##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

|           |  |                                                                                         
|---------- |  | ----------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                         
|           |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|          
|           |  | For the quarterly period ended March 31, 2002                                           
|          
|           |  | 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, Ann Arbor,
(Address of principal executive offices) |  | MI 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 April 30, 2002, was 31,179,983.

1



---

TABLE OF CONTENTS



|                             |                                                                                               |                                                                                                                |  |  |  |  |  | 
|---------------------------- | --------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------- |  |  |  |  |  | 
|PART I FINANCIAL INFORMATION
|                             | Item 1. Financial Statements                                                                 
|                             |                                                                                               | Condensed Consolidated Balance Sheets as of March 31, 2002 (unaudited) and December 31, 2001                  
|                             |                                                                                               | Condensed Consolidated Statements of Operations for the three months ended March 31, 2002 and 2001 (unaudited)
|                             |                                                                                               | Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2002 and 2001 (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                                                     



---



##### Table of Contents



GENOMIC SOLUTIONS INC.
INDEX TO FORM 10-Q

|                             |                                                                                               |                                                                                                                |  |    |          |  | 
|---------------------------- | --------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------- |  | -- | -------- |  | 
|                             |                                                                                               |                                                                                                                |  |    | Page No. | 
|                             |                                                                                               |                                                                                                                |  |    |          | 
|PART I FINANCIAL INFORMATION |                                                                                               |                                                                                                                |  |   
|                            
|                             | Item 1. Financial Statements                                                                  |                                                                                                                |  |    |         
|                            
|                             |                                                                                               | Condensed Consolidated Balance Sheets as of March 31, 2002
(unaudited) and December 31, 2001                   |  |    | 3        | 
|                            
|                             |                                                                                               | Condensed Consolidated Statements of Operations for the three
months ended March 31, 2002 and 2001 (unaudited) |  |    | 4        | 
|                            
|                             |                                                                                               | Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 2002 and 2001 (unaudited) |  |    | 5        | 
|                            
|                             |                                                                                               | Notes to Condensed Consolidated Financial Statements (unaudited)                                               |  |    | 6        | 
|                            
|                             | Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations |                                                                                                                |  | 11 |         
|                            
|                             | Item 3. Qualitative and Quantitative Disclosures About Market Risk                            |                                                                                                                |  | 18 |         
|                            
|PART II OTHER INFORMATION    |                                                                                               |                                                                                                                |  |   
|                            
|                             | Item 1. Legal Proceedings                                                                     |                                                                                                                |  | 19 |         
|                            
|                             | Item 2. Changes In Securities and Use of Proceeds                                             |                                                                                                                |  | 19 |         
|                            
|                             | Item 3. Defaults Upon Senior Securities                                                       |                                                                                                                |  | 20 |         
|                            
|                             | Item 4. Submission of Matters to a Vote of Security Holders                                   |                                                                                                                |  | 20 |         
|                            
|                             | Item 5. Other Information                                                                     |                                                                                                                |  | 20 |         
|                            
|                             | Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                                |  | 21 |         

2



---



##### Table of Contents






PART I FINANCIAL INFORMATION




ITEM 1.   FINANCIAL STATEMENTS




GENOMIC SOLUTIONS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS(in thousands, except per share data)

