##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

|           |  |                                                         
|---------- |  | --------------------------------------------------------
|(Mark One)
|          
|          
|          
|          
|           |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
|          
|          
|          
|          
|           |  | SECURITIES EXCHANGE ACT OF 1934                         
|          
|          
|          
|          
|           |  | For the quarterly period ended September 30, 2000       
|          
|          
|          
|          
|           |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|          
|          
|          
|          
|           |  | SECURITIES EXCHANGE ACT OF 1934                         
|          
|          
|          
|          
|           |  | For the transition period from ________ to ________     

Commission file number: 000-30549

GENOMIC SOLUTIONS INC.
(Exact name of registrant as specified in its charter)

|                                           |  |                                     
|------------------------------------------ |  | ------------------------------------
|DELAWARE                                   |  | 38-3383038                          
|                                          
|                                          
|                                          
|                                          
|(State or other jurisdiction               |  | (I.R.S. Employer Identification No.)
|                                          
|                                          
|                                          
|                                          
|of incorporation or organization)         
|                                          
|                                          
|                                          
|                                          
|4355 Varsity Drive, Suite E, Ann Arbor, MI |  | 48108                               
|                                          
|                                          
|                                          
|                                          
|(Address of principal executive offices)   |  | (Zip Code)                          

Registrants telephone number, including area code: (734) 975-4800

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  No

The number of shares outstanding of the registrants Callable Common Stock,
$.001 par value, as of October 31, 2000, was 23,710,604. The number of shares of
the registrants Common Stock, $.001 par value, as of October 31, 2000, was
1,269,841.





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TABLE OF CONTENTS



|                                                     |                                                                                               |  |  |  |  |  |  | 
|---------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|                                                     | PART I FINANCIAL INFORMATION                                                                 
|                                                     | ITEM 1. FINANCIAL STATEMENTS                                                                 
|CONDENSED CONSOLIDATED BALANCE SHEETS               
|CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                                                     | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
|                                                     | ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                                                     | PART II. OTHER INFORMATION                                                                   
|                                                     | ITEM 1. LEGAL PROCEEDINGS.                                                                   
|                                                     | ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.                                           
|                                                     | ITEM 3. DEFAULTS UPON SENIOR SECURITIES.                                                     
|                                                     | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.                                 
|                                                     | ITEM 5. OTHER INFORMATION.                                                                   
|                                                     | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.                                                    
|Financial Data Schedule                             



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GENOMIC SOLUTIONS INC.
INDEX TO FORM 10-Q

Page No.

|                             |                                                                     |                                                                           |                                                                      |    |   |    |  | 
|---------------------------- | ------------------------------------------------------------------- | ------------------------------------------------------------------------- | -------------------------------------------------------------------- | -- | - | -- |  | 
|PART I FINANCIAL INFORMATION
|                            
|                            
|                            
|                            
|                             | Item 1. Financial Statements                                       
|                            
|                            
|                            
|                            
|                             |                                                                     | Condensed Consolidated Balance Sheets as of September 30, 2000           
|                            
|                            
|                            
|                            
|                             |                                                                     |                                                                           | (unaudited) and December 31, 1999                                    |    |   | 3  | 
|                            
|                            
|                            
|                            
|                             |                                                                     | Condensed Consolidated Statements of Operations for the three            
|                            
|                            
|                            
|                            
|                             |                                                                     |                                                                           | months and nine months ended September 30, 2000 and 1999 (unaudited) |    |   | 4  | 
|                            
|                            
|                            
|                            
|                             |                                                                     | Condensed Consolidated Statements of Cash Flows for the nine months ended
|                            
|                            
|                            
|                            
|                             |                                                                     |                                                                           | September 30, 2000 and 1999 (unaudited)                              |    |   | 5  | 
|                            
|                            
|                            
|                            
|                             |                                                                     | Notes to Condensed Consolidated Financial Statements (unaudited)          |                                                                      |    | 6 |   
|                            
|                            
|                            
|                            
|                             | Item 2. Managements Discussion and Analysis of Financial Condition
|                            
|                            
|                            
|                            
|                             |                                                                     |                                                                           | and Results of Operations                                            |    |   | 10 | 
|                            
|                            
|                            
|                            
|                             | Item 3. Quantitative and Qualitative Disclosures About Market Risk  |                                                                           |                                                                      | 17 |  
|                            
|                            
|                            
|                            
|PART II OTHER INFORMATION   
|                            
|                            
|                            
|                            
|                             | Item 1. Legal Proceedings                                           |                                                                           |                                                                      | 18 |  
|                            
|                            
|                            
|                            
|                             | Item 2. Changes In Securities and Use of Proceeds                   |                                                                           |                                                                      | 18 |  
|                            
|                            
|                            
|                            
|                             | Item 3. Defaults Upon Senior Securities                             |                                                                           |                                                                      | 19 |  
|                            
|                            
|                            
|                            
|                             | Item 4. Submission of Matters to a Vote of Security Holders         |                                                                           |                                                                      | 19 |  
|                            
|                            
|                            
|                            
|                             | Item 5. Other Information                                           |                                                                           |                                                                      | 19 |  
|                            
|                            
|                            
|                            
|                             | Item 6. Exhibits and Reports on Form 8-K                            |                                                                           |                                                                      | 20 |  

2



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##### Table of Contents






PART I FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS

GENOMIC SOLUTIONS INC.




CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

|                                               |                                                                  |                                                               |                                                      |                             |        |               |        |              |       |        |        | 
|---------------------------------------------- | ---------------------------------------------------------------- | ------------------------------------------------------------- | ---------------------------------------------------- | --------------------------- | ------ | ------------- | ------ | ------------ | ----- | ------ | ------ | 
|                                               |                                                                  |                                                               |                                                      |                             |        | September 30, |        | December 31,
|                                               |                                                                  |                                                               |                                                      |                             |        | 2000          |        | 1999        
|                                               |                                                                  |                                                               |                                                      |                             |        |               |        |             
|                                               |                                                                  |                                                               |                                                      |                             |        | (Unaudited)   |        | (Audited)   
|                                               |                                                                  |                                                               |                                                      |                             |        |               |        |             
|Assets                                        
|                                              
|                                              
|                                              
|                                              
|Current Assets:                               
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                  | Cash                                                          |                                                      | $                           | 45,746 |               |        | $            | 1,328 |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                  | Repurchase agreements                                         |                                                      |                             | 30,000 |               |        |              |      |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                  | Accounts receivable, net                                      |                                                      |                             | 6,840  |               |        |              | 3,812 |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                  | Inventories                                                   |                                                      |                             | 5,099  |               |        |              | 3,645 |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                  | Prepaid expenses and other                                    |                                                      |                             | 1,178  |               |        |              | 285   |       
|                                               |                                                                  |                                                               |                                                      |                             |        |               |        |             
|                                               |                                                                  |                                                               |                                                      | Total current assets        |        |               | 88,863 |              |       |        | 9,070  | 
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                  | Property and equipment, net                                   |                                                      |                             | 4,081  |               |        |              | 3,105 |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                  | Goodwill, net                                                 |                                                      |                             | 1,029  |               |        |              | 1,253 |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                  | Other assets                                                  |                                                      |                             | 228    |               |        |              | 430   |       
|                                               |                                                                  |                                                               |                                                      |                             |        |               |        |             
|                                               |                                                                  |                                                               |                                                      | Total assets                |        | $             | 94,201 |              |       | $      | 13,858 | 
|                                               |                                                                  |                                                               |                                                      |                             |        |               |        |             
|Liabilities and Stockholders Equity (Deficit)
|                                              
|                                              
|                                              
|                                              
|Current Liabilities:                          
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                  | Lines of credit                                               |                                                      | $                           | 31,800 |               |        | $            | 1,800 |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                  | Current portion of long-term debt                             |                                                      |                             | 793    |               |        |              | 712   |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                  | Accounts payable                                              |                                                      |                             | 3,991  |               |        |              | 2,248 |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                  | Accrued liabilities                                           |                                                      |                             | 2,741  |               |        |              | 2,087 |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                  | Deferred revenue                                              |                                                      |                             | 346    |               |        |              | 173   |       
|                                               |                                                                  |                                                               |                                                      |                             |        |               |        |             
|                                               |                                                                  |                                                               |                                                      | Total current liabilities   |        |               | 39,671 |              |       |        | 7,020  | 
|                                               |                                                                  |                                                               |                                                      |                             |        |               |        |             
|Long-Term Liabilities:                        
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                  | Subordinated debt                                             |                                                      |                             |       |               |        |              | 7,526 |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                  | Long-term debt, less current portion                          |                                                      |                             | 1,377  |               |        |              | 1,152 |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                  | Other long-term liabilities                                   |                                                      |                             | 103    |               |        |              | 100   |       
|                                               |                                                                  |                                                               |                                                      |                             |        |               |        |             
|                                               |                                                                  |                                                               |                                                      | Total long-term liabilities |        |               | 1,480  |              |       |        | 8,778  | 
|                                               |                                                                  |                                                               |                                                      |                             |        |               |        |             
|Common Stock Warrants                          |                                                                  |                                                               |                                                     |                             |        |               | 7,441  |             
|                                              
|                                              
|                                              
|                                              
|Commitments                                   
|                                              
|                                              
|                                              
|                                              
|Stockholders Equity (Deficit):               
|                                              
|                                              
|                                              
|                                              
|                                               | Convertible preferred stock, $0.001 par value; 10,000,000 shares
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                  | authorized at December 31, 1999 and 15,000,000 shares        
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                  | authorized at September 30, 2000; 6,901,219 shares issued and
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                  | outstanding at December 31, 1999 and zero shares outstanding 
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                  | at September 30, 2000; aggregate liquidation preference of   
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                  | approximately $18,038,000 at December 31, 1999                |                                                      |                             |       |               |        |              | 7     |       
|                                              
|                                              
|                                              
|                                              
|                                               | Callable common stock, $.001 par value; 40,000,000 shares       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                  | authorized; 3,054,909 and 23,693,604 shares issued and       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                  | outstanding at December 31, 1999 and September 30, 2000,     
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                  | respectively                                                  |                                                      |                             | 24     |               |        |              | 3     |       
|                                              
|                                              
|                                              
|                                              
|                                               | Common stock, $.001 par value; 40,000,000 shares authorized;    
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                  | zero and 1,269,841 shares issued and outstanding at December 
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                  | 31, 1999 and September 30, 2000, respectively                 |                                                      |                             | 1      |               |        |              |      |       
|                                              
|                                              
|                                              
|                                              
|                                               | Additional paid-in capital                                       |                                                               |                                                      | 94,246                      |        |               |        | 16,832       |      
|                                              
|                                              
|                                              
|                                              
|                                               | Notes receivable                                                 |                                                               |                                                      | (128                        | )      |               |        | (53          | )    
|                                              
|                                              
|                                              
|                                              
|                                               | Deferred compensation related to stock options                   |                                                               |                                                      | (105                        | )      |               |        | (124         | )    
|                                              
|                                              
|                                              
|                                              
|                                               | Retained deficit                                                 |                                                               |                                                      | (40,681                     | )      |               |        | (26,110      | )    
|                                              
|                                              
|                                              
|                                              
|                                               | Accumulated other comprehensive income (loss)                    |                                                               |                                                      | (307                        | )      |               |        | 64           |      
|                                               |                                                                  |                                                               |                                                      |                             |        |               |        |             
|                                               |                                                                  |                                                               | Total stockholders equity (deficit)                 |                             |        | 53,050        |        |              |       | (9,381 | )     
|                                               |                                                                  |                                                               |                                                      |                             |        |               |        |             
|                                               |                                                                  |                                                               | Total liabilities and stockholders equity (deficit) |                             | $      | 94,201        |        |              | $     | 13,858 |       
|                                               |                                                                  |                                                               |                                                      |                             |        |               |        |             

The accompanying notes are an integral part of these consolidated statements.

3



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##### Table of Contents



GENOMIC SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited; in thousands, except per share data)

