If we are not able to collect such amounts, we may be required to write-off
significant accounts receivable and recognize bad debt expense. We recorded a
provision for doubtful accounts of $0.8 million for the quarter ended March 31,
2002 compared to $0.3 million for the quarter ended March 31, 2001. Write-offs
and difficulties associated with collection of receivables from these customers
could materially harm our operating results.

9



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Revenue recognition rules applicable to software may require that we defer
recognizing revenues under certain licenses until quarters after licenses are
executed or fees are received. This can cause our quarterly results to
fluctuate substantially.

We may not be able to recognize revenue associated with a particular
software license in the same quarter in which we enter into the agreement or in
which we collect licensing fees. Under some of our licenses we must deliver to
a customer an enhanced product version or additional module, and therefore we
must defer recognizing any payment previously received until delivery of all
contract elements are made. If we are not able to release future modules as
scheduled, we will be required to defer the recognition of a significant amount
of revenues to quarters after those in which we collect licensing fees.

Our software sales have historically been made under perpetual and term
license agreements. Under perpetual arrangements, the customer assumes
ownership of the software, and upgrades and enhancements are available provided
that the customers maintenance agreement is current. The revenue related to
the software element under a perpetual arrangement is often recognized at the
time of delivery of the software. Under our term arrangements, which typically
run one to three years, our customer does not assume ownership of the software
at delivery. Instead, customers use the software over the term period and are
required to return it upon the non-renewal of the term arrangement. The revenue
related to the software element under the term arrangement may be recognized
over the term period. As discussed more fully in the revenue section of Item 7,
Managements Discussion and Analysis of Financial Condition and Results of
Operations contained in our Annual Report on Form 10-K filed
with the SEC on April 2, 2002, our ability to recognize software license revenues in a given
fiscal quarter will be affected by the mix of perpetual and term contracts
entered into during that period.

Some of our software license arrangements have payment terms that extend
past twelve months. As a result, a portion of the revenue from such sales is
deferred due to not being able to determine if the fees are fixed and
determinable. We do not have sufficient history to overcome the presumption
that the fees are fixed and determinable. Of our deferred revenue
balance at March 31, 2002, $2.0 million has been deferred on this basis.

Expenses associated with software licenses, unlike revenues, are not
typically deferred. The manner in which we recognize revenue, in accordance
with the revenue recognition rules applicable to software under generally
accepted accounting principles, may therefore cause us to incur a
disproportionate amount of expense related to the software revenue that may be
recognized, and as a result our quarterly operating results to fluctuate
substantially.

We expect our results of operations to vary from quarter to quarter in 2002 and
future periods as a result of the timing and seasonality of our software sales,
particularly our GenoMax sales. These fluctuations make it difficult to
evaluate our business, manage our costs and could cause instability in our
stock price.

Our quarterly operating results have varied considerably in the past and
we anticipate that our operating results will fluctuate on a quarterly basis in
2002 and in the future as a result of a number of factors, many of which are
outside of our control. Factors that may cause our quarterly results to
fluctuate include the following:



| |  |  | The number and timing of orders for our GenoMax enterprise
product;                                  
| | - |  | -----------------------------------------------------------------------------------------------------
|
| |  |  | The changes in the level of research and development expenses
or public funding for genomic research;

10



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| |  |  | The timing of license and other payments received under our
agreements and applicable revenue recognition rules;                                                 
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The seasonal fluctuations of software procurement,
particularly for life science informatics software;                                                           
|
| |  |  | The timing of, commencement, delay, cancellation or
completion of our software licensing agreements, strategic
relationships and professional service activities;
|
| |  |  | The amount of deferred revenue recognized from software sales in prior periods; and                                                                              
|
| |  |  | The introduction or cancellation of products and services by our competitors and us.                                                                             

As a result of the academic calendar, European business practices and
commercial information technology procurement practices, we generally
experience a reduction in sales in the third quarter of each calendar year that
typically results in a corresponding reduction in operating revenues. We
generally establish expenditure levels for future operating expenses, including
research and development and personnel related expenses, based in large part on
expected future revenues. If revenues fall below expectations in a given
quarter, our expenses would disproportionately increase and our operating
results would be adversely affected.