|                                     |                                                                                                                                                         |                                            |                             |         |             |        |  |              |        |        | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | --------------------------- | ------- | ----------- | ------ |  | ------------ | ------ | ------ | 
|                                     |                                                                                                                                                         |                                            |                             |         | March 31,   |        |  | December 31, |       
|                                     |                                                                                                                                                         |                                            |                             |         | 2002        |        |  | 2001         |       
|                                     |                                                                                                                                                         |                                            |                             |         |             |        |  |              |       
|                                     |                                                                                                                                                         |                                            |                             |         | (Unaudited) |        |  |              |       
|Assets                               |                                                                                                                                                         |                                            |                             |         |             |        |  |             
|Current Assets:                      |                                                                                                                                                         |                                            |                             |         |             |        |  |             
|                                     |                                                                                                                                                         | Cash and cash equivalents                  |                             | $       | 7,177       |        |  | $            | 13,097 |       
|                                     |                                                                                                                                                         | Accounts receivable, net                   |                             |         | 7,513       |        |  |              | 5,466  |       
|                                     |                                                                                                                                                         | Inventories                                |                             |         | 10,263      |        |  |              | 9,622  |       
|                                     |                                                                                                                                                         | Prepaid expenses and other                 |                             |         | 781         |        |  |              | 948    |       
|                                     |                                                                                                                                                         |                                            |                             |         |             |       
|                                     |                                                                                                                                                         |                                            | Total current assets        |         |             | 25,734 |  |              |        | 29,133 | 
|                                     |                                                                                                                                                         | Property and equipment, net                |                             |         | 2,937       |        |  |              | 3,261  |       
|                                     |                                                                                                                                                         | Goodwill, net                              |                             |         | 9,662       |        |  |              | 9,578  |       
|                                     |                                                                                                                                                         | Intangible assets, net                     |                             |         | 4,127       |        |  |              | 4,217  |       
|                                     |                                                                                                                                                         | Other assets                               |                             |         | 1,806       |        |  |              | 1,735  |       
|                                     |                                                                                                                                                         |                                            |                             |         |             |       
|                                     |                                                                                                                                                         |                                            | Total assets                |         | $           | 44,266 |  |              | $      | 47,924 | 
|                                     |                                                                                                                                                         |                                            |                             |         |             |       
|Liabilities and Stockholders Equity |                                                                                                                                                         |                                            |                             |         |             |        |  |             
|Current Liabilities:                 |                                                                                                                                                         |                                            |                             |         |             |        |  |             
|                                     |                                                                                                                                                         | Lines of credit                            |                             | $       | 2,500       |        |  | $            | 2,500  |       
|                                     |                                                                                                                                                         | Current portion of long-term debt          |                             |         | 50          |        |  |              | 57     |       
|                                     |                                                                                                                                                         | Accounts payable                           |                             |         | 3,944       |        |  |              | 5,213  |       
|                                     |                                                                                                                                                         | Accrued liabilities                        |                             |         | 4,099       |        |  |              | 4,755  |       
|                                     |                                                                                                                                                         | Deferred revenue                           |                             |         | 838         |        |  |              | 842    |       
|                                     |                                                                                                                                                         |                                            |                             |         |             |       
|                                     |                                                                                                                                                         |                                            | Total current liabilities   |         |             | 11,431 |  |              |        | 13,367 | 
|                                     |                                                                                                                                                         |                                            |                             |         |             |       
|Long-Term Liabilities:               |                                                                                                                                                         |                                            |                             |         |             |        |  |             
|                                     |                                                                                                                                                         | Long-term debt, less current portion       |                             |         | 57          |        |  |              | 66     |       
|                                     |                                                                                                                                                         | Other long-term liabilities                |                             |         | 47          |        |  |              | 52     |       
|                                     |                                                                                                                                                         |                                            |                             |         |             |       
|                                     |                                                                                                                                                         |                                            | Total long-term liabilities |         |             | 104    |  |              |        | 118    | 
|                                     |                                                                                                                                                         |                                            |                             |         |             |       
|Stockholders Equity:                |                                                                                                                                                         |                                            |                             |         |             |        |  |             
|                                     | Preferred stock, $0.001 par value; 15,000
shares authorized; zero shares issued and
outstanding                                                         |                                            |                             |        |             |        |  |             |       
|                                     | Common
stock, $0.001 par value; 60,000
authorized; 31,171 and 31,154 shares issued
and outstanding at March 31, 2002 and
December 31, 2001,respectively |                                            |                             | 31      |             |        |  | 31           |       
|                                     | Additional paid-in capital                                                                                                                              |                                            |                             | 103,081 |             |        |  | 103,045      |       
|                                     | Notes receivable                                                                                                                                        |                                            |                             | (140    | )           |        |  | (137         | )     
|                                     | Deferred compensation related to stock options                                                                                                          |                                            |                             | (65     | )           |        |  | (72          | )     
|                                     | Retained deficit                                                                                                                                        |                                            |                             | (69,637 | )           |        |  | (68,055      | )     
|                                     | Accumulated other comprehensive loss                                                                                                                    |                                            |                             | (539    | )           |        |  | (373         | )     
|                                     |                                                                                                                                                         |                                            |                             |         |             |       
|                                     |                                                                                                                                                         | Total stockholders equity                 |                             |         | 32,731      |        |  |              | 34,439 |       
|                                     |                                                                                                                                                         |                                            |                             |         |             |       
|                                     |                                                                                                                                                         | Total liabilities and stockholders equity |                             | $       | 44,266      |        |  | $            | 47,924 |       
|                                     |                                                                                                                                                         |                                            |                             |         |             |       

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

3



---



##### Table of Contents






GENOMIC SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(unaudited; in thousands, except per share data)

|                                       |                                     |                              |        |                            |        |   |        |        |        |  
|-------------------------------------- | ----------------------------------- | ---------------------------- | ------ | -------------------------- | ------ | - | ------ | ------ | ------ | -
|                                       |                                     |                              |        | For the three months ended |       
|                                       |                                     |                              |        | March 31,                  |       
|                                       |                                     |                              |        |                            |       
|                                       |                                     |                              |        | 2002                       |        |   | 2001   |       
|                                       |                                     |                              |        |                            |        |   |        |       
|Revenue:                               |                                     |                              |        |                            |        |   |        |       
|                                       | Product revenue                     |                              | $      | 6,545                      |        |   | $      | 4,013  |       
|                                       | Service revenue                     |                              |        | 131                        |        |   |        | 366    |       
|                                       |                                     |                              |        |                            |        |  
|                                       |                                     | Total revenue                |        |                            | 6,676  |   |        |        | 4,379  |  
|                                       |                                     |                              |        |                            |        |  
|Cost of Revenue:                       |                                     |                              |        |                            |        |   |        |       
|                                       | Cost of product revenue             |                              |        | 3,383                      |        |   |        | 2,345  |       
|                                       | Cost of service revenue             |                              |        | 14                         |        |   |        | 80     |       
|                                       |                                     |                              |        |                            |        |  
|                                       |                                     | Total cost of revenue        |        |                            | 3,397  |   |        |        | 2,425  |  
|                                       |                                     |                              |        |                            |        |  
|                                       |                                     | Gross profit                 |        |                            | 3,279  |   |        |        | 1,954  |  
|                                       |                                     |                              |        |                            |        |  
|Operating Expenses:                    |                                     |                              |        |                            |        |   |        |       
|                                       | Selling, general and administrative |                              |        | 3,519                      |        |   |        | 3,361  |       
|                                       | Research and development            |                              |        | 1,425                      |        |   |        | 1,981  |       
|                                       |                                     |                              |        |                            |        |  
|                                       |                                     | Total operating expenses     |        |                            | 4,944  |   |        |        | 5,342  |  
|                                       |                                     |                              |        |                            |        |  
|                                       |                                     | Loss from operations         |        |                            | (1,665 | ) |        |        | (3,388 | )
|                                       |                                     |                              |        |                            |        |  
|Other Income (Expense):                |                                     |                              |        |                            |        |   |        |       
|                                       | Interest income                     |                              |        | 57                         |        |   |        | 523    |       
|                                       | Other income (expense), net         |                              |        | 26                         |        |   |        | (43    | )     
|                                       |                                     |                              |        |                            |        |  
|                                       |                                     | Total other income (expense) |        |                            | 83     |   |        |        | 480    |  
|                                       |                                     |                              |        |                            |        |  
|                                       |                                     | Loss before taxes            |        |                            | (1,582 | ) |        |        | (2,908 | )
|Provision for Income Taxes             |                                     |                              |       |                            |        |   | 79     |       
|                                       |                                     |                              |        |                            |        |  
|Net Loss                               |                                     | $                            | (1,582 | )                          |        | $ | (2,987 | )     
|                                       |                                     |                              |        |                            |        |  
|Net Loss Per Share, Basic and Diluted: |                                     |                              |        |                            |        |   |        |       
|                                       | Loss per share                      |                              | $      | (0.05                      | )      |   | $      | (0.12  | )     
|                                       |                                     |                              |        |                            |        |  
|                                       | Weighted average common shares      |                              |        | 31,171                     |        |   |        | 25,032 |       
|                                       |                                     |                              |        |                            |        |  