|                                                 |                                              |                      |      |                                           |       |                            |        |                           |       |      |         |        |       |   |        |        |       |   |        |  
|------------------------------------------------ | -------------------------------------------- | -------------------- | ---- | ----------------------------------------- | ----- | -------------------------- | ------ | ------------------------- | ----- | ---- | ------- | ------ | ----- | - | ------ | ------ | ----- | - | ------ | -
|                                                 |                                              |                      |      |                                           |       | For the three months ended |        | For the nine months ended
|                                                 |                                              |                      |      |                                           |       | September 30,              |        | September 30,            
|                                                 |                                              |                      |      |                                           |       |                            |        |                          
|                                                 |                                              |                      |      |                                           |       | 2000                       |        | 1999                      |       | 2000 |         | 1999  
|                                                 |                                              |                      |      |                                           |       |                            |        |                           |       |      |         |       
|Revenue:                                        
|                                                
|                                                
|                                                
|                                                
|                                                 | Product revenue                              |                      | $    | 4,888                                     |       |                            | $      | 2,956                     |       |      | $       | 12,981 |       |   | $      | 8,045  |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Service revenue                              |                      |      | 150                                       |       |                            |        | 207                       |       |      |         | 552    |       |   |        | 625    |      
|                                                 |                                              |                      |      |                                           |       |                            |        |                           |       |      |         |        |       |   |        |       
|                                                 |                                              |                      |      | Total revenue                             |       |                            | 5,038  |                           |       |      | 3,163   |        |       |   | 13,533 |        |       |   | 8,670  |  
|                                                 |                                              |                      |      |                                           |       |                            |        |                           |       |      |         |        |       |   |        |       
|Cost of Revenue:                                
|                                                
|                                                
|                                                
|                                                
|                                                 | Cost of product revenue                      |                      |      | 2,426                                     |       |                            |        | 1,619                     |       |      |         | 6,626  |       |   |        | 4,330  |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Cost of service revenue                      |                      |      | 109                                       |       |                            |        | 78                        |       |      |         | 245    |       |   |        | 320    |      
|                                                 |                                              |                      |      |                                           |       |                            |        |                           |       |      |         |        |       |   |        |       
|                                                 |                                              |                      |      | Total cost of revenue                     |       |                            | 2,535  |                           |       |      | 1,697   |        |       |   | 6,871  |        |       |   | 4,650  |  
|                                                 |                                              |                      |      |                                           |       |                            |        |                           |       |      |         |        |       |   |        |       
|                                                 |                                              |                      |      | Gross profit                              |       |                            | 2,503  |                           |       |      | 1,466   |        |       |   | 6,662  |        |       |   | 4,020  |  
|                                                 |                                              |                      |      |                                           |       |                            |        |                           |       |      |         |        |       |   |        |       
|Operating Expenses:                             
|                                                
|                                                
|                                                
|                                                
|                                                 | Selling, general and administrative          |                      |      | 3,009                                     |       |                            |        | 2,014                     |       |      |         | 8,916  |       |   |        | 6,036  |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Research and development                     |                      |      | 1,453                                     |       |                            |        | 1,152                     |       |      |         | 4,067  |       |   |        | 3,627  |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Restructuring and other unusual charges      |                      |      |                                          |       |                            |        | 438                       |       |      |         | 600    |       |   |        | 438    |      
|                                                 |                                              |                      |      |                                           |       |                            |        |                           |       |      |         |        |       |   |        |       
|                                                 |                                              |                      |      | Total operating expenses                  |       |                            | 4,462  |                           |       |      | 3,604   |        |       |   | 13,583 |        |       |   | 10,101 |  
|                                                 |                                              |                      |      |                                           |       |                            |        |                           |       |      |         |        |       |   |        |       
|                                                 |                                              |                      |      | Loss from operations                      |       |                            | (1,959 | )                         |       |      | (2,138  | )      |       |   | (6,921 | )      |       |   | (6,081 | )
|                                                 |                                              |                      |      |                                           |       |                            |        |                           |       |      |         |        |       |   |        |       
|Other Income (Expense):                         
|                                                
|                                                
|                                                
|                                                
|                                                 | Interest expense                             |                      |      | (255                                      | )     |                            |        | (637                      | )     |      |         | (2,503 | )     |   |        | (1,209 | )    
|                                                
|                                                
|                                                
|                                                
|                                                 | Interest income                              |                      |      | 948                                       |       |                            |        | 22                        |       |      |         | 1,940  |       |   |        | 87     |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Gain on sale of investment                   |                      |      |                                          |       |                            |        |                          |       |      |         | 407    |       |   |        |       |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Gain on sale of assets                       |                      |      | 484                                       |       |                            |        |                          |       |      |         | 484    |       |   |        |       |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Other expense, net                           |                      |      | (87                                       | )     |                            |        | (14                       | )     |      |         | 13     |       |   |        | (101   | )    
|                                                 |                                              |                      |      |                                           |       |                            |        |                           |       |      |         |        |       |   |        |       
|                                                 |                                              |                      |      | Total other income (expense)              |       |                            | 1,090  |                           |       |      | (629    | )      |       |   | 341    |        |       |   | (1,223 | )
|                                                 |                                              |                      |      |                                           |       |                            |        |                           |       |      |         |        |       |   |        |       
|                                                 |                                              |                      |      | Loss before taxes and extraordinary items |       |                            | (869   | )                         |       |      | (2,767  | )      |       |   | (6,580 | )      |       |   | (7,304 | )
|                                                
|                                                
|                                                
|                                                
|Benefit for Income Txes                          |                                              |                      |     |                                           |       |                            |       |                           |       |      |        |        |       |   |       |       
|                                                 |                                              |                      |      |                                           |       |                            |        |                           |       |      |         |        |       |   |        |       
|                                                 | Loss before extraordinary items              |                      |      | (869                                      | )     |                            |        | (2,767                    | )     |      |         | (6,580 | )     |   |        | (7,304 | )    
|                                                
|                                                
|                                                
|                                                
|Extraordinary Loss, net of tax expense of $0 for
|                                                
|                                                
|                                                
|                                                
|                                                 | the nine months ended September 30, 2000     |                      |      |                                          |       |                            |        |                          |       |      |         | (1,050 | )     |   |        |       |      
|                                                 |                                              |                      |      |                                           |       |                            |        |                           |       |      |         |        |       |   |        |       
|Net Loss                                         |                                              |                      | (869 | )                                         |       |                            | (2,767 | )                         |       |      | (7,630  | )      |       |   | (7,304 | )     
|                                                
|                                                
|                                                
|                                                
|Non-cash common stock warrant benefit (charge)   |                                              |                      |     |                                           |       |                            | (1,164 | )                         |       |      | 1,059   |        |       |   | (1,941 | )     
|                                                
|                                                
|                                                
|                                                
|Deemed dividend upon issuance of Series P       
|                                                
|                                                
|                                                
|                                                
|                                                 | Preferred stock                              |                      |      |                                          |       |                            |        |                          |       |      |         | (8,000 | )     |   |        |       |      
|                                                 |                                              |                      |      |                                           |       |                            |        |                           |       |      |         |        |       |   |        |       
|Net loss attributable to common stockholders     |                                              | $                    | (869 | )                                         |       | $                          | (3,931 | )                         |       | $    | (14,571 | )      |       | $ | (9,245 | )     
|                                                 |                                              |                      |      |                                           |       |                            |        |                           |       |      |         |        |       |   |        |       
|Net Income (Loss) Per Share, Basic and Diluted: 
|                                                
|                                                
|                                                
|                                                
|                                                 | Loss per share before extraordinary items    |                      | $    | (0.03                                     | )     |                            | $      | (0.92                     | )     |      | $       | (0.44  | )     |   | $      | (2.47  | )    
|                                                
|                                                
|                                                
|                                                
|                                                 | Loss per share from extraordinary items      |                      |      | 0.00                                      |       |                            |        | 0.00                      |       |      |         | (0.07  | )     |   |        | 0.00   |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Income (loss) per share from non-cash common
|                                                
|                                                
|                                                
|                                                
|                                                 |                                              | stock warrant charge |      |                                           | 0.00  |                            |        |                           | (0.39 | )    |         |        | 0.07  |   |        |        | (0.66 | )
|                                                
|                                                
|                                                
|                                                
|                                                 | Loss per share from deemed dividend          |                      |      | 0.00                                      |       |                            |        | 0.00                      |       |      |         | (0.53  | )     |   |        | 0.00   |      
|                                                 |                                              |                      |      |                                           |       |                            |        |                           |       |      |         |        |       |   |        |       
|                                                 | Loss per share attributable to common       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                              | stockholders         |      | $                                         | (0.03 | )                          |        | $                         | (1.31 | )    |         | $      | (0.97 | ) |        | $      | (3.13 | )
|                                                 |                                              |                      |      |                                           |       |                            |        |                           |       |      |         |        |       |   |        |       
|                                                 | Weighted average common shares               |                      |      | 24,881                                    |       |                            |        | 2,992                     |       |      |         | 15,017 |       |   |        | 2,954  |      
|                                                 |                                              |                      |      |                                           |       |                            |        |                           |       |      |         |        |       |   |        |       

The accompanying notes are an integral part of these consolidated statements.

4



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##### Table of Contents



GENOMIC SOLUTIONS INC.




CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited; in thousands)