Due to the factors described above and other risks discussed herein, you
should not rely upon quarterly comparisons of our financial results. These
comparisons are not necessarily meaningful nor are they a reliable indicator of
our future performance. As a result of fluctuations in our quarterly results,
the market price of our common stock may be subject to significant fluctuation
and volatility.

The market for informatics products and services is intensely competitive and
evolving and we may not achieve or maintain market leadership for a variety of
reasons.

We face, or expect to face, intense competition from:



| |  |  | Third party commercial software and information technology vendors;               
| | - |  | ----------------------------------------------------------------------------------
|
| |  |  | Informatics developers;                                                           
|
| |  |  | Internal informatics departments of some of our customers and potential customers;

We believe that we
compete most often with LION biosciences, Accelerys, Compugen, DNA
Star, and Rosetta Inpharmatics (acquired by
Merck in 2001). Others, including large, well-established software
vendors, could readily enter this market. Many of our competitors have longer
operating histories, stronger name recognition and significantly greater
financial, technical and marketing resources than we do. As a result of these
advantages, our competitors may be better able to adopt more aggressive pricing
policies and better positioned to respond to changes in customer preference or
technology. To the extent that we are required to compete aggressively with
such organizations as it relates to the pricing of our software products, we
may not be able to achieve or maintain the margins historically realized on our
software sales.

In order to remain competitive, we believe that we must continue to expand
and enhance the functionality of our informatics software products and respond
timely and effectively to evolving industry standards or technology. In an
intensely competitive, technology driven business like ours, there is no
certainty that market leadership can be obtained or maintained for any
sustainable period.

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Our sale of life science informatics software products and services could
suffer if there are reductions in research and development expenditures of our
customers and public funding related to genomic research.

Sales of our products and services could suffer as a result of reductions
in customer research and development expenditures and public funding related to
genomic research. State and federal government budgets, including academic and
research institutes supported thereby, have experienced an increase in
allocations and spending related to genomic research in recent years. We have
correspondingly experienced an increase in the number of public institutions
among our customer base. Shifting budget priorities, specifically related to
recent national defense efforts, could result in the reduction or elimination
of certain publicly funded research efforts. Our continued services to the NCBI
and sales of our informatics software products to other government and academic
institutions could be negatively affected by reductions in such public funding.

Part of our business strategy is to develop strategic relationships with larger
life sciences or technology companies, as well as providers of complementary
products and services. If we are not successful in doing so, our results of
operations could suffer.

A component of our business strategy is to develop strategic relationships
with larger life sciences or technology companies as well as providers of
complementary products and services. We believe that through such relationships
we can add revenues, expand our distribution channels, maximize our research
and development resources, improve our competitive position and increase market
awareness and acceptance of our life science informatics software products. We
have limited experience in engaging in and managing such relationships and have
entered into only a few of these strategic relationships. To date, we have not
recognized significant revenues as a result of any such relationship. In
January 2002, we entered into scientific collaboration with TissueInformatics,
Inc. in which we will seek to collaborate on the development and validation of
software tools to integrate and analyze genomic and tissue data from digital
tissue images. In connection with this collaboration, we invested $1.5 million
in TissueInformatics for an approximately 5% ownership interest at the time of
our investment. We also received observation rights on the board of directors
of TissueInformatics and will serve on their scientific advisory board. We have
no prior experience in assessing, making or managing investments in other
companies and there can be no assurance that our investment in
TissueInformatics will prove to be successful. If we are unable to successfully
develop and effectively manage our strategic relationships, including our
current investment or similar future investments, we could experience increased
costs and distraction of our management team that could harm our results of
operations. There can be no assurance that such relationships or collaborations
will ever yield the desired financial or competitive results sought by our
management.

We may consider acquisitions or strategic investments. We have limited
experience with these activities and the costs and distractions from these
activities could harm our future growth.

We may consider acquiring businesses, technologies or products that we
believe are a strategic fit with our business and strategy. We only have
limited experience with these activities and our assessment of such
opportunities could cause us to incur increased expenditures. If appropriate
opportunities become available, we could also issue additional equity
securities that would dilute current stockholders ownership, or incur
substantial debt to finance such transactions. Methods of financing any
acquisitions or strategic investments could result in a negative impact on our
financial condition. We may have difficulties integrating the businesses,
products, technologies or personnel involved in any acquisition or strategic
investment. Our integration efforts may result in significant expenditures of
operating, financial and management resources that could materially and
adversely affect our business. Acquisitions involve many other risks, including
potential loss of

12



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key employees or customers, the assumption of significant liabilities, and
the amortization of the intangible assets of acquired companies. As a result of
these and other risks, any acquisitions or strategic investments may ultimately
have a negative impact on our business, results of operation and financial
condition.