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

4



---



##### Table of Contents






GENOMIC SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(unaudited; in thousands)

|                                                |                                                                             |                               |                                                                               |                                       |     |                            |        |        |      |  |        |  
|----------------------------------------------- | --------------------------------------------------------------------------- | ----------------------------- | ----------------------------------------------------------------------------- | ------------------------------------- | --- | -------------------------- | ------ | ------ | ---- |  | ------ | -
|                                                |                                                                             |                               |                                                                               |                                       |     | For the Three Months Ended |       
|                                                |                                                                             |                               |                                                                               |                                       |     | March 31,                  |       
|                                                |                                                                             |                               |                                                                               |                                       |     |                            |       
|                                                |                                                                             |                               |                                                                               |                                       |     | 2002                       |        |        | 2001 | 
|                                                |                                                                             |                               |                                                                               |                                       |     |                            |        |        |      | 
|Cash Flows from Operating Activities:           |                                                                             |                               |                                                                               |                                       |     |                            |        |       
|                                                | Net loss                                                                    |                               | $                                                                             | (1,582                                | )   |                            | $      | (2,987 | )   
|                                                | Adjustments to reconcile net loss to net cash used in operating
activities: |                               |                                                                               |                                       |     |                            |        |        |     
|                                                |                                                                             | Depreciation and amortization |                                                                               |                                       | 612 |                            |        |        | 572  | 
|                                                |                                                                             | Gain on sale of assets        |                                                                               |                                       | (23 | )                          |        |        |     | 
|                                                |                                                                             |                               | Increase (decrease) in cash resulting from changes in assets and
liabilities- |                                       |     |                            |        |        |      |  |       
|                                                |                                                                             |                               |                                                                               | Accounts receivable                   |     |                            | (2,069 | )      |      |  | 1,443  |  
|                                                |                                                                             |                               |                                                                               | Inventories                           |     |                            | (800   | )      |      |  | (1,221 | )
|                                                |                                                                             |                               |                                                                               | Prepaid expenses and other            |     |                            | 178    |        |      |  | 222    |  
|                                                |                                                                             |                               |                                                                               | Accounts payable                      |     |                            | (1,290 | )      |      |  | (734   | )
|                                                |                                                                             |                               |                                                                               | Accrued liabilities                   |     |                            | (625   | )      |      |  | (748   | )
|                                                |                                                                             |                               |                                                                               | Deferred revenue                      |     |                            | (8     | )      |      |  | (50    | )
|                                                |                                                                             |                               |                                                                               |                                       |     |                           
|                                                |                                                                             |                               |                                                                               | Net cash used in operating activities |     |                            | (5,607 | )      |      |  | (3,503 | )
|                                                |                                                                             |                               |                                                                               |                                       |     |                           
|Cash Flows from Investing Activities:           |                                                                             |                               |                                                                               |                                       |     |                            |        |       
|                                                | Capitalized license fees                                                    |                               |                                                                               | (125                                  | )   |                            |        | (2,250 | )   
|                                                | Purchase of property and equipment                                          |                               |                                                                               | (123                                  | )   |                            |        | (453   | )   
|                                                | Increase in other assets                                                    |                               |                                                                               | (94                                   | )   |                            |        | 1      |     
|                                                | Proceeds from sale of property and equipment                                |                               |                                                                               | 62                                    |     |                            |        | 19     |     
|                                                |                                                                             |                               |                                                                               |                                       |     |                           
|                                                |                                                                             |                               |                                                                               | Net cash used in investing activities |     |                            | (280   | )      |      |  | (2,683 | )
|                                                |                                                                             |                               |                                                                               |                                       |     |                           
|Cash Flows from Financing Activities:           |                                                                             |                               |                                                                               |                                       |     |                            |        |       
|                                                | Proceeds from issuance of common stock                                      |                               |                                                                               | 8                                     |     |                            |        | 8      |     
|                                                | Repayment of long-term debt                                                 |                               |                                                                               | (16                                   | )   |                            |        | (189   | )   
|                                                | Other financing activities                                                  |                               |                                                                               | (2                                    | )   |                            |        | (2     | )   
|                                                |                                                                             |                               |                                                                               |                                       |     |                           
|                                                |                                                                             |                               |                                                                               | Net cash used in financing activities |     |                            | (10    | )      |      |  | (183   | )
|                                                |                                                                             |                               |                                                                               |                                       |     |                           
|Effect of Exchange Rate Changes                 |                                                                             |                               | (23                                                                           | )                                     |     |                            | 51     |       
|                                                |                                                                             |                               |                                                                               |                                       |     |                           
|Net Decrease in Cash and Cash Equivalents       |                                                                             |                               | (5,920                                                                        | )                                     |     |                            | (6,318 | )     
|Cash and Cash Equivalents  Beginning of Period |                                                                             |                               | 13,097                                                                        |                                       |     |                            | 40,159 |       
|                                                |                                                                             |                               |                                                                               |                                       |     |                           
|Cash and Cash Equivalents  End of Period       |                                                                             | $                             | 7,177                                                                         |                                       |     | $                          | 33,841 |       
|                                                |                                                                             |                               |                                                                               |                                       |     |                           
|Supplemental Disclosure of Cash Flow Activity:  |                                                                             |                               |                                                                               |                                       |     |                            |        |       
|                                                | Cash paid for interest                                                      |                               | $                                                                             | 12                                    |     |                            | $      | 62     |     
|                                                |                                                                             |                               |                                                                               |                                       |     |                           
|                                                | Cash paid for income taxes                                                  |                               | $                                                                             |                                      |     |                            | $      | 56     |     
|                                                |                                                                             |                               |                                                                               |                                       |     |                           

