##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




FORM 10-Q

|                          |  |                                                                                                                                          
|------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|(Mark One)X IN BALLOT BOX |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001

|                |  |                                                                                                                                        
|--------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------
|OPEN BALLOT BOX |  | 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
(State or other jurisdiction
of incorporation or organization) |  | 38-3383038
(I.R.S. Employer Identification No.)

|                                                                                    |  |                 
|----------------------------------------------------------------------------------- |  | ----------------
|4355 Varsity Drive, Suite E, Ann Arbor, MI
(Address of principal executive offices) |  | 48108
(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 X IN BALLOT BOX No OPEN BALLOT BOX

The number of shares outstanding of the registrants Common Stock, $.001 par
value, as of October 31, 2001, was 24,344,822



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TABLE OF CONTENTS



|                             |                                                                                               |                                                                                                                                    |  |  |  |  |  | 
|---------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  | 
|FORM 10-Q                   
|PART I FINANCIAL INFORMATION
|                             | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                             |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2001 (UNAUDITED) AND DECEMBER 31, 2000                                  
|                             |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (UNAUDITED)
|                             |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (UNAUDITED)                 
|                             |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                                                                  
|                             | 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                                                     



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##### Table of Contents



GENOMIC SOLUTIONS INC.

INDEX TO FORM 10-Q

PART I FINANCIAL INFORMATION

|                                                                                              |                                                                                                                                    |  |          |   | 
|--------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------- |  | -------- | - | 
|                                                                                              |                                                                                                                                    |  | Page No. |  
|Item 1. Financial Statements                                                                  |                                                                                                                                    |  |          |  
|                                                                                              | Condensed Consolidated Balance Sheets as of September 30, 2001
(unaudited) and December 31, 2000                                   |  |          | 3 | 
|                                                                                              | Condensed Consolidated Statements of Operations for the three
months and nine months ended September 30, 2001 and 2000 (unaudited) |  |          | 4 | 
|                                                                                              | Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 2001 and 2000 (unaudited)                  |  |          | 5 | 
|                                                                                              | Notes to Condensed Consolidated Financial Statements (unaudited)                                                                   |  |          | 6 | 
|Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations |                                                                                                                                    |  | 11       |  
|Item 3. Qualitative and Quantitative Disclosures About Market Risk                            |                                                                                                                                    |  | 18       |  

PART II OTHER INFORMATION

|                                                            |  |  |    | 
|----------------------------------------------------------- |  |  | -- | 
|Item 1. Legal Proceedings                                   |  |  | 19 | 
|Item 2. Changes In Securities and Use of Proceeds           |  |  | 19 | 
|Item 3. Defaults Upon Senior Securities                     |  |  | 19 | 
|Item 4. Submission of Matters to a Vote of Security Holders |  |  | 20 | 
|Item 5. Other Information                                   |  |  | 21 | 
|Item 6. Exhibits and Reports on Form 8-K                    |  |  | 21 | 

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, except per share data)

|                                     |                                                                                                                                                                           |                                            |                             |         |               |        |  |              |        |        | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | --------------------------- | ------- | ------------- | ------ |  | ------------ | ------ | ------ | 
|                                     |                                                                                                                                                                           |                                            |                             |         | September 30, |        |  | December 31, |       
|                                     |                                                                                                                                                                           |                                            |                             |         | 2001          |        |  | 2000         |       
|                                     |                                                                                                                                                                           |                                            |                             |         |               |        |  |              |       
|                                     |                                                                                                                                                                           |                                            |                             |         | (Unaudited)   |        |  |              |        |       
|Assets                               |                                                                                                                                                                           |                                            |                             |         |               |        |  |             
|Current Assets:                      |                                                                                                                                                                           |                                            |                             |         |               |        |  |             
|                                     |                                                                                                                                                                           | Cash and cash equivalents                  |                             | $       | 18,612        |        |  | $            | 40,159 |       
|                                     |                                                                                                                                                                           | Accounts receivable, net                   |                             |         | 4,452         |        |  |              | 7,788  |       
|                                     |                                                                                                                                                                           | Inventories                                |                             |         | 7,507         |        |  |              | 5,734  |       
|                                     |                                                                                                                                                                           | Prepaid expenses and other                 |                             |         | 1,474         |        |  |              | 1,114  |       
|                                     |                                                                                                                                                                           |                                            |                             |         |               |       
|                                     |                                                                                                                                                                           |                                            | Total current assets        |         |               | 32,045 |  |              |        | 54,795 | 
|                                     |                                                                                                                                                                           | Property and equipment, net                |                             |         | 3,148         |        |  |              | 4,735  |       
|                                     |                                                                                                                                                                           | Goodwill, net                              |                             |         | 465           |        |  |              | 954    |       
|                                     |                                                                                                                                                                           | License fees, net                          |                             |         | 4,269         |        |  |              | 4,524  |       
|                                     |                                                                                                                                                                           | Other assets                               |                             |         | 1,667         |        |  |              | 216    |       
|                                     |                                                                                                                                                                           |                                            |                             |         |               |       
|                                     |                                                                                                                                                                           |                                            | Total assets                |         | $             | 41,594 |  |              | $      | 65,224 | 
|                                     |                                                                                                                                                                           |                                            |                             |         |               |       
|Liabilities and Stockholders Equity |                                                                                                                                                                           |                                            |                             |         |               |        |  |             
|Current Liabilities:                 |                                                                                                                                                                           |                                            |                             |         |               |        |  |             
|                                     |                                                                                                                                                                           | Lines of credit                            |                             | $       | 2,500         |        |  | $            |       |       
|                                     |                                                                                                                                                                           | Current portion of long-term debt          |                             |         | 23            |        |  |              | 754    |       
|                                     |                                                                                                                                                                           | Accounts payable                           |                             |         | 2,392         |        |  |              | 3,711  |       
|                                     |                                                                                                                                                                           | Accrued liabilities                        |                             |         | 3,752         |        |  |              | 6,067  |       
|                                     |                                                                                                                                                                           | Deferred revenue                           |                             |         | 163           |        |  |              | 293    |       
|                                     |                                                                                                                                                                           |                                            |                             |         |               |        |  |             
|                                     |                                                                                                                                                                           |                                            | Total current liabilities   |         |               | 8,830  |  |              |        | 10,825
|                                     |                                                                                                                                                                           |                                            |                             |         |               |        |  |              |       
|Long-Term Liabilities:               |                                                                                                                                                                           |                                            |                             |         |               |        |  |             
|                                     |                                                                                                                                                                           | Long-term debt, less current portion       |                             |         | 2             |        |  |              | 1,202  |       
|                                     |                                                                                                                                                                           | Other long-term liabilities                |                             |         | 60            |        |  |              | 1,208  |       
|                                     |                                                                                                                                                                           |                                            |                             |         |               |        |  |              |       
|                                     |                                                                                                                                                                           |                                            | Total long-term liabilities |         |               | 62     |  |              |        | 2,410  | 
|Commitments                          |                                                                                                                                                                           |                                            |                             |         |               |        |  |             
|Stockholders Equity:                |                                                                                                                                                                           |                                            |                             |         |               |        |  |             
|                                     | Convertible preferred stock, $0.001 par
value; 15,000 shares authorized; zero shares
issued and outstanding at September 30, 2001
and December 31, 2000                   |                                            |                             |        |               |        |  |             |       
|                                     | Callable common stock, $.001 par value;
40,000 shares authorized; zero and 23,758 shares issued and outstanding at September
30, 2001 and December 31, 2000, respectively |                                            |                             |        |               |        |  | 24           |       
|                                     | Common
stock, $.001 par value; 40,000 shares
authorized; 24,343 and 1,270 shares issued
and outstanding at September 30, 2001 and December 31, 2000, respectively         |                                            |                             | 24      |               |        |  | 1            |       
|                                     | Additional paid-in capital                                                                                                                                                |                                            |                             | 88,926  |               |        |  | 94,317       |       
|                                     | Notes receivable                                                                                                                                                          |                                            |                             | (135    | )             |        |  | (129         | )     
|                                     | Deferred compensation related to stock options                                                                                                                            |                                            |                             | (79     | )             |        |  | (98          | )     
|                                     | Retained deficit                                                                                                                                                          |                                            |                             | (55,726 | )             |        |  | (41,955      | )     
|                                     | Accumulated other comprehensive loss                                                                                                                                      |                                            |                             | (308    | )             |        |  | (171         | )     
|                                     |                                                                                                                                                                           |                                            |                             |         |               |        |  |              |       
|                                     |                                                                                                                                                                           | Total stockholders equity                 |                             |         | 32,702        |        |  |              | 51,989 |       
|                                     |                                                                                                                                                                           |                                            |                             |         |               |        |  |              |       
|                                     |                                                                                                                                                                           | Total liabilities and stockholders equity |                             | $       | 41,594        |        |  | $            | 65,224 |       
|                                     |                                                                                                                                                                           |                                            |                             |         |               |       