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Special Note Regarding Forward Looking Statements

Certain statements contained in Managements Discussion and Analysis of
Financial Condition and Results of Operations and other sections herein,
including statements regarding our product development strategy, the markets
for our products and services, our anticipated revenues and expenditures, and
other similar statements are forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995) which can be
identified as any statement that does not relate strictly to historical or
current facts. Forward-looking statements use such words as plans,
expects, will, will likely result, are expected to, will continue,
is anticipated, estimate, project, believes, anticipates, intends,
may, should, continue, seek, could and other similar reasonable
expressions. Although we believe that our expectations are based on reasonable
assumptions, we can give no assurance that our expectations will be achieved.
The important factors that could cause actual results to differ materially from
those in the forward-looking statements herein include the risk factors
identified in the preceding Risk Factors section, as well as other risks
referenced from time to time in our filings with the SEC, including our Annual
Report on Form 10-K, filed April 2, 2002. We do not undertake any obligation
to release publicly any revisions to such forward-looking statements to reflect
the occurrence of unanticipated events.

The following discussion and analysis should be read in conjunction with
our condensed consolidated financial statements and notes thereto included
herewith, and with our Managements Discussion and Analysis of Financial
Condition and Results of Operations and audited consolidated financial
statements and notes thereto for the year ended December 31, 2001, included in
our Annual Report on Form 10-K filed with the SEC on April 2, 2002.

Overview

We are a leading global provider of informatics software solutions to the
life sciences industry. Our software solutions enable more efficient and
accelerated analysis and interpretation of genomic, proteomic and other
biomolecular data for application in pharmaceutical, therapeutic and diagnostic
development. As of March 31, 2002, we had more than 32,000 estimated users of
our market leading Vector NTI Suite of desktop software applications and had
sold 41 GenoMax enterprise platforms. As of March 31, 2002, our customer base
included over 1,900 organizations worldwide, including over 800 biotechnology,
pharmaceutical and agricultural biotechnology and life science companies, and
over 1,100 academic and government research institutions. Our 10 largest
customers accounted for approximately 18% and 50% of our total software license
revenues for the quarters ended March 31, 2002 and 2001, respectively.

Since beginning commercial operations in 1993, we have dedicated
substantial financial and personnel resources toward the expansion and
enhancement of our software product portfolio in an effort to provide customers
with the components necessary to achieve a comprehensive High Throughput
Research environment. In March 2002, we commercially released Vector NTI Suite
7.1, which includes improved integration with Vector Enterprise, our shared
relational database, and support of greater connectivity with Xpression NTI. We
anticipate commercially releasing Vector

13



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NTI Suite 8.0 in the third quarter of 2002, which we expect to incorporate
certain features and functions useful in the GenoMax environment, and intend to
roll out additional enhanced desktop applications beginning in the fourth
quarter of 2002. In February 2002, we also commercially released GenoMax 3.3,
which includes enhanced features such as increased GenBank data storage,
accelerated initial data loading and indexing, improved administrative
capabilities and our Gene Expression Analysis II module. GenoMax 3.4, a
significant upgrade of our existing product, is currently in the final
development stage and is expected to be released late in the second quarter of
2002. We anticipate commercially releasing Vector Enterprise 2.0, our desktop
product that incorporates a shared relational database, in the third quarter of
2002. We intend to develop Linux and Oracle versions of our enterprise products
in an effort to enhance the flexibility and affordability of our enterprise
product to customers. We have recently reviewed our product development
strategy and expect that our future product development will include a stronger
emphasis in building upon and leveraging our Vector NTI Suite software to
develop and market enhanced desktop applications.