|                                                   |                                                                 |                                                                  |                                   |                                           |       |                           |         |        |       |       |        |  
|-------------------------------------------------- | --------------------------------------------------------------- | ---------------------------------------------------------------- | --------------------------------- | ----------------------------------------- | ----- | ------------------------- | ------- | ------ | ----- | ----- | ------ | -
|                                                   |                                                                 |                                                                  |                                   |                                           |       | For the Nine Months Ended
|                                                   |                                                                 |                                                                  |                                   |                                           |       | September 30,            
|                                                   |                                                                 |                                                                  |                                   |                                           |       |                          
|                                                   |                                                                 |                                                                  |                                   |                                           |       | 2000                      |         | 1999  
|                                                   |                                                                 |                                                                  |                                   |                                           |       |                           |         |       
|Cash Flows from Operating Activities:             
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Net loss                                                        |                                                                  | $                                 | (7,630                                    | )     |                           | $       | (7,304 | )    
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Adjustments to reconcile net loss to net cash used in operating
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                 | activities-                                                     
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                 | Depreciation and amortization                                    |                                   |                                           | 937   |                           |         |        | 1,171 |      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                 | Amortization of discount on subordinated debt                    |                                   |                                           | 965   |                           |         |        | 691   |      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                 | Restructuring charge                                             |                                   |                                           | 600   |                           |         |        |      |      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                 | Callable common stock issued in lieu of interest                 |                                   |                                           | 208   |                           |         |        | 131   |      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                 | Amortization of deferred compensation                            |                                   |                                           | 19    |                           |         |        | 1     |      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                 | Extraordinary loss                                               |                                   |                                           | 1,050 |                           |         |        |      |      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                 | Gain on sale of investment                                       |                                   |                                           | (407  | )                         |         |        |      |      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                 | Gain on sale of assets                                           |                                   |                                           | (484  | )                         |         |        |      |      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                 | Other                                                            |                                   |                                           | 50    |                           |         |        |      |      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                 | Increase (decrease) in cash resulting from changes in assets and
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                 |                                                                  | liabilities, net of acquisitions-
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                 |                                                                  |                                   | Accounts receivable                       |       |                           | (3,157  | )      |       |       | (2,593 | )
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                 |                                                                  |                                   | Inventories                               |       |                           | (1,766  | )      |       |       | (797   | )
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                 |                                                                  |                                   | Prepaid expenses and other                |       |                           | (314    | )      |       |       | 86     |  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                 |                                                                  |                                   | Accounts payable                          |       |                           | 1,856   |        |       |       | 589    |  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                 |                                                                  |                                   | Accrued liabilities                       |       |                           | 233     |        |       |       | 658    |  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                 |                                                                  |                                   | Deferred revenue                          |       |                           | 180     |        |       |       | 68     |  
|                                                   |                                                                 |                                                                  |                                   |                                           |       |                           |         |       
|                                                   |                                                                 |                                                                  |                                   | Net cash used in operating activities     |       |                           | (7,660  | )      |       |       | (7,299 | )
|                                                   |                                                                 |                                                                  |                                   |                                           |       |                           |         |       
|Cash Flows from Investing Activities:             
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Purchase of property and equipment                              |                                                                  |                                   | (1,118                                    | )     |                           |         | (1,187 | )    
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Increase in other assets                                        |                                                                  |                                   | (108                                      | )     |                           |         | (256   | )    
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Increase in repurchase agreements                               |                                                                  |                                   | (30,000                                   | )     |                           |         |       |      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Proceeds from sale of investment                                |                                                                  |                                   | 575                                       |       |                           |         |       |      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Proceeds from sale of property and equipment                    |                                                                  |                                   | 18                                        |       |                           |         |       |      
|                                                   |                                                                 |                                                                  |                                   |                                           |       |                           |         |       
|                                                   |                                                                 |                                                                  |                                   | Net cash used in investing activities     |       |                           | (30,633 | )      |       |       | (1,443 | )
|                                                   |                                                                 |                                                                  |                                   |                                           |       |                           |         |       
|Cash Flows from Financing Activities:             
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Proceeds from issuance of subordinated debt and common stock   
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   |                                                                 |                                                                  | warrants                          |                                           |       |                          |         |        |       | 6,000 |       
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Repayment of subordinated debt                                  |                                                                  |                                   | (9,500                                    | )     |                           |         |       |      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Borrowings under sale-leaseback transactions                    |                                                                  |                                   | 113                                       |       |                           |         | 794    |      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Proceeds from issuance of callable common stock                 |                                                                  |                                   | 55,291                                    |       |                           |         | 7      |      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Net borrowings (repayments) under lines of credit               |                                                                  |                                   | 30,027                                    |       |                           |         | 61     |      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Repayment of long-term debt                                     |                                                                  |                                   | (545                                      | )     |                           |         | (377   | )    
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Proceeds from issuance of preferred stock                       |                                                                  |                                   | 7,479                                     |       |                           |         |       |      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Other financing activities                                      |                                                                  |                                   | (6                                        | )     |                           |         | (1     | )    
|                                                   |                                                                 |                                                                  |                                   |                                           |       |                           |         |       
|                                                   |                                                                 |                                                                  |                                   | Net cash provided by financing activities |       |                           | 82,859  |        |       |       | 6,484  |  
|                                                   |                                                                 |                                                                  |                                   |                                           |       |                           |         |       
|Effect of Exchange Rate Changes on Cash            |                                                                 |                                                                  | (148                              | )                                         |       |                           | (58     | )     
|                                                   |                                                                 |                                                                  |                                   |                                           |       |                           |         |       
|Net Increase (Decrease) in Cash                    |                                                                 |                                                                  | 44,418                            |                                           |       |                           | (2,316  | )     
|                                                  
|                                                  
|                                                  
|                                                  
|Cash  Beginning of Year                           |                                                                 |                                                                  | 1,328                             |                                           |       |                           | 2,880   |       
|                                                   |                                                                 |                                                                  |                                   |                                           |       |                           |         |       
|Cash  End of Year                                 |                                                                 | $                                                                | 45,746                            |                                           |       | $                         | 564     |       
|                                                   |                                                                 |                                                                  |                                   |                                           |       |                           |         |       
|                                                  
|                                                  
|                                                  
|                                                  
|Supplemental Disclosure of Cash Flow Activity:     |                                                                 |                                                                  |                                   |                                           |       |                           |         |       
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Cash paid for interest                                          |                                                                  | $                                 | 1,302                                     |       |                           | $       | 375    |      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Cash paid for income taxes                                      |                                                                  | $                                 |                                          |       |                           | $       |       |      
|                                                   |                                                                 |                                                                  |                                   |                                           |       |                           |         |       
|Supplemental Disclosure of Non-Cash Flow Activity:
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Equipment purchased under capital lease obligations             |                                                                  | $                                 | 959                                       |       |                           | $       | 1,141  |      
|                                                   |                                                                 |                                                                  |                                   |                                           |       |                           |         |       

The accompanying notes are an integral part of these consolidated statements.

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##### Table of Contents



GENOMIC SOLUTIONS INC.




NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of
Genomic Solutions Inc. and subsidiaries (the Company) have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete annual
financial statements. In the opinion of management, all adjustments, consisting
of normal recurring adjustments, considered necessary for a fair presentation
have been included. Interim results are not necessarily indicative of results
that may be expected for a full year.

The accompanying unaudited condensed consolidated financial statements should be
read in conjunction with the audited consolidated financial statements and
footnotes thereto included in the Companys Registration Statement on Form S-1
(File No. 333-30246) filed with the Securities and Exchange Commission and
declared effective on May 4, 2000.

Net Loss Per Share

Net loss per share is computed in accordance with SFAS No. 128, Earnings Per
Share, by dividing the net loss allocable to common stockholders by the
weighted average number of shares of common stock outstanding. For the three and
nine month periods ended September 30, 2000 and 1999, the effect of stock
options and warrants outstanding for the purchase of shares of common stock have
not been used in the calculation of diluted net loss per share because to do so
would be anti-dilutive. As such, the numerator and the denominator used in
computing both basic and diluted net loss per share allocable to common
stockholders for each period are equal.

