##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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|(Mark One) | 
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|           |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001        
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|           |  | 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        No

The number of shares outstanding of the registrants Common Stock, $.001 par
value, as of July 31, 2001, was 24,313,800.





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TABLE OF CONTENTS



|                             |                                                                                               |                                                                                                                              |  |  |  |  |  | 
|---------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  | 
|PART I FINANCIAL INFORMATION
|                             | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                             |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2001 (UNAUDITED) AND DECEMBER 31, 2000                                 
|                             |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (UNAUDITED)
|                             |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 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

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|---------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- | -------- | -- | - | 
|PART I FINANCIAL INFORMATION |                                                                                               |                                                                                                                              | Page No.
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|                             |                                                                                               | Condensed Consolidated Balance Sheets as of June 30, 2001 (unaudited) and December 31, 2000                                  |          |    | 3 | 
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|                             |                                                                                               | Condensed Consolidated Statements of Operations for the three
months and six months ended June 30, 2001 and 2000 (unaudited) |          |    | 4 | 
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|                             |                                                                                               | Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 2001 and 2000 (unaudited)                  |          |    | 5 | 
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|                             |                                                                                               | Notes to Condensed Consolidated Financial Statements
(unaudited)                                                             |          |    | 6 | 
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|                             | Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations |                                                                                                                              |          | 9  |  
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|                             | Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |                                                                                                                              |          | 16 |  
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|PART II OTHER INFORMATION   
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|                             | Item 1. Legal Proceedings                                                                     |                                                                                                                              |          | 17 |  
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|                             | Item 2. Changes In Securities and Use of Proceeds                                             |                                                                                                                              |          | 17 |  
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|                             | Item 3. Defaults Upon Senior Securities                                                       |                                                                                                                              |          | 18 |  
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|                             | Item 4. Submission of Matters to a Vote of Security Holders                                   |                                                                                                                              |          | 18 |  
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|                             | Item 5. Other Information                                                                     |                                                                                                                              |          | 19 |  
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|                             | Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                                              |          | 19 |  

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##### Table of Contents









PART I   FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

GENOMIC SOLUTIONS INC.




|                                     |                                                                                                                                                                      |                                            |   |             |        |  |              |         |        | 
|------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | - | ----------- | ------ |  | ------------ | ------- | ------ | 
|                                     |                                                                                                                                                                      |                                            |   | June 30,    |        |  | December 31, |        
|                                     |                                                                                                                                                                      |                                            |   | 2001        |        |  | 2000         |        
|                                     |                                                                                                                                                                      |                                            |   |             |        |  |              |        
|                                     |                                                                                                                                                                      |                                            |   | (Unaudited) |        |  |             
|Assets                              
|                                    
|                                    
|                                    
|                                    
|Current Assets:                     
|                                    
|                                    
|                                    
|                                    
|                                     | Cash and cash equivalents                                                                                                                                            |                                            | $ | 23,928      |        |  | $            | 40,159  |       
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts receivable, net                                                                                                                                             |                                            |   | 5,708       |        |  |              | 7,788   |       
|                                    
|                                    
|                                    
|                                    
|                                     | Inventories                                                                                                                                                          |                                            |   | 7,476       |        |  |              | 5,734   |       
|                                    
|                                    
|                                    
|                                    
|                                     | Prepaid expenses and other                                                                                                                                           |                                            |   | 765         |        |  |              | 1,114   |       
|                                     |                                                                                                                                                                      |                                            |   |             |        | 
|                                     |                                                                                                                                                                      | Total current assets                       |   |             | 37,877 |  |              |         | 54,795 | 
|                                    
|                                    
|                                    
|                                    
|                                     | Property and equipment, net                                                                                                                                          |                                            |   | 5,087       |        |  |              | 4,735   |       
|                                    
|                                    
|                                    
|                                    
|                                     | Goodwill, net                                                                                                                                                        |                                            |   | 805         |        |  |              | 954     |       
|                                    
|                                    
|                                    
|                                    
|                                     | License fees, net                                                                                                                                                    |                                            |   | 4,296       |        |  |              | 4,524   |       
|                                    
|                                    
|                                    
|                                    
|                                     | Other assets                                                                                                                                                         |                                            |   | 725         |        |  |              | 216     |       
|                                     |                                                                                                                                                                      |                                            |   |             |        | 
|                                     |                                                                                                                                                                      | Total assets                               |   | $           | 48,790 |  |              | $       | 65,224 | 
|                                     |                                                                                                                                                                      |                                            |   |             |        | 
|Liabilities and Stockholders Equity
|                                    
|                                    
|                                    
|                                    
|Current Liabilities:                
|                                    
|                                    
|                                    
|                                    
|                                     | Current portion of long-term debt                                                                                                                                    |                                            | $ | 739         |        |  | $            | 754     |       
|                                    
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|                                     | Accounts payable                                                                                                                                                     |                                            |   | 2,863       |        |  |              | 3,711   |       
|                                    
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|                                     | Accrued liabilities                                                                                                                                                  |                                            |   | 3,925       |        |  |              | 6,067   |       
|                                    
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|                                    
|                                    
|                                     | Deferred revenue                                                                                                                                                     |                                            |   | 256         |        |  |              | 293     |       
|                                     |                                                                                                                                                                      |                                            |   |             |        |  |             
|                                     |                                                                                                                                                                      | Total current liabilities                  |   |             | 7,783  |  |              |         | 10,825 | 
|                                     |                                                                                                                                                                      |                                            |   |             |        |  |             
|Long-Term Liabilities:              
|                                    
|                                    
|                                    
|                                    
|                                     | Long-term debt, less current portion                                                                                                                                 |                                            |   | 826         |        |  |              | 1,202   |       
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|                                     | Other long-term liabilities                                                                                                                                          |                                            |   | 56          |        |  |              | 1,208   |       
|                                     |                                                                                                                                                                      |                                            |   |             |        |  |             
|                                     |                                                                                                                                                                      | Total long-term liabilities                |   |             | 882    |  |              |         | 2,410  | 
|                                    
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|                                    
|Stockholders Equity:               
|                                    
|                                    
|                                    
|                                    
|                                     | Convertible preferred stock, $0.001 par
value; 15,000 shares authorized; zero shares
issued and outstanding at June 30, 2001 and
December 31, 2000                   |                                            |   |            |        |  |              |        |       
|                                    
|                                    
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|                                    
|                                     | Callable common stock, $.001 par value;
40,000 shares authorized; zero and 23,758
shares issued and outstanding at June 30,
2001 and December 31, 2000, respectively |                                            |   |            |        |  |              | 24      |       
|                                    
|                                    
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|                                    
|                                     | Common stock, $.001 par value; 40,000 shares
authorized; 24,308 and 1,270 shares issued
and outstanding at June 30, 2001 and December
31, 2000, respectively         |                                            |   | 24          |        |  |              | 1       |       
|                                    
|                                    
|                                    
|                                    
|                                     | Additional paid-in capital                                                                                                                                           |                                            |   | 88,868      |        |  |              | 94,317  |       
|                                    
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|                                     | Notes receivable                                                                                                                                                     |                                            |   | (134        | )      |  |              | (129    | )     
|                                    
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|                                     | Deferred compensation related to stock options                                                                                                                       |                                            |   | (85         | )      |  |              | (98     | )     
|                                    
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|                                     | Retained deficit                                                                                                                                                     |                                            |   | (47,873     | )      |  |              | (41,955 | )     
|                                    
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|                                     | Accumulated other comprehensive loss                                                                                                                                 |                                            |   | (675        | )      |  |              | (171    | )     
|                                     |                                                                                                                                                                      |                                            |   |             |        |  |             
|                                     |                                                                                                                                                                      | Total stockholders equity                 |   |             | 40,125 |  |              |         | 51,989 | 
|                                     |                                                                                                                                                                      |                                            |   |             |        |  |             
|                                     |                                                                                                                                                                      | Total liabilities and stockholders equity |   | $           | 48,790 |  |              | $       | 65,224 | 
|                                     |                                                                                                                                                                      |                                            |   |             |        | 