Over the last year, we have experienced significant turnover in our
executive management ranks. On March 13, 2002, we announced our hiring of
Andrew Whiteley, a member of our Board of Directors and the Vice President of
Bioinformatics of Amersham Biosciences Corp., to become our new Chief Executive
Officer, President and Chairman of the Board of Directors. Dr. Titomirov, our
founder, resigned as our Chief Executive Officer and Chairman upon Mr.
Whiteleys hiring. During the past year we have also endeavored to assess the
allocation of resources across our organization, implement tighter cost
controls and improve the productivity of our organization. Consistent with our
strategy to reduce costs and to establish a high performance organization, in
January 2002, we reduced our work force by over 30 employees, or approximately
14% of our full-time staff at the time. As a result, we incurred a charge of
approximately $0.78 million, consisting of cash severance and related payroll
costs of $0.54 million and legal and other services fees of $0.24 million, in the first quarter of 2002. At March 31, 2002
our headcount was 219 employees, down from 262 employees at December 31, 2001.
In an effort to further streamline our organization and better align our
resources and cost structure with what we believe to be our near-term market
opportunities, we conducted a second work force reduction in May 2002 of over
30 additional employees, or approximately 15% of our full-time staff at the
time. We estimate that we will incur a charge of approximately $0.5 million,
consisting of cash severance and related payroll costs of approximately $0.4
million and legal and outplacement fees of approximately $0.1 million, in the
second quarter of 2002. We believe that these actions will better enable us to
conserve our cash position and to focus our organizational efforts on the
delivery of new products under our product development strategy.

We have continued to execute our corporate strategy of evaluating and
establishing key alliances and marketing relationships with other leading
companies and providers of complementary products and services in an effort to
expand the scope of our product offerings and increase market penetration of
our software solutions. In January 2002, we entered into a scientific and
business collaboration with TissueInformatics, Inc., an innovative provider of
imaging and image analysis solutions for pre-clinical and clinical pathology.
Under our 3-year collaboration agreement, InforMax and TissueInformatics will
apply quantitative tissue data derived from digital tissue images in
conjunction with gene expression and protein function data to understand the
molecular toxicological effects of pharmaceutically relevant compounds. We will
also collaborate with TissueInformatics on the development and validation of
software tools to integrate and analyze tissue and genomic data. In addition to
our scientific collaboration, we invested $1.5 million in a redeemable
convertible preferred stock financing completed by TissueInformatics for an
approximately 5% interest in TissueInformatics outstanding stock at the time
of such financing. We also have observation rights on TissueInformatics Board
of Directors and will participate on their Scientific Advisory Board.

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Trends That Have Affected or May Affect Results of Operations and Financial Condition

Our revenues for the year ended December 31, 2001 represented a 47%
increase over the same period in 2000. Our revenues for the year ended
December 31, 2000 represented a 71% increase over the same period in 1999. Our
revenues for the quarter ended March 31, 2002 represented a 43% decrease
compared to revenues achieved for the same quarter of 2001. As a result of a
number of factors, including those set forth below, we anticipate experiencing
a decline in revenues, particularly software license revenues, in 2002 compared
to 2001. We believe that our decline in first quarter 2002 revenues is
primarily attributable to the fact that there were no GenoMax sales during the
quarter. While we believe that this primarily resulted from delayed and
deferred purchasing decisions by potential customers, and we intend to release
GenoMax 3.4 containing significant enhancements to our existing product late in
the second quarter of 2002, there can be no assurance that our current product
development strategy will not adversely affect our ability to enter into
additional GenoMax licenses. Due to the manner in which we recognize revenues
from GenoMax sales, a decline in GenoMax sales would result in a considerable
reduction in near term revenues, compared to 2002, as well as a reduction in
revenues in future quarters as a result of the loss of deferred revenue
associated with such sales. By way of example, of our $2.8 million in software
license revenue for the quarter ended March 31, 2002, $0.6 million resulted
from deferred revenue from GenoMax sales in prior periods. We anticipate
recognizing over the next 12 months deferred revenue of $1.7
million from GenoMax sales
in prior periods.

In addition, we have continued to see tightened capital markets, which,
among other things, have contributed to a considerable slowdown in software and
information technology spending by biotechnology companies. Our ability to
grow our revenues depends upon continued growth and availability of capital to
biotechnology companies and increased spending by such market participants. We
believe that our revenue growth in prior periods, was buoyed, at least partly,
by higher than typical spending by biotechnology companies. Government and
academic spending on life sciences, however, has remained relatively strong.
As a result, we anticipate that a higher concentration of our customers may
consist of government and academic life science institutions than in prior
periods.