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,             |       
|                                                                                           |                                                             |                                          |        |                            |        |   |                           |       
|                                                                                           |                                                             |                                          |        | 2001                       |        |   | 2000                      |        |        | 2001 |         |         | 2000    |  
|                                                                                           |                                                             |                                          |        |                            |        |   |                           |        |        |      |         |         |         |  
|Revenue:                                                                                   |                                                             |                                          |        |                            |        |   |                           |        |        |      |         |         |         |   |         |       
|                                                                                           | Product revenue                                             |                                          | $      | 3,344                      |        |   | $                         | 4,888  |        |      | $       | 11,440  |         |   | $       | 12,981 |       
|                                                                                           | Service revenue                                             |                                          |        | 285                        |        |   |                           | 150    |        |      |         | 1,031   |         |   |         | 552    |       
|                                                                                           |                                                             |                                          |        |                            |        |   |                           |        |        |      |         |        
|                                                                                           |                                                             | Total revenue                            |        |                            | 3,629  |   |                           |        | 5,038  |      |         |         | 12,471  |   |         |        | 13,533 |  
|                                                                                           |                                                             |                                          |        |                            |        |   |                           |        |        |      |         |        
|Cost of Revenue:                                                                           |                                                             |                                          |        |                            |        |   |                           |        |        |      |         |         |         |   |         |       
|                                                                                           | Cost of product revenue                                     |                                          |        | 2,441                      |        |   |                           | 2,426  |        |      |         | 7,254   |         |   |         | 6,626  |       
|                                                                                           | Cost of service revenue                                     |                                          |        | 90                         |        |   |                           | 109    |        |      |         | 243     |         |   |         | 245    |       
|                                                                                           | Inventory impairment                                        |                                          |        | 1,180                      |        |   |                           |       |        |      |         | 1,180   |         |   |         |       |       
|                                                                                           |                                                             |                                          |        |                            |        |   |                           |        |        |      |         |        
|                                                                                           |                                                             | Total cost of revenue                    |        |                            | 3,711  |   |                           |        | 2,535  |      |         |         | 8,677   |   |         |        | 6,871  |  
|                                                                                           |                                                             |                                          |        |                            |        |   |                           |        |        |      |         |        
|                                                                                           |                                                             | Gross
profit (loss)                      |        |                            | (82    | ) |                           |        | 2,503  |      |         |         | 3,794   |   |         |        | 6,662  |  
|                                                                                           |                                                             |                                          |        |                            |        |   |                           |        |        |      |         |        
|Operating Expenses:                                                                        |                                                             |                                          |        |                            |        |   |                           |        |        |      |         |         |         |   |         |       
|                                                                                           | Selling, general and administrative                         |                                          |        | 3,719                      |        |   |                           | 3,009  |        |      |         | 10,651  |         |   |         | 8,916  |       
|                                                                                           | Research and development                                    |                                          |        | 1,780                      |        |   |                           | 1,453  |        |      |         | 5,400   |         |   |         | 4,067  |       
|                                                                                           | Restructuring charges                                       |                                          |        | 2,386                      |        |   |                           |       |        |      |         | 2,386   |         |   |         | 600    |       
|                                                                                           |                                                             |                                          |        |                            |        |   |                           |        |        |      |         |        
|                                                                                           |                                                             | Total operating expenses                 |        |                            | 7,885  |   |                           |        | 4,462  |      |         |         | 18,437  |   |         |        | 13,583 |  
|                                                                                           |                                                             |                                          |        |                            |        |   |                           |        |        |      |         |        
|                                                                                           |                                                             | Loss from operations                     |        |                            | (7,967 | ) |                           |        | (1,959 | )    |         |         | (14,643 | ) |         |        | (6,921 | )
|                                                                                           |                                                             |                                          |        |                            |        |   |                           |        |        |      |         |        
|Other Income (Expense):                                                                    |                                                             |                                          |        |                            |        |   |                           |        |        |      |         |         |         |   |         |       
|                                                                                           | Interest expense                                            |                                          |        | (122                       | )      |   |                           | (255   | )      |      |         | (203    | )       |   |         | (2,503 | )     
|                                                                                           | Interest income                                             |                                          |        | 188                        |        |   |                           | 948    |        |      |         | 1,023   |         |   |         | 1,940  |       
|                                                                                           | Gain on sale of investment                                  |                                          |        |                           |        |   |                           |       |        |      |         |        |         |   |         | 407    |       
|                                                                                           | Gain on sale of assets                                      |                                          |        |                           |        |   |                           | 484    |        |      |         |        |         |   |         | 484    |       
|                                                                                           | Other income (expense), net                                 |                                          |        | (23                        | )      |   |                           | (87    | )      |      |         | 54      |         |   |         | 13     |       
|                                                                                           |                                                             |                                          |        |                            |        |   |                           |        |        |      |         |        
|                                                                                           |                                                             | Total other income (expense)             |        |                            | 43     |   |                           |        | 1,090  |      |         |         | 874     |   |         |        | 341    |  
|                                                                                           |                                                             |                                          |        |                            |        |   |                           |        |        |      |         |        
|                                                                                           |                                                             | Loss before taxes and extraordinary item |        |                            | (7,924 | ) |                           |        | (869   | )    |         |         | (13,769 | ) |         |        | (6,580 | )
|Provision (Benefit) for Income Taxes                                                       |                                                             |                                          | (71    | )                          |        |   |                          |        |        |      | 2       |         |         |   |        |       
|                                                                                           |                                                             |                                          |        |                            |        |   |                           |        |        |      |         |        
|                                                                                           | Loss before extraordinary item                              |                                          |        | (7,853                     | )      |   |                           | (869   | )      |      |         | (13,771 | )       |   |         | (6,580 | )     
|Extraordinary
Loss, net of tax benefit of $0                                               |                                                             |                                          |       |                            |        |   |                          |        |        |      |        |         |         |   | (1,050  | )     
|                                                                                           |                                                             |                                          |        |                            |        |   |                           |        |        |      |         |        
|Net Loss                                                                                   |                                                             |                                          | (7,853 | )                          |        |   | (869                      | )      |        |      | (13,771 | )       |         |   | (7,630  | )     
|Non-cash common stock warrant benefit                                                      |                                                             |                                          |       |                            |        |   |                          |        |        |      |        |         |         |   | 1,059   |       
|Deemed dividend upon issuance to and subsequent
repurchase of stock from PerkinElmer, Inc. |                                                             |                                          |       |                            |        |   |                          |        |        |      | (2,811  | )       |         |   | (8,000  | )     
|                                                                                           |                                                             |                                          |        |                            |        |   |                           |        |        |      |         |        
|Net loss attributable to common stockholders                                               |                                                             | $                                        | (7,853 | )                          |        | $ | (869                      | )      |        | $    | (16,582 | )       |         | $ | (14,571 | )     
|                                                                                           |                                                             |                                          |        |                            |        |   |                           |        |        |      |         |        
|Net Income (Loss) Per Share, Basic and Diluted:                                            |                                                             |                                          |        |                            |        |   |                           |        |        |      |         |         |         |   |         |       
|                                                                                           | Loss per share before extraordinary item                    |                                          | $      | (0.32                      | )      |   | $                         | (0.03  | )      |      | $       | (0.56   | )       |   | $       | (0.44  | )     
|                                                                                           | Loss per share from extraordinary item                      |                                          |        | 0.00                       |        |   |                           | 0.00   |        |      |         | 0.00    |         |   |         | (0.07  | )     
|                                                                                           |                                                             |                                          |        |                            |        |   |                           |        |        |      |         |        
|                                                                                           | Loss per share                                              |                                          |        | (0.32                      | )      |   |                           | (0.03  | )      |      |         | (0.56   | )       |   |         | (0.51  | )     
|                                                                                           | Income per share from non-cash common stock
warrant benefit |                                          |        | 0.00                       |        |   |                           | 0.00   |        |      |         | 0.00    |         |   |         | 0.07   |       
|                                                                                           | Loss per share from deemed dividend                         |                                          |        | 0.00                       |        |   |                           | 0.00   |        |      |         | (0.11   | )       |   |         | (0.53  | )     
|                                                                                           |                                                             |                                          |        |                            |        |   |                           |        |        |      |         |        
|                                                                                           | Loss per share attributable to common
stockholders          |                                          | $      | (0.32                      | )      |   | $                         | (0.03  | )      |      | $       | (0.67   | )       |   | $       | (0.97  | )     
|                                                                                           |                                                             |                                          |        |                            |        |   |                           |        |        |      |         |        
|                                                                                           | Weighted average common shares                              |                                          |        | 24,314                     |        |   |                           | 24,881 |        |      |         | 24,592  |         |   |         | 15,017 |       
|                                                                                           |                                                             |                                          |        |                            |        |   |                           |        |        |      |         |        