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

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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 six months ended |       
|                                                                                           |                                                             |                                           |        | June 30,                   |        |   | June 30,                 |       
|                                                                                           |                                                             |                                           |        |                            |        |   |                          |       
|                                                                                           |                                                             |                                           |        | 2001                       |        |   | 2000                     |        |        | 2001 |        |        | 2000   |  
|                                                                                           |                                                             |                                           |        |                            |        |   |                          |        |        |      |        |        |        |  
|Revenue:                                                                                  
|                                                                                          
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|                                                                                           | Product revenue                                             |                                           | $      | 4,083                      |        |   | $                        | 4,303  |        |      | $      | 8,096  |        |   | $       | 8,094  |       
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|                                                                                           | Service revenue                                             |                                           |        | 380                        |        |   |                          | 197    |        |      |        | 746    |        |   |         | 401    |       
|                                                                                           |                                                             |                                           |        |                            |        |   |                          |        |        |      |        |       
|                                                                                           |                                                             | Total revenue                             |        |                            | 4,463  |   |                          |        | 4,500  |      |        |        | 8,842  |   |         |        | 8,495  |  
|                                                                                           |                                                             |                                           |        |                            |        |   |                          |        |        |      |        |       
|Cost of Revenue:                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Cost of product revenue                                     |                                           |        | 2,468                      |        |   |                          | 2,254  |        |      |        | 4,813  |        |   |         | 4,199  |       
|                                                                                          
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|                                                                                           | Cost of service revenue                                     |                                           |        | 73                         |        |   |                          | 77     |        |      |        | 153    |        |   |         | 136    |       
|                                                                                           |                                                             |                                           |        |                            |        |   |                          |        |        |      |        |       
|                                                                                           |                                                             | Total cost of revenue                     |        |                            | 2,541  |   |                          |        | 2,331  |      |        |        | 4,966  |   |         |        | 4,335  |  
|                                                                                           |                                                             |                                           |        |                            |        |   |                          |        |        |      |        |       
|                                                                                           |                                                             | Gross profit                              |        |                            | 1,922  |   |                          |        | 2,169  |      |        |        | 3,876  |   |         |        | 4,160  |  
|                                                                                           |                                                             |                                           |        |                            |        |   |                          |        |        |      |        |       
|Operating Expenses:                                                                       
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Selling, general and administrative                         |                                           |        | 3,571                      |        |   |                          | 3,288  |        |      |        | 6,932  |        |   |         | 5,908  |       
|                                                                                          
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|                                                                                           | Research and development                                    |                                           |        | 1,639                      |        |   |                          | 1,489  |        |      |        | 3,620  |        |   |         | 2,614  |       
|                                                                                          
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|                                                                                           | Restructuring charge                                        |                                           |        |                           |        |   |                          | 600    |        |      |        |       |        |   |         | 600    |       
|                                                                                           |                                                             |                                           |        |                            |        |   |                          |        |        |      |        |       
|                                                                                           |                                                             | Total operating expenses                  |        |                            | 5,210  |   |                          |        | 5,377  |      |        |        | 10,552 |   |         |        | 9,122  |  
|                                                                                           |                                                             |                                           |        |                            |        |   |                          |        |        |      |        |       
|                                                                                           |                                                             | Loss from operations                      |        |                            | (3,288 | ) |                          |        | (3,208 | )    |        |        | (6,676 | ) |         |        | (4,962 | )
|                                                                                           |                                                             |                                           |        |                            |        |   |                          |        |        |      |        |       
|Other Income (Expense):                                                                   
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Interest expense                                            |                                           |        | (19                        | )      |   |                          | (587   | )      |      |        | (81    | )      |   |         | (2,247 | )     
|                                                                                          
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|                                                                                           | Interest income                                             |                                           |        | 312                        |        |   |                          | 895    |        |      |        | 834    |        |   |         | 991    |       
|                                                                                          
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|                                                                                          
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|                                                                                           | Gain on sale of investment                                  |                                           |        |                           |        |   |                          |       |        |      |        |       |        |   |         | 407    |       
|                                                                                          