Quarterly Fluctuations

Our quarterly operating results have historically fluctuated and we
anticipate such results to continue to fluctuate significantly. Factors that
may cause our quarterly results to fluctuate include the timing, commencement,
delay, cancellation or completion of our:



| |  |  | Software licensing agreements, particularly relating to GenoMax sales;            
| | - |  | ----------------------------------------------------------------------------------
|
| |  |  | Product delivery schedules;                                                       
|
| |  |  | Strategic relationships; and                                                      
|
| |  |  | Professional service activities, including installation and
software modification.

The number and timing of customer orders for our GenoMax enterprise
product will cause our results of operations to fluctuate on a near-term basis,
compared to 2001, as well as in future periods, due to the level of deferred
revenue recognized.

The manner in which we recognize revenue, in accordance with generally
accepted accounting principles, including the way in which revenue recognition
relates to our mix of term and perpetual software arrangements in a given
quarter, might also cause our quarterly operating results to fluctuate
substantially. In accordance with these principles, we may be required to defer
all or a portion of the revenue from some of our software licenses sold in a
particular quarter to a later quarter. Expenses associated with software
licenses are not typically so deferred. For our

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maintenance contracts and professional services, we typically recognize
revenues over the term of the contract.

As a result of the academic calendar, European business practices and
commercial information technology procurement practices, we generally
experience a reduction in sales in the third quarter of each calendar year,
which typically results in a corresponding reduction in operating revenues. Due
to the factors described above and other risks, quarterly comparisons of our
financial results should not be relied upon as these comparisons are not
necessarily meaningful nor are they a reliable indicator of our future
performance.

Results of Operations

The following table summarizes our results of operations for the three
months ended March 31, 2002, compared to the same period of 2001, as a
percentage of our total revenue for the respective period.

|                         |                                       |                              |     |                    |     |      |      |     |     | 
|------------------------ | ------------------------------------- | ---------------------------- | --- | ------------------ | --- | ---- | ---- | --- | --- | 
|                         |                                       |                              |     | Three Months Ended
|                         |                                       |                              |     | March 31          
|                         |                                       |                              |     | 2001               |     | 2002
|                         |                                       |                              |     |                    |     |     
|Revenues:                |                                       |                              |     |                    |     |      |      |    
|                         | Software license and customer support |                              |     | 86                 | %   |      |      | 74  | %  
|                         | Professional services                 |                              |     | 14                 |     |      |      | 26  |    
|                         |                                       |                              |     |                    |     |      |      |    
|                         |                                       | Total revenues               |     |                    | 100 |      |      |     | 100 | 
|Cost of revenues:        |                                       |                              |     |                    |     |      |      |    
|                         | Software license and customer support |                              |     | 8                  |     |      |      | 4   |    
|                         | Professional services                 |                              |     | 7                  |     |      |      | 12  |    
|                         |                                       |                              |     |                    |     |      |      |    
|                         |                                       | Total cost of revenues       |     |                    | 15  |      |      |     | 16  | 
|Gross profit             |                                       |                              | 85  |                    |     |      | 84   |    
|Operating expenses:      |                                       |                              |     |                    |     |      |      |    
|                         | Selling                               |                              |     | 42                 |     |      |      | 68  |    
|                         | General and administrative            |                              |     | 83                 |     |      |      | 109 |    
|                         | Research and development              |                              |     | 30                 |     |      |      | 77  |    
|                         | Stock based compensation              |                              |     | 4                  |     |      |      |    |    
|                         | Depreciation and amortization         |                              |     | 7                  |     |      |      | 20  |    
|                         | Restructuring                         |                              |     |                   |     |      |      | 21  |    
|                         |                                       |                              |     |                    |     |      |      |    
|                         |                                       | Total operating expenses     |     |                    | 166 |      |      |     | 295 | 
|                         |                                       |                              |     |                    |     |      |      |    
|Loss from operations     |                                       |                              | (81 | )                  |     |      | (211 | )  
|Other income (expense):  |                                       |                              |     |                    |     |      |      |    
|                         | Investment earnings                   |                              |     | 18                 |     |      |      | 9   |    
|                         | Interest expense and other            |                              |     | (1                 | )   |      |      | (1  | )  
|                         |                                       |                              |     |                    |     |      |      |    
|                         |                                       | Total other income (expense) |     |                    | 17  |      |      |     | 8   | 
|                         |                                       |                              |     |                    |     |      |      |    
|Loss before income taxes |                                       |                              | (64 | )                  |     |      | (203 | )  
|Income tax benefit       |                                       |                              |    |                    |     |      |     |    
|Net loss                 |                                       |                              | (64 | )%                 |     |      | (203 | )% 
|                         |                                       |                              |     |                    |     |      |      |    