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

5



---



##### 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 in the United States
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
month periods ended March 31, 2002 and 2001, 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. The total number of shares excluded from the
calculations of diluted net loss per share, prior to application of the
treasury stock method, was 2,369,110 and 1,943,027 at March 31, 2002 and 2001,
respectively.

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
ended March 31, 2002 and 2001 are as follows (in thousands):

6



---



##### Table of Contents



|                                        |  |                            |        |   |             |   |        |  
|--------------------------------------- |  | -------------------------- | ------ | - | ----------- | - | ------ | -
|                                        |  | For the three months ended |       
|                                        |  | March 31,                  |       
|                                        |  |                            |       
|                                        |  | 2002                       |        |   | 2001        |  
|                                        |  |                            |        |   |             |  
|                                        |  | (Unaudited)                |        |   | (Unaudited) |  
|                                       
|Net loss                                |  | $                          | (1,582 | ) |             | $ | (2,987 | )
|Foreign currency translation adjustment |  |                            | (166   | ) |             |   | (445   | )
|                                        |  |                            |        |   |             |  
|Comprehensive loss                      |  | $                          | (1,748 | ) |             | $ | (3,432 | )
|                                        |  |                            |        |   |             |  

Recent Accounting Pronouncements

Statements of Financial Accounting Standards (SFAS) No. 141, Business
Combinations and SFAS No. 142 Goodwill and Other Intangible Assets, were
recently approved by the Financial Accounting Standards Board (FASB). 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 Condensed Consolidated Balance Sheets was $9.7 million at
March 31, 2002 and $9.6 million at December 31, 2001. On January 1,
2002, the Company adopted SFAS No. 142 and is currently assessing the effect of
the new standard related to the impairment testing of goodwill and other intangible
assets.

The effect of adopting SFAS No. 142 was to reduce operating expenses by
approximately $319,000 for the three months ended March 31, 2002 and will be to
reduce operating expenses by approximately $1.3 million for the year.

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

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 supercedes SFAS No. 121, although it
retains the fundamental principles of how to measure the impairment of assets
held for use and assets to be disposed of by sale. It requires that long-lived
assets to be disposed of other than by sale be

7



---



##### Table of Contents



considered held and used until disposed of. It also provides new guidance for
using a probability-weighted approach for measuring future cash flows when
there are alternative courses of action. This statement is effective for
financial statements issued for years beginning after December 15, 2001. On
January 1, 2002, the Company adopted SFAS No. 144 and is currently assessing
the effect of the new standard related to the impairment testing of long-lived
assets.

2. INVENTORIES

Inventories consist primarily of purchased parts and components used to make
instrumentation. Finished goods and work-in-process inventories include
material, labor and manufacturing overhead costs. Inventories consisted of the
following (in thousands):

|                |  |   |             |  |  |              |       |  | 
|--------------- |  | - | ----------- |  |  | ------------ | ----- |  | 
|                |  |   | March 31,   |  |  | December 31, |      
|                |  |   | 2002        |  |  | 2001         |      
|                |  |   |             |  |  |              |      
|                |  |   | (Unaudited) |  |  |              |       | 
|               
|Raw materials   |  | $ | 3,989       |  |  | $            | 3,908 | 
|Work-in-process |  |   | 1,828       |  |  |              | 2,077 | 
|Finished goods  |  |   | 4,446       |  |  |              | 3,637 | 
|                |  |   |             |  |  |             
|                |  | $ | 10,263      |  |  | $            | 9,622 | 
|                |  |   |             |  |  |             

3. RESTRUCTURING AND INVENTORY IMPAIRMENT CHARGES

On September 7, 2001, the Company announced restructuring initiatives designed
to lower its cost structure and achieve profitability sometime  during 2002. The
restructuring plan included closing certain facilities, divesting its proteomic
contract research services business, reducing its employee headcount and discontinuing certain products. As a result of this
restructuring plan, the Company recorded restructuring and inventory impairment
charges of approximately $2.7 million and $1.2 million during 2001.