Comprehensive Loss

Comprehensive loss is the total of net loss and all other non-owner changes in
equity. The difference between net loss, as reported in the accompanying
condensed consolidated statements of operations, and comprehensive loss is the
foreign currency translation adjustment for the respective periods. Accumulated
other comprehensive income consists solely of the cumulative translation
adjustment as presented in the accompanying condensed consolidated balance
sheets. The components of comprehensive loss for the three months and nine
months ended September 30, 2000 and 1999 are as follows (in thousands):

|                                        |  |                            |      |                           |  |             |        |             |  |   |        |   |  |   |        |  
|--------------------------------------- |  | -------------------------- | ---- | ------------------------- |  | ----------- | ------ | ----------- |  | - | ------ | - |  | - | ------ | -
|                                        |  | For the three months ended |      | For the nine months ended
|                                        |  | September 30,              |      | September 30,            
|                                        |  |                            |      |                          
|                                        |  | 2000                       |      | 1999                      |  | 2000        |        | 1999       
|                                        |  |                            |      |                           |  |             |        |            
|                                        |  | (Unaudited)                |      | (Unaudited)               |  | (Unaudited) |        | (Unaudited)
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                        |  |                            |      |                           |  |             |        |            
|Net loss                                |  | $                          | (869 | )                         |  | $           | (2,767 | )           |  | $ | (7,630 | ) |  | $ | (7,304 | )
|                                       
|                                       
|                                       
|                                       
|Foreign currency translation adjustment |  |                            | (111 | )                         |  |             | 130    |             |  |   | (371   | ) |  |   | 8      |  
|                                        |  |                            |      |                           |  |             |        |             |  |   |        |   |  |   |        |  
|Comprehensive loss                      |  | $                          | (980 | )                         |  | $           | (2,637 | )           |  | $ | (8,001 | ) |  | $ | (7,296 | )
|                                        |  |                            |      |                           |  |             |        |             |  |   |        |   |  |   |        |  

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##### Table of Contents



2. INVENTORIES

Finished goods and work-in-progress inventories include material, labor and
manufacturing overhead costs. Inventories consisted of the following (in
thousands):

|                 |  |               |       |              |  |   |       | 
|---------------- |  | ------------- | ----- | ------------ |  | - | ----- | 
|                 |  | September 30, |       | December 31,
|                 |  | 2000          |       | 1999        
|                 |  |               |       |             
|                 |  | (Unaudited)   |       | (Audited)   
|                
|                
|                
|                
|                
|                
|                
|                
|                
|                
|                
|                
|Raw materials    |  | $             | 2,085 |              |  | $ | 1,196 | 
|                
|                
|                
|                
|Work-in-progress |  |               | 867   |              |  |   | 906   | 
|                
|                
|                
|                
|Finished goods   |  |               | 2,147 |              |  |   | 1,543 | 
|                 |  |               |       |              |  |   |       | 
|                 |  | $             | 5,099 |              |  | $ | 3,645 | 
|                 |  |               |       |              |  |   |       | 

3. FINANCING

On May 5, 2000, we completed our initial public offering,
raising net proceeds, after deducting underwriting discounts and
commissions, of approximately $57.0 million, including the underwriters over-allotment
option. All of our preferred stock was automatically converted to callable
common stock or common stock and all of our warrants issued in connection with
the subordinated note agreements in April and October 1999 were either exercised
or cancelled upon the completion of the initial public offering. In March and
April 2000, we amended our primary bank line-of-credit agreement to provide for
borrowings up to $32 million through July 2001. As of September 30, 2000, we had
drawn down $31.8 million under this line of credit. On
June 9, 2000, we repaid the $6.0 million of subordinated notes issued in April 1999 and the $3.5 million
of subordinated notes issued in October 1999.

4. RESTRUCTURING

On May 16, 2000, we announced we were taking a one time restructuring charge of
$600,000 to close our Chelmsford, Massachusetts proteomics facility. A new
Center for Proteomics has been constructed at our Ann Arbor, Michigan
headquarters. The charge consisted primarily of $400,000 for employee termination
benefits for fifteen employees and $200,000 for exit costs associated with
closing the facility. At September 30, 2000, the remaining balance of the
restructuring reserve totaled $49,000 and is included in accrued liabilities in
the accompanying condensed consolidated balance sheet.

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##### Table of Contents



5. SEGMENT INFORMATION

In 1999, we adopted SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information. Under the provisions of SFAS No. 131, we operate in
one segment: the development, manufacture and marketing of integrated, high
throughput genomic and proteomic systems and services for analyzing and
quantifying biomolecules. Our two product lines, genomic and proteomic systems
and services, have similar economic characteristics and attributes, including
similar marketing and distribution patterns, similar production processes and
similar, if not the same, customers. As a result, we aggregate our product lines
into a single segment of genomic and proteomic systems and services. We operate
primarily in three geographic regions: the United States, United Kingdom and
Japan.

We license products to customers on a worldwide basis. Sales and marketing
operations outside the United States are conducted principally through our
foreign subsidiaries and our international distribution partner, PerkinElmer,
Inc. Intercompany sales and transfers between geographic areas are accounted for
at prices, which are designed to be, representative of third party transactions.

The following table summarizes selected financial information of our operations
by geographic location (in thousands):

|         |                             |               |   |                            |       |                           |   |             |       |             |   |        |        |  |   |        |       | 
|-------- | --------------------------- | ------------- | - | -------------------------- | ----- | ------------------------- | - | ----------- | ----- | ----------- | - | ------ | ------ |  | - | ------ | ----- | 
|         |                             |               |   | For the three months ended |       | For the nine months ended
|         |                             |               |   | September 30,              |       | September 30,            
|         |                             |               |   | 2000                       |       | 1999                      |   | 2000        |       | 1999       
|         |                             |               |   |                            |       |                           |   |             |       |            
|         |                             |               |   | (Unaudited)                |       | (Unaudited)               |   | (Unaudited) |       | (Unaudited)
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|Revenue:
|        
|        
|        
|        
|         | United States               |               | $ | 3,086                      |       |                           | $ | 2,252       |       |             | $ | 7,647  |        |  | $ | 5,571  |      
|        
|        
|        
|        
|         | Europe                      |               |   | 2,877                      |       |                           |   | 1,402       |       |             |   | 8,684  |        |  |   | 3,853  |      
|        
|        
|        
|        
|         | Japan                       |               |   | 1,436                      |       |                           |   | 586         |       |             |   | 3,549  |        |  |   | 2,020  |      
|        
|        
|        
|        
|         | Less  Intercompany revenue |               |   | (2,361                     | )     |                           |   | (1,077      | )     |             |   | (6,347 | )      |  |   | (2,774 | )    
|         |                             |               |   |                            |       |                           |   |             |       |             |   |        |        |  |   |       
|         |                             | Total revenue |   | $                          | 5,038 |                           |   | $           | 3,163 |             |   | $      | 13,533 |  |   | $      | 8,670 | 
|         |                             |               |   |                            |       |                           |   |             |       |             |   |        |        |  |   |       

|                   |                     |                         |   |               |       |              |   |       |       | 
|------------------ | ------------------- | ----------------------- | - | ------------- | ----- | ------------ | - | ----- | ----- | 
|                   |                     |                         |   | September 30, |       | December 31,
|                   |                     |                         |   | 2000          |       | 1999        
|                   |                     |                         |   |               |       |             
|                   |                     |                         |   | (Unaudited)   |       | (Audited)   
|                  
|                  
|                  
|                  
|                  
|                  
|                  
|                  
|                  
|                  
|                  
|                  
|Long-lived assets:
|                  
|                  
|                  
|                  
|                   | United States       |                         | $ | 4,007         |       |              | $ | 2,885 |      
|                  
|                  
|                  
|                  
|                   | Europe              |                         |   | 921           |       |              |   | 1,266 |      
|                  
|                  
|                  
|                  
|                   | Japan               |                         |   | 158           |       |              |   | 59    |      
|                  
|                  
|                  
|                  
|                   | Goodwill            |                         |   | 1,029         |       |              |   | 1,252 |      
|                  
|                  
|                  
|                  
|                   | Less  Eliminations |                         |   | (777          | )     |              |   | (778  | )    
|                   |                     |                         |   |               |       |              |   |      
|                   |                     | Total long-lived assets |   | $             | 5,338 |              |   | $     | 4,684 | 
|                   |                     |                         |   |               |       |              |   |      

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##### Table of Contents



6. INVESTMENTS

In 1998, Genomic Solutions Ltd. purchased a 30% interest in HD Technologies
Limited, a UK company (excluding retained technology rights), for approximately
$150,000. We account for this investment under the equity method of accounting.
The carrying amount of this investment was approximately $173,000 at December
31, 1999 and is included in other assets in the accompanying condensed
consolidated balance sheet for the year ended December 31, 1999. Equity income
from this investment was $14,000 for the nine months ended September 30, 1999
and is included in other income in the accompanying condensed consolidated
statements of operations.