Three Months ended March 31, 2002 compared to Three Months ended March 31, 2001

Revenues. For the quarter ended March 31, 2002, revenues decreased 43% to
$3.7 million from $6.6 million in the corresponding period of 2001.

Software segment sales revenue decreased 51% to $2.8 million for the
quarter ended March 31, 2002 from $5.7 million in the corresponding period of
2001. Vector NTI Suite bookings decreased 7% to $3.0 million for the quarter
ended March 31, 2002 from $3.2 million in the corresponding period of 2001.
Vector NTI Suite sales revenue decreased 25% to $2.2 million for the quarter
ended March 31, 2002 from $2.9 million in the corresponding period of 2001.
There were no GenoMax bookings for the quarter ended March 31, 2002 compared to
$2.9 million for the corresponding period of 2001. GenoMax sales revenue
decreased 77% to $0.6 million for the quarter ended
March 31, 2002

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from $2.8 million in the corresponding period of 2001. We believe our
software sales revenue shortfall is attributed primarily to customers delaying
purchase decisions for our GenoMax enterprise product as well as reduced
spending by and lack of available capital for biotechnology companies.

Professional services segment revenue increased 3% to $0.95 million for
the quarter ended March 31, 2002 from $0.93 million in the corresponding period
of 2001. In the first quarter of 2002, services provided to the NCBI under
subcontracts accounted for 78% of professional services revenue and 20% of
consolidated revenues.

Cost of Revenues. For the quarter ended March 31, 2002, cost of revenues
decreased 39% to $0.6 million from $1.0 million in the corresponding period of
2001.

Costs of software license and customer support segment revenue decreased
72% to $0.1 million for the quarter ended March 31, 2002 from $0.5 million in
the corresponding period of 2001. Costs of software segment revenues include
manufacturing costs incurred on an as needed basis, cost of product resale,
cost of shipping products, and providing customer support. Reduction in costs
of software license and customer support is primarily attributed to reduced
expenses associated with our January 2002 work force reduction and efforts to
implement tighter costs controls initiated in 2001.

Costs of professional services segment revenues decreased 4% to $0.45
million for the quarter ended March 31, 2002 from $0.47 million in the
corresponding period of 2001. Costs of professional services segment revenues
consist primarily of salaries, benefits, and related expenses of our
professional services personnel. We expect the cost of professional services to
increase substantially as we increase our infrastructure to expand our
professional service to include contract development opportunities and
value-added consulting services related to bioinformatics technology, including
IT customization and implementation services and collaborative discovery.

Selling Expenses. For the three months ended March 31, 2002, selling
expenses decreased 8% to $2.6 million from $2.8 million in the corresponding
period of 2001. This decrease primarily reflects a decrease in our sales force
headcount. Overall sales headcount for the quarter ended March 31, 2002 was 52
compared to 66 in the corresponding period in 2001.

General and Administrative Expenses. For the three months ended March 31,
2002, general and administrative expenses decreased 26% to $4.0 million from
$5.4 million in the corresponding period of 2001. Overall general and
administrative headcount for the quarter ended March 31, 2002 was 41 compared
to 54 in the corresponding period in 2001.

Research and Development Expenses. For the three months ended March 31,
2002, research and development expenses increased 44% to $2.9 million from $2.0
million in the corresponding period of 2001. This increase is primarily due to
increased compensation expense, which includes accrued bonuses. Overall
research and development headcount for the quarter ended March 31, 2002 was 99
compared to 96 in the corresponding period in 2001.

Stock Based Compensation. For the three months ended March 31, 2002, stock
based compensation expenses decreased 93% to $0.02 million from $0.3 million in
the corresponding period of 2001. The decrease is a result of
terminated employees that had been granted discounted stock options
in prior periods. The related unamortized deferred compensation was
adjusted through deferred compensation and
additional paid in capital.