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|                                                                                           | Other income, net                                           |                                           |        | 58                         |        |   |                          | 33     |        |      |        | 77     |        |   |         | 100    |       
|                                                                                           |                                                             |                                           |        |                            |        |   |                          |        |        |      |        |       
|                                                                                           |                                                             | Total other income (expense)              |        |                            | 351    |   |                          |        | 341    |      |        |        | 830    |   |         |        | (749   | )
|                                                                                           |                                                             |                                           |        |                            |        |   |                          |        |        |      |        |       
|                                                                                           |                                                             | Loss before taxes and extraordinary items |        |                            | (2,937 | ) |                          |        | (2,867 | )    |        |        | (5,846 | ) |         |        | (5,711 | )
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Provision (Benefit) for Income Taxes                                                       |                                                             |                                           | (6     | )                          |        |   |                         |        |        |      | 72     |        |        |   |        |       
|                                                                                           |                                                             |                                           |        |                            |        |   |                          |        |        |      |        |       
|                                                                                           | Loss before extraordinary items                             |                                           |        | (2,931                     | )      |   |                          | (2,867 | )      |      |        | (5,918 | )      |   |         | (5,711 | )     
|                                                                                          
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|                                                                                          
|                                                                                          
|Extraordinary Loss, net of tax expense of $0                                               |                                                             |                                           |       |                            |        |   |                         |        |        |      |       |        |        |   | (1,050  | )     
|                                                                                           |                                                             |                                           |        |                            |        |   |                          |        |        |      |        |       
|Net Loss                                                                                   |                                                             |                                           | (2,931 | )                          |        |   | (2,867                   | )      |        |      | (5,918 | )      |        |   | (6,761  | )     
|                                                                                          
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|Non-cash common stock warrant benefit                                                      |                                                             |                                           |       |                            |        |   | 3,356                    |        |        |      |       |        |        |   | 1,059   |       
|                                                                                          
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|Deemed dividend upon issuance to and subsequent
repurchase of stock from PerkinElmer, Inc. |                                                             |                                           | (2,811 | )                          |        |   |                         |        |        |      | (2,811 | )      |        |   | (8,000  | )     
|                                                                                           |                                                             |                                           |        |                            |        |   |                          |        |        |      |        |       
|Net income (loss) attributable to common
stockholders                                      |                                                             | $                                         | (5,742 | )                          |        | $ | 489                      |        |        | $    | (8,729 | )      |        | $ | (13,702 | )     
|                                                                                           |                                                             |                                           |        |                            |        |   |                          |        |        |      |        |       
|Net Income (Loss) Per Share, Basic and Diluted:                                           
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Loss per share before extraordinary items                   |                                           | $      | (0.12                      | )      |   | $                        | (0.17  | )      |      | $      | (0.24  | )      |   | $       | (0.57  | )     
|                                                                                          
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|                                                                                          
|                                                                                           | Loss per share from extraordinary items                     |                                           |        | 0.00                       |        |   |                          | 0.00   |        |      |        | (0.00  | )      |   |         | (0.11  | )     
|                                                                                           |                                                             |                                           |        |                            |        |   |                          |        |        |      |        |       
|                                                                                           | Loss per share                                              |                                           |        | (0.12                      | )      |   |                          | (0.17  | )      |      |        | (0.24  | )      |   |         | (0.68  | )     
|                                                                                          
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|                                                                                          
|                                                                                           | Income per share from non-cash common stock
warrant benefit |                                           |        | 0.00                       |        |   |                          | 0.20   |        |      |        | 0.00   |        |   |         | 0.11   |       
|                                                                                          
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|                                                                                          
|                                                                                           | Loss per share from deemed dividend                         |                                           |        | (0.12                      | )      |   |                          | 0.00   |        |      |        | (0.11  | )      |   |         | (0.80  | )     
|                                                                                           |                                                             |                                           |        |                            |        |   |                          |        |        |      |        |       
|                                                                                           | Income (loss) per share attributable to
common stockholders |                                           | $      | (0.24                      | )      |   | $                        | 0.03   |        |      | $      | (0.35  | )      |   | $       | (1.37  | )     
|                                                                                           |                                                             |                                           |        |                            |        |   |                          |        |        |      |        |       
|                                                                                           | Weighted average common shares                              |                                           |        | 24,429                     |        |   |                          | 16,589 |        |      |        | 24,734 |        |   |         | 10,009 |       
|                                                                                           |                                                             |                                           |        |                            |        |   |                          |        |        |      |        |       