In January 2000, we sold our investment in HD Technologies for approximately
$600,000 in cash, which resulted in a pre-tax gain of approximately $407,000. In
September 2000, we sold all of our product and intellectual property rights to
the mass spectrometer developed by us in collaboration with HD Technologies for
approximately $600,000, consisting of $150,000 in cash and equipment valued at
approximately $450,000, which resulted in a pre-tax gain of approximately
$484,000.

9



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##### Table of Contents






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

Cautionary Statement

This Managements Discussion and Analysis of Financial Condition and
Results of Operations as of September 30, 2000 and for the three and nine month
periods ended September 30, 2000 and 1999 should be read in conjunction with the
sections of our Registration Statement on Form S-1 filed with the Securities and
Exchange Commission and declared effective on May 4, 2000, as amended, entitled
Managements Discussion and Analysis of Financial Condition and Results of
Operations. The following discussion of the financial condition and results of
our operations should be read in conjunction with our Condensed Consolidated
Financial Statements, including the Notes thereto, included elsewhere in this
Form 10-Q. This Form 10-Q contains forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended, and Section
27A of the Securities Act of 1933, as amended. Such statements are based on
managements current expectations and are subject to a number of factors and
uncertainties that could cause actual results or outcomes to differ materially
from those described in such forward-looking statements. When used in this
report or elsewhere by management from time to time, the words believe,
anticipates, intends, plans, estimates, and similar expressions are
forward looking statements. These statements address or may address the
following subjects: results of operations, customer growth and retention;
development of technology; losses or earnings; operating expenses, including,
without limitation, marketing expense and technology and development expense;
and revenue growth. Prospective investors are cautioned that any such forward-
looking statements are not guarantees of future performance and involve risks
and uncertainties. Actual events or results may differ materially from those
discussed in the forward-looking statements as a result of various factors, many
of which are described in the Risk Factors section of our final prospectus
dated May 5, 2000, comprising a part of our Registration Statement on Form S-1
filed with the Securities and Exchange Commission. You should carefully consider
those risks, in addition to the other information in this report and in our
other filings with the Securities and Exchange Commission. Except as required by
law, we undertake no obligations to update any forward looking statements.

Overview

We design, develop, manufacture, market and sell genomic and proteomic
instruments, software, consumables and services. Unlike many other life sciences
companies in the gene expression and proteomic markets, we offer integrated
systems with demonstrated market acceptance. Our biochip and proteomic products
and systems enable researchers to perform complex, high-volume experiments at
lower costs and in less time than with traditional techniques. Our customers use
our integrated and automated systems to produce biochips, maintain DNA
libraries, quantify gene expression levels and isolate, identify and
characterize proteins, thereby facilitating more rapid and less expensive drug
discovery. We have sold our products in over 30 countries to pharmaceutical and
biotechnology companies, government agencies, universities and private research
institutions.

We have a limited history of operations, and we anticipate that our quarterly
results will fluctuate for the foreseeable future due to several factors,
including market acceptance of current and new products,

10



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##### Table of Contents



the introduction of new products by our competitors,
the success of our research and development projects and the timing of
significant orders. Our limited operating history makes it difficult or
impossible to accurately predict future operations.

RESULTS OF OPERATIONS

Three months ended September 30, 2000 and 1999

Revenue

Revenue increased $1.9 million, or 59%, to $5.0 million in the third quarter of
2000 from $3.2 million in the third quarter of 1999. This increase in revenue
was due primarily to increased unit sales of our biochip and proteomic systems,
which increased $1.9 million, or 68%, to $4.6 million. Sales of our biochip systems
increased $1.2 million, or 59% to $3.3 million in the third quarter of 2000
compared to $2.1 million in the third quarter of 1999 primarily from sales of
our GeneTAC(TM) Biochip System, GeneTAC(TM) Hybridization Station and
GeneTAC(TM) LS4 Biochip Analyzer. Product sales of our proteomic systems
increased $663,000, or 98% to $1.3 million, in the third quarter of 2000
compared to $677,000 in the third quarter of 1999 from sales of our
Investigator(TM) Proteomic System. Increased sales of these products offset the
$93,000 revenue decline associated with our products for documenting and
analyzing one dimensional separations of DNA and proteins, which were
discontinued in 1999 in all markets except Japan. The remainder of our revenue
was attributable to services and consumables associated with our biochip and
proteomic product lines.

Cost of revenue

Cost of revenue increased $838,000, or 49%, to $2.5 million in the third quarter
of 2000 from $1.7 million in the third quarter of 1999. This increase was due
primarily to $764,000 in increased cost of materials attributable to increased
instrumentation sales. The remainder of the increase in cost of revenue was
attributable to increased spending on product support, employees and
facilities related to occupying a larger facility in the United Kingdom.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $995,000, or 49%, to $3.0
million in the third quarter of 2000 from $2.0 million in the third quarter of
1999. Of this increase, approximately $485,000 was attributable to salaries,
sales commissions and other employee related costs due primarily to the hiring
of additional sales, marketing and administrative personnel and
increased revenue. Approximately $255,000 was attributable to increased expenses
associated with promotional activities and the remaining approximately $255,000
was attributable to increased office expenses and depreciation expense
associated with the hiring of additional personnel.

Research and development expenses

Research and development expenses increased $301,000, or 26%, to $1.5 million in
the third quarter of 2000 compared to $1.2 million in the third quarter of 1999.
Research and

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development spending increased due primarily to approximately $143,000 increase
in our usage of development materials for new products and approximately
$145,000 increase in outside consulting services and patent costs.

Restructuring charge

In May 2000, we recorded a restructuring charge to operations of $600,000 in
connection with the closing of our proteomic services and chemical production
facility located in Chelmsford, Massachusetts. The charge consisted primarily of
$400,000 for employee termination benefits for fifteen employees and $200,000
for exit costs associated with closing the facility. At September 30, 2000, the
remaining balance of the restructuring reserve totaled $49,000 and is included
in accrued liabilities in the accompanying condensed consolidated balance sheet.
We anticipate favorable financial, operating and strategic results from the
consolidation of our proteomic operations in Ann Arbor, Michigan.

Interest expense

Interest expense decreased $382,000 to $255,000 in the third quarter of 2000
from $637,000 in the third quarter of 1999. This decrease was due primarily to
the repayment on June 9, 2000 of $6 million of subordinated notes with warrants
issued April 1999 and $3.5 million of subordinated notes with warrants issued
October 1999. The $255,000 of interest in the third quarter of 2000 represents
interest incurred on the increased borrowings under our commercial bank
borrowing facility and under capital leases.

Interest income

Interest income increased $926,000 in the third quarter of 2000 to $948,000 from
$22,000 in the third quarter of 1999. Interest income increased due to higher
average cash and cash equivalent balances in 2000, resulting from the investment
of the proceeds from our initial public offering which went effective on May 4,
2000 and closed on May 10, 2000.

Other expense

Other expense, net of other income, was $87,000 in the third quarter of 2000.

Benefit from income taxes

For the third quarter of 2000 and 1999 we incurred net operating losses and
consequently we did not pay any federal income taxes.