The restructuring charge of $2.7 million consisted of $261,000 for the
impairment of goodwill; $376,000 for the impairment of certain long-lived
assets, $917,000 for the loss on disposal and sale of certain fixed assets,
$688,000 for employee termination benefits for 50 employees, and $488,000 for
exit costs associated with closing certain facilities. In connection with the
restructuring initiatives, the Company estimated the discounted future cash
flows related to goodwill and certain fixed assets and reduced these assets to
their estimated fair value. As of March 31, 2002, the Company had terminated 45
employees and paid out $602,000 in termination benefits. At March 31, 2002,
the remaining balance of the restructuring reserve totaled $562,000 and is
included in accrued liabilities in the Companys consolidated balance sheet.

8



---



##### Table of Contents



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

|                                    |       |   |           |     |  |          |     |     |            |   |     |      |  |   |     |     | 
|----------------------------------- | ----- | - | --------- | --- |  | -------- | --- | --- | ---------- | - | --- | ---- |  | - | --- | --- | 
|                                    |       |   |           |     |  | Utilized |     |     | Accrual at |  
|                                    |       |   | Original  |     |  |          |     |     | March 31,  |  
|                                    |       |   | Provision |     |  | Cash     |     |     | Noncash    |   |     | 2002 | 
|                                    |       |   |           |     |  |          |     |     |            |   |     |      | 
|Impairment of long-lived assets     |       | $ | 0.6       |     |  | $        |    |     |            | $ | 0.6 |      |  | $ |    |    
|Loss on disposal and sale of assets |       |   | 0.9       |     |  |          |    |     |            |   | 0.9 |      |  |   |    |    
|Employee termination benefits       |       |   | 0.7       |     |  |          | 0.6 |     |            |   |    |      |  |   | 0.1 |    
|Lease cancellation costs            |       |   | 0.5       |     |  |          |    |     |            |   |    |      |  |   | 0.5 |    
|                                    |       |   |           |     |  |          |     |     |            |   |     |     
|                                    | Total |   | $         | 2.7 |  |          | $   | 0.6 |            |   | $   | 1.5  |  |   | $   | 0.6 | 
|                                    |       |   |           |     |  |          |     |     |            |   |     |     

4. SEGMENT INFORMATION

The Company operates in one segment: the development, manufacture and marketing
of life science systems for dispensing, separating and analyzing biomolecules.
The Companys three product lines, genomic, proteomic and high throughput
screening and dispensing systems, 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, the
Company aggregates its product lines into a single segment of genomic,
proteomic and high throughput screening and dispensing systems. The Company
operates primarily in three geographic regions: North America, the United
Kingdom and Japan.

The Company distributes products to customers on a worldwide basis. Sales and
marketing operations outside the United States are conducted principally
through the Companys foreign subsidiaries and third party distributors,
including 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 location based on which office makes the sale, which includes
intercompany sales.

The following tables summarize selected financial information of the Companys
operations by geographic location (in thousands):

|         |                             |               |   |                            |       |  |             |        |       | 
|-------- | --------------------------- | ------------- | - | -------------------------- | ----- |  | ----------- | ------ | ----- | 
|         |                             |               |   | For the three months ended |      
|         |                             |               |   | March 31,                  |      
|         |                             |               |   |                            |      
|         |                             |               |   | 2002                       |       |  | 2001        |       
|         |                             |               |   |                            |       |  |             |       
|         |                             |               |   | (Unaudited)                |       |  | (Unaudited) |       
|        
|Revenue: |                             |               |   |                            |       |  |             |       
|         | North America               |               | $ | 6,453                      |       |  | $           | 2,950  |      
|         | Europe                      |               |   | 2,805                      |       |  |             | 2,753  |      
|         | Japan                       |               |   | 1,780                      |       |  |             | 1,302  |      
|         | Less  Intercompany revenue |               |   | (4,362                     | )     |  |             | (2,626 | )    
|         |                             |               |   |                            |       | 
|         |                             | Total revenue |   | $                          | 6,676 |  |             | $      | 4,379 | 
|         |                             |               |   |                            |       | 

9



---



##### Table of Contents



|                   |                     |                         |   |             |        |  |              |        |        | 
|------------------ | ------------------- | ----------------------- | - | ----------- | ------ |  | ------------ | ------ | ------ | 
|                   |                     |                         |   | March 31,   |        |  | December 31, |       
|                   |                     |                         |   | 2002        |        |  | 2001         |       
|                   |                     |                         |   |             |        |  |              |       
|                   |                     |                         |   | (Unaudited) |        |  |              |        |       
|                  
|Long-lived assets: |                     |                         |   |             |        |  |              |       
|                   | North America       |                         | $ | 16,944      |        |  | $            | 17,093 |       
|                   | Europe              |                         |   | 875         |        |  |              | 921    |       
|                   | Japan               |                         |   | 105         |        |  |              | 142    |       
|                   | Goodwill            |                         |   | 9,662       |        |  |              | 9,579  |       
|                   | Less  Eliminations |                         |   | (9,054      | )      |  |              | (8,944 | )     
|                   |                     |                         |   |             |        | 
|                   |                     | Total long-lived assets |   | $           | 18,532 |  |              | $      | 18,791 | 
|                   |                     |                         |   |             |        | 

10



---



##### 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 March 31, 2002 and for the three month periods
ended March 31, 2002 and 2001 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, 2001. 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 develop, manufacture and sell instruments, consumables and software for the
life sciences research and drug discovery markets. Our market focus is based
on three key high growth areas: genomics, proteomics and high throughput
screening and dispensing systems. These areas comprise three of the major
technologies used by researchers in studying disease and developing new drugs.
Our products allow researchers to perform high volume experiments, and analyze
the resultant data, at lower costs and in less time than with traditional
techniques. Our products are distributed and sold to pharmaceutical and
biotechnology companies, government agencies, academic institutions and private
research organizations throughout the world.