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,             |        
|                                                     |                                                                             |                                                                               |         |                                                     |       |                           |        
|                                                     |                                                                             |                                                                               |         |                                                     |       | 2001                      |         |         | 2000  |  
|                                                     |                                                                             |                                                                               |         |                                                     |       |                           |         |         |       |  
|Cash Flows from Operating Activities:                |                                                                             |                                                                               |         |                                                     |       |                           |         |        
|                                                     | Net loss                                                                    |                                                                               | $       | (13,771                                             | )     |                           | $       | (7,630  | )    
|                                                     | Adjustments to reconcile net loss to net cash used in operating
activities- |                                                                               |         |                                                     |       |                           |         |         |      
|                                                     |                                                                             | Depreciation and amortization                                                 |         | 1,394                                               |       |                           |         | 937     |      
|                                                     |                                                                             | Amortization of discount on subordinated debt                                 |         |                                                     |      |                           |         |         | 965   |  
|                                                     |                                                                             | Restructuring and inventory impairment charges                                |         |                                                     | 3,566 |                           |         |         | 600   |  
|                                                     |                                                                             | Callable common stock issued in lieu of interest                              |         |                                                     |      |                           |         |         | 208   |  
|                                                     |                                                                             | Amortization of deferred compensation                                         |         |                                                     | 19    |                           |         |         | 19    |  
|                                                     |                                                                             | Amortization of capitalized license fees                                      |         |                                                     | 344   |                           |         |         |      |  
|                                                     |                                                                             | Extraordinary loss                                                            |         |                                                     |      |                           |         |         | 1,050 |  
|                                                     |                                                                             | Gain on sale of investment                                                    |         |                                                     |      |                           |         |         | (407  | )
|                                                     |                                                                             | Gain on sale of assets                                                        |         |                                                     |      |                           |         |         | (484  | )
|                                                     |                                                                             | Other                                                                         |         |                                                     | 57    |                           |         |         | 50    |  
|                                                     |                                                                             | Increase (decrease) in cash resulting from changes in assets and
liabilities-
|                                                     |                                                                             |                                                                               |         | Accounts receivable                                 |       |                           | 2,620   |         |       |   | (3,157  | )
|                                                     |                                                                             |                                                                               |         | Inventories                                         |       |                           | (2,767  | )       |       |   | (1,766  | )
|                                                     |                                                                             |                                                                               |         | Prepaid expenses and other                          |       |                           | (372    | )       |       |   | (314    | )
|                                                     |                                                                             |                                                                               |         | Accounts payable                                    |       |                           | (1,318  | )       |       |   | 1,856   |  
|                                                     |                                                                             |                                                                               |         | Accrued liabilities                                 |       |                           | (690    | )       |       |   | 233     |  
|                                                     |                                                                             |                                                                               |         | Deferred revenue                                    |       |                           | (151    | )       |       |   | 180     |  
|                                                     |                                                                             |                                                                               |         |                                                     |       |                          
|                                                     |                                                                             |                                                                               |         | Net cash used in operating activities               |       |                           | (11,069 | )       |       |   | (7,660  | )
|                                                     |                                                                             |                                                                               |         |                                                     |       |                          
|Cash Flows from Investing Activities:                |                                                                             |                                                                               |         |                                                     |       |                           |         |        
|                                                     | Purchase of property and equipment                                          |                                                                               |         | (1,826                                              | )     |                           |         | (1,118  | )    
|                                                     | Increase in other assets                                                    |                                                                               |         | (19                                                 | )     |                           |         | (108    | )    
|                                                     | Increase in repurchase agreements                                           |                                                                               |         |                                                    |       |                           |         | (30,000 | )    
|                                                     | Capitalized license fees                                                    |                                                                               |         | (3,465                                              | )     |                           |         |        |      
|                                                     | Equity investment                                                           |                                                                               |         | (501                                                | )     |                           |         |        |      
|                                                     | Proceeds from sale of investment                                            |                                                                               |         |                                                    |       |                           |         | 575     |      
|                                                     | Proceeds from sale of property and equipment                                |                                                                               |         | 33                                                  |       |                           |         | 18      |      
|                                                     |                                                                             |                                                                               |         |                                                     |       |                           |         |         |       |  
|                                                     |                                                                             |                                                                               |         | Net cash used in investing activities               |       |                           | (5,778  | )       |       |   | (30,633 | )
|                                                     |                                                                             |                                                                               |         |                                                     |       |                          
|Cash Flows from Financing Activities:                |                                                                             |                                                                               |         |                                                     |       |                           |         |        
|                                                     | Repayment of subordinated debt                                              |                                                                               |         |                                                    |       |                           |         | (9,500  | )    
|                                                     | Borrowings under sale-leaseback transactions                                |                                                                               |         |                                                    |       |                           |         | 113     |      
|                                                     | Proceeds from issuance of common stock and callable common stock            |                                                                               |         | 88                                                  |       |                           |         | 55,291  |      
|                                                     | Net borrowings under lines of credit                                        |                                                                               |         | 2,500                                               |       |                           |         | 30,027  |      
|                                                     | Repayment of long-term debt                                                 |                                                                               |         | (1,861                                              | )     |                           |         | (545    | )    
|                                                     | Repurchase of stock from PerkinElmer, Inc.                                  |                                                                               |         | (5,500                                              | )     |                           |         |        |      
|                                                     | Proceeds from issuance of preferred stock                                   |                                                                               |         |                                                    |       |                           |         | 7,479   |      
|                                                     | Other financing activities                                                  |                                                                               |         | (6                                                  | )     |                           |         | (6      | )    
|                                                     |                                                                             |                                                                               |         |                                                     |       |                          
|                                                     |                                                                             |                                                                               |         | Net cash provided by (used in) financing activities |       |                           | (4,779  | )       |       |   | 82,859  |  
|                                                     |                                                                             |                                                                               |         |                                                     |       |                          
|Effect of Exchange Rate Changes                      |                                                                             |                                                                               | 79      |                                                     |       |                           | (148    | )      
|                                                     |                                                                             |                                                                               |         |                                                     |       |                          
|Net Increase (Decrease) in Cash and Cash Equivalents |                                                                             |                                                                               | (21,547 | )                                                   |       |                           | 44,418  |        
|Cash and Cash Equivalents  Beginning of Period      |                                                                             |                                                                               | 40,159  |                                                     |       |                           | 1,328   |        
|                                                     |                                                                             |                                                                               |         |                                                     |       |                          
|Cash and Cash Equivalents  End of Period            |                                                                             | $                                                                             | 18,612  |                                                     |       | $                         | 45,746  |        
|                                                     |                                                                             |                                                                               |         |                                                     |       |                          
|Supplemental Disclosure of Cash Flow Activity:       |                                                                             |                                                                               |         |                                                     |       |                           |         |        
|                                                     | Cash paid for interest                                                      |                                                                               | $       | 221                                                 |       |                           | $       | 1,302   |      
|                                                     | Cash paid for income taxes                                                  |                                                                               | $       | 71                                                  |       |                           | $       |        |      
|                                                     |                                                                             |                                                                               |         |                                                     |       |                          
|Supplemental Disclosure of Non-Cash Flow Activity:   |                                                                             |                                                                               |         |                                                     |       |                           |         |        
|                                                     | Equipment purchased under capital lease obligations                         |                                                                               | $       |                                                    |       |                           | $       | 959     |      
|                                                     |                                                                             |                                                                               |         |                                                     |       |                          