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 Six Months Ended |       
|                                                     |                                                                             |                                                  |                                                                                |                                                     |     | June 30,                 |       
|                                                     |                                                                             |                                                  |                                                                                |                                                     |     |                          |       
|                                                     |                                                                             |                                                  |                                                                                |                                                     |     | 2001                     |        |         | 2000  |  
|                                                     |                                                                             |                                                  |                                                                                |                                                     |     |                          |        |         |       |  
|Cash Flows from Operating Activities:               
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net loss                                                                    |                                                  | $                                                                              | (5,918                                              | )   |                          | $      | (6,761  | )    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Adjustments to reconcile net loss to net cash used in operating
activities-
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             | Depreciation and amortization                    |                                                                                |                                                     | 908 |                          |        |         | 642   |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             | Amortization of discount on subordinated debt    |                                                                                |                                                     |    |                          |        |         | 965   |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             | Restructuring charges                            |                                                                                |                                                     |    |                          |        |         | 600   |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             | Callable common stock issued in lieu of interest |                                                                                |                                                     |    |                          |        |         | 208   |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             | Amortization of deferred compensation            |                                                                                |                                                     | 13  |                          |        |         | 13    |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             | Amortization of capitalized license fees         |                                                                                |                                                     | 228 |                          |        |         |      |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             | Extraordinary loss                               |                                                                                |                                                     |    |                          |        |         | 1,050 |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             | Gain on sale of investment                       |                                                                                |                                                     |    |                          |        |         | (407  | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             |                                                  | Increase (decrease) in cash resulting from changes in assets and
liabilities 
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             |                                                  |                                                                                | Accounts receivable                                 |     |                          | 1,767  |         |       |   | (1,863  | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             |                                                  |                                                                                | Inventories                                         |     |                          | (2,009 | )       |       |   | (1,556  | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             |                                                  |                                                                                | Prepaid expenses and other                          |     |                          | 321    |         |       |   | (531    | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             |                                                  |                                                                                | Accounts payable                                    |     |                          | (791   | )       |       |   | 1,541   |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             |                                                  |                                                                                | Accrued liabilities                                 |     |                          | (879   | )       |       |   | 915     |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                             |                                                  |                                                                                | Deferred revenue                                    |     |                          | (63    | )       |       |   | 165     |  
|                                                     |                                                                             |                                                  |                                                                                |                                                     |     |                         
|                                                     |                                                                             |                                                  |                                                                                | Net cash used in operating activities               |     |                          | (6,423 | )       |       |   | (5,019  | )
|                                                     |                                                                             |                                                  |                                                                                |                                                     |     |                         
|Cash Flows from Investing Activities:               
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Purchase of property and equipment                                          |                                                  |                                                                                | (1,273                                              | )   |                          |        | (307    | )    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Increase in other assets                                                    |                                                  |                                                                                | (19                                                 | )   |                          |        | (77     | )    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Increase in repurchase agreements                                           |                                                  |                                                                                |                                                    |     |                          |        | (30,000 | )    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capitalized license fees                                                    |                                                  |                                                                                | (2,250                                              | )   |                          |        |        |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Equity investment                                                           |                                                  |                                                                                | (500                                                | )   |                          |        |        |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from sale of investment                                            |                                                  |                                                                                |                                                    |     |                          |        | 575     |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from sale of property and equipment                                |                                                  |                                                                                | 19                                                  |     |                          |        |        |      
|                                                     |                                                                             |                                                  |                                                                                |                                                     |     |                         
|                                                     |                                                                             |                                                  |                                                                                | Net cash used in investing activities               |     |                          | (4,023 | )       |       |   | (29,809 | )
|                                                     |                                                                             |                                                  |                                                                                |                                                     |     |                         
|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            |                                                  |                                                                                | 86                                                  |     |                          |        | 55,221  |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net borrowings under lines of credit                                        |                                                  |                                                                                |                                                    |     |                          |        | 30,027  |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Repayment of long-term debt                                                 |                                                  |                                                                                | (389                                                | )   |                          |        | (348    | )    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Repurchase of stock from PerkinElmer, Inc.                                  |                                                  |                                                                                | (5,500                                              | )   |                          |        |        |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from issuance of preferred stock                                   |                                                  |                                                                                |                                                    |     |                          |        | 7,478   |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other financing activities                                                  |                                                  |                                                                                | (4                                                  | )   |                          |        | (3      | )    
|                                                     |                                                                             |                                                  |                                                                                |                                                     |     |                         
|                                                     |                                                                             |                                                  |                                                                                | Net cash provided by (used in) financing activities |     |                          | (5,807 | )       |       |   | 82,988  |  
|                                                     |                                                                             |                                                  |                                                                                |                                                     |     |                         
|Effect of Exchange Rate Changes                      |                                                                             |                                                  | 22                                                                             |                                                     |     |                          | (141   | )      
|                                                     |                                                                             |                                                  |                                                                                |                                                     |     |                         
|Net Increase (Decrease) in Cash and Cash Equivalents |                                                                             |                                                  | (16,231                                                                        | )                                                   |     |                          | 48,019 |        
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and Cash Equivalents  Beginning of Period      |                                                                             |                                                  | 40,159                                                                         |                                                     |     |                          | 1,328  |        
|                                                     |                                                                             |                                                  |                                                                                |                                                     |     |                         
|Cash and Cash Equivalents  End of Period            |                                                                             | $                                                | 23,928                                                                         |                                                     |     | $                        | 49,347 |        
|                                                     |                                                                             |                                                  |                                                                                |                                                     |     |                         
|Supplemental Disclosure of Cash Flow Activity:      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Cash paid for interest                                                      |                                                  | $                                                                              | 99                                                  |     |                          | $      | 873     |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Cash paid for income taxes                                                  |                                                  | $                                                                              | 56                                                  |     |                          | $      |        |      
|                                                     |                                                                             |                                                  |                                                                                |                                                     |     |                         
|Supplemental Disclosure of Non-Cash Flow Activity:  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Equipment purchased under capital lease obligations                         |                                                  | $                                                                              |                                                    |     |                          | $      | 120     |      
|                                                     |                                                                             |                                                  |                                                                                |                                                     |     |                         

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

5



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##### Table of Contents






GENOMIC SOLUTIONS INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

Basis of Presentation

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

The accompanying unaudited condensed consolidated financial statements should
be read in conjunction with the audited consolidated financial statements and
footnotes thereto included in the Companys 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 six month periods ended June 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
six months ended June 30, 2001 and 2000 are as follows (in thousands):

|                                        |  |                            |        |   |                          |   |        |             |  |   |             |   |  |   |        |  
|--------------------------------------- |  | -------------------------- | ------ | - | ------------------------ | - | ------ | ----------- |  | - | ----------- | - |  | - | ------ | -
|                                        |  | For the three months ended |        |   | For the six months ended |  
|                                        |  | June 30,                   |        |   | June 30,                 |  
|                                        |  |                            |        |   |                          |  
|                                        |  | 2001                       |        |   | 2000                     |   |        | 2001        |  |   | 2000        |  
|                                        |  |                            |        |   |                          |   |        |             |  |   |             |  
|                                        |  | (Unaudited)                |        |   | (Unaudited)              |   |        | (Unaudited) |  |   | (Unaudited) |  
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|Net loss                                |  | $                          | (2,931 | ) |                          | $ | (2,867 | )           |  | $ | (5,918      | ) |  | $ | (6,761 | )
|                                       
|                                       
|                                       
|                                       
|Foreign currency translation adjustment |  |                            | (60    | ) |                          |   | (223   | )           |  |   | (505        | ) |  |   | (261   | )
|                                        |  |                            |        |   |                          |   |        |             |  |   |             |  
|Comprehensive loss                      |  | $                          | (2,991 | ) |                          | $ | (3,090 | )           |  | $ | (6,423      | ) |  | $ | (7,022 | )
|                                        |  |                            |        |   |                          |   |        |             |  |   |             |  

New 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 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 $805,000 at June 30,
2001 and $954,000 at December 31, 2000. Goodwill amortization expense was $75,000 during
the second quarter of 2001 and the second quarter of 2000. Goodwill amortization expense
was $149,000 during the first half of 2001 and the first half of 2000. The Company is
currently assessing the effect of the new standards related to the impairment testing
of goodwill.

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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):

|                |  |             |       |  |              |   |       | 
|--------------- |  | ----------- | ----- |  | ------------ | - | ----- | 
|                |  | June 30,    |       |  | December 31, |  
|                |  | 2001        |       |  | 2000         |  
|                |  |             |       |  |              |  
|                |  | (Unaudited) |       |  |             
|               
|               
|               
|               
|               
|               
|               
|               
|               
|               
|               
|               
|Raw materials   |  | $           | 3,275 |  |              | $ | 2,673 | 
|               
|               
|               
|               
|Work-in-process |  |             | 1,315 |  |              |   | 764   | 
|               
|               
|               
|               
|Finished goods  |  |             | 2,886 |  |              |   | 2,297 | 
|                |  |             |       |  |              |  
|               
|               
|               
|               
|                |  | $           | 7,476 |  |              | $ | 5,734 | 
|                |  |             |       |  |              |  

3. REPURCHASE OF STOCK FROM PERKINELMER, INC.

In April 2001, we completed an offer to PerkinElmer, Inc. to repurchase 873,016
shares, 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 its 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 three and six months ended June 30, 2001 includes the $0.12 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. 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

7



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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 subsidiaries and our international distribution partner, PerkinElmer,
Inc. Intercompany sales and transfers between geographic areas are accounted
for at prices, which are designed to be, representative of third party
transactions. 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 six months ended |       
|         |                             |               |   | June 30,                   |       |  | June 30,                 |       
|         |                             |               |   |                            |       |  |                          |       
|         |                             |               |   | 2001                       |       |  | 2000                     |        |       | 2001        |   |        | 2000        | 
|         |                             |               |   |                            |       |  |                          |        |       |             |   |        |             | 
|         |                             |               |   | (Unaudited)                |       |  | (Unaudited)              |        |       | (Unaudited) |   |        | (Unaudited) | 
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|Revenue:
|        
|        
|        
|        
|         | United States               |               | $ | 3,610                      |       |  | $                        | 2,316  |       |             | $ | 6,560  |             |  | $ | 4,561  |      
|        
|        
|        
|        
|         | Europe                      |               |   | 2,902                      |       |  |                          | 3,252  |       |             |   | 5,655  |             |  |   | 5,807  |      
|        
|        
|        
|        
|         | Japan                       |               |   | 850                        |       |  |                          | 1,020  |       |             |   | 2,152  |             |  |   | 2,113  |      
|        
|        
|        
|        
|         | Less  Intercompany revenue |               |   | (2,899                     | )     |  |                          | (2,088 | )     |             |   | (5,525 | )           |  |   | (3,986 | )    
|         |                             |               |   |                            |       |  |                          |        |       |             |   |       
|         |                             | Total revenue |   | $                          | 4,463 |  |                          | $      | 4,500 |             |   | $      | 8,842       |  |   | $      | 8,495 | 
|         |                             |               |   |                            |       |  |                          |        |       |             |   |       

|                   |                     |                         |   |             |        |  |              |        |        | 
|------------------ | ------------------- | ----------------------- | - | ----------- | ------ |  | ------------ | ------ | ------ | 
|                   |                     |                         |   | June 30,    |        |  | December 31, |       
|                   |                     |                         |   | 2001        |        |  | 2000         |       
|                   |                     |                         |   |             |        |  |              |       
|                   |                     |                         |   | (Unaudited) |        |  |             
|                  
|                  
|                  
|                  
|                  
|                  
|                  
|                  
|                  
|                  
|                  
|                  
|Long-lived assets:
|                  
|                  
|                  
|                  
|                   | United States       |                         | $ | 17,951      |        |  | $            | 17,334 |       
|                  
|                  
|                  
|                  
|                   | Europe              |                         |   | 940         |        |  |              | 916    |       
|                  
|                  
|                  
|                  
|                   | Japan               |                         |   | 160         |        |  |              | 168    |       
|                  
|                  
|                  
|                  
|                   | Goodwill            |                         |   | 805         |        |  |              | 954    |       
|                  
|                  
|                  
|                  
|                   | Less  Eliminations |                         |   | (8,943      | )      |  |              | (8,943 | )     
|                   |                     |                         |   |             |        | 
|                  
|                  
|                  
|                  
|                   |                     | Total long-lived assets |   | $           | 10,913 |  |              | $      | 10,429 | 
|                   |                     |                         |   |             |        | 

8



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##### Table of Contents






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

Cautionary Statement

This Managements Discussion and Analysis of Financial Condition and
Results of Operations as of June 30, 2001 and for the three and six month
periods ended June 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, consumables and services. Unlike many other life
sciences companies in the DNA microarray and proteomic markets, we offer
integrated systems with demonstrated market acceptance. 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 integrated 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

9



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##### Table of Contents



of our research and development
projects and the timing of significant orders. Our limited operating history
makes it difficult or impossible to accurately predict future operations.

RESULTS OF OPERATIONS

Three months ended June 30, 2001 and 2000

Revenue

Revenue was $4.5 million in the second quarter of 2001; up slightly over
revenue of $4.4 million in the first quarter of 2001 and flat compared to the
second quarter of 2000. Revenue from consumables and services increased
$352,000, or 115%, to $658,000 in the second quarter of 2001 from $306,000 in
the second quarter of 2000. Increased sales of consumables and services offset
the $389,000 decrease in instrumentation sales. 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 $210,000, or 9%, to $2.5 million in the second
quarter of 2001 from $2.3 million in the second quarter of 2000. The increase
was primarily due to increased spending on product support and employees as a
result of 14 additional production and assembly personnel.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $283,000, or 9%, to $3.6
million in the second quarter of 2001 from $3.3 million in the second quarter
of 2000. Of this increase, approximately $123,000 was attributable to
increased expenses associated with advertising and promotional activities,
approximately $105,000 was attributable to increased professional and legal
expenses, and the remaining approximately $55,000 was attributable to increased
office expenses and depreciation expense associated with 16
additional sales, marketing and administrative personnel.

Research and development expenses

Research and development expenses increased $150,000, or 10%, to $1.6 million
in the second quarter of 2001 compared to $1.5 million in the second quarter of
2000. Of this increase, approximately $142,000 was attributable to salaries and
other employee related costs due to 19 additional
research and development personnel.

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Interest expense

Interest expense decreased $568,000 to $19,000 in the second quarter of 2001
from $587,000 in the second quarter of 2000. This decrease was due primarily
to the repayment on June 9, 2000 of $6.0 million of subordinated notes with
warrants issued April 1999 and $3.5 million of subordinated notes with warrants
issued October 1999. The $19,000 of interest in the second quarter of 2001
represents interest incurred on borrowings under our commercial bank borrowing
facility and under capital leases.

Interest expense in the second quarter of 2000 was reduced by amortization
income of approximately $270,000 related to the premium on our amended
subordinated notes.

Interest income

Interest income decreased $583,000 in the second quarter of 2001 to $312,000
from $895,000 in the second 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 June 30, 2001 and
2000, and consequently, we did not pay any federal income taxes in the United
States. The income tax benefit of $6,000 for the three months ended June 30,
2001 represents a decrease to the income tax provision in Japan by our Japanese
subsidiary due to a net loss in the second 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.
Realization of deferred tax assets is dependent on future earnings, if any, the
timing and amount of which are uncertain. Accordingly, valuation allowances in
amounts equal to the deferred tax assets have been established to reflect these
uncertainties.

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Six months ended June 30, 2001 and 2000

Revenue

Revenue increased $347,000, or 4%, to $8.8 million in the six months
ended June 30, 2001 from $8.5 million in the six months ended June 30, 2000. Revenue
from consumables and services increased $802,000, or 169%, to
$1.3 million in the six months ended June 30, 2001 from $474,000 in the same period last year. Increased sales of consumables and
services offset the $455,000 decrease in instrumentation sales. 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 $631,000, or 15%, to $5.0 million in the six months ended June 30, 2001 from $4.3
million in the six months ended June 30, 2000. The increase was primarily due to increased spending on
product support and employees as a result of 17 additional production
and assembly personnel.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $1.0 million, or 17%, to
$6.9 million in the six months ended June 30, 2001 from $5.9 million in the six months ended June 30,
2000. Of this increase,
approximately $139,000 was attributable to salaries and other employee-related
costs due to 19 additional sales, marketing and
administrative personnel. Approximately $243,000 was attributable to increased
advertising and promotional activities, approximately $200,000 was attributable
to increased professional and legal expenses, approximately $107,000 was
attributable to an increase in outside consulting services and the remaining
approximately $335,000 was attributable to increased office expenses and
depreciation expense associated with the additional personnel.

Research and development expenses

Research and development expenses increased $1.0 million, or 38%, to $3.6
million in the six months ended June 30, 2001 compared to $2.6 million in the six months ended June 30, 2000. Of this increase,
approximately $334,000 was attributable to salaries and other employee related
costs due primarily to 13 additional research and development
personnel. Approximately $328,000 was due to an increase in outside consulting
services and patent costs and approximately $214,000 was attributable to an
increase in our usage of development materials for new products. The remaining
approximately $130,000 was attributable to increased facility expenses and
depreciation expense, primarily due to our new Ann Arbor proteomic center, which opened
in the third quarter of 2000 and the associated lab equipment.

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

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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 June 30, 2001.

Interest expense

Interest expense decreased $2.1 million in the six months
ended June 30, 2001 to $81,000 from $2.2 million in the six months ended
June 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. The
$81,000 of interest in the six months ended June 30, 2001 represents interest incurred on borrowings under
our commercial bank borrowing facility and under capital leases.

Interest expense in the six months ended June 30, 2000 includes amortization
expense of approximately $965,000 related to the discount recorded on the
subordinated notes.

We repaid the $6.0 million of subordinated notes with warrants issued April 1999
and $3.5 million of subordinated notes with warrants issued October 1999 in
their entirety on June 9, 2000.

Interest income

Interest income decreased $157,000 in the six months ended June 30, 2001 to $834,000 from $991,000 in the six months ended June 30, 2000.
The decrease is due to lower average cash and cash equivalent balances and lower interest rates in 2001.

Other income

Other income, net of other expense, decreased $430,000 to $77,000 in the six months ended June 30, 2001 from
$507,000 in the six months ended June 30, 2000. This decrease is primarily due to 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 six months ended June 30, 2001 and
2000, and consequently, we did not pay any federal income taxes in the United
States. The income tax expense of $72,000 for the six months ended June 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.
Realization of deferred tax assets is dependent on future earnings, if any, the
timing and amount of which are uncertain. Accordingly, valuation allowances in
amounts equal to the deferred tax assets have been established to reflect these
uncertainties.

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LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2001 our cash and cash equivalents totaled $23.9 million compared
to $40.2 million at December 31, 2000. The $16.3 million decrease in cash and
cash equivalents is principally due to $6.4 million net cash used for operating
activities in the six months ended June 30, 2001, $5.5 million used to
repurchase our stock held by PerkinElmer, Inc., $2.3 million in license fee payments, $1.3 million
in property and equipment additions, $500,000 equity investment in Photonic Sensor
Systems, Inc., and $389,000 in repayment of debt. We received $86,000 in
proceeds from the sale of our common stock upon the exercise of vested stock options by employees during the first six months of 2001.

Cash used in operations for the six-month period ended June 30, 2001 was $6.4
million compared with $5.0 million for the same period in 2000. Cash used in
operations during the first six months of 2001 consisted primarily of our net
loss of $5.9 million, which included non-cash charges of $908,000 for
depreciation and amortization expense and $228,000 for amortization of
capitalized license fees. The use of cash in operating activities in the first six months of 2001 was
also due to increases of $2.0 million in inventory and a decrease of $1.7
million in accounts payable and accrued liabilities. The use of cash in
operating activities in 2001 was partially offset by a $1.8 million decrease in accounts
receivable and a $321,000 decrease in prepaid expenses and other assets. Cash used in
operations during the first six months of 2000 consisted primarily of our net
loss of $6.8 million, which included non-cash charges of $642,000 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 and a $407,000 gain on sale of
investment in HD Technologies. The use of cash in operating activities in 2000
was also due to increases of $1.9 million in accounts receivable, $1.6 million
in inventories and $531,000 in prepaid expenses and other assets. The use of cash in
operating activities in 2000 was partially offset by a $2.6 million increase in
accounts payable and accrued liabilities.

Our investing activities for the six months ended June 30, 2001, excluding
activity under our repurchase agreements, used cash of $4.0 million compared with our
investing activities providing cash of $191,000 for the same period in 2000.
Cash used in investing activities in 2001 was attributable to $1.3 million in
property and equipment expenditures, $2.3 million in license fee payments and a $500,000 equity
investment in Photonic Sensor Systems, Inc. Cash provided in the six months ended June 30, 2000 was
attributable to approximately $575,000 in cash received from the sale of our
30% ownership interest in HD Technologies offset by $384,000 for capital
expenditures.

Net cash used in financing activities for the six months ended June 30, 2001
was $5.8 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 six 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 $389,000. Financing activities in the first six 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
$348,000 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.

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In June 2001, we amended our primary bank line-of-credit agreement to provide
for borrowings up to $2.5 million. As of June 30, 2001 there were no
outstanding borrowings under this line of credit.

Working capital decreased $13.9 million to $30.1 million at June 30, 2001 from
$44.0 million at December 31, 2000. The decrease in working capital resulted
from a decrease in cash of $16.2 million, accounts receivable of $2.1 million
and prepaid expenses and other assets of $349,0000 partially offset by an increase of
$1.7 million in inventory and a $3.0 million decrease in accounts payable and
accrued liabilities balances.

As of June 30, 2001, we had an aggregate of $1.6 million in future obligations
of principal payments under capital leases and other long-term debt, of which
$739,000 is to be paid within the next twelve months.

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

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ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Other than as disclosed in this report on Form 10-Q, there have been no
significant changes in our market risk exposure as described in Managements
Discussion and Analysis of Financial Condition and Results of Operations
included in our latest Annual Report on Form 10-K, and incorporated herein by
reference.

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 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.

The effect of adopting SFAS No. 142 in our fiscal year beginning January 1, 2002 will be
to reduce operating expenses by approximately $75,000 per quarter in 2002 or $298,000
for the year. The Company is currently assessing the effect of the new standards related to
the impairment testing of goodwill.

We adopted Statement of Financial Accounting Standards Nos. 133 and 138,
Accounting for Derivative Instruments and Hedging Activities. There was no
impact on our consolidated financial position or results of operations.

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PART II. OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS.

On February 12, 2001, PerkinElmer, Inc. filed a lawsuit in Delaware Chancery
Court requesting that the Delaware court interpret the terms of PerkinElmers
right, under our Certificate of Incorporation, to require us to call and redeem
our callable common stock. The lawsuit named the Company as well as each of
our directors and alleged, among other things, that we sought to improperly
impede or terminate PerkinElmers right to cause us to redeem our callable
stock, and to impose an improper financial penalty upon an exercise by
PerkinElmer of that right. PerkinElmers complaint was in the context of a
proposed transaction that we were pursuing with an unnamed third party, which
if completed without PerkinElmer exercising its right, would have had the
effect of terminating the right.

On February 15, 2001, we filed a motion for summary judgment seeking dismissal
of the lawsuit. On April 18, 2001, we reached an agreement with PerkinElmer
that ends all litigation between the companies and settles all disputes between
the parties. We filed a Form 8-K reporting the settlement, together with
copies of the settlement documents.

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.

Subsequent to June 30, 2001, we had discussions with Molecular Dynamics regarding
all disputes between our parties and we expect an agreement
to be finalized and signed in the third quarter of 2001. We do not believe that the ultimate
resolution of this matter will have a material impact on our financial position or results of
operations.

Other than as described above, there have been no material developments with
respect to legal proceedings since the date of our Annual Report on Form 10-K
for the year ended December 31, 2000.




ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

On April 19, 2001, the call period for our callable common stock terminated as
a result of the sale by PerkinElmer to us of more than 50% of the shares of our
common stock owned by PerkinElmer. Pursuant to the terms of our Third Amended
and Restated Certificate of Incorporation, upon termination of the call period
for the callable common stock, each outstanding share of our callable common
stock automatically converted into one share of our common stock. We filed an
Amendment to Form 8-A registering our common stock, $.001 par value per share.
Our common stock has been listed on the Nasdaq National Market and will
continue to trade under the symbol GNSL.

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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 June 30, 2001, approximately $10.8 million has been used to
payoff long-term and other debt, approximately $5.5 million to repurchase our stock
from PerkinElmer, Inc., approximately $2.7 million to purchase equipment and improve
leaseholds, approximately $2.3 million for capitalized license fees,
approximately $500,000 for equity investment a third party and
approximately $13.6 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.




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

We held our annual meeting of shareholders on May 3, 2001. At the meeting, our
shareholders were asked to elect two directors to the board of directors until
the 2004 annual meeting and to ratify the appointment of our independent
auditors, Arthur Andersen LLP.

Pursuant to our Certificate of Incorporation, our directors are divided into
three classes, each serving three-year terms. The class up for election at the
Annual Meeting will hold office for a term expiring at the annual meeting of
shareholders to be held in 2004. With respect to the class of directors up for
election at the meeting, Jeffrey S. Williams and Dr. Damion E. Wicker were both
reelected to the board of directors. Mr. Williams received 18,663,267 votes
for reelection to the board and 788,776 votes against reelection. Dr. Wicker
received 19,288,270 votes for reelection to the board and 133,773 votes against
reelection. The names of the other directors whose terms of office continued
after the meeting are as follows: Robert G. Shepler, P. Nicholas King, J.
Matthew Mackowski and Daniel J. Mitchell.

The proposal to appoint Arthur Andersen LLP as our independent auditors for
fiscal year 2002 was ratified by our shareholders. Votes for the ratification
were 19,262,068, and votes against and withheld were 18,327.

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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 April 20, 2001, was filed on April 23, 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: August 14, 2001 |  | By: /s/ Steven J. Richvalsky                                                                                                      | 
|                      |  |                                                                                                                                   | 
|                      |  | STEVEN J. RICHVALSKY
Chief Financial Officer, Executive
Vice President and
Treasurer (principal financial and
accounting officer)

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