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Nine months ended September 30, 2000 and 1999

Revenue

Revenue increased $4.8 million, or 56%, to $13.5 million in 2000 from $8.7
million in 1999. This increase in revenue was due primarily to $5.3 million from
sales of biochip and proteomic systems. New product sales consisted of $3.2
million from our GeneTAC(TM) Biochip System, GeneTAC(TM) Hybridization Station
and GeneTAC(TM) LS4 Biochip Analyzer and $2.0 million from our Investigator(TM)
Proteomic System, which was first shipped in June 1999. Increased sales of these
products offset the $417,000 revenue decline associated with our products for
documenting and analyzing one-dimensional separations of DNA and proteins, which
were discontinued in all markets except Japan. The remainder of our 2000
revenues were attributable to services and consumables.

Cost of revenue

Cost of revenue increased $2.2 million, or 48%, to $6.9 million in 2000 from
$4.7 million in 1999. This increase was due primarily to $2.1 million in
increased cost of materials attributable to increased instrumentation sales. The
remainder of the increase in cost of
revenue was attributable to increased spending on product support, employees and
facilities. In 2000, cost of revenue reflected added costs associated with
occupying a larger production facility for our United Kingdom operations since
July 2000.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $2.9 million, or 48%, to
$8.9 million in 2000 from $6.0 million in 1999. Of this increase, $1.8 million
was attributable to salaries, sales commissions and other employee-related costs
due primarily to the addition of approximately eleven sales, marketing and
administrative personnel and increased sales commissions. The remaining increase
consisted of approximately $440,000 from promotional activities and
approximately $613,000 from increased office expenses and depreciation expense
associated with the hiring of additional personnel.

Research and development expenses

Research and development expenses increased $440,000, or 12%, to $4.1 million in
2000 compared to $3.6 million in 1999. Research and development spending
increased due primarily to approximately $487,000 increase in salaries and other
employee related costs including $149,000 in recruiting and relocation costs
associated with hiring new management and scientists, specifically in the
proteomic area.

Restructuring charge

In May 2000, we recorded a restructuring charge to operations of $600,000 in
connection with the closing of our proteomic services and chemical production
facility located in Chelmsford, Massachusetts. The charge consisted primarily of
$400,000 for employee termination benefits for fifteen employees and $200,000
for exit costs associated with closing

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the facility. At September 30, 2000, the remaining balance of the restructuring
reserve totaled $49,000 and is included in accrued liabilities in the
accompanying condensed consolidated balance sheet. We anticipates favorable
financial, operating and strategic results from the consolidation of our
proteomic operations in Ann Arbor, Michigan.

Interest expense

Interest expense increased $1.3 million in the nine months
ended September 30, 2000 to $2.5 million from $1.2
million in the nine months ended September 30, 1999. This increase was due primarily to $6 million of subordinated
notes with warrants issued in April 1999 and $3.5 million of subordinated notes
with warrants issued in October 1999 and the increase in borrowings under our
capital leases and our commercial bank borrowing facilities.

Interest expense in the nine months ended September 30, 2000 includes
amortization expense of approximately $965,000 related to the discount recorded
on the subordinated notes. The discount was being amortized over the period from
the date of issuance to April 2000. The amortization period of the discount was
treated as shorter than the contractual life of the subordinated notes as the
notes contained a provision that they automatically mature upon closing of an
initial public offering (originally expected to be April 2000) and were expected
to be repaid with a portion of the offering proceeds. However, in March and
April 2000, we amended the note agreements with the subordinated debt holders to
change the acceleration of the maturity date from the closing date of the
initial public offering to the earlier to occur of a date one year from the
closing of an initial public offering or the date on which our cash and cash
equivalents fall below $50 million. We retained the right to prepay these notes
at any time. We accounted for the amendment to the subordinated notes as an
extinguishment of debt and recorded an extraordinary loss of approximately
$1,050,000 in March 2000. The extraordinary loss represents the difference
between the carrying value of the original subordinated notes less the related
unamortized debt issuance costs at March 24, 2000 and the estimated fair value
of the new subordinated notes. The effective interest rate was 53.0% and 154.1%
for the subordinated notes issued in April 1999 and October 1999, respectively,
calculated based on an expected maturity date of April 2000. The effective
interest rate on the new subordinated notes was 8.75%.

We repaid the $6 million of subordinated notes with warrants issued April 1999
and $3.5 million of subordinated notes with warrants issued October 1999 in
their entirety on June 9, 2000.

Interest income

Interest income increased $1.8 million in the nine months ended September 30,
2000 to $1.9 from $87,000 in the nine months ended September 30, 1999. Interest
income increased due to higher average cash and cash equivalent balances in
2000, resulting primarily from the investment of the net proceeds from our
initial public offering which went effective on May 4, 2000 and closed on May
10, 2000, and $8.0 million in gross proceeds from the sale of preferred stock to
PerkinElmer in January 2000.

Benefit from income taxes

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We incurred net operating losses in the nine months ended
September 30, 2000 and 1999, and consequently, we did not
pay any federal income taxes. At December 31, 1999, we have available net
operating loss carryforwards of approximately $16.3 million, which can be
utilized to offset future taxable income. These net operating loss carryforwards
expire between 2010 and 2019. Additionally, utilization of approximately
$1,900,000 of the net operating loss carryforwards are limited under Section 382
of the Internal Revenue Code due to ownership changes, as defined by Section
382, that occurred in 1997. There may be further limitations due to additional
ownership changes related to our initial public offering completed in May 2000.
These and other deferred income tax assets are fully reserved by a valuation
allowance due to historical operating losses. Realization of deferred tax assets
is dependent on future earnings, if any, the timing and amount of which are
uncertain. Accordingly, valuation allowances in amounts equal to the deferred
tax assets have been established to reflect these uncertainties.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2000 our cash, cash equivalents and repurchase agreements
totaled $75.7 million compared to $1.3 million at December 31, 1999. In January
2000, we received $8.0 million in gross proceeds from the sale of preferred
stock to PerkinElmer. Also in January 2000, we received approximately $600,000
in cash from the sale of our 30% ownership interest in HD Technologies. In May
2000, we completed our initial public offering, raising net proceeds,
after deducting underwriter discounts and commissions, of
approximately $57.0 million, including the underwriters over-allotment option.
Prior to that, we funded our operations with $23.5 million of private equity,
$9.5 million in subordinated promissory notes with warrants, $3.0 million from
fixed asset lease financing and $32.3 million from bank borrowings.

Cash used in operations for the nine-month period ended September 30, 2000 was
$7.7 million compared with $7.3 million for the same period in 1999. Our net
loss of $7.6 million in the first nine months of 2000 included non-cash charges
of $965,000 for amortization of discount on subordinated notes with warrants,
$1.1 million for extraordinary loss on extinguishment of debt, $407,000 gain on
sale of investment in HD Technologies, $484,000 gain on sale of assets, $600,000
for restructuring, and $937,000 for depreciation and amortization expense. The
use of cash in operating activities in the first nine months was also due to
increases of $3.2 million in accounts receivable and $1.8 million in inventories
as a result of and to accommodate increased sales. The use of cash in operating activities was
partially offset by $2.1 million increase in accrued liabilities and accounts
payable due primarily to professional service fees attributed to our initial
public offering and increases in cost of revenue and total operating expenses.

Our investing activities for the nine months ended September 30, 2000, excluding
activity under our repurchase agreements, used cash of $633,000 compared with
usage of $1.4 million for the same period in 1999. Cash used in investing
activities was attributable to $1.1 million in capital expenditures offset by
approximately $600,000 in cash received from the sale of our 30%
ownership interest in HD Technologies. Cash used in 1999 was attributable to
$1.2 million for capital expenditures, which consisted mainly of purchases of
computers, laboratory equipment and leasehold improvements related to expansion
of our laboratories. Our capital equipment additions in 2000 and 1999 were primarily
financed with our fixed asset lease line of credit.