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

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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 latest annual report on Form 10-K.

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, 2001 and 2000, 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 loss 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, 2001 and 2000 are as follows (in thousands):

|                                        |  |                            |        |   |                           |   |      |             |  |   |             |   |  |   |        |  
|--------------------------------------- |  | -------------------------- | ------ | - | ------------------------- | - | ---- | ----------- |  | - | ----------- | - |  | - | ------ | -
|                                        |  | For the three months ended |        |   | For the nine months ended |  
|                                        |  | September 30,              |        |   | September 30,             |  
|                                        |  |                            |        |   |                           |  
|                                        |  | 2001                       |        |   | 2000                      |   |      | 2001        |  |   | 2000        |  
|                                        |  |                            |        |   |                           |   |      |             |  |   |             |  
|                                        |  | (Unaudited)                |        |   | (Unaudited)               |   |      | (Unaudited) |  |   | (Unaudited) |  
|Net loss                                |  | $                          | (7,853 | ) |                           | $ | (869 | )           |  | $ | (13,771     | ) |  | $ | (7,630 | )
|Foreign currency translation adjustment |  |                            | 367    |   |                           |   | (111 | )           |  |   | (137        | ) |  |   | (371   | )
|                                        |  |                            |        |   |                           |   |      |             |  |   |             |  
|Comprehensive loss                      |  | $                          | (7,486 | ) |                           | $ | (980 | )           |  | $ | (13,908     | ) |  | $ | (8,001 | )
|                                        |  |                            |        |   |                           |   |      |             |  |   |             |  

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Recent Accounting Pronouncements

Statements of Financial Accounting Standards (SFAS) No. 141, Business
Combinations and SFAS No. 142 Goodwill and Other Intangible Assets, were
recently approved by the Financial Accounting Standards Board. These
pronouncements amend the accounting for business combinations, goodwill, and
intangible assets. SFAS No. 141 eliminates the pooling-of-interests method of
accounting for business combinations and further clarifies the criteria to
recognize intangible assets separately from goodwill. The requirements of SFAS
No. 141 are effective for any business combination that is completed after June
30, 2001. SFAS No. 142 no longer permits amortization of goodwill and
indefinite lived intangible assets. Separable intangible assets that are not
deemed to have an indefinite life will continue to be amortized over their
useful lives. In addition, SFAS No. 142 establishes a new method of testing
goodwill for impairment by using a fair-value approach. The amortization
provisions of SFAS No. 142 apply to goodwill and intangible assets acquired
after June 30, 2001. With respect to goodwill and intangible assets acquired
prior to July 1, 2001, companies are required to adopt the pronouncement in
their fiscal year beginning after December 15, 2001. Total goodwill included
in the Companys Financial Statements was $465,000 at September 30, 2001 and
$954,000 at December 31, 2000. Goodwill amortization expense was $75,000
during the third quarter of 2001 and the third quarter of 2000. Goodwill
amortization expense was $224,000 during the nine months ended September 30,
2001 and the nine months ended September 30, 2000. The Company is currently
assessing the effect of the new standards related to the impairment testing of
goodwill.