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

11



---



##### 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.

CRITICAL ACCOUNTING POLICIES

Managements Discussion and Analysis of Financial Condition and Results of
Operations discusses our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. On an on-going basis,
management evaluates its estimates and judgments, including those related to
bad debts, inventories, investments, intangible assets, financing operations,
warranty obligations, restructuring costs, contingencies and litigation.
Management bases its estimates and judgments on historical experience, our
observance of trends in the industry, information provided by our customers and
information available from other outside sources and on various other factors
that are believed to be reasonable under the circumstances. These sources form
the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions and conditions.

We believe our most critical accounting polices are related to inventories and
impairment of long-lived assets. Details regarding our use of these policies
and the related estimates are described fully in our 2001 Annual Report filed
with the Securities and Exchange Commission on Form 10-K. During the first
quarter of 2002, there have been no material changes to our critical accounting
policies that impacted our financial condition or results of operations.

RESULTS OF OPERATIONS

Three months ended March 31,
2002 and 2001

Revenue

Revenue increased $2.3 million, or 52%, to $6.7 million in the first quarter of
2002 from $4.4 million in the first quarter of 2001. The increase in total
revenue was primarily due to sales of our new high throughput screening
products of $2.7 million and a 25%, or $514,000, increase in revenue from our
genomic products. The increase in our genomic product sales was primarily
attributed to increased sales of our GeneTAC G3 robotic workstation and our
GeneTAC hybridization station. The revenue also reflects sales for
Cartesian Technologies, Inc. and its high throughput screening instrumentation,
which we acquired on December 18, 2001. The revenue increases described above
were partially offset by a decrease in revenue from our proteomic products of
38%, or $739,000. The decline in our proteomic revenue was primarily due to
fewer unit sales of our Investigator ProPic robotic instruments. Sales of
our high end ProPic instruments tend to vary quarter to quarter. Also

12



---



##### Table of Contents



contributing to the year over year decline in proteomic revenue was the absence
of research services revenue this year compared to $153,000 last year as a
result of the divestiture of our proteomic research services business in
September 2001. Slightly offsetting the decline in our proteomic
revenue were
sales of our new proteomic software. In February 2002, we obtained an
exclusive license to develop, distribute and support the bioinformatic software
line of ProteoMetrics, LLC. We granted licenses to several sites to use this
software in the first quarter of 2002. The balance of our total revenue for
the first quarter of 2002, approximately $228,000, was derived from field
service maintenance and sales of our discontinued legacy products for analyzing
one dimensional separations of DNA and proteins. Revenue in this area
decreased from $399,000 for the same period in 2001.

Cost of revenue

Cost of revenue increased $972,000, or 40%, to $3.4 million in the first
quarter of 2002 from $2.4 million in the first quarter of 2001. The increase
in cost of revenue is primarily attributable to the 52% increase in revenue
described above. Gross profit as a percentage of total revenue increased 4.5%,
to 49.1% in the first quarter of 2002 compared with 44.6% in the first quarter
of 2001. The increase in gross profit percentage was due to several factors
including record revenue performance in Japan, where we traditionally enjoy
our highest percentage gross margin sales; cost savings as a result of
completing our 2001 restructuring plan, which included consolidating facilities and
reduction in personnel; revenue from sales of proteomic analysis software
exclusively licensed from ProteoMetrics, LLC; and, finally, a greater percentage of
our overall revenue being attributable to direct sales rather than through distributors.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $158,000, or 5%, to $3.5
million in the first quarter of 2002 from $3.4 million in the first quarter of
2001. Of this increase, approximately $205,000 was due to amortization of
intangible assets related to the acquisition of Cartesian Technologies,
slightly offset by $73,000 in goodwill amortization expense charged last year.
Goodwill amortization is no longer being expensed in 2002 as a result of the
new Statement of Financial Accounting Standards (SFAS) No. 142 Goodwill and Other
Intangible Assets.

Research and development expenses

Research and development expenses decreased $556,000, or 28%, to $1.4 million
in the first quarter of 2002 compared to $2.0 million in the first quarter of
2001. Of this decrease, approximately $176,000 was due to a decrease in our
usage of development materials, approximately $141,000 was due to a decrease in
salaries and other employee related costs as a result of employing an average
of 40 research and development personnel during the first quarter of 2002
compared to an average of 44 in the first quarter of 2001, approximately
$111,000 was due to a decrease in amortization expense related to capitalized
license fees for which we took an impairment charge in December 2001 and
approximately $60,000 was due to a decrease in depreciation expense related to
equipment sold or disposed of as part of our

13



---



##### Table of Contents



September 2001 restructuring plan. The remaining approximately $68,000 was
attributable to decreased office expenses associated with the reduction in
personnel and our restructuring activities.

Interest expense

Interest expense decreased $48,000 in the first quarter of 2002 to $14,000 from
$62,000 in the first quarter of 2001. This decrease was primarily due to the
repayment of long-term debt related to our capital fixed asset leased lines of
credit in September 2001.

Interest income

Interest income decreased $466,000 to $57,000 in the first quarter of 2002 from
$523,000 in the first quarter of 2001. This decrease is due to lower average
cash and cash equivalent balances in 2002.

Other income

Other income, net of other expense, increased $21,000 to net income of $40,000
in the first quarter of 2002 from net income of approximately $19,000 in the
first quarter of 2001. This increase is primarily due to a $23,000 gain on
sale of assets in the first quarter of 2002.

Benefit from income taxes

We incurred net operating losses in the three months ended March 31, 2002 and
2001, and consequently, we did not pay any federal income taxes. At December
31, 2001, we have available net operating loss carryforwards of approximately
$42.9 million, which can be utilized to offset future taxable income. These net
operating loss carryforwards expire between 2010 and 2021. 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.