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Cash provided by financing activities for the nine months ended September 30,
2000 was $83 million compared to $6.5 million for the same period in 1999.
Financing activities included the receipt of $57 million in net
proceeds, after deducting underwriter discounts and commissions, from
the sale of callable common stock in our initial public offering, borrowings of
$30 million under our amended primary bank line-of-credit agreement and the
receipt of $7.4 million in net proceeds from the sale of preferred stock in
January 2000. Financing activities for the first nine months of 2000 also
included the repayment on June 9, 2000 of $6.0 million subordinated notes with
warrants issued in April 1999 and $3.5 million of subordinated notes with
warrants issued in October 1999.

In March and April 2000, we amended our primary bank line-of-credit agreement to
provide for borrowings up to $32 million through July 2001. As of September 30,
2000, we had drawn down $31.8 million under this line of credit.

Working capital increased $47.2 million to $49.2 million at September 30, 2000
from $2.0 million at December 31, 1999. The increase in working capital resulted
from cash proceeds received from our initial public offering, the sale of
preferred stock to PerkinElmer and the sale of our 30% ownership interest in HD
Technologies, increases in accounts receivable of $3.0 million and inventory of
$1.5 million due to our growth in revenue and operations, partially offset by
increases of $2.4 million in accounts payable and accrued liabilities balances.

As of September 30, 2000, we had an aggregate of $2.2 million in future
obligations of principle payments under capital leases and other long-term debt,
of which $793,000 is to be paid within the next twelve months.

We believe our existing cash, cash equivalents and short term investments will
be sufficient to fund our operating expenses, debt obligations and capital
requirements on both a short-term and long-term, greater than 12 months, basis.
However, we may need to raise additional capital to fund our research and
development programs, to scale up manufacturing activities, to expand our sales
and marketing capabilities or to fund unforeseeable expenses. Even if we have
sufficient funds for our operating plans, we may choose to raise additional
capital due to market conditions or strategic considerations. We may seek
funding through public or private equity offerings, debt financing or additional
collaborations. We cannot assure you that additional financing will be available
on favorable terms, if at all.

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ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Other than as disclosed in this report on Form 10-Q, there have been no
significant changes in our market risk exposure as described in Managements
Discussion and Analysis of Financial Condition and Results of Operations
included as Item 7a in our registration statement filed on Form S-1 and declared
effective on May 4, 2000, and incorporated herein by reference.

Recent accounting pronouncements

We adopted Financial Accounting Standards Board Interpretation No. 44,
Accounting for Certain Transactions involving Stock Compensation, an
interpretation of APB Opinion No. 25, effective July 1, 2000. There was no
impact on our consolidated financial position or results of operations.

Various accounting pronouncements have been issued but which are not effective
including, but not limited to, Statement of Financial Accounting Standards Nos.
133 and 138, Accounting for Derivative Instruments and Hedging Activities,
which is effective for fiscal years beginning after June 15, 2000; and
Securities and Exchange Commission Staff Accounting Bulletin No. 101, Revenue
Recognition, which we must adopt no later than the fourth quarter of 2000.
Management expects that adoption of these pronouncements will have little, if
any, impact on our consolidated financial position or results of operations.

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PART II. OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS.

We are not engaged in any legal proceedings.

We have received a letter from Molecular Dynamics, Inc. threatening to
file a complaint against us in California as a result of our failure to purchase
shares of capital stock of Meridian Instruments, Inc. owned by Molecular
Dynamics. The demand seeks payment of $732,175, increased by $8,333 each month
until payment is made. In 1998, we purchased assets from Insight Biomedical
Imaging, which in 1997 acquired assets of Meridian Instruments through a lien
foreclosure. Molecular Dynamics claims to have had the contractual right to
require Meridian Instruments to purchase the shares of Meridian Instruments
owned by Molecular Dynamics. Molecular Dynamics has asserted, among other
things, that we assumed the purchase obligation, that we are a legal successor
of Meridian Instruments, and that there was a fraudulent transfer of Meridian
Instruments assets. We do not believe we have any liability to Molecular
Dynamics and we are attempting to resolve this matter.




ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

Sales of Unregistered Securities

From July 1, 2000 to September 30, 2000, we sold and issued the
following unregistered securities.



| |  | 150,418 shares of our callable common stock issued upon the exercise of
stock options for an aggregate purchase price of $124,248.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------

No underwriters were involved in the foregoing offers and sales of
securities. Such offers and sales were made in reliance upon an exemption from
the registration provisions of the Securities Act of 1933, as amended (the
Securities Act), set forth in, Rule 701 under the Securities Act. All of the
foregoing securities are deemed restricted securities for purposes of the
Securities Act.

Use of Proceeds

On May 10, 2000 we completed an initial public offering of 7,000,000 shares of
callable common stock at $8.00 per share. The managing underwriters in the
offering were UBS Warburg LLC, Lehman Brothers and Dain Rauscher Wessels. The
shares of callable common stock sold in the offering were registered under the
Securities Act of 1933 on a Registration Statement on Form S-1(Registration No.
333-30246) that was declared effective by the Securities and Exchange Commission
on May 4, 2000. The purchase price to the public was $8.00 per share and, after
deducting underwriter discounts and commissions, we received proceeds per share
of $7.44. The aggregate-offering price was approximately $57.0 million. We
incurred expenses of approximately $6.1 million, of which approximately $4.3
million represented underwriting discounts and commissions and approximately
$1.8 million represented other expenses related to the offering. The proceeds to
us from the offering,

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including the over-allotment option, after deducting underwriting discounts and
commissions and other offering expenses, were approximately $55.2 million. The
proceeds have been invested in short-term investment-grade securities. The
principal purposes of the offering were to: (1) increase our equity capital, (2)
create a public market for the callable common stock in order to facilitate
future access to public equity markets and (3) create liquidity for our existing
stockholders. We intend to use the net proceeds of this offering, together with
our existing cash and cash equivalents, short-term investments and repurchase
agreements, to fund research and development, expand laboratory and office
facilities and for general corporate purposes. We may also use a portion of the
net proceeds for the acquisition of businesses, technologies or products
complementary to us.




ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable.




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.




ITEM 5. OTHER INFORMATION.

Not applicable.

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

|    |          | 
|--- | -------- | 
|(a) | Exhibits | 

|                                                                                         | 
|---------------------------------------------------------------------------------------- | 
|The following is a list of exhibits filed as part of this Quarterly
Report on Form 10-Q. | 

|               |  |                        
|-------------- |  | -----------------------
|Exhibit
Number |  | Description            
|              
|              
|              
|              
|               |  |                        
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|              
|              
|              
|              
|              
|              
|              
|27.1           |  | Financial Data Schedule
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|(b)            |  | Reports on Form 8-K    

|                                                                                         | 
|---------------------------------------------------------------------------------------- | 
|No reports on Form 8-K have been filed during the three months ended
September 30, 2000. | 

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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.

GENOMIC SOLUTIONS INC.

|                        |  |                                   
|----------------------- |  | ----------------------------------
|Date: November 13, 2000 |  | By: /s/ Steven J. Richvalsky      
|                        |  |                                   
|                        |  | STEVEN J. RICHVALSKY              
|                       
|                       
|                       
|                       
|                        |  | Chief Financial Officer, Executive
|                       
|                       
|                       
|                       
|                        |  | Vice President, Secretary and     
|                       
|                       
|                       
|                       
|                        |  | Treasurer (principal financial and
|                       
|                       
|                       
|                       
|                        |  | accounting officer)               

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Exhibit Index



|           |  |                        
|---------- |  | -----------------------
|Exhibit No |  | Description            
|           |  |                        
|          
|          
|          
|          
|          
|          
|          
|          
|27         |  | Financial Data Schedule