In June 2001, the FASB issued Statement of Financial Accounting Standards No.
143 (SFAS 143), Accounting for Asset Retirement Obligations. SFAS 143
establishes standards associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. This statement is effective
for financial statements issued for fiscal years beginning after June 15, 2002.
Genomic Solutions has not yet assessed the impact of this standard on its
financial statements, but does not expect the impact to be material.

In August 2001, the FASB issued Statement of Financial Accounting Standards No.
144 (SFAS 144), Accounting for the Impairment or Disposal of Long-Lived
Assets. SFAS 144 supercedes SFAS 121, although it retains the fundamental
principles of how to measure the impairment of assets held for use and assets
to be disposed of by sale. It requires that long-lived assets to be disposed
of other than by sale be considered held and used until disposed of. It also
provides new guidance for using a probability-weighted approach for measuring
future cash flows when there are alternative courses of action. This statement
is effective for financial statements issued for years beginning after December
15, 2001. Genomic Solutions has not yet assessed the impact of this standard
on its financial statements, but does not expect the impact to be material.

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2. INVENTORIES

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

|                |  |   |               |  |  |              |       |  | 
|--------------- |  | - | ------------- |  |  | ------------ | ----- |  | 
|                |  |   | September 30, |  |  | December 31, |      
|                |  |   | 2001          |  |  | 2000         |      
|                |  |   |               |  |  |              |      
|                |  |   | (Unaudited)   |  |  |              |       | 
|Raw materials   |  | $ | 3,120         |  |  | $            | 2,673 | 
|Work-in-process |  |   | 1,486         |  |  |              | 764   | 
|Finished goods  |  |   | 2,901         |  |  |              | 2,297 | 
|                |  |   |               |  |  |             
|                |  |   | 7,507         |  |  | $            | 5,734 | 
|                |  |   |               |  |  |             

3. REPURCHASE OF STOCK FROM PERKINELMER, INC.

In April 2001, we repurchased 873,016 shares of our common stock owned by
PerkinElmer, or about 69% of the total shares of our stock held by PerkinElmer,
at PerkinElmers original purchase price. As a result of the sale by
PerkinElmer of more than half of its holdings of Genomic Solutions stock,
PerkinElmers right to cause us to redeem our callable common stock terminated
and each outstanding share of our callable common stock automatically converted
into one share of our common stock. Net loss per share available to common
stockholders for the nine months ended September 30, 2001 includes the $0.11
per share effect of the fair value of the repurchase of our stock held by
PerkinElmer, in excess of the fair value of our stock held by PerkinElmer.

4. INVESTMENTS

On May 31, 2001, the Company purchased 463,500 shares of Series A Convertible
Preferred Stock of Photonic Sensor Systems, Inc. for an aggregate purchase
price of $500,000. Concurrently with the preferred stock purchase agreement,
the companies also entered into a research and development agreement,
cancelable at the Companys option, whereby the Company will purchase, in
aggregate, up to 19.9% of Photonic Sensor Systems, Inc. provided certain
development milestones are met.

5. RESTRUCTURING AND INVENTORY IMPAIRMENT CHARGES

On September 7, 2001, the Company announced restructuring initiatives designed
to lower its cost structure and achieve profitability in 2002. The restructuring plan includes closing certain facilities, divesting its proteomic contract research
services business, reducing its employee headcount by approximately 25% and
discontinuing certain products. As a result of this restructuring plan, the Company recorded restructuring and inventory impairment charges of
approximately $2.4 million and $1.2 million, respectively, during the third quarter
ended September 30, 2001.

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The restructuring charge of $2.4 million consists of $261,000 for the
impairment of goodwill; $376,000 for the impairment of certain long-lived
assets, $917,000 for the loss on disposal and sale of certain fixed assets,
$280,000 for employee termination benefits for 39 employees, and $552,000 for
exit costs associated with closing certain facilities. In connection with the
restructuring initiatives, the Company estimated the discounted future cash
flows related to goodwill and certain fixed assets and reduced these assets
to their estimated fair value. As of September 30, 2001, the Company has terminated 27 employees
and paid out $134,000 in termination benefits. There have been no lease cancellation costs paid out to
date. The Company expects to complete all restructuring activities by January 31, 2002. At September 30, 2001, the remaining balance of the
restructuring reserve totaled $739,000 and is included in accrued liabilities
in the Companys condensed consolidated balance sheet.

The inventory impairment charge of $1.2 million relates to the
write-down of inventories related to discontinuing
the manufacture of certain products. This charge is included as a separate
component of cost of revenue in the Companys condensed consolidated statements
of operations.

The following table summarizes the restructuring charges (in thousands):

|                                    |  |           |     |  |      |          |     |            |  |   |                    |  |  |   |     | 
|----------------------------------- |  | --------- | --- |  | ---- | -------- | --- | ---------- |  | - | ------------------ |  |  | - | --- | 
|                                    |  |           |     |  |      | Utilized |     |            |  |   |                   
|                                    |  | Original  |     |  |      |          |     | Accrual at | 
|                                    |  | Provision |     |  | Cash |          |     | Noncash    |  |   | September 30, 2001 | 
|                                    |  |           |     |  |      |          |     |            |  |   |                    | 
|Impairment of long-lived assets     |  | $         | 0.7 |  |      | $        |    |            |  | $ | 0.7                |  |  | $ |    | 
|Loss on disposal and sale of assets |  |           | 0.9 |  |      |          |    |            |  |   | 0.9                |  |  |   |    | 
|Employee termination benefits       |  |           | 0.3 |  |      |          | 0.1 |            |  |   |                   |  |  |   | 0.2 | 
|Lease cancellation costs            |  |           | 0.5 |  |      |          |    |            |  |   |                   |  |  |   | 0.5 | 
|                                    |  |           |     |  |      |          |     |            |  |   |                    | 
|Total                               |  | $         | 2.4 |  |      | $        | 0.1 |            |  | $ | 1.6                |  |  | $ | 0.7 | 
|                                    |  |           |     |  |      |          |     |            |  |   |                    | 

6. SEGMENT 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 sell products to customers on a worldwide basis. Sales and marketing
operations outside the United States are conducted principally through our
foreign subsidiary in Japan 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. Revenue is attributed to each geographic region based on
the location of the entity from which the sale is consummated.

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,             |       
|         |                             |               |   |                            |       |  |                           |       
|         |                             |               |   | 2001                       |       |  | 2000                      |        |       | 2001        |   |        | 2000        | 
|         |                             |               |   |                            |       |  |                           |        |       |             |   |        |             | 
|         |                             |               |   | (Unaudited)                |       |  | (Unaudited)               |        |       | (Unaudited) |   |        | (Unaudited) | 
|Revenue: |                             |               |   |                            |       |  |                           |        |       |             |   |        |             |  |   |       
|         | United States               |               | $ | 3,916                      |       |  | $                         | 3,086  |       |             | $ | 10,476 |             |  | $ | 7,647  |       
|         | Europe                      |               |   | 2,332                      |       |  |                           | 2,877  |       |             |   | 7,987  |             |  |   | 8,684  |       
|         | Japan                       |               |   | 375                        |       |  |                           | 1,436  |       |             |   | 2,527  |             |  |   | 3,549  |       
|         | Less  Intercompany revenue |               |   | (2,994                     | )     |  |                           | (2,361 | )     |             |   | (8,519 | )           |  |   | (6,347 | )     
|         |                             |               |   |                            |       |  |                           |        |       |             |   |       
|         |                             | Total revenue |   | $                          | 3,629 |  |                           | $      | 5,038 |             |   | $      | 12,471      |  |   | $      | 13,533 | 
|         |                             |               |   |                            |       |  |                           |        |       |             |   |       

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|                   |                     |                         |   |               |       |  |              |        |        | 
|------------------ | ------------------- | ----------------------- | - | ------------- | ----- |  | ------------ | ------ | ------ | 
|                   |                     |                         |   | September 30, |       |  | December 31, |       
|                   |                     |                         |   | 2001          |       |  | 2000         |       
|                   |                     |                         |   |               |       |  |             
|                   |                     |                         |   | (Unaudited)   |       |  |              |       
|Long-lived assets: |                     |                         |   |               |       |  |              |       
|                   | United States       |                         | $ | 16,925        |       |  | $            | 17,334 |       
|                   | Europe              |                         |   | 939           |       |  |              | 916    |       
|                   | Japan               |                         |   | 163           |       |  |              | 168    |       
|                   | Goodwill            |                         |   | 465           |       |  |              | 954    |       
|                   | Less  Eliminations |                         |   | (8,943        | )     |  |              | (8,943 | )     
|                   |                     |                         |   |               |       | 
|                   |                     | Total long-lived assets |   | $             | 9,549 |  |              | $      | 10,429 | 
|                   |                     |                         |   |               |       | 

7. LONG-TERM DEBT

In September 2001, the Company repaid the remaining balances due of
approximately $1.4 million under its lease line-of-credit agreements with a leasing
company.

8. ACQUISITION OF CARTESIAN TECHNOLOGIES

On September 7, 2001, the Company entered into an agreement to acquire
Cartesian Technologies Inc. (Cartesian) for approximately $17.7 million,
consisting of 6,800,679 shares of common stock (with a fair value of
approximately $13.5 million, net of issuance expenses), 449,321 vested options
to purchase shares of the Companys common stock, and $2.5 million in cash. The acquisition is
expected to close in the fourth quarter after obtaining shareholder approvals
and completing other customary closing conditions.

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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, 2001 and for the three and nine month
periods ended September 30, 2001 and 2000 should be read in conjunction with
Managements Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and Notes thereto
contained in the Companys Annual Report on Form 10-K for the year ended
December 31, 2000. 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
latest Annual Report on Form 10-K. 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, and consumables. Our DNA microarray 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 products and automated systems to produce microarrays,
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, 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.

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RESULTS OF OPERATIONS

Three months ended September 30, 2001 and 2000

Revenue

Revenue decreased $1.4 million, or 28%, to $3.6 million in the third quarter of
2001 from $5.0 million in the third quarter of 2000. The decrease was primarily
due to the $1.5 million decline in instrumentation sales, driven mainly by
reduced sales of our genomic products. This decrease was slightly offset by an
increase in our consumables and services revenue. Revenue from consumables and
services increased $127,000 to $399,000 in the third quarter of 2001 from
$272,000 in the third quarter of 2000. We believe the decrease in
instrumentation sales resulted primarily from our prospective customers
delaying order placements, rather than losing orders to competition.

Cost of revenue

Cost of revenue was $3.7 million in the third quarter of 2001 and included $1.2
million due to the disposal and markdown of inventory in connection with the
Companys restructuring plan. Excluding this impairment charge, cost of revenue
was $2.5 million; flat when compared to the third quarter of 2000 and the
second quarter of 2001. Cost of revenue, excluding this impairment charge, as a
percentage of total revenue increased to 70% in the third quarter of 2001
compared to 50% in the third quarter of 2000. The increase was primarily due to
increased spending on product support and employees as a result of 7 additional
production and assembly personnel and facilities costs primarily due to the
expansion of the Companys robotic and fluidic handling production facility in
Huntingdon, England. The Companys gross profit margin was therefore negatively
impacted primarily as a result of a declining volume of units sold over which
to apply production labor and overhead as well as the poor revenue performance
in Japan, which traditionally delivers the highest percentage gross margin
sales.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $710,000, or 24%, to
$3.7 million in the third quarter of 2001 from $3 million in the third quarter
of 2000. Of this increase, approximately $301,000 was attributable to salaries
and other employee-related costs due to 10 additional sales, marketing and
administrative personnel. Approximately $149,000 was attributable to increased
professional, legal and litigation expenses, approximately $204,000 was
attributable to an increase in our reserve for bad debts and the remaining
approximately $56,000 was attributable to increased office expenses and
depreciation expense associated with the additional personnel.

Research and development expenses

Research and development expenses increased $327,000, or 23%, to $1.8 million
in the third quarter of 2001 compared to $1.5 million in the third quarter of
2000. Of this increase, approximately $325,000 was attributable to salaries and
other employee related costs due to 11 additional research and development
personnel.

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Restructuring and inventory impairment charges

On September 7, 2001, we announced
restructuring initiatives designed to lower our cost structure and
achieve profitability in 2002. The restructuring plan includes
closing certain facilities, divesting our proteomic contract research services
business, reducing our employee headcount by approximately 25% and
discontinuing certain products. In the three months ended September 30, 2001,
we recorded restructuring and inventory impairment charges of approximately
$2.4 million and $1.2 million, respectively, related to these initiatives.

The restructuring charge of $2.4 million consists of $261,000 for the
impairment of goodwill; $376,000 for the impairment of certain long-lived
assets, $917,000 for the loss on disposal and sale of certain fixed assets,
$280,000 for employee termination benefits for 39 employees, and $552,000 for
exit costs associated with closing our Lansing, Michigan and San Diego,
California facilities. As of September 30, 2001, we have terminated
27 employees and paid out $134,000 in termination benefits. There
have been no lease cancellation costs paid out to date. We expect to
complete all restructuring activities by January 31, 2002.  At September 30,
2001, the remaining balance of the
restructuring reserve totaled $739,000 and is included in accrued liabilities
in our condensed consolidated balance sheet. We expect to incur future
costs related to this restructuring of approximately $241,000 through the first
quarter of 2002 which will be recorded as future restructuring charges in the
consolidated statements of operations.

Interest expense

Interest expense decreased $133,000 to $122,000 in the third quarter of 2001
from $255,000 in the third quarter of 2000. The decrease was due to the
decline in average debt outstanding on borrowings under our commercial bank
borrowing facility and under capital leases.

Interest income

Interest income decreased $760,000 in the third quarter of 2001 to $188,000
from $948,000 in the third quarter of 2000. The decrease is due to lower
average cash and cash equivalent balances and lower interest rates in 2001.

Provision for income taxes

We incurred net operating losses in the three months ended September 30, 2001
and 2000, and consequently, we did not pay any federal income taxes in the
United States. The income tax benefit of $71,000 for the three months ended
September 30, 2001 represents a decrease to the income tax provision in Japan
by our Japanese subsidiary due to a net loss in the third quarter of 2001. At
December 31, 2000, we have available net operating loss carryforwards of
approximately $27.4 million, which can be utilized to offset future taxable
income. These net operating loss carryforwards expire between 2010 and 2020.
Additionally, utilization of 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 and as a result of 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.

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Nine months ended September 30, 2001 and 2000

Revenue

Revenue decreased $1.1 million, or 8%, to $12.5 million in the nine months
ended September 30, 2001 from $13.5 million in the nine months ended September
30, 2000. The decrease was primarily due to the $2 million decline in
instrumentation sales, driven mainly by reduced sales of our genomic products.
This decrease was slightly offset by an increase in our consumables and
services revenue. Revenue from consumables and services increased $926,000, or
109%, to $1.8 million in the nine months ended September 30, 2001 from $853,000
million in the nine months ended September 30, 2000. We believe the decrease
in instrumentation sales resulted primarily from our prospective customers
delaying order placements, rather than losing orders to competition.

Cost of revenue

Cost of revenue increased $1.8 million, or 26%, to $8.7 million in the nine
months ended September 30, 2001 from $6.9 million in the nine months ended
September 30, 2000. Cost of revenue for the third quarter 2001 included a
charge for $1.2 million due to the disposal and markdown of inventory in
connection with of the Companys restructuring plan. The increase was also due
to increased spending on product support and employees as a result of 14
additional production and assembly personnel as well as increased facilities
costs due to the expansion of the Companys robotic and fluidic handling
production facility in Huntingdon, England.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $1.7 million, or 19%, to
$10.7 million in the nine months ended September 30, 2001 from $8.9 million in
the nine months ended September 30, 2000. Of this increase, approximately
$439,000 was attributable to salaries and other employee-related costs due to
16 additional sales, marketing and administrative personnel. Approximately
$105,000 was attributable to increased advertising and promotional activities,
approximately $349,000 was attributable to increased professional legal and
litigation expenses, approximately $101,000 was attributable to an increase in
outside consulting services, approximately $196,000 was attributable to an
increase in our reserve for bad debts and the remaining approximately $545,000
was attributable to increased office expenses and depreciation expense
associated with the additional personnel.

Research and development expenses

Research and development expenses increased $1.3 million, or 33%, to $5.4
million in the nine months ended September 30, 2001 compared to $4.1 million in
the nine months ended September 30, 2000. Of this increase, approximately
$657,000 was attributable to salaries and other employee related costs due
primarily to 12 additional research and development personnel. Approximately
$402,000 was due to an increase in outside consulting services, patent costs,
and license and development fees associated with agreements entered into by the
Company in the most recent twelve months. The remaining approximately $275,000
was attributable to increased office expenses and depreciation expense
associated with additional personnel.

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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 15 employees and $200,000 for
exit costs associated with closing the facility. The restructuring reserve has
been fully utilized and there is no remaining balance at September 30, 2001.

Interest expense

Interest expense decreased $2.3 million in the nine months ended September 30,
2001 to $203,000 from $2.5 million in the nine months ended September 30, 2000.
This decrease was primarily due to the repayment on June 9, 2000 of $6.0
million of subordinated notes with warrants issued in April 1999 and $3.5
million of subordinated notes with warrants issued in October 1999 as well as
the reduction in our average borrowings under our commercial bank borrowing
facility. The $203,000 of interest in 2001 represents interest incurred on
borrowings under our commercial bank borrowing facility and under capital
leases.

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.

Interest income

Interest income decreased $917,000 in the nine months ended September 30, 2001
to $1 million from $1.9 million in the nine months ended September 30, 2000.
The decrease is due to lower average cash and cash equivalent balances and
lower interest rates in 2001.

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Other income

Other income, net of other expense, decreased $850,000 to $54,000 in the nine
months ended September 30, 2001 from $904,000 in the nine months ended
September 30, 2000. This decrease is primarily due to the $484,000 gain on
sale of all our product and intellectual property rights to the mass
spectrometer developed by us in collaboration with HD Technologies and the
$407,000 gain on the sale of our 30% ownership interest in HD Technologies
recognized in January 2000.

Benefit from income taxes

We incurred net operating losses in the nine months ended September 30, 2001
and 2000, and consequently, we did not pay any federal income taxes in the
United States. The income tax expense of $2,000 for the nine months ended
September 30, 2001 represents income taxes accrued in Japan by our Japanese
subsidiary. At December 31, 2000, we have available net operating loss
carryforwards of approximately $27.4 million, which can be utilized to offset
future taxable income. These net operating loss carryforwards expire between
2010 and 2020. Additionally, utilization of 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 and as a result of
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.

RECENT ACCOUNTING PRONOUNCEMENTS

Statements of Financial Accounting Standards (SFAS) No. 141, Business
Combinations and SFAS No. 142 Goodwill and Other Intangible Assets, was
recently approved by the Financial Accounting Standards Board. These
pronouncements amend the accounting for business combinations, goodwill, and
intangible assets. SFAS No. 141 eliminates the pooling-of-interests method of
accounting for business combinations and further clarifies the criteria to
recognize intangible assets separately from goodwill. The requirements of SFAS
No. 141 are effective for any business combination that is completed after
September 30, 2001. SFAS No. 142 no longer permits amortization of goodwill
and indefinite lived intangible assets. Separable intangible assets that are
not deemed to have an indefinite life will continue to be amortized over their
useful lives. In addition, SFAS No. 142 establishes a new method of testing
goodwill for impairment by using a fair-value approach. The amortization
provisions of SFAS No. 142 apply to goodwill and intangible assets acquired
after September 30, 2001. With respect to goodwill and intangible assets
acquired prior to July 1, 2001, companies are required to adopt the
pronouncement in their fiscal year beginning after December 15, 2001.

The effect of adopting SFAS No. 142 in our fiscal year beginning January 1,
2002 will be to reduce operating expenses by approximately $25,000 per quarter
in 2002 or $102,000 for the year. The Company is currently assessing the
effect of the new standards related to the impairment testing of goodwill.

In June 2001, the FASB issued Statement of Financial Accounting Standards No.
143 (SFAS 143), Accounting for Asset Retirement Obligations. SFAS 143
establishes standards associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. This statement is effective
for financial statements issued for fiscal years beginning after June 15, 2002.
Genomic Solutions has not yet assessed the impact of this standard on its
financial statements, but does not expect the impact to be material.