Depreciation and Amortization. For the three months ended March 31, 2002,
depreciation and amortization expenses increased 67% to $0.7 million from $0.4
million in the corresponding

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period of 2001. The increase reflects the depreciation related to the
building out of our new headquarter office space and expansion of our network
infrastructure.

Other Income (Expense). For the three months ended March 31, 2002, other
income decreased 72% to $0.3 million from $1.2 million in the corresponding
period of 2001. The decrease is primarily due to a decrease in interest rates and
a decrease in our cash balance.

Net Loss. We incurred a net loss of $8.0 million for the three months
ended March 31, 2002, compared with a net loss of $4.2 million for the three
months ended March 31, 2001. Net loss in the quarter was primarily
attributable to the decrease in software sales revenue in the quarter.

Liquidity and Capital Resources

At March 31, 2002, we had $34.6 million in cash and cash equivalents, and
$22.6 million in available for sale investments. Our available for sale
investments include commercial paper and United States Government securities.
At March 31, 2001 we had $75.5 million in cash and cash equivalents. Net cash
used in financing activities was $0.05 million for the quarter ended March 31,
2002 compared to net cash provided by financing activities of $0.2 million for
the comparable period in 2001.

We believe that the net proceeds from our initial public offering, our
cash flows from operations and our existing capital resources will be adequate
to fund our operations for the next 24 months, although we may seek to raise
additional capital during that period. We may require additional funding to
execute our business strategy. If that funding is not available, or not
available on terms acceptable to us, we may be required to curtail certain
marketing and product development efforts.

During the quarters ended March 31, 2002 and 2001, we generated $8.2
million and $7.3 million of cash receipts from operating activity,
respectively. Gross cash used by operations for the quarter ended March 31,
2002 was $10.5 million compared to $11.2 million for the quarter ended March
31, 2001. The net decrease in cash disbursements relates primarily to
infrastructure expenses associated with the relocation of our headquarters
office during the quarter ended March 31, 2001.

Net cash used in investing activities was $24.4 million for the quarter
ended March 31, 2002 compared to net cash used in investing activities of $2.9
million for the comparable period in 2001. This increase is primarily due to
our investment of cash in available for sale investments, which include
commercial paper and United States Government securities. In January 2002, we
also entered into a scientific and business collaboration with
TissueInformatics, Inc., an innovative provider of imaging and image analysis
solutions for pre-clinical and clinical pathology. In addition to our
scientific collaboration, we invested $1.5 million in a redeemable convertible
preferred stock financing completed by TissueInformatics for an approximately
5% interest in TissueInformatics outstanding stock at the time of such
financing.

At March 31, 2002, approximately $475,000 remained outstanding and payable
under our equipment line of credit with PNC Bank, NA. Amounts outstanding under
the equipment line of credit accrue interest at the prime rate as reported in
the Wall Street Journal plus one and one-quarter percent. With respect to
advances made prior to November 6, 1999, principal and interest accrued thereon
are payable in monthly principal amounts of $19,727 through and including April
15, 2002. For advances made after November 6, 1999, principal and interest
accrued thereon shall be made in monthly principal payments of $35,607 through
October 15, 2002 and $15,833 through March 15, 2003. We have pledged our
personal property, including our equipment, trademarks and accounts receivable,
to PNC Bank as security for any amounts owed by us under these facilities. We
are generally restricted from incurring additional indebtedness without the
consent of PNC Bank.

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We must also maintain various financial covenants, including minimum cash
balance and certain financial ratios. In addition, we may not declare or pay
dividends or make any distribution with respect to any equity security during
the term of the loan agreement without the consent of PNC Bank.

Related Party Transaction

In 2001, we recognized approximately $500,000 in revenue under a perpetual
software license agreement under which we granted a nonexclusive,
nontransferable license for our GenoMax enterprise product and certain modules
thereof to Pluvita Corporation. Pluvita Corporation pays the license fees in
monthly installments over a one-year term. Dr. Alexander Titomirov, our former
Chief Executive Officer and Chairman, was the Chairman and a significant
stockholder of Pluvita Corporation at the time of the transaction. Mr. Hooks
Johnston, one of our directors, was a managing director of FBR Technology
Venture Partners, a venture capital investment firm, at the time of this
transaction. An affiliate of FBR Technology Venture Partners was a stockholder
of Pluvita, and another managing director of FBR Technology Venture Partners
was a director of Pluvita, at the time of this transaction. In 2002, Pluvita
defaulted on their payment obligations under this license agreement. We no
longer believe that the remaining balance of approximately $0.2 million is
collectible and therefore we have removed the remaining amount from our
accounts receivable balance.