Recent accounting pronouncements

SFAS No. 141, Business Combinations and SFAS No. 142 Goodwill and Other
Intangible Assets, were recently approved by the Financial
Accounting Standards Board (FASB). 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

14



---



##### Table of Contents



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 our Condensed Consolidated Balance
Sheets was $9.7 million at March 31, 2002 and $9.6 million at
December 31, 2001. We adopted the statement on January 1, 2002 and are
currently assessing the effect of the new standard related to the impairment testing of
goodwill and other intangible assets.

The effect of adopting SFAS No. 142 was to reduce operating expenses by
approximately $319,000 for the three months ended March 31, 2002 and will be to
reduce operating expenses by approximately $1.3 million for the year.

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

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 supercedes SFAS No. 121, although it
retains the fundamental principles of how to measure the impairment of assets
held for use and assets to be disposed of by sale. It requires that long-lived
assets to be disposed of other than by sale be considered held and used until
disposed of. It also provides new guidance for using a probability-weighted
approach for measuring future cash flows when there are alternative courses of
action. This statement is effective for financial statements issued for years
beginning after December 15, 2001. We adopted the statement on January 1, 2002
and are currently assessing the effect of the new standard related to the
impairment testing of long-lived assets.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2002 our cash and cash equivalents totaled $7.2 million compared
to $13.1 million at December 31, 2001. As detailed below, the $5.9 million
decrease in cash and cash equivalents is principally due to $5.6 million net
cash used in operating activities during the three months ended March 31, 2002,
a $125,000 license fee payment for an exclusive license with Proteometrics, LLC
and $123,000 in fixed asset additions.

We believe our existing cash and cash equivalents will be sufficient to fund
our operating expenses, debt obligations and capital requirements for at least
the next twelve months. Our primary sources of liquidity include our cash
balances and our future operating cash flows. Managements goal is to achieve
positive operating cash flows sometime during 2002. Our ability to achieve
this goal depends upon several factors including the following: (i) the cost

15



---



##### Table of Contents



savings from our restructuring initiatives put in place in late 2001; (ii) our
success in expanding our direct sales force and building our distributor base
to supplement PerkinElmers sales efforts; (iii) our ability to efficiently
manage our working capital; and (iv) achieving our anticipated growth in
revenue derived not only from the sales of the Companys genomic and proteomic
product offerings but also from sales of our high throughput screening and
dispensing instrumentation acquired in December 2001 with the acquisition of
Cartesian Technologies, Inc. and sales of our protein analysis software subject
to our exclusive license with Proteometrics, LLC.

Our expected revenue growth is dependent on many factors beyond our control,
including factors discussed in the risk factors section of our latest annual
report on Form 10-K. We may not realize our revenue growth, we may become
profitable at a different time or we may never become profitable. Given the
recent economic downturn, customers may delay or rethink large capital
equipment purchases and budgets, making forecasting more difficult. Even if we
do achieve profitability, we may not sustain or increase profitability on a
quarterly or annual basis. These and other factors, some of which are beyond
our control, will determine when we will need funds and how much we will need.
We may need funds sooner than currently anticipated. 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 for
unanticipated 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.

Cash used in operating activities, which includes changes in working capital
during the three months ended March 31, 2002, was $5.6 million compared with
$3.5 million for the same period in 2001. Cash used in operations during the
first three months of 2002 consisted primarily of our net loss of $1.6 million,
which included a non-cash charge of $612,000 for depreciation and amortization
expense and a non-cash gain of $23,000 for gain on sale of assets. The use of
cash in operating activities in the first three months of 2002 was also due to
an increase of $2.1 million in accounts receivable due to the $2.3 million
increase in revenue for the quarter ended March 31, 2002 as compared with the
quarter ended December 31, 2001. The majority of revenue is shipped at the
end of each quarter. The use of cash in the first quarter of 2002 was
also due to an increase of $800,000 in inventory, consisting
primarily of increases in raw material and finished goods stock of
our genomic, proteomic and high throughput screening instrumentation. The use of cash in operating
activities was also due to a $1.9 million decrease in accounts payable and
accrued liabilities. The decrease in accounts payable was due to the payment
of approximately $887,000 in professional fees associated with the acquisition
of Cartesian Technologies and with bringing Cartesian Technologies vendor
balances current. The decrease in accrued liabilities was principally due to
severance and retention bonus payments made in connection with our
restructuring plan initiated in September 2001, and with the payment of the
Companys matching contribution to the Genomic Solutions 401k plan. Cash used
in operating activities in the first three months of 2002 was partially offset
by a $178,000 decrease in prepaid expenses and other current assets. By
comparison, for the three months ended March 31, 2001 cash used in operations
totaled $3.5 million primarily due to our net loss of $3.0 million which
included a non-cash charge of $572,000 for depreciation and amortization
expense. The use of cash in operating activities in the first three months of

16



---



##### Table of Contents



2001 was also due to an increase of $1.2 million in inventories, and a decrease
of $1.5 million in accounts payable and accrued liabilities. The use of cash
was partially offset by a $1.4 million decrease in accounts receivable and a
$222,000 decrease in prepaid expenses and other current assets.

Depreciation and amortization expense for the three months ended March 31, 2002
was $612,000 and includes $205,000 in amortization expense of intangible assets
capitalized from the acquisition of Cartesian Technologies in December 2001.
Amortization expense was offset by approximately $73,000 in goodwill
amortization expense charged last year that is no longer being expensed in 2002
as a result of the new Statement of Financial Accounting Standards No. 142
Goodwill and Other Intangible Assets.

Our investing activities for the three months ended March 31, 2002 used cash of
$280,000 compared with $2.7 million for the same period in 2001. Cash used in
investing activities in 2002 was attributable to a $125,000 license fee payment for an
exclusive license with Proteometrics, LLC, $123,000 in fixed asset additions
and $94,000 for other long term assets, partially offset by receiving $62,000
in cash from the sale of property and equipment. By comparison, for the three
months ended March 31, 2001 cash used in investing activities was attributable
to $2.3 million in license fee payments for certain genomic technologies and
$453,000 in fixed asset expenditures primarily for laboratory equipment,
partially offset by receiving approximately $19,000 in cash from the sale of
property and equipment.

Our financing activities for the three months ended March 31, 2002 used cash of
$10,000 compared to $183,000 for the same period in 2001. Cash used in
financing activities in 2002 was primarily due to the repayment of long-term debt of
$16,000 and due to other financing activities of $2,000. Cash used in
financing activities was partially offset by the receipt of $8,000 in proceeds
from the sale of our common stock upon the exercise of vested stock options by
our employees. By comparison, for the three months ended March 31, 2001 cash
used in financing activities was due to the repayment of long-term debt of
$189,000 and to other financing activities of $2,000. The cash used in
financing activities in 2001 was partially offset by the receipt of $8,000 in proceeds
from the sale of our common stock upon the exercise of vested stock options by
our employees.

In June 2001, we amended our primary bank line-of-credit agreement to provide
for borrowings up to $2.5 million through June 2002. As of March 31, 2002,
there were outstanding borrowings of $2.5 million under this line of credit.
The Company from time to time draws on this line of credit to fund its short
term working capital needs. Management believes it has the ability to renew
and expand this line of credit and has the working capital capacity to support
the current borrowing level.

Working capital decreased $1.5 million to $14.3 million at March 31, 2002 from
$15.8 million at December 31, 2001. The decrease in working capital is
primarily due to a $5.9 million decrease in cash. Also contributing to the
decline in working capital is a decrease of $167,000 in prepaid expenses and
other current assets. The decrease in working capital was partially offset by
a $2.0 million increase in accounts receivable, a $641,000 increase in
inventory, and a $1.9 million decrease in accounts payable and accrued
liabilities.

17



---



##### Table of Contents






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.

18



---



##### Table of Contents









PART II. OTHER INFORMATION

ITEM 1.   LEGAL
PROCEEDINGS.

In December 2001, we filed suit against Photonic Sensor Systems, Inc., a
Georgia corporation, in the federal district court for the Eastern District of
Michigan alleging three counts of breach of contract in connection with a
certain License and Development Agreement entered into with Photonic and
seeking monetary relief in the amount of the Companys original preferred stock
investment of $500,000. Pursuant to the License and Development Agreement,
Photonic Sensors was obligated to develop and create optical interferometer
based chips and related instrumentation for genomic and proteomic research. The
Companys claims against Photonic Sensors arise from Photonics failure to
perform its obligations under the License and Development Agreement. In January
2002, Photonic filed a counter-claim requesting monetary relief against the
Company alleging breach of contract, indemnification and tortious interference
based on the alleged failure of the Company to purchase stock upon the
achievement of certain milestones. The Company filed its answer denying the
allegations in the counter-claim in early February 2002. Management believes
that the counter-claim is without merit and intends to defend it vigorously.

On March 21, 2002, we received a letter from Photonic requesting permission to
sell certain of its assets, including computer equipment, and noting that
Photonic had found it necessary to cease operations and close its offices. The
Company has a liquidation preference with respect to any distribution to
shareholders of Photonics assets. The Company has not been able to obtain
any financial information from Photonic or otherwise verify the value, if any,
of the Companys interest in Photonic. If Photonic does not raise capital to
reopen its operations, the Company may lose the value of its investment in
Photonics preferred stock and in the License and Development Agreement.

From time to time, we are involved in routine legal matters that arise in the
ordinary course of our business. We currently are not a party to any such
matters that we believe will have, individually or in the aggregate, a material
adverse effect on our business, financial condition, or results of operations.

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, 2001.




ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS.

Use of Proceeds

On May 10, 2000 we completed an initial public offering of 7,000,000 shares of
callable common stock at $8.00 per share. The managing underwriters in the
offering were UBS Warburg LLC, Lehman Brothers and Dain Rauscher Wessels. The
shares of callable common stock sold in the offering were registered under the
Securities Act of 1933 on a Registration Statement on Form S-1 (Registration
No. 333-30246) that was declared effective by the Securities and Exchange
Commission on May 4, 2000. The purchase price to the

19



---



##### Table of Contents



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 March 31, 2002, approximately $9.8 million
has been used to payoff long-term and other debt, approximately $5.5 million to
repurchase our stock from PerkinElmer, Inc., approximately $3.6 million to
purchase equipment and improve leaseholds, approximately $3.6 million for
capitalized license fees, approximately $2.5 million to acquire Cartesian
Technologies, Inc., approximately $500,000 for equity investment in a third
party and approximately $26.6 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.

Not applicable.




ITEM 5.   OTHER INFORMATION.

Not applicable.

20



---



##### Table of Contents






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.

ExhibitNumber
        
        DescriptionNone


(b)  Reports on Form 8-K

No reports on Form 8-K were filed during the three months ended March 31,
2002.

21



---



##### Table of Contents



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: May 15, 2002
        
        By:
        
        /s/ Steven J. RichvalskySTEVEN J. RICHVALSKY
Chief Financial Officer, Executive
Vice President and
Treasurer (principal financial and
accounting officer)


22