In August 2001, the FASB issued Statement of Financial Accounting Standards No.
144 (SFAS 144), Accounting for the Impairment or Disposal
of Long-Lived
Assets. SFAS 144 supercedes SFAS 121, although it retains the fundamental
principles of how to measure the impairment of assets held for use and assets
to be disposed of by sale. It requires that long-lived assets to be disposed
of other than by sale be considered held and used until disposed of. It also
provides new guidance for using a probability-weighted approach for measuring
future cash flows when there are alternative courses of action. This statement
is effective for financial statements issued for years beginning after December
15, 2001. Genomic Solutions has not yet assessed the impact of this standard
on its financial statements, but does not expect the impact to be material.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2001 our cash and cash equivalents totaled $18.6 million
compared to $40.2 million at December 31, 2000. The $21.5 million decrease in
cash and cash equivalents is principally due to $11.1 million net cash used for
operating activities in the nine months ended September 30, 2001, $5.5 million
used to repurchase our stock held by PerkinElmer, Inc., $3.5 million in
license fee payments, $1.8 million in property and equipment additions,
$500,000 equity investment in Photonic Sensor Systems, Inc., and $1.9 million
in repayment of capital leases. We borrowed $2.5 million under our bank line
of credit borrowing facility and received $88,000 in proceeds from the sale of
our common stock upon the exercise of vested stock options by employees during
the first nine months ended September 30, 2001.

Cash used in operations for the nine-month period ended September 30, 2001 was
$11.1 million compared with $7.7 million for the same period in 2000. Cash used
in operations during the first nine months of 2001 consisted primarily of our
net loss of $13.8 million, which included non-cash charges of $3.6 million in
restructuring and inventory impairment charges, $1.4 million for depreciation
and amortization expense and $344,000 for amortization of capitalized license
fees. The use of cash in operating activities in the first nine months of 2001
was also due to increases of $2.8 million in inventory and a decrease of $2.0
million in accounts payable and accrued liabilities. The use of cash in
operating activities in 2001 was partially offset by a $2.6 million decrease in
accounts receivable. Cash used in operations during the first nine months of
2000 consisted primarily of our net loss of $7.6 million, which included
non-cash charges of $937,000 for depreciation and amortization expense,
$965,000 for amortization of discount on subordinated notes with warrants,
$600,000 for restructuring, $1.1 million for extraordinary loss on
extinguishment of debt, $407,000 gain on sale of investment in HD Technologies
and $484,000 gain on sale of assets.

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The use of cash in operating activities in 2000 was also due to increases of
$3.2 million in accounts receivable, $1.8 million in inventories and $314,000
in prepaid expenses and other assets. The use of cash in operating activities
in 2000 was partially offset by a $2.1 million increase in accounts payable and
accrued liabilities.

Our investing activities for the nine months ended September 30, 2001,
excluding activity under our repurchase agreements, used cash of $5.8 million
compared with $633,000 for the same period in 2000. Cash used in investing
activities in 2001 was attributable to $1.8 million in equipment expenditures,
$3.5 million in license fee payments and a $500,000 equity investment in
Photonic Sensor Systems, Inc. Cash used in the nine months ended September 30,
2000 of $633,000 was attributable to approximately $600,000 in cash received
from the sale of our 30% ownership interest in HD Technologies offset by $1.2
million in cash used for capital expenditures, which consisted mainly of
purchases of computers, laboratory equipment and leasehold
improvements for the expansion of laboratories.

Net cash used in financing activities for the nine months ended September 30,
2001 was $4.8 million compared with net cash provided by financing activities
of $83.0 million for the same period in 2000. Cash used in financing activities
in the first nine months of 2001 was primarily due to the repurchase of our
stock from PerkinElmer, Inc. for $5.5 million and the repayment of long-term
debt of $1.9 million, partially offset in borrowings under our bank line of
credit by $2.5 million. In June 2001, we amended our bank line of credit
agreement to provide for borrowings up to $2.5 million. Financing activities
in the first nine months of 2000 included receipt of $55.1 million in net
proceeds, after deducting underwriters discounts and commissions and other
offering expenses, from the sale of callable common stock in our initial public
offering, receipt of $7.4 million in net proceeds from the sale of preferred
stock in January 2000 and borrowings of $30.0 million under our amended primary
bank line-of-credit agreement. Financing activities for 2000 also included the
repayment of long-term debt of $545,000 and the repayment on June 9, 2000 of
$6.0 million in subordinated notes with warrants issued in April 1999 and $3.5
million of subordinated notes with warrants issued in October 1999.

Working capital decreased $20.8 million to $23.2 million at September 30, 2001
from $44.0 million at December 31, 2000. The decrease in working capital
resulted from a decrease in cash of $21.5 million and accounts receivable of
$3.3 million and an increase in current debt of $1.8 million partially offset
by an increase in inventory of $1.8 million, prepaid expenses and other assets
of $360,000 and a decrease in accounts payable and accrued liabilities balances
of $3.6 million.

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 in our latest Annual Report on Form 10-K, and incorporated herein by
reference.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

On November 27, 2000, Molecular Dynamics, Inc. filed a lawsuit against us in
Santa Clara County Superior Court, San Jose, California. The lawsuit relates to
our refusal to purchase shares of capital stock of Meridian Instruments, Inc.
owned by Molecular Dynamics. The complaint sought payment of $657,175.83, which
would increase by $8,333 each month until payment is made, as a result of a
put right in favor of Molecular Dynamics which we are allegedly obligated to
honor.

In September, 2001, we entered into a settlement agreement with Molecular
Dynamics that ends all litigation between the companies and settles all
disputes between the parties. The settlement of this matter did not have a
material impact on Genomic Solutions financial position or results of
operations.




ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

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, including the over-allotment
option, after deducting underwriting discounts and commissions and other
offering expenses, were approximately $55.1 million. Of the net offering
proceeds, through September 30, 2001, approximately $9.8 million has been used
to payoff long-term and other debt, approximately $5.5 million to repurchase
our stock from PerkinElmer, Inc., approximately $3.3 million to purchase
equipment and improve leaseholds, approximately $3.5 million for capitalized
license fees, approximately $500,000 for equity investment in a third party and
approximately $18.1 million for general corporate purposes, including hiring
additional personnel, development and manufacturing of products and expansion
of facilities. The balance is invested in short-term investment-grade
securities.




ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

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

Not Applicable

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ITEM 5. OTHER INFORMATION.

Not applicable.




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 | 
|        |  |             | 
|None   

(b)  Reports on Form 8-K



A report on Form 8-K dated September 6, 2001, was filed on October 2,
2001.

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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 12, 2001 |  | By:  /s/ Steven J. RichvalskySTEVEN J. RICHVALSKY
Chief Financial Officer, Executive
Vice President and
Treasurer (principal financial and
accounting officer)

22