Quantitative and Qualitative Disclosures of Market Risk

Our exposure to market risk for changes in interest rates relates
primarily to the increase or decrease in the amount of interest income we can
earn on our initial public offering proceeds and any investment portfolio. Our
exposure to changes in interest rates also relates to the increase or decrease
in the amount of interest expense we must pay with respect to our various
outstanding debt instruments. Our risk associated with fluctuating interest
expense is limited, however, to credit facilities that are closely tied to
market rates. Under our current policies, we do not use interest rate
derivative instruments to manage exposure to interest rate changes. We ensure
the safety and preservation of our invested principal funds by limiting default
risks, market risk and reinvestment
risk. We reduce default risk by investing in investment grade securities.
A hypothetical 100 basis point drop in interest rates along the entire interest
rate yield curve would not significantly affect the fair value of our interest
sensitive financial instruments at March 31, 2001 and 2002. Declines in
interest rates over time will, however, reduce our interest income and expense
while increases in interest rates over time will increase our interest income
and expense. All sales to foreign-based customers are invoiced and paid in U.S.
Dollars. We do not believe that we are exposed to any material foreign currency
exchange rate risk.

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PART II  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On November 28, 2001, we received notice that Barry S. Kantrowitz
initiated a securities class action lawsuit in the United States District
Court, Southern District of New York against eight underwriters of our initial
public offering, InforMax, Inc. and two of our former executive officers.

Similar complaints have been filed against approximately 310 other issuers
that have had initial public offerings since 1998 and all such actions have
been included in a single coordinated proceeding for pre-trial purposes. A
consolidated amended complaint was filed on approximately April 19, 2002. The
amended complaint alleges, among other things, that certain of the underwriters
of our initial public offering violated the securities laws by failing to
disclose certain alleged compensation arrangements (such as commissions paid to
them by the underwriters customers) in the offerings registration statement
and by engaging in manipulative practices to artificially inflate the price of
our stock in the after-market subsequent to the IPO. We are named in the
amended complaint pursuant to Section 11 of the Securities Act of 1933, and
Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 on the
basis of an alleged failure to disclose the underwriters alleged compensation
arrangements and allegedly manipulative practices. The complaint seeks
unspecified damages.

We believe that meritorious defenses to these claims are available and
intend to vigorously contest and defend against them. However, due to the
inherent uncertainties of litigation, we cannot accurately predict the ultimate
outcome of the litigation. Any unfavorable outcome of this litigation could
have a negative impact on our business, financial condition, results of
operations or cash flows.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

As of March 31, 2002, we have used approximately $24.0 million of the net
offering proceeds of our initial public offering toward consideration of
certain strategic relationships and collaboration opportunities, the
improvement of our resources and infrastructure including new office space and
additional satellite offices to support the growth of our operations and
personnel, and the recruitment and hiring of additional personnel, particularly
related to our research and development and sales and marketing teams. We have
placed the remaining net proceeds from the offering principally in money market
funds as well as other interest bearing, investment-grade securities. We expect
to use net proceeds to expand our research and development and sales and
marketing efforts, implement our product development strategy, launch our
expanded professional services as well as for working capital and general
corporate purposes. We also expect to use the net proceeds from the offering to
consider opportunities to expand our business through the acquisition of
additional businesses, products and technologies and to establish joint
ventures or other collaborative arrangements which we believe complement our
current or future business.

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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.

Dated this 14th day of May 2002.

INFORMAX, INC

| |                                                                                                            
| | -----------------------------------------------------------------------------------------------------------
| | By:   /s/ Andrew P. WhiteleyAndrew P. Whiteley
Chairman of the Board, Chief Executive Officer and President
|
| | By:   /s/ John M. GreenJohn M. Green
Chief Operating Officer and Chief Financial Officer